According to the International Association of Deposit Insurance Association's General Guidelines for Early Detection and Early Intervention (IADI, 2013), early detection and timely intervention of weak banks are critical to the effective and stable functioning of the deposit insurance system. This is an important function of agencies in the financial safety net to maintain the safety and soundness of the financial system.
Early detection of weak or troubled banks helps the deposit insurance organization to prepare carefully, quickly accumulate and allocate financial and human resources as well as resources in a reasonable manner to effectively settle the deposit, or arrange the transfer of the deposit as part of the acquisition and takeover if necessary.
At the same time, timely intervention at an early stage can reduce the likelihood of having to deal with banks, contribute to maintaining system stability and public confidence, better-protecting depositors and minimize losses to the deposit insurance fund.
In Vietnam, the State Bank (SBV) is the body that supervises banks and decides to apply measures to handle weak banks. Vietnam Deposit Insurance implements:
(i) Monitoring and inspecting the observance of the legal provisions on deposit insurance; recommending the State Bank to handle violations of the law on deposit insurance;
(ii) Synthesize, analyze and process information about the deposit insurance participating organization to detect and recommend the State Bank to promptly handle violations of regulations on the safety of banking operations, risks causing unsafety in the banking system;
(iii) Participating in the special control process for the deposit insurance participating organization, as prescribed by the State Bank.
As such, the State Bank is primarily responsible for early detection and timely intervention of weak credit institutions. The Deposit Insurance Corporation supports the SBV in early detection and timely intervention of weak credit institutions, through remote monitoring, on-site inspection, and participation in special control.
However, the roles and duties of members of the Supervisory Board, especially staff of the Deposit Insurance Corporation, have not been specified. That partly affects the effectiveness of the implementation of the tasks of the Deposit Insurance Corporation.
According to the provisions of the Law on Deposit Insurance, the Vietnam Deposit Insurance Corporation is required to provide information about insured deposits from participating institutions. For other reporting information in service of the performance of functions and duties of the deposit insurer, such as financial statements, indicators, and statistical reports… of organizations participating in the deposit insurance, the deposit insurance of Vietnam are accessed and exploited from the data warehouse of the State Bank, under the provisions of Circular No. 34/2016/TT-NHNN dated December 28, 2016, regulating the provision of information between the State Bank and the Deposit Insurance Corporation.
Also according to Circular No. 34/2016/TT-NHNN, no later than 10 working days after receiving information about the deposit insurance participating organization at risk of insolvency, The banking inspection and supervision agency sends information about the deposit insurance participating organization that is in danger of insolvency to the head office of the Deposit Insurance Corporation. However, there is no regulation on the coordination between these two agencies when detecting that the deposit insurance participating organization is in danger of insolvency.
Summary, For the Deposit Insurance of Vietnam to effectively support the State Bank in early detection and timely intervention of weak credit institutions, in the coming time, it is necessary to study and propose specific regulations on the roles and tasks of members of the Special Supervisory Board, as well as the coordination mechanism between the Deposit Insurance Corporation and the State Bank, when detecting that the deposit insurance participating organization is in danger of insolvent.
At the same time, the Deposit Insurance of Vietnam needs to continue to improve the efficiency of coordination and information provision between the Deposit Insurance of Vietnam, the SBV, and related agencies, to build an adequate data and information system to perform well the assigned tasks.
If done well, the risk supervision activities of the Deposit Insurance will create an additional and objective monitoring channel to better control risks for the participating institutions, contributing to ensuring the safety of the banking system.
Collected from source
PV