The law on deposit insurance in Vietnam

he DIV’s operation such as clarifying the legal status of the DIV, model and selection of the DI model suitable to Vietnam, the provisions of the law and implementing contents of DI subject, the insured deposit, DI fee and DI fee management, as well as inspection, supervision, payment of the DIV so as to assure the role of DIV in ensuring the safe and healthy development of banking operation. - Spatially and research time, the dissertation examines the law on DI and the implementation of the law on DI of DIV in practice. 6 Thenceforth, the study seeks to compare the law on DI of some countries around the world from 2013 to the present. 4. Methodology and research methods From the research purpose and tasks, the study approached research subject by the following research methods: 4.1. Methodology With the specific nature of the research theme for both economically and legally, the dissertation uses a multidisciplinary and interdisciplinary approach, in which, it focuses on legal aspects to highlight the legal validity of the dissertation. The dissertation also uses dialectical materialism and historical materialism of Marxist - Leninist doctrine to solve the research tasks of the dissertation. 4.2. Research methods The dissertation utilizes a combination of the following research methods: - Methods of synthesis, systematization, and analysis to clarify the theoretical and practical basis of the law on DI in Vietnam and assessing domestic and foreign scientific research works on issues related to the dissertation, as well as actual aggregated data. These methods will be used in chapter 1, chapter 2 and 3. - Comparative juridical method is used throughout the dissertation to compare the legal provisions over the times with the law of countries to find out reasonable points in the provisions of the law on DI to learn their experience of building law to complete the law on DI in Vietnam. - Methods of analysis, synthesis, statistics, etc. are used in chapters1 and chapter 4 to forecast the socio-economic development trends, thenceforth, the study provides solutions to improve the law on DI. 5. New contributions of the dissertation 7 First, the dissertation examines the theoretical issues and law related to DI such as the role of DI, it points out DI model in the world and Vietnam. The study also affirms DI position and role in the financial and banking system as well as its significance for protecting interests of depositors; assessing factors affecting DI both at home and abroad so as to give appropriate lessons for improving the law on DI in Vietnam nowadays. The dissertation seeks to examine current situation of the provision of the law on DI including the situation of participants, rights and obligations of the parties, the situation of fee payment and use of Vietnam deposit insurance organizations, as well as implementing the provisions of the deposit insurance law of the Vietnam deposit insurance organizations through their specific operation in practice. The dissertation also provides data and cases to support the author’s arguments. In addition, the dissertation also points out the limitations and shortcomings in the mechanisms, policies, provisions of the law and the law enforcement in practices so as to point out the causes of those limitations. By studying the theoretical and practical issues on DI law, the dissertation also points out the need of improving law on deposit insurance in accordance with the socio-economic development orientation in general and strategy for the development of the banking industry in particular. The dissertation then seeks to propose solutions to improve deposit insurance law, organizational structure and operation of deposit insurers and organizations participate in deposit insurance in accordance with the development trend in the new situation. 6. Theoretical and practical significance of the dissertation Theoretically: The dissertation examines systematically theoretical issues on DI and evaluates the effectiveness of the law. 8 The dissertation confirms the role of DI to the development of banking and financial system; It also points out the factors affecting the DI operation, thereby making comments and assessments on the current situation of the law on DI and pointing out causes of limitation in practice. Practically: The dissertation points out necessary requirements and basic orientations for building and perfecting the law on DI. It then proposes the most important solutions to ensure the rights and interests of entities participating in DI relations. In addition, the dissertation is also an important reference in researching and teaching legal, economic and financial sciences, and policy making DI in Vietnam. 7. Structure of the dissertation Besides the introduction, conclusion, and references, the dissertation includes 4 chapters: Chapter 1: Literature review Chapter 2: Theoretical issues on DI and the law on DI Chapter 3: Current situation of enforcing law on DI of the DIV Chapter 4: Solutions to improve the law on DI and enhance the efficiency of enforcing law on DI of the DIV Chapter 1 LITERATURE REVIEW AND THEORETICAL BASIS 1.1. Literature review 1.1.1. Research works related to DI 1.1.1.1. Research works on position, role and function of DI The International Association of Deposit Insurers (IADI) was established in 2002, this marks the interest of many countries around the world on DI and making a new motivation to promote this activity worldwide. Research works contribute to the process of building and perfecting functions and tasks of DI including “Deposite Insurance 9 around the world - A date base” by Asli Demirguc-Kunt, Baybars Karacaovali and Luc A. Laeven, 2005; “Structuring a deposit insurance system from the Asian perspective” by Jang-Bong Choi, 2000. The above research works has an intensive analysis on the necessity of DI, its role for financial and banking system of countries, as well as DI’s role and responsibility to depositors. In Vietnam, before the DI law, researchers have had many studies on DI to choose the model of DI in accordance with Vietnam circumstances such as: Documents of the National Assembly Standing Committee, Legislative Research Institute, Center for Scientific Information, 2009, International experience on effective DI organization; “Moral hazard in DI activities” by Nguyen Thi Kim Oanh, Banking Magazine No. 8/2002; “Selecting subjects participate in DI”. In addition, there are many published research works related to DI. The research results of these studies will be a valuable reference so that the author can inherit in his dissertation. 1.1.1.2. Evaluating the research situation related to the position, role and function of deposit insurance First, domestic and foreign research works have clarified relevant contents of deposit insurance. Second, issues related to DI have mentioned but not been solved in previous works, the dissertation tries to clarify. 1.1.2. Research situation related to DI and the law on DI 1.1.2.1. Research works on DI and the law on DI In recent years, countries around the world are quite interested in DI issues in research works and there are some typical works such as Perbadanan Insurans Deposit Malaysia (PIDM), Summary of the Corporate Plan 2018 – 2020; Will crashed banks' assets be liquidated 10 in new way in Russia? LPS Pays IDR36, 8 Billion in Bank Customer Claim in 2017. In Vietnam, research works on policies and law related to DI have been paid attention and as the basis for promulgating and completing the DI Law. The above studies have examined quite generally and relatively sufficient about issues related to DI and the law on DI of some countries in the world. The research results of previous works are the basis for the dissertation to refer, inherit, evaluate and continue to improve the issues related to DI in Vietnam today. 1.1.2.2. Assessing research works on DI and the law on DI - Affirming the role of DI for economy. - The policy of DI limits is an important tool to protect depositors and maintain depositors' confidence in the banking system and to demonstrate the deposit institution’s commitment to its customers; - The oversight function is an important one of the DI that must be performed regularly and continuously to detect and alert early on risks of the financial system. The deposit insurance law has created a solid legal basis to further protect the legitimate rights and interests of depositors, maintain stability, develop safe and healthy banking activities. Improving the quality of DI activities and DI organization has an important significance for the sustainable development of the banking system. The dissertation will inherit the research results of domestic and foreign research works, and it tries to focus on the following issues: (1) Clarifying the legal status of the in the banking and financial system and especially in the national financial safety net. (2) Clarifying the provisions of the law on DI in Vietnam and examining the current situation of money insurance from the practice of Vietnam deposit insurer through specific professional activities 11 such as the basis of DI relations, fee and deposit fee usage, as well as inspection and supervision. (3) Proposing some solutions to improve the Vietnamese law on DI and DI organization. 1.2. Theoretical basis, research question and hypothesis 1.2.2. Theoretical basis To conduct this dissertation, the author bases on the following theoretical bases: - Consumer protection and competition of schools - Viewpoints on business, contracts and the state’s role in the market economy. - The theory of market economy institution theory and legal theory. 1.2.2. Research question and hypothesis - General research question: How is the current situation of Vietnamese law on DI and what are advantages and disadvantages of law enforcement on DI in DI organizations? - General research hypothesis: The provisions of the law on DI have revealed certain limitations and shortcomings that need to be addressed. - Expected research results: (i) To build up a theoretical and practical basis for the development and completion of the law on DI. To determine the purpose and requirements of the development and completion of the law on DI; (ii) In the legislative field, it is necessary to quickly revise a number of provisions of the law in line with the provisions of DI: proposing solutions for the state banks and for the Government to amend relevant legal documents in order for DIV be able to further participate in the process of restructuring week CIs, raising insurance payment limits in line with actual requirements to enhance public confidence for the CIs. 12 Chapter 2 THEORETICAL ISSUES ON DEPOSIT INSURANCE AND THE LAW ON DEPOSIT INSURANCE 2.1. Theoretical issues on DI 2.1.1. Concept, characteristics, and role of DI 2.1.1.1. Concept of DI Insurance is defined as a mutual agreement between the insurer and the insured persons, thereby the insurer accepts the risks that may occur to the insured persons to pay indemnity or pay insurance premiums for the insured persons if an insurance event occurs, with condition that the insured persons must pay insurance premiums According to Clause 1, Article 4 of the Law on Deposit Insurance of 2012 “Deposit insurance is a guarantee for repayment of deposits to the insured persons of deposit within the insurance payment limit when the DI participating organizations fall into the state of inability to repay deposits to the depositors or go bankrupt”. 2.1.1.2. Characteristics of DI From the legal perspective, it can be seen that deposit insurance contains the following basic characteristics: First, deposit insurance is a form of non-commercial insurance. Second, on the nature of the deposit insurance relationship. Third, the insured persons may only be a financial institution that get public deposits by certain forms. Fourth, deposit insurance is a matter related to the interests of deposit insurance organization, the insured organization and depositors, but ultimately these interests are directly or indirectly related to the common interests of the economy and social benefits. Fifth, the subject of insurance is a very special one Sixth, deposit insurance has a specific purpose 2.1.1.3. The role of deposit insurance First, the role of deposit insurance for depositors. 13 Second, the role of deposit insurance for the deposited organization. Third, the role of deposit insurance for the economy. 2.1.2. Deposit insurance models around the world and Vietnam 2.1.2.1. Deposit insurance models around the world - Deposit insurance model of payment of premiums. - Deposit insurance model with extended powers. - Deposit insurance model minimizes risks. 2.1.2.2. Deposit insurance model in Vietnam The DIV is a state financial institution operating in the model of a one-member limited liability company with 100% of charter capital held by the State. According to the law on DI, the State Bank exercises the rights and obligations of the representative agency to the DIV. Decree No. 68/2013/ND-CP dated June 28, 2013 had the detailing and guiding regulations of enforcing the law on DI and the provisions of the law on the rights and obligations of the State owner representative to the one-member limited liability company in which, the State holds 100% of charter capital. The DIV had referred modern models based on the experience of other countries around the world and these models are suitable to the reality of Vietnam. 2.2. Theoretical issues on deposit insurance 2.2.1. Objects governed by the law on deposit insurance First, on the nature of deposit insurance relations. Second, on the subject of deposit insurance activities. Third, on the object of deposit insurance. Fourth, on the nature of the deposit insurance institution's payment to the depositors. 2.2.2. Limits and the State’s intervention principle to DI by law 2.2.2.1. Limits of the State’s intervention to DI by law It is necessary to have the state’s support through the law to have a mechanism of ensuring the legitimate rights and interests of 14 depositors when the CIs fall into bankruptcy, because the law is just able to stipulate rights and obligations for parties and have a system of sanctions to ensure the enforcement of such rights and obligations. 2.2.2.2. The State’s intervention principle to DI by law To ensure the legitimate rights and interests of the relevant parties, the State’s intervention to DI by law should be limited by some principles. 2.2.3. Structure of law on DI 2.2.3.1. Provisions on subjects participating in DI relations Deposit insurance relations shall be established by two subjects including the DI organization (deposit insurance agency) and the insured organization (credit institution). 2.2.3.2. Provisions on the type of insured deposits, DI premiums and insurance payment limits The provisions on insured deposits are defined Vietnam dong which have been consistently applied since the establishment of the DIV. In fact, this policy is consistent with Vietnam’s monetary policy. 2.2.3.3. Provisions on inspection and supervision of deposit insurance Supervision of DI organization to the insured entities will be regularly conducted through information of the insured. The content of supervision is to assess the insured participants and then make recommendation for such operation aims to comply the provisions of DI and the bank safety. 2.2.4. Factors affecting the law on DI 2.2.4.1. Political factor Based on the socio-economic development orientation of the Party and the Government as well as banks’ mission, each bank has built up and implemented appropriate credit policies, this has significant contribution to the economic structure transition. 15 2.2.4.2. Economic factor The DI always considers its position as a special financial institution of the State, it operates for non-profit purposes and its main mission is to protect the legitimate rights and interests of depositors. 2.2.4.3. Socio-cultural and customary factors The State’s DI policy is a legal basis for people to deposit their money into CIs, thereby creating conditions for CIs to perform well their function well. 2.2.4.4. Legal factor The development of the provisions of the law is one of the prerequisites to ensure that the deposit insurers operates effectively in order to fulfill the DI policy objectives and well perform its assigned functions and mission. 2.2.4.5. International integration factor Joining the International Association of Deposit Insurance (IADI) has created an opportunity for DIV to access international guidelines, research, surveys and standards, and at the same time, the DIV could learn, share, and exchange experience with advanced and experienced deposit insurance organizations in the world in general and in the region in particular. 16 Chapter 3 CURRENT SITUATION OF ENFORCING LAW ON DI OF THE DIV 3.1. Current situation of enforcing law on the entities participate in DI 3.1.1. Current situation of enforcing law of the DIV 3.1.1.1. Current situation of the provisions of the law on the position, function and role of the DIV This is stipulated in documents such as Decision No. 3090/QD- NHNN dated 31 December 2013 of the Governor of the State Bank of Vietnam; Decision No. 290/QD-BHTG dated September 19, 2016 of the DIV’s Board of Directors on revising the DIV’s branch name in Hanoi and establishing two more branches of the DIV; Decision No. 289/QD-BHTG dated May 19, 2016 of the DIV’s Board of Directors on the establishment of two more departments at the DIV’s Head Office. 3.1.1.2. Current situation of the provisions on organizational structure of the DIV Organizations participating in DI are CIs and foreign bank branches established and operated under the Law on CIs get individual deposits. Article 4 of Decree No. 68/2013/ND-CP dated June 28, 2013 of the Government. 3.1.1.3. Current situation of the provisions on the DIV’s rights and obligations Comply with Article 13 of the 2012 Law on Deposit Insurance. 3.1.2. Current situation of enforcing the law on DI of organizations participating in DI Since the implementation of the 2012 law on DI, 100% of CIs and foreign bank branches have received deposits from individuals have participated in DI. This shows that the implementation of the law on 17 DI has achieved significant achievements to ensure principle DI is a compulsory insurance under the provisions of the law on DI. 3.1.3. Current situation of enforcing the law on DI of the depositors According to Clause 2, Article 4 of the law on DI 2012, “The insured persons are individuals whose deposit is insured at the organizations participating in DI”. 3.2. Current situation of enforcing the law on DI for insured deposit, DI premiums, management and use of DI premiums 3.2.1. Current situation of enforcing the law on DI for insured deposits Insured deposits are ones to be paid to depositors when the insured organizations go bankrupt or are not able to pay deposit to depositors. 3.2.2. The provisions on DI premiums and management and use of DI premiums DI premiums are the amount of money that the organizations participating in DI must pay to the deposit insurers to insure the depositors. This is compulsory fee for the organizations participating in DI to implement the DI policy. 3.2.3. Enforcing the DI law on capital management of deposit insurers 100% of DI capital is added to the DI operation fund of the DIV. According to regulations, the use of capital of the DIV must ensure the principle of preserving and developing capital, the DIV’s temporary capital mainly focuses on buying Government bonds and making deposits at the State bank. 3.2.4. Current situation of enforcing the law on DI regarding insurance limits and deposit insurance payment procedures According to Article 24 of the 2012 Law on deposit insurance: 18 1. “The limit of premium payment is the maximal amount that the deposit insurance organization shall make payment for all insured deposits of a person at a deposit insurance participating organization upon the arising obligations of premium payment. 2. The Prime Minister stipulates the limit of premium payment at the request of the State Bank of Vietnam. 3.1.4. Current situation of the provisions on supervision, inspection, financial support, liquidation and recovery of assets of organizations participating deposit insurance The DIV’s supervisory function is specified in Clause 10, Article 13 of the law on DI is the synthesis, analysis and processing of information on the deposit insurance participating organizations in order to detect and propose the State Bank of Vietnam to promptly handle violations of safety regulations on banking operations and risks that cause the unsafety in the banking system. 3.2.5. Current situation of enforcing the DI law on supervision, inspection, financial support, liquidation and recovery of assets of organizations participating deposit insurance 3.2.5.1. Enforcing the DI law on supervision The supervisory function of the deposit insurer is specified in Clause 10, Article 13 of the 2012 Law on Deposit Insurance, which is synthesis, analysis and processing of information on the deposit insurance participating organizations in order to detect and propose the State Bank of Vietnam to promptly handle violations of safety regulations on banking operations and risks that cause the unsafety in the banking system. 3.2.5.2. Enforcing the DI law on inspection 3.3. Assessing current situation of law and the law enforcement of the DIV 3.3.1. Achievements 3.3.1.1. Regarding deposit insurance policy 19 For insured deposits and depositors For organizations participating in deposit insurance For the limit of DI payment For deposit insurance premium For state management of deposit insurance 3.3.1.2. Regarding the law enforcement on DI First, inspection and supervision activities Second, calculating and collecting DI premiums Third, capital management and investment. Fourth, propagandizing DI policy. Fifth, participating in handling problems of organizations participating in deposit insurance. Sixth, making insurance payment. 3.3.1.3. Regarding organizational structure and human resource development The DIV has restructured, built and proposed the scheme of strengthening and improving the DIV’s organizational structure under the Decision No. 527/ QD-TTg. 3.3.2. The limitations and inadequacies 3.3.2.1. Limitations and inadequacies of the deposit insurance law Profiteering deposit insurance The State policies on deposit insurance The rights and obligations of organizations participating in DI The rights and obligations of deposit insurance organization The insured deposits and non-insured deposits Deposit insurance premium Management and capital investment activities 3.3.2.2. Further shortcomings related to DI activities First, loan and handling the loan amount that is not able to recover. Second, special loans to support liquidity. 20 3.3.3. Causes of limitations and shortcomings 3.3.3.1. Objective reasons 3.3.3.2. Subjective reasons - Strategy of deposit insurance development has not yet been built and approved, there is no clear professional orientation, this leads to the determination of action plan does not go on the right track. - Human resources, especially high-quality human resources such as supervisors, analytical staffs, communication and information technology personnel are still inadequate, as well as their qualifications and experience are limited. The training and development of human resources have not been organized professionally. Chapter 4 SOLUTIONS TO IMPROVE THE LAW ON DI AND ENHANCE THE EFFICIENCY OF ENFORCING LAW ON DI OF THE DIV 4.1. Orientation of improving the law on DI Orientation of improving the law on DI should be based on the development strategy of Vietnam's banking industry until 2025, vision 2030. 4.1.1. Orientation for innovation and development of DIV (1) The monetary, banking system and operations of credit institutions are the l