Financial & Related Professional Sector in Vietnam

An Expert's View about Insurance, Reinsurance, Pension Funding in Vietnam

Posted on: 30 Sep 2010

The sector in Vietnam has been transformed over the last two decades, and is expected to further open up, creating a level playing field for all players in the market.

Financial and Legal Services Sector ? Vietnam Sector Report Financial & Related Professional Sector Vietnam Produced by: Tran Dieu Quynh Hoa ? Trade & Investment Officer ? British Embassy Hanoi Nguyen Chau Man ? Trade & Investment Officer ? British Consulate Ho Chi Minh City Last revised: June 2009 Whereas every effort has been made to ensure that the information given in this document is accurate, neither UK Trade & Investment nor its parent Departments (the Department for Business, Innovation & Skills, and the Foreign & Commonwealth Office), accept liability for any errors, omissions or misleading statements, and no warranty is given or responsibility accepted as to the standing of any individual, firm, company or other organisation mentioned. Published September 2009 by UK Trade & Investment. Crown Copyright ©. www.uktradeinvest.gov.uk Financial and Legal Services Sector ? Vietnam Table of Contents OVERVIEW 3 CHARACTERISTICS OF MARKET OPPORTUNITIES 8 KEY METHODS OF DOING BUSINESS 10 MORE DETAILED SECTOR REPORTS 11 CONTACT LISTS 12 Page 2 of 122 Financial and Legal Services Sector ? Vietnam OVERVIEW Over the past 20 years, Vietnam has gradually migrated from a centrally planned economy to a market based economy by shifting its focus from agricultural production to industries and services. Vietnam had been one of the fastest-growing economies in the world until recently, averaging around 8% annual gross domestic product (GDP) growth from 1990 to 1997 and 6.5% from 1998-2003. From 2004 to 2007, GDP grew over 8% annually. Growth has slowed last year and this year, and the country is facing the challenge of high inflation. Vietnam is now a regional and global player, and continues to attract significant levels of foreign direct investment (FDI). In 2008, Vietnam attracted USD 11.5 billion worth of FDI. FDI commitment fell back sharply, at 76.3% y-o-y, for the first 5 months of 2009. More importantly, disbursed (i.e. actually spent rather than just promised) FDI also declined by 29%. The Foreign-invested sector has seen a 20-30% drop in sales ? most of them in export-processing zones. The financial and legal services sector in Vietnam has been transformed over the last two decades as a result of the renewal policy, which was introduced in 1986 by the Vietnamese Government and subsequent bilateral and multi-bilateral agreements signed by Vietnam in order to integrate into the world economy. Important changes have been accomplished both in the structure, the regulation and the operation of the sector, thus moving the sector towards a modus operandi that closely resembles other emerging markets and newly industrialised economies. th Vietnam became the 150 member of the World Trade Organisation (WTO) in January 2007 and is now in the progress of implementing its WTO commitments (including drafting necessary regulations, decrees providing guidance on how to implement WTO commitments). As a result, the sector is expected to further open up, creating a level playing field for all players in the market. CHARACTERISTICS OF MARKET Banking Over the past decade, the four largest State Owned Commercial Banks (SOCBs) have evolved from specialised policy lending institutions to state-owned banks that are expected to operate on a more commercial basis by providing both the Vietnamese people and companies with additional banking services. The four largest SOCBs, which account for 73% of all credit to the economy, continue to implement plans to transform themselves into more commercially oriented institutions, including making improvements to credit policies and procedures, accounting practices, information systems, products and services and capital. The long-anticipated Initial Public Offering (IPO) by VietcomBank (one of the SOCBs) st took place on December 21 2007. Priced at 78 times 2007 earnings, the issue was oversubscribed 1.25 times. However, in January 2008, when investors were due to pay the balance for their shares (only a 10% deposit was required to participate in auctions), they took up just 90% of the shares, leaving Vietcombank with the rest. The bank wants to sell about 30% of its shares to a foreign strategic partner, but has not been able to come to an agreement on the price of the shares. Page 3 of 122 Financial and Legal Services Sector ? Vietnam Vietin Bank (which used to be called IncomBank) went for IPO in December 2008 to sell 10% of its shares to the public. It has been listed in the Ho Chi Minh Stock Exchange since early July 2009. Mekong Housing Bank and the other two SOCBs (AgriBank and BIDV) were due to be equitised in 2008 but they have delayed their equitisation plans as a result of the VietcomBank and Vietin Bank?s experiences and the downturn of the stock market in Vietnam. The environment in which banks operate has improved as SOCBs no longer have to provide directed credit. Directed credit (mainly to poor farmers and students) is now handled by the Bank for Social Policies ? a not-for-profit bank. The State Bank of Vietnam (SBV) has promulgated numerous regulations on bank supervision, gradually levelling the playing field for foreign banks and reclassifying all non-performing loans (NPL) in the SOCBs. A credit information centre was set up in 1999 and a registry for secured credit transactions in 2002, both of which were aimed to help improving access to finance. The fiscal stimulus package of the Government (US$ 8 billion to date) was partly disbursed through banking system to boost export activities. This however is viewed as will double the budget deficit to 10-12%. There has been progress in the consolidation of the joint stock banks. Some of these have posted strong growth and performance, despite the small size of their operation. To cope with the required changes in technology and services, some joint stock banks have sold their shares to foreign banks in order to tap into foreign expertise, technology and management experience. Similarly foreign investors have been keen to invest in Vietnamese banks. So far, 10 local private banks have received the State Bank of Vietnam?s approval to sell their shares to 10 different foreign banks. The original ceiling of 10% on individual foreign ownership was increased to 15% but even then foreign investors found it still difficult to add their know-how to their money. The key limits are: - The total of all shares owned by all foreign investors (including existing foreign shareholders) and affiliated persons remains capped at 30%, - There is scope for an increase (up to 20%) in the shareholding by a foreign strategic investor if permission is obtained from the Prime Minister, - Shareholdings of other foreign credit institutions and foreign investors (not being credit institutions), meanwhile, have been capped at 5% and 10%, respectively. In addition to the above, Vietnamese joint stock banks were taking advantage of the stock market to raise capital to meet an increased requirement in term of chartered capital by the State Bank of Vietnam. This is aimed to maintain sustainable growth in this fast developing sector. To date there are 175 banks and finance companies operating in Vietnam (of which 4 SOCBs, 2 equitised SOCBs, 42 foreign bank branches, 5 joint venture banks, 38 urban joint stock banks, 13 leasing companies, 54 representative offices of foreign credit institutions in Vietnam and 17 finance companies. The market is considered particularly crowded and it is expected that a consolidation or rationalisation will happen sooner or later. Local incorporation licences were granted to Standard Chartered Bank and HSBC of UK, ANZ of Australia, Hong Leong of Malaysia and Shinhan Bank of South Korea. Banks from other countries, such as Taiwan and Russia are also lining up for local incorporation but the world economic recession and credit crunch has slowed down the move. Despite the prominence of banks in the market, their penetration rate within the Vietnamese population is 17% of the population, up 36% from the previous years (State Page 4 of 122 Financial and Legal Services Sector ? Vietnam Bank of Vietnam?s figures). This shows the infancy of the market but also highlights the great potential for banking sector. Insurance The Vietnamese insurance market is supervised and regulated by the Ministry of Finance (MoF). On 9 December 2000, the National Assembly passed the Law on Insurance Business. This law, which was drafted with the help of the European Commission?s Eurotap programme, is the main law regulating the industry and aims to regulate the obligations and rights of organisations and individuals. The Law however is being revised to accommodate recent requirements as a result of Vietnam?s WTO membership. Although the insurance industry has developed strongly in recent years, growing at a rate of 28-29%, insurance premiums are still only a modest 1.5-2.0% of GDP. A number of reforms announced recently by the MoF along with the rising pressure of economic integration are expected to spur insurance firms into seeking a greater share of the domestic market. The MoF has decided to increase the chartered capital of the Vietnam Insurance Corporation (Bao Viet) - a state-owned organisation who used to hold a monopoly in the insurance market (around 40% market share) to VND 3,000 billion (USD 200 million). Equitisation of Bao Viet earlier 2007 was seen as an important step towards a more level playing field in the insurance sector, especially after Bao Viet sold 10% of its shares to HSBC Insurance Corporation. Further share transfer from Bao Viet to HSBC Insurance is possible under the agreement and that could further enhance the competitiveness of Bao Viet in the market. Vietnam?s insurance sector has grown considerably in recent years. Vietnam?s life insurance market has already overtaken Indonesia and Philippines in terms of market penetration. This is because insurance premium forms a larger percentage of the country?s GDP. Following its opening up in 1996 more and more foreign insurers have accessed the highly lucrative insurance market in Vietnam. Foreign companies can now easily operate in the country and are forming joint ventures with local companies in order to enter Vietnam and diversify their clientele. In addition, a range of foreign life insurers, including some large Asian-based life insurers (principally from Singapore, Taiwan, China and South Korea), have set up representative offices in Vietnam and are working toward gaining operating licenses. Investors from regions like Asia, US and Europe are also actively lobbying the Vietnamese government for access to the local insurance market. Upon the country?s accession to the World Trade Organisation, foreign insurers expected to be allowed to establish more wholly owned units and to benefit from progressively declining limitations on their scope of business. So far, a few more foreign owned insurers have set up in Vietnam, e.g. Daichi Life (bought out Bao Minh CMG), Great Eastern (from Singapore), Cathay (from Taiwan), Hanwha (from South Korea). This has made the competition in the life insurance fiercer. Non-Life Insurance There are currently 27 non-life insurers operating in Vietnam, of which 2 state-owned, 15 joint stock, 3 joint venture and 7 foreign companies. Bao Viet dominates this non-life insurance segment by occupying 30.4% market share, followed by Petro Vietnam Insurance Corp (18.54%) and Bao Minh (17.35%). In 2000, insurance sector was valued to be USD 177.12 million. Going forward, it is expected that the market from USD 1,141.98 million will grow at an average rate of 16.25% and reach USD 2,039.95 million by the end of 2011. Page 5 of 122 Financial and Legal Services Sector ? Vietnam Life Insurance Between 2000 and 2007, life insurance sector increased from USD 51.12 million to USD 586.24 million, a growth of 35.65% during this period. It is forecasted that the life insurance market in Vietnam would grow at an annual average growth rate of 13.21% between 2007 and 2011. 11 life insurers are currently competing in Vietnam. Market leader is Prudential with 41.3% market share, followed by Bao Viet with 33.13%. The other 9 companies are sharing the remaining 27.57% share of market. Stock market The stock market in Vietnam is regulated and supervised by the State Securities Commission (SSC), which was established in 1997 with its headquarter in Hanoi and a representative office in Ho Chi Minh City. Securities Trading Centres were opened in Ho Chi Minh City in July 2000 and in Hanoi in March 2005. The Ho Chi Minh City Securities Trading Centre became a fully-fledged Stock Exchange in August 2007 and Hanoi one in 2009. SSC was originally tasked with increasing the volume of business investment capital mobilised from the stock market to 10%-15% of the country?s gross domestic product (GDP) by 2010. As a result of the 2006 boom in the stock market, market capitalisation had reached 31% of s GDP by the end of 2006. The government and SSC have tried to cool down the market and at the same time create a comprehensive legal framework for the securities The Securities Law, which was passed in November 2006 is a step in the right direction. However Vietnam?s financial markets have had a tumultuous time since late 2007. The st once high-flying stock market has fallen more than 30% since January 1 2008, and inflation has ballooned. th On 8 November 2006, VN-Index was first introduced at 525.99 points. It peaked, four months later at 1,170.67 points. By March 2008, it had fallen to 496.64 points. Market has sometimes seen sign of recovery but the VN-Index was around 480 points by mid 2009. Although investors? confidence has been badly shaken, the government is confident that the local stock market will not see a crisis for the following reasons: ? Vietnam?s economy, though being influenced by many factors, is still on the right track of development, ? Vietnam has learned lessons in dealing with financial crises. It experienced the Asian financial crisis 10 years ago, ? Foreign investors are unlikely to withdraw their capital from the stock market of Vietnam unless they lose all confidence. One area which has caused some concern among domestic and foreign investors is publicising information. The move is compulsory not only for organisations participating in the stock market but for all businesses and economic establishments in Vietnam. MoF has issued circular to regulate public disclosure requirements of publicly traded enterprises, institutions issuing and selling bonds, listed enterprises, securities companies, securities trading centres and related institutions. Page 6 of 122 Financial and Legal Services Sector ? Vietnam Securities Companies (Stock Brokers) All 5 SOCBs and Vietnam?s largest state-owned insurance company (Bao Viet) have established wholly owned securities subsidiaries. In addition there has been an explosion in the number of new securities companies (around 100 currently), partly because of the low capital required for entry. To correct the situation, new and stricter regulations on the organisation and operation of securities company were issued in April 2007. Securities companies which were established under the previous regulations also have to meet these new requirements. Many securities companies are currently facing difficulties and making losses. Since June 2008, SSC has stopped licensing new securities companies. Accountancy The early development of the accountancy profession in Vietnam was based on the accounting practices of countries, which with Vietnam had strong military, social or trade links, including China, the then Soviet Union and, more recently France and the United States. A move towards alignment with International Accounting Standards (IAS) began in the early 1990s. The complete set of Vietnamese Accounting Standards (VAS) was issued at end of 2003. These were based on IASs, knowledge of regional countries? standards, and Vietnam's own legal provisions and requirements. As Vietnamese companies are looking to list in international exchanges, a move towards International Financial Reporting Standards is becoming more urgent than ever and MoF is working hard to ensure consistence between IAS and VAS. The UK Association of Chartered Certified Accountants (ACCA) has been working with the MoF to develop a Vietnamese variant of ACCA's accountancy qualification. From December 2006 candidates were able to sit the ACCA recognised Vietnamese variant examinations in Corporate Law and Business Taxation. This represented completion of the first step in the roadmap to fulfil the commitment signed between ACCA and MoF in 2003, concerning the localisation of the international examination in a bid to improve the relevance of the ACCA qualification in Vietnam. There is a potential training requirement for other papers within the ACCA qualification where UK financial experts can add value. Auditing In response to both the move towards a market-based economy in Vietnam and international economic integration, external auditing activities began to substantially develop in the late 1990s. With a view to establishing a legal framework for the establishment, development and management of external auditing activities, the Government promulgated the Regulation on Independent Auditing in the National Economy, the Regulation on the Examination and Issuance of Audit Certificate as well as the Regulation on Registration and Practising Audit Profession. The top six global audit firms dominate accountancy in Vietnam. With the never ceasing work of ODA projects, foreign accountants continue to deliver strong business results in Vietnam. Their workload has increased significantly with the implementation of the Enterprise Law. This law has given many private Vietnamese companies the chance to become legitimate. Previously they had operated in a manner that was ?tax efficient? by avoiding the attention of the authorities. Since the passing of the Enterprise Law the number of private Vietnamese companies continues to grow rapidly. Accountants are Page 7 of 122 Financial and Legal Services Sector ? Vietnam regularly advising well-established Vietnamese business on how to become a limited company especially after a number of years of operation. During the period from 1991 to 2005, MoF only licensed 75 auditing companies. With the booming of the stock market in 2006/2007 and the sharp increase in the number of companies listed in the both stock exchanges, and in order to ensure that all listed companies have their accounts audited, SSC and MOF had to lower the requirements and licensed a large number of auditing companies (71) during 2006/2007 period. Even then, the demand still exceeds the supply. Public Private Partnership (PPP) PPP is interpreted differently in Vietnam. Most of government officials understand PPP as simple as a way of sharing risk between a government company and a private company. More recently, Japanese and South Korean governments are also promoting their version of PPP which will be financed by Overseas Development Assistance (ODA) from their respective governments. Recognising the potential financial constrains to finance infrastructure projects which the Vietnamese government will face when Vietnam reach middle income status (expected by 2010 ? 2012) and the consequent withdrawal of all aid moneys by foreign government, Hanoi and Ho Chi Minh City People?s Committees are seriously considering Private Finance Initiative (PFI) as a new means of financing important projects. Hospitals and schools are the sectors that the 2 People?s Committee are focusing. The UK has adopted PFI approach and it is being adapted around the world. In the UK it has led to greater efficiencies in public services delivery through optimising the allocation of risk and mobilising private capital to make it easier for governments to budget effectively for long term. Such is the attraction of PFI as an effective procurement tool that more than 900 projects, covering all sectors, have been carried out in the UK. UK experts, with this broad knowledge of sectorial and overseas experience, can often assist governments the best approach at an early stage. Legal framework is another obstacle for developing PFI. Vietnam however has passed the law on Build-Operate-Transfer (BOT) mechanism which could be potentially be applied for PFI projects. OPPORTUNITIES The rationalisation of small and medium size commercial joint stock banks The Vietnamese government encourages the participation of foreign and private capital in small and medium sized commercial banks. UK banks can consider the option of equity investment in the local small and medium size commercial joint stock banks. This will allow UK industry players to gain access to the already established network of local branches, their customer base as well as settlement system of local funded banks and thereby expanding the market share. SOCBs which are in the equitisation process are also looking for strategic foreign partners. Page 8 of 122 Financial and Legal Services Sector ? Vietnam Improvement of Information Technology in the local banks Most Vietnamese banks now have an online centralised accounting system and other associated online services. Investment in their ICT infrastructure has been limited to date, focusing on core banking. Should these banks want to offer more services, they will need to upgrade and improve their technology. Smaller banks are looking for complete core banking systems to ensure they are up to date with the technology and to prepare themselves for the fiercer competition that Vietnam?s accession to the WTO will bring. Equitisation - Initial Public Offering (IPO) by SOCBs The first step of the equitisation process of the four biggest SOCBs will be through IPO, for which they will need the expertise of foreign banks. Consultancy for the restructuring/asset evaluation and equitisation of the four SOCBs is a multi-million dollar opportunity and hence has attracted the interest of global players such as Citi Group, Union de Banques Suisses (USB), Goldman Sachs and JP Morgan. Given the substantial size of SOCBs many foreign banks also want to take a stake in them following equitisation. Current legislation does not allow for a foreign bank to both provide consultancy and then take a stake in the same bank. Insurance With a population of over 86 million, of which 60% are under 30, the Vietnamese people can well afford to buy a full range of insurance products and services. The statistics show that about 7 million people in Vietnam are insured but that only equals to just 7% of the population and means a great potential for the industry. Listing in the UK British financial service companies can assist local enterprises to list in the UK, opening them up to international venture capital. Opportunities exist for listing on the London?s stock exchanges (either Main Board or AIM) because listing would help them access international markets and potential investors, improve their operation as well as exploit international consultancy services. Some top Vietnamese companies are already planning to list in Singapore Stock Exchange, e.g. Petro Vietnam Finance Company and Vinamilk. Credit rating systems Although the State Bank of Vietnam has established its own Credit Information Centre (CIC) which aims to help commercial banks to access financial information and hence reduce credit risk, the operation of CIC has been limited to selling raw financial figures without any credit analysis or ratings. The lack of a transparent credit system has been an obstacle to the development of the capital market. Experts have warned that investors in bonds and stocks stand to lose if all of their investments into the stock market so far have been based on ?instinct? rather than financial information. Page 9 of 122 Financial and Legal Services Sector ? Vietnam The State Bank of Vietnam has been working with the International Finance Company (IFC) ? the trading arm of the World Bank ? to establish a credit rating agency but no real outcome has been reached so far. Legal services sub-sector Over the last 3 year the Vietnamese government has been trying to amend/revise its laws to ensure full compliance with WTO requirements. Notwithstanding the progress made to date, the list of laws and bills to be reviewed/amended is still very long (more than 50). In addition to the above, familiarisation and exposure of the Vietnamese lawyers and law makers to international law and codes of conducts is also a very important task for the Ministry of Justice. The British Council received funding from the European Union - Delegation to Vietnam to assist the Ministry of Justice with regard to the codes of conducts. Training on the UK business law remains a potential and untapped area. M&A and trend It is forecasted that in the very near future, M&A will take place in Vietnam due to the fact that the current number of banks and securities companies is already very high compared to regional countries when considering the economic situation and the growth of the market. Currently, regulation on M&A in Vietnam are provided in several legal documents, including Civil Code, Enterprise Laws, Investment Laws and Laws on Competition, etc. A decree on M&A with foreign-related factors is being drafted by the Ministry of Planning and Investment will provide favourable conditions for foreign investors to buy domestic companies. Generally speaking, opportunity exists in the banking and finance sectors but it does not mean every foreign investor can grasp such an opportunity. UKTI publishes international business opportunities gathered by our network of British Embassies, High Commissions and Consulates worldwide. These opportunities appear in the Opportunities portlet on the relevant sector and country pages on the UKTI website. By setting up a profile you can be alerted by email when relevant new opportunities are published. New or updated alert profiles can be set in My Account on the website. KEY METHODS OF DOING BUSINESS For companies who are interested in doing business in Vietnam, they should plan to do business on at least a medium, if not a long-term basis. It will prove disappointing for those who wish to have a quick return, as they are likely to meet with some legal, bureaucratic and administrative obstacles. Adaptation of Eastern business practice is a key factor in saving time and money for foreign companies. Cultivation of the right personal contacts and use of local contacts such as legal advisors, the Vietnam Chamber of Commerce and Industry and the UK Trade & Investment team in Vietnam will also help UK companies overcome these obstacles. Page 10 of 122 Financial and Legal Services Sector ? Vietnam Although an increasing number of foreign investors prefer wholly-owned ventures to avoid entanglements with local partners, joint-venturing can still provide significant advantages when attempting to penetrate the Vietnamese market. With 70-75% of the country's population based in rural areas locating and maintaining distribution channels can prove challenging to foreign firms and forging alliances with local companies can help foreign investors set up operations here. Other background information on doing business in Vietnam can be found on UKTI?s website. Simply go to the Vietnam country page where you will find information on: ? Economic background and geography ? Customs & regulations ? Selling & communications ? Contacts & setting up ? Visiting and social hints and tips MORE DETAILED SECTOR REPORTS When considering doing business in Vietnam, it is essential to obtain legal, financial and taxation advice. A useful contact list of lawyers and other relevant professional bodies is available from the British Embassy in Hanoi and the British Consulate General in Ho Chi Minh City. For further details, please contact: Ms Tran Dieu Quynh Hoa Trade & Investment Officer British Embassy th 4 Floor, 31 Hai Ba Trung Hanoi Vietnam Tel: 84.4.39360500 Fax: 84.4.39360561 Email: Tran.Hoa@fco.gov.uk Mr Nguyen Chau Man Trade & Investment Officer British Consulate General 25 Le Duan, District 1 Ho Chi Minh City Vietnam Tel: 84.4.3829 8433 Fax; 84.4.3829 5257 Email: Nguyen.Man@fco.gov.uk Page 11 of 122 Financial and Legal Services Sector ? Vietnam CONTACT LISTS Mr Le Minh Hung ? General Director International Co-operation Department State Bank of Vietnam 47-49 Ly Thai To Street Hanoi Tel: 84.4.3934 3367 Fax: 84.4.3825 0612 Website: www.sbv.gov.vn Ms Nguyen Thi Bich - General Director International Co-operation Department Ministry of Finance 28 Tran Hung Dao Street Hanoi Tel: 84.4.2220 2828 Fax: 84.4.2220 8020 Website: www.mof.gov.vn Mr Nguyen Ngoc Canh ? Director General International Co-operation Department State Securities Commission 164 Tran Quang Khai Street Hanoi Tel: 84.4.3935 0052 Fax: 84.4.3934 0740 Website: www.ssc.gov.vn UKTI?s International Trade Advisers can provide you with essential and impartial advice on all aspects of international trade. Every UK region also has dedicated sector specialists who can provide advice tailored to your industry. You can trace your nearest advisor by entering your postcode into the Local Office Database on the homepage of our website. For new and inexperienced exporters, our Passport to Export process will take you through the mechanics of exporting. An International Trade Adviser will provide professional advice on a range of services, including financial subsidies, export documentation, contacts in overseas markets, overseas visits, translating marketing material, e-commerce, subsidised export training and market research. Page 12 of 122
Posted: 30 September 2010

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