Deposit insurance, a study of vietnamese households knowledge and perception , luận văn thạc sĩ

If bank runs become widespread, it can affect the overall economy.Therefore, public must be well informed about the benefits and limitations ofdeposit insurance to build and maintain con

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

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 ofFinance and Banking, University of Economics Ho Chi Minh City (UEH) for theirvaluable knowledge during my study in UEH

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

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

I also wish to thank my friends in Techcombank, Citibank, BIDV, MaritimeBank, Agribank, my colleagues and interviewers for their great supports My thankswould also go to the households that agreed to participate in the survey

Finally, I would like to express heartfelt and deepest gratitude to my beloved

parents, my husband and my son who are encouragement for me to overcome alldifficulties through the duration of my study

During the global financial crisis, many countries sought to reassuredepositors that their savings in financial institutions were safe If depositors feelunsure about the safety of their deposits, there is a great probability that they willwithdraw their funds when they know insured institution encounter the unsoundproblems If bank runs become widespread, it can affect the overall economy.Therefore, public must be well informed about the benefits and limitations ofdeposit insurance to build and maintain confidence in the financial system Inaddition, a well-designed public awareness program is essential in order to prevent abank run

The objective of this study to investigates the knowledge about existingdeposit insurance organization in Vietnam and its basic features among a sample ofhouseholds A study of 326 respondents was conducted in Ho Chi Minh City andtwo nearby provinces Statistics and logistic regression techniques were applied totest hypotheses and analyze factors impacting on the public awareness of depositinsurance The result of the paper shows that knowledge of deposit insurance is notwidespread in Vietnam: about 60 percent of the households in the sample arecompletely unaware of its existence, 30 percent possess the basic knowledge, andonly 10 percent give detailed information The findings highlight the significantdeterminants of deposit insurance awareness that are internet, education, and bank

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

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 objectiveand questions are provided as a rationale for this study Methodology, scope andlimitations of the study are also addressed in the next sections The last section ofthis chapter introduces the structure of the study The outline of this chapter isshown 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 andcontributes to economic growth and development An effective deposit insurancesystem 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 itworks - plays an important role for the activity of deposit insurance So publicinformation and awareness often are overlooked in deposit insurance system design

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

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

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

to sustainable development of the banking system in Vietnam The Vietnameseeconomy and banking sector still face numerous difficulties After the recentfinancial and debt crisis, there are many banks in the world collapsed This hasmade to revive the controversy on deposit insurance and its effectiveness

Most of the previous researches on public awareness of deposit insurancefocus on investigate the awareness of public and less attention to looking for thedeterminants positive influence to the awareness According to the authorknowledge, very few studies address the issue of public awareness of depositinsurance in Vietnamese context This motivates the present study to test whether

Vietnamese public have more widespread awareness of deposit insurance ofVietnam This study attempts to examine the public knowledge of deposit insuranceand 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 necessarythat the public be well informed about the benefits and limitation of depositinsurance system The recent financial crisis force policy-marker reviewing thedeposit 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 depositinsurance in Vietnam Simultaneously, it is also searching the determinants thatappear to play a large role to the awareness of deposit insurance

This research brings various practical meanings for the policy marker anddeposit 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 enhancethe 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 theirmoney 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 ofdeposit insurance?

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

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

1.6 Scope and limitation

The problem of public awareness in this thesis applied in deposit insurancefield in Vietnam The first limitation of this study is in sampling Samples wereselected by the convenience method Therefore, it shows a low representation andgeneralization is not high A further research with larger scope of whole country andmany group target audiences is necessary to examine exactly the level of publicawareness 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 publicawareness and the issues of dimensionality, convergent, and discriminates validityare one of limitations of the thesis.

1.7 Structure of the study

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

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

Table 1.2 shows the structure of the study

Chapter 1 Introduction

Chapter 2 Literature review

Chapter 3 Methodology

Chapter 4 Data analysis and findings

Chapter 5 Implication and conclusion

CHAPTER 2: LITERATURE REVIEW 2.1 Introduction

The previous chapter introduces an overview of the study background, theresearch objective, research questions, methodology and scope and limitation of thisstudy This chapter provides the necessary theoretical background of depositinsurance, its objective and role also the establishment of deposit insurance ofVietnam In this chapter, we also review the literature related to public awareness ofdeposit insurance The objective of this review is to propose a research model ofpublic 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 Theoutline of chapter 2 is shown in table 2.1

Table 2.1 Outline of chapter 2

2.2 Overview of deposit insurance

2.4 Developing of empirical research hypothesis

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 tocontribute to ensure the stability and soundness of banking system as well as toprotect small depositors from losses due to bank failure (Safakli and Gueyay(2007))

Maximum coverage

Most deposit insurance schemes are designed to protect only the lesssophisticated depositors and to limit the insurer’s exposure; there is usually an upperlimit 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 safetynet that contribute the stability of credit institutions and ensure the safety andsoundness 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 lesssophisticated 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 makethe financial operations more efficient by preventing bank failures;

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

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

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, favorableconditions for steady economic development can be creating In short, the role ofthe deposit insurance toward a nation can indirectly expressed through itsintermediary role in the nation’s financial system, which can summarized in the fouraspects :

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

ii) Promoting saving mobilization for investment and sustainable

2.2.3 Deposit insurance: the facts

Deposit insurance (DI) was the first mentioned in the first decades of thetwentieth 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 inresponse to the failure of many banks during the Great Depression in the early1930s (Rose, 2002:42; Gonenc, 2004:13 cited in Safakli and Guryay (2007))

It is notable that after FDIC commenced operations on 1 January 1934, othercountries 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 createdaround the world Towards the end of the 1970s and most of the 1980s, a number ofcountries, mostly European, established their own systems The majority of existingschemes 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 countriesoffering 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 andanother countries are considering

Chart 2.1 shows numbers deposit insurance system established in the world

1960 - 1969 1970- 1979 1980 - 1989 1990 - 1999 2000 - 3/2011

111

71

36 18

of them went bankrupt in the years 1989-1990 and 1995-1997 Especially, thepublic’s trust for financial and banking system seriously affected The Asia financialcrisis 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 offinancial institutions that provide such measures to limit losses and prevent thesystemic failure of banking system To attain this purpose and support bankingsystem develop stably, ensure safety and stabilize the national financial sector, thegovernment 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 withnon-profit objectives Its appearance is an important event because it was the firsttime the banking system had an institution specializing in protecting legitimateinterests and rights of depositors, maintaining stability and sound of the bankinginstitutions 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 produceintended results

DIV are governed by Decision of government and membership is mandatoryfor all banks and People credit fund operating in the country Initially, the depositprotection scheme undertook to reimburse depositors up to a maximum amount ofVND 30 billions per depositor Following Decree No 109 of Government on 19thSeptember 2005, the maximum coverage has now been increased VND 50 millionsper depositor who has account at insured institution Deposits insured are those inVND deposited at the insured institutions by individuals, households, cooperativeteams, private enterprises and limited partnerships companies, except someprincipal case according to regulation in Decree No 109 of Government Theinsured deposit is the domestic currency Deposits in foreign currencies are notinsured

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

The objectives of the Vietnam DIS as stated in Decision No 218 of PrimeMinister is “to protect the legitimate right and interests of depositors, makingcontribution to stabilization of insured institutions and a sound and safedevelopment of banking system” Moreover, DIS also fulfils its mandate is toreimburse 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-siteexamination has also given limitation and focus to test premium collected atdepository institutions Deposit insurance of Viet Nam institution operates underspecific regulations and is not governed by the law on financial institutions and thelaw on insurance

2.3 Related literature

2.3.1 Deposit insurance and public awareness

A moderate amount of research related to public awareness of depositinsurance such as the study group on Deposit insurance of the Financial StabilityForum (FSF) and International Associate Deposit insurance (IADI) affirmed therole 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 beinformed of the key elements of the deposit insurance system to instill confidence(Garcia, 2000: 7-12)” Their study provides that public awareness is particularimportant for newly established deposit insurance systems Many countries withestablished 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 abank failure It is also important to make sure that depositors are knowledge ofcoverage limitations regarding amounts and accounts types to avoid the

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

According to IADI core principle in 2009, public awareness is an importantfactor often overlooked in deposit insurance system design In order for a depositinsurance system to be effective, it is essential that the public must be informedabout 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 theknowledge of depositors about deposit insurance Not too many researches examinethe public knowledge of deposit insurance in the world Steiger et al (2001) andKissinger (2003) are the first cases to execute two waves of a survey on depositinsurance awareness in US in 2001 and in 2003 They conducted a survey amonghouseholds According to Steiger et al (2001) and Kissinger (2003), a largerpercentage of households know about the existence of deposit insurance Peopleaged 18 to 25 and have education less than a high school diploma was less likely tohave heard of deposit insurance However, their studies do not consider directly thedeterminants of awareness

Other comparable results can be found in Inakura et al (2005) for Japan andSafakli 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) asloexamine the determinants of households’ knowledge The result shows thathouseholds with higher level of income, more financial assets and educationalattainment tend to be more knowledge of deposit insurance system Safakli andGueyay (2007) study depositor’s knowledge in the Turkish Republic of NorthernCyprus, where a new deposit insurance system was set up in 2004 Their resultsshow that depositors and bank staff do not have adequate knowledge about depositinsurance system

Concerning knowledge about deposit insurance, Laure Bartiloro (2008)found that Italian knowledge of deposit insurance is poor The results highlight thedeterminants 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 thatthere is a lack of knowledge about deposit insurance, the subjects are betterinformed tend to be older and more risk averse

We have two exceptions cases that are in Canada and in Malaysia CanadaDeposit 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 thatmany works and respects are done so far on this subject However, to the authorknowledge, there are very few researches about the awareness of deposit insurance

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

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 Depositinsurance and main features of Deposit insurance of Vietnam (DIV)

Laure Bartiloro (2008) shows that people use internet, have higher level ofincome and education attainment are knowledge about deposit insurance Inaddition, 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 mostfinancial fields

Lusardi and Mitchell (2011) report that people living in urban areas in Russiatend to more financially literate than those living in rural areas In addition,financial literacy is also higher among those who are working, and in somecountries 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 insuranceH2b: People who are older tend to be better informed about depositinsurance

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

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

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

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

Van Rooj et al (2007) find that individuals who possess inadequate financialliteracy 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 aboutdeposit insurance

Inkuraa et al (2005) indicates that households with more financial assetstend 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 informedabout deposit insurance

Additionally, we want to know whether depositors revise bank’s informationfor choosing a bank for their deposit Empirical studies that focus on factors of bankchoice 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 theawareness of deposit insurance1

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

Laure Bartiloro (2008) discusses on descriptive statistics that number ofhousehold 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’ componentincreases

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

1The 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 insuranceH2b: 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 insuranceH2d: People who attain the high education tend to be better

informed about deposit insuranceH2e: People who are working or self-employed tend to be better

informed about deposit insuranceH2f: People who have high income tend to be better informed

about deposit insuranceH2g: People who are less risk aversion tend to be better informed

about deposit insuranceH2h: People that have a larger amount of deposits tend to be better

informed about deposit insuranceH2i: 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 insuranceH2l: 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 Thischapter introduces research methodology The purpose of this chapter is to describeand outline the methodology used to test hypotheses developed in chapter 2 A pilotstudy is used to refine and create the final questionnaire for the main study Thestatistical techniques employed to analyze the data and testing the researchhypotheses 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 apopulation, especially in the case of a lack of secondary data” (Zikmund, 1997)

To examine the public knowledge of deposit insurance, the current studyemploys a descriptive statistic method This method was chosen to describe thepublic awareness toward deposit insurance Logistic regression analysis is used toexamine 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

Aggregate and statistics

Logistic regression -SPSS

3.3 Pilot study

The purpose of pilot study was to refine and eliminate the flaws in the firstdraft 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 thequestionnaire to suit the context of developing countries, especially in Vietnam Theoriginal 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 ofquestionnaire was developed in English Vietnamese bilingual Some amendmentshave been made

Next, a first group discussion were conducted with the participation of fivebank experts including five branch managers in Ho Chi Minh city (three male andtwo female) from different banks were invited The purpose of this step is to test theclarity the instrument and to be sure that all survey questions were clear in meaningand sufficient to cover the research matter in reality, from the perspective of depositinsurance and banking Some amendments were made after suggestions fromfinancial 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 thelimit?” was changed into “which is the maximum amount of deposits guaranteed bydeposit insurance of Vietnam?” The question related to financial literacy “calculatechanges 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 ofmortgage do you think would allow you from the very start to fix the maximumamount 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? Theindependent 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 independentvariable as “percentile of household wealth” eliminated.

Another questions related to bank as “You choice to deposit your money insmall banks or in large bank” was changed to “You choice to deposit your money instated 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 tendepositors at Bank for Investment and Development – No 2 transaction center - HoChi Minh branch The result shows that ten depositors able to understand andanswer the question So there was no adjusted in this case The final version ofquestionnaire is written in English-Vietnamese bilingual (Appendix 1) List offinance 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 campaignshould be depositors and the general public This audience might include differentage groups, such as retirees and students However, one of the most importantaudiences is the staff of depository institutions, especially operations and front-linestaff

This study has chosen the popular audiences that similar to the previousstudy 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 serveour research In addition, respondents have to give information about demographicvariable, other variable related to education, working, income, financial literacy

To examine the knowledge about deposit insurance, we chose some basicquestions about deposit insurance of Vietnam to ask participants An approach isquite similar to study of Laure Bartiloro (2008) and Straeter et al (2008) Fivequestions about knowledge of deposit insurance includes four being in the format ofYes/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 bothaccuracy and precision The sample size is determined by the level of precision andconfidence desired in estimating the population parameters, as well as the variability

in the population itself (Canava et al 2001) Some researchers suggested that theminimum sample size should be from 100 to 150 responses if using the MaximumLikelihood (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 samplewas too less and unable comparison with the other previous study However, it washigher the minimum sample size suggested (over 25 times of observed variables)

of survey methods such as face-to-face interview, telephone interview, and mailsurvey or on-line survey Among these methods, the face-to-face survey yieldshigher response rates and allows researchers to use physical stimuli to facilitate theinterview (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 sevenrespondents is collected by on-line survey in order to obtain the desired sample size

on-This study conducted formal research with sampling method is conveniencesampling 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, theinterviewers must be pledged to secrecy their information Most of participantsshowed their interests in this research problem

3.5 Data analysis techniques

3.5.1 Descriptive statistics

After data collection was completed, descriptive statistics were initiallyconducted to provide an overview of the sample Firstly, we implement adescriptive statistics analysis by using primary data in order classifying andexamine the level of public awareness of deposit insurance in Vietnam by thepercentage analysis Subsequently, logistic regression analysis was applied to testsecond hypothesis

3.5.2 Multivariate analysis

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

As noted above, binary logistic regression is a form of regression that is usedwhen the dependent is a dichotomy and the independents are of any type Thisprovides a relationship the impact of multiple independent variables against thedependent 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 sectiondescribes the description of collected samples The next section we state the resultsand give some discussion

Table 4.1 Outline of chapter 4

4.2 Description of collected samples

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 thestatistical probability calculations To attain this figure, the questionnaire generated

400 (corresponding to an estimated respondents rate 75 percent) To lighten theburden of interview the questionnaire are designed via online survey to randomsubset of the sample Methods of data collection are to apply the questionnaire tohouseholds 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 missingvalue (the missing rate was 18.5 percent), and these valid responses 326 wereaccepted

Chart 4.1 shows the description of collected samples

Internet Face - to - face

Source: Build from collected data

Chart 4.3 shows Age group of respondents

30 and under 31-44 45-59 60 over

Source: Build from collected dataThe respondents belonged to various occupations and regard to educationalqualification 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 affectedmost of the nations around the world We witnessed currency devaluation, systemicbank failures and erosion of depositors’ confidence The world is bearing theaftermath of the crisis Therefore, the deposit insurance institutions in the worldhave shown a pivotal role in managing the financial crisis by protecting thedepositors and contributing safety and stability of the domestic and global financemarkets Some countries in America, Europe and Asia proclaimed the raise ofdeposit insurance coverage or temporary blanket guarantee policy in order toenhance public confidence in financial system and to prevent bank run such as: bymaking full coverage of all deposit (Italy, October 8, 2008) or increasing thestandard maximum coverage from $ 100,000 to $ 250,000 ( FDIC, October 14,2008)

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

period, the Vietnam’s banking sector witnessed the flexibility in monetary policiesranging from tightening for inflation restrain to gradually loosening for economicgrowth support The end of 2011, the central bank implemented bankingrestructuring to merge and integrate three weak banks: Tin Nghia, Ficombank andSaigon Commercial bank Contrary to all predictions, the depositors keep calm withnew about bank merge and had not a chaos on the market.

On May 2011, the deposit insurance law Vietnam officially submitted anddebated on parliament and this new law attracted many people interested and foundout At the same time, the deposit insurance of Vietnam also launched the contest tolearn about deposit insurance and the operation of deposit insurance with theobjective to enhance public understanding of deposit insurance It was expected thatafter this events there would be widely knowledge of deposit insurance, or at least

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

in Table 4.2

Table 4.2: Knowledge about Vietnam deposit insurance

answer

1 Regarding your or the household’s current

or savings account, in case of a bank failure, Yes 130 40

do you think that there are exists a deposit

insurance scheme refund your money?

2 (If yes to 1) Is there maximum coverage

account?

amount of deposit guaranteed by deposit million

insurance of Vietnam?

Source: Build from collected data

The finding of study is contrast with hypothesis that is Vietnamesehouseholds lacks a solid comprehensive of deposit insurance also the existence ofits 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 percent) think that there is no coverage for their deposits

Chart 4.4 shows an international comparison

An international comparison (Percentage of correct answer)

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

By international comparison with selected countries shows that knowledgeand perception of deposit insurance is not widespread in Vietnam The IADI statesthat current level of public awareness around the world is not high (IADI 2009).However, all conducted surveys in other countries have significant differences insample selection In general, data for other countries shows that awareness ofdeposit insurance relative widespread, with exception: four countries have lowerpercentage 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