By Dr Deborah Elms
Le Minh Hung, the State Bank of Vietnam's Governor, gave an interesting series of interviews in Hanoi about upcoming changes for the financial services industry in Vietnam. He was speaking in the context of an Asian Banker Summit conference aimed largely at the financial services industry in Vietnam and in the region.A few points were worth highlighting for a wider audience.
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| SBV Governor Le Minh Hung delivers opening keynote at the Asian Banker Summit. Source: SBV |
Vietnam, of course, is in a somewhat unique position within the region. It is a member of the ASEAN Economic Community (AEC). It has also signed the Trans-Pacific Partnership (TPP). It also has a series of new bilateral free trade agreements and many of these deals come with new commitments in financial services.
The gaps between Vietnam’s existing regulatory and competitive environment for the banking sector and what might come in the future could be substantial. Not all ASEAN member states can boast (or have to worry about) such a constellation of changes on the horizon.
Nevertheless, it is striking how enthusiastically the government is embracing the challenge. The Prime Minister came to open the conference here before an audience so large they had to open another overflowing ballroom just to try to accommodate all the interested listeners.
Governor Le tried to argue that both the AEC and the TPP will lead to a more efficient and sustainable banking sector.
This is not really the case. The AEC promised “free movement of goods, services, investment, skilled labor, and freer movement of capital.” The somewhat odd term “freer” came about because the original 2020 deadline for implementation of the AEC was not changed for financial services in ASEAN. In other words, while the rest of the AEC goals were to have been met on 1 January, banking sector changes are not due for another five years.
It is certainly possible that the AEC, by 2020, will include new provisions on financial services. Or, as hopeful vendors outside the ballroom at the Hanoi Marriott suggest, new technology may create greater market access and opportunities for millions of companies and customers across Southeast Asian markets long before the AEC deadlines kick in.
At the moment, most of the ASEAN-level commitments for banking, insurance and all other financial services sectors are far from creating an open market. Services and investment commitments, in general, are also poor.
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| Vietnam officially signs up for the 12-nation Trans-Pacific Partnership in Auckland, New Zealand |
A trade agreement is not the only way to open markets. Companies can invest now in some markets that are, on paper at least, not open. Conversely, some sectors that appear to be “open” are rife with licensing requirements or manpower restrictions or various non-tariff barriers that make apparently open markets impossible to penetrate.
But a trade agreement does make it easier for companies to operate. Regional agreements are definitely simpler for firms to use and reduce risk and uncertainty. They can remove much of the burden for staff.
Historically, financial services and telecommunications have been viewed as essential “backbone” services. These have always been treated differently than other service sectors with slower liberalization and significantly greater caution in rule making.
The TPP is no different. The agreement has a specific chapter on financial services. The interlocking nature of the deal means that some of the benefits for the banking industry can also be found elsewhere including in the investment and services chapters.
When Governor Le talks about the importance of a trade agreement to restructure credit institutions, he really means using the TPP to help Vietnam’s domestic industry level up.
As of May 2016, he pointed out that Vietnam was host to 50 foreign bank branches, 6 wholly owned foreign-invested banks, 52 representative offices, and 2 joint venture banks. In the future, these numbers are clearly expected to grow.
"When Governor Le Minh Hung talks about the importance of a trade agreement to restructure credit institutions, he really means using the TPP to help Vietnam’s domestic industry level up"
Financial service players, however, ought not just be thinking about the potential to set up new branches. Instead, as the TPP gets set to shift up supply chains in Vietnam, companies should be considering how to play a role across a wide range of financial services that will be needed in the near future.
Such services include finding new local partners, offering up new trade financing for companies in Vietnam (and elsewhere) who currently have no access to such financing or have had poor terms, creating markets for insurance products of all types, and financing products that have likely never been offered in the market before, including products for small and medium sized firms that make up the bulk of the companies in Vietnam.
Banks should also be ready to finance infrastructure and to support the inbound investment of many different kinds of companies looking to Vietnam and other TPP member countries.
Firms will need to carefully read the TPP commitments, as the financial services chapter contains many country-specific rules and exceptions. How TPP rules are implemented at the domestic level will also be important. In Vietnam, the government is now working on a comprehensive reform of the credit institutional system.
Another promising area of focus for financial service firms that we have been working on is cross border mobile payments as part of the e-commerce negotiations for Regional Comprehensive Economic Partnership (RCEP). These talks will bring together 16 countries in Asia, including Vietnam with the rest of ASEAN, China, Korea, Japan, India, Australia and New Zealand.
It is not possible to get smaller firms to participate in e-commerce if they cannot be paid for their goods and services. Mobile payments provisions were not well developed in the TPP, as the agreement closed some time ago (substantive work on most chapters finished as long ago as two years). In the world of fintech, two years ago is a lifetime. Hence, there is ample scope for RCEP countries to consider new provisions to let smaller firms buy and sell goods and services across borders using mobile devices.
Financial services are a vital part of trade, as Vietnam’s top leadership has recognized. Building and sustaining a competitive industry is a laudable goal. Hopefully, other governments across the region will also embrace this challenge in the future.
Dr Deborah Elms is Executive Director of the Asian Trade Centre, Singapore. She is also a senior fellow in the Singapore Ministry of Trade and Industry’s Trade Academy. Previously, she was head of the Temasek Foundation Centre for Trade & Negotiations and senior fellow of international political economy at the S. Rajaratnam School of International Studies at Nanyang Technological University, Singapore. She publishes the Talking Trade Blog.