Deposit insurance expands investment channels: More resources to protect depositors

Diversify deposit insurance portfolio

One of the amendments is to expand the investment activities of the deposit insurance organization, balancing the safety target and profitability requirements to increase resources for the reserve fund.

Delegate Nguyen Hai Nam ( Hue City) said that the deposit insurance fund currently has over 100,000 billion VND. The top priority is to ensure the safety of this fund, which is correct, but in addition, there needs to be a better management and investment mechanism.

“More than 100,000 billion VND, if deposited in banks today, is about 6-6.5%/year. Of course, safety must be the top priority, but investment efficiency is also very important, because the amount of money is very large, so the operating efficiency only increases from 2% to 3%, which is very different. Good profitability will help the Deposit Insurance of Vietnam to regenerate more resources to better serve depositors,” Mr. Nguyen Hai Nam suggested.

According to the provisions of the Law on Deposit Insurance 2012 (Article 31), Vietnam Deposit Insurance is allowed to use temporarily idle capital to buy government bonds, State Bank of Vietnam (SBV) bills and deposit money at SBV.

However, the Draft Amendment has added a number of investment forms such as buying and selling bonds and deposit certificates issued by state-owned commercial banks and joint-stock commercial banks with over 50% of charter capital from state-owned enterprises; depositing money at state-owned commercial banks and joint-stock commercial banks with over 50% of charter capital from state-owned enterprises; and other investment activities as prescribed by the Government.

According to the explanation of the State Bank, the expansion of the investment portfolio of the Deposit Insurance of Vietnam is in accordance with the direction in Decision No. 1660/QD-TTg dated December 30, 2022 of the Prime Minister on approving the Strategy for Development of Deposit Insurance to 2025, with a vision to 2030, which sets out tasks and solutions to enhance financial capacity by allowing deposit insurance organizations to diversify their forms and investment portfolios.

Currently, in the world, the typical deposit insurance model is FDIC in the US, or CDIC in Canada. Delegate Nguyen Hai Nam said that both of these models operate according to international standards with public, transparent governance mechanisms and effective risk management. According to the Draft Law on Deposit Insurance (amended), Vietnam Deposit Insurance will switch to the model of a single-member LLC with 100% state capital. Mr. Nam affirmed that this is the right direction, but it is necessary to have more specific and clear regulations on the governance mechanism to ensure operational efficiency.

Safety remains the number one priority

Although the Draft Law on Deposit Insurance (amended) supplements a number of investment forms of deposit insurance organizations, according to the State Bank, the expansion of investment activities is carried out according to the principle of prudence; only expanding to safe investment forms with low risk levels.

Deputy Governor of the State Bank of Vietnam Doan Thai Son said that the first and also the highest principle when designing the Law on Deposit Insurance (amended) related to investment activities is to ensure safety, because the deposit insurance fund is to fulfill the obligation to pay insurance (if obligations arise) and ensure the rights of depositors. The second principle is the principle of profitability.

“Previously, we overemphasized safety when drafting the Deposit Insurance Law. However, the Draft Amendment Law has a better balance between safety and efficiency, which means it allows for the expansion of the list of investment activities as well as the investment subjects,” said Mr. Doan Thai Son.

However, the leaders of the State Bank affirmed that safety is the top principle. Therefore, the Draft Law on Deposit Insurance (amended) also adds provisions to ensure safety in the investment activities of deposit insurance organizations such as: assigning the Governor of the State Bank to regulate the investment methods of deposit insurance organizations and the process of controlling and managing risks in the investment activities of deposit insurance organizations; deposit insurance organizations decide on investment portfolio criteria, investment structure, each investment, must control and manage the risks of investments.

Along with expanding the investment portfolio of deposit insurance organizations, the Draft Law on Deposit Insurance (amended) also adds many regulations on the responsibility of deposit insurance for system safety.

Specifically, the Draft proposes to allow deposit insurance to be paid to depositors earlier, instead of having to wait until bankruptcy is declared. In addition, the deposit insurance organization is allowed to make special loans to deposit insurance participating organizations when the deposit insurance participating organizations are subject to early intervention, special control and mass withdrawals, or to implement recovery plans or compulsory transfer plans.

In case of an incident or crisis that threatens to endanger the safety of the credit institution system, the deposit insurance organization shall participate in handling the incident or crisis.

Source: https://baodautu.vn/bao-hiem-tien-gui-mo-rong-kenh-dau-tu-them-nguon-luc-bao-ve-nguoi-gui-tien-d400060.html