Lawyer in Vietnam Oliver Massmann Asean AEC

1. Lawyer in Vietnam Oliver Massmann ASEAN Banking Integration
Framework - What you must know:
Key dates:
- 1992: ASEAN Free Trade Area (AFTA) agreement signed. This establishes the
Common Effective Preferential Tariff scheme (CEPT): customs tariffs to be reduces to 0-
5% within 15 years.
- 1998: ASEAN Investment Area (AIA) framework signed. Foreign investors to receive
“national treatment”.
- 2003: “Bali Concord II” signed, agreeing to establish the AEC on 3 pillars:
 Economic Community (AEC),
 Political-Security Community,
 Socio-Cultural Community.
- 2007: AEC blueprint adopted. It creates roadmap for setting up the AEC in 2015.
- 2009: ATIGA (ASEAN Trade in Goods Agreement) signed. It enhances CEPT scheme.
- 2015: AEC to take effect on 31 December 2015.
Characteristics and elements of the ASEAN Economic Community (AEC) involve:
1. Establishing a single market and production base. The aim is to break down
barriers to trade and investments, and to free up the movement of skilled
workers/labors.
2. Developing a competitive economic region. This will include:
 Breaking down non-tariff barriers (NTBs),
 Reducing transport costs by developing infrastructure,
 Encouraging innovation by enforcing intellectual property rights more uniformly.
3. Building a region characterized by equitable economic development. There will be
support for small businesses, as wells as technical assistance and capacity-building
programs to help the region’s less developed economies.
4. Integrating ASEAN into the global economy.

2. The services sector is one of the most important sectors to be liberalised by the AEC as
it supports the establishment of regional integration. It will also facilitate the movement of
goods within the region.
Therefore, the AEC is ambitious:
- Customs: The blueprint envisages a general tariff-free zone without exceptions. The
common objective for ASEAN member States is “0% tariffs on 100% of traded goods
and services”.
- Non-tariff barriers: the ATIGA signed in 2009 envisages that countries remove NTBs
according to the following schedule:
1) ASEAN-6 countries (Bruney, Indonesia, Malaysia, the Philippines, Singapore and
Thailand) in 2015.
2) CLMV countries (Cambodia, Laos, Myanmar, Vietnam): 2015 with flexibility until 2018.

3. ASEAN Banking Integration Framework (ABIF):
The banking system continues to be the most developed financial sector in many
ASEAN member States. In December 2014, the ASEAN Central Bank Governors
endorsed the ASEAN Banking Integration Framework (ABIF) and its attendant
Guidelines. The ABIF’ aim is to provide financial stability in the region and achieve
multilateral liberalization in the banking sector for ASEAN commercial banks. Indeed, the
integration of the banking sector is believed to bring benefits to the region.
Unlike other financial sector services such as capital market and insurance that is
scheduled for integration in 2015, the banking integration will only take place in 2020.
One of the reasons for the later timeline is because banking integration requires more
time and more preparation for each country to consolidate its banks as there are risks
involved. The implementation of the ABIF will use a double-track implementation plan
which means that the ASEAN-5 (Indonesia, Malaysia, the Philippines, Singapore and
Thailand) will first implement the ABIF in 2020 and this will then be followed by the rest
of ASEAN’s member States (Brunei, Cambodia, Laos, Myanmar and Vietnam) when
they are ready for the implementation.
Aimed at providing advantages to regional versus non-regional banks in cross-border
expansion in the region) it introduces the concept of Qualified ASEAN Banks (QABs).
Banks so designated will be able to operate branches in other ASEAN countries under
the same regulations as host country branches:
“Any two ASEAN countries may enter into reciprocal bilateral agreements to provide
QABs with greater market access, and operational flexibilities consistent with those of
domestic banks in the respective host countries. The implementation of the Framework
will be accompanied by the strengthening of home-host regulatory and supervisory
cooperation arrangements to support the effective surveillance and supervision of
QABs.”
Given the diversity of financial market development, economic structure, and priorities
among ASEAN members, the implementation process of ABIF is very challenging. There
are 4 preconditions that was agreed by the central banks of all ASEAN member States:
- Hamornisation of regulations,
- Building financial-stability infrastructure,
- Assisting Brunei, Cambodia, Laos, Myanmar and Vietnam to enhance their banking
capacity,
- Determining the criteria of Qualified ASEAN Banks (QABs) (NB. not all ASEAN banks
will be able to participate in the integration, only banks that meet the criteria known as
the QABs: Specific qualifying criteria for QABs will be agreed mutually on a bilateral
basis, these will focus on the financial capacity, governance quality and track record and
business plan of the prospective candidate bank.).
According to a study conducted by the Asian Development Bank (ADB), there are 3
dimensions that will guide the integration:
- Equal access: ASEAN banks that comply with the criteria for QABs will be able to
access other ASEAN banking markets aside from their home countries.
- Equal treatment: regulators in host countries should give equal treatment to QABs and
give permission for accessing domestic banking market and they take into account
QABs’ ability in managing risk.
- Equal environment: regulators in ASEAN member States should harmonise their
regulations in order to ensure that there will be no conflicting rules within the banking
industry in the ASEAN region.

4. Benefits expected of the ABIF:
- Cheap financing due to lower interest rates (it varies widely in the ASEAN region, ex:
Malaysia has the lower lending interest rate. But the implementation of the ABIF is
expected to drive down lending interest rates in the region due to the future increase
competition in the banking industry.).
- The increased competition among ASEAN banks will improve and better allocate
savings in the region. Thus, through better fund allocation and mobilization, growth and
productivity within the region will increase.
- The integration of the banking sector will enhance its resilience in facing potential
shocks via possible cooperation between banking industries across ASEAN.
NB. negative impacts of the ABIF?
Especially for Brunei, Cambodia, Laos, Myanmar and Vietnam. Funds that are expected
to flow within the region through the banking integration may not work well because
funds will likely move to a country that have better political stability, lower levels of
corruptions, and better regulations.
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Please do not hesitate to contact Oliver Massmann under
omassmann@duanemorris.com; if you have any questions or want to know more details
on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.