Lawmakers want depositor-protection law to boost banking confidence 

November 15, 2010
Legislators say a new law on deposit insurance needs to be formulated as soon as possible.

National legialslators said a new law on deposit insurance needs to be created as soon as possible to protect local depositors and increase their confidence in the banking system.

It’s necessary for Vietnam to have such a law to adjust current shortcomings in banking regulations and build public confidence, National Assembly Deputy Cao Sy Kiem was quoted by news website VietNamNet as saying on Thursday.

The Deposit Insurance of Vietnam, also known as DIV, is the only institution authorized by the government to protect depositors. If an insured financial institution collapses, DIV will pay its depositors a maximum of VND50 million each. Any exceeding amount will be paid after the fallen institution is liquidized.

Kiem said the VND50 million cap has remained unchanged since 2005 while there has been a sharp increase in incomes and prices subsequently.

“Even if the goal is to protect as many depositors as possible, the cap is too low,” said Kiem, a former central bank governor.

Deputy Tran The Vuong said the National Assembly, Vietnam’s legislature, should have issued a deposit insurance law at the end of the 1990s, when there was a financial crisis.

He said legislators need to make sure the plan to prepare a draft law next year remains on schedule.

Another representative, economist Tran Du Lich, said a deposit insurance institution is essential for the financial organization of a country, acting as a safety guard for the whole system.

Building and improving the legal status of the DIV is a must, he said.

Duong Thu Huong, chairwoman of the Vietnam Banks Association, said in other countries a law has to be issued first before a deposit insurance institution is established, but in Vietnam it’s the other way round.

The position of the DIV was not defined clearly and its role in dealing with the collapses of credit institutions does not follow international conventions, she said.

DIV has paid nearly VND20 billion to more than 1,000 depositors with collapsed credit funds across the country over the last 10 years.

Its legal capital has been raised from VND1 trillion to VND6 trillion during the period.

Experts have said this needs to be increased further so that it can really provide deposit insurance for more than 1,000 financial institutions in the country.

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