In the context of how the EU-Vietnam Free Trade Agreement (EVFTA) will change the “picture” of the financial sector, have the enterprises been ready for the change yet, and what challenges will be presented at the seminar “Vietnam FinancialTelecommunication Sector before opportunities and challenges from EVFTA” on October 23.
Particularly for the financial sector including banking, insurance and securities, which is considered as the “backbone” of the economy. The development of this industry can spread to other industries. In recent years, businesses in the financial industry have grown strongly in size, revenue and profit. By the end of 2018, Vietnam had about 388 enterprises and organisations licensed to operate in the financial sector, including 64 insurance business units, 126 banks and non-bank credit institutions and 198 securities organisations.
Experts say the growth of the financial industry is driven by a new trend in consumer consumption. Accordingly, people spend more strongly on insurance services, consumer loans, instalment purchases, online payment and e-commerce.
This trend will continue to increase in the near future, especially in early 2020 when EVFTA officially takes effect. The financial sector will be more open as committed, many foreign businesses will bring modern services to meet the increasing consumption needs of the people.
Analysing the impact of EVFTA on the financial industry, Nguyen Thi Thu Trang, director of WTO and Integration centreVietnam Chamber of Commerce and Industry (VCCI), said that competition in financial services market would benefit consumers, businesses and the economy. This is also a factor for Vietnamese businesses to reduce capital costs, save production costs, improve their own competitiveness and the economy.
Although the direct impact of the commitments on opening financial services in EVFTA in Vietnam market is basically negligible, the indirect impact is very large. According to the assessment of the WTO and Integration Centre, EVFTA’s commitments will help Vietnam’s GDP in the period of 2019-2023 increase by about 2.183.25 percent, in the period from 2024 2028, it will increase by 4.575.3 percent and during the period of 20292033 increase by 7.077.72 percent.
“The banking and insurance industry will also increase export value by 21 percent compared to the time before EVFTA,” said Trang.
In addition, the indirect impact that EVFTA brings will increase service demand; helping to improve the business environment in a more stable way, thereby leading to investment opportunities in EU economies and the opportunity to cooperate with EU partners.
In fact, the EU is a major financial centre of the world, EU businesses are the leading exporters and investors in financial services. Therefore, the cooperation with EU partners will help Vietnamese businesses improve their expertise, technology and competitiveness management.
However, experts assess that taking advantage of these opportunities depends largely on the initiative of understanding and taking opportunities of Vietnamese businesses. Trang said the challenges from EVFTA for Vietnam’s financial industry were insignificant, because the financial industry would only open the reinsurance service and the commitment level would not change within the first five years. After that, the level of opening would be higher than the WTO commitment on the level of foreign capital in joint ventures and value-added services without open network infrastructure for enterprises with 100 percent foreign capital.
However, the financial and telecommunications industry will face competitive pressures from foreign service providers in the context of FTA integration. When there are many financial service providers from the EU investing in Vietnam or providing cross-border services, it will create fierce competition, if domestic enterprises do not change and catch up with the trend, they will lose the market share to foreign enterprises.
Not only that, but also the application of information technology, information security, transaction safety and customer requirements are also challenges from EVFTA that the economy faces. “These are difficult issues and highly specific. Therefore, businesses need to understand clearly and fully to be able to apply commitments in the process of production and business,” said Trang.
Experts said that in order to take advantage of opportunities and overcome challenges of the financial and telecommunications industries, the requirement for businesses is to professionalise and improve the services provided and design in accordance with customer requirements.
At the same time, promoting the enhancement of technology application, electronic banking, regular review and improvement of security techniques and information security assurance and apply the information technology to diversify products and services. At the same time, review and strictly control the processes, financial and banking operations; regularly and improve security techniques and ensure information security.
From a policy perspective, experts from the WTO and Integration Centre think that it is necessary to remove policy barriers and create a favourable business environment for businesses.
“In fact, the effectiveness of reviewing and reducing business conditions depends in part on the voice of businesses, because this is a field of deep expertise that experts in the business environment may not be enough. Therefore, businesses need to actively participate in this process,” said Trang.
In addition, Vietnam is using very strict financial market management measures, based on domestic regulations for “prudent reasons”, so in general, Vietnam’s financial services market has not really been open. This helps the domestic financial services industry to build a certain position in the competition of the domestic market.
However, this method also reduces the pressure to change and develop Vietnamese businesses. In addition, the restriction on opening up also reduces the opportunity to cooperate with strong partners in providing domestic market services, as well as reaching out to foreign markets.
“Therefore, the government needs to have a process of rational liberalisation of financial services. For example, following the EVFTA and CPTPP process for foreign service providers,” Trang proposed.
