Free trade pacts boost the opening of Vietnam’s financial market
Vietnamese companies need to prepare because European companies will flock to the domestic market in about next five years.
The Vietnamese finance industry is expected to see significant changes as there will be a more open market for foreign enterprises under the country’s commitments in new generation free trade deals, experts said.
Vietnam commits to open market for foreign firms in finance sector under FTAs
Under the FTAs, including the EU-Vietnam Free Trade Agreement (EVFTA) and the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), financial services, including banking, insurance and securities, are groups in which Vietnam has many noticeable commitments in market opening. Those commitments are deemed stronger than those made to the World Trade Organization.
According to Nguyen Thi Thu Trang, director of the WTO Integration Center at the Vietnam Chamber of Commerce and Industry, though Vietnam’s finance industry will only open its reinsurance service under the EVFTA and no big changes are made in the industry in the first five years from the effective date of the EVFTA, after that, the market opening commitment on foreign capital contribution in joint ventures will be stronger than the one made to the WTO.
Besides, though the direct impacts of the commitments in the Vietnamese finance market is basically negligible, its indirect ones are very large.
Trang explained that the EVFTA will have significantly indirect impacts as it helps increase service demands and improve the business environment in Vietnam, especially making the financial sector more transparent.
According to the WTO Integration Center, commitments in the EVFTA will contribute to increasing export value of Vietnam’s banking and insurance by some 21%.
“Vietnam commits to open opportunities for foreign firms to raise the sector’s competitiveness and development, thus boosting the country’s socio-economic development,” Trang said.
However, experts noted that taking advantage of these opportunities depends largely on the initiative of Vietnamese enterprises as under the FTAs, in terms of finance, enterprises from developed countries will be allowed to sell their financial services in Vietnam without establishing branches there, meaning more pressure in the local market.
According to Trang, the local financial industry will face competitive pressures from foreign service providers in the context of FTA integration. When enterprises from European or CPTPP member countries invest in Vietnam or provide cross-border services in the country, it will create fierce competition in the local market. Thus, if domestic enterprises do not change and catch up with the trend, they will lose the domestic market share to foreign enterprises.
In addition, the application of information technology, information security, transaction safety and customer requirements are also challenges from FTAs that the Vietnamese economy faces, Trang said, explaining that these are difficult and technical issues, requiring local enterprises to understand clearly and fully to be able to comply with the commitments in their production and business.
She urged local firms to renovate their technologies and business models as there will be very strong players coming from Europe.
Sharing the same view, Nguyen Quy Quyen, an official at the Ministry of Information and Communications’ International Co-operation Department, said that Vietnamese companies need to prepare because European companies will flock to the domestic market in about next five years.
European companies have very strong financial fundamentals, so they may dominate the domestic market, he said, adding there will be both opportunities and challenges for Vietnamese businesses.
But it is expected that the five-year period from 2020 to 2025 will be a good time for Vietnamese firms to prepare, get stronger in every aspect, and study the ways European firms operate so that they could become more competitive.