6. Financial Sector
Capital Markets and Portfolio Investment
The Vietnamese government generally encourages foreign portfolio investment. The country has two stock markets – the Ho Chi Minh City Stock Exchange, which lists publicly traded companies, and the Hanoi Stock Exchange, which lists bonds and derivatives. Vietnam also has a market for unlisted public companies (UPCOM) at the Hanoi Securities Center.
Although Vietnam welcomes portfolio investment, the country sometimes has difficulty in attracting such investment. Morgan Stanley Capital International (MSCI) classifies Vietnam as a Frontier Market, which precludes some of the world’s biggest asset managers from investing in its stock markets. Vietnam is improving its legal framework to reach its goal of meeting the “emerging market” criteria in 2020 and attracting more foreign capital. However, exogenous events may make this difficult: in the first quarter of 2020, foreign investors withdrew USD 500 million in portfolio assets from Vietnam due to the COVID-19 pandemic.
There is enough liquidity in the markets to enter and maintain sizable positions. Combined market capitalization at the end of 2019 was approximately USD 189 billion, equal to 73 percent of Vietnam’s GDP, with the Ho Chi Minh City Stock Exchange accounting for USD 141 billion, the Hanoi Exchange USD 8 billion, and the UPCOM USD 40 billion. Bond market capitalization reached over USD 50 billion in 2019, the majority of which were government bonds, largely held by domestic commercial banks.
Vietnam complies with International Monetary Fund (IMF) Article VIII. The government notified the IMF that it accepted the obligations of Article VIII, Sections 2, 3, and 4, effective November 8, 2005.
Local banks generally allocate credit on market terms, but the banking sector is not as sophisticated or capitalized as those in advanced economies. Foreign investors can acquire credit in the local market, but both foreign and domestic firms often seek foreign financing since Vietnamese banks do not have sufficient capital at appropriate interest rate levels for a significant number of FDI projects.
Money and Banking System
Vietnam’s banking sector has been stable since recovering from the 2008 global recession. Nevertheless, the SBV estimated in 2018 that half of Vietnam’s population is underbanked or lacks bank accounts due to a preference for cash, distrust in commercial banking, limited geographical distribution of banks, and a lack of financial acumen. The World Bank’s Global Findex Database 2017 (the most recent available) estimated that only 31 percent of Vietnamese over the age of 15 had an account at a financial institution or through a mobile money provider.
Although the banking sector was stable during 2019, COVID-19 may challenge the sector. Ratings agency Moody’s reported, on April 7, 2020, that “the consumer finance industry in Vietnam is vulnerable to disruptions given its risky borrower profile,” and noted that layoffs, underemployment, and business closures resulting from COVID-19 further decrease the creditworthiness of borrowers. At the end of 2019, the SBV reported that the percentage of non-performing loans (NPLs) in the banking sector was 1.9 percent, a significant improvement from the 2.4 percent at the end of 2018.
The banking sector’s estimated total assets stood at USD 519 billion, of which USD 222 billion belonged to seven state-owned and majority state-owned commercial banks – accounting for 42 percent of total assets. Though classified as joint-stock (private) commercial banks, the Bank of Investment and Development Bank (BIDV), Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank), and Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) all are majority-owned by SBV. In addition, the SBV holds 100 percent of Agribank, Global Petro Commercial Bank (GPBank), Construction Bank (CBBank), and Oceanbank.
The U.S. Mission in Vietnam did not find any evidence that a Vietnamese bank had lost a correspondent banking relationship in the past three years; there is also no evidence that a correspondent banking relationship is currently in jeopardy.
Foreign Exchange and Remittances
There are no legal restrictions on foreign investors converting and repatriating earnings or investment capital from Vietnam. A foreign investor can convert and repatriate earnings provided the investor has the supporting documents required by law and has applied to remit money. The SBV sets the interbank lending rate and announces a daily interbank reference exchange rate. SBV determines the latter based on the previous day’s average interbank exchange rates, while considering movements in the currencies of Vietnam’s major trading and investment partners. The Vietnamese government generally keeps the exchange rate at a stable level compared to major world currencies.
Vietnam mandates that in-country transactions must be made in the local currency – Vietnamese dong (VND). The government allows foreign businesses to remit lawful profits, capital contributions, and other legal investment earnings via authorized institutions that handle foreign currency transactions. Although foreign companies can remit profits legally, sometimes these companies find difficulties bureaucratically, as they are required to provide supporting documentation (audited financial statements, import/foreign-service procurement contracts, proof of tax obligation fulfillment, etc.). SBV also requires foreign investors to submit notification of profit remittance abroad to tax authorities at least seven working days prior to the remittance; otherwise there is no waiting period to remit an investment return.
The inflow of foreign currency into Vietnam is less constrained. There are no recent changes or plans to change investment remittance policies that either tighten or relax access to foreign exchange for investment remittances.
Sovereign Wealth Funds
Vietnam does not have a Sovereign Wealth Fund.