ANALYZING THE CURRENT OPERATION OF COMMERCIAL BANKING SYSTEM AND NON BANK FINANCIAL INSTITUTIONS IN VIETNAM

A joint-venture commercial bank is established in the form of a limited liability company with two or more members, being a Vietnamese legal entity, and having its head office in Vietna

DA NANG UNIVERSITY OF ECONOMICS

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-GROUP ASSIGNMENT SUBJECTS: FINANCIAL MARKETS AND

INSTITUTIONS

TOPIC

ANALYZING THE CURRENT OPERATION OF COMMERCIAL BANKING SYSTEM AND NON- BANK FINANCIAL INSTITUTIONS IN VIETNAM

Teacher : Huỳnh Thùy Yên Khuê Class : 46K25.1

Member : Lương Thị Nem

Nguyễn Lê Anh ThưNguyễn Thị PhươngUyên

Ngô Thục UyênNguyễn Thị Lê Minh

situation of each stage in Vietnam: 8

III PENSION FUNDS IN VIETNAM 8

Sources and uses of capital:

4 New pathway: Strengthening cross-linking with the banking

V SECURITIES FIRMS IN VIETNAM 20

TIEU LUAN MOI download : skknchat@gmail.com

ANALYZING THE CURRENT OPERATION OF COMMERCIAL

BANKING SYSTEM AND NON-BANK FINANCIAL

responsibility to repay and use that money to lend and perform

discount operationsand as a means of payment

2 Classifications

Being a commercial bank opened with 100% state budget capital Inthe trend of integration, in order to attract more capital, state

commercial banks have issued many forms of capital increase such as issuing bonds and commodity shares

Some Satre owned Commeriacal bank

A commercial bank established under the capital contribution of two or more individuals or companies by shares In which each

individual or company can only own a limited number of shares

according to the regulations of the State Bank of Vietnam.

Some Joint-stock commercial banks

c) Joint Venture Bank

Joint-venture commercial bank is a commercial bank established inVietnam, with capital contribution of a Vietnamese party (including one

or more Vietnamese banks) and a foreign party (including one or more

foreign banks) on joint venture contract basis A joint-venture

commercial bank is established in the form of a limited liability

company with two or more members, being a Vietnamese legal entity, and having its head office in Vietnam

Some Joint Venture Bank

Foreign bank branches in Vietnam is a commercial bank established by foreign capital in accordance with foreign laws,

permitted to set up branches in Vietnam and operate under the laws

Is a commercial bank established in Vietnam with charter capital entirely from abroad, due to foreign ownership A commercial bank with 100% foreign capital may operate in the form of a limited liability company with one member or from two or more members, which is thelaw of Vietnam with its head office in Vietnam

Some Commercial bank with 100% foreign capital

3 Risks in banking operation in Vietnam

a) Credit risk

In Clause 1, Article 2 of Decision 493/2005/QD – NHNN, credit risk has been defined as follows: “Credit risk is the

possibility of loss in banking operations of a credit institution due

to customers the airline fails to perform or is unable to perform its obligations as committed

Causes of risk signals :

business due to not collecting enough information about the borrower's activities andpurposes

paying attention to the quality and safety of the loan, loosens the inspection and control in the process of using the loan and recovering capital, does not grasp the loan caught the customer's credit situation, too trusting the collateral, consider it the number one criterion when considering a loan Once the mortgage is available, the credit officer subjectively does not closely monitor the loans

seriously implemented; The qualifications of the staff are still weak, the organization

of staff is still unreasonable, and the division of functions of each department is not clear

fluctuations, and the quality of collateral decreases

stagnate capital, and products cannot be sold Therefore, the business does not have money to repay the bank debt

then do not pay or declare false collateral, use the same mortgage to borrow many places

+ Using capital for the wrong purpose in high-risk activities leading to losses, not being able to pay the bank in full and on time

Market risk is the risk caused by adverse fluctuations ininterest rates, exchange rates, stock prices and commodity prices in the market Market risks include:

- Interest rate risk is the risk caused by adverse fluctuations in market interest rates on the value of valuable papers, interest-bearing financial instruments, interest rate derivative products on the business books of the bank foreign bank branches

of Liabilities, the bank has income risk when market interest rates rise

of Liabilities, the bank has income risk when the market falls

in the foreign exchange market This type of risk comes from exchange ratefluctuations

ensure the balance between the sales volume of purchases and sales of foreign currencies, or the mismatch between assets with foreign currencies and assets with foreign currency liabilities and due to changes in market rates

Liquidity risk is a situation where the bank cannot obtain cost available capital at the right time when the bank needs it In other words, a bank is exposed to liquidity risk when the bank does not have a reasonable amount of available capital on hand

low-or the bank cannot quickly raise capital through blow-orrowing low-or selling assets

Causes of liquidity risk:

+ The bank faces an imbalance in terms of asset maturity and maturity of capital sources.

- Stock price risk is the risk caused by adverse fluctuations of stock prices

on the market to the value of shares, value of derivative securities on the business books of banks or foreign bank branches;

- Commodity price risk is the risk caused by adverse fluctuations of

commodity prices in the market on the value of commodity derivatives, the value of products in spot transactions is subject to the bank's commodity price risk foreign bank branches

Interest rate risk on bank books is the risk due toadverse fluctuations in interest rates on income, asset value, value of liabilities and off-balance sheet commitments of banks, branches of foreign banks other than arising from:

or the period of redefining the interest rate;

financial instruments with the same maturity date;

maturities;

interest rate options elements

d) Operational risk is the risk of loss occurring due to internal

management activities, people, systems, or external incidents that are inappropriate

or damaged; including legal risk, but excluding strategic risk and brand risk

conducts its operations For example, the

inappropriate limit structure in the capital business, embezzlement

of officials, lack of business recovery plans in the event of a disaster

the bank or when the bank's legal arrangements, for example loan contracts and collateral assets of the bank problem, or the State suddenly changes the macro policy in terms of economic structure, priority areas

- Reputational risk: is the risk of bad public opinion about the bank, causing serious difficulties for the bank in accessing capital or causing customers to leave the bank

The bank has invested a lot in technology development, but the efficiency is not high,and the cost savings for the bank is not as expected Or, a malfunctioning

technology system affects the bank's business operations, causing certain losses

II MUTUAL FUNDS IN VIETNAM

s

Closed-end Bond mutual Collective

Money marketmutual fundsExchane-traded funds(ETFs)

3 The stages of formation and development, the operation situation of each stage in Vietnam:

condition of 54.2 milion USD

- In 2003: the first fund in the country – Vietnam Securities Investment Fund (VFMVF1)

domestic and foreign companies in the geographical area investing in Vietnam

employees' or members' retirement benefits (Pension Funds, CFA

Institute)

Pensions in Vietnam are provided through a state pension scheme

called social insurance, and private life insurance-type schemes

(Pensions fund in Vietnam, Wikipedia)

2 Classifications:

Vietnam’s pension scheme, a sizeable component of the social insurance system, currently consists of:

a) Voluntary pension schemes:

Voluntary pension schemes are similar to financially saving products provided by insurance companies to the public (aged

18 to 54), in which the participants will voluntarily make contribution to the fund with various contribution rates tailored todifferent needs, different life stages, and financial conditions of the potential participants

b) Voluntary supplemental pension schemes:

Voluntary supplemental pension schemes are voluntarily established and managed by the employers to their employees.The contributions to the fund will be made by both employer and employees and can invested in restricted types of financial assets, particularly in less-risky instruments (government and municipal bonds)

3 Sources and uses of capital:

employees (group pension insurance purchased by the employer) contribute depend

on the product, age, gender and occupation of the participant, the fee will be

different

individuals who are 15 years of age or older contribute:

employee's salary

the committed minimum contribution as prescribed in Clause

2, Article 7 of Circular 19/2018/TT-BLDTBXH

- Uses of funds:

retirees, and receive interest depending on the investment results of the investment fund that the participant has selected

benefit for retirees, and all profits earned from investment activities will be paid to participants

Or, during the payment process, individual retirement accounts may continue to invest in the retirement fund selected

by the fund participants The pension fund management enterprise receives the trust to invest in retirement fund assets (Deposits at commercial banks; Government Bonds; Bonds guaranteed by the Government; Local government bonds;

Securities investment fund certificates (Based on Clause 3, Article 20 of Decree No 88/2016/ND-CP)) to earn profit

4 Shortcomings in the current operation of the Pension fund in Vietnam:

- A less-diversified pension system

Law on Social Insurance 2014 was approved by the 12th National Assembly of the Socialist Republic of Vietnam, 4th session, on November 20, 2014 and various relevant statutory documents on supporting the establishment of voluntary pension scheme and voluntary supplemental pension fund to gradually improve the pillars of the pension system Nonetheless, compared

to the 5-pillar model developed by the World Bank, Vietnam’s simple pension system has just covered up to 3 pillars with the public pension insurance scheme key role

- A shrinking pension system with ageing population:

Population aging has an increasingly strong impact on the social insurance fund in our country both in the short and long

term.

An aging population shall lead to a long-run imbalance of the socialinsurance fund and the payment risks for life insurances and pensionfunds Specifically, the method of pension payment funded by the social insurance fund is now applying “Pay-As-You-Go” This means contributions by existing employees to the pension fund will be used

to pay the current pensioners Statistics from the GSO up to the thirdquarter of 2021 was 49.1 million people of the Vietnamese

population belongs to the labor force, of which the salaried employeeratio accounts for 47.2 million people (GSO: 12.10.2021) At present,Vietnam is in a golden population period, the social insurance fund still maintains its ability of pension payments when the average life expectancy is slowly progressing However, it will inevitably enter a period of rapid population aging In the long run, when the current great labor force is about to retire and has a further extended life expectancy, the number of beneficiaries in the future will increase as well, whereas the continuous decline of the fertility rate might affect the source of capital for investment and payment of pension fund

- The actual scale of participation in social insurance is

still low

As of the end of 2020, Vietnam has about 14.1 million people afterretirement age (from 55 years old for women; 60 years old for men).Among them, only about 3.1 million people are enjoying monthly pension and social insurance (accounting for 22.1%) of the total number of people after retirement age If including those who are receiving social pension benefits (1.8 million people), a total of nearly 5 million people (accounting for 35%) are entitled to monthly benefits Thus, up to now, there are still about 9.2 million people after retirement age (accounting for 65%) who are not covered by the social insurance system or any other social security layer

Meanwhile, the goal of Resolution No 28-NQ/TW set out that by

2021, about 45%

of people after retirement age will receive a pension, which will be a huge challenge.

- A hard-to-adapt new public pension payment

mechanism

The Social Insurance Law 2014 which came into effect from January 1, 2016 had some new provisions on retirement that were applied from January 1, 2018 Those provisions greatly influence future employees reaching the retirement age Most of them will receive an insurance payment lower than retirees before January 1,

2018 did Moreover, with stricter conditions in calculating the pension benefit rate, those retirees will receive a lower pension andmay be incapable of covering their living expenses The payment under the current retirement allowances regime and the regulations

on mandatory social insurances put a lot of pressure on employees when they reach the retirement age, especially to ensure income maintenance necessary to ensure the best living conditions Thus, joining in more voluntary pension forms is another way for

employees to protect themselves when they reach the retirement age

In summary, efforts to reform Vietnam's pension system have had some initial results The role of the Government, the Ministry of

Labour, Invalids and Social Affairs and the Ministry of Finance is very important in designing the overall reform program, making policy,

creating a legal framework and especially important in educating

public awareness agreement on participation in retirement plans Thisprocess will have many difficulties and challenges in the coming time and requires the contribution of the entire society, especially from the employees, employers and intermediaries system operation service

IV SECURITY COMPANIES IN VIETNAM

1 Definition:

An organization that operates by selling insurance certificates to their company and using the funds raised to invest This is a business method for buyers of many different insurance services such as:

Insurance against financial risks, Insurance for individuals and

businesses, right to protect customer’s safety

2 Classification:

Life insurance company:

protection for premium payers or for their family members against the risks of

generating network-to-contribution ratios

a mutual company in which the co-insurers are also the owners of the company

change characteristics over time and object It is often associated with human

longevity Contracts of this type often have a term of up to 10 years, 20 years, or a lifetime,…

Term Insurance, Whole Life, General Insurance, Term Insurance, Investment Linked Insurance, Thewebsite

Non-life insurance company (Accident and property protection company):

property and liability

stable over time and are usually independent of the life expectancy The term of this insurance is usually quite short

+ Types of non-life insurance in Vietnam: Property insurance, Civil liability insurance, Non-life insurance

3 Insurance products:

Life insurance company: there are 2 types

for a certain period of time Typically, term life security products will have a contract period from 10 years to 25 years

Term life insurance products have full benefits to protect policyholders against life risks such as illness, injury or death The

amount of insurance received will be paid based on each specific

product package and guaranteed for the duration of the contract

In addition, the term life insurance product also guarantees the benefits of the policy maturity and the increased

bonus (depending on the different products) to ensure that the

customer will receive the amount when terminate the contract (in

case the contract does not end before the time limit)

And these are basic life insurance packages and have lower fees Therefore, with any income level, customers can easily prepare for

themselves a term life insurance package to bring peace of mind

before the future time that they have planned

for the event lived during the life of the protected person Whole life insurance is a life safe protection, also known as longevity insurance The insured person is

assured of safety under the insurance policy because the basis of the insurance money is that the event of his death is always at any point

The full-time insurance system has a long-term naturebecause there is no limit on the expiration date Due to the long-term calculation of the full-time insurance policy system, the insurance

source paid by the policyholder can be used by the insurer for

investment, and the policyholder can share in the investment this

result Based on shared work, full time is divided into two categories: full time shared and full time not shared Usually, if a lifetime safety

insurance co-stipulates and a fixed payment for digital insurance is in place, the policyholder is not shared

insurance product for property products including food, money, valuable papers andproperty rights

railway and air

protection for the operation of the aircraft and the risks related to the process of transportation by air (including goods and people)"

vehicles to serve the vehicle owner when there is risk related to people, the vehicle

or the goods on the vehicle

Besides compulsory insurance, the owner's vehicle can buy more

voluntary products: Insurance for physical damage to the vehicle;

Accident insurance for drivers, car attendants and occupants;

Insurance of the owner's vehicle for the goods transported on the

vehicle

damage to production facilities Insurance in the event of an accident of fire or

explosion

+ Hull insurance and shipowner's civil liability: Hull insurance is a

product that compensates for damage that occurs to the hull, machinery and

equipment of the ship due to perils of the sea/river caused by water, or due to

unexpected accidents “Shipowners' Civil Liability Insurance is insurance for risks related to statutory liabilities and expenses which the shipowner, manager, operator, charterer (excluding charterers) voyage) must pay for third party damage caused by the operation of the ship or boat, including damage to people and property.”

to the legal liability or the obligation to compensate for damage caused by the

insured's fault to other organizations and individuals

insurance product for loans that help borrowers repay bank loans in the event of unexpected risks

Business Loss Insurance: is an insurance business for propertyrisks in the process of production and business of an enterprise

the agricultural, forestry and fishery industries, whereby the insurance buyer pays the premium, the insurance enterprise compensates the insured when occurrence of the insured event (According to the Decree on Agricultural Insurance)

4 New pathway: Strengthening cross-linking with the banking system

to increase the market share of insurance

use very diverse distribution channels such as agents, brokers, bank-linked

insurance (bancassurance) In