Financial liberalization the case of vietnam,graduation thesis

i Graduation Thesis Banking Academy STATE BANK OF VIETNAM BANKING ACADEMY FOREIGN LANGUAGE FACULTY GRADUATION THESIS: FINANCIAL LIBERALIZATION THE CASE OF VIETNAM Student: Nguyễn Thị Vân Class: ATCA-K12 Supervisor: Cấn Thúy Liên Hanoi, May 2013 Nguyen Thi Van ATCA_K12 Graduation Thesis ii Banking Academy ACKNOWLEGDEMENTS Foremost, I would like to express my sincere gratitude to my supervisor Ms Can Thuy Lien for the continuous support of my bachelor study and research, for her patience, motivation, enthusiasm, and immense knowledge Her guidance helped me in all the time of research and writing of this thesis I could not have imagined having a better supervisor and mentor for my study My sincere thanks also go to officers of Administration Department – State Audit Office of Vietnam, for helping and instructing me with work and data collection Last but not least, I would like to send my heartiest thanks to all the teachers at Banking Academy, who have equipped me with a variety of knowledge and my family who has supported me wholeheartedly Nguyen Thi Van ATCA_K12 Graduation Thesis iii Banking Academy ABSTRACT Financial liberalization plays a key role in economic growth and make an important contribution to national financial system development However, financial liberalization order and its influences is a contentious issue to economic experts, policy makers and related people all over the world Nowadays, Vietnam has undergone part of financial liberalization process and achieved certain results, but Vietnam still has to confront many challenges in the coming years The study provides an overall picture of financial liberalization and solutions to current status of Vietnam financial liberalization In this thesis, the author will focus on three main sections The first section is the general overview of financial liberalization In the second one, the researcher analyzes Vietnam financial liberalization process in four aspects: interest rates, exchange rate, capital account, and financial services from 1989 until now The last section is recommendations to enhance financial liberalization in Vietnam Nguyen Thi Van ATCA_K12 Graduation Thesis iv Banking Academy TABLE OF CONTENTS ACKNOWLEGDEMENTS i ABSTRACT iii LIST OF TABLES, FIGURES, AND DIAGRAMS vii CHAPTER 1: INTRODUCTION 1 Research rationale Research questions Research objectives Research scope Research methodology Thesis outline CHAPTER 2: AN OVERVIEW OF FINANCIAL LIBERALIZATION 2.1 Definition 2.2 The order of financial liberalization 2.3 The role of financial liberalization in the economy 2.3.1 The advantages of financial liberalization .7 2.3.2 The disadvantages of financial liberalization 2.4 Waves of financial liberalization .10 CHAPTER 3: FINANCIAL LIBERALIZATION IN VIETNAM 12 3.1 The need for financial liberalization implementation in Vietnam 12 3.2 The process of financial liberalization in Vietnam 12 3.2.1 Interest rates liberalization in Vietnam 12 3.2.2 Exchange rate liberalization in Vietnam 20 3.2.3 Capital account liberalization in Vietnam 25 3.2.4 Financial services liberalization in Vietnam 31 CHAPTER 4: SOLUTIONS TO VIETNAM FINANCIAL LIBERALIZATION PROCESS IN THE CURRENT PERIOD .40 4.1 Vietnam financial liberalization process in the current period 40 4.2 Solutions to financial liberalization process in Vietnam 41 4.2.1 Restructuring to have a safe and efficient banking system in Vietnam 41 4.2.2 Stabilizing Vietnam’s stock market .42 Nguyen Thi Van ATCA_K12 Graduation Thesis v Banking Academy 4.2.3 Enhancing banking-finance supervision bodies and enforcement 43 4.2.4 Reforming auditing and accounting practice 43 4.2.5 Promoting information disclosure and transparency .44 4.2.6 Implementing corporate restructuring and the privatization process 44 4.2.7 Strengthening management competence and banking education 45 4.2.8 Applying modern technology - computerization 45 CONCLUSION .46 REFERENCES .47 Nguyen Thi Van ATCA_K12 vi Graduation Thesis Banking Academy LIST OF ABBREVIATIONS ATM Automatic Teller Machine BOP Balance of Payment CPI Consumer Price Index FIA The Foreign Investment Agency FDI Foreign Direct Investment Forex Foreign Exchange FPI Foreign Portfolio Investment GDP The Gross Domestic Product IMF The International Monetary Fund IPO Initial Public Offering JSCBs Joint Stock Commercial Banks MNCs Multinational Companies MOF Ministry of Finance NIEs Newly Industrializing Economies POS Point of Sales SBV The State Bank of Vietnam SCIC State Capital Investment Corporation SEAB Southeast Asia Commercial Joint Stock Bank SOCBs Stated-Owned Commercial Banks SSC The State Securities Commission of Vietnam TNCs Transnational corporations VBARD Vietnam Bank for Agricultural and Rural Development VCB Joint Stock Commercial Bank for Foreign Trade of Vietnam WTO The World Trade Organization Nguyen Thi Van ATCA_K12 Graduation Thesis vii Banking Academy LIST OF TABLES, FIGURES AND DIAGRAMS Table 1: Financial liberalization order in Indonesia and Malaysia before the crisis in 1997 .5 Table 2: Exchange rate bands for transactions between commercial banks and their clients 22 Table 3: Exchange rate bands from 2002 up to now .23 Table 4: FDI by economic sectors, cumulative as at end of 2011 28 Table 5: Vietnam trade balance, current account balance, foreign reserve from 2008 to 2011 .30 Table 6: Charter Capital of JSCBs in Vietnam from 01 January 2012 37 Table 7: Total Equity of FOCBs in Vietnam on 30 March, 2012 37 Figure 1: Vietnam Real Interest Rate from 2010 to 2012 .17 Figure 2: Movement of interest rates from 2011 to March 2013 18 Figure 3: USD/VND Exchange Rate from December 1989 to December 2003 .23 Figure 4: USD/VND Exchange Rate from January 2012 to March 2013 .24 Figure 5: Trend in the number of FDI projects and capital flows 27 Figure 6: Vietnam remittances from 1990 to 2010 28 Figure 8: VN-Index from May 2012 to March 2013 .30 Figure 9: Top 10 countries with the highest asset growth of banking sector in 2010 35 Figure 10: ATM, POS and issued cards 35 Figure 11: Vietnamese insurance penetration 2011 36 Diagram 1: Vietnam’s financial liberalization implementation process in the current period 40 Nguyen Thi Van ATCA_K12 Graduation Thesis Banking Academy CHAPTER 1: INTRODUCTION Research rationale It can be seen in the theory and practice that financial liberalization can promote economic development In the 1980s, the forceful government intervention formulated norms in financial market of developing countries Interest rate ceiling, credit allocation by the government rather than market conditions, and tightly controlled foreign capital inflows were prevalent However, under the influence of the liberalization theory and the experience of developed countries, the developing countries have also gradually liberalized financial markets over the last 20 years Apparently, success in financial liberalization is a key element of the national economic development strategy Increased investment liberalization and expanded trade liberalization will inevitably lead to improved financial liberalization, which is the common trend in any market economy Financial liberalization is not only a compulsory condition to participate in international arena but also the inevitable trend of economic integration It is undeniable that financial liberalization brings the huge potential benefits to the nations The process of financial liberalization helps create a financial system of transparency, flexibility and efficiency, which will help attract investment, stimulate healthy competition and boost the economic growth Furthermore, financial liberalization gives domestic financial institution the chances to access to new technology and provides indigenous consumers the variety of high-quality financial services However, in addition to the indisputable enormous potential benefits, financial liberalization also has the drawbacks that several groups of people still consider as the cause of collapse, financial crises, as happened in Mexico in 1994 - 1995, Thailand and some other Asian countries in 1997 Therefore, these countries have their own selection of financial liberalization process which is in harmony with economic - political conditions of each country for the sake of benefits maximization and risks mitigation Nguyen Thi Van ATCA_K12 Graduation Thesis Banking Academy Financial liberalization has been intensively developing in Vietnam in parallel with the development of market socialist-oriented economy and integration into the international market The question is that where Vietnam is in the process, and which ways to help Vietnam overcome the difficulties of current underdeveloped financial system to implement financial liberalization Based on the theoretical system of financial liberalization, and the reality of financial liberalization process in Vietnam from 1989 until now, this study focuses on understanding the nature and role of financial liberalization in order to realize its necessity for the national economic development The author conducted research to assess the current status of financial innovation and suggest several solutions to financial liberalization in Vietnam Research questions  How is the financial liberalization of high importance to the economy?  How was the financial liberalization implemented in Vietnam?  How is the current economic situation when Vietnam went through part of liberalization process from 1989?  What are solutions to Vietnam’s financial liberalization process in the current period? Research objectives Objective of the research is to describe the nature, role and importance of financial liberalization to economic development and recommend several solutions to financial liberalization in Vietnam in the current period Research Scope The author makes research on financial liberalization in Vietnam from 1989 until now and its current situation Research methodology Basing on the theoretical research method and international experience combined with studying financial liberalization in Vietnam in recent years, the author Nguyen Thi Van ATCA_K12 Graduation Thesis Banking Academy completed the study through the following steps: Step 1: Collect information from books, newspapers, Internet, and organizations related to the field of study in the topic Step 2: Gather, analyze documents, and combine the textbook knowledge with practice to implement topic content In addition, the following methods and techniques are also used to make conclusions and solutions for the topic: analysis, comparison methods and inductive method Thesis outline The study consists of four following chapters: Chapter 1: Introduction Chapter 2: An overview of financial liberalization Chapter 3: Financial liberalization in Vietnam Chapter 4: Solutions to Vietnam’s financial liberalization process in the current period Nguyen Thi Van ATCA_K12 Graduation Thesis 34 Banking Academy Stock Company (SACOM) The market is closely supervised by SSC Established under the Vietnam Government’s Decree 75/CP dated 28 November, 1996, SSC is a securities market regulatory agency which is in charge with the mission of establishment, organizing and regulating securities and securities market operations Before February 2004, SSC had operated as an organ directly belonging to the Prime Minister During this period, SSC could not regulate the market well due to some structural weaknesses The market’s growth by number of listed companies so far has been rather slow In fact, at the end of 2000, merely five joint stock companies were listed, and joined by only five more in 2001 The year of 2002 was recorded as the more successful year of SSC, but just a further 10 companies to be listed Since 2004, SSC became part of Vietnam’s Ministry of Finance As of February 2004, thirteen companies were licensed by both the SSC and HSTC In terms of foreign securities service, the providers are permitted to set up representative offices or to contribute up to 49% of charter capital of joint-venture securities companies in Vietnam, and as of 11 January, 2012 they were allowed to establish branches However, branches of foreign securities service providers could only provide some services such as asset management services, investment fund management, custody, clearings and balances, provision and transfer of financial information, consulting and brokerage activities and other supports relating to securities, etc 3.2.4.2 Results of financial services liberalization in Vietnam a Banking industry Operating in an emerging market, the Vietnamese banking sector has demonstrated a fast growing pace of credit and deposits during the period 2000 - 2010 It experienced dramatic growth in both quantity and total assets during 2005 – 2010 Credit and deposit growth were above 20% at all times Assets of banking sector doubled in the period 2007 - 2010 According to IMF’s data, the the assets growth of Vietnamese banking sector reached 33.92% in 2010 (Figure 9) Banks grew strongly not only in number but also in size of operating network The development strategy of each bank determined the way it expanded the geographical coverage of Nguyen Thi Van ATCA_K12 Graduation Thesis 35 Banking Academy branches, transaction offices and ATMs (Figure 10) Four largest SOCBs hold 35.7% of ATMs of the whole sector Figure 9: Top 10 countries with the highest Figure 10: ATM, POS and asset growth of banking sector in 2010 issued cards Source: www.thebankerdatabase.com Source: Vietnam Bank Card Association Thanks to favorable conditions from financial liberalization, JSCBs operate more actively and have gradually grabbed market share from SOCBs JSCBs have diversified shareholder composition and focus on retail banking and lending to SMEs Market share of these banks grew dramatically, reaching 37.1% for credit in 2010 by successfully grabbing market share from SOCBs Foreign banks have a substantial presence in Vietnam, with 50 foreign companies operating via branch offices and five via wholly foreign-owned bank subsidiaries b Insurance industry The insurance market in Vietnam has experienced a strong growth with a wide range of insurance products and significantly improved insurance quality since its WTO accession Regulation of Vietnam’s insurance market was modified to bring it more in line with global standards Operation network of the insurance industry has been constantly expanding across the provinces To date, the insurance industry gain access to most of the manufacturing industries with many types of business insurance From investors’ perspective, Vietnam is considered the most lucrative insurance market in Asia, billions of contracts were not uncommon The Association of Vietnamese Insurers reported that direct written premiums jumped 21.6% in 2011 over 2010’s levels to US$1.78 billion Life insurance is also Nguyen Thi Van ATCA_K12 Graduation Thesis 36 Banking Academy growing at a fast clip, with 14 carriers generating US$764 million, up 16% over 2010 Vietnam’s 29 non-life carriers produced premiums of US$1.03 billion in 2011, up by a healthy 26% over the prior year There are a variety of factors aligning to fuel growth for insurers in this relatively less developed, yet fast-growing, Asian economy Vietnam’s middle-class population is on the rise, with per-capita income expected to increase by 65% by 2020 Also, the need for both life and non-life insurance coverage has risen And while the economy has faced some challenges in recent years, government plans to increase spending on infrastructure and social-welfare projects which are likely to boost economic growth and stoke demand for insurance coverage, both personal and commercial However, given the fact that Vietnam has very low insurance penetration in both the life and non-life sectors, there is plenty of room for organic growth for both domestic and foreign players Defined as gross premiums written as a percentage of GDP, total insurance penetration in Vietnam stood at just 1.54% against a global average of 6.6% in 2011 Life insurance penetration was only 0.7%, while non-life was just 0.9% in 2011 (Figure 11) Figure 11: Vietnamese insurance penetration2 2011 Insurance penetration defined as gross insurance premiums written as a percentage of GDP Nguyen Thi Van ATCA_K12 37 Graduation Thesis Banking Academy Source: World Insurance in 2011, Swiss Re Sigma c Securities industry Vietnam's stock market has experienced rapid growth in both size and quality to meet the growing demand of the market, leading to the establishment of many securities companies for more than 12 years There were only three securities companies when the stock market was born Nevertheless, according to statistics of SSC, there were 103 licensed establishments by the end of 2012 and 1.2 million accounts registered to trade on Vietnam’s stock exchanges in Ho Chi Minh City and Hanoi When trading started in 2000, the Vietnam’s market capitalization was just over US$60 million Now it is nearly US$40 billion In 2006, Vietnam's stock market was considered the world's most attractive market in the years 2006 and 2007 Despite the impressive development, Vietnam's stock market is still not regarded as "thermometer of the economy and important medium and long-term capital mobilization channel of Vietnamese businesses." 3.2.1.2 Limitations of financial services liberalization in Vietnam a Banking industry Weak financial capabilities of Vietnamese commercial banks Financial abilities of Vietnamese commercial banks are still weak in comparison with foreign commercial banks Table 6: Charter Capital of JSCBs in Vietnam from 01 January, 2012 Unit: million USD (USD/VND: 20,585) Order Banks Total Joint Stock Commercial Bank for Industry and Trade 1,274 equity Joint Stock Commercial Bank for Foreign Trade 1,126 Bank for Investment and Development of Vietnam 1,118 Vietnam Export Import Commercial Joint Stock Bank 600 Source: Consolidated from Balance sheet of Banks Table 7: Total Equity of FOCBs in Vietnam on 30 March, 2012 (Unit: million USD) Order Nguyen Thi Van Banks Citygroup JP Morgan Chase HSBC Mitshubishi UFJ Financial group Total Equity 185,839 191,572 179,764 104,297 ATCA_K12 Graduation Thesis 38 Banking Academy Mizuho Financial Group 54,326 Source: Consolidated from balance sheet of mentioned banks Bad debt growth After several years of breakneck growth - loan growth was 27.7% in 2010 and 37.7% in 2009 - banks in Vietnam, especially the smaller lenders burdened by bad debt, are facing severe challenges The banking sector experienced a very bad year 2012 with lowest credit growth rate in the last 20 years, bad debt soars, and banks profit down by 40% Everyone has been aware that bad debt remains the biggest problem for the Vietnam’s banking system However, it is still unclear how big the bad debt is While SBV said the bad debt ratio was 8.6%, some experts said it could be 13%, and some others said 15% Slow banking system restructuring Fears for the health of the financial system have led authorities to announce a financial restructuring plan, which aims to consolidate the banking sector, reduce the level of bad debt, recapitalize vulnerable institutions, and wind down weak lenders over the next few years These steps came on the heels of several emergency measures taken in 2011 and early 2012, including a forced merger of some struggling banks in 2011 and increased regulatory supervision of potentially weak banks The plan also contains measures intended to boost the sector’s long-term competitiveness in terms of overall scale, risk management practices, and capital levels The time frame for these efforts remains uncertain: though the stated aim was to complete the plan by 2015, the bank restructuring process has been going very slowly, which has made international observers feel impatient At the Vietnam Business Forum in 2012, Sanjay Kaira, Chief Representative of IMF in Vietnam warned that any further delay in the bank restructuring would lead to the increases in the provisional debts of the government b Insurance industry Restriction on foreign insurance companies Although present regulations are generally favorable towards insurers, they pose some restrictions on foreign carriers This includes offering cross-border services Nguyen Thi Van ATCA_K12 Graduation Thesis 39 Banking Academy only through an insurance brokerage legally established and operational in Vietnam In addition, for establishing branches, foreign non-life carriers would have to be operating successfully for the past 10 years, with an asset base of at least US$2 billion They also cannot have any violations reported against them in their home country for three consecutive years prior to setting up their branches c Securities industry Although Vietnam's financial market has not fully liberalized, the financial crisis and global economic downturn has affected the macroeconomic stability of the country Vietnam's stock market was affected the global market in late 2008 and continued decreasing in 2012 The sharp decline in Vietnam’s stock market caused psychological instability for investors in the country Nguyen Thi Van ATCA_K12 Graduation Thesis 40 Banking Academy CHAPTER 4: SOLUTIONS TO VIETNAM FINANCIAL LIBERALIZATION PROCESS IN THE CURRENT PERIOD 4.1 Vietnam financial liberalization process in the current period Lessons from financial liberalization in China and other countries reveal that it is really pivotal for our country to build cautious and reasonable liberalization roadmap Vietnam has undergone part of the process, and now been confronting difficult economic situation Specifically, Vietnam recorded a government budget deficit equal to 6.90% of the country's GDP in 2012 with an upward trend in the coming years External debts have been increasingly high with about 50% GDP Besides, bad debt in banks also escalated Therefore, it is recommended that financial liberalization sequences of Vietnam in the future will be as follows: Diagram 1: Vietnam’s financial liberalization implementation process in the current period Decrease budget deficit Settle bad debts Strengthen the institutional framework Restructure banking system and credit institutions Continue to implement interest rate liberalization Perform the exchange rate regime more flexibly Continue to open doors to financial services Liberate the capital account fully Nguyen Thi Van ATCA_K12 Graduation Thesis 41 Banking Academy 4.2 Solutions to financial liberalization process in Vietnam 4.2.1 Restructuring to have a safe and efficient banking system in Vietnam a Government participation and incentives for the banking system In the first phase of implementing loan loss and other general provisions, Vietnamese government should consider special tax concessions to encourage financial institutions to set aside a greater proportion of their profit as general provision and to reserve funds for training and the development of banking expertise However, SBV will announce the maximum and annual limit on the amount of general provision eligible for tax concession Since Vietnam’s banks are still small in terms of capital and scale of operations, other tax concessions should be given to investment priorities such as agricultural banking, banking to key industries and pioneering industries, e.g infrastructure and transportation During the process of banking reform, Vietnamese government needs to encourage the development of the private banking sector The government also needs to launch suitable incentives to stakeholders in the banking system Incentives should also be given to an open door policy on the entry of skilled expatriates to help expand and upgrade the local banking expertise, and support of training, research and application of new banking technology b Stable macroeconomic environment: There will be no strong and efficient banking system in an unstable macroeconomic environment The central banking authority continues to implement prudent monetary policies, including measures to ensure the control of inflation and foreign exchange, as well as management of the balance of payment, foreign debt and stable foreign currency reserves At the macro level, the government should support the development of the banking system through banking policies that are consistent with macroeconomic management, especially measures to maintain the soundness of the banking system The government will also stay firm with a prudent fiscal policy to maintain a balanced budget The close cooperation between the monetary and fiscal authorities should also be further strengthened Nguyen Thi Van ATCA_K12 Graduation Thesis 42 Banking Academy c Sufficient legal and regulatory framework The Law on State Bank of Vietnam was passed and came into effect in October 1998 The SBV enjoys the legal status of a ministry but it maintains characteristics distinct from other ministries Since it is the central bank governing the monetary and banking system, economic and monetary policies are more important than administrative orders Sufficient legal frameworks should include not only the state bank and credit institution laws, but also laws on property, contracts, companies, bankruptcy, etc Effective bankruptcy procedures, which can be legally enforced and serve as part of a country’s debt-restructuring, are very important means of ensuring that non-viable firms not continue to absorb credit d Adoption of international laws or practices In line with the open door policy and economic integration process in Vietnam, the government should be signatory to international laws and practice, in order to step into the international trade and investment arena and “to speak the same language” with other international players Financial institutions may choose whether or not to apply appropriate worldwide practice or rules but being the signatory to the rules and practice underlines the government’s commitment to support the realization of the rules or practice 4.2.2 Stabilizing Vietnam’s stock market a Economic calendar establishment to announce information Vietnam needs to establish economic calendar to announce basic economic information, economic data, indexes such as CPI, unemployment rate, industrial inventory, property index, forex reserve, total outstanding loans and deposits which should be categorized into sectors b PR strategy Vietnam needs a PR strategy to advertise Vietnam stock market, makes efforts to enter MSCI Emerging Markets Index3 that is designed to measure equity market performance in the global emerging markets, actively takes part in international a free float-adjusted market capitalization index created by Morgan Stanley Capital International Nguyen Thi Van ATCA_K12 43 Graduation Thesis Banking Academy conference forum to present Vietnam economy and stock market potentials to international investors c Rapid privatization process The country should speed up privatization process with new roadmaps and specific criteria as well as timeline to attract foreign inflows Equalization Steering Commission should be allowed to adjust IPO prices by 10% maximum and ensure IPO price higher than book value in the following auctions if the previous one was a failure due to high pricing If IPO auction failed for a third straight time, the IPO company must be reevaluated Besides, to attract foreign investors, Vietnam must immediately simplify procedures to open securities trading account for foreigners and innovate tax policy 4.2.3 Enhancing banking-finance supervision bodies and enforcement In the market economy, the supervision agencies must show greater professionalism and less political interference In the area of bank supervision, focus will be given to improve effectiveness and quality through the application of consolidated supervision, which includes both “on-site” and “off-site” supervision SBV can require commercial banks to have their operations supervised “on site” by internationally recognized supervisors under terms and conditions approved by SBV The biggest problem with most Vietnamese regulations is the lack of enforcement Banking and finance regulations are not exception To effectively implement the banking and finance laws and regulations, Vietnam should establish a much stricter and standardized penalty system, including a range of enforcement powers to deal with incompetent or abusive ownership and management Law enforcement must be ensured The government should build up the concept of “the government of laws, not men” in their people It will require the government to operate within the law 4.2.4 Reforming auditing and accounting practice Due to the fact that many foreign companies are now doing business in Vietnam, Vietnam will Nguyen Thi Van be affected by the move to “internationalization” and ATCA_K12 Graduation Thesis 44 Banking Academy “standardization” Thus there is a need for accounting regulations and financial statement disclosures to adopt international standards Customers, lenders, investors and bankers will require information that is truly transparent Vietnam now has dozens of small local auditing firms and the “big five” accounting and auditing firms are also represented The government should consider regulations on the auditors’ responsibilities for their audited information of financial institutions Clear guidance on auditing standards, the scope, content and the frequency of audit activities to be carried out, should be established In addition, Vietnam’s laws on accounting and auditing should also govern accounting practices, auditing activities and professional accounting and auditing bodies 4.2.5 Promoting information disclosure and transparency Raising disclosure standards will certainly benefit the banking and finance industry Better economic information disclosure will strengthen market confidence Better disclosure and market scrutiny will also put pressure on financial institutions to operate efficiently and profitably Disclosures should be accompanied by concise quantitative benchmarks Bank managers, investors and the public can measure the data against these benchmarks Standardized information disclosure will facilitate comparison with similar institutions Additionally, because financial market operation depends on public trust, government policies should aim to maintain public confidence through transparency and an image of security 4.2.6 Implementing corporate restructuring and the privatization process The corporate sector, especially SOEs, should be restructured in time to prevent recapitalized banks from quickly returning to insolvency by lending to them Many crisis-affected countries in the region are finding it much harder to restructure the corporate sector than to re-capitalize weak banks Thousands of companies of all sizes belongs to governmental ministries Thousands of companies established by “people committees” from the city and district centers Many SOEs operate in the same field of business under the management of the same authority and even in the same locality Most of them are over-indebted However, the SOEs should be maintained in pioneering industries and key Nguyen Thi Van ATCA_K12 Graduation Thesis 45 Banking Academy industries For small SOEs in trading, the proper solution should be full privatization An effective bankruptcy system that supports the entry-exit mechanism for enterprises should be established 4.2.7 Strengthening management competence and banking education Though very important, legal frameworks and quantitative regulations alone cannot ensure that the system is well run Managerial competence is also very necessary The management of financial institutions requires a high degree of integrity, adequate training and experience Emphasis should also be given to the training and upgrading of local banking expertise The efficiency and soundness of Vietnam’s banking system will only be sustained so long as the banking personnel are adequately trained and capable of making a contribution It is therefore, necessary to upgrade the expertise of participants in the financial markets by means of training The results of training and banking education cannot be expected to appear quickly but without it much of other reform efforts are likely to fail 4.2.8 Applying modern technology - computerization Technology plays an essential role in a modern banking and financial system We are in the age of computerization Banks, probably more than most commercial organizations, rely heavily on IT in order to conduct their daily business It is very important to speed up the computerization of banking in Vietnam because the banking system has reached a certain level of sophistication The increase in the number of banking activities, compilation of data, management accounting and management decisions have to be supported by computerization In line with the reforming program of the banking system, Financial Promoting Department under MOF should be established and assume the functions of fostering a progressive financial sector; enhancing the IT infrastructure; developing the manpower capabilities of the industry; marketing financial and banking players and activities; studying and attracting new banking and financial products The government can launch incentive schemes to encourage banks and enterprises to invest more in research and development activities (R&D) Expenses incurred in the set-up and development of sophisticated high-tech IT systems and high value- Nguyen Thi Van ATCA_K12 Graduation Thesis 46 Banking Academy added banking product and services can also be made tax-deductible CONCLUSION Financial liberalization is a major trend, dominating the whole globalization process and integration of the country Given the fact that this is a very complicated issue, there are many conflicting points of view It is undeniable that financial liberalization has led to devastating consequences around the world, but it simultaneously brought many tangible benefits to the global economy The core issue is that if liberalization goes with a good supervision system and precautionary measures, the inherent risks can be prevented Vietnam is in the process of transition to the market mechanism and of integration to the international economy, so financial liberalization is compulsory requirement The financial liberalization process in Vietnam has conducted since the renovation 1986 Its order is relatively the same as “economic optimization order” of Mc Kinnon, which domestic market is liberalized first, followed by the capital account liberalization Vietnam has so far undertaken the interest rate liberalization in the good direction Other matters such the allocation of credit, financial services, stock market and forex market have been reformed to follow the market rules However, the Vietnam’s liberalization is still in the initial steps and much more limited than the process in other countries Although Vietnam will have to face many difficulties and challenges, financial liberalization in Vietnam is on the right track, exerting positive impacts on the national economy in the recent years In short, financial liberalization in the country should be promoted more and more strongly Prudent active actions with strict monitoring mechanism should be taken to ensure effective and safe liberalization Nguyen Thi Van ATCA_K12 Graduation Thesis 47 Banking Academy REFERENCES English: Mc Kinnon Ronald I (1995), The order of economic liberalization: financial control in the transition to a market economy Prof Nguyen Van Tien (2011), Interantioan Finance United Nations (1998), Economic and social survey of Asia and The Pacific 1998, New York Charles Wyplosz (2000), How risk is Financial liberalization in the developing countries, The Technical Group Meeting of the Group of 24, Geneva Reinhart , Carmen and Tokatlidis, Ioannis (2005), Before and after Financial liberalization, University of Maryland UNDP, Korea development Institute, Financial deregulation, capital flows and macroeconomic management in The Asia Pacific Asian Development Bank (2012), Asian Development Bank Outlook 2012 International Currency Analysis, Inc (1996), World Currency Yearbook (WCY) 27th Edition International Monetary Fund (2012), Vietnam 2012 Article IV Consultation , IMF Country Report No 12/165, July 2012 10 United Nations Industrial Development Organizations – Ministry of Planning and Investment (2011), Vietnam Industrial Investment Report 2011 11 Dilip Ratha, World Bank (2011), Global Prospects for Migration and Remittances in 2012: Implications for Asia 12 HSBC Vietnam (2013), Weekly Market Update - March 2013 13 European Central Bank (2012), Euro Money Market Study 14 European Central Bank (2012), Euro Money Market Survey Nguyen Thi Van ATCA_K12 Graduation Thesis 48 Banking Academy 15 United Nations Conference on Trade and Development (UNCTAD), World Investment Report 2012 16 Deloitte (2012), Growth opportunities for financial services in Vietnam 17 Vietcombank Securities (2011), Vietnam Banking Sector Report 18 Business Monitor International (2012), Vietnam Commercial Banking Report Q3 2012, July 2012 19 Intellasia Finance Vietnam (2012), Vietnam Needs Patience to Reduce Bad Debt: IMF, September 7, 2012 20 Citygroup (2012), Financial Reports 21 JP Morgan Chase (2012), Financial Reports 22 HSBC Holdings plc (2012), Financial Reports 23 Mitshubishi UFJ Financial Group (2012), Financial Reports 24 Mizuho Financial Group (2012), Financial Reports Vietnamese: 25 PGS.TS Trần Ngọc Thơ, TS Nguyễn Ngọc Định (2005), Tài quốc tế, NXB Thống kê 26 Nguyễn Thanh Phong (2009), Năng lực cạnh tranh NHTM Việt Nam điều kiện hội nhập kinh tế quốc tế, Tạp chí phát triển kinh tế số 223 tháng 5/2009, tr.46 Websites: 27 The State Bank of Vietnam website: www.sbv.gov.vn 28 The General Statistics Office of Vietnam website: www.gso.gov.vn 29 Ho Chi Minh Stock Exchange website: www.hsx.vn 30 Business and Financial news website: www.reuters.com 31 Migration Policy Institute (MPI) Data Hub website: www.migrationpolicy.org Nguyen Thi Van ATCA_K12