MONETARY AND FINANCIAL THEORIES overview of vietnam’s financial system

NATIONAL ECONOMICS UNIVERSITY FACULTY OF BUSINESS MANAGEMENT -฀฀฀฀฀ - MONETARY AND FINANCIAL THEORIES Overview of Vietnam’s financial system Lecturer: Lê Vân Chi Class: ESOM - K62 Students’ names: Lê Thúy Quỳnh - 11203369 Lê Hoàng Anh - 11204308 Đoàn Trung Nguyên - 11202899 Nguyễn Quang Hiển - 11205269 Đồng Thị Mai Chi - 11200575 Nguyễn Ngọc Quyên - 11206731 Nguyễn Thị Lan Anh - 11200272 Nguyễn Thị Thúy Hương - 11201736 TABLE OF CONTENTS I INTRODUCTION………………………………………………….2 II MAIN CONTENT……………………………………… ……… Definition of Financial System……………………………………3 1.1 In general………………………………………………………… 1.2 The process of formation and development of Vietnam's Financial System……………………………………………………………………6 1.3 Functions of Financial System…………………………………… 15 Participants in Financial System………………………………….17 The structure of the Financial System…………………………….19 Financial instruments…………………………………………… 22 The planned target of Vietnam’s Financial System……………….37 Recommendations………………………………………………….39 III CONCLUSION………………………………………………… …42 IV REFERENCES…………………………………………………… 43 I Introduction In the current trend of global economic integration, the financial system plays a major role in developing channels for money to flow from the surplus to the shortfall, as well as providing financial services such as risk-sharing, liquidity, and financial transaction information The activities of financial institutions around the world have been born and grown rapidly The excellence of these financial institutions has established a very important channel for enterprises, and the functioning of financial institutions is one of the reasons driving the country's degree of technical progress, particularly in developing countries Finance comprises social interactions that are of the type of distribution of social wealth in the form of value as currency exhibited via the process of producing, managing, and employing specific monetary money Changes in socio-economic conditions contribute to changes in the financial system as a result of national development In a subsidized economy, the financial system is run by the government, and all economic activities are primarily guided by ordinance targets Businesses that lose money are compensated for their losses, so financial relationships are limited to the government entity, also known as state finance, which includes the following stages: insurance, credit financing, and the state budget New forms of ownership emerged and were recognized in the market economy as economic relations changed; the financial sector also transformed, with the emergence of new financial relations suitable for the market economy in conditions of economic internationalization; Vietnam's financial system has similarities with and integrates into the international financial system In today's highly specialized economy, having a well-organized and efficient financial system is critical The financial system grows steadily and sustainably, with many countries' primary purpose being to protect the interests of investors and depositors The part below will give a more specific view of Vietnam’s financial system II Main content Definition of the financial system 1.1 In general A financial system consists of institutional units and markets that interact, typically in a complex manner, for the purpose of mobilizing funds for investment and providing facilities, including payment systems, for the financing of commercial activity The role of financial institutions within the system is primarily to intermediate between those that provide funds and those that need funds and typically involves transforming and managing risk Particularly for a deposit taker, this risk arises from its role in maturity transformation, where liabilities are typically short-term (for example, demand deposits), while its assets have a longer maturity and are often illiquid (for example, loans) Financial markets provide a forum within which financial claims can be traded under established rules of conduct and can facilitate the management and transformation of risk They also play an important role in identifying market prices (“price discovery”) Within a financial system, the role of deposit takers is central They often provide a convenient location for the placement and borrowing of funds and, as such, are a source of liquid assets and funds for the rest of the economy They also provide payments services that are relied upon by all other entities for the conduct of their business Thus, failures of deposit takers can have a significant impact on the activities of all other financial and nonfinancial entities and on the confidence in, and the functioning of, the financial system as a whole This makes the analysis of the health and soundness of deposit takers central to any assessment of financial system stability Like any other industry, the financial system can be organized using markets, central planning, or some mix of both Financial markets involve borrowers, lenders, and investors negotiating loans and other transactions In these markets, the economic goods traded on both sides are usually some form of money: current money (cash), claims on future money (credit), or claims on the future income potential or value of real assets (equity) These also include derivative instruments Derivative instruments, such as commodity futures or stock options, are financial instruments that are dependent on an underlying real or financial asset's performance In financial markets, these are all traded among borrowers, lenders, and investors according to the normal laws of supply and demand In a centrally planned financial system (e.g., a single firm or a command economy), the financing of consumption and investment plans is not decided by counterparties in a transaction but directly by a manager or central planner Which projects receive funds, whose projects receive funds, and who funds them is determined by the planner, whether that means a business manager or a party boss Most financial systems contain elements of both give-and-take markets and top-down central planning For example, a business firm is a centrally planned financial system with respect to its internal financial decisions; however, it typically operates within a broader market interacting with external lenders and investors to carry out its long-term plans At the same time, all modern financial markets operate within some kind of government regulatory framework that sets limits on what types of transactions are allowed Financial systems are often strictly regulated because they directly influence decisions over real assets, economic performance, and consumer protection Funds flow from lenders to borrowers via two routes In direct or market-based finance, debtors borrow funds directly from investors operating on the financial markets by selling them financial instruments, also called securities (such as debt securities and shares), which are claims on the borrower’s future income or assets If financial intermediaries play an additional role in the channeling of funds, one refers to indirect finance Financial intermediaries can be classified into credit institutions, other monetary financial institutions, and other financial intermediaries, and they are part of the financial system One of the key features of a well-functioning financial system is that it fosters an allocation of capital that is most beneficial to economic growth Well-functioning financial systems not easily drift into financial crises and can perform their basic tasks even under difficult financial conditions The infrastructure of the financial system refers to payment and settlement systems, through which financial market operations are concretely carried out The smooth and reliable functioning of payment and settlement systems promotes effective capital movements in the economy and thereby supports financial stability ● Financial Market Components Multiple components make up the financial system at different levels The firm's financial system is the set of implemented procedures that track the financial activities of the company Within a firm, the financial system encompasses all aspects of finances, including accounting measures, revenue and expense schedules, wages, and balance sheet verification On a regional scale, the financial system is the system that enables lenders and borrowers to exchange funds Regional financial systems include banks and other institutions, such as securities exchanges and financial clearinghouses The global financial system is basically a broader regional system that encompasses all financial institutions, borrowers, and lenders within the global economy In a global view, financial systems include the International Monetary Fund, central banks, government treasuries, monetary authorities, the World Bank, and major private international banks 1.2 The process of formation and development of Vietnam's financial system It can be said that the Vietnamese financial system - the financial system played by banks in the main role, has been clearly formed since 1858, the year Vietnam became a semi-feudal country of France In fact, the financial system and means of payment (monetary) have always been indispensable tools in any economy, having existed since the formation of Vietnam But the financial and payment system at that time was very different from today One of the most notable events in the feudal period related to the financial and monetary system of Vietnam was in the early 15th century, the first time Ho Quy Ly issued and circulated paper money To clearly see the process of formation and development of the financial system in Vietnam, they are divided into three types: banking, stock, and insurance 1.2.1 Development process of Vietnam's banking system Based on the characteristics of Vietnam, we consider the development process of Vietnam's banking system over each period including the Development process of the Vietnamese banking system during the French colonial period; The development process of the banking system in the North of Vietnam during the period 1954-1975; The development process of the banking system in South Vietnam in the period 1954-1975 and the development process of the Vietnamese banking system from 1975 to the present 1.2.1.1 Banking system in the French colonial period Before the French set foot in Vietnam in 1858, Vietnam did not have a banking or credit institution The condition of industrial, agricultural, and commercial activity is still basic and outdated The majority of the buying and selling of transactions with foreign merchants is in the hands of the government Kings and princes prefer and usually pay in gold or silver or by bartering domestic products such as sugar, pepper, and oats When colonial control was established throughout Indo-China at the end of the 19th century, Vietnam became the monopoly market for French goods French merchants created substantial import-export businesses in large cities and towns, particularly in Saigon In the next plans to consolidate and exploit the potentials in Vietnam, the development of agriculture requires large irrigation projects, investments in industry, commerce, and transportation systems transportation, especially the restoration and expansion of Saigon port and the construction of facilities Another part of the colonial machine required the circulation of large monetary blocks The economic activity of the French in Indochina expanded strongly, so the government had to set up banks to support those activities At first, two banks were formed, with headquarters located in France, but branches are set up in big cities in Indochina ● Bank of Indochina (Banque de l'Indochine) was founded in 1873 and had the authority to create money for the whole Indo-China region until 1875 This bank's operations were extended over Indochina and the French Indian possessions It became a real branch of the great business banks around 1930, including Société Generale, Credit Industriel et Commercial, Crédit foncivo de France, and Crédit Lyonnais Being a public figure, The Bank of Indo-China was a key financial institution of the French government and oligarchs, and it served as an efficient weapon of the colonial authority It is the largest commercial bank in addition to having the unique power to issue currency as a central bank Bank Indochina provided capital for the economic activities of the French in Indo-China such as Hai Phong-Van Nam Railway Company, Hon Gai-Cam Pha Coal Company, and Liquor Company Indo-China, Hiep Hoa Sugar Company, Dat Do Rubber Company ● Franco-Chinese Bank (Banque Franco-Chinoise) was established for the purpose of supporting the commercial transactions between France, Indo-China, and China as well as with other countries in East Asia such as Japan, and Thailand From the end of the 19th century to the first decades of the 20th century, banking activities were in the hands of foreigners It was not until 1927 that a number of Vietnamese capitalists established a bank to collect money named An Nam Bank (later renamed Vietnam Bank) with wholly Vietnamese capital, mainly supporting agricultural activities Until 1954, the Vietnamese had a second bank which is Vietnam Industry and Commerce Bank 1.2.1.2 Vietnam's banking system in the North in the period 1954-1975 President Ho Chi Minh issued Decree No 15/SL on May 6, 1951, creating the Bank of Vietnam with the following basic responsibilities: issuing banknotes, administering the Treasury, and executing existing credit policies to promote production The National Bank of Vietnam was renamed the State Bank of Vietnam on January 21, 1960 The Democratic Republic of Vietnam's 1946 Constitution must be followed by the South In the years that followed The National Bank of the South was formed in July 1976, after the South was freed in 1975, joined the State Bank of Vietnam, constituting the country's only State Bank system country The State Bank's unified organizational framework consists of the following components: Central Bank headquartered in Hanoi capital, Bank branches in provinces, cities, and branches of grassroots banking in districts across the country The development process of the Vietnamese banking system in the North can be divided into two periods: ● The period 1951 to 1954: During this period, the National Bank of Vietnam was established and operated relatively independently in the financial system, performing the function: Issuing banknotes, and goods, recovering financial notes; Implementing the management of the State Treasury, contributing to increasing revenue and saving ● The Period 1955 to1975: During this period, the National Bank performed fundamental tasks which include: Strengthening the money market, keeping the currency stable, contributing to stabilizing prices, creating favorable conditions for economic recovery; Developing credit activities to develop food production, promoting the restoration and development of agriculture, industry, and commerce During the period, two specialized banks were established, namely Vietnam Construction Bank (1957), now the Bank for Investment and Development of Vietnam, and the Bank for Foreign Trade of Vietnam (1963) 1.2.1.3 Banking system in the South in the period 1954-1975 After the Geneva Agreement, The French government signed a series of agreements with South Vietnam, Cambodia, as well as Laos, officially announcing the break from the three Indochinese countries' currency and tariff unification, dissolving the quadrilateral institutions controlled by France, and affirming the principle of each country's freedom to issue and control money, fix exchange rates, and set policies independently on currency, foreign exchange, and foreign trade Since then, the Vietnamese have taken control of banking and developed it on a state scale, impacting the corporate world directly and eventually replacing the previous colonial financial system The growth of the banking industry in South Vietnam may be divided into stages: ● The period from 1954 to 1964: On December 31, 1954, the National Bank of Vietnam was established, replacing the Indochinese publishing house, officially released banknotes for the whole of South Vietnam However, the influence of the French banking system still weighed heavily on Saigon's economic activities According to the habits of the people, The business world still prefers the French banks that are still in operation Chinese businesspeople, due to the market system with Hong Kong, Taiwan, Malaysia, and Singapore, continue to use the Bank of England, Hong Kong, and Taiwan At the end of the year 1953, when the Bank of Indochina terminated its commercial activities, a part of its mission is transferred to Vietnam Thuong Tin Bank and a part was transferred to the successor bank of the French in the South, which was France A, the largest private bank operating in this period, bringing together the French business capitalists is continuing the business of exploiting rubber plantations, coffee, tea, and other businesses industry of Dumarest, Oligastre, Alcan et Cie Denis Freres, BGI, Mitac, Caric There are also banks of some other countries such as Bangkok Bank, Established in 1961, The Bank of Tokyo, established in 1962 ● Period 1965-1975: The changes in banking activities from 1954 to 1964 created the premise and conditions for a period of rapid development from 1965 to 1972 of the commercial banks in South Vietnam During the first years of this period, 18 new banks were established, bringing the total to 31 banks with 178 branches in the provinces in 1972 Calculating the population of about 19 million at that time, the average in the region Each bank branch serves 100,000 people, a number not inferior to the rate in developing countries in Southeast Asia As of April 1975, the banking system in the South includes two types: central banks and other banks The central bank belongs to the state, while other banks depend on the source of capital Total up to 32 commercial banks with 180 branches, development banks, and 60 agricultural banks were established in the districts in the southern provinces With the specific characteristics of this period, the development process of Vietnam's banking system from 1975 to now can be divided into the following periods: 10 ❖ Customers also have the right to withdraw before maturity and enjoy interest rates on demand Sacombank Bank By buying a certificate of deposit with a minimum par value of million VND, with a term of years at Sacombank, customers can enjoy an attractive interest rate of 8.6%/year A certificate of deposit is becoming one of the preferred investment channels of individuals or organizations with large financial resources, seeking safety in medium and long-term capital use ● Characteristic: ❖ Not guaranteed by assets of Sacombank ❖ Sacombank only repays debt before the maturity date, provided that after implementation, it still ensures the safety ratios and limits according to regulations and reports to the State bank ❖ Sacombank is entitled to stop paying interest and carry over accumulated interest to the next year if the payment of interest leads to a loss in business results in the year ❖ In the event of bank liquidation, the holder of a certificate of deposit is paid only after the bank has paid all other creditors VPBank Bank Recently, VPBank has issued certificates of deposit with extremely attractive interest rates VPBank Certificate of Deposit has conquered many fastidious customers This helps to improve working capital and increase medium and long-term capital for VPBank At the same time, it also improves the safety ratio in the bank's operations ● Characteristic: 30 ❖ The face value is from 1,000,000 VND and is a multiple of 100,000 VND ❖ It is allowed to transfer the commitment not to pay before the due date ❖ Term of 18 months, 24 months, 36 months, and 60 months ❖ The most competitive interest rate in the market and according to VPBank's effective interest rate schedule at the time of issuance ❖ Deposit certificate ❖ Interest payment method: Paying interest at the end of the period, paying interest every months, and paying interest once a month ❖ Prepayment: The customer commits not to pay before the term of the Certificate of Deposit 4.2 Capital market instruments Capital market instruments are debt and equity instruments with more than year of maturities They have a much broader price range than money market instruments and are considered truly risky but higher return investments because long-term securities often offer large returns In general, instruments in the capital market have now become quite popular in the Vietnamese market, and the tools are used quite flexibly in the development of the market These tools on the application market have developed to become an indispensable capital mobilization channel in the economy as well as a solution for the government to balance its budget 4.2.1 Popular instruments in the capital market in Vietnam today 4.2.1.1 Bond Vietnam's economy has recently achieved an average GDP growth rate of over 8% per year To achieve such a growth rate, the capital factor for economic development plays an important role The mobilization of domestic and foreign capital in Vietnam has achieved very positive results If domestic capital, including capital mobilized from residents, economic organizations, etc., plays the leading role, foreign capital, including FDI, ODA, FPI, is the driving force and the basis for technological change This shows that the 31 policies, institutions, and laws of the Party and State have had timely reforms to be more suitable for the trend of internationalization However, domestic capital mobilization has not developed strongly, especially long-term capital Therefore, to accelerate the mobilization of long-term deposits, the development of the capital market shortly is very necessary Especially the development of the stock market, this is an important capital channel for the rapid development of the country's economy Recently, the stock market has made significant progress in terms of both the size and quality of goods on the market However, currently, only focusing on developing the stock market has not paid special attention to the development of the bond market Therefore, the bond market is very potential, and it is necessary to have mechanisms and policies to promote the development of this market in the future a The technical characteristics of bonds to keep in mind when trading are: ● Term of the bond (issue date, maturity date) ● Interest paid (coupon) ● Interest payment period (half a year or a year, or only once) ● Place and type of denomination issue ● Is it easy to list and transfer (liquidity) b Current methods of issuing Vietnamese bonds - Issuance through the form of underwriting: including the forms of partial guarantee, co-guarantee, a combination of guarantee, and total guarantee - Issued through an Issuing Agent - Issuance through bidding method: Competitive interest rate bidding and non-competitive interest rate bidding c Common types of bonds Government bonds: - Government bonds, State treasury bonds: Along with the establishment of two securities trading centers in Ho Chi Minh City and Hanoi, government bonds issued in local currency also began to be traded more widely than before but still have not yet been made attractive to institutional investors, therefore, 32 the trading volume is very small This may be due to the size of the market, and the weak and lacking basis of the payment infrastructure in the Vietnamese financial system In the current government bond market, the most welcomed and attracted investors are bonds issued in foreign currencies on the international market VN has doubled the number of bonds issued, to 750 million USD worth of bonds instead of USD 500 million as initially planned was traded in this market The government bond interest rate in this issuance has been adjusted down to 7.125%, instead of the original estimate of 7.250% This interest rate is higher than that of US Treasury bonds at 4.561% per 10-year bond This is the first step to helping Vietnam enter the international financial market Local Government Bonds: Mainly for localities to mobilize capital for the construction of infrastructure works in their locality, mainly issued to the public of that locality through the state treasury Currently, only two localities, Hanoi and Ho Chi Minh City, issue regular and large amounts of local government bonds to mobilize investment capital for infrastructure construction and welfare works local benefits Corporate Bonds: After the Government issued Decree 120/CP on September 17, 1994, on the issuance of shares and bonds of state-owned enterprises, the bond market began to take shape However, it was not until 1996 that the corporate bond market made breakthroughs, starting with the Refrigeration Electrical Engineering Corporation (REE) raising USD million 4.2.1.2 Stock Stocks are deeds or journal entries claiming a capital claim (right to benefit) over the earnings and net assets of a joint-stock company This is essentially a capital contribution tool that is only issued by joint-stock companies When the company needs to raise capital, the company divides its shares into several equal parts, called shares The person 33 who buys this share is called a shareholder With the number of shares purchased, shareholders are issued a certificate of ownership, called a share a Effects of issuing shares ● For Issuing Company: The issuance of Shares will enable the Company to raise capital when establishing or expanding its business This mobilized capital does not constitute a debt that the company is responsible for repaying as well as the pressure on the company's liquidity balance will be greatly reduced while using other methods such as issuing corporate bonds, and loans from credit institutions exact opposite However, each method of mobilization has its advantages and disadvantages, and company managers must consider and choose from time to time based on the specifics as well as business strategies of the company to decide which method to use appropriate application ● For Stock Investors: Market investors are willing to buy Shares issued by the company Share ownership certificates are issued in the form of valuable certificates and are determined through the transfer, purchase, and sale of them on the stock market between investors and are protected by law On the other hand, stock buyers think that the capital they invest is effectively used by the company's managers, generating a lot of profit, or evaluating the performance and growth potential of the project company an investment decision is high, and of course, they will enjoy a part of those results through the payment of dividends to shareholders, and the value of ownership shares will also increase on a real basis and development prospects of the company you have chosen Usually, the profitability and return of investment shares are proportional to the stock trading price in the market But in general, the issuance of shares must ensure transparency and publicity b Current stock market situation Currently, stocks are the most attractive investment channel in the investment portfolios of Vietnamese and international investors In the latest report analyzing the Vietnamese stock market with the topic: "Prospects in 2009: Booming period?" Recently announced 34 in early 2009, the research and analysis team of Thang Long Securities Company (TSC) has made an optimistic assessment that: Vietnamese stocks are now a bargain with good growth potential in 2009, based on low P/E and low market cap/GDP In the past time, the Vietnamese stock market has almost synchronized with the US market Signs of the US economy's recovery pushed the market up strongly One of the positive factors supporting the banking industry is that interest rates are maintained at 0% and the US Federal Reserve (Fed) continues to inject money into the banking system and the economy through the buyback of government bonds 4.2.1.3 Mortgages A mortgage loan is money loaned to individuals or companies to invest (buy or build) in a house, land, or other real estate, which then becomes collateral for a loan guarantee for the loans themselves In Vietnam today, the mortgage loan market is quite large (commercial and agricultural mortgage loans), especially the market for mortgage loans with real estate (residential) Commercial banks and life insurance companies are the primary providers of agricultural and commercial mortgage loans Home mortgage loans are usually provided by savings and loan associations, and mutual savings banks In addition, the government has also formed organizations dedicated to supporting the mortgage loan market Now, to enjoy the flexibility of using your capital, banks apply for credit line home mortgage loans A line of credit helps you take advantage of the value of the property in your home and allows you to withdraw your loan within an agreed limit You will know exactly what your loan limit is and can use it as you wish This product is perfect for those who don't want to go through the hassles of the complicated paperwork of other personal loans With the Home Mortgage Loan product according to the credit line, customers can ● Borrow up to 50% of property value ● Enjoy competitive interest rates 35 After implementing the online unsecured loan program, at the beginning of November 2007, Asia Commercial Joint Stock Bank (ACB) continued to deploy the online mortgage loan program for mortgaged personal credit products (with collateral) guaranteed products) in the Ho Chi Minh area This program helps people in need of mortgage loans more convenient in the loan process at ACB ACB's online loan program is built and developed based on modern information technology, allowing customers to access ACB's website to consult detailed product information Customers can use an online tool to calculate the appropriate repayment amount for the loan amount; tenor; debt payment methods and online loan registration With this program, customers only need to connect to the internet to be able to apply for a secured loan at ACB anywhere, anytime the borrower feels most convenient, just by clicking Click on the website address: www.acb.com.vn/vayquamang/thechap At this address, customers will be able to answer questions as well as find frequently asked questions about programs and products, and optimal support for the loan process 4.2.1.4 Consumer and bank commercial loans These are loans to business companies and consumers, mainly provided by banks Particularly consumer loans can also be provided by financial companies These loans are usually non-transferable, making them the least liquid of the capital market financial instruments The Prime Minister has just issued Decision 457/QD-TTG dated April 9, 2009, approving the plan for borrowing and repaying foreign loans in 2009 Accordingly, the Prime Minister approved the medium and long-term foreign commercial loan limit of the country in 2009 is 4,700 million USD 36 With this type of service, customers only need to prove that they have a stable income from salary (the last months), have household registration in area 3, and they will be able to borrow money depending on the customer's salary and limit bank credit Typically: LienVietBank with unsecured consumer loan products with a loan limit of up to VND 500 million and a maximum loan term of 36 months; SeABank lends with a maximum limit of 300 - 500 million VND/customer, the maximum processing time is only days; SHB lends with a maximum limit of 300 million VND or 12 times monthly income, loan term up to 48 months Interest rates on unsecured loans of commercial banks are fluctuating around 10-15%/year, especially some banks are up to 18%/year The planned target of Vietnam’s Financial System In the period 2022-2030, the complete development of Vietnam's financial system must be linked to new global financial system movement patterns, while closely implementing the Party and State's major policies Some objectives must be met in the future in order for Vietnam's financial system to catch up to that of the rest of the world 5.1 The Vietnamese financial system has to be restructured and strengthened - The financial system in Vietnam will continue to be reorganized, resulting in increased competition, transparency, professionalism, and modernism - Fee and service revenue will play a bigger role in credit institution expansion (the service fee collection rate is estimated to gradually increase from about 20 percent in 2020 to about 30-35 percent in 2025) - Bad debt is more significant and is kept under control at a rate of 2% to 3% Along with the restructuring of credit institutions, M&A in the banking sector will be active in the period 2021-2025, resulting in a decline in the number of credit institutions but an increase in depth with a growth model based on less capital 5.2 The Vietnamese financial system should be integrated internationally - The integration provides Vietnam's economy and financial sector with the potential to progress toward modernity, integration, and transparency in 37 accordance with international standards Vietnam's financial services will become more liberalized as a result of pledges made under new-generation FTAs - The trend of tying banks, insurance, securities, and other financial institutions together creates a holistic ecosystem that overcomes geographical barriers The percentage of foreign ownership will steadily increase, helping to attract foreign investment and increase market liquidity - At the same time, the Vietnamese financial system now has the possibility to strengthen its position in worldwide rankings, with Vietnam being the market with the biggest proportion of equities in the basket of market indexes minor market with the potential to evolve into emerging markets before 2025, with corporate governance quality approaching the ASEAN-6 average; opportunities for the development of Ho Chi Minh City as a worldwide finance and technological center In addition, Vietnam has performed admirably in its role as Chair of the ASEAN Capital Market Forum (ACMF) in 2020, adding to the region's improved adaptive capability, risk management, and preparedness to deal with financial turbulence as well as international 5.1.3 The Vietnamese financial system should be more sustainable - Commercial banks initially had green credit policies, prioritizing a number of industries and fields in the direction of in-depth investment, using high technology ; Three commercial banks have implemented the Environmental and Social Responsibility Management System (ESMS), and 17 commercial banks have built a process for assessing environmental and social risks in internal regulations, risk assessment In credit-granting activities, consider the environment and society (according to mof.gov.vn) - Since July 2017, the Sustainable Development Index version 1.0 (VNSI index) based on ESG criteria has been in operation to attract foreign investors Since the second quarter of 2020, the use of ESG principles in-stock selection has been increasingly popular 38 Recommendations The Vietnamese financial sector can still be reformed in order to become an efficient capital allocation channel and a major contributor to stable economic growth and development In the context of the preceding comparative analysis of financial sector reform, apparently, all three domains of the financial sector must occur: liberalization, deregulation, and stabilization The government's priorities, on the other hand, should be reversed in order to speed up reform while also rectifying current reform imbalances Further financial sector liberalization without the capacity to govern and supervise a market-based financial sector is a formula for disaster, as seen in Thailand and Indonesia during the East Asian financial crisis a decade ago Priorities for future financial sector reform in Vietnam should be as follows, in descending order of importance: 1) the establishment of a strong banking supervisory agency with effective monitoring tools to ensure the banking system's stability and sustainability; 2) the promotion of domestic bank restructuring, particularly SOCBs, to create strong, competitive banks capable of serving as true financial intermediaries; 3) the development of institutions, products, and delivery systems to provide formal financial services to Vietnam's low-income households and family businesses; 4) prudent liberalization, in alignment with a market-based financial sector's ability to recognize and minimize risks a Financial Sector Stabilization (#1 and #2 above) The most pressing necessity to improve the financial sector's prudential soundness and commercial competitiveness in Vietnam is a significant improvement in the government's capacity to defend the public interest through better financial regulation and supervision 39 This will necessitate SBV reform, including the consolidation of provincial to regional branches and the creation of a new banking supervisory agency The creation of a new agency, however, does not ensure that it will be more effective than the current system unless it is accompanied by the adoption of relevant financial sector rules and effective off-site and on-site monitoring tools In addition, to maintain confidence in the banking system throughout the current financial crisis, SBV must continue to recapitalize insolvent institutions Prepare a plan for restructuring the banking system at the same time, which includes commercialization of SOCBs and consolidation of JSCBs - because Vietnamese domestic banks are so small, achieving economies of scale and scope to improve their competitiveness, particularly in comparison to vis-à-vis foreign banks, is really challenging The government should also bring its policy banks, especially VDB, as well as many quasi-bank banking institutions now controlled by sectoral ministries and local governments, under formal regulation and supervision, whether by SBV or a new oversight authority, just like any other banking institution Having a "parallel" banking system that is not subject to prudential supervision and oversight jeopardizes the entire financial sector's legitimacy and integrity, as well as making it impossible to implement consistent fiscal and monetary policies Finally, the government must step up its efforts to tackle the enormous bad debt overhang that is currently preventing the financial system from regaining equilibrium b Financial Sector Deregulation (#3 above) The promotion of nationwide, sustainable microfinance should be the government's top priority for improving the quantity, quality, and accessibility of formal financial services in Vietnam Despite Vietnam's rapid economic growth over the last two decades, most families and businesses still lack access to basic financial services such as savings, credit, and 40 payment facilities –this "unbanked majority" needs to be provided with these financial services if the country's full potential is to be realized The majority of microfinance attempts to date have been either government or donor-sponsored poverty alleviation initiatives, or NGO-based trial projects that are difficult to scale up across the country Vietnam should look at successful microfinance models from other countries, such as Bank Rakyat Indonesia, for inspiration c Financial Sector Liberalization (#4 above) The most important next step in Vietnam's financial sector liberalization is the complete elimination of interest rate caps and direct credit, so that savings and lending rates accurately reflect the market price of capital, allowing formal financial institutions to effectively mobilize funds from the public and then allocate this capital to the highest-yielding investments However, the government should proceed with prudence when it comes to capital account liberalization, the final phase in the financial liberalization process When market institutions are not fully established, free capital inflows and outflows pose major dangers Capital flight, as occurred during the 1997-98 financial crisis, would have a significant detrimental influence on Vietnam's efforts to industrialize and modernize 41 III Conclusion Today, Vietnam's economy is becoming more thoroughly linked with the global economy, in accordance with global economic development laws As a result, the issue of constructing a strong, stable, and the developed financial market must be organized, and suitable steps must be done Today's financial markets are global, with significant integration that extends beyond national borders, making them challenging to regulate, specifically the monitoring mechanism, so that it is both distinctive and international in nature, taking into account each country's political, economic, and social conditions, to ensure the safety of domestic financial markets and liberalizing And only by comprehending these financial tools will we, the Vietnamese, be able to avoid slipping behind the rest of the world 42 IV References http://taichinh.saga.vn/chungkhoan/HaSTC/traiphieucpHN/104.asset http://www.bloomberg.com/apps/news?pid=20601080&sid=aaO0ZPOWvgUI http://www.tuoitre.com.vn/Tianyon/Index.aspx?ArticleID=121859&ChannelID=8 http://thongtinphapluatdansu.wordpress.com/2008/05/05/3423/ http://atpvietnam.com/vn/thuctechoick/25481/index.aspx http://www.anz.com/vietnam/vn/Personal/Borrowing/Line-Credit/ http://en.wikipedia.org/wiki/T-bills#Treasury_bill http://en.wikipedia.org/wiki/Repurchase_agreement http://vietnambranding.com/thong-tin/diem-tin-thuong-hieu/2414/ACB-trien-khaivay-the-chap-qua-mang 10 http://vietbao.vn/Kinh-te/Quy-dinh-moi-ve-dau-thau-tin-phieu-kho-bac-va-trai-phi eu-ngoai-te/20056032/90/ 11 http://en.wikipedia.org/wiki/Repurchase_agreement 12 http://dantri.com.vn/c76/s76-257621/ngan-hang-noi-cho-vay-tieu-dung.htm 13 http://www.msb.com.vn/g-tin-tuc-su-kien/b-tai-chinh-ngan-hang/cac-ngan-hang-1 11ay-manh-cho-vay-tieu-dung/ 14 https://www.investopedia.com/terms/f/financial-system.asp 15 https://www.suomenpankki.fi/en/financial-stability/the-financial-system-in-brief / 16 https://giaodichtaichinh.com/blog/he-thong-tai-chinh.html#:~:text=Ch%E1%BB% A9c%20n%C4%83ng%20c%E1%BB%A7a%20h%E1%BB%87%20th%E1%BB %91ng,c%E1%BB%A7a%20c%C3%A1c%20ngu%E1%BB%93n%20t%C3%A0i %20ch%C3%ADnh 17 https://en.wikipedia.org/wiki/Financial_market_participants 18 https://www.vapulus.com/en/participants-in-financial-market/ 19 https://www.mbaknol.com/financial-management/major-participants-and-players-in-finan cial-markets/ 20 https://en.wikipedia.org/wiki/United_States_Treasury_security#Treasury_bill 43 21 https://luatminhkhue.vn/chung-chi-tien-gui-dong-do-la-chau-au-eurodollar-certificate-of-d eposit-la-gi.aspx 22 https://thebank.vn/blog/16013-dieu-kien-phat-hanh-chung-chi-tien-gui-cua-cac-cong-ty-ta i-chinh.html 23 https://thuvienphapluat.vn/van-ban/Doanh-nghiep/Nghi-dinh-39-2014-ND-CP-hoat-dongcua-cong-ty-tai-chinh-cong-ty-cho-thue-tai-chinh-228676.aspx 24 http://vi.wikipedia.org/wiki/C%E1%BB%95_phi%E1%BA%BFu 25 https://www.investopedia.com/investing/primary-and-secondary-markets/#:~:text= The%20primary%20market%20is%20where,initial%20public%20offering%20(IP O) 26 https://keydifferences.com/difference-between-otc-and-exchange.html#:~:text=Ov er%20the%20Counter%20or%20OTC,safe%2C%20transparent%20and%20syste matic%20manner 27 https://www.intelligenteconomist.com/monetary-system/ 28 https://www.investopedia.com/terms/m/money.asp 29 https://mof.gov.vn/webcenter/portal/btcvn/pages_r/l/tin-bo-tai-chinh?dDocName= MOFUCM228901 30 https://mof.gov.vn/webcenter/portal/tttc/pages_r/l/chi-tiet-tin-tin-tuc-tai-chinh?dD ocName=MOFUCM228820 31 https://fsppm.fulbright.edu.vn/cache/MPP04-553-R0201V-2012-07-02-14340337 pdf 32 https://www.imf.org/external/lang/vietnamese/pubs/ft/fmu/2010/01/0110v.pdf 33 https://doi.org/10.13106/jafeb.2020.vol7.no9.169 34 https://www.adb.org/sites/default/files/institutional-document/42848/files/viet-nam -financial-sector-assessment-strategy-and-road-map.pdf 44 ... give a more specific view of Vietnam’s financial system II Main content Definition of the financial system 1.1 In general A financial system consists of institutional units and markets that interact,... formation and development of Vietnam's Financial System? ??…………………………………………………………………6 1.3 Functions of Financial System? ??………………………………… 15 Participants in Financial System? ??……………………………….17 The structure of. .. in, and the functioning of, the financial system as a whole This makes the analysis of the health and soundness of deposit takers central to any assessment of financial system stability Like any