TPP heralds new financial structuring

Promotion of cross-border financial services

Chapter 11 of the TPP, which focuses on financial services, outlines the participating countries’ agreements on integrating their banking, insurance, and investment markets.

According to this chapter, countries in the TPP must provide equal treatment to foreign investors in the financial sector. Overseas financial institutions should go through the same procedure with their domestic counterparts upon setting up a new business.

Foreign financial institutions should not be treated with any bias in terms of cross-border services, or access to the public payment and clearing system.

Moreover, financial investors should not be limited on the number of entities or services they want to establish in a TPP country. People should be free to choose financial services from any of the participating nations.

Chapter 11 also stresses the highest level of transparency in the financial sector. To supervise the 12 countries’ implementation of this chapter, a new Committee on Financial Services will be set up.

Vietnam, alongside Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and the US, is expected to implement these regulations within two years of the TPP’s approval by all 12 partners.

New opportunities and challenges ahead

With emphasis on the financial sector, the TPP is considered a “new generation of trade agreement”, covering the economy comprehensively, rather than just focusing on trade.

Many experts are of the opinion that this historic deal will attract a flood of capital into Vietnam, boosting the domestic financial system. By partnering with the more developed economies in the TPP, Vietnam may welcome large financial entities and investment funds in the years to come.

At a recent TPP conference in Hanoi, Vu Nhu Thang, head of the International Cooperation Department of the Ministry of Finance, stated that Vietnam is committed to opening up its financial markets to foreign investors and protecting their rights in Vietnam.

Banking expert Can Van Luc predicted that Vietnamese banks will raise their foreign ownership limit from 30% to 50% or 70% thanks to the TPP and other trade deals. In fact, many banks like Military Bank or VietinBank have already embarked on the quest to find overseas strategic partners.

Financial expert Nguyen Tri Hieu was also upbeat about the prospects of the Vietnamese financial market post-TPP. However, he also voiced his concern over Vietnam’s low credit ratings score.

“As Vietnam integrates further into the global market, lots of overseas investors have considered entering Vietnam, and the TPP will quicken this process, but at present, many foreigners are still wary of Vietnam’s low credit score.

Specifically, Vietnam’s score is lower than any other TPP country, as well-known credit agencies like Moody, Standard and Poor, and Fitch only rate the country at B1, BB-, and B+ respectively,” Hieu told VIR.

Hieu added that with such low credit scores, Vietnamese banks and insurance providers may find it difficult to attract foreign financial investors. Moreover, the high amount of bad debt and an undeveloped retail banking system could also be major obstacles.

Suggested solutions

To improve Vietnam’s credit score and lure foreign investors following the TPP, lawyer Truong Thanh Duc, chairman of Basico law firm, recommended that Vietnamese financial institutions start following the Basel 2 standards as soon as possible. This means adopting strong risk management, modern technology, and strict corporate governance.

“Many countries in the TPP have already followed Basel 3, so it’s urgent that Vietnamese banks make drastic improvements to their operations. If our banks fail to do so, they’ll lose both the attention of foreign investors, and their own market share in Vietnam to foreign competitors,” said Duc.

Meanwhile, Can Van Luc suggested that Vietnam should welcome investors from TPP member countries to restructure the banking system and buy bad debts from Vietnamese banks. “This requires developing a market for debt trading.”

Nguyen Thi Hong Hanh, secretary general of the Vietnamese Banking Association (VBA), noted that the VBA has started working with international organizations to inform Vietnamese banks of the TPP’s regulations. Afterwards, the VBA will propose improvement plans to its members accordingly.