EVFTA "wings" for Vietnamese banks

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Banks will add opportunities to digitiseand develop new financial services.

Opportunities to digitise, increase capital

Experts assess the implementation of the EVFTA will have a positive impact on the finance and banking industry, both directly and indirectly. Indirectly, the EVFTA helps significantly reduce tariff barriers andboost exports, positively affecting many supporting services, including banking and finance. Vietnamese banks can also workwith European banks to provide services to European customers, as well as Vietnamese businesses and people doing business in Europe.

In terms of direct impact, this agreement has made commitments to open markets to new financial services, and is expected to have a strong and direct impact on the financial technology sector (fintech) and mobile money - a new financial service being managed by existing legal documents.

The fact is the banking industry has been investing heavily in digital technology to take shortcuts, to catch up with the new trends of the international financial industry. Although in the first months of 2020, the economy faced difficulties due to Covid-19, but in a survey by Vietnam Report, 100% of banks participating in the survey responded that they invested in technologicalinnovation and channel development sales channel via digital technology, while this figure in the 2018 survey was only 93%. In addition, 83.33% of banks said they are digitisingtheir core operations.

These changes of the banking industry are not only aimed at meeting increasing demand of the domestic market but also a way to enhance the value in the eyes of investors, since the essence of the EVFTA to the banking industry is to attract investment. According to regulations, in the first fiveyears after the EVFTA takes effect, Vietnam commits to consider allowing EU credit institutions to buy up to 49% of shares of two Vietnamese commercial joint stock banks (currently 30%), except for fourState-owned commercial banks. According to economist Dr. Can Van Luc, this opens up opportunities for banks, especially banks that are "thirsty for equity", to meet the Basel II standards.

In fact, banks are facing pressure to raise capital and improve their risk management to meet stringent standards of capital adequacy of the Basel treaty. Therefore, in recent years, many banks have promoted the search for strategic investors and foreign investors, but in some banks, the percentage of foreign investors' ownership has reached or nearly reached the maximum threshold of 30%. Therefore, the EVFTA will loosen foreign "room", opening up opportunities to raise capital for banks. Dr. Can Van Luc said with the participation of EU partners, domestic banks will have access to modern governance and technology as well as modern financial and banking products.

Challenges from standards

The above issues show that if they make good use of the EVFTA, banks will be "paved the way" for sustainable development. However, every "door" that opens will have barriers to the best selection for all parties.

According to Nguyen AnhTho, Deputy General Director of Deloitte Vietnam Consulting and Auditing Company, the fact that EVFTA is only applicable to a maximum of twobanks within fiveyears creates many challenges for Vietnamese banks in the journeyto show theirability. Moreover, investors from the EU, when deciding to invest in Vietnamese banks, tend to be very selective, focusing on the following criteria: high transparency; a healthy foundation for risk management and capital management; stable profitability, outstanding strengths in the exploitation segment such as individual customer segment, small and medium enterprises, sustainable development; cultural diversity and inclusion.

But in fact, European banks soon "landed" in Vietnam such as HSBC, Standard Chartered andDeutsche Bank and also became strategic partners with domestic banks. Consequently, EVFTA's response to stringent EVFTA regulations and standards for Vietnamese banks is not "inexperienced". According to Dr. Can Van Luc, banks may face the risk of acquisitions or mergers if the governance is not good and there are no preventive measures; bear legal risks due to increased litigation and disputes.The large inflow of capital in and out makes the domestic capital market fluctuate strongly when there are quick withdrawals.

Therefore, Nguyen AnhTho said that not to miss the opportunity to attract foreign capital from EU investors, Vietnamese banks need to increase investment not only to comply with policies and laws but also need focus on improving risk management and capital management capacity, improving operational efficiency. In addition, according to experts, regulating agencies also need to be aware of and understand the regulations to increase their utilisation; accelerate the process of restructuring financial and banking markets, make financial institutions healthy and bring operational standards according to international practices. These issues show this will be an effort in the long term, costing more expenses but extremely worthwhile for the banking industry to have more momentum to advance, making an important contribution to the developmentof the whole economy.