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Official Gazette

Friday, October 7, 2022

Policy digest January 2013

Updated: 11:38’ - 06/02/2013

* State Audit plans to dig for weaknesses of state enterprises: According Deputy State Auditor General Le Minh Khai, in 2013 the State Audit of Vietnam (SAV) will audit 142 companies and agencies belonging to 16 ministries, 34 provinces and cities, 25 investment projects and five national target programs.

A number of state economic groups and banks were slated for auditing, including the Vietnam National Oil and Gas Group, the Coal and Mineral Industries Group, the Song Da Corporation, the Electricity of Vietnam, and the Vietnam Textile and Garment Corporation.

Four state-owned banks were also on the list: the Vietnam Joint-Stock Commercial Bank for Industry and Trade, the Agriculture and Rural Development Bank, the Bank for Foreign Trade of Vietnam, and the Vietnam Development Bank.

The audits will focus on inspecting land management and use, housing and urban development and natural resource and mineral exploitation.

SAV will also inspect sectors and fields subject to drastic economic restructuring, especially public investment projects.

* Proposed legal moves to get rid of cross holding in banks: Holding in banks by one another has negatively affected the transparency of their credit loans or in some cases merely served the purpose of bank acquisition.

According to experts from the State Bank, at present there are six groups of cross holding: holding of state-owned banks and foreign banks in joint-stock companies; holding of foreign strategic shareholders in Vietnamese banks; holding of shareholders being fund management companies; holding of state-owned banks in joint-stock commercial banks; holding among joint-stock commercial banks; and holding of state economic groups and corporation and individuals in joint-stock commercial banks.

Cross-holding, especially the last three groups, has been attributable to low capacity of banks to offset risks, uncontrollable loans for infeasible investment projects and non-complied regulations on debt classification and provisions, impacting the stability and solvency of the banking system.

To put an end to cross holding, banking expert Nguyen Duc Trung from the Banking Academy suggested there should be regulations to limit benefits which stakeholders can earn from cross holding. For the immediate future, the term “cross holding” in banks should be introduced in a document amending the State Bank’s Circular No. 13/2010/TT-NHNN, on prudential ratios in operations of credit institutions, and responsible agencies should criminalize cross holding practices, especially investment by banks in one another, with a view to early inhibiting them.

The maximum number of banks in which an institution or individual can invest and sanctions against violations of this provision should also be set.

Other banking experts also call for trial allowance for existence of “specialized” banks and “multi-functional” banks. Specialized banks can only be founded to serve economic groups, both state-owned and private. Meanwhile, multi-functional banks will have to observe the limit capital amount to be invested in an existing bank.

The State Bank should also increase the required minimum number of individual and institutional capital contributors to a bank in order to improve publicity of banking activities, and prohibit multi-functional banks from providing loans to their own capital contributors. This may help ward off individuals and institutions that contribute capital to banks for the purpose of channeling loans to their affiliated persons.

* Management of certificates of origin to be tightened: Domestic enterprises, especially those in industrial parks and export processing zones, have not yet paid due attention to getting certificates of origin (C/O), especially e-C/O applied for and granted through the computer network, in order to enjoy tax incentives and opportunities to enter overseas markets. This resulted in slow and unsatisfactory restructuring of investment and production of Vietnamese export producers to meet international C/O requirements.

To address the situation, the Ministry of Industry and Trade has completed a draft scheme on enhancement of management of certificates of origin for the Prime Minister’s approval. Accordingly, the Ministry will step up the formulation of policies to promote and attract investment in supporting industries to increase the localization rate of products made in Vietnam to meet relevant requirements of preferential C/O issuers, continue applying measures to simplify administrative procedures, reduce time for C/O issuance and customs clearance, and experimentally issue e-C/O through the Internet.                               

The Ministry is also considering the application of a mechanism for automatic issuance of C/O to eligible enterprises without having to file C/O applications with state agencies.

This move would help enterprises get the best of the incentives provided in the Trans-Pacific Partnership (TTP) Agreement and Free Trade Area (FTA) Agreement to be concluded with the European Union.

* Foreign ownership cap to be removed for domestically listed firms: At a ceremony of sounding a gong to start the first securities trading session of the year of 2013, State Securities Commission (SSC) Chairman Vu Bang said the SSC was planning to propose to the Ministry of Finance a package of measures to invigorate the stock market in 2013.

Prominent from the package were measures to attract foreign investments, including a pilot allowance for foreign strategic investors to hold non-voting shares of a listed company in excess of 49 per cent, except for some restricted sectors and for foreign institutional investors to own more than 49 per cent of shares of companies, including securities trading ones, in non-crucial business sectors. The excess under consideration was 10 per cent.

The SSC also requested the State Bank to increase the limit of holding in banks, especially small-sized ones. 

It hoped the increased room, if approved, may attract more foreign institutional investors, especially exchange-traded funds (ETFs) and pension funds, in order to develop investment instruments for the market.

Other measures included increasing the market liquidity by expanding the margin ratio limit to 50/50 from current 40/60 and the trading band to 7 per cent in the Ho Chi Minh City Stock Exchange (from 5 per cent) and to 10 per cent in the Hanoi Stock Exchange (from 7 per cent) (already implemented from January 15); shifting securities trading out of non-manufacturing group; and enhancing securities trading auditing and accounting work.

Listing conditions for market members will also be raised and classification of business sectors of listed companies will be piloted to have grounds for application of different caps of foreign holding in these companies.

* Finance Ministry stays firm about duty reduction for imported cars: As committed in the tax reduction schedule with WTO, the country will annually cut import duty for automobiles until 2019. However, in 2013 the import duty rate for under-9-seat imported brand-new cars, which are discouraged for consumption, is kept at 74 per cent (scheduled to be reduced to 52 per cent in 2019).

Also for this type of car, the average import duty rate for complete knocked-down parts in 2013 will remain unchanged at 18-20 per cent in order to force Vietnam-based automakers to increase the localization rate and develop supporting industries. Import duty on parts specified in the list of supporting industries issued together with Prime Minister Decision No. 1483/QD-TTg dated August 26, 2011, will be even raised up to the ceiling rate committed with WTO.

For used cars in complete units, import duty, including both percentage-based duty and specific-amount duty, will also stay at the highest level.

From 2015, any change in import duty on automobiles will be subject to comments of related agencies and associations and approval of the Prime Minister.  

* Temporary imports for re-export to stay for up to 60 days: In order to enhance the management of temporary import for re-export, border-gate transfer and consignment into bonded warehouses, the Ministry of Finance is considering to limit the duration of stay in Vietnam of temporary imports, especially liquors, beer, cigarettes and cigars, at 45 days after their arrival at Vietnamese border-gates.

This time limit may be prolonged only once for 15 days.

In case re-export of these goods is impossible, they would be confiscated and handled immediately.

At least seven days before their temporary imports arrive at a border gate, traders should submit two copies of the plan on goods delivery and receipt and notify relevant information to the border-gate customs office.

* Insurers urged to improve their financial status up to international standards: The recent scheme on restructuring of insurance businesses divided these businesses into four groups and set forth models for improving their organization and operation toward ownership diversity and limited monopoly.

Insurance businesses of the third group will have to work out and implement plans on restoration of their solvency and improvement of their financial status, reinsurance and transfer of insurance policies to more capable businesses.

Insolvent insurance businesses (the fourth group) will be placed under special control by solvency control commissions formed by the Ministry of Finance in order to bail them out and help carry out bankruptcy procedures when solvency restoration fails.

Non-financial state economic groups and corporations and state-dominated commercial banks will have to reduce holding in insurance businesses to 20 per cent or less by 2015.

During 2012-2014, control and risk management processes and the international-standard system of assessment and evaluation of business operations will be introduced.   

* Stricter licensing procedures for large foreign projects: Ministries and central agencies, including the Government, will be required to take a greater part in evaluating large foreign-invested projects instead of only local administrations as at present.  

Such change is expected to be introduced in a government resolution on attraction of foreign direct investment (FDI) in the coming period in order to address the licensing beyond planning of FDI projects, especially those with technologies energy-intensive and likely to cause environmental impacts, a consequence of the thorough decentralization of powers to localities to license projects since 2006. 

Though large-sized and highly pervasive projects will be subject to stricter consultation and technical evaluation at the central level, the Ministry of Planning and Investment will not take charge of licensing FDI but will leave the licensing power to local administrations, urging them to seek ways to identify and remedy causes for loss-making operations of FDI projects in their localities and avoid revoking existing project licenses.

* Risk management and early warning rules for securities firms ready for introduction: In response to proposals of the capital market working party, the SSC has recently informed that it would enact two regulations guiding risk management and early warning for securities companies.

It would also submit to the Ministry of Finance for promulgation a standard financial mechanism for securities companies, which mentions the formation of a provision for compensation for investor losses caused by technical errors of securities brokers and guarantee for lawful assets and interests of investors with accounts opened at securities companies in case the latter fall bankrupt or insolvent.

The requirement that securities companies have a provision for offsetting risks for investors is already in place under the 2007 Securities Law. However, in reality the legal mechanism for formation of this type of provision has not been detailed enough for securities companies to observe, leaving investors uncompensated. Any infringement upon interests of securities investors could only be administratively sanctioned. 

Based on Ministry of Finance Circular No. 165/2012/TT-BTC amending Circular No. 226/2010/TT-BTC, guiding legal grounds for termination of operation and revocation of licenses of financially incapable securities companies, and a circular guiding the organization and operation of securities companies expected to be issued soon, the SSC will resolutely dissolve ailing securities companies and direct the risk management within operating securities companies.

* Vietnam-EU Free Trade Agreement eyed for export-boosting duty cuts: Vietnam’s to be-concluded Free Trade Agreement (FTA) with the European Union (EU), in addition to existing eight FTAs (seven ones with East Asian countries) is expected to provide a boost for the country’s exports to the EU market and vice versa.

Some 90 duty lines for Vietnamese exports to the EU, especially garments, leather footwear and aquatic products which are currently subject to high average duty rates (10-12 per cent), will be cut or have their rates reduced, even to zero per cent. Thanks to the duty cuts, these export items may reach an annual growth rate of up to 20 per cent.

This will also facilitate the flow of EU exports to Vietnam, especially industrial materials and equipment and pharmaceuticals, helping promote domestic production and consumption of high-quality goods.

With the Vietnam-EU FTA (scheduled to be concluded in 2015), the country can further diversify its export markets, avoiding overdependence on the East Asia market.

However, according to director of the Ministry of Industry and Trade’s Multilateral Trade Policy Department Luong Hoang Thai, there exist not a few obstacles to the FTA negotiation and conclusion, including differences between the legal frameworks of the two sides on public procurement, competition, services, intellectual property rights and sustainable development policies.

* Major challenges to non-performing loan settlement identified: According to experts from the European Chamber of Commerce and Industry (EuroCham) and the World Bank, time and institution were to blame for delayed non-performing loan (NPL) settlement in the country, with the Debt and Asset Trading Corporation (DATC), the Vietnam Asset Management Company (VAMC) and even AMCs of banks, commissioned with dealing with banks’ NPL backed by real estate, still in the future tense.

These experts have also seen no possibility for foreign investors interested in purchasing NPL in the country to enter its NPL trading market due to absence of relevant legal mechanisms. They, therefore, called for amendments to the Law on Business Bankruptcy focusing on the right to publicly auction assets of debt-ridden businesses at market prices, not their book values, rights of creditors and higher corporate governance standards.

Coordination among the State Bank, Ministry of Finance and State Securities Commission and consultation of stakeholders for debt classification should also be enhanced.

To facilitate the NPL settlement, Price Waterhouse Coopers’ director general Chui Sum Lee suggested foreign investors in NPL should be permitted to enjoy tax exemption for principal NPLs and remit taxed profits abroad.-

VNL_KH1 

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