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Report on external relation of the SBV and activities of foreign institutions in Vietnam in 2008
2008 is coming to an end closing a turbulent year for every nation in the world. Vietnam is not an exception when it underwent the first half of the year seeing unstable movements in the domestic market and went through the second half of the year facing the impacts of the global financial crisis. In that context, 2008 has indeed marked significant contribution of international monetary and financial organizations and multilateral and bilateral partners in supporting the State Bank of Vietnam (SBV) in particular and Vietnam in general, as well as the positive achievements by foreign credit institution in Vietnam.
I. ENHANCING THE SBV’S INTERNATIONAL COOPERATION
Over the past year, Vietnam has continued to receive active assistance both financially and technically from international financial and monetary organizations as well as multilateral and bilateral partners.
As of November, Vietnam has concluded negotiation with the WB and ADB for 16 programs and projects totaling USD 1.7 billion; and is projected to finish negotiation of the remaining two projects valuing USD 165 million by the end of the year. To date, on behalf of the Government, the SBV has signed Financing Agreements of 12 programs and projects with the WB and ADB with the value of more than USD 2,3 billion, bringing total number of loans signed with these institutions to 157 with the total value of USD 13.4 billion.
During the year, the SBV has continued to benefit from the assistance by foreign partners namely, among others, the IMF, WB, ADB, CIDA, JICA, SEACEN in strengthening the SBV capacity in performing its basic functions, specifically in monetary policy making and implementation, banking inspection and supervision, banking institutional framework development and banking reforms. Especially, Vietnam and the WB have completed the negotiation of the Financial Sector Modernization and Information Management System project with the value of USD 60 million. Once implemented, this project will assist the SBV in developing an information management system that supports the SBV in performing the basic functions of a central bank in accordance with international standards.
Additionally, during the year, the SBV has strengthened the cooperation with central banks all over the world through discussion and signing of cooperation agreements in the forms of Memorandums of Understanding and Exchange of Letters. Most recently, in a formal visit to the People’s Bank of China in November, the two countries’ Governors have reached an agreement on launching a cooperation initiative between the two central banks on exchanging and sharing information in response to the global financial crisis and its impacts on Asia. This event marks a new development milestone in the relationship between the two institutions, especially in the period of global financial crisis.
In the field of banking integration in the post - WTO accession episode, over the past year, the SBV, as the focal point in the international integration of the banking sector, has fully and effectively fulfilled its tasks assigned by the Government under the framework of the Government’s Action Plan given Vietnam’s accession to the WTO for the 2007 - 2012 period, in line with the roadmap and schedule set in WTO banking commitments. The SBV has developed and adopted its own action plan in implementing the Action Plan of the Government.
As the financial crisis spread globally and has bought increasingly large impacts on every nation, the exchange of information and policy consultation between the SBV and its international partners has been strengthened significantly. During the early months of 2008 when containing inflation was the prioritized mission of the Government, the SBV was provided with assistance by various international financial institutions and central banks in the forms of sharing assessment, experiences and policy advices, which in turn had been used as a reference to the Government in adopting appropriate and timely measures. In the later part of the year, when the financial crisis spilled over globally, the policy consultation has been intensified, which together with channels of updated and reliable information on developments in regional and world markets, have formed a useful source of reference for the management and the functional units of the SBV in making policies.
2008 also witnessed the SBV successful organization of important international events and its contribution to the enhancement of the role of Vietnam in general and the SBV in particular in international forums. One of the remarkable diplomatic events of the SBV in 2008 was the successful hosting, for the first time, of the ASEAN Governor and Deputy Governor Meetings. The meetings have created a forum for ASEAN’s leaders and finance and banking specialists to discuss region’s common issues, and at the same time strengthened and enhanced regional cooperation in the field of banking and finance. Moreover, the SBV has also made great achievement in enhancing the role of Vietnam on international forums of such organizations as the IMF, WB, and ADB. At the ADB Annual Meetings this year, the SBV Governor has successfully fulfilled his role as the co-chairman of the institution’s Board of Governors’ meetings. Then, at the IMF/WB Annual Meetings, our Governor was again appointed as chairman of the IMF/WB 2009 Board of Governors’ Meetings, the highest position to chair the Board’s meetings next year.
II. ACTIVITIES OF FOREIGN CREDIT INSTITUTIONS IN VIETNAM
2 years after the country becomes WTO’s member, Vietnam’s banking sector has witnessed continuous development of its foreign banks. Up to now, a total of 22 countries and territories have been licensed to have commercial presence or set up representative offices in Vietnam, including 33 foreign banks that were approved to open branches, 5 joint venture banks with 19 subsidiaries, 3 wholly foreign owned banks, 9 foreign-invested non-banking credit institutions, and 54 representative offices.
In 2008 alone, the SBV gave licenses for establishment and operation of 3 wholly foreign owned banks, namely HSBC, Standard Chattered Bank and ANZ. The SBV also issued licenses for operation of 4 foreign banks’ branches namely Common Wealth Bank, Taipei Furbon Bank, Industrial Bank of Korea, and Sumitomo Bank, and 3 financing companies including PPF (Czech Republic), GE Money (U.S) and Toyota (Japan). During the year, the SBV issued licenses for the opening of 6 representative offices while withdrawing licenses of other 2 offices. Additionally, upon the merge of several parent banks in the world, Royal Bank of Scotland (RBS) has made its first presence in Vietnam as the parent bank of the Hanoi-based ABN AMRO branch.
From mid-2008, the spillover of the US sub-prime crisis and the unfavorable movements of the global economy have had certain impacts on Vietnam’s economy in general and credit institutions system in particular. However, thanks to positive and decisive measures taken by the Government and the SBV, Vietnam’s credit institutions, in particular the foreign ones have kept their activities secured and registered relatively high and stable growth. As of end October, the total fund mobilization of foreign-invested credit institutions reached VND 22,957 billion, an increase of 46% as compared to end-2007, and their total credit outstanding totaled VND 152,952 billion. Foreign credit institutions in Vietnam have strictly complied with Vietnam’s laws and the SBV’s regulations. Additionally, foreign non-bank credit institutions have managed to ensure the prudential ratios such as capital adequacy ratio, ratio of using short-term borrowing to finance medium- and long-term lending, and solvency ratios.
In 2008, the NPLs ratio of foreign banks as a whole increased, though only marginally as compared to that of end 2007. While some foreign bank branches and finance companies experienced losses, the group as a whole still registered the overall income before tax of VND 1,418 billion.
Owing to their advantages in financial capacity and international banking experiences, foreign-invested credit institutions have always been pioneer in developing and applying modern technologies and new banking services and products in Vietnam market, such as factoring and electronic banking, just to name a few. These institutions have been acting as a bridge between foreign investors and Vietnam’s markets and business, and have also provided considerable support to the SBV and domestic commercial banks by means of sharing knowledge, introducing relevant foreign legal documents, staff training, organizing seminars and workshops, introducing modern banking skills and improving the correspondent relationship with the Vietnamese commercial banks. Furthermore, foreign credit institutions have made significant contribution to the drafting and implementing of legal documents issued by the SBV as well as by actively giving advice to the Government and the SBV in the management of macroeconomic policies.
Especially, in 2008, the regular and practical dialogue mechanism between the SBV and foreign credit institutions in Vietnam has continued to be exploited positively. This mechanism has created a periodical forum for the Banking Working Group of Vietnam Business Forum, on behalf of foreign bank community in Vietnam, to have open and candid discussion with the management and relevant departments of the SBV. This regular dialogue has helped foreign banks to comprehend policies and regulations in banking sector, and in turn, helped the SBV to understand banks’ concerns and requests in order to promptly deal with any shortcomings. It is our hope that this forum will be maintained and enhanced in the years to come to contribute to improving the legal framework for banking operation in general and foreign banks’ activities in particular.
As a WTO member, Vietnam has been making consistent policies to create a level playing field for all credit institutions and a more favorable investment environment with a hope that foreign investors in general and foreign financial institutions in particular will increase their participation in Vietnam’s markets through providing new products and modern services and introducing best banking practices. In the near future, as more foreign credit institutions manage to have their commercial presence in Vietnam, the competition in the banking sector will intensify, thus requiring each of the credit institutions to continue their technology reforms, actively introduce new products and services, and improve their operational procedures in order to improve their efficiency. The SBV will do its best to gradually bring its regulations to international standards, to promote sound competition, and to facilitate credit institutions’ stable and sustainable growth, thus contributing to the country’s economic development.
Indeed, the year 2008 continued to witness the enhancement of the close relationship between the SBV and international financial and monetary organizations and bilateral and multi-lateral partners, as well as the continuous growing of foreign credit institutions in Vietnam. Last week, at the CG meeting this year, the donor community committed to finance over USD 5 billion in the forms of development assistance for Vietnam in 2009. This figure showed international community’s support of the socio-economic development cause of Vietnam and evidenced that Vietnam is on the right track to development.
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