VIETNAM – BANKING AND FINANCING SUSTAINABLE GROWTH - Issues and Solutions - Impact of the Key Trade Agreements CPTPP, EUVNFTA and Investment Protection Agreement
1. VIETNAM – BANKING AND FINANCING SUSTAINABLE GROWTH
- Issues and Solutions - Impact of the Key Trade Agreements
CPTPP, EUVNFTA and Investment Protection Agreement
Author: Dr. Oliver Massmann
Vietnam is one of the countries in Asia with the most impressive economic growth. Inflation remains well
controlled and foreign exchange reserves are at their highest levels in years and they continue to rise. The
effective and economic state administration has been recognized by the international markets, most recently
with the appreciation of the Vietnamese credit rating by Fitch Ratings. In the future, it is expected that
Vietnam will continue to show strong economic growth. A particularly strong area is the electronics
production. In addition, financing sustainable growth and providing credit and good financial services is
essential to all who need it.
The focus of the government and the State Bank of Vietnam (SBV) should be geared to lending in strong
sectors. This implies that quotas should be distributed appropriate and that there should be no upper limits
in a given sector. Only with this credit can be provided sufficiently in the priority sectors. This will benefit
strong and profitable companies while controlling and reducing risk in critical sectors.
In addition, the focus is on recapitalization and consolidation of the financial sector, which leads to fewer
but stronger banks. Furthermore, the digitization of the Vietnamese economy continues to increase, with
the next step being to create a comprehensive legal framework that further promotes digital development,
including the use of the forthcoming national biometric identity system.
In the future, a change in banking regulations should be also considered. The rules are currently issued on
the basis of basic laws such as the Civil Code. As a result, opening accounts for companies that are not
legal entities is difficult. Addressing the above issues will, in the long term, lead to a strengthening of the
banking sector. This will bring more and more FDI´s into the country and Vietnamese people and
companies will benefit from it.
B. Decree 116 and related issues
With regard to Decree 116, there are problems in lending that banks have. There are currently challenges
related to public information and verification. It is very time-consuming for the banks to obtain the relevant
information from the client, there are only limited independent sources of information, and there are
different definitions of the criteria used to identify beneficiaries in Vietnam and international common
2. Banks are facing the difficult situation of being able to verify that a natural person owns 10% or more
charter capital in a legal entity. Natural persons who hold 20% or more charter capital to companies whose
equity capital is more than 10%; private business owners; and other persons actually controlling the
company, in accordance with the provisions for determining beneficial owners referred to in Article 5.1,
Decree 116/2013 / ND-CP.
The banks have difficulties in how to verify that an individual holds 10% or more charter capital in a legal
entity, individuals holding 20% or more charter capital in entities having more than 10% equity in the legal
entity, private business owners and other individuals who actually control the entity, under regulations on
identifying beneficial owners referred to in Article 5.1, Decree 116/2013/ ND-CP.
To solve this problem, the State Bank of Vietnam (SBV) could make the following arrangements. Only the
ultimate beneficial owner holding directly and indirectly 25% or more of the charter capital must be
identified. Further, it is not necessary to identify ultimate beneficial owners in case the customer is rated as
low-risk by financial institutions incorporated in Financial Action Task Force member nations, because
these institutions have advanced anti-money laundering and financing terrorism control systems, and are
monitored by relevant host country regulators.
C. Outlook on Circular 19/2014/TT – NHNN
Circular 19/2014/TT - NHNN contains revisions for foreign exchange control in direct investment and
portfolio investment to be consistent with latest rules on foreign investment. One of most frequent issues
related to foreign-invested companies is the Investment certificate being used as the only reference to
identify a directly investing business for foreign investment capital account opening purposes. However,
this does often not reflect properly the nature of the investment activity and existing regulations on
investment activities (Investment Law of Nov. 26, 2014, Decree 118/2015/ND-CP, providing details and
implementing guidance for specific clauses of the Investment Law).
Furthermore, given the development of derivative markets in Vietnam, the Circular can be revised to cover
specifically derivative securities and include relevant reporting indicators for investment in these securities
by foreign investors.
D. Outlook on the Major Trade Agreements TPP 11, EUVNFTA and Investment Protection
In January 2017, US President Donald Trump decided to withdraw from the US participation in the TPP.
In November 2017, the remaining TPP members met at the APEC meetings and concluded about pushing
forward the now called CPTPP (TPP 11) without the USA. The provision of the agreement specified that
it enters into effect 60 days after ratification by at least 50% of the signatories (six of the eleven participating
countries). The sixth nation to ratify the deal was Australia on 31 October 2018, therefore the agreement
will finally come into force on 30 December 2018. Recently, on the 12th November 2018, Vietnam has
officially become the seventh member of the CPTPP.
3. The CPTPP is targeting to eliminate tariff lines and custom duties among member states on certain goods
and commodities to 100%. This will stimulate domestic reforms in many areas, especially the financial
sector. As a result, the above mentioned issues could be addressed gradually and therefore more FDI´s will
come to Vietnam.
One another notable major trade agreement is the European Union Vietnam Free Trade Agreement
(EUVNFTA). The EUVNFTA offers great opportunity to access new markets for both the EU and Vietnam
and to bring more capital into Vietnam due easier access and reduction of almost all tariffs of 99%, as well
as obligation to provide better conditions for workers. In addition, the EUVNFTA will boost the most
economic sectors in Vietnam. Due to easier opportunity on making business, trade and sustainable
development will be a good consequence for an even more dynamic economy and even better investment
environment in Vietnam in general and especially in the financing sector.
To enable at least some parts of the FTA to be ratified more speedily at EU level, the EU and Vietnam
agreed to take provisions on investment, for which Member State ratification is required, out of the main
agreement and put them in a separate Investment Protection Agreement (IPA). Currently both the FTA and
IPA are expected to be formally submitted to the Council in late 2018, possibly enabling the FTA to come
into force in the second half of 2019.
Furthermore, the Investor State Dispute Settlement (ISDS) will ensure highest standards of legal certainty
and enforceability and protection for investors. Every investor should use these standards. It is going to be
applied under the TPP 11 and the EUVNFTA. Under that provision, for investment related disputes, the
investors have the right to bring claims to the host country by means of international arbitration. The
arbitration proceedings shall be made public as a matter of transparency in conflict cases. In relation to the
TPP, the scope of the ISDS was reduced by removing references to “investment agreements” and
“investment authorization” as result of the discussion about the TPP’s future on the APEC meetings on
10th and 11th November 2017.
Further securities come with the Government Procurement Agreement (GPA), which is going to be part of
the TPP 11 and the EUVNFTA. The GPA in both agreements, mainly deals with the requirement to treat
bidders or domestic bidders with investment capital and Vietnamese bidders equally when a government
buys goods or requests for a service worth over the specified threshold. Vietnam undertakes to timely
publish information on tender, allow sufficient time for bidders to prepare for and submit bids, maintain
confidentiality of tenders. The GPA in both agreements also requires its Parties assess bids based on fair
and objective principles, evaluate and award bids only based on criteria set out in notices and tender
documentation, create an effective regime for complaints and settling disputes, etc.
This instrument will ensure a fair competition and projects of quality and efficient developing processes.
4. If you have any question on the above, please do not hesitate to contact Dr. Oliver Massmann under
firstname.lastname@example.org. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam
Thank you very much!