Deposit insurance a study of vietnamese households knowledge and perception

LIST OF ABBREVIATES DI: Deposit Insurance DIS: Deposit Insurance system DIV: Deposit Insurance of Vietnam FDIC: Federal Deposit Insurance Corporation MDIC: Malaysia deposit Insurance Cor

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY

TRẦN THỊ HỢP

DEPOSIT INSURANCE: A STUDY

OF VIETNAMESE HOUSEHOLD’S KNOWLEDGE AND PERCEPTION

MASTER THESIS

Ho Chi Minh City – 2012

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY

oOo

-TRẦN THỊ HỢP

DEPOSIT INSURANCE: A STUDY

OF VIETNAMESE HOUSEHOLD’S KNOWLEDGE AND PERCEPTION

MAJOR: FINANCE-BANKING MAJOR CODE: 60.31.12

MASTER THESIS

SUPERVISOR: Assoc Prof, Ph.D TRẦN HUY HOÀNG

Ho Chi Minh City – 2012

ACKNOWLEDGE

This dissertation would not have been able complete without the support of

many people Firstly, I wish to express my deep gratitude to my supervisor, Assoc Prof, Ph.D Tran Huy Hoang for his valuable guidance and advice

I would like to express my deepest gratitude to all instructors at Faculty of Finance and Banking, University of Economics Ho Chi Minh City (UEH) for their valuable knowledge during my study in UEH

Special thanks to Dr Vo Xuan Vinh for his useful advice for choosing a suitable thesis’s research problem, and Master Nguyen Thanh Trung for his enthusiastic support for this study

My thanks and appreciations go to all my classmates, especially Ms Pham Thi Xuan Lien and Ms Nguyen Hong Vinh for their comments in English editing

I also wish to thank my friends in Techcombank, Citibank, BIDV, Maritime Bank, Agribank, my colleagues and interviewers for their great supports My thanks

would also go to the households that agreed to participate in the survey

Finally, I would like to express heartfeltand deepest gratitude to my beloved parents, my husband and my son who are encouragement for me to overcome all difficulties through the duration of my study

ABSTRACT

During the global financial crisis, many countries sought to reassure depositors that their savings in financial institutions were safe If depositors feel unsure about the safety of their deposits, there is a great probability that they will withdraw their funds when they know insured institution encounter the unsound problems If bank runs become widespread, it can affect the overall economy Therefore, public must be well informed about the benefits and limitations of deposit insurance to build and maintain confidence in the financial system In addition, a well-designed public awareness program is essential in order to prevent a bank run

The objective of this study to investigates the knowledge about existing deposit insurance organization in Vietnam and its basic features among a sample of households A study of 326 respondents was conducted in Ho Chi Minh City and two nearby provinces Statistics and logistic regression techniques were applied to test hypotheses and analyze factors impacting on the public awareness of deposit insurance The result of the paper shows that knowledge of deposit insurance is not widespread in Vietnam: about 60 percent of the households in the sample are completely unaware of its existence, 30 percent possess the basic knowledge, and only 10 percent give detailed information The findings highlight the significant determinants of deposit insurance awareness that are internet, education, and bank

Keywords: Deposit insurance of Vietnam, deposit insurance, public awareness

CONTENTS

ACKNOWLEDGE i

ABSTRACT ii

CONTENTS iii

LIST OF TABLES vi

LIST OF CHARTS vii

LIST OF ABBREVIATES viii

CHAPTER 1: INTRODUCTION 1

1.1 Introduction 1

1.2 Research background 1

1.3 Research objective 3

1.4 Research questions 3

1.5 Methodology 4

1.6 Scope and limitation 4

1.7 Structure of the study 5

CHAPTER 2: LITERATURE REVIEW 6

2.1 Introduction 6

2.2 Overview of Deposit insurance 6

2.2.1 The Concept of Deposit Insurance 6

2.2.2 Objectives and role of deposit insurance 7

2.2.3 Deposit insurance: the facts 8

2.2.4 Case of Deposit insurance in Vietnam 9

2.3 Related literature 11

2.3.1 Deposit insurance and public awareness 11

2.3.2 Other efforts to investigate the public awareness 12

2.4 Developing of empirical research hypothesis 14

CHAPTER 3: METHODOLOGY 18

3.1 Introduction 18

3.2 Research design 18

3.3 Pilot test 20

3.4 Main study 21

3.4.1 Target audience selection 21

3.4.2 Sample size 22

3.4.3 Survey method 22

3.5 Data analysis techniques 23

3.5.1 Descriptive statistics 23

3.5.2 Multivariate analysis 23

CHAPTER 4: DATA ANALYSIS AND FINDINGS 25

4.1 Introduction 25

4.2 Description of collected sample 25

4.2.1 Final sample 25

4.2.2 Characteristic of sample 26

4.3 Results and discussions 27

4.3.1 Knowledge about the Vietnam DIS 27

4.3.2 Find out determinants of awareness 32

4.3.3 The negative answers 36

4.3.4 Different level of knowledge 40

4.3.5 A multivariate analysis 41

4.3.6 Review the findings of the study 45

CHAPTER 5: IMPLICATIONS AND CONCLUSION 46

5.1 Introduction 46

5.2 Implications of the research 46

5.3 Limitations of the research and further research 49

5.4 Conclusion 50

5.4.1 Summary of hypotheses 50

5.4.2 Final conclusion 51

APPENDIX 1 - Questionnaire 53

APPENDIX 2 - List of financial experts and depositors 59

APPENDIX 3 - Descriptive Statistics of variables 60

REFERENCES 67

LIST OF TABLES

Table 1.1 Outline of Chapter 1 1

Table 1.2 Structure of the study 5

Table 2.1 Outline of Chapter 2 6

Table 2.2 The research question and all hypotheses 16

Table 3.1 Outline of Chapter 3 18

Table 4.1 Outline of Chapter 4 25

Table 4.2 Knowledge about Vietnam deposit insurance 28

Table 4.3 In case of bank failure, are your deposits protected in Vietnam 34

Table 4.4 Omnibus Tests of Model Coefficients 42

Table 4.5 Model Summary 42

Table 4.6 Classification Table 43

Table 4.7 Variables in the Equation 43

Table 5.1 Outline of Chapter 5 46

Table 5.2 Summary of hypotheses 50

LIST OF CHARTS

Chart 2.1 Numbers deposit insurance in the world to March 2011 9

Chart 2.2 The factors influence on the awareness 17

Chart 3.1 Research process 19

Chart 4.1 Description of collected sample 26

Chart 4.2 Gender of respondents 26

Chart 4.3 Age group of respondents 27

Chart 4.4 An international comparison 29

Chart 4.5 Isolating the “noes” from the “don’t knows”: age 36

Chart 4.6 Isolating the “noes” from the “don’t knows”: Education 37

Chart 4.7 Isolating the “noes” from the “don’t knows”: Residence 38

Chart 4.8 Isolating the “noes” from the “don’t knows”: Risk aversion 39

Chart 4.9 Isolating the “noes” from the “don’t knows”: amount of deposit 39

LIST OF ABBREVIATES

DI: Deposit Insurance

DIS: Deposit Insurance system

DIV: Deposit Insurance of Vietnam

FDIC: Federal Deposit Insurance Corporation

MDIC: Malaysia deposit Insurance Corporation

CDIC: Canada Deposit Insurance Corporation

IADI: International Associate Deposit insurance

DICJ: Deposit Insurance Corporation of Japan

FSF: Financial Stability Forum

BIDV: Bank for Investment and development

Agribank: Viet Nam Bank for Agriculture and Rural Development Techcombank: Technological and Commercial Joint Stock Bank

CHAPTER 1: INTRODUCTION

1.1 Introduction

This chapter represents general introduction for the current study by drawing

a general picture of the following chapter Research background, research objective and questions are provided as a rationale for this study Methodology, scope and limitations of the study are also addressed in the next sections The last section of this chapter introduces the structure of the study The outline of this chapter is shown in Table 1.1

Table 1.1 Outline of chapter 1

1.2 Research background

The stability of financial system is a key factor of a strong economy and contributes to economic growth and development An effective deposit insurance system is one of pillars of a safe and sound financial system and public confidence

in the system Public awareness of deposit insurance - its existence, and how it works - plays an important role for the activity of deposit insurance So public information and awareness often are overlooked in deposit insurance system design

Many countries set up deposit insurance systems have broadly publicized the terms and conditions of deposit insurance coverage to ensure that depositors are aware of the existence of the system and to limit the likelihood of bank runs in case of the bank failures It is important to ensure that depositors are aware of coverage limitations in terms of amount and types of accounts covered in order to avoid presumption that all deposit and other financial products are protected (FDIC – Public awareness)

Some significant researches have directed toward examining the public knowledge of deposit insurance Among those substantial research in countries that have the longer experience of deposit insurance, it can be listed out some outstanding findings such as Inakura et al (2005) in the Japan case, and Laure Bartiloro (2008) in the Italy case Inakura et al (2005) find that Japanese is more aware of deposit insurance system Their results show that households with higher income and educational attainment tend to be more knowledge of deposit insurance system While Laure Bartiloro (2008) reports that Italian knowledge of deposit insurance is poor The research attempted to determine the factors that affect the awareness of deposit insurance as internet, income, and education

Although Vietnam adopted the deposit insurance scheme later than many other developed countries but it has been a remarkable growth With six regional branches were set up, deposit insurance of Vietnam has made an active contribution

to sustainable development of the banking system in Vietnam The Vietnamese economy and banking sector still face numerous difficulties After the recent financial and debt crisis, there are many banks in the world collapsed This has made to revive the controversy on deposit insurance and its effectiveness

Most of the previous researches on public awareness of deposit insurance focus on investigate the awareness of public and less attention to looking for the determinants positive influence to the awareness According to the author knowledge, very few studies address the issue of public awareness of deposit insurance in Vietnamese context This motivates the present study to test whether

Vietnamese public have more widespread awareness of deposit insurance of Vietnam This study attempts to examine the public knowledge of deposit insurance and relationship between the selected variables and the perception

1.3 Research objective

As noted above, for a deposit insurance system to be effective, it is necessary that the public be well informed about the benefits and limitation of deposit insurance system The recent financial crisis force policy-marker reviewing the deposit insurance activity and changing its policy to enhance the depositors’ confidence to banking sector and ensure the safety of financial system

This study aims to investigate the level of public awareness of deposit insurance in Vietnam Simultaneously, it is also searching the determinants that appear to play a large role to the awareness of deposit insurance

This research brings various practical meanings for the policy marker and deposit insurer, insured institution, depositors as well as other researchers who want

to study the public awareness of deposit insurance as follows:

Firstly, the results of this research support the evidence for policy marker

and deposit insurer, insured institution fulfill the suitable policy to maintain or enhance the public knowledge and confidence to banking system

Secondly, the findings help the depositors know the level of security of their

deposit In addition, they will make the right decisions to deposit or withdraw their money to avoid the case of lack of the awareness that can lead to bank runs

Finally, the research is able to be a reference for researchers, lectures and

students in finance and banking

1.4 Research questions

As above discussed, this study addresses the following questions:

Q1: How is the awareness of Vietnamese public about deposit insurance?

Q2: What are the determinants that play a large role to the awareness of deposit insurance?

As depositors cannot control the bank’s activities, their deposits protected by deposit insurance system (DIS) Besides protecting depositors, the DIS also aims at preventing panic in the banking system If depositors believe that their deposits are safe, they could not make a wave of withdrawal of money that lead to collapse of a bank Moreover, if the depositors know about the existing of deposit insurance, they feel secure about their deposits

The study uses two different research questions to approach the issue is that the awareness of deposit insurance

1.6 Scope and limitation

The problem of public awareness in this thesis applied in deposit insurance field in Vietnam The first limitation of this study is in sampling Samples were selected by the convenience method Therefore, it shows a low representation and generalization is not high A further research with larger scope of whole country and many group target audiences is necessary to examine exactly the level of public awareness of deposit insurance Secondly, determinants of awareness are referenced

by the previous study It is essential to find out the other factors may have

influenced the public awareness Lastly, the scarcity of comparable papers of public awareness and the issues of dimensionality, convergent, and discriminates validity are one of limitations of the thesis

1.7 Structure of the study

The structure of this study follows conventional method that divides into chapters Our thesis is structured into 5 chapter Chapter 1 provides a general introduction of the study Chapter 2 gives a brief summary of deposit insurance and the public awareness Simultaneously, this chapter also discusses some related literatures focusing on public awareness and hypothesis development Methodology

is presented in Chapter 3 Chapter 4 describes sampling, presents the findings of the research Finally, Chapter 5 discusses implications, contributions and limitations of our study and draws the conclusions

Table 1.2 shows the structure of the study

CHAPTER 2: LITERATURE REVIEW

2.1 Introduction

The previous chapter introduces an overview of the study background, the research objective, research questions, methodology and scope and limitation of this study This chapter provides the necessary theoretical background of deposit insurance, its objective and role also the establishment of deposit insurance of Vietnam In this chapter, we also review the literature related to public awareness of deposit insurance The objective of this review is to propose a research model of public awareness to generate hypotheses that will be tested in the Deposit insurance

of Vietnam to answer the research questions and to confirm the research model The outline of chapter 2 is shown in table 2.1

Table 2.1 Outline of chapter 2

2 2 Overview of Deposit insurance

2.2.1 The Concept of Deposit Insurance

Deposit insurance

Deposit insurance is one of the mechanisms employed by governments to contribute to ensure the stability and soundness of banking system as well as to protect small depositors from losses due to bank failure (Safakli and Gueyay (2007))

Maximum coverage

Most deposit insurance schemes are designed to protect only the less sophisticated depositors and to limit the insurer’s exposure; there is usually an upper limit on the capital certain promise

2.2.2 Objectives and role of deposit insurance

Objectives of deposit insurance

Deposit insurance considered as a mechanism of a nation’s financial safety net that contribute the stability of credit institutions and ensure the safety and soundness in credit institution operation by protecting the benefit of depositors (N.T.K.Oanh & Michael Oborn (2006))

Choi (2000) identifies the following main objectives of deposit of insurance: i) To protect individual depositors mainly small depositor who are less sophisticated or those who find it hard to assess the financial conditions

of banks and their government;

ii) To contribute to the maintenance of financial system stability and make the financial operations more efficient by preventing bank failures;

iii).To increase a competitive and fair market of credit institutions that differ widely in size and development level in order to the reinforce the renovation of banking operations;

iv).To clarify the responsibilities and rights of both depositors and credit institutions;

v) To build public confidence in the deposit insurance and banking system; and

vi).To minimize the burden on taxpayer in the case of bank failures

The role of deposit insurance

The crucial role of deposit insurance is to support a suitable combination of objectives that improve the quality of banking operations, maximize the attraction

of temporarily un-used funds from community and encourage the active participate

of the community through the principle of mutual benefit Therefore, favorable conditions for steady economic development can be creating In short, the role of the deposit insurance toward a nation can indirectly expressed through its intermediary role in the nation’s financial system, which can summarized in the four aspects :

i) Contributing to strengthening public confidence in national banking system;

ii) Promoting saving mobilization for investment and sustainable development;

iii) Create favorable conditions for the development of national banking system;

iv) Contribute to prompt resolution of insolvent financial institution and financial crisis

2.2.3 Deposit insurance: the facts

Deposit insurance (DI) was the first mentioned in the first decades of the twentieth century and marked by the birth of Federal Deposit Insurance Corporation (FDIC) – the world’s first organization of this kind – in the U.S in 1933 The FDIC

is an official organization set up by the US Federal government, and was created in response to the failure of many banks during the Great Depression in the early 1930s (Rose, 2002:42; Gonenc, 2004:13 cited in Safakli and Guryay (2007))

It is notable that after FDIC commenced operations on 1 January 1934, other countries followed very slowly with nine schemes being created in the years 1961-

1969, taking to ten with FDIC During the 1970s, more seven schemes were created around the world Towards the end of the 1970s and most of the 1980s, a number of countries, mostly European, established their own systems The majority of existing schemes were set up in the last quarter of previous century, bringing the total to 71

in 1999 (Safakli and Guryay 2007) By the end of 2003 there were 87 countries offering explicit deposit guarantees ( Demirguc-Kunt, Kan and Laeven 2006)

Explicit deposit insurance has spread rapidly in recent years, as of 31 March

2011, 111 countries have instituted some form of explicit deposit insurance and another countries are considering

Chart 2.1 shows numbers deposit insurance system established in the world

2.2.4 Case of Deposit insurance in Vietnam

From 1986 on, the economic reform started a new period of development of Vietnam The banking system changed from a centrally planned and subsidized mechanism to independent accounting mechanism Number of commercial banks, rural people’s credit funds and urban people’s credit funds increased fast but many

of them went bankrupt in the years 1989-1990 and 1995-1997 Especially, the public’s trust for financial and banking system seriously affected The Asia financial crisis in 1997 forced the Vietnamese banking system to carry out an overall reform to improve its performance, competitiveness and public image The systemic failure of credit corporative and the Asian financial crisis show that any

risk requires measures to prevent and handle it (Economic development review – July 2008)

The more the banking system integrates into the world economy, the riskier

it becomes The preventing measures are necessary The DI scheme is one of financial institutions that provide such measures to limit losses and prevent the systemic failure of banking system To attain this purpose and support banking system develop stably, ensure safety and stabilize the national financial sector, the government issued Decree No 89 on Sep 1st 1999 on deposit insurance and Decision

218 of Prime Minister on Nov 9th 1999 to establish Deposit insurance of Vietnam (DIV)

DIV is a tool for implementing the DI policy It is a government agency with non-profit objectives Its appearance is an important event because it was the first time the banking system had an institution specializing in protecting legitimate interests and rights of depositors, maintaining stability and sound of the banking institutions DIV has gradually affirmed its role in the economic reform, restructuring of the banking system It is worth noting that in the years 1994-1996, Bảo Việt Corporation carried out the DI in a pilot scheme but it did not produce intended results

DIV are governed by Decision of government and membership is mandatory for all banks and People credit fund operating in the country Initially, the deposit protection scheme undertook to reimburse depositors up to a maximum amount of VND 30 billions per depositor Following Decree No 109 of Government on 19thSeptember 2005, the maximum coverage has now been increased VND 50 millions per depositor who has account at insured institution Deposits insured are those in VND deposited at the insured institutions by individuals, households, cooperative teams, private enterprises and limited partnerships companies, except some principal case according to regulation in Decree No 109 of Government The insured deposit is the domestic currency Deposits in foreign currencies are not insured

The funding of DIV comprises the following: initial funding allocated by Government were VND 1,000 billion divided into batches with the final installments on May 21,2003 and insurance premiums paid by insured institutions

The objectives of the Vietnam DIS as stated in Decision No 218 of Prime Minister is “to protect the legitimate right and interests of depositors, making contribution to stabilization of insured institutions and a sound and safe development of banking system” Moreover, DIS also fulfils its mandate is to reimburse to the depositors in the event of bank failure, off-site supervisory and on-site examination all banks and People credit funds in the country However, on-site examination has also given limitation and focus to test premium collected at depository institutions Deposit insurance of Viet Nam institution operates under specific regulations and is not governed by the law on financial institutions and the law on insurance

2.3 Related literature

2.3.1 Deposit insurance and public awareness

A moderate amount of research related to public awareness of deposit insurance such as the study group on Deposit insurance of the Financial Stability Forum (FSF) and International Associate Deposit insurance (IADI) affirmed the role of public awareness for designing and developing the deposit insurance

The Study Group on Deposit insurance of the Financial Stability Forum (FSF) identified key attributes of an effective deposit insurance system In addition, public awareness is mentioned as key factor in their research “The public should be informed of the key elements of the deposit insurance system to instill confidence (Garcia, 2000: 7-12)” Their study provides that public awareness is particular important for newly established deposit insurance systems Many countries with established system have widely publicized the terms and conditions of DI coverage

to ensure depositors awareness to limit the probability of bank run in the case of a bank failure It is also important to make sure that depositors are knowledge of coverage limitations regarding amounts and accounts types to avoid the

presumption that all deposits- or other financial products –a protected (Financial Stability Form, 2001: 7-8)

According to IADI core principle in 2009, public awareness is an important factor often overlooked in deposit insurance system design In order for a deposit insurance system to be effective, it is essential that the public must be informed about the benefits and limitation of the scheme Moreover, its characteristics should

be publicized regularly to maintain and strengthen public confidence

The Federal deposit insurance Corporation (FDIC) paper found that a public

– awareness program designed aim to attain several objectives Firstly, a

well-designed program can convey information to improve understanding of the concept

of deposit insurance and the main features of a country’s deposit insurance system

In this regard, the public should be educated about what deposit insurance can and

cannot accomplish Secondly, an effective public – awareness program also help to restore and promote confidence in the financial system Thirdly, a public awareness

program can help to provide vital information to depositors when insured

institutions collapse Lastly, a well-designed public awareness program carries

benefits for officials and staff of the deposit insurer

2.3.2 Other efforts to investigate the public awareness

The empirical studies related to this research mainly focus to investigate the knowledge of depositors about deposit insurance Not too many researches examine the public knowledge of deposit insurance in the world Steiger et al (2001) and Kissinger (2003) are the first cases to execute two waves of a survey on deposit insurance awareness in US in 2001 and in 2003 They conducted a survey among households According to Steiger et al (2001) and Kissinger (2003), a larger percentage of households know about the existence of deposit insurance People aged 18 to 25 and have education less than a high school diploma was less likely to have heard of deposit insurance However, their studies do not consider directly the determinants of awareness

Other comparable results can be found in Inakura et al (2005) for Japan and Safakli and Gueyay (2007) for the Republic of Turkey The main result of Inakura

et al (2005) is that awareness is good in Japan However, Inakura et al (2005) aslo examine the determinants of households’ knowledge The result shows that households with higher level of income, more financial assets and educational attainment tend to be more knowledge of deposit insurance system Safakli and Gueyay (2007) study depositor’s knowledge in the Turkish Republic of Northern Cyprus, where a new deposit insurance system was set up in 2004 Their results show that depositors and bank staff do not have adequate knowledge about deposit insurance system

Concerning knowledge about deposit insurance, Laure Bartiloro (2008) found that Italian knowledge of deposit insurance is poor The results highlight the determinants of deposit insurance awareness as internet, income, and education Moreover, men seem to be well informed than women Another study can be found

in Straeter et al (2008) in Germany The result of Straeter et al (2008) study is that there is a lack of knowledge about deposit insurance, the subjects are better informed tend to be older and more risk averse

We have two exceptions cases that are in Canada and in Malaysia Canada Deposit insurance Corporation (CDIC) and Malaysia deposit insurance Corporation (MDIC) periodically tests the awareness among depositors Nevertheless, analyses

of the results are not provided in a written study

After reviewing some comparable studies in this field, it can be realized that many works and respects are done so far on this subject However, to the author knowledge, there are very few researches about the awareness of deposit insurance

in developing countries, especially in Vietnam The evidence of public awareness of deposit insurance in Vietnam is lack in the literature This is the impulse for the researcher to effort investigation the public awareness of deposit insurance in Vietnam

2.4 Developing of empirical research hypothesis

Based on the empirical findings from the previous studies cited section 2.3, this research gives the following hypothesis:

H1: Vietnamese public are well informed about the existence of the Deposit insurance and main features of Deposit insurance of Vietnam (DIV)

Laure Bartiloro (2008) shows that people use internet, have higher level of income and education attainment are knowledge about deposit insurance In addition, men seem to be better informed than women Thomas L.Harnisch (2010) also finds that women tend to have lower levels of financial literacy than men

Bowen (2002) shows that older people are knowledgeable about most financial fields

Lusardi and Mitchell (2011) report that people living in urban areas in Russia tend to more financially literate than those living in rural areas In addition, financial literacy is also higher among those who are working, and in some countries among the self-employed, compared to those who do not work

Thus, we hypothesis:

H2a: People who are man tend to be better informed about deposit insurance H2b: People who are older tend to be better informed about deposit insurance

H2c: People who live in the inner city tend to be better informed about deposit insurance

H2d: People who attain the high education tend to be better informed about deposit insurance

H2e: People who are working or self-employed tend to be better informed about deposit insurance

H2f: People who have high income tend to be better informed about deposit insurance

Van Rooj et al (2007) find that individuals who possess inadequate financial literacy are less likely to hold stocks and are more risk averse We hypothesis:

H2g: People who are less risk aversion tend to be better informed about deposit insurance

Inkuraa et al (2005) indicates that households with more financial assets tend to be more knowledgeable with regard to the deposit insurance scheme Concerning the financial assets we hypothesis:

H2h: People that have a larger amount of deposits tend to be better informed about deposit insurance

Additionally, we want to know whether depositors revise bank’s information for choosing a bank for their deposit Empirical studies that focus on factors of bank choice show that the safety of bank is an important aspect for bank clients (Jagelavicience et al 2006) Hence, we hypothesis:

H2i: People choose a bank to deposit The safety of bank influences the awareness of deposit insurance1

H2k: People that use internet tend to be better informed about deposit insurance

Laure Bartiloro (2008) discusses on descriptive statistics that number of household component shows poor results for respondents living alone Moreover, people have high financial literacy tend to better informed about deposit insurance

Last hypotheses we address:

H2l: The awareness rises when the number of households’ component increases

H2m: People that have high financial literacy tend to be better informed

about deposit insurance

1

The safety of bank addresses to the possessive form of bank (state-owned bank and commercial joint-stock bank)

Table 2.2 shows research questions and all hypotheses as follows:

Q1 How is the awareness of Vietnam public about deposit insurance?

H1: Vietnamese public are well informed about the existence of the Deposit insurance and main features of DIV

Q2 What are the determinants that play a largest role to the awareness of deposit insurance?

H2a: People who are man tend to be better be better informed

about deposit insurance H2b: People who are older tend to be better be better informed

about deposit insurance H2c: People who live in the inner city tend to be better be better

informed about deposit insurance H2d: People who attain the high education tend to be better

informed about deposit insurance H2e: People who are working or self-employed tend to be better

informed about deposit insurance H2f: People who have high income tend to be better informed

about deposit insurance H2g: People who are less risk aversion tend to be better informed

about deposit insurance H2h: People that have a larger amount of deposits tend to be better

informed about deposit insurance H2i: When people choose a bank to deposit, the safety of bank

influences the awareness of deposit insurance

H2k: People that use internet tend to be better informed about

deposit insurance H2l: The awareness rises when the number of households’

component increases

H2m: People that have high financial literacy tend to be better

informed about deposit insurance

Chart 2.2 shows the factors influencing the public awareness

CHAPTER 3: METHODOLOGY

3.1 Introduction

This previous chapter provides the literature review for the research This chapter introduces research methodology The purpose of this chapter is to describe and outline the methodology used to test hypotheses developed in chapter 2 A pilot study is used to refine and create the final questionnaire for the main study The statistical techniques employed to analyze the data and testing the research hypotheses The chapter outline is shown in table

Table 3.1 Outline of chapter 3

Data for this study was collected using a survey technique This technique

“provides a quick, efficient and accurate means of assessing information on a population, especially in the case of a lack of secondary data” (Zikmund, 1997)

To examine the public knowledge of deposit insurance, the current study employs a descriptive statistic method This method was chosen to describe the public awareness toward deposit insurance Logistic regression analysis is used to examine the impact of the factors on the public awareness of deposit insurance

The research process of this study is shown in chart 3 1

Chart 3.1 Research process

Logistic regression -SPSS Testing hypothesis 2

Aggregate and statistics Testing hypothesis 1

The first draft of questionnaire

3.3 Pilot study

The purpose of pilot study was to refine and eliminate the flaws in the first draft questionnaires to help respondents to avoid problem in answering question and

to increase the quality of data recorded for the main survey It is notable that most

of the questions used in this study have been used, developed and empirically tested

in developed countries This test would be utilized in order to modify the questionnaire to suit the context of developing countries, especially in Vietnam The original questionnaire of this study was initially designed in English The first step

in the study is to translate this questionnaire into Vietnamese The first draft of questionnaire was developed in English Vietnamese bilingual Some amendments have been made

Next, a first group discussion were conducted with the participation of five bank experts including five branch managers in Ho Chi Minh city (three male and two female) from different banks were invited The purpose of this step is to test the clarity the instrument and to be sure that all survey questions were clear in meaning and sufficient to cover the research matter in reality, from the perspective of deposit insurance and banking Some amendments were made after suggestions from financial experts

The result of a group discussion shows that the first question, the item Q1:

“Is your money safe if your bank goes bankrupt?” was changed into “In the case of

a bank failures are your deposits protected in Vietnam?” Similarly, Q5: “What is the limit?” was changed into “which is the maximum amount of deposits guaranteed by deposit insurance of Vietnam?” The question related to financial literacy “calculate changes in purchasing power” was changed to “”Suppose you had VND 100 million

in a saving account and the interest rate is 10% per year After 2 years, how much

do you think you would have in the account if you left the money to grow?” Another change regarding the financial question: “Which of the following types of mortgage do you think would allow you from the very start to fix the maximum amount and number of installments to be paid before the debt are extinguished?”

was changed into “If interest rates, what will typically happen to bond prices? The independent variable used in previous study as “percentile of household income” was changed “how much is your or the household monthly income?” In Vietnam, the study of households’ income and wealth is not prevalent So the independent variable as “percentile of household wealth” eliminated

Another questions related to bank as “You choice to deposit your money in small banks or in large bank” was changed to “You choice to deposit your money in stated banks or commercial bank” In addition, other variable “Your deposit is held

in a bank or at the Post office” was deleted

The last step, an amended version of questionnaire is used to interview ten depositors at Bank for Investment and Development – No 2 transaction center - Ho Chi Minh branch The result shows that ten depositors able to understand and answer the question So there was no adjusted in this case The final version of questionnaire is written in English-Vietnamese bilingual (Appendix 1) List of finance experts and depositors are cited in Appendix 2

3.4 Main study

3.4.1 Target audience selection

Guidance paper “Public awareness of deposit insurance systems” of IADI

2009 states that the principal target audience for a public awareness campaign should be depositors and the general public This audience might include different age groups, such as retirees and students However, one of the most important audiences is the staff of depository institutions, especially operations and front-line staff

This study has chosen the popular audiences that similar to the previous study The target audiences are subjected to the following selection criteria:

1 The survey was conducted only to people who declared they had a bank account

2 People are interviewed only to people who declared they earn higher income in their family or manage financial in their family

Participants are asked to give responses to set of questions in order to serve our research In addition, respondents have to give information about demographic variable, other variable related to education, working, income, financial literacy

To examine the knowledge about deposit insurance, we chose some basic questions about deposit insurance of Vietnam to ask participants An approach is quite similar to study of Laure Bartiloro (2008) and Straeter et al (2008) Five questions about knowledge of deposit insurance includes four being in the format of Yes/No or don’t know, one being in multiple-choice form

3.4.2 Sample size

According to Donald & Pamela (2003), a good sample should satisfy both accuracy and precision The sample size is determined by the level of precision and confidence desired in estimating the population parameters, as well as the variability in the population itself (Canava et al 2001) Some researchers suggested that the minimum sample size should be from 100 to 150 responses if using the Maximum Likelihood (ML) method Some others suggested the minimum sample size should be at least five observations per estimates

The sample size intended of this study was from 300 upwards This sample was too less and unable comparison with the other previous study However, it was higher the minimum sample size suggested (over 25 times of observed variables)

of survey methods such as face-to-face interview, telephone interview, and mail survey or on-line survey Among these methods, the face-to-face survey yields higher response rates and allows researchers to use physical stimuli to facilitate the interview (Zikmund 1997)

This study used two survey methods that are face-to-face interview and line survey in order to conduct the research However, only one in seven respondents is collected by on-line survey in order to obtain the desired sample size

on-This study conducted formal research with sampling method is convenience sampling The survey was conducted between November 30 and December 31,

2011 with the participation of 400 household Prior to start interviewing, participants were advised that their participation was voluntary Of course, the interviewers must be pledged to secrecy their information Most of participants showed their interests in this research problem

3.5 Data analysis techniques

3.5.1 Descriptive statistics

After data collection was completed, descriptive statistics were initially conducted to provide an overview of the sample Firstly, we implement a descriptive statistics analysis by using primary data in order classifying and examine the level of public awareness of deposit insurance in Vietnam by the percentage analysis Subsequently, logistic regression analysis was applied to test second hypothesis

3.5.2 Multivariate analysis

This study performs a multivariate analysis by running logistic regression A basic different between binary logistic regression and normal linear regressions is that the dependent variable is binary A normal linear regression requires the dependent variable in the quantitative form, while qualitative and classified data only is as independent variable included in the form of dummy variables (binary variables)

As noted above, binary logistic regression is a form of regression that is used when the dependent is a dichotomy and the independents are of any type This provides a relationship the impact of multiple independent variables against the dependent variable

The form of the logistic regression equation is:

Where:

Logit[p(x)] is the log odds of the dependent variable = ln(odds(event));

a is the constant of the equation;

b terms are the logistic regression coefficient, also called parameter regression and there are k independent (x) variable

In which:

x1 is gender variable (gender);

x2 is age variable (age);

x3 is areas variable (areas);

x4 is education variable (education);

x5 is working status variable (working);

x6 is income;

x7 is Risk aversion (risk);

x8 is age amount of deposits (deposit);

x9 is possessive form of the bank (bank);

x10 is use of internet (internet);

x11 is number of household component (people);

x12 is high financial literacy (Finance2)

CHAPTER 4: DATA ANALYSIS AND FINDINGS

4.1 Introduction

This chapter presents the results of the main study The following section describes the description of collected samples The next section we state the results and give some discussion

Table 4.1 Outline of chapter 4

4.2 Description of collected samples

4.2.1 Final sample

The main survey was conducted by interviewing face-to-face with supporting

of six trained interviewers Sample size is determined at least 300 through the statistical probability calculations To attain this figure, the questionnaire generated

400 (corresponding to an estimated respondents rate 75 percent) To lighten the burden of interview the questionnaire are designed via online survey to random subset of the sample Methods of data collection are to apply the questionnaire to households through two main tools: Internet (50 electronic copies at: https://docs.google.com and face-to-face interview is 350 copies)

We removed 74 questionnaires with a substantive proportion of missing value (the missing rate was 18.5 percent), and these valid responses 326 were accepted

Chart 4.1 shows the description of collected samples

22 28 50

304 46

Internet Face - to - face

Source: Build from collected data

Chart 4.3 shows Age group of respondents

28%

23%

21%

28%

30 and under 31-44 45-59 60 over

Source: Build from collected data The respondents belonged to various occupations and regard to educational

qualification with 239 respondents has upper secondary and university degree 4.3 Results and discussions

4.3.1 Knowledge about Deposit insurance of Vietnam

In latest year (2008-2011), the global economic and debt crisis had affected most of the nations around the world We witnessed currency devaluation, systemic bank failures and erosion of depositors’ confidence The world is bearing the aftermath of the crisis Therefore, the deposit insurance institutions in the world have shown a pivotal role in managing the financial crisis by protecting the depositors and contributing safety and stability of the domestic and global finance markets Some countries in America, Europe and Asia proclaimed the raise of deposit insurance coverage or temporary blanket guarantee policy in order to enhance public confidence in financial system and to prevent bank run such as: by making full coverage of all deposit (Italy, October 8, 2008) or increasing the standard maximum coverage from $ 100,000 to $ 250,000 ( FDIC, October 14, 2008)

For Vietnam, the Government conclusively deployed a series of measures to curb the inflation rate to stabilize market and to prevent economic recession In this

period, the Vietnam’s banking sector witnessed the flexibility in monetary policies ranging from tightening for inflation restrain to gradually loosening for economic growth support The end of 2011, the central bank implemented banking restructuring to merge and integrate three weak banks: Tin Nghia, Ficombank and Saigon Commercial bank Contrary to all predictions, the depositors keep calm with new about bank merge and had not a chaos on the market

On May 2011, the deposit insurance law Vietnam officially submitted and debated on parliament and this new law attracted many people interested and found out At the same time, the deposit insurance of Vietnam also launched the contest to learn about deposit insurance and the operation of deposit insurance with the objective to enhance public understanding of deposit insurance It was expected that after this events there would be widely knowledge of deposit insurance, or at least

of its existence Hypothesis 1 predicts those Vietnamese households are well informed about the main features of the Vietnam DIS The results are summarized

in Table 4.2

Table 4.2: Knowledge about Vietnam deposit insurance

Source: Build from collected data

1 Regarding your or the household’s current

or savings account, in case of a bank failure,

do you think that there are exists a deposit

insurance scheme refund your money?

2 (If yes to 1) Is there maximum coverage

on the amount of the current or savings

account?

3 (If yes to 2) Which is the maximum

amount of deposit guaranteed by deposit

insurance of Vietnam?

VND 50

The finding of study is contrast with hypothesis that is Vietnamese households lacks a solid comprehensive of deposit insurance also the existence of its As it is observed in Table 4.2 shows that a rather low ratio of households about

40 percent are awareness of the existences of deposit insurance A higher proportion

of households are unable to answer this question, while a lower percentage (16 per cent) think that there is no coverage for their deposits

Chart 4.4 shows an international comparison

Source: MDIC annual report (2010) and Laure Bartiloro (2008)

By international comparison with selected countries shows that knowledge and perception of deposit insurance is not widespread in Vietnam The IADI states that current level of public awareness around the world is not high (IADI 2009) However, all conducted surveys in other countries have significant differences in sample selection In general, data for other countries shows that awareness of deposit insurance relative widespread, with exception: four countries have lower percentage as Malaysia (17.6%), Italy (29%), Vietnam (40%), and Germany (42%)

Concerning knowledge about DI, Inakura et al (2005) test the determinants

of household’s knowledge The authors conducted a financial behaviors survey in

An international comparison (Percentage of correct answer)