Luận văn thạc sĩ tiếng anh trường ngoại thương

Agribank Bank for Agriculture and Rural Development of Vietnam ATMs Automated Teller Machines BIDV Joint Stock Commercial Bank for Investment and Development of Vietnam GATS The Gene

THE CERTIFICATION

I hereby certify that the thesis with the title: "The Impact of TPP on Vietnam's Financial Services" is my own research and does not reproduce any other materials The data indicated in the thesis is clear, accurate and collected from the confident sources of information

The Author

Nguyen Thi Anh Tuyet

TABLE OF CONTENTS

THE CERTIFICATION 1

TABLE OF CONTENTS 2

LIST OF ABBREVIATIONS 4

LIST OF CHART AND TABLES 6

PREFACE 1

CHAPTER 1 8

THE OVERVIEW OF FINANCIAL SERVICES 8

1.1 The definition, characteristics and classification of financial services 8

1.2 The roles of financial services in an economy 14

1.3 The factors affecting financial services 16

CHAPTER 2 19

THE OVERVIEW OF THE TPP AND THE KEY REGULATIONS OF THE TPP ON FINANCIAL SERVICES 19

2.1 The overview of the TPP 19

2.2 The key TPP regulations on financial services 21

CHAPTER 3 32

THE IMPACT OF THE TPP ON BANKING SERVICES IN VIETNAM 32

3.1 The current situation of banking services in Vietnam 32

3.2 Some main impacts on the banking services of Vietnam under the TPP 39

CHAPTER 4 48

THE IMPACT OF THE TPP ON INSURANCE SERVICES IN VIETNAM 48

4.1 The current situation of insurance services in Vietnam 48

4.2 Some main impacts on the insurance services of Vietnam under the TPP 50 CHAPTER 5 59

RECOMMENDATIONS AND CONCLUSIONS 59

5.1 Recommendations to develop financial services in Vietnam if the TPP enters into force 59

5.2 Conclusions 71 REFERENCES 75

LIST OF ABBREVIATIONS

Abbreviations The full name/description

Agribank Bank for Agriculture and Rural Development of Vietnam

ATMs Automated Teller Machines

BIDV Joint Stock Commercial Bank for Investment and Development of

Vietnam

GATS The General Agreement on Trade in Services

IAIS International Association of Insurance Supervisors

IBPS Interbank Payment System

ISDS The Investor-State Dispute Settlement

JSCBs Joint Stock Commercial Banks

M&A Mergers and Acquisitions

MST The Minimum Standard of Treatment

SMBDs Senior Management and Boards of Directors

SOCBs State-owned Commercial Banks

SOEs State-owned Enterprises

VAMC Vietnam Asset Management Company

Vietcombank Joint Stock Commercial Bank for Foreign Trade of Vietnam

Vietinbank Vietnam Joint Stock Commercial Bank for Industry and Trade

LIST OF CHART AND TABLES

Chart No.2.1 The number of the commercial banks in Vietnam in the period of

1991-2015

39

Table No.2.1 The number of Viet Nam’s insurance firms from 2011 to 2015 44

Table No.2.2 The premiums and total assets of Viet Nam’s Insurance

companies from 2011 to 2015

46

Table No.2.3 The distribution channel of insurance services 57

PREFACE

1 Introduction

Finance is central to the functioning of the economy as a whole Finance has distinct attributes, presents distinct risks, and has long been regulated in distinct ways that are hard to accommodate in a framework that applies to service and investment in general (Anna Gelpern, 2016) For this reason, the governments always seem to be cautious when they undertake their commitments on financial services in the framework of any FTA In other words, almost of them have preferred nonbinding, informal commitments to the enforcement machinery of international trade law

The Trans-Pacific Partnership Agreement (TPP) is a new generation FTA, not just focusing on the liberalization of trade in goods but also covering services, intellectual property right (IPR), SPS, TBT and other relevant issues Financial services are also a big concern of the TPP member countries They get their own chapter in the TPP and are regulated in some other chapters such as chapters on cross-border trade, investment and dispute settlement

In comparison with the General Agreement on Trade in Services (GATS) in the framework of WTO, the TPP commitments on financial services have some different features

The TPP contains the cooperation between the further market openness and the investment protection It means that the subject matter and the scope of the TPP commitments on financial services are expanded, which are accompanied with the additional obligations relating to investment protection such as the Minimum Standard of Treatment (MST) and ISDS mechanism These obligations bring the benefits to foreign investors, but the challenges to the local providers of financial services and the host countries

Moreover, the TPP approach of negative list is usually applied to developed countries whose liberalization in trade and investment is at high level and legal

system has fully improved The approach is really a challenge to developing countries like Vietnam whose finance market is in the stage of ongoing development and is significantly different from developed countries

In addition, the Ratchet mechanism is also an obstacle to Vietnam According

to the mechanism, the amendment of reservation measures, namely the conforming measures, and the level thereof will become binding the level of liberalization In other words, the level of liberalization in the TPP members will be more and more higher, but not lower

non-Along with the approach of negative list, the commitments on cross-border trade and the obligations of providing licenses to new financial services are also difficulties for Vietnamese providers of financial services because of their poor capacity of competitiveness in comparison with the rivals from the other TPP member countries

In the theoretical aspect, the high level of liberalization in the framework of the TPP will give the providers of the TPP member countries in general and Vietnam in particular many opportunities to further get market access abroad Accordingly, all TPP member countries can get benefits from the TPP However, in order to take advantages of these benefits, Vietnam will face some challenges as above-mentioned Therefore, assessing the likely impact of the TPP commitments

on financial services, understanding the challenges and taking advantages of the opportunities are vital problems to the local providers in building their business strategies and to government authorities in making policies to develop markets for financial services

For the above reasons, my thesis will focus on the topic namely “The impact

of TPP on Vietnam’s financial services”

According to GATS and TPP, the financial services include (i) insurance and insurance-related services and (ii) banking and other financial services Moreover, the financial services existing in Vietnam are mainly in the banking and insurance sector Therefore, the thesis will study on these two big sectors of financial services

in Vietnam since 2010 when Vietnam began to take part in the process of

negotiating the text of the TPP The subjects of the thesis are the possible impact of the TPP on insurance services and banking services in Vietnam and recommendations to develop these services

The thesis will aim at the situation of the two typical sectors of financial services in Vietnam, estimate the possible impact of the TPP thereon and relevant trends, propose recommendations to develop these services in Vietnam In order to reach the purpose, the thesis will concentrate on the following missions:

- Researching the theoretical basis for financial services and the TPP regulations thereon in comparation with the corresponding regulations of Vietnam

- Finding out the current situation of banking and insurance services in Vietnam and estimating the possible impact of the TPP on these services if the TPP enters into force

- Forecasting the relevant trends, proposing the directions and recommendations of development of these services in Vietnam

as of ASEAN and also includes ten additional Asian economies that are not part of either This volume provided the description of the TPP, its trade effects and discussion on whether the TPP might be expected to benefit or harm the economies

of the TPP, of ASEAN, and of selected other Asian countries In brief, the volume have emphasize on the impact of the TPP on an economy as a whole, but not on a specific industry sector

This report named “Trans-Pacific Partnership Agreement: Likely impact on the US economy and specific industry sectors” by U.S International Trade

Commission (2016) assesses the possible impact of the TPP on the U.S economy as

a whole and on specific industry sector It comprises the TPP’s impact on the United States’ gross domestic product, exports, and imports; U.S aggregate employment and employment opportunities; the production, employment, and competitive position of U.S industries likely to be significantly affected by the TPP; and the interests of U.S consumers The report also reviews other assessments

of the TPP’s economic effects available in the literature, and discusses areas of consensus and divergence between the Commission’s analyses and conclusions and those in the literature reviewed The financial services are subject matters of the Chapter 5 named “Impact of the TPP on trade in services” The chapter focused on the potential impact of the TPP on the financial services of the United States

The book named “Trans-Pacific Partnership: An assessment”, edited by Jeffrey J.Schott and Cathleen Cimino-Isaacs, showed an in-depth, comprehensive analysis of the potential economic impact of the TPP The authors of the book analyze the traditional market access aspects of the agreement as well as assess innovations in trading rules, drawing out the implications for governments, businesses, workers, and households This book includes a comprehensive analysis

of the macroeconomic and sectorial effects of the TPP, which demonstrates that the TPP will deliver large economic benefits to the United States and its trading partners Financial services get the own chapter in this book written by Anna Gelpern This chapter provides the overview of obligations and commitments as stated in Chapter 11 of the TPP It also analyzes in detail the obligations of NT, MFN, and MA, the minimum standard of treatment, the ISDS mechanism, and the prudential measures This chapter also indicated innovative or new regulations stated in the TPP on financial services that have not included in previous FTAs yet There are some books of Vietnamese authors on the TPP like “Hiệp định Đối tác Xuyên Thái Bình Dương-TPP và vấn đề tham gia của Việt Nam”- In English:

“the Trans-Pacific Partnership Agreement –TPP and Vietnam’s participation issues”- by Prof Dr Hoang Van Chau and some teachers from the Foreign Trade University of Hanoi or “Hiệp định Đối tác Xuyên Thái Bình Dương (TPP) và tác

động tới Việt Nam”- In English: “the Trans-Pacific Partnership Agreement (TPP) and its impact on Vietnam”- by Prof Dr Nguyen Anh Tuan

This book, namely “Hiệp định Đối tác Xuyên Thái Bình Dương (TPP) và tác động tới Việt Nam”- In English: “the Trans-Pacific Partnership Agreement –TPP and Vietnam’s participation issues”, provided the overview of the content of the negotiations of the TPP, analyzed the obstacles of the negotiations and the purpose

of the participation of the 12 member countries Especially, the book assessed the potential impact of the TPP on the region and the world in general, on Vietnam and its process of international integration in particular, accordingly estimating the development trends of the Vietnamese economy in the next future, proposing recommendations to restrict challenges and take advantages of benefits

This book, namely “Hiệp định Đối tác Xuyên Thái Bình Dương-TPP và vấn

đề tham gia của Việt Nam” ”- In English: “the Trans-Pacific Partnership Agreement –TPP and Vietnam’s participation issues”, introduced the overview of the TPP as well as its role in the world economy and the purpose of the member countries The book also analyzed the opportunities and challenges to Vietnam when Vietnam becomes a full member of the TPP The analysis included the assessment on financial services They have emphasized on the new commitments of the TPP on financial services which are different from the WTO commitments

Within the scope of Vietnam’s master theses, there are some theses of students from the Foreign Trade University of Hanoi researching on this topic such as “The Trans-Pacific Partnership (TPP): Opportunities and Challenges for Vietnam” by Dinh Hoang Anh (2015), “Thương mại dịch vụ trong Hiệp định TPP và vấn đề đặt

ra đối với Việt Nam” –In English:“Trade in services according to the TPP and some matters to Vietnam”- by Tran Thi Diem Chau (2014) and “Cơ hội và thách thức đối với ngành Ngân hàng khi Việt Nam tham gia Hiệp định TPP”- In English:

“Opportunities and challenges for Vietnam’s banking system when Vietnam have took part in TPP” - by Nguyen Thi Tra Giang (2014)

Some of these documents analyzed the TPP’s effects on the whole economy, but not on a specific industry sector There are some volumes which have

mentioned in financial services in the United States and other countries but not in Vietnam Moreover, almost of them did not show Vietnam’s present situation or did not reflect all the updated text of the TPP because they were published before the TPP’s negotiations were concluded

For these reasons, in this thesis, I will focus on studying on Vietnam’s financial services with two main sectors such as banking and insurance under the likely impact of the TPP commitments stated in its latest and formal text, analyze possible opportunities and challenges and then propose recommendations in order

to protect and support the development of Vietnam’s financial services

3 The research questions

The thesis will answer to the following research questions:

- What is the definition of term “financial services”, its roles in an economy and which factors influence on financial services?

- Which key features does the TPP have?; what is the scope of the TPP? Which are the TPP commitments and obligations on financial services? What about the non-conforming measures of Vietnam on financial services?

- How about the current situation of the banking services in Vietnam? How does the TPP impact on the banking services in Vietnam?

- How about the current situation of the insurance services in Vietnam? How does the TPP impact on the insurance services in Vietnam?

- What are recommendations for preventing the negative impact and supporting the development of the banking and insurance sectors of Vietnam?

4 The research methodology

I have researched the theoretical aspects of financial services and the TPP commitments and obligation on financial services I also have analyzed new issues

in framework of the TPP which have not existed in the FTAs in which Vietnam has previously participated, for example: the negative list approach and the Ratchet mechanism These analyses are in the content of Chapter 1 and Chapter 2

In Chapter 3 and Chapter 4, I have studied the current situation of two main sectors of financial services which are typically financial services in Vietnam,

namely banking and insurance services In comparison with the present situation of two sectors and the above analyses stated in Chapter 1 and 2, I have accordingly evaluated the possible impact of the TPP on the two sectors in such aspects as policies, regulations and laws, modes of providing services, types and market of services, providers

Based on the content of Chapter 3 and 4, I have proposed some recommendations in order to limit the negative effects and promote the development of the two sectors in Vietnam

5 The expected results of the thesis

The thesis began to be written after the negotiations of the TPP have concluded At present, 12 member countries begin the next steps of reviewing the domestic laws and preparing for the ratification of the TPP Therefore, the thesis will bring the following results:

- Analyzing the formal text of the TPP regulations on financial services and comparing them with the corresponding regulations of Vietnam

- Evaluating the current situation of the banking and insurance services in Vietnam and estimating the possible impact of the TPP on them if the TPP enters into force

- Suggesting the directions of development of these services in Vietnam and the corresponding recommendations in the context of TPP coming into effect

CHAPTER 1 THE OVERVIEW OF FINANCIAL SERVICES

1.1 The definition, characteristics and classification of financial services 1.1.1 The definition of financial services

In order to understand the definition of financial services, it is essential to be aware of the definition of services

Under the Vietnamese dictionary published in 2000 by the Vietnam Lexicography Centre (Vietlex) of Language Institute - Centre for National Social Sciences and Humanities, the service is meant to be a work directly serving for certain needs of the majority of people or organizations and getting paid

In economics, Karl Marx defined: “The service is the brainchild of the commodity economy When the commodity economy thrives and requires a system

of the smooth and continuous circulation to meet the increasing needs of the human, the services are to be more and more increasing ”(The textbook of Trade in services, National Economics University, 2001) According to this definition, the services associated with the commodity economy T.P.Hill (1977) said that “A service may be defined as a change in the condition of a person, or of a good belonging to some economic unit, which is brought about as a result of the activity

of some other economic unit, with prior agreement of the former person or economic unit.” The concept considered services as the subject of social relations governed by the law and compared these relations with commodity relations on the basis of the difference between the tangible characteristic of the goods and the intangible one of services

In order to establish a common legal framework for trade in services, the United Nations, the European Commission, the International Monetary Fund, the Organization for Economic Cooperation and Development and the World Trade Organization has studied and given the general concept of service as follow:

“Services are not separate entities over which ownership rights can be established They cannot be traded separately from their production Services are heterogeneous outputs produced to order and typically consist of changes in the condition of the

consuming units realized by the activities of the producers at the demand of the customers By the time their production is completed they must have been provided

to the consumer” (UN, EC, OECD, IMF, WTO, 2002) Furthermore, services is also understood as an economic activity that did not directly produce the material wealth of the society but create the surplus value by the exploitation of labor resources, human knowledge and intelligence, contributing directly or indirectly to satisfy human needs and being a significant factor in GDP Services are products of labor containing enormous content of human knowledge of various activities such

as business, transportation, finance, banking, insurance, accounting, investment and

so on

In brief, according to the above points of view, a service is arising from the commodity economy and a change in the condition of a person, or of a good as a result of the activity of other economic units It cannot be traded separately from the production of itself and a product of labor containing enormous content of human knowledge

Service sector in an economy encompasses many different types of services that include financial services Scholars have different opinions on the definition of financial services Accordingly, there has not been a formal uniform definition of financial services although this term was widely used in the world

According to C.Rama Gopal, financial services refer services produced by institutions that function in the financial system Financial services are provided by various institutions which deal with the management of money In simple words, financial services refer to any services of a financial nature offered by financial institutions to consumers and business firms (C.Rama Gopal, 2014)

In Vietnam, some current studies have expressed their points of view on financial services A point of view indicated that financial services are considered as one system of services of a commercial nature A financial service is understood as

a part of the service market in an economy which provides services that bring financial profits to customers, support economical and social development (Vu Thi Minh Hang, 2008) In other words, these are services of commercial nature

including: banking, insurance, transportation, securities services, investment consultant and other services Another point stated that: "The market of financial services is a part of the financial market where trading activities generate a circulation of financial flows in an economy '' (Thai Ba Can and Tran Nguyen Nam,

2004, p.13)

In the legal perspective stated in regulatory documents, the General Agreement on Trade in Services (GATS) stipulated that "A financial service is any service of a financial nature offered by a financial service supplier of a Member Financial services include all insurance and insurance-related services, and all banking and other financial services excluding insurance "1 This is not a definition, but the description of the connotation that is the set of attributions constituting the meaning of the term of financial services It listed the main sectors of financial services as follows:

- Insurance and insurance- related services;

- Banking services;

- Other financial services

Moreover, the TPP regulated that “Financial Service means any service of a financial nature Financial Services include all insurance and insurance-related services, and all banking and other financial services (excluded insurance) as well

as services incidental or auxiliary to a service of a financial nature”2 Thus, the list

of financial services regulated by the TPP is rather similar to the list stipulated by GATS The presence of "other financial services" at the end of the lists reflected the diversity, richness and complexity of financial services Moreover, this showed that the lists of financial services are of open nature

In short, on the basis of all the above opinions, in my point of view, financial services are understood to be services of a financial nature provided by institutions

operating in a financial system and include (1) insurance and insurance-related services and (2) banking and other financial services

1.1.2 The characteristics of financial services

Financial services have the following characteristics:

- They are of intangible nature

The characteristic is a main point to distinguish services created by the financial sector with material products produced by other sectors in an economy Services cannot be standardized or reproduced in the same form The institutions supplying the financial services should have a better image and confidence of the customers Otherwise, they may not succeed They have to focus on the quality and innovation of their services so that they can build credibility and gain the trust of the customer

- Financial services are of inseparable nature

Both production and supply of financial services have to be performed simultaneously.Hence, there should be perfect understanding between the financial service institutions and its customers

- Financial services are of perishable nature

Like other services, financial services also require a match between demand and supply Services cannot be stored They have to be supplied when customers need them

- Another characteristic is variability

In order to cater a variety of financial and related needs of different customers

in different areas, providers of financial services have to offer a wide range of services It means that financial services have to be adjustable for the requirements

of customers Providers of services differentiate their services to develop their individual identity

- The dominance of human element is an additional characteristic

Financial services are dominated by the human element Thus, financial services are labor intensive It requires competent and skilled personnel to make the services of high quality

- Finally, financial services are based on the information

Financial service industry is an information-based industry It involves creation, dissemination and use of information Information is an essential component in the production of financial services

1.1.3 The classification of financial services

In broad meaning, financial services include all services of financial nature Thus, financial services contain such sectors as financial services that cover various subsectors like insurance, accounting, auditing, financial consultant, securities and some other related services and banking services

However, according to the criteria of organization and management, the scope

of financial services is also narrower and only includes the subsectors such as insurance, banking, accounting, auditing, financial advisory services, mainly tax consultant, and securities services

According to C.Rama Gopal, financial services can be divided into two categories-traditional and modern services

(1) Traditional services consist of fund-based services and non-fund-based services Fund-based services are those where the funds of financial institutions are

involved, while non-fund-based services are those where such funds are not involved Financial institutions earn interest on fund-based services

Examples of fund-based services include:

- The provision of different types of term loans as well as working capital facilities (pledge, bills purchase or discount etc.) to the corporate sector and loans for the purchase of vehicles, home loans, education loans, consumption loans to individuals, etc

- The underwriting of and an investment in shares, debentures and bonds (primary money activities)

- The purchase of money market instruments such as commercial papers, treasury bills and discounting of bills

- The provision of equipment leasing, hire purchase and venture capital

Non-fund-based services are also called fee-based services In non-fund-based

services, financial institutions do not invest money, they earn fees In based services, intellect is the fund that is provided

non-fund-Examples of non-fund-based services include:

- Management of capital issue through shares and debentures-activities connected with pre-issue and post-issue

- Management of private placement-capital and debt instruments of investment institutions

- The preparation and dispatch of remittance instruments such as demand drafts, etc

- The arrangement of funds to suit project requirements, including working capital

- The provision of guarantees/credit of letter facilities

- The provision of advisory/consultancy services

- The provision of solvency certificate for submission to governments/government bodies in business deals or bids, etc and assisting clients

in the process of getting clearances from them

(2) Modern services provide a wide range of modern services, which include:

- Providing project advisory services from inception to execution, project report preparation, securing government approvals and raising funds, etc

- Facilitating and planning merger and acquisitions, and assisting their smooth execution

- Designing capital restructuring 3

3

C.Rama Gopal, Management of Financial services, 2014, p.60

This classification is so narrow and primarily focuses on banking sector So it has not showed the other sectors of financial services such as insurance yet Thus, the classification of the TPP is reasonable to divide financial services into the following activities:

- Insurance and insurance-related services

- Banking and other financial services (excluding insurance) 4

1.2 The roles of financial services in an economy

Financial services are the backbone of the modern economy It plays an important role in the economy As an instrument to promote the circulation of financial flows, financial services have contributed to accelerating the production and reproduction of society, creating a foundation for the economic growth

Under the book named “Finance for Growth: policy choices in a volatile world” (World Bank, 2001), the system of financial services have the four basic economic functions as follows:

Firstly, financial services contribute to the effective management of risks in particular, and the stable operation of the economy in general

By pricing the risks involved in the provision of financial services, financial organizations have created mechanisms of setting, mitigating and transferring risks

4 Article 11.1, Chapter 11 of the TPP

For example, with the creation of attractive financial instruments such as non-term deposit, option or futures contracts, financial intermediary organizations can help organizations and individuals to manage risk effectively, thereby promoting interaction relationship between savers and investors

Insurance companies can protect them from risks causing direct losses to property and people By various insurance products, insurance companies have provided organizations and individuals the effective instruments of risk management For example, derivatives markets of financial services allow traders to hedge against risks of interest and exchange rates The system of social insurance creates economic and politically stability

Thus, financial services not only reduce directly risks but also provide indirectly the effectively instruments to gather, exchange and prevent risks for each unit or individual in an economy

Secondly, finance services support effectively for the evaluation of the effectiveness of investment projects and the allocation of investment capital

Evaluating investment projects is difficult and costly for investors because there is no means of collecting and processing information about companies, markets and economic conditions In this context, financial intermediaries have a better ability to collect, evaluate information and assess, allocate capital Thus, investors can rely on results of the evaluation of the financial intermediaries for their projects of investment, savings and then allocate more efficiently capital, thereby promoting economic growth

Thirdly, the market of financial services is an important channel to raise capital to finance an economy

The development of financial services will bring the most important effect that

is the mobilization of social resources for financing projects and provision of capital for the operation of financial markets The raised capital includes savings mobilized

by commercial banks, charges on insurance policies collected by insurance companies and the capital mobilized by stock markets

In addition, finance services create favorable conditions for development of trade

Modern instruments of financial services such as checks, credit cards and other instruments are created to simplify operations of trade, make the performance

of trade activities become easier, stimulating the development of the whole economy

Finally, the efficiency of financial services contributes significantly in establishing the competitive position of prices of goods and services in an economy

The estimated proportion of the value of financial services in the prices of related products of manufacturing sector accounts for about 3-7% Thus, if finance services operate effectively, the cost that manufacturers must spend on financial services will relatively decline and then the cost of products will also decrease respectively, contributing to increasing competitiveness

1.3 The factors affecting financial services

There are the following factors affecting financial services:

1.3.1 The participants of the market of finance services

The participants of the financial service market include providers of financial services and the customers who use the services

The providers of financial services

The providers of financial services are financial institutions in banking, insurance, securities, investment advisory and other financial sectors that are established in various different forms of ownership and have the flexible mechanism to mobilize capital The sensitivity of doing business in financial services, due to their characteristics of intangibility, is showed through the closely interdependent relations of almost actors of this market as well as domino effects Therefore, rules of law of countries have given strict regulations on business conditions and financial safety indicators, for example, the charter capital must at least be at the legal capital stipulated by law

The customers who use financial services

The customers who create demand for financial services include individuals, organizations and governments The quality of services depends on not only services themselves but also the skills of providers and the awareness of the customers Therefore, in order to expand their market shares, the providers not only establish their reputation, financial capacity, customers’ reliability, but also understand the needs of customers through market surveys Moreover, they should improve and upgrade their existing services, research and launch new services (Vu Thi Minh Hang, 2008)

1.3.2 The price of financial services

The price of financial services has many different names relating to different types of services, such as interest rates, insurance fees, money transfer fees, consulting fees, brokerage commissions

The price of financial services is a significant factor that impacts on the profit and turnover of the providers of financial services Moreover, it is an important factor in their competitive strategy and also the clear expression of the quality of the services

1.3.3 The intervention of governments

In the developing process of the market of financial services, the intervention

of governments is necessary for creating a healthy business environment, reducing the negative elements arising from financial transactions, ensuring the stability of this market

Moreover, in recent decades, governments are actively engaged in the process

of globalization of financial services - a sensitive and critical area of an economy Therefore, along with an open-door policy, gradually eliminating barriers to entry the market of financial services, governments should strengthen a monitoring mechanism of capital flows more effectively to prevent the risk of chains of financial crises

1.3.4 Internationalization trend in financial services

Financial services have the ability to generate the circulation of money and capital flows, so the trend of internationalization of this market is considered as one

of the strategic factors in order to expand the market Based on the reality of the process of integration and international cooperation in economic activities, governments should prepare the initiative, plans and specific roadmap to integrate effectively in the financial service sector

International integration is expressed in many different aspects Foreign providers are allowed to compete on equal terms with domestic providers or to provide their services in the domestic market A further expression of international integration is the adoption of international standards and practices in the field of financial services

The internationalization process of the market of financial services promotes and enhances the effectiveness of macroeconomic policies, creates opportunities for local providers to expand their markets abroad In addition, the internationalization trend is considered as one of the best signals sent the international investors that the country is about to lift barriers to the entry of the financial service market, thus contributing to the attraction of international investment flows

However, the open-door policy will result in some disadvantages if local providers have weak competitiveness Then the intense competition in many segments of the market has many potential risks to domestic providers

Conclusion of Chapter 1

The Chapter 1 covers basic issues relating to financial services such as: the definition, specifications, classification of financial services, their roles in an economy as well as the factors affecting them These are fundamental grounds for further continue the study the TPP commitments on financial services and their effects on Vietnam’s financial services in the next chapters

CHAPTER 2 THE OVERVIEW OF THE TPP AND THE KEY REGULATIONS OF

THE TPP ON FINANCIAL SERVICES

2.1 The overview of the TPP

On October 4, 2015, the 12 ministers of the TPP member countries – Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, and Vietnam – announced the conclusion

of their negotiations The result is a high-standard, ambitious, comprehensive, and balanced agreement that will promote economic growth; support the creation and retention of jobs; enhance innovation, productivity and competitiveness; raise living standards; reduce poverty in our countries; and promote transparency, good governance, and enhanced labor and environmental protections The conclusion of this agreement, with its new and high standards for trade and investment in the Asia Pacific, is considered as an important step toward the ultimate goal of open trade and regional integration across the region

2.1.1 The key features of the TPP

The TPP has five key features that make the TPP a landmark 21st-century agreement, setting a new standard for global trade while taking up next-generation issues These features include:

- Comprehensive market access The TPP eliminates or reduces tariff and

non-tariff barriers substantially across all trade in goods and services and covers the full spectrum of trade, including goods and services trade and investment, so as to create new opportunities and benefits for the businesses, workers, and consumers of the member countries

- Regional approach to commitments The TPP facilitates the development

of production and supply chains, and seamless trade, enhancing efficiency and creating and supporting jobs, raising living standards, enhancing conservation efforts, and facilitating cross-border integration, as well as opening domestic markets

- Addressing new trade challenges The TPP promotes innovation,

productivity, and competitiveness by addressing new issues, including the

development of the digital economy, and the role of state-owned enterprises in the global economy

- Inclusive trade The TPP includes new elements that seek to ensure that

economies at all levels of development and businesses of all sizes can benefit from trade It includes commitments to help small- and medium-sized businesses understand the Agreement, take advantage of its opportunities, and bring their unique challenges to the attention of the TPP governments It also includes specific commitments on development and trade capacity building, to ensure that all Parties are able to meet the commitments in the Agreement and take full advantage of its benefits

- Platform for regional integration The TPP is intended as a platform for

regional economic integration and designed to include additional economies across the Asia-Pacific region

2.1.2 The scope of the TPP

The TPP includes 30 chapters covering trade and trade-related issues, beginning with trade in goods and continuing through customs and trade facilitation; sanitary and phytosanitary measures; technical barriers to trade; trade remedies; investment; services; electronic commerce; government procurement; intellectual property; labor; environment; ‘horizontal’ chapters meant to ensure that TPP fulfills its potential for development, competitiveness, and inclusiveness; dispute settlement, exceptions, and institutional provisions

In addition to updating traditional approaches to issues covered by previous free trade agreements (FTAs), the TPP incorporates new and emerging trade issues and cross-cutting issues These include issues related to the Internet and the digital economy, the participation of state-owned enterprises (SOEs) in international trade and investment, the ability of small businesses to take advantage of trade agreements, and other topics

The TPP unites a diverse group of countries – diverse by geography, language and history, size, and levels of development All TPP countries recognize that diversity is a unique asset, but also one which requires close cooperation, capacity-building for the lesser-developed TPP countries, and in some cases special

transitional periods and mechanisms which offer some TPP partners additional time, where warranted, to develop capacity to implement new obligations

2.1.3 Vietnam’s negotiations to take part in the TPP

Vietnam has sent the proposal of taking part in the negotiations of the TPP as

an associate member on February 3, 2009 and received the letter of approval on March 18, 2009 After participating three negotiations, Vietnam made a decision to join in negotiations as a formal member of the TPP in November 2010

According to news named “Hiệp định Đối tác xuyên Thái Bình dương (Hiệp định TPP) và sự tham gia của Việt Nam”- In English: Trans-Pacific Partnership and the participation of Vietnam-on the website of Vietnam National Tobacco Corporation, the other member countries appreciated Vietnam joining the talks of the TPP because of the following reasons:

Firstly, in the last years, Vietnam has proved to be a dynamic economy and implemented seriously international commitments Having a stable political environment and an increasingly important role in the region, Vietnam is a key partner in the present and future and can help to increase the influence of the TPP in the region

Secondly, Vietnam has the considerable population size and the dynamic economic development This country will become a market with a high purchasing power and now it is considered as a favorable destination of foreign firms, especially the firms in Asian-Pacific region

Thirdly, Vietnam is a developing country at a low level The successful participation of Vietnam will be a persuasive evidence to convince that the TPP is really beneficial to developing countries and that various measures in the TPP can support them to implement high standards of the agreement This is an important factor for the TPP to attract new members in the future

2.2 The key TPP regulations on financial services

The important regulations of the TPP on financial services are stipulated in mainly Chapter 11 of the TPP These regulations cover the following aspects of financial services

2.2.1 Types of financial services

In the scope of Chapter 11, there are some regulations governing types of financial services They are in Article 11.1, Article 11.6, Article 11.7 and Article 11.18

Article 11.1, namely Definitions, regulated that financial services cover such two main sectors as (1) insurance and insurance-related services and (2) banking and other financial services In each sector, there are various sub-sectors as follows:

(1) Insurance and insurance-related services

- Life and non-life direct insurance (including co-insurance);

- Reinsurance and retrocession;

- Insurance intermediation, such as brokerage and agency; and

- Services auxiliary to insurance, such as consultancy, actuarial, risk assessment and claim settlement services;

(2) Banking and other financial services (excluding insurance)

- Acceptance of deposits and other repayable funds from the public;

- Lending of all types, including consumer credit, mortgage credit, factoring and financing of commercial transaction;

- Financial leasing;

- All payment and money transmission services, including credit, charge and debit cards, traveller’s cheques and bankers drafts;

- Guarantees and commitments;

- Trading for own account or for account of customers, whether on an exchange,

in an over-the-counter market or otherwise, the following:

- Money market instruments (including cheques, bills, certificates of deposits);

- Foreign exchange;

- Derivative products, including futures and options;

- Exchange rate and interest rate instruments, including products such as swaps, forward rate agreements;

- Transferable securities; and

- Other negotiable instruments and financial assets, including bullion;

- Participation in issues of all kinds of securities, including underwriting and placement as agent (whether publicly or privately) and provision of services related

to such issues;

- Money broking;

- Asset management, such as cash or portfolio management, all forms of collective investment management, pension fund management, custodial, depository and trust services;

- Settlement and clearing services for financial assets, including securities, derivative products, and other negotiable instruments;

- Provision and transfer of financial information, and financial data processing and related software by suppliers of other financial services; and

- Advisory, intermediation and other auxiliary financial services on all the activities listed in subparagraphs (e) through (o), including credit reference and analysis, investment and portfolio research and advice, advice on acquisitions and

on corporate restructuring and strategy

Moreover, in Article 11.18, the TPP also includes specific regulations relating

to services such as Portfolio Management, electronic payment card services and transfer of information These all relate to cross-border trade

In addition, Article 11.7 on New Financial Services requires a TPP member to allow a financial institution of the other member to supply new financial services that the former would permit its own institutions to supply without the adoption of a law or the modification of an existing law

For the reservation of Vietnam relating to new financial services, the TPP indicated that “Without limiting Viet Nam’s obligations under Article 11.7 (New Financial Services), Viet Nam may impose a pilot testing program for a new financial service and in doing so may impose either a cap on the number of financial service suppliers that may participate in a pilot testing programs or restrictions on scope of pilot testing programs” This measure is also inconsistent with the obligations of NT, MFN and MA.5

5 Section B of Viet Nam’s schedule to Annex III

2.2.2 The modes of providing financial services

According to Article 11.6 on Cross-Border Trade (CBD), a TPP member shall allow their nationals to purchase financial services from cross-border supplier of the other members who have not their commercial presence in the territory of the former Thus, a foreign supplier from the other TPP members should not establish its branches or sales representatives abroad Instead, they can export their financial services by cross-border trade However, a number of cross-border financial services that each TPP member allows suppliers of other members to supply to its nationals is limited and included in Annex 11-A of Chapter 11

For Vietnam, cross-border insurance services encompass (a) insurance of risks relating to international maritime shipping and international commercial aviation as well as goods in international transits; reinsurance and retrocession; and (c) brokerage services, and services auxiliary to insurance In banking and other financial services (if any), cross-border services are such services as provision and transfer of financial information, and financial data processing and related software; advisory and other auxiliary services to the extent that such services are permitted in the future by Vietnam

For the financial services of Vietnam not listed in Annex 11-A, the TPP stipulated that “To the extent of financial services not committed under Viet Nam’s Annex 11-A (Cross-Border Trade), Viet Nam reserves the right to adopt or maintain any measure with respect to the purchase of financial services by persons located in Viet Nam from financial service suppliers abroad”6

Furthermore, the TPP also stated that “Viet Nam reserves the right to adopt or maintain any measure including but not limited to financial support, such as government-supported loans, guarantees and insurance with respect to activities for

a public purpose: income security and insurance, social security, social welfare, social development, social housing, poverty reduction, public education, public training, health, childcare, promoting the welfare and employment of ethnic minorities and people living in disadvantaged areas, small and medium enterprises’

6 Section B of Viet Nam’s schedule to Annex III (NCMs)

development, and granting of one-time subsidization to promote and facilitate the process of equitisation.” This measure is inconsistent with the obligations of Cross-border Trade, NT, MFN, MA and SMBDs.7

2.2.3 Treatment standards

Article 11.3, Article 11.4 and Article 11.5 stipulates treatment standards among TPP members They are National Treatment (NT), Most-favored nation treatment (MFN), Market access (MA) and Senior Management and Boards of Directors (SMBDs)

National treatment for investors and investments in financial institutions in the TPP countries—that is, the agreement provides that no country shall discriminate against foreign providers of services in favor of its own nationals This obligation is regulated in Article 11.3 of Chapter 11

Most-favored nation treatment, which provides that no country shall discriminate in favor of one TPP country over another TPP country, or a non-TPP country with regard to the cross-border supply of specifically listed financial services (such as marine, aviation, transportation insurance and financial advisory services) This obligation is regulated in Article 11.4 of Chapter 11

Market access, which provides that no country may impose quantitative restrictions on the number of financial institutions, total value or number of financial services transactions or assets or restrictions on the type of legal entity through which a financial institution may supply a service in another TPP market This obligation is regulated in Article 11.5 of Chapter 11

Article 11.9 on Senior Management and Boards of Directors stipulated that a TPP Party shall not impose nationality requirements on senior management or other essential personnel, or impose nationality or residency requirements on more than a minority of the board of directors of a financial institution of another TPP Party

2.2.4 The Minimum Standard of Treatment (MST) and dispute settlement

- Minimum Standard of Treatment: The chapter includes provision of the

minimum standard of treatment (e.g., allowing for claims for denial of justice or

7 Section B of Viet Nam’s schedule to Annex III (NCMs)

failure to provide police protection) bounded by customary international law (i.e., those limited actions governments take out of sense of legal obligation), as well as claims for damages due to civil strife (i.e., losses suffered as a result of armed

conflict or civil strife)

- Dispute settlement in Financial Services: The chapter establishes important

safeguards in the event of investment disputes involving financial regulatory measures, including provisions regarding the financial expertise of potential arbitrators Most significantly, the chapter establishes a special procedure whereby any dispute relating to a prudential measure can immediately be removed from an investor-State arbitration proceeding and placed under the review of the financial regulatory authorities of the concerned TPP Parties Any differences between those authorities as to the application of the prudential exception can then be resolved through a separate, State-to-State arbitration between relevant TPP governments,

rather than in an investor-State proceeding

2.2.5 The Non-Conforming Measures (NCMs) of Vietnam

The TPP parties use the approach of negative list to inscribe the regulations on financial services It means that all sectors or sub-sectors that are not listed in the schedules to Annex III shall be subject to the regulations of NT, MFN, MA, cross-border trade The NCMs that are inconsistent with these regulations are listed in Parties’ Schedule to Annex III8 The parties’ schedule to Annex III is divided into two Sections:

- Section A

Section A allows countries to maintain a current measure inconsistent with specified obligations of the TPP, but not to make that measure more restrictive Any future liberalization of measures listed in Section A will be subject to the rules of

the agreement The TPP Parties opted for the Ratchet mechanisms in order to

further continue their respective commitments and reservations This is detailed in Article 11.10.1(c) (i) for the obligations of NT, MFN, MA and SMBDs:

“Article 11.10: Non-Conforming Measures

8 Article 11.10:Non-Conforming Measures

1 Article 11.3 (National Treatment), Article 11.4 (Most-Favored-Nation Treatment), Article 11.5 (Market Access for Financial Institutions), Article 11.6(Cross-Border Trade) and Article 11.9 (Senior Management and Boards of Directors) shall not apply to

(c) An amendment to any non-conforming measure referred to in

subparagraph (a) to the extent that the amendment does not decrease the conformity of the measure as it existed:

(i) immediately before the amendment, with Article 11.3 (National

Treatment), Article 11.4 (Most-Favored-Nation Treatment), Article 11.5 (Market Access for Financial Institutions) or Article 11.9 (Senior Management and Boards

of Directors); or…”

For the regulations on CBD, the Standstill mechanism was opted in order to choose the level of market openness in the future This is regulated in Article 11.10.1(c) (ii):

“(ii) On the date of entry into force of the Agreement for the Party applying

the non-conforming measure, with Article11.6 (Cross-Border Trade).”

- Section B

Section B allows countries to maintain certain existing or future measures that are inconsistent with the TPP in the specific sectors it lists in the Annex B

Section A of the schedule of Vietnam to Annex III includes some NCMs

relating to banking and insurance services Viet Nam is allowed to extend the deadline for implementing the Ratchet mechanism three further years after the date

of entry into force of the TPP agreement10

For banking services, there are the following NCMs:

- Foreign commercial banks are only permitted to establish commercial presence in Viet Nam in the forms such as representative offices, branch of foreign commercial banks, commercial joint venture bank with foreign capital contribution not exceeding 50 per cent of chartered capital, joint venture financial leasing

10 Annex 11-C to Chapter 11

company, 100 per cent foreign-invested financial leasing company, joint venture finance company and 100 per cent foreign-invested finance company, and 100 per cent foreign-owned banks For foreign finance companies and foreign financial leasing companies, there are the same limitations on the forms of companies These measures are inconsistent with the obligations of NT and MA

- Total equity held by foreign institutions and individuals in each Viet Nam’s joint-stock commercial bank may not exceed30 per cent of the bank’s chartered capital, unless otherwise provided by Viet Nam’s laws or authorized by a Viet Nam’s Competent authority

Equity held by a foreign strategic investor and its affiliated persons in each Viet Nam’s joint-stock commercial bank may not exceed 20 per cent of the bank’s chartered capital

In special cases to implement the restructuring of weak credit institutions for the sound banking system, the Prime Minister will decide the total shareholding of foreign investors in are structured weak credit institution that might exceed the set ceiling proportion on a case-by-case basis

- General directors (directors), deputy general directors (deputy directors), chief accountants, directors of branches and directors of subsidiary companies and people assuming equivalent positions must reside in Viet Nam during their term of office whenever they assume the positions in the Board of Directors of a credit institution These measures are inconsistent with the obligations of NT and MA

- The conditions for the establishment of a branch of a foreign commercial bank

in Viet Nam: the parent bank has total assets of more than US$20 billion at the end

of the year prior to application For a joint venture bank or a 100 per cent owned bank in Viet Nam, the total assets of the parent bank must be more than US$10 billion at the end of the year prior to application

foreign-The conditions for the establishment of a 100 per cent foreign invested finance company or a joint venture finance company, a 100 per cent foreign-invested financial leasing company or a joint-venture financial leasing company in Viet Nam: the foreign credit institution has total assets of more than US$10 billion at the

end of the year prior to application Only a natural person who has the nationality of Viet Nam can be allowed to be a founding shareholder of joint stock commercial banks These measures are inconsistent with the obligation of NT

- A foreign credit institution or a foreign institution engaged in a banking operation shall only be permitted to establish one representative office in each province or city under the central authority This measure is inconsistent with the obligations of NT and MA

- A foreign bank branch shall not be permitted to: (i) either contribute capital or purchase shares; (ii) carry out activities that the foreign bank is not allowed to conduct in its home country; and (iii) open a transaction points in any form outside its location which is stated in the establishment license Prudential ratios of a foreign bank branch in Viet Nam must be calculated based on its regulatory capital, which must be located in Viet Nam These measures are inconsistent with the obligation of NT and MA

For insurance services, there are some NCMs as follows:

- Foreign natural persons are not allowed to supply insurance agency services in Viet Nam This measure is inconsistent with the obligation of NT

- Foreign insurance company supplying cross border insurance services not covered in Viet Nam’s Annex 11-A (Cross-Border Trade) shall only conduct business via an insurance broker which has the license to establish and operate in Viet Nam This measure is inconsistent with Article 11.6 on cross-border trade

- Foreign insurance broker when supplying cross-border insurance services not covered in Viet Nam’s Annex 11-A (Cross-Border Trade) shall only conduct business for insurance company or branch of foreign non-life insurance company which has license of establishment and operation in Viet Nam This measure is inconsistent with Article 11.6 on cross-border trade

Section B of the schedule of Vietnam to Annex III includes some NCMs

relating to banking and insurance services

For banking services, there are NCMs as follows:

- Viet Nam may grant advantages or exclusive rights to one or more development financial institutions, co-operative banks, people’s credit funds and microfinance institutions including but not limited to Viet Nam Bank for Social Policies, Viet Nam Development Bank, Co-operative Bank of Viet Nam, Bank for Agriculture and Rural Development of Viet Nam, and Mortgage Refinance Bank This measure is inconsistent with the obligations of NT, MA and SMBD

- Viet Nam reserves the right to adopt or maintain any measure relating to the equitisation of state-owned commercial banks and restructuring process of credit institutions in Viet Nam This is inconsistent with the obligations of NT, MFN, MA and SMBD

For insurance services, there are NCMs as follows:

- In addition to the general conditions for being granted the establishment and operation license, financial service suppliers or investors of a Party asking for the permission to establish foreign insurance enterprises, foreign insurance brokerage enterprises and reinsurance enterprises must satisfy a number of additional conditions on minimum years of experience, value of total assets, making profits and no violation of the laws and regulations on insurance business or of other laws

of the country where it has its head office The measure is inconsistent with the obligation of NT

- No foreign insurance company except a foreign non-life insurance company is permitted to open branches in Viet Nam

In order to be granted the license for the establishment of a non-life insurance branch in Viet Nam, a foreign non-life insurance company must satisfy the conditions under Vietnamese law, including:

(a) Operational and financial capacity and branch management and supervisory capacity in Viet Nam of foreign non-life insurance company; and (b) Cooperation between the foreign insurance administrative body of the country where the company head office is located and the Vietnamese insurance administrative body in managing and supervising the branch of foreign non-life insurance company in Viet Nam

This measure is inconsistent with the obligation of MA

- In addition to the general conditions for supplying reinsurance services, a foreign reinsurance company must satisfy an additional condition on required credit ratings This measure is inconsistent with Article 11.6 on cross-border trade

Conclusion of Chapter 2

This chapter has showed the overview of the TPP as well as its key features and scope Furthermore, the chapter has stated the TPP regulations and Vietnam’s corresponding commitments on financial services

The chapter includes the core obligations of NT, MFN, and MA It also states that the TPP members are not allowed to put quantitative limitations on a number of institutions, transactions or employees Foreign investors from the TPP members are also protected by MST as well as ISDS mechanism Whether MST gives foreign investors more protection than domestic investors has been controversial for a long time, but inclusion of MST in the framework of a FTA’s commitments on financial services is new Furthermore, the chapter also focuses on Vietnam’s schedule to annex III that comprises NCMs that are measures on banking and insurance services currently existing in Vietnam, but inconsistent with the TPP commitments and obligations

CHAPTER 3 THE IMPACT OF THE TPP ON BANKING SERVICES IN VIETNAM 3.1 The current situation of banking services in Vietnam

3.1.1 The system of commercial banks

Influenced by the global financial crisis and economic recession in the past years, the banking system of Vietnam was in the difficult situation with poor quality

of assets and risk of collapse In the circumstance, the Prime Minister signed Decision No 254 / QD-TTg dated 01/03/2012 on launching the program namely

“Restructuring the system of Viet Nam’s credit institutions in 2011-2015", which recommends mergers and acquisitions (M&A) of credit institutions and instructs the implementation of solutions in order to stabilize the financial system and its operations, ensuring the safety and sustainable development of the system After four years of implementation of this program, a number of banks have sharply decreased by 17 through M&A, withdrawal of operation licenses or change in type

of ownership In 2015, Viet Nam’s banking system included 4 SOCBs, 31 JSCBs (3 of these banks whose more than 50% of charter capital is held by the Government), five FBs, 3 JVBs and 50 branches of FBs

SOCBs hold a significant stake in the industry, with an estimate of 44.1% of total assets in the banking industry in Vietnam JCSBs followed closely behind, with 42.2% of the total assets in the banking system in the country Nevertheless, charter capital for JSCBs is higher compared to SOCBs, with 43.8% of total charter capital in the industry compared to 30.8% of total charter capital for SOCBs According to regulations, banks must maintain a minimum charter capital of VND 3 trillion (about $143 million) (source: SBV, 2015)

State-owned Commercial Banks (SOCBs)

SOCBs are majority government-owned institutions that the government had initially established to fulfill a specialized lending function Their traditional customer base has been state-owned enterprises (SOEs) and they are increasingly diversifying their customer base to include non-SOEs There are currently 4 SOCBs

in Vietnam, which are the largest banks in the Vietnamese banking industry These

4 banks include Agribank, Vietinbank, BIDV and Vietcombank and they hold more than a third of the total combined assets in the industry

Joint Stock Commercial Banks (JSCBs)

JSCBs have a comparatively small capital and deposit base and they have a more diversified shareholding structure than SOCBs They specialize mainly in loans to SMEs and retail banking Currently, Vietnam has 31 JSCBs As of December 2013, the top 10 JSCBs have an approximate of VND 1,500 trillion in total assets, which contribute to more than half (60.5%) of the total assets of all JSCBs in Vietnam The leading JCSB is Saigon Joint Stock Commercial Bank (SCB), followed by Military Commercial Joint Bank (MBB) and Vietnam Export Import Commercial Joint Stock Bank (EIB), with more than VND 10 trillion in charter capital More than half of the JSCBs (57.5%) have charter capital of less than VND 5 trillion (Source: SBV, 2013)

Foreign Banks (FBs)

At present Vietnam have six banks that have full foreign ownership: Standard Chartered Bank, HSBC, ANZ, South Korea’s Shinhan Bank and Malaysia’s Hong Leong Bank Berhad and Public Bank Berhad Moreover, the banking system contains a further 49 representative offices and 43 branches that have been opened

by other foreign banks, four joint venture banks, 17 financial firms, 12 financial leasing companies and nearly 1,100 credit funds However, Vietnam limits the degree of foreign ownership in any domestic bank to 30 percent at present, as well

as placing a limit of 20 percent on strategic investors in domestic bank ownership, and 15 percent on non-strategic investors

According to the statistics of DIV, as of 30/09/2016, Taiwan and South Korea are the countries where the number of branches of foreign banks and banking representative offices in Vietnam is highest In particular, Taiwan has 13 branches

of foreign banks and 9 representative offices; Korea has one bank with 100% foreign capital, 9 branches and 8 representative offices Other countries with a high number of branches of foreign banks and banking representative office in Vietnam include Japan, China, USA, France, Germany According to the roadmap

committed with AEC, Vietnam will have to open the door to foreign ownership in the banking sector at least 70% in 2015 and 100% in 2020 Currently, limits on the percentage of ownership of foreign investors in banking sector reach to a maximum

of 30% (higher must be approved by the Government), 49% in the field of securities and insurance Thus not only banks in the members of the WTO but also banks from many other countries in the AEC will have the opportunity to penetrate the Vietnam market Currently, Singapore and Thailand are the two leading countries in penetrating into the banking market of Vietnam The common point of most banks

in the ASEAN region investing in Vietnam is that they have experienced perennial overseas activities and wants to boost sales in the regional markets in the coming years, especially in Cambodia, Laos, Myanmar and Vietnam Before formally establishing representative offices or branches in Vietnam, most of these banks have gradually put professional steps in the Vietnam market such as setting up joint ventures, becoming strategic shareholders

The country is gradually increasing its exposure to foreign banking, with the government expected to issue a decree before the end of the year that will remove the 30-percent limit for overseas ownership Most recently, in a move being viewed

as a stepping stone towards the eventual opening of a wholly foreign-owned domestic bank, the State has recommended that the SBV grant a license to Singapore’s United Overseas Bank (UOB) Given that Singapore is among Vietnam’s prime trading partners, the Ministry of Planning and Investment (MPI) has been pushing the government to give UOB the license to expand its operations within Vietnam and allow the bank to be actively involved in the country’s financial-restructuring process by taking over domestic banks

It may be that the lenders with a sizeable proportion of state ownership are in the best position to immediately benefit from the integrated ASEAN community, especially as those lenders already have a banking presence in neighboring countries and are invariably the biggest banks in the country by total assets The country’s biggest lender, state-owned Agribank, which has nearly VND763 trillion ($35.16 billion) in assets, has retail branches in Laos and Cambodia; Vietinbank