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Bank deposit guarantee may rise   2009-02-01 - VNS

A Government proposal aims to raise the threshold for guarantees on bank deposits.

The Government agency responsible for overseeing the viability of Viet Nam’s banks wants the guarantee for deposits increased from VND50 million (US$2,850) to VND200 million ($11,400).

Deposit Insurance of Viet Nam (DIV) General Director Bui Khac Son said the proposed four-fold increase was intended to prevent an economic recession and stabilise the financial system.

"We suggest the Government raise the threshold while Viet Nam continues to be negatively affected by the world financial crisis to ensure social security and stimulate the economy," he said.

"The VND50 million guarantee proved sufficient before 2008 when it protected up to 90 per cent of the depositors."

The call for the higher guarantee was made at a conference to review the agency’s work last year and preview its tasks for this year in Ha Noi earlier this month.

The consequences that have followed many of the world’s major banks becoming insolvent was high on the agenda.

The general director said the United States had avoided a run on the banks despite the continuing collapse of many.

"We have found that the sound financial policies and the timely raising of the guarantee for deposits from $100,000 to $250,000 by the US government agency responsible for insuring banks (the Federal Deposit Insurana Corporation) had done its work," he said.

The decision had been a condition for Congressional approval of the former Bush administration’s $700 billion bailout package.

Studies

DIV said it had made thorough study of the current financial market and considered four factors before making its proposal.

These were:

The prevailing economic and bank financing conditions;

Viet Nam’s per capita Gross Domestic Product;

The financial capacity of DIV; and Government policy.

The general director said DIV had not proposed a guarantee of more than VND200 million because although the State pursued a policy to benefit the people in a market economy, it must limit the use of State funds to compensate for the collapse or poor management of banks.

DIV Chairman Mai Dinh De said the crisis had sparked 365 days of fluctuations on the world financial market and many countries had fallen into recession.

A variety of measures to rescue the market, limit the losses and restore people’s confidence in the financial system had been taken.

"Viet Nam will not be immune from the spread of the crisis while integrating with the world economy," he said.

"Therefore, protecting the health of the banking system and its depositors was crucial."

People’s deposits were savings that served their future plans and protecting them was part of providing social security.

Bank for Development and Investment of Viet Nam individual and corporate credit manager Tran Hoai Nam said a higher guarantee would benefit banks and their customers because both would feel safer.

"About 30 per cent of depositors – low income earners – were conscious of the guarantee," he said.

"They would not hesitate to increase their savings with banks with the higher limit, although the amount would not increase much.

"But it’s unlikely that in the short-term the banks would increase their interest rate for deposits to mobilise more money because I think most now have enough capital," he said.

"In my opinion, the proposal is intended to protect the country’s banking and financial system in the crisis rather than encourage banks to raise more money."


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