Protecting the rights of depositors at commercial banks according to Vietnamese law

The relevant organizations must anticipate risks, propose solutions and strictly comply with those solutions. Currently, the law provides many regulations on risk prevention for depositors by specifying the obligations of commercial banks to customers, safety guarantee ratios and risk prevention measures in the operations of commercial banks. Because the operations of commercial banks must be safe and effective, the interests of depositors are guaranteed. These regulations are scattered in different legal documents, so the author focuses on the following main contents:

Firstly , on the one hand, commercial banks must publicize services and preferential policies for depositors, and on the other hand, must protect and keep confidential information about customers.

Regulations on this issue, according to Article 10 of the Law on Credit Institutions 2010, commercial banks must be responsible for publicly announcing their participation in the organization of deposit preservation and insurance at their headquarters and branches. Publicly announce deposit interest rates, service fees, rights and obligations of customers for each type of product and service being provided. Announce official transaction hours and must not arbitrarily stop transactions at the announced time. In case of stopping transactions during official transaction hours, commercial banks must post at the transaction location at least 24 hours before the time of stopping transactions. Commercial banks are not allowed to stop transactions for more than 01 working day, except for the case specified in Point e, Clause 1, Article 29 of this Law. Commercial banks provide information to account holders about transactions and balances on the account holders' accounts according to the agreement with the account holders.

The nature of the commercial bank receiving deposits from depositors is a contract for borrowing assets. Thus, all terms of the contract must be made public. In this contractual relationship, the commercial bank can grasp and control its own interests, but the depositor cannot do so. The interests of the depositor are controlled by the commercial bank. Therefore, to properly implement the regulations

In accordance with the law on contract conclusion and protection of depositors' rights, commercial banks must publicize the types of services and incentives for depositors in each type of service.

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The purpose of depositors in commercial banks is very diverse, some people want to deposit for safety, to earn profits, some people want to open accounts for payment... To satisfy these purposes of depositors, commercial banks have tried to provide many types of services: savings deposit services, banks linking with other businesses such as supermarkets to open payment card accounts, international payment services... However, the service that most depositors choose is to deposit savings to earn interest. It can be affirmed that many people in Vietnam today, especially the elderly, depend on their monthly savings deposits at banks for their living expenses. To ensure the rights and satisfy this need of depositors, commercial banks offer a variety of types of savings deposits: non-term, term (term of 1 month, 2 months, 3 months...). Normally, the longer the term, the higher the interest rate. Depending on the purpose and needs, the depositor chooses the appropriate service.

To protect the depositors’ right to information, all of the above services of commercial banks are made public through many forms (recorded in the bank’s model contract, publicly posted at the bank’s transaction counter, etc.). Thereby, depositors clearly know their rights and obligations when entering into a contract with a commercial bank.

Due to competitive pressure, commercial banks, in addition to providing the above services, also provide many other related services. For example, many commercial banks now provide additional services such as sending SMS messages to notify customers of their accounts via mobile phones (mainly card accounts). When regularly updated,

By entering such information, the depositor will be able to control the amount of money in his current account.

Ensuring the safety of depositors is also ensuring the safety of the money that customers deposit in commercial banks and that information about customers themselves must be protected and kept confidential. Article 10 of the Law on Credit Institutions 2010 stipulates: Commercial banks refuse to investigate, freeze, detain, or transfer customer deposits, except in cases where there is a request from a competent state agency as prescribed by law or with the customer's consent. Article 14 of the Law on Credit Institutions 2010 also stipulates that commercial banks must ensure the confidentiality of information related to accounts, deposits, deposited assets, and transactions of customers at commercial banks, and must not provide information related to accounts, deposits, deposited assets, and transactions of customers at commercial banks to other organizations or individuals, except in cases where there is a request from a competent state agency as prescribed by law or with the customer's consent. Therefore, commercial banks do not have the right to disclose that amount to any entity unless requested by a competent State agency. The request of a State agency must be based on a legally valid decision, the freezing of the depositor's assets in a commercial bank serves the purpose of investigating and obtaining evidence for a specific case or case. When deciding to freeze the depositor's assets in a commercial bank, the competent State agency must provide evidence proving that the amount is related to the case or case that needs to be clarified.

In addition, safety is also demonstrated in the repayment of both principal and interest to depositors when the contract expires. This is also the obligation of commercial banks when implementing deposit contracts according to the provisions of law.

Second, commercial banks must properly and fully comply with regulations on safety ratios and risk prevention during operations.

To ensure customer deposits, commercial banks must comply with regulations on safety ratios in their operations. Specifically, in Circular 13/2010/TT - NHNN regulating safety ratios in the operations of credit institutions, credit institutions in general and commercial banks in particular must ensure regulations on (1) minimum capital safety ratio, according to which commercial banks must maintain a minimum capital safety ratio of 9% between equity capital and total "With" risk assets of credit institutions (individual capital safety ratio). Consolidated financial statements must be made in accordance with the provisions of law, in addition to maintaining the individual capital safety ratio prescribed above, they must simultaneously maintain a minimum capital safety ratio of 9% on the basis of consolidating capital and assets of credit institutions and affiliated companies (consolidated capital safety ratio).

(2) Credit limit, commercial banks must base on the provisions of the above Circular, internal regulations on credit quality management to develop and promulgate regulations on criteria for determining a customer and related customer groups, credit policies for customers and credit limits applicable to a customer and related customer groups. (3) Payment capacity ratio, at the end of each day, commercial banks must determine and have measures to ensure payment capacity ratios for the following day as follows: minimum ratio of 15% between total "Available" assets for immediate payment and total Liabilities. (4) Capital contribution and share purchase limit, the level of capital contribution and share purchase of a commercial bank in an enterprise, investment fund, investment project, or other commercial bank must not exceed 11% of the charter capital of that enterprise, investment fund, investment project, or commercial bank, except in the case of capital contribution and share purchase to establish a subsidiary company in accordance with the provisions of law. (5) Credit ratio compared to mobilized capital, commercial banks are only allowed to use mobilized capital to provide credit on the condition that before and after providing credit, the payment capacity ratio and other safety ratios prescribed in this Circular are ensured and must not exceed 80%.

In addition , commercial banks must also establish risk reserves and handle them .

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According to current regulations of the State Bank, for each mobilized amount, for example 10 VND, commercial banks must set aside 3% for compulsory reserves, 10% for liquidity reserves. In addition, when starting to lend, commercial banks must also set aside 0.75% for general reserves (for losses that have not been determined during the debt classification process). The heaviest reserve provision when corresponding to the risk level of each debt, the bank must set up increasing reserves. Specifically, group 1 debt (full debt)

standard) no provision required; group 2 debt (debt requiring attention) 5%; group 3 (below

standard) 20%; group 4 (doubtful) 50%; group 5 (at risk of losing capital)

100 % . This greatly affects the profit .

profit

the Bank , so ,

How to set aside and how to set aside without greatly affecting profit plans is a difficult problem for commercial banks.

Circular No. 02/2013/TT-NHNN dated January 21, 2013 of the Governor of the State Bank regulating the classification of assets, the level of provision, the method of setting up risk provisions and the use of provisions to handle risks in the operations of credit institutions and foreign bank branches in this Circular clearly states : Risk provisions are the amount set aside and accounted for in operating expenses to prepare for risks.

reserves for possible losses on debts of credit institutions and foreign bank branches. Risk reserves include specific reserves and general reserves. Risk reserves include: Specific reserves and General reserves. Specific reserves are the amount set aside to reserve for possible losses on each specific debt. General reserves are the amount set aside to reserve for possible losses that have not yet been determined when setting aside.

Specific provisioning. Specific provisioning ratios for debt groups are as follows: Group 1 (Standard debt): 0%; Group 2 (Debt requiring attention): 5%; Group 3 (Substandard debt): 20%; Group 4 (Doubtful debt): 50%; Group 5 (Potentially bad debt): 100%.

In the first half of 2014, in most of the financial statements of commercial banks , provisioning significantly affected their achieved profits. Some small - scale commercial banks had positive profits such as Tien Phong Bank .

Phong (263 billion VND, reaching 60% of the annual profit plan); Orient Commercial Bank's pre-tax profit was 128 billion VND, reaching 73% of the plan for the first 6 months of the year... the rest mostly had a decrease in profit or less than 50% of the annual plan. ACB's accumulated profit in the first 6 months of this year only reached more than 730 billion VND, while in the same period last year it reached over 945 billion VND. DongA Bank's profit in the past 6 months was only half of the same period in 2013. Bank for Investment and Development of Vietnam (BIDV) had a pre-tax profit of 2,418 billion VND in the first 6 months, equal to 41% of the annual plan. National Citizen Bank is one of the units with rather gloomy business results in the first 6 months when the profit earned was less than 4 billion VND, only equal to 4% of the annual plan (96 billion VND).

Thus, according to the statistics of the first 6 months of the year, the unit with the highest profit only reached 51-52% of the yearly plan, the rest mostly only achieved 25-27% of the yearly plan, or even lower. [17].

The main reason may come from the large risk provisioning that has had a certain impact on the profit rate of banks. Typically, ACB, in the second quarter of 2014, this bank had to set aside more than 354 billion VND in credit risk provisions, while in the same period last year it was only nearly 57 billion VND. Looking at this issue, an economic expert who is a member of the National Monetary and Financial Policy Advisory Council analyzed that the provisioning is increasing, meaning that ensuring safety for banks is greater than the profit pressure from

Shareholders, the State's management of risk provisions is also becoming tighter. It can be seen that the problem of profit is a common difficulty of the entire banking industry. Weak aggregate demand, increasing business inventories make banks not dare to lend for fear of increasing bad debt ratio. If full provisions are made, banks will likely not have profits as announced. As

fin

can see the person

that with current trends and methods, credit is difficult

reach the target of 12%. Therefore, the profits of banks this year are also difficult to reach the target. There are many "tricks" for commercial banks to reduce the amount of provisions to complete the annual profit target. The profits of thousands of billions of VND can immediately turn into losses if they fully make provisions for bad debts. Obviously, with the current provisioning mechanism of the State Bank, just need to account for the reduction of bad debts (from group 3 to group 5), especially group 5, the provisioning amount for a commercial bank will be much lower than the actual amount.

Profit is the leading reason why commercial banks calculate and consider whether to make the correct and sufficient annual risk provisions. Commercial banks are always under pressure in business, forcing them to hide debts that should have been made fair risk provisions. Firstly, the board of directors of commercial banks has committed to shareholders on profit growth. If it fails to achieve this, in addition to the decline in stock prices, their reputation will be reduced, leading to the risk of "losing their seats". Secondly, commercial banks often look at each other in announcing profits. Thirdly, announcing profits is also related to the reputation and brand of a bank in capital mobilization.

Thus, to make a profit, when balancing, commercial banks often have 2

plan to practice

porch

, one is to have a bad debt settlement so that the bad debt has a reasonable ratio (under

5%), two is not setting aside provisions or not setting aside enough to reduce costs, ensuring enough income to pay salaries. Faced with the pressing situation of debt ratio

bad debt, annual risk provisioning is not correct and sufficient, the State Bank needs to issue a new circular regulating the classification and provisioning of risk provisions in banking activities . If approved, the bad debt ratio and provisions required to be set up by commercial banks will be more accurate and comprehensive. In short, whether we like it or not, transparency and disclosure of bad debt as well as the identity of

The policy of restructuring weak commercial banks is the right one to improve the health of the commercial banking system, prevent re-inflation and stop the economic downturn. [17]. Thereby contributing to the best protection for depositors at commercial banks.

Third , commercial banks are required to participate in deposit insurance.

According to Clause 1, Article 4 of the Law on Deposit Insurance 2012 : "Deposit insurance is a guarantee to repay deposits to insured persons within the insurance payment limit when the organization participating in deposit insurance becomes unable to repay deposits to depositors or goes bankrupt".

Deposit insurance appears as an objective requirement of the economy, as a basis for strengthening the trust of depositors in credit institutions in general and commercial banks in particular. Currently, deposit insurance is the most important tool to protect the interests of depositors. The biggest purpose of deposit insurance is to protect the interests of depositors, which is reflected in its name: protecting the interests of consumers of financial and banking services. Depositors in commercial banks are the ones who lend money to banks, in case the bank goes bankrupt or loses the ability to pay those loans, the depositors must bear the risk. Thus, the risks of depositors are basically beyond their control and they are unable to protect themselves. Therefore, to protect the interests of depositors and ensure the safety of the national financial system, there needs to be an organization that provides deposit insurance for them. The biggest feature of deposit insurance is that the beneficiary (depositor) is not the insured person but the commercial bank and other credit institutions. Therefore, deposit insurance becomes a form of

Protecting the rights of depositors at commercial banks according to Vietnamese law - 6

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