Vietnam – Banking and Finance – 2015

1. Vietnam – Banking and Finance - 2015
Overview
In the past year, the banking sector has benefited from strong monetary policy management
by the State Bank of Vietnam (SBV) as well as broader progress in the overall economy,
particularly in the export led sectors. Importantly inflation has remained under control,
currency has been steady (with a 1% devaluation in June 2014 as forecast), and foreign
exchange reserves have been built to over USD 35 billion , providing a buffer to the economy
of approximately three months of imports.
The overall banking sector has benefited from improving liquidity as deposits have increased,
however loan growth has not met expected targets in the first half of the year as credit
demand has been subdued, and as local banks continue to work through legacy balance sheet
issues. Here we would like to acknowledge the continued focus of the SBV in working
through the non-performing loan (NPL) and governance challenges of the past, and we
encourage the SBV to continue these efforts.
In the past year, the SBV has been highly active in developing and publishing new
legislation, and our Members have actively contributed to providing feedback to draft
legislation in areas such as anti-money laundering (AML), prudential ratios, interest rate
derivatives, risk management systems and others. We note that in fact the pace of such
reforms is challenging in terms of implementation to banks, and we hope that the SBV will
allow longer lead times for the implementation of key changes, in particular those which may
necessitate changes to systems.
We also acknowledge positive progress in the new bankruptcy law . It must be noted that the
resolution of bad loans in Vietnam is still today a discussion of collateral liquidation - a slow
process with no possibility for a borrower to recover. Ideally, we hope that the new legal
framework will allow for liquidators and lenders to create a recovery/restructuring framework
that would allow for reorganisation and facilitate new lending to a restructured enterprise.
We note that the Vietnam Asset Management Company (VAMC) has purchased VND 55
trillion in bad debts since its establishment last year. However, we note that it is the
responsibility and obligation of the original bank lender to continue to work out their loans
(not as is widely misunderstood, the VAMC). As noted, such a work out in today’s context is
realisation of collateral, and again depends upon court processes with no real possibility of a
borrower being revived. Foreign purchases of VAMC loans are unlikely to pick up given the
difficulties and uncertainties in transferring the collateral rights to foreign purchasers, so a
strong focus by banks is needed in solving these bad loans also.
We are pleased to see progress in the implementation of e-customs initiatives, and we believe
that the supporting documentation requirements for international funds transfers can and
should be streamlined to mirror the e-customs documentation.

2. Overall, we remains strongly supportive of the SBV in its on-going efforts to facilitate a
healthy, competitive banking system.
Updating of Banking Licences
Relevant State bodies: State Bank of Vietnam (SBV)
Issue description
As noted, changes to the bank licensing regime introduced as a result of Circular 40[51 have
opened up regulatory /compliance gaps for banks operating in Vietnam. In the past year, the
SBV has put in a lot of effort into resolving the existing licensing risks faced by banks, which
is appreciated. However, we understand that all licence updates are now on hold until the new
regulation on licence re-issuance is issued. This exposes banks to legal risks and we hope
guidelines will be issued soon by the SBV on this matter.
In addition, for commodity product licensing, the SBV currently only allows credit
institutions and foreign bank branches to offer commodity derivatives on a pilot basis, which
is normally for one year and subject to SBV approval for any extension.
Potential gains/concerns for Vietnam
Uncertainty in licensing could result in a disruption of banking services to clients, and also to
banks risking legal breaches with existing transactions committed to with tenors that may
extend beyond the apparent license validity.
Recommendations
We request that the SBV expedite the new licensing framework, and also that the ’pilot’
framework for commodity derivatives be re-evaluated as a more permanent approach. We
and the VBF will continue to work with the SBV to develop the regulation on commodity
derivatives to facilitate this process.
Simplifying Documentation for Funds Transfer
Relevant State body: State Bank of Vietnam (SBV)
Issue description
Decree 70/2014/ND-CP161 dated 17 July 2014 provides requirements for banks to obtain
supporting documents for cross-border foreign currency payments and buying foreign
currencies against Vietnam dong (VND). In addition, the bank individually assesses and
decides on the supporting document required, while the SBV does not specify document
requirements.
Banks in Vietnam currently require the following supporting documents from clients for
cross- border fund transfer related to imported goods: customs declaration, sales
contract/purchase order (or master agreement) and invoice.

3. Clients using an Electronic Customs Declaration (ECD) already provide all information
related to imported goods listed above via the e-Custom system and this information is
reviewed, verified and confirmed by customs services.
Potential gains/concerns for Vietnam
Allowing banks to access documentation in ECD will provide significant operational
advantages to both banks and Vietnamese enterprises as information featuring in traditional
paperwork will be available in the ECD system. This in turn will streamline Vietnam’s
international business and result in the faster processing of commerce in Vietnam.
Recommendations
We would recommend that the ECD documentation should be sufficient for funds transfers
related to transactions for which goods have arrived in Vietnam, and for which customs
declarations are available. The bank should obtain the ECD signed and stamped with "custom
clearance" by the customs office with information about the date, amount, currency, purchase
order number, invoice number, beneficiary name, etc. The bank will then check whether the
payment amount is equal or lower than the amount stated in the ECD. This would avoid
having to require the submission of information on a transactional basis.
Non-Recourse Discounting and Factoring
Relevant State body: State Bank of Vietnam (SBV)
The Law on Credit Institutions and Circular 04/2013/TT-NHNN dated 1 March 2013only
recognise discounting and factoring activities on a recourse basis to the seller. This is not in
line with international practice applying to products/solutions such as factoring, bill
discounting and any other product where the bank has enforceable recourse to the buyer or
the buyer’s bank.
Potentials gains/concerns for Vietnam
The recourse imposed on the exporters restricts them to access good quality funding to
finance their working capital and reduce the payment risk from the buyer. Aligning
Vietnam’s legislation with international trade finance standards would help protect exporters
in Vietnam against buyers’ default and delays of payment, ensuring a steady source of
funding. As these products offer risk protection against buyers and buyer’s country risks,
Vietnamese exporters would be more comfortable developing commercial relationships with
new markets or counterparts to grow their exports.
Recommendations
We recommend the SBV to issue regulations allowing banks to carry out discounting and
factoring activities with or without a recourse basis to both the seller and the buyer subject to
the bank's credit assessment and approval.
Opening and indirect Investment Capital Account

4. Relevant State body: State Bank of Vietnam (SBV)
Circular 05/2014/TT-NHNN dated 12 March 2014 provides that foreign indirect investment
activities must be implemented via one indirect investment capital account ( 'IICA”) opened
at one authorised bank. Institutional investors normally diversify their investment and request
for multiple accounts opened at one bank in order to manage separately their investment
activities (for example to segregate certain activities). Under international standards, the bank
will open multiple accounts for the client under a single master client identifier to
accommodate such requirement. With this approach, the SBV’s objective to manage
aggregated indirect investment flows by one client would still be achieved as multiple
accounts will be rolled up to a single client master identifier.
Potential gains/concerns for Vietnam
The requirement of opening only one IICA for an indirect foreign investor restricts the
possibility to manage various investments in foreign investors’ portfolios, which could
potentially discourage the inflow of indirect foreign investments into the country. This in turn
could adversely impact the development of the Vietnamese stock market.
Recommendations
We recommend the SBV to allow the flexibility over multiple account structure in foreign
indirect investment, in order to meet legitimate demands of investors whilst permitting full
compliance reporting by banks to the SBV.
Forthcoming New Regulations
Relevant State body: State Bank of Vietnam (SBV)
Issue description
The Vietnamese Government and the SBV have issued a number of new regulations on
Foreign Exchange (FX), such as Decree 70/2014/ND-CP , Circular 16/2014/TT-NHNN ,
Circular 19/2014/TT-NHNN and Circular 21/2014/TT-NHNN ;as well as on the opening of
accounts (Circular 23/2014/TT-NHNN). The SBV is currently in the final stages of issuing
new guidance on key regulations such as Anti Money Laundering (AML), governance and
risk management legislation. Our Member banks have provided feedback on existing
legislation, and also have contributed to the drafting process.
We actively await updates in the field of anti-money laundering. Following the issuance of
Decree 116/2013/ND-CP and Circular 35/2013/TT-NHNN , a number of discussions have
been held with the SBV. Banks are pleased to note that the SBV has taken on board
comments regarding the AML legislation, and that it issued a draft Circular amending
Circular 35 to address certain issues that were raised. This circular is expected in September
2014.
Potential gains/concerns for Vietnam

5. Vietnam has already made significant progress in enhancing AML controls, as recognised by
the Financial Action Task Force (FATF) delisting Vietnam from its on-going global AM
L/CFT compliance process earlier in 2014.
Recommendations
Our members actively await the upcoming new legislation on AML. We recommend that
where possible the SBV provide clear implementation guidelines to banks, along with
timelines for implementation.
Importantly, major legislation can have both client and system implications, so banks would
prefer to see legislation incorporate these aspects into the implementation timelines.
Restriction on Saving Deposits for Foreign Residents
Relevant Ministries: State Bank of Vietnam (SBV)
Issue description
Previously, Decree 160/2006/ND-CPon FX control and Decision 1160 on saving deposits
allow foreigners residing in Vietnam to have saving deposits with banks. At present, Decree
70/2014-/ND- Cp replacing Decree 160 only allows Vietnamese citizen to have saving
deposits with a bank.
Potential gains/concerns for Vietnam
This is an unfair situation for foreigners who are legitimately earning their income in
Vietnam. This situation could also entice them to remit incomes to their home country
instead of keeping it in Vietnam for potential future spending and investment.
Recommendations
We recommend the SBV to continue allowing foreign residents to have saving deposits with
banks while recognising that there are other on-going restrictions that reduce the risk of
arbitrage of foreign exchange as a result of such deposits.
Please contact Oliver Massmann under Uomassmann@duanemorris.comU if you have any
questions.