Opening the market for banking services in line with the commitments made by vietnam on its WTO accession

Joint Swedish-Vietnamese
Master’s Programme

MASTER’S THESIS

N guyen H ong V an

Opening The Market for Banking
Services
in line with the Commitments made by Vietnam on its
WTO Accession
THUVIÊN
TRUONG OAI HOC LUÂT HÀ NÔI
L ph o n g d o c

S u p e r v is o r s :

Prof. Christina Moëll
Dr. Bui Ngoc Cuong


Préfacé and Acknowledgements

The author would like to express many thanks to Professor Christina Moëll, Faculty
of Law, Lund University, Sweden; Doctor Bui Ngoc Cuong, Hanoi Law University,
and my teachers, relatives, friends and colleagues for their support during the process
o f writing this thesis.

1

Table of Contents

Préfacé and Acknowledgements.......................................................................................... 1
Table of Contents................................................................................................................ 2
Abbreviations.......................................................................................................................4
Introduction.......................................................................................................................... 5
1.
Overview of banking services and international commitments of Vietnam
on opening banking services market in the WTO’s framework....................... 7
1.1
1.1.1
1.1.2
1.2
1.2.1
1.2.2
1.2.3
1.2.4

Overview of banking services and the opening up o f banking services
as
part o f globalization..............................................................................................7
Overview o f banking services.......................................................................... 7
Opening up the banking services market in the context o f globalization. 14
International commitments of Vietnam on opening up its services market
within the WTO’s framework.............................................................................18
Commitment on licensing foreign crédit institutions to supply
banking
services in Vietnam ....................................................................................... 22
Commitment on regulating the form o f fmancial companies are

licensed
to operate in Vietnam.................................................................................... 25
Commitment on regulating the form of financial services that can be
provided in Vietnam.......................................................................................25
Commitment on regulating the capital ratio o f foreign banks may own
in a Vietnamese bank..................................................................................26

2.

The current situation regarding Vietnamese law on banking services and
completing the implementation o f the commitment to open up the banking
services market within the WTO framework................................................ 27

2.1
2.1.1

The current situation regarding Vietnamese Law on banking services..........27
Current overview of the banking system and the Vietnamese Banking
Law............................................................................................................... 27
Influence of international commitments on opening banking services on
Vietnam L aw ...............................................................................................30
The adaptation of Vietnamese Law on Banking in line with its
commitments on joining the W TO............................................................32

2.1.2
2.1.3
2.2

2.2.1
2.2.2

Completing the work on Vietnamese Law to fully implement the
commitments on opening up the banking services market within the WTO
framework......................................................................................................... 40
Completion criteria for various régulations of Vietnamese Law and the
international commitments on opening up the banking services market. 40
Proposai of solutions to the correct implementation of the international
commitments on opening up the banking services market of Vietnam... 41

Conclusion........................................................................................................................44
Table of Statutes and other Légal Instruments............................................................. 46
International Treaties and Conventions......................................................................... 46
National Législations.......................................................................................................46
2


Vietnam 46
Bibliography......................................................................................................................47
Official Reports and other Documents........................................................................... 47
Monographs.......................................................................................................................47
Articles in Joumals, Anthologies etc............................................................................... 48

3


Abbreviations

ASEAN

Association of South East Asian Nations

GATS

General Agreement on Trade in Services

GDP

Gross Domestic Product

FDI

Foreign Directive Investment

IMF

International Monetary Fund

NA

National Assembly of Vietnam

SRV

Socialist Republic of Vietnam

WTO

World Trade Organization

WB

World Bank

VND

Vietnam dong

USD

US dollar

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Introduction

Rationale
* L

Vietnam was officially recognized as the 150

_

member o f the World Trade

Organization (WTO) on 11111 January 2007. This event marked a new stage in the
process o f integrating Vietnam into the international economy in général and the
banking sector in particular. However, faced with the need to implement the
commitment undertaken as part o f the intégration process, Vietnamese banking
services régulations were found to contain many weakness. These régulations contain

many contradiction, Vietnamese financial ability is generally weak, the management
mechanism for banking activities has not caught up with modemization nor
conformed to international practices and standards and many forms o f banking
services have no adequate légal framework... These shortcomings make it hard for
Vietnam to implement its commitments effectively and to make full use o f the
advantages that intégration brings. A sériés o f questions arise. What was the real
situation o f the law on banking services in Vietnam when it joined the WTO? What
problems were identified when implementing the commitments? How can Vietnam
overcome these shortcomings?... Ail o f these problems need to be studied carefully
and then resolved both in theory and in practice.

Purpose
The purpose o f this thesis is to clarify the theory and practice o f modifying the
law on banking services in accordance with Vietnam’s commitments on WTO
accession and with international practice in général.
This involves the following tasks:
Clarify the concept o f banking service according to international practices
(the WTO agreement) and the particular requirements o f member countries
wishing to open up their banking service market.
Clarify Vietnam’s commitments on opening up the banking service market in
the framework of the WTO agreement.
Clarify the situation o f Vietnamese Law when linked to its international
commitments within the WTO framework. Such an analysis is the scientific
foundation needed to help reform the law in the direction o f opening up the
banking service market.

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Délimitation

The thesis will focus on the commitments on opening up banking services market
undertaken following WTO accession and on how Vietnam is in fact implementing
these commitments. However, because the régulations on opening up the banking
services market are based on the law of banking services in général, this research
needs to be seen against the background of a study of régulations of Vietnamese and
WTO régulations o f banking services in the light of 4 of the commitments
undertaken: (i) commitment on licensing foreign crédit institutions to supply banking
services in Vietnam, (ii) commitment on regulating the form of financial companies
licensed to operate in Vietnam (iii) commitment on regulating the form o f financial
services that can be provided in Vietnam, (iv) commitment on regulating the capital
ratio of foreign bank ownership of a Vietnamese bank.

Method
This thesis combines the analyzing, comparing and synthesizing methods. The
analyzing method is used to evaluate the current State of the law on banking services
in Vietnam. The comparing method is used to compare Vietnamese régulations with
the WTO régulations as well as international practice. The synthesizing method is
used to evaluate and draw conclusions on each matter studied and give
recommendations for improvement. Moreover, to strengthen our argument, we
provide illustrative statistics where necessary.
Base on this research, the thesis hope to give an overview o f the theory and
practice o f the current law on banking services in Vietnam and makes some
proposais aimed at effectively implementing the commitments made on WTO
accession and strengthening the compétitive capacity of the banking service sector.

6


1.

Overview of banking services and international
commitments of Vietnam on opening banking
services market in the WTO’s framework

1.1

Overview of banking services and the opening up of
banking services as part of globalization

1.1.1

Overview of banking services

1.1.1.1

The concept o f Banking Services

a. The concept o f “Services”:
Today, service activities are developing strongly and are now playing an important
part in the economy of most nations. In the 1990s, services made up 40% o f GDP in
Uganda, 50% o f GDP in Zambia, more than 60% o f GDP in Korea and Brazil and
80% o f GDP in Canada . (In Vietnam, according to the General Statistics Office ,
services made up 37,98% o f GDP in 2004). However, there are many différent
concepts of services, none o f which is accepted globally.
According to many researchers, services can be understood in both a broad and a
narrow sense.
- In the broad sense, services are considered the third economic sector, which
includes ail economic activities other than industry and agriculture. This point of
view is held by economists such as Allan Fisher and Colin Clark3. Clark defined
services as “form s o f economic activities which are not included in the first and

second sectors (industry and agriculture)
- In the narrow sense, services are understood to be the “software” of visible
products, closely related to the production process and visible product exchange. An
example is the Honda product warranty service which is a service connected to the
sale of Honda motors, carried out after sales in order to support and enhance sales
activity overall.
In Vietnam, there are various ways o f understanding the concept. According to the
Vietnamese encyclopedic dictionary, services are activities to meet the demand o f
1 National Committee on international economic coopération (2005), General view of service
commercial liberalization, National Politics Publishing House, p.21.
2 National Committee for International Economic Coopération Office (2006) “WTO
intégration documents o f Vietnam”, p. 182.
3 James R. Melvin, History and Measurement in The Service Sector: a review, Review of
Income and Wealth, sériés 41, number4, December 1995, p.484.

7


production, business and life4, such as entertainment, health and éducation services
in daily life; transport, information and Consulting services in business. According to
Prof, PhD. Nguyen Thi Mo: “Services are laboring activities crystallized into
invisible products which, although o f value, cannot be touched”.5 Compared with the
encyclopedia définition this makes it clearer that services consists o f invisible
products.
International organizations like the International Monetary Fund (IMF) or World
Trade Organization (WTO) define the concept by determining the areas which are
regarded as services and then just listing and classifying them. The General
Agreement on Trade in Services (GATS)6 GATS does not define the term but
indirectly refers to the concept by way of the 4 modes for providing services.
Modes of providing services according to GATS:

(a) Cross- border supply: In this mode, the service provider the and customers are
each in their own country but the service is provided from the territory o f one
country to that of another. For example, express-service or transporting oil through a
pipeline.
(b) Abroad consumption: In this mode, customers have to go to the country o f the
provider to buy the service, such as the service o f being examining and medically
treated in a foreign country or studying abroad.
(c) Commercial presence: In this mode, service providers set up their presence in
the country of the customer through a légal entity such as a branch, représentative
office or subsidiary company. For example, banking services, distribution services.

4 Encyclopédie dictionary, p. 167
5 Prof. PhD. Mo, Nguyen Thi, “Choosing steps and solutions for Vietnam to open trade in
services”, Political Argument Publishing House, 2005, p. 14
6 GATS is a system o f régulations o f the WTO multilatéral adjustment to trade services. This
Agreement dérivés from the Uruguay round negotiations and includes obligations and principles,
the index o f each field and the spécifié commitments by each country aimed at opening markets.
29 terms o f GATS applies to ail service sectors including the banking service sector. These
provisions state the principle that ail Member States must comply with: (1) Most-FavoredNation, (2) Transparency, (3) National treatment, (4) Market access.

8


(d)

Naturalpresence: In this mode, providers appoint représentative in the country

of the customer to provide services there. For example, providing experts,
researching the market.
According to the WTO classification, services are divided into 11 main branches;

each branch is again divided into sub-branch, the total number of sub-branches being
155 ones.7 The main branches include: Business services (including services relating
to specialities and professions, such as légal consultancy, accounting, auditing,
promotion...), information services (including services relating to delivery,
télécommunication, and audio vision), construction services, distribution services
(including activities of wholesaler, retail, dealer), éducation services, environment
services, financial services (including services relating to banking, insurance,
security), médical services, tourism services, culture-entertainment services and
transportation services.
In my opinion, the concept of services can be understand like this: “Service is the
by-product o f the laboring process. It does not exist as an object but is consumed
together with the process o f provision in order to meet the demands o f production
and ofhuman life
Services have some attributes as foilows:8
First, a service has the characteristic o f Intangibility: Services are invisible and
immaterial. Services are things which “cannot drop to your fe e t' when being sold.9
You cannot touch it or drop it on your feet like other common goods because a
service product does not exit as an object. For example, when you buy a bottle of
milk, it may fall on your feet if you or the seller are not careful. But this problem
never happens with services. On the other hand, you cannot assess its quality before
consuming it. For example, a customer cannot evaluate the quality of a spa shop if
she does not directly use that service.
Second, a service has the characteristic o f Inconsistency: It is difficult to
determine the quality of services because they depend on the context that creates
them, such as provider, time, and place of provision. For instance, the quality of
training at a foreign language center may be différent when teachers at différent
7 See Document MTN.GNSAV/120 of the WTO
8

Vice Professor, PhD Nguyen Huu Khai, MA. Vu Thi Hien “Vietnamese services,

compétitive capacity and international economic intégration”, Statistics Publishing House, Hanoi
2007, p.9
Liberalizing International Transactions in Services, p.l

9


levels teach. Even the same teacher can have a successfol lecture in one class but
fails in another since the level o f success depends not only on raw ability but also on
equipment and m ood....
Third, a service has the characteristic o f Inseparability : One of the characteristics
of a service is that with a service product, consuming coexists with providing the
service. A service is consumed when it is produced, and the process o f provision
stops when service consumption stops. On calculating the output o f the economy, the
Bureau o f Economie Analysis, U.S Department o f Commerce also gave a général
définition of service: “Services are those whose products cannot be stored and are
consumed at the time and place where trading activities take place,0”.
Forth, a service has the characteristic o f Inventory: Services cannot be stored;
this means that service products cannot be produced in advance and stored to wait to
be consumed. However, this characteristic is only relative, since some service
products are in object form, as in design services, where drawings are visible and can
be stored.

(b)

Concept o f “Banking Services

Similar to the concept o f service, there are many différent ways o f understanding the
concept o f banking service. Before reviewing this concept, let us find out what a

“bank” is.
In the past, a bank was often defined by its fonction (services provided) in the
economy. In fact, many financial organizations including security companies,
security intermediary companies or leading insurance companies are now trying to
provide banking services. And banks are competing by expanding the scale o f the
services they provide, such as securities, insurance and many other new services. The
public is becoming unable to distinguish banks from some other kinds o f financial
organization.
There is one view that : A Bank is a financial organization which provides varions
catégories o f financial services, especially crédit, savings and payment services, as
well as implementing more financial functions than any other business organization
in the economy 11

11 Encyclopedia of Business and Finance (2001), Vol.2, Macmillan, p.762
11

For a général view o f banks and banking services, see www.saga.vn. accessed 9th

0ctober,2008

10


In Vietnam, provision 2, Article 20 of The Law on Crédit Institutions

19

provides

that: “A Bank is a form of crédit institution permitted to conduct ail banking

opérations and other related business opération..
In the book “Modem Banking”, David Cox stated that: “Most professional
activities o f commercial banks are called banking service or foundations fo r
1^
developing such seri’ice”. According to the viewpoint of this writer, banking
services constitute ail the professional activities carried out by a bank, which is just a
kind of business.
In Vietnam, banking services are controlled by the Law of Crédit Institutions, yet
this law does not give a définition or explanation of banking services. The phrase
“banking services” is mentioned in provision 7, Article 20 of The Law on Crédit
Institutions: “Banking opérations mean monetary business and provision of banking
services, with the regular and principle opérations being the taking of deposits and
the use o f such deposits to extend loans and to provide payment services”. So, here,
“banking services” means one of the activities o f a Bank.
In some Vietnamese books, newspapers and magazines, without giving a
définition, writers often list various types o f banking service. According to this,
banking services are understood in a broad and narrow sense:
- In the broad sense, banking services includes ail currency, crédit, payment and
foreign exchange activities o f the banking system14 (This viewpoint fits the way of
classifying banking services used by the WTO15 as well as in many developed
countries).
- In the narrow sense, banking services only consists of fee receiving activities such
as money transfers, guarantee, foreign exchange business, international payments.. .16
Here, we would like to research issues relating to banking services in the broad
sense of the word as it is mainly understood in the modem world.
12 This Law was passed by the X Législature of the National Assembly of the SRV in its
second session on 12 December 1997 (The Law No. 02/1997/QH10) and was amended and
supplemented by the Law on amending and supplementing a number of Articles of the Law on
Crédit Institutions, passed by the XI Législature of the NA of the SRV in its flfth session on 15
June 2004 (the Law No. 20/2004/QH11 ).

13 Cox. D (1997), Modem Banking, Politics Publishing House, p335
14 See “Develop Vietnam’s fmancial service market in the process of integrating”. Thai Ba
Can, Tran Nguyen Nam
15 According to the WTO’s classification, banking service is a component part of the fmancial
service sector in général and was ranked as the 7th sector, sub-sector B.
16 See Professor, PhD. Nguyen Thi Quy, Modem Banking Service, 2008, Scientific Society
Publishing House, p.8

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1. 1. 1.2

Characteristics o f banking services.

Beside the général attributes of services mentioned above, banking services have the
following features:
(a) Banking is a highly sensitive activity fo r the economy.
The banking system is regarded as the nervous system of the economy. Banks play
the key rôle in distributing finance and managing most financial transactions. And
the bankruptcy of a single bank may cause the collapse of the whole system, as we
have just seen. Banking opérations, hence, have a direct effect on the stability of the
national economy.
(b) Diversity o f banking service forms.
Unlike trade in commodities, trade in services takes various forms. While the object
o f a commodity trade is particular goods, the object of trade in service is forms of
providing services which are based on the capacity o f the service provider. These
forms are recognized throughout the world. Banking service is one o f the branches of
the trade in services, so it also reflects this. On the other hand, beside the traditional
services with a long history, such as bank deposits or lending services, banks are

increasingly broadening the category o f services and providing new services for
customers, always being helped by the development o f new technology. Banks today
are even becoming “financial supermarkets”

17

according to Peter Rose.

(c) Subject to interference o f the govemment through measures affecting the
capacity o f the banking service.
Interference of the govemment into trade in service is only implemented through
preventing provider’s capacity of providing or consumer’s capacity of consuming
service. An activity o f providing and consuming normal service requires the presence
o f service provider and consumer. Only by managing effectively or gaining
necessary reorganization of service transaction, can the govemment make full use of
those measures. In banking service, the govemment makes influence on ability of
providing and consuming banking service through measures such as building and
implementing national monetary policy or using Law as the tool of manage and
maintain order of banking opérations...

1' Peter Rose (1999), Commercial Bank Management, Irwin McGraw Hill.

12


Classification o f banking services

1. 1. 1.3

Banking services can be classified in différent ways, each of which has a certain

value.
Based on the time factor, banking services are divided into:
(i)

Traditional

services

including:

(a) Foreign exchange

service, (b)

discounting commercial papers and commercial lending, (c) receiving
deposits, (d) preserving valuable property, (e) providing transactional
accounts, (f) providing confïdential services..
(ii)

New services: (a) consumer loan services, (b) financial consultancy, (c)
cash management, (d) services relating to buying and hiring equipment, (e)
selling insurance services, (f) providing servicesregarding securities,
providing investment bank service ...

(g)

io

This classification is a foundation on which to construct a légal framework, State
policies,

measures o f the Bank (strategy, organization, applied technology,

monitoring activities, risk control....) suitable for each type o f service, especially the
more modem kind, to promote the best possible performance.
Based on the fonctions o f banks, banking services are also classified into:
1.

receiving savings from the public

2.

lending in ail forms

3.

providing finance

4.

paying and transferring money

5.

guaranteeing

6.

currency exchanges. . . 19

The meaning o f this classification will help us to determine what are banking
activities and what are not.
The classification o f banking services plays an intégral rôle in both theory and
practice, as the success o f banks depends on their capacity to determine the financial
services that society needs, providing those services effectively and selling them at a
compétitive price.

1
19

8
*
th
See General view o f banks and banking services, www.saga.vn. accessed 9 October, 2008
See Syllabus o f Vietnamese Law on Banking, Hanoi University o f Law, The People’s

public security publishing house, 2007

13


1.1.2

Opening up the banking services market in the context o f
globalization.

1.1.2.1

Necessity o f opening up the banking services market

It is necessary to open up the banking services market for the following reasons, ail
of which acquire greater force in this time of globalization:
First, opening up the banking services market is what the economy demands
As we known, “capital” is always a “hot” topic in most countries, especially in the
developing countries. Demand for capital is increasing, especially in the context o f a
financial crisis of global magnitude. Opening up the banking services market will
increase Foreign Direct Investment (FDI) capital sources.
After a long period of tightly protecting domestic bank markets, many countries
which were implementing economic reforms in the 1990s, especially average-income
countries such as those in Latin America, Eastem Asia, Middle-Eastem Europe,
started reducing or removing the barriers preventing Foreign Direct Investment (FDI)
from flowing into the banking area. Currently, many nations allow foreign
investment in banking not only by opening offices or branches but also by
investments in domestic banks. The value o f FDI investing in the financial area o f
developing countries increased dramatically from 2.5 billion USD in the period 1991
- 1995 to 51.5 billion USD in 1996-2000 and 67.5 billion USD in 2001-2005.20 The
participation rate of foreign countries can be measured by the proportion o f the total
value o f the banking system which they hold.
On the other hand, opening up the banking services market will also help foreign
investors take part in privatizing state-owned banks
Generally,, opening up the banking services market will help the big banks in
America and Europe expand into promising markets in developing countries and
buy weak banks, restructuring and selling them or otherwise benefiting from their
activities.
Second, opening up the banking services market aids in the intégration o f the
international economy.
Opening up the banking services market conforms to multilatéral commercial
agreements, to EU rules (for several countries in Middle Europe and Eastem
Europe), to IMF rules (for countries affected by the economic crisis) or to the
accession requirements of the WTO (for the WTO’s member countries).

20 Bank Austria Creditanstalt (BA-CA) report, 2005

14


For a member of the WTO or a country participating in negotiations to join WTO,
the opening up o f the market for banking services is a commitment which has to be
implemented if membership is to happen.
So, opening up the market for banking services dérivés from the practical demands
o f the economy and the need to integrate of each nation, especially developing
countries, like Vietnam into the international economy.
1.1.2.2

Globalization as the context fo r opening up the banking services
market fo r WTO member countries .

The term “globalization” understood in the present context is linked to the
intemationalization of many sectors of which, the most basic is the economic. The
economy is however connected to other sectors. Globalization removes political
barriers, relies on the progress of digital technology and shrinks distances. And his
process is happening on a global scale.
Globalization is linked objectively to two other economic processes :liberalization
and intégration. The final destination o f globalization will be is a united global
economy that does not recognise any national boundaries.
Opening up markets in each nation is one o f globalization’s key processes.
Opening up the market for banking services is fiilly within this process. The WTO is
an organization whose members are admitted through negotiation, which means that
besides agreeing to WTO régulations, the new member must open up is commodity
and services markets.

Naturally, the commitment on opening up service markets is that the new member
commit to loosening the conditions for foreign service providers to get access to the
domestic market. However, in practice, countries receiving imported services have a
tendency to tighten the conditions for access of foreign service providers to the
domestic market so as to protect domestic service providers. In order to have a
deeper understanding of this matter, we need to distinguish between commodity
commerce and service commerce so that we can understand the différences in market
protection.
Due to there being no direct tariff on import or export o f services, to restrict the
activities of foreign service providers and protect the domestic service provider, the
host country can propose measures and conditions to control foreign access at two
91
points of time:"
(i) When foreign service providers want to be allowed to provide services and be
present in the host country to provide them.
21 See Multilatéral Trade Aid Project MUTRAP JI (2006), Q&A about WTO, p.68

15


(ii) After they are allowed to provide services and have entered the host country.
The conditions given at the first point of time are restrictions on opening p the
market. If these conditions cannot be met, foreign service providers will not be
allowed to provide services in the host country.
The conditions at the second point of time are restrictions providing for national
priority. These conditions discriminate between foreign service providers and
domestic ones.
Previous multilatéral negotiations tended to avoid service branches since it was
thought that services has little ability to be exchanged and transported but today they
are regarded as subject to the common development trend affecting ail sectors. In the

negotiating round in Uruguay (ended in 1994) and the establishment of the General
Agreement of Trade in Service (GATS), the members of the WTO made services a
decisive element o f the multilatéral system The facts then showed that liberalization
o f services can lead to major investments. Nowadays, in the Doha negotiating round,
despite many diffỵculties, the countries are trying to foster the process of service
liberalization.
Service liberalization is expressed in a schedule o f commitments. According to
régulations of the WTO, a schedule o f commitments consists o f 3 parts: joint
commitments, particular commitments and list of measures regarding waiver to Most
Favored Nations (MFN).
(i) Joint commitments: include commitments covering ail services in the service
commitment schedule. This part mainly mentions général matters, such as
régulations o f investment, mode o f enterprise establishment, measures relating to
taxation o f and subsidies for domestic enterprises...
(ii) Particular commitments: include spécifié commitments applied to each
service in the service commitment schedule. The content of these commitments
expresses the level o f opening up o f each service to Foreign Service providers .
(iii) List o f measures regarding waiver to Most Favored Nations: includes
measures regarding violations o f the MFN principle for services. According to
régulations o f GATS, a member can violate the MFN principle if that member bring
the violating measure into the list of measures regarding waiver to Most Favored
Nations and this is accepted by other members o f the WTO.
The schedule of commitments includes 4 columns:
(i) Column of Branch/sub-branch description: shows name of particular service
subject to a commitment

16


(ii) Column of Market Access: gives list of measures maintained for foreign

service providers. GATS regulates 6 limiting measures: 1) limitation on
number of service providers, 2) limitation on total value of transactions or
property, 3) limitation on total number providing services, 4) limitation on
number of workers, 5) limitation on forms of enterprise establishment, 6)
limitation on contributing capital from foreign countries.
Therefore, the more measures a commitment schedule can list, the narrower
the level of opening up the market for foreign service providers.
(iii) Column of limitation on national treatment: lists measures maintaining
discriminatory treatment between domestic service providers and foreign
ones. The more measures a commitment schedule can list in this column of,
the greater the discriminatory treatment between domestic service providers
and foreign ones.
(iv) Column of supplementing commitment: lists measures affecting service
providing and consuming opérations not belonging to the other limitations.
This column describes régulations relating to ability, technical standard,
requirements or procédures of licensing.
Measure of accessing “negative approach” and “positive approach”:
-

A “Negative approach” measure: is the a commitment to allow an unlimited
range of things. This measure is used when giving commitments for services
in the schedule. According to this, committing parties will list ail the limiting
measures applied to services. Except for these measures, no other ones can be
applied.
A “Positive approach” measure: is a commitment to do only those things
specifically allowed. According to this, committing parties only commit to
open markets for the services appearing in the schedule. They have no
responsibility for services that do not appear there.

When opening up the market in providing services, each member country will

give priority to banking services or banking service providers of any other member
country if they accept the conditions and restrictions which are agreed and regulated
in the commitment list of that country.

1.1.2.3

Meaning o f opening up the banking services market.

Firstly, opening up the market for banking services will impact positively on
domestic capital markets bank. In fact, foreign capital has-a-relativelv~important

17


position in re-financing the banking sector. If the home country is faced with a
shortage o f capital following a serious banking crisis or for any other reason, it needs
capital to produce and do business.
Secondly, on opening up the banking services market, domestic banking will have
a new foundation of légal régulations of operating organizing, inspecting or
supervising banking which will conform to international practises.
Thirdly, opening up the banking services market will help to increase the
compétitive capacity of existing banks. In particular, it will have an influence on the
method o f operating and managing existing banks, forcing financial institutes to
operate more effectively by re-structuring, reforming the mode o f management and
reducing expenditure...
In short, opening markets in général, and opening the market for banking services
in particular is a complicated issue. However, we must accept that it will change the
face o f the economy of every nation.

1.2

International commitments of Vietnam on opening up
its services market within the W lO ’s framework.

Up to the present, Vietnam has only committed to open up its banking services area
in a bilatéral commercial agreement between Vietnam and Canada, the Agreement
for the Liberalization, Promotion and Protection o f Investment between Vietnam and
Japan and the Commitment on integrating into the WTO. The main content of its
commitments in the banking area is found in Vietnam’s commitments on integrating
into the WTO.

99

The légal foundation for Vietnam’s bringing

commitment on

banking services to the negotiation table of the WTO is the General Agreement on
Trade in Services (GATS).

(a) Overview:
Basically, according to GATS, each member country will give the same favorable
priority to the banking services or banking service providers of any other member
country to the extent of the conditions and articles as well as the restrictions which
are agreed on and regulated in the commitment list of that country.

22

Report No.l99/BC-NHNN of State Bank of Vietnam date 21/3/2008 Summarized the Law

on Crédit Institutions.

18


In its negotiations with the WTO, Vietnam committed regarding 11 service
branches, covering about 110 o f the total

155 sub-branches in the WTO

classification, including its commitment on opening up the banking services market.
Vietnam committed to open up the banking service markets in 4 modes of supply,
as follows:
- Cross-border supply mode (banking services are supplied from one country to
another): Vietnam has not committed except for sections (k) and (1). This means that
Vietnam retains its ability to restrict access to the market and maintain national
treatment in the 9 other service sub-branches, that is, except for sections (k) and (1).
Foreign organizations can supply the services section (k) provides namely financial
information, service o f treating financial data, Consulting services, brokerage, and the
section (1) services o f supporting, Consulting and brokerage for ail other banking
services.
- Abroad consumption mode: (consumers or companies using banking services in
foreign countries): Vietnam does not limit this mode. This means that Vietnam does
not restrict access to the market or national treatment to ail the 11 sub-branches of
banking and other financial services covered by this. Consumers in other member
countries o f the WTO are allowed to get access to banking services in Vietnam and
are to be treated as Vietnamese citizens.
- Natural presence mode: (individuals travel from one country to another to
supply banking services, Vietnam has not committed except for commitments in the
général commitment part (foundational commitments). Vietnam maintains the ability

to restrict access to the market and national treatment. The commitments listed in the
général commitment part continue to apply, they are commitments relating to
entering a country and temporary residence there (of individuals).
- Commercial presence mode: (foreign crédit institutions set up branches or joint
venture companies to supply banking services in another country). This is the most
important mode o f supplying banking services. Vietnam committed to have “no
restriction but exception”. It means that Vietnam agreed to open up its banking
services market but make a list o f restrictions which can be applied to foreign service
suppliers in the column Restriction to access market and Restriction national
treatment.
WTO commitments in the banking sector are expressed through: (i) commitments on
opening the service market shown in the Service Commitment Schedule and (ii)
multilatéral commitments shown in the Intégration Report o f Mission Committee.
(i)

Service Commitment Schedule:
19


Particular commitments on banking and other financial services lie in part 7 “Financial services” - of the Commitment schedule. This part states that:
“Commitments on banking and other financial services are to be implemented so as
to be compatible with related laws and régulations enforced by Vietnamese bodies in
order to ensure compliance with Article VI of GATS

and Section 2 o f Appendix

about financial services”24 but “according to common régulations and based on nondiscriminatory treatment, the provision o f banking products or services and other
financial services has to follow requirements about légal form and related
institution”.
Particular commitments on banking services and financial services covers 11

service areas, including:
-

Service of receiving deposits and other items o f expenditure.
Leasing in ail forms, including consumer crédit, mortgage crédit, factoring
and sponsoring commercial transactions.

-

Financial leasing and buying

-

Services of payment and money transfer, including crédit cards, payment
cards and loan cards; tourism checks and foreign exchange.

-

Guarantees and like commitments.
Business on their own or their customers account, at transaction office, in a
transaction market, by agreement or other ways.
+ Monetary market tools (including checks, bills of exchange, deposit
certificates)
+ Foreign exchange
+ Exchange rate and interest tools, including products such as exchange
contracts, dead-line contracts.
+ Gold.
Monetary agency

-

Property management such as cash or investment management , ail forms of
collective investing management, retirement fund management, deposit
services and others.

23

*

Article VI of GATS provided that: “each Member shall ensure that ail measures of général

application affecting trade in services are administered in a reasonable, objective and impartial
manner”.
24 Item 2 (a) of Annex on Financial Services provided that: “Notwithstanding any other
provisions of the Agreement, a Member shall not be prevented from taking measures for
Prudential reasons...Where such measures do not conform with the provisions of the Agreement,
they shall not be used as a means of avoiding the Member’s commitments or obligations under
the Agreement”.

20


Payment for services and financial property balances, including securities,
derivative products and other tools.
Providing and delivering financial information and processing financial data
as well as related soft wares or other financial service providers.
-

Consulting services, intermediary and other supporting financial services.

(ii)

Intégration Report o f Mission Board

The Report of the Mission Committee on the WTO intégration of Vietnam in the
Budget and Monetary Policies Part (from passage 9 to passage 17), Foreign
Exchange and Payment Part (from passage 18 to passage 31), Service commerce
policy relating banking Part (from passage 482 to passage 486) are of interest.
According to this, Vietnam will implement its obligations about matters of foreign
exchange under the régulations of the WTO Agreement and other WTO déclarations
as well as décisions of the IMF. Vietnam will not apply any other law, décisions or
measures that can limit foreign currency supply by any individuals or enterprises so
that they can carry out international non-resident transactions in the domestic
territory.
The Vietnamese govemment claimed that its future régulation of licensing of
banks with 100% foreign capital will be careful and only cover matters such as
capital safe rate, capacity to pay and manage the enterprise. In addition, conditions
for branches of foreign banks and banks with 100% foreign capital will be applied
without any discrimination. The State Bank o f Vietnam régulations conform to
articles XVI and XVII of GATS when considering new licensing permission
applications, in accordance with conform to the restriction mentioned in the Service
'y^
Commitment Schedule of Vietnam.
On the other hand, Vietnam will actively adjust its managing procédure for
branches o f foreign banks, including requirements for minimum capital, in
accordance with international practices that are commonly recognized.
A branch of foreign bank is not licensed to open transaction points, transaction
points’ opération depending on the capital of the branch. Vietnam has no restriction
on the number of branches of foreign banks. However, transaction points do not
include ATM machineries at the head office. Foreign banks operating in Vietnam are

2525

See paragraph 483, Report o f Mission Board on Vietnam to join WTO, WTO intégration

documents of Vietnam, p. 187.
26 See paragraph 484, Report o f Mission Board on Vietnam to join WTO, WTO intégration
documents of Vietnam, p. 187.

21


able to enjoy fully most favoured nation treatment on installing and operating ATM
machineries.

97

In général, the WTO intégration commitments of Vietnam in the financial sector
allow foreign crédit institutions to operate in Vietnam in différent forms, expand
their scale and range of supply of banking services, creating a convenient and equal
“playground” for banks.

(b) Détails:
The légal issues relating to core banking services when Vietnam joined the WTO
include: (i) commitment on licensing foreign crédit institutions to supply banking
services in Vietnam, (ii) commitment on regulating the form of financial companies
licensed to operate in Vietnam (iii) commitment on regulating the form o f financial
services that can be provided in Vietnam, (iv) commitment on regulating the capital
ratio o f foreign banks may own in a Vietnamese bank.28 Here are 4 extremely
important and spécifié criteria each with the following commitments respectively:

1.2.1

Commitment on licensing foreign crédit institutions to
supply banking services in Vietnam

Under the WTO’s intégration commitments in the Report of Mission Board,29 the
régulations on licensing foreign crédit institutions to supply banking services in
Vietnam includes: (i) Régulations on licensing conditions for crédit institutions
operating in Vietnam and (ii) Régulations on licensing procédures and application
files for crédit institutions.
(i) Régulations on licensing conditions fo r crédit institutions operating in Vietnam:
One of the key conditions for establishing a branch o f a foreign commercial bank in
Vietnam was that the parent bank must have a total assets of more than 20 billion
USD at the end of the year prior to application;

27

in

See paragraph 485, Report o f Mission Board on Vietnam to join WTO, WTO intégration

documents o f Vietnam, p. 187
28

Mutrap II (2006), Research on effect o f banking service liberalization on competitiveness in

banking sector, p.87
29 NCIEC (2006), Report o f Mission Board on Vietnam to join WTO, WTO intégration
documents of Vietnam.

30 See paragraph 482, Report o f Mission Board on Vietnam to join WTO, WTO intégration
documents of Vietnam, p. 186

22


In order to establish a joint venture bank or a bank with 100% foreign capital in
Vietnam, the parent bank must have a total assets of more than 10 billion USD at the
end of the year prior to application; To open a financial company with 100% foreign
capital, joint venture financial company, financial leasing company with 100%
foreign capital and joint venture financial leasing company, foreign crédit institution
in Vietnam, the foreign crédit institutions need to have total assets of more than 10
billion USD at the end of the year prior to application.31
Besides représentative offices, branches and joint venture banks, foreign crédit
institutions are allowed to establish banks with 100% foreign capital in Vietnam.
The maximum time permitted for foreign banks or joint-venture banks is 99 years.
Basically, Foreign Service providers enjoy national treatment, except for some
exceptions: there are one time domestic subsidies to strengthen and create favorable
conditions for the process o f equalizing Vietnamese enterprises, for research and
developing, for the sectors o f health, éducation and audio vision; and a subsidy to
enhance welfare and create jobs for minor domestic banks.
In général, the conditions presented to foreign crédit institutions to be granted
operating licenses in Vietnam are based on the spirit o f openness, meet the principles
of the WTO / GATS and are in accordance with the purpose of developing the
economy o f Vietnam.
(ii) Régulations on licensing procédures and application files fo r crédit institutions:
GATS and commitments stipulate that foreign crédit institutions (bank branches,
joint venture banks, 100% foreign owned financial leasing companies, joint venture
financial leasing companies, 100% foreign owned financial companies, etc.) must
submit an application letter before opening and operating in Vietnam. There are no

detailed régulations on the licensing procédures and application files. However, the
Agreement

gives

général

principles

relating

to

administrative

procédures,

transparency and most favored nations regarding trade in services.
-

Article 16 of GATS on market access provided that:
+ Art. 16 (1): Each Member shall accord services and service suppliers of any
other Member treatment no less favorable than that provided for under the
terms, limitations and conditions agreed and specified in its Schedule.
+ Art. 16 (2): The measures which a Member shall not maintain or adopt
either on the basis of a régional subdivision or on the basis of its entire
territory, unless otherwise specified in its Schedule, are defined as:

31

See paragraph 483, Report o f Mission Board on Vietnam to join WTO, WTO intégration

documents o f Vietnam, p. 186

23