On June 30, 2019, the Vietnam-EU Free Trade Agreement (EVFTA) had been officially signed. On the morning of June 8, 2020, with a majority of votes, EVFTA had been approved by the National Assembly. According to the process, the EVFTA would take effect in 30 days after the two sides completed the procedures to notify each other. Therefore, EVFTA might officially come into force on August 1, 2020, opening up many opportunities for Vietnam’s economy in general and Vietnam’s financial and banking industry in particular.
In the recent report of the authors of the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) Training and Research Institute, it could be seen that the finance and banking industry would benefit significantly from EVFTA. Specifically, contents of the opening of the financial-banking market in EVFTA were recorded on Chapter Eight and Memorandum of Understanding on bank capital contribution, with some features as following.
The first was the regulation that ‘within the first five years after EVFTA came into effect, Vietnam pledged to consider allowing EU credit institutions (CIs) to buy up to 49 percent of the shares of two Vietnamese commercial banks (currently a maximum of 30%), except for four state-owned commercial banks, BIDV, Vietnam Bank for Agriculture and Rural Development (Agribank), Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank)’.
With a short implementation time and the recent trend of divestments from foreign partners (mainly Europe), this short-term was forecast not to much impact on EU capital flows into the Vietnam banking market. However, this also opened up opportunities for commercial banks, especially banks that were thirsty for equity, to meet Basel II standards.
With the participation of EU strategic partners, domestic banks would have access to modern management and technology systems as well as state-of-the-art banking and financial products.
The second was a commitment to ‘open markets with new financial services’ and ‘allow EU financial service providers to transfer information in/out of Vietnam; allow EU financial service providers established in Vietnam to access payment, clearing, financing and refinancing methods available, which were understood as the common methods of raising capital in the market such as issuing bonds, borrowing capital from commercial banks, refinancing loan from the State Bank of Vietnam (SBV).’
This provision might have a strong and direct impact on the field of Fintech and mobile money, which was the new financial service managed by existing Vietnamese legal documents, the report stated. There were significant challenges to the domestic financial market as well as the prospects of digital financial products in the future, especially the payment and retail banking segments. Nevertheless, this also was a motivation for Vietnam Fintech companies and banks to innovate and develop faster; accelerate the process of digital finance and non-cash payment in the aftermath of the COVID-19.
Assessing the complicated dynamics of EVFTA, the report said that the implementation of the Agreement contributed to promoting economic growth and job creation, thereby positively impacting the banking and finance sector.
According to HSBC (June 2020), the Agreement could increase by 0.1 percentage point for Vietnam’s gross domestic products (GDP) growth each year. The World Bank report published in May 2020 estimated that EVFTA could help Vietnam’s GDP increase by 2.4 percent and export rise by 12 percent by 2030.
These impacts were expected to help significantly neutralise the adverse effects of the COVID-19 epidemic on the Vietnamese economy and the banking and finance sector, especially increasing the demand for financial services, the application for credit, payment, trade finance, guarantee, Fintech, life insurance, and non-life insurance of citizens, the research team said.
The third was, EVFTA also helped to improve capital flows into the stock market, investment funds, and to support exchange rate stability. EVFTA could promote not only the attraction of foreign direct investment (FDI) into Vietnam but also the indirect investment activities and expanding cooperation opportunities between businesses of the two sides. As a result, Vietnam’s stock market would become attractive towards investment; especially indirect capital flows from EU investors through investment funds. Besides, expanded export and investment activities would help increase the number of foreign currencies, improve foreign exchange reserves, stabilise market sentiment and exchange rates.
Also, the research team stated that EVFTA would promote the creation of a more favourable investment-business environment through institutional reforms and improvement of the legal framework. The implementation of commitments at EVFTA would boost competition, cooperation, and service development, including the banking and finance sector. At the same time, the rules and regulations would be increasingly standardised and transparent, towards a more open economy and more balanced development of financial markets.
