Banking and Finance

1. Rechtsanwalt in Vietnam Oliver Massmann Banking and Finance
In the past year, the banking sector has benefited from strong monetary policy management by
the State Bank of Vietnam (SBV) as well as broader progress in the overall economy,
particularly in the export led sectors. Importantly inflation has remained under control, currency
has been steady (with a 1% devaluation in June 2014 as forecast), and foreign exchange reserves
have been built to over USD 35 billion m, providing a buffer to the economy of approximately
three months of imports121.
The overall banking sector has benefited from improving liquidity as deposits have increased,
however loan growth has not met expected targets in the first half of the year as credit demand
has been subdued, and as local banks continue to work through legacy balance sheet issues. Here
we would like to acknowledge the continued focus of the SBV in working through the non-
performing loan (NPL) and governance challenges of the past, and we encourage the SBV to
continue these efforts.
In the past year, the SBV has been highly active in developing and publishing new legislation,
and Members of EuroCham have actively contributed to providing feedback to draft legislation
in areas such as anti-money laundering (AML), prudential ratios, interest rate derivatives, risk
management systems and others. We note that in fact the pace of such reforms is challenging in
terms of implementation to banks, and we hope that the SBV will allow longer lead times for the
implementation of key changes, in particular those which may necessitate changes to systems.
We also acknowledge positive progress in the new bankruptcy law131. It must be noted that the
resolution of bad loans in Vietnam is still today a discussion of collateral liquidation - a slow
process with no possibility for a borrower to recover. Ideally, we hope that the new legal
framework will allow for liquidators and lenders to create a recovery/restructuring framework
that would allow for reorganization and facilitate new lending to a restructured enterprise.
We note that the Vietnam Asset Management Company (VAMC) has purchased VND 55 trillion
in bad debts since its establishment last year141. However, we note that it is the responsibility
and obligation of the original bank lender to continue to work out their loans (not as is widely
misunderstood, the VAMC). As noted, such a work out in today’s context is realisation of
collateral, and again depends upon court processes with no real possibility of a borrower being
revived. Foreign purchases of VAMC loans are unlikely to pick up given the difficulties and
uncertainties in transferring the collateral rights to foreign purchasers, so a strong focus by banks
is needed in solving these bad loans also.
We are pleased to see progress in the implementation of e-customs initiatives, and we believe
that the supporting documentation requirements for international funds transfers can and should
be streamlined to mirror the e-customs documentation.
Overall, EuroCham remains strongly supportive of the SBV in its on-going efforts to facilitate a
healthy, competitive banking system.

2. Updating of Banking Licences
Relevant State bodies: State Bank of Vietnam (SBV)
Issue description
As noted in last year’s position paper, changes to the bank licensing regime introduced as a result
of Circular 40[51 have opened up regulatory /compliance gaps for banks operating in Vietnam.
In the past year, the SBV has put in a lot of effort into resolving the existing licensing risks faced
by banks, which is appreciated. However, we understand that all licence updates are now on hold
until the new regulation on licence re-issuance is issued. This exposes banks to legal risks and
we hope guidelines will be issued soon by the SBV on this matter.
In addition, for commodity product licensing, the SBV currently only allows credit institutions
and foreign bank branches to offer commodity derivatives on a pilot basis, which is normally for
one year and subject to SBV approval for any extension.
Potential gains/concerns for Vietnam
Uncertainty in licensing could result in a disruption of banking services to clients, and also to
banks risking legal breaches with existing transactions committed to with tenors that may extend
beyond the apparent license validity.
Recommendations
We request that the SBV expedite the new licensing framework, and also that the ’pilot’
framework for commodity derivatives be re-evaluated as a more permanent approach. EuroCham
and the VBF will continue to work with the SBV to develop the regulation on commodity
derivatives to facilitate this process.
Simplifying Documentation for Funds Transfer
Relevant State body: State Bank of Vietnam (SBV)
Issue description
Decree 70/2014/ND-CP161 dated 17 July 2014 provides requirements for banks to obtain
supporting documents for cross-border foreign currency payments and buying foreign currencies
against Vietnam dong (VND). In addition, the bank individually assesses and decides on the
supporting document required, while the SBV does not specify document requirements.
Banks in Vietnam currently require the following supporting documents from clients for cross-
border fund transfer related to imported goods: customs declaration, sales contract/purchase
order (or master agreement) and invoice.
Clients using an Electronic Customs Declaration (ECD) already provide all information related
to imported goods listed above via the e-Custom system and this information is reviewed,
verified and confirmed by customs services.
Potential gains/concerns for Vietnam
Allowing banks to access documentation in ECD will provide significant operational advantages
to both banks and Vietnamese enterprises as information featuring in traditional paperwork will
be available in the ECD system. This in turn will streamline Vietnam’s international business
and result in the faster processing of commerce in Vietnam.

3. Recommendations
We would recommend that the ECD documentation should be sufficient for funds transfers
related to transactions for which goods have arrived in Vietnam, and for which customs
declarations are available. The bank should obtain the ECD signed and stamped with "custom
clearance" by the customs office with information about the date, amount, currency, purchase
order number, invoice number, beneficiary name, etc. The bank will then check whether the
payment amount is equal or lower than the amount stated in the ECD. This would avoid having
to require the submission of information on a transactional basis.
Non-Recourse Discounting and Factoring
Relevant State body: State Bank of Vietnam (SBV)
The Law on Credit Institutions171 and Circular 04/2013/TT-NHNN dated 1 March 2013[81 only
recognise discounting and factoring activities on a recourse basis to the seller. This is not in line
with international practice applying to products/solutions such as factoring, bill discounting and
any other product where the bank has enforceable recourse to the buyer or the buyer’s bank.
Potentials gains/concerns for Vietnam
The recourse imposed on the exporters restricts them to access good quality funding to finance
their working capital and reduce the payment risk from the buyer. Aligning Vietnam’s legislation
with international trade finance standards would help protect exporters in Vietnam against
buyers’ default and delays of payment, ensuring a steady source of funding. As these products
offer risk protection against buyers and buyer’s country risks, Vietnamese exporters would be
more comfortable developing commercial relationships with new markets or counterparts to
grow their exports.
Recommendations
We recommend the SBV to issue regulations allowing banks to carry out discounting and
factoring activities with or without a recourse basis to both the seller and the buyer subject to the
bank's credit assessment and approval.
Opening and indirect Investment Capital Account
Relevant State body: State Bank of Vietnam (SBV)
Circular 05/2014/TT-NHNN dated 12 March 2014-[9] provides that foreign indirect investment
activities must be implemented via one indirect investment capital account ( 'IICA”) opened at
one authorised bank. Institutional investors normally diversify their investment and request for
multiple accounts opened at one bank in order to manage separately their investment activities
(for example to segregate certain activities). Under international standards, the bank will open
multiple accounts for the client under a single master client identifier to accommodate such
requirement. With this approach, the SBV’s objective to manage aggregated indirect investment
flows by one client would still be achieved as multiple accounts will be rolled up to a single
client master identifier.
Potential gains/concerns for Vietnam

4. The requirement of opening only one IICA for an indirect foreign investor restricts the
possibility to manage various investments in foreign investors’ portfolios, which could
potentially discourage the inflow of indirect foreign investments into the country. This in turn
could adversely impact the development of the Vietnamese stock market.
Recommendations
We recommend the SBV to allow the flexibility over multiple account structure in foreign
indirect investment, in order to meet legitimate demands of investors whilst permitting full
compliance reporting by banks to the SBV.
Forthcoming New Regulations
Relevant State body: State Bank of Vietnam (SBV)
Issue description
The Vietnamese Government and the SBV have issued a number of new regulations on Foreign
Exchange (FX), such as Decree 70/2014/ND-CP'101 , Circular 16/2014/TT-NHNN'111 ,
Circular 19/2014/TT-NHNN1121 and Circular 21/2014/TT-NHNN1131 ;as well as on the
opening of accounts (Circular 23/2014/TT-NHNN1141). The SBV is currently in the final stages
of issuing new guidance on key regulations such as Anti Money Laundering (AML), governance
and risk management legislation. EuroCham Member banks have provided feedback on existing
legislation, and also have contributed to the drafting process.
We actively await updates in the field of anti-money laundering. Following the issuance of
Decree 116/2013/ND-CP1151 and Circular 35/2013/TT-NHNN1161 , a number of discussions
have been held with the SBV. Banks are pleased to note that the SBV has taken on board
comments regarding the AML legislation, and that it issued a draft Circular amending Circular
35 to address certain issues that were raised. This circular is expected in September 2014.
Potential gains/concerns for Vietnam
Vietnam has already made significant progress in enhancing AML controls, as recognised by the
Financial Action Task Force (FATF) delisting Vietnam from its on-going global AM L/CFT
compliance process earlier in 2014.1171
Recommendations
EuroCham members actively await the upcoming new legislation on AML. We recommend that
where possible the SBV provide clear implementation guidelines to banks, along with timelines
for implementation.
Importantly, major legislation can have both client and system implications, so banks would
prefer to see legislation incorporate these aspects into the implementation timelines.
3.3.7 Restriction on Saving Deposits for ForeignResidents
Relevant Ministries: State Bank of Vietnam (SBV)
Issue description
Previously, Decree 160/2006/ND-CP1181 on FX control and Decision 1160[191 on saving
deposits allow foreigners residing in Vietnam to have saving deposits with banks. At present,

5. Decree 70/2014-/ND- CpEffl replacing Decree 160 only allows Vietnamese citizen to have
saving deposits with a bank.
Potential gains/concerns for Vietnam
This is an unfairsituationforforeigners who are legitimately earning their income in Vietnam.
This situation could also entice them to remit incomes to their home country instead of keeping it
in Vietnam for potential future spending and investment.
Recommendations
We recommend the SBV to continue allowing foreign residents to have saving deposits with
banks while recognising that there are other on-going restrictions that reduce the risk of arbitrage
of foreign exchange as a result of such deposits.
Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you
have any questions on the above. Oliver Massmann is the General Director of Duane Morris
Vietnam LLC.
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