Strengthening Depositor Protection in Vietnam
The State Bank of Vietnam (SBV) has recently revised the Law on Deposit Insurance, aiming to bolster the protection of depositors by granting more authority to the Deposit Insurance of Vietnam (DIV). This amendment responds to the need for improvements in the current framework, identified by regulators, to enhance the effectiveness of deposit insurance policies and support the stability of the nation’s credit institutions.
Expanding Investment Opportunities
A major aspect of the amendment involves broadening the investment options available to the DIV. At present, the DIV’s investments are confined to government bonds, SBV bills, or deposits at the central bank. The proposed changes would allow the DIV to spearhead the acquisition of long-term bonds issued by credit institutions undergoing compulsory transfers. This strategic shift aims to mitigate the financial challenges the agency faces due to declining yields, as nearly 99% of its temporarily idle capital is currently tied up in government bonds, significantly affecting investment returns.
Enhancing Financial Resilience
The profitability of the DIV has seen a dramatic decline, from 9.41% in 2013 to a mere 3.82% in 2023, which hampers its capacity to build the necessary financial reserves for depositor protection. To address this, the SBV’s proposal includes giving the DIV a more substantial role in determining deposit insurance limits for people’s credit funds and other financial institutions.
Managing Investment Risks
The amendments also introduce new guidelines for managing investment risks, assigning the government the responsibility of defining specific criteria for investment portfolios, structures, and methodologies. These changes are designed to strengthen the agency’s financial safety net as Vietnam’s banking sector continues to evolve and integrate into the global financial markets.
