Foreign Exchange Management Department: Advise and assist the Governor in performing the function of State management of foreign exchange, foreign exchange activities, and gold trading a
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UEH UNIVERSITY UEH COLLEGE OF BUSINESS SCHOOLING OF BANKING
UEH UNIVERSITY
MIDDLE OF COURSE ESSAY SUBJECT: INTERNATIONAL BANK Topic:
VIETNAM BANKING SYSTEM
Group members: Nguyén Pham An Vy — 31211022957
Tô Trần Thanh Trúc - 31211024981
Đỗ Thị Thu Trang — 31211022588 Đặng Hữu Thành — 31211025810 Phạm Hải Thanh — 31211022511
Lecturer : Dr Phạm Khánh Duy
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3 Foreign Banks' Penetration into the Vietn SC MAPK Cece csesccsescccsssescescesesees 8
4 Update current regulations in the field of finance — PqHĂHŒ -ĂĂceĂ SA Il 6 How does q dormextic bqHk becorne ad” tHferndfiorndl DHHKP cc<« << 16
7, Analyze the economic and political situation from the perspective of the National Bank of Vietnam that wants to penetrate emerging markets such as VICKH ATI cesscsssscssecesssessscessecesscessecessscesseecsseessseesseessseessueessacesseesseaeseaaeee seeecese seaes cneeeaeees 79
8 Environment and regulations related to FDI in the financial and banking
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10 Challenges for policymakers when international banks operate in Vietnam 30
Trang 3The State Bank's organizational structure has 25 units, including:
1 Monetary Policy Department: has the function of advising and assisting the Governor in formulating the national monetary policy and using monetary policy tools in accordance with the law
2 Foreign Exchange Management Department: Advise and assist the Governor in performing the function of State management of foreign exchange, foreign exchange activities, and gold trading activities in accordance with the law
3 Payment Department: Advise and assist the Governor in performing the State management of payment in the national economy in accordance with law
4 Credit Department for Economic Sectors: Advise and assist the Governor in performing the State management of banking credit and operating the money market in accordance with law
5 Department of Forecasting and Statistics: Advises and assists the Governor
in performing forecasting and statistical work according to the provisions of law
6 Department of International Cooperation: Advise and assist the Governor
in performing the state management of international cooperation and integration under the management of the State Bank in accordance with law
7 Monetary and Financial Stabilization Department: Advise and assist the Governor in stabilizing the monetary and financial system under the state management of the State Bank
8 Internal Audit Department: Advise and assist the Governor in performing internal audits and controlling internal operations of units under the State
Bank
9 Legal Department: Advise and assist the Governor in performing state management by law in the fields of currency, banking activities, and foreign exchange
Trang 410 Department of Finance - Accounting: Advises and assists the Governor in carrying out finance, accounting, and construction investment work of the State Bank; State management of accounting and construction investment of the banking industry
11 Department of Personnel Organization: Advises and assists the Governor —
and the Party Committee of the State Bank in carrying out organizational and staffing work; management and use of officials, civil servants, public employees, and workers; Salary regime and other regimes fall under the management of the State Bank according to the provisions of law
12.Department of Emulation and Commendation: Advises and assists the Governor in State management of emulation and commendation work in the banking industry according to the provisions of law
13.Department of Communications: Advises and assists the Governor in managing and organizing the implementation of banking industry communications activities related to the state management function of the State
Bank
14 Office: Advises and assists the Governor in directing and managing banking activities; implementing the administrative reform of the State Bank; and managing the clerical and archival activities of the banking sector in accordance with law
15 Information Technology Department: Advise and assist the Governor in directing and operating banking activities; implementing the administrative reform of the State Bank; manage clerical and archival activities of the banking sector in accordance with law
16 Department of Issuance and Treasury: Advise and assist the Governor in performing State management functions and Central Bank functions in the field
of issuance and treasury according to the provisions of law.”
17 Administration Department: Helps the Governor perform the management function of public assets (excluding assets assigned to autonomous public service units) assigned by the Governor and the administration and logistics services of the State Bank water in Hanoi and Ho Chi Minh City including: asset management, finance, technical facilities, protection, security, order and safety of agencies, care for life and health health for cadres, civil servants, public employees and workers
18 Transaction Office: Advise and assist the Governor in performing Central Bank operations
19 Banking Inspection and Supervision Agency: An agency under the State Bank that performs the functions of administrative inspection, specialized Inspection and specialized supervision of banking in fields under the scope of State management of the State Bank; Advise and assist the Governor in state
Trang 5management of credit institutions, small-scale financial institutions, and banking activities of other organizations; implement the prevention and combat
of money laundering in accordance with the law
20 State Bank branches in provinces and centrally run cities: Are units within the organizational structure of the State Bank, with the function of advising and assisting the Governor in implementing state management of currency, banking, and foreign exchange activities in the area and performing a number
of central banking operations as authorized by the Governor
21 Institute of Banking Strategy: State service unit under the State Bank, with the function of researching and building strategies, planning and development plans for the banking industry; Organize scientific research and development of banking technology to serve the State Bank's State management requirements
on currency and banking activities in accordance with the law
22 Vietnam National Credit Information Center: A public non-business unit under the State Bank; performing the function of collecting, processing and storing credit information and registering credit; scoring, credit rating of legal entities and natural persons in the territory of Vietnam; providing credit information products and services for the purpose of preventing credit risks and serving the requirements of state management of the State Bank in accordance with the law
23 Banking Times: Public service unit under the State Bank; is a mouthpiece and forum on society and banking activities, with the function of propagandizing and disseminating the Party's guidelines and policies, the State's policies and laws, and the banking industry's activities according to regulations regulations
of the State Bank and the law
24, Banking Magazine: Public service unit under the State Bank; is a mouthpiece and forum on professional theory, banking science, and technology, with the function of propagandizing and disseminating the Party's guidelines, State policies and laws, banking activities and achievements in science and technology of the banking industry and related fields according to the regulations of the State Bank and the law
25 Banking Academy: A public non-business unit directly under the State Bank, with the function of training and fostering human resources at college, university and graduate levels; to conduct scientific research in the fields of economics, finance - banking and other branches and specialties when decided
by competent authorities
Entities specified from paragraph | to paragraph 20 are administrative units that assist the Governor of the State Bank in carrying out the state management function and the
Trang 6function of the Central Bank Entities specified from paragraph 21 to paragraph 25 are public service units serving the state management function of the State Bank The Monetary Policy Department has 6 divisions The Credit of Economic Sectors Department, Personnel Organization Department, Finance and Accounting Department, International Cooperation Department have 5 divisions The Foreign Exchange Management Department, Payment Department, Internal Audit Department, Forecasting and Statistics Department have 4 divisions The Legal Department has 3 divisions
The Governor of the State Bank submits to the Prime Minister for promulgation a Decision on the functions, tasks, powers, and organizational structure of the Banking Supervision and Inspection Agency and a list of other state-owned public service units under the State Bank
The Governor of the State Bank issues decisions on the functions, tasks, powers, and organizational structure of units under the State Bank in accordance with the law, except for the Banking Supervision and Inspection Agency
2 Causes and Results of the 2011 Banking Crisis:
The 2011 banking crisis, also known as the Global Financial Crisis of 2011, stemmed from a combination of several interrelated causes, including:
e Asset and Real Estate Bubble: In the decade leading up to the crisis, property and asset prices had soared, creating an asset bubble When the value of these assets suddenly plummeted, many banks struggled with assets that no longer secured their loans
e@ Excessive Lending: Many banks extended loans with high levels of leverage compared to the actual value of assets This created significant risk when asset values declined
e Mismatched Asset Backing: Some banks used unclear or insufficiently backed assets for lending, making it difficult to recover loans when assets declined in value
@ Poor Risk Management: Many banks failed to effectively manage risk, underestimating the risks associated with real estate and complex assets
e Inadequate Accounting: Banks used accounting techniques to obscure their true financial conditions, leading to inaccurate assessments of their difficulties
Trang 7® Foreien Funding Dependence: Some banks in developing countries became overly reliant on foreign borrowing When exchange rates fluctuated and interest rates rose, many struggled to repay foreign debt
® Over-optimism and Misjudgment: Overconfidence in sustained growth and misyudgment of risk capabilities created an environment in which banks took excessive risks
@ Global Interconnections: The interconnectivity between banks and global markets led to rapid contagion effects when a crisis occurred in a specific location
e Lack of Global Financial Regulation: Some countries lacked strong global financial regulation, allowing banks to operate unchecked and create risks
These factors collectively led to a global financial meltdown in 2011, with many banks facing liquidity problems and seeking government and financial institution support
e High Growth Expectations: Prior to the crisis, Vietnam had experienced strong growth in real estate and financial assets This created expectations
of continued growth, leading many banks to extend credit excessively to risky real estate and financial projects
e Poor Risk Management: Many banks in Vietnam did not effectively manage risks, failing to accurately assess the risks associated with lending for real estate and high-risk projects
e@ Reliance on Foreign Funding: Some Vietnamese banks became heavily reliant on foreign sources of funding, including foreign loans When there were fluctuations in global financial markets, exchange rates, and rising interest rates, these banks faced difficulties in repaying foreign debt e@ Financial System Instability: The financial system in Vietnam at that time was unstable and had difficulty providing capital to banks, adding financial pressure
e Expectations and Misinformation: Financial markets often reflect investor emotions and expectations In some cases, misinformation and
7
Trang 8inaccurate information can lead to significant fluctuations in financial markets
These causes led to the banking crisis in 2011 in Vietnam, with many banks struggling
to manage their debts, facing a rise in bad debts, and requiring government intervention to stabilize the financial system
Results of the Crisis in Vietnam:
@ Collapse of Some Banks: The crisis led to the collapse of several banks that could not maintain financial stability These banks were either closed or merged with larger banks to ensure stability in the financial system
e Enhanced Risk Management: The crisis prompted reforms in risk management within banks and financial management agencies Regulations and standards for risk management were improved to ensure the sustainability of the banking system
® Government Intervention: The government had to intervene strongly to stabilize the financial system This included providing capital and support to troubled banks to prevent a system-wide collapse
e Impact on Credit: The crisis affected the supply and use of credit Banks became more cautious in lending, and businesses also became more careful
in borrowing This could impact economic growth
e@ Changes in Regulations and Laws: The crisis accelerated changes and reforms in regulations and laws related to the banking sector These changes aimed to enhance sustainability and transparency in the financial system e@ Learning and Strengthening the Banking System: The crisis made banks and financial management agencies deeply aware of the importance of risk management and regulatory compliance The banking system strengthened its ability to cope with similar challenges in the future
e Trust Impact: The crisis affected public trust in the banking and financial system This could have long-term effects on public and business participation in the financial system
In summary, the 2011 banking crisis in Vietnam had serious consequences for the banking and financial system of the country However, it also prompted reform measures and enhancements to ensure the sustainability and transparency of the financial system in the future
3 Foreign Banks' Penetration into the Vietnamese Market
Trang 9Recent years have seen an increased importance of international trade in goods and financial services To facilitate such trade, many banking institutions have also become international Banks expand internationally by establishing foreign subsidiaries and branches or by taking over established foreign banks The internationalization of the The banking sector is facilitated by the liberalization of financial markets worldwide.Developed and developing countries alike now increasingly allow banks to be foreign owned
The penetration of foreign banks into Vietnam started very early, as soon as the Ordinance on Banks, Credit Cooperatives, and Financial Companies of 1990 came into effect This ordinance officially lifted restrictions and allowed foreign banks to open payment branches or establish joint venture banks with domestic banks In the early 1990s, four joint venture banks were licensed to operate By 1999-2000, the number of foreign bank branches had increased to 25, and by the end of 2013, there were 53 branches and representative offices, 5 100% foreign-owned banks, and 4 joint venture banks operating in Vietnam According to the State Bank of Vietnam, Vietnam currently has 9 banks with 100% foreign capital Additionally, there are 52 branches
of foreign banks and 2 Joint Venture Banks in operation
In Vietnam, when state-owned banks penetrate the Vietnamese market, they bring opportunities and challenges as follows:
e@ Opportunities:
- Learning and sharing knowledge: The penetration of foreign banks offers an opportunity to learn from international experiences and share knowledge and advanced management processes This can help Vietnamese banks improve the quality of their operations and develop a more efficient business model
- Technology transfer: Foreign banks often bring advanced technology to the banking industry This opportunity helps Vietnamese banks improve their ability to apply technology in operations, from customer service to internal management
- Drversification of products and services: The penetration of foreign banks provides opportunities for Vietnamese banks to diversify financial products and services, meet diverse customer needs, and compete more effectively in the market
- Financing and Investment Support: Foreign bank penetration can bring new capital and financial support to businesses and projects in Vietnam, contributing to economic growth
@ Challenges:
Trang 10- Extreme competition: Foreign bank penetration increases competition in the banking industry Vietnamese banks face competitive pressure in terms of interest rates, services, and availability
- Financial risks: Foreign bank penetration can bring new and unfamiliar risks to the Vietnamese market Vietnamese banks need to ensure that they have properly assessed and managed these risks
- Adapting to regulations and culture: Foreign banks need to adapt to local regulations and business culture This also applies to Vietnamese banks as they try to adapt to new ways of working
- Human resource development: To effectively compete with foreign banks, Vietnamese banks need to invest in training and human resource development
to ensure they have the necessary skills and knowledge
- Protecting customers and reputation: Vietnamese banks need to ensure that they protect the interests of customers and maintain their reputation in the eyes of
+ Learning from International Standards: Employees have the opportunity to learn and apply international standards in management, customer service, and the application of information technology to improve banking operations
Trang 11+ Career Advancement: Competition in the industry can motivate domestic banks
to enhance benefits and promotion opportunities to retain employees and attract new talent
- Challenges:
+ Competitive Pressure to Recruit and Retain Talent: International banks can offer better working conditions and more attractive development opportunities This puts pressure on domestic banks to retain and attract talent
+ Need to Improve Capacity to Compete: Domestic bankers need to improve their personal capacity to compete in a more developed and professional environment
+ Adapting to International Standards: International standards may differ from domestic realities Employees need to learn and adapt to ensure that they can meet these standards
+ Integration of New Technology: The entry of international banks is often accompanied by more advanced technology Employees need to learn how to use and integrate new technology into their daily work
+ Alignment with Company Values and Culture: Employees need to understand the values and culture of their banks to ensure adaptation and inclusion in a more diverse work environment
In conclusion, the increasing presence of international banks in the Vietnamese market creates opportunities for growth and learning, but at the same time poses competitive challenges and requires enhancing individual capacities to survive and thrive in an increasingly competitive banking environment
4 Update current regulations in the field of finance — banking
e@ Law on the State Bank of Vietnam 2010 (Law No 46/2010/QH12): General regulations on functional positions of the State Bank of Vietnam; national monetary policy and authority to decide national monetary policy; duties and powers of the State Bank; responsibilities of ministries, ministerial-level agencies, People's Committees at all levels, State Bank’s Organizations, banking inspections, supervision, internal audit, implementation provision
Trang 12Law on Credit Institutions 2010 (Law No 47/2010/QH12): This Law applies to the following subjects:
Credit institutions
Foreign bank branches
Representative offices of foreign credit institutions and other foreign organizations with banking activities
Organizations and individuals involved in the establishment, organization, operation, special control, reorganization, and dissolution of credit institutions; the establishment, organization, and operation of foreign bank branches, representative offices of foreign credit institutions, and other foreign organizations with banking activities
Law on Prevention of Money Laundering (Law No 07/2012/QH13): Regulations on scope and subjects
This Law regulates measures to prevent, detect, stop, and handle organizations and individuals committing money laundering acts; responsibilities of agencies, organizations, and individuals in preventing and combating money laundering; international cooperation on money laundering prevention
The prevention and combat of money laundering to finance terrorism are carried out in accordance with the provisions of this Law, the provisions of the Penal Code, and the law on prevention and combat of terrorism
Applicable objects:
+ Financial institutions
+ Organizations and individuals doing business in relevant non-financial industries
+ Vietnamese organizations and individuals; foreigners living in Vietnam
or foreign organizations, international organizations, non-governmental organizations operating in the territory of Vietnam that have financial transactions or property transactions other than prescribed organizations and individuals in Clauses | and 2 of this Article
+ Other organizations and individuals related to money laundering prevention and combat
Law on Deposit Insurance (Law No.: 06/2012/QH13):
This Law regulates deposit insurance activities, rights, and obligations of deposit insured persons, deposit insurance participating organizations, deposit insurance organizations, and state management of deposit insurance
This law applies to deposit insured persons, deposit insurance participating organizations, deposit insurance organizations, other agencies, organizations, and individuals involved in deposit insurance activities
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Trang 13Deposit insurance aims to protect the legitimate rights and interests of depositors, contributing to maintaining the stability of the system of credit institutions and ensuring the safe and healthy development of banking activities
Other current decrees:
Decree 28/2022/ND-CP on preferential credit policies for the implementation
of the National Target Program on Socio-economic Development of Ethnic Minorities and Mountainous Areas in the period from 2021 to 2030, phase 1: from 2021 to 2025
Decree 15/2022/ND-CP stipulating tax exemption and reduction policies under Resolution 43/2022/QHI15 on fiscal and monetary policies to support the socio- economic recovery and development program
Decree 143/2021/ND-CP amending Decree 88/2019/ND-CP on sanctioning administrative violations in the monetary and banking sectors
Decree 58/2021/ND-CP on the provision of credit information services Decree 46/2021/ND-CP on financial management and performance assessment for the Vietnam Development Bank
Decree 86/2019/ND-CP stipulating the level of legal capital of credit institutions and branches of foreign banks
Decree 87/2019/ND-CP amending Decree 116/2013/ND-CP guiding the Law
on Money Laundering Prevention and Fighting
Decree 88/2019/ND-CP on sanctioning administrative violations in the monetary and banking sectors
Decree 43/2019/ND-CP amending Decree 26/2014/ND-CP on the organization and operation of banking sector inspection and supervision
Decree 19/2019/ND-CP on surnames, hui, bieu, and wards
Decree 16/2019/ND-CP amending the Decree on business conditions under the state management of the State Bank of Vietnam
Decree 117/2018/ND-CP on confidentiality and the provision of customer information for credit institutions and branches of foreign banks
Decree 116/2018/ND-CP amending Decree 55/2015/ND-CP on credit policies for agricultural and rural development
Decree 42/2018/ND-CP on the abolition of Decrees in the banking sector Decree 34/2018/ND-CP on the establishment, organization, and operation of the Credit Guarantee Fund for Small and Medium Enterprises issued by the Government
Decree 93/2017/ND-CP on the financial regime for credit institutions and branches of foreign banks, and financial supervision and assessment of the
Trang 14efficiency of state capital investment in credit institutions where the State holds 100% of the charter capital and credit institutions with state capital
Decree 61/2017/ND-CP guiding the appraisal of the starting price of bad debts, collaterals of bad debts, and the establishment of bad debt auction councils, collaterals of bad debts for bad debts, and collaterals of bad debts of large value Decree 32/2017/ND-CP on State investment credit
Decree 16/2017/ND-CP stipulating functions, tasks, powers, and the organizational structure of the State Bank of Vietnam
Decree 89/2016/ND-CP stipulates conditions for foreign currency exchange agency activities, provision of foreign currency receipt and payment services
by economic organization
The function of foreign banks in developing nations like
Vietnam:
Trang 15The banking business in Vietnam has been heavily digitized, and as a result, digital banking services are becoming increasingly popular with consumers
According to the SYNC Southeast Asia Report on digital consumers in Southeast Asia, Vietnam is one of the region's leading countries in terms of financial technology adoption, with 58% of customers already utilizing banks In particular, 68% of the Vietnamese population has established a bank account, a huge rise from
31% in 2017
The substantial participation of clients in rural regions — which account for 60% of Vietnam's population — in the digital banking sector makes this market even more appealing According to Dr Gregory Bournet, Deputy General Director, Corporate Finance Advisory Leader, PwC Malaysia and Vietnam, the growth of consumer financial services, mobile banking applications, and other platforms has accelerated in recent years Online payment platforms have increased financial knowledge and the capacity of rural communities to access banking services
In other words, digital transformation increases the size and attractiveness of banks' market shares This is also why many multinational behemoths aim to join the Vietnamese market, primarily through mergers and acquisitions (M&A), because obtaining a new license in this industry is nearly impossible
Thailand's second biggest bank, Kasikornbank (KBank), recently stated that it plans to invest more than $1 billion USD in Vietnam between now and 2027, including investments in the bank and two subsidiaries in Vietnam, K Vision Investment Fund and KBTG Technology Company KBank is in talks to acquire Home Credit Consumer Finance Company for more than a billion dollars If completed, this will be the second largest M&A transaction in the consumer finance business, following VPBank's sale of 49% of FE Credit's capital to SMBC for 1.4
billion USD
There is no doubt that multinational banks have had a positive influence International banks have a vital and varied role in assisting and connecting with emerging countries such as Vietnam
Trang 16a Capital and finance provision:
International banks frequently supply money and funding for emerging market projects and enterprises This facilitates these countries' economic and infrastructure growth The Asian Development Bank (ADB) has granted a USD 1 billion loan to Vietnam to assist fiscal policies in order to continue economic and social activities in the face of the COVID-19 epidemic Vietnam has also received a $100 million loan from ADB to enhance its use of renewable energy sources
b Transfer of technology and knowledge:
International banks frequently bring superior technology and management know-how from established markets to emerging economies This aids in the improvement of production and managerial capability in a variety of sectors
c Facilitate international trade:
International banks often offer financial services to support international commerce and market-to-market trading, such as foreign exchange transactions and export finance
d Assistance with risk management:
International banks frequently offer insurance and risk-related financial services and have highly developed risk management skills This lowers risk and ensures stability for businesses and investors in emerging markets
e Financial markets in development:
International banks frequently play a key role in the development of emerging market financial systems Diversified and efficient financial service offering can assist boost market liquidity and trust
ƒ Encourage the use of sustainable financing and corporate social responsibility
International banks frequently place sustainable development and corporate social responsibility at the center of their operations This might put pressure on firms and governments in emerging areas to enact environmental and community-benefiting
policies
g Assistance in training and human resource development
International banks frequently invest in local human resource development and training This improves workers' knowledge and abilities in growing markets In terms
of operating efficiency, customer service, and banking technology, Joint Stock Commercial Bank International (VIB) is one of Vietnam's premier banks
VIB was founded in 1996 with the support of overseas investors such as the Development Bank of Singapore (DBS), the Brunei National Investment Fund (BIA), and the Japan Investment Fund (JBIC) VIB presently employs over 11,000 people throughout 180 branches and transaction offices in the United States
Trang 17In short, international banks play a crucial role in assisting emerging markets such as Vietnam's growth and sustainability They are essential partners in delivering foreign money, technology, expertise, and financial services, therefore contributing to these nations’ inclusive growth
6 How does a domestic bank become an international bank?
A domestic bank can turn into an "International Bank" by growing its network and operations to conduct transactions internationally and offer global financial services A local bank should take the following actions and think about the following things in order to grow into an international bank:
1, Distribution of branches and representative offices overseas
Domestic banks frequently need to increase their worldwide footprint by setting up branches or representative offices in other nations in order to become international banks They are now able to trade internationally and offer financial services to clients from across the world
Commercial banks have consistently added branches and networks abroad in recent years Currently, banks like Vietcombank, Viettnbank, SHB, and Sacombank are solely present in the Laos market
Presently, the Joint Stock Commercial Bank for Investment and Development
of Vietnam (BIDV) has branches in Myanmar, Laos, Cambodia, the Czech Republic, Taiwan, and the Russian Federation Additionally, Military Commercial Joint Stock Bank (MB) maintains a representative office in Russia and two branches in Laos and Cambodia
2 International agreements and partnerships
To offer global services and products, an international bank frequently has to enter into agreements and partnerships with other international banks and financial Institutions Contracts of collaboration with international banks or credit institutions are becoming more important to Vietnamese banks By agreeing to a strategic shareholder agreement with Mizuho Corporate Bank of the Mizuho Financial Group (Japan) in 2011, Vietcombank marked an important turning point Alternatively, Techcombank has pledged to invest 500 million USD for the journey of digital transformation in the strategic period of 2021-2025, "jomning hands" with the world's top partners like Amazon, Backbase, Salesforce, Adobe
3 Diversified financial services offering