Vietnam mulls ending insurance cover for dollar deposits

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A draft law plans to restrict deposit insurance to local currency deposits only, sparking concerns of a mass withdrawal of dollars from banks.

According to the National Assembly's Economic Committee, it's necessary to stop providing insurance cover for foreign currency deposits to support the government's policies in forex market management.

Some legislators, however, argue that all depositors should be protected.

Tran Hoang Ngan of Ho Chi Minh City said he used to be an advocate of the plan to restrict insurance to dong deposits, as this would help reduce the use and hoarding of dollars in the country.

But now, he feels it's too soon to take such action considering the lack of confidence in the local currency and the large amount of dollar deposits in the banking system.

He said without insurance, many depositors would likely withdraw their money, adding that dollar deposits in banks totaled some $10 billion at times.

At least in the next five years, there will be a demand to deposit dollars into banks, so dollar deposits should continue to be covered by insurance, Ngan said.

Pham Quang Nghi, another member of the legislature, said if the new rule is put into practice, many people may just keep their dollar holdings at home and this large capital source will not do anything good for the economy.

State-run Deposit Insurance of Vietnam, also known as DVI, is the agency responsible for protecting depositors in the country. 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.

Ngan said at the end of last year DVI had collected a total premium of VND6.9 trillion from credit institutions. The amount is not large enough to protect depositors should a bank go bankrupt, he said.

It's necessary to review the premium that banks have to pay, he said. "Banks can't just enjoy high profits now, then pass all the losses on to the state and the public when they fall," he added.

Ngan also said the VND50 million cap, which has remained unchanged since 2005, needs to be increased by three or four times.

Other legislators said the cap should be lifted altogether because it's not fair to apply a single insurance claim limit to all depositors.

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