* In response to recommendations of the Bank Working Group (BWG) at the Vietnam Business Forum on May 27, Deputy Governor of the State Bank of Vietnam (SBV) Nguyen Van Binh affirmed that the SBV would consider the recommendation about permission for increasing equity capital of Vietnam-based foreign banks and promotion of their participation in drafting banking regulations.
According to Dau Tu (Investment) newspaper, Citibank Vietnam director general Brett Krause, who is concurrently BWG head, expressed the hope that the SBV will soon promulgate a new market-oriented prime interest rate mechanism and, therefore, get rid of the inter-bank interest rate ceiling, develop a term foreign exchange market and permit foreign banks to participate more in formulating relevant legal documents and policies.
Other recommendations which the SBV consented to were about liquidity safety ratios, risk management, swap operation, establishment of national clearing payment centers and independent rating consultancy centers and development of the credit information market.
However, the recommended move concerning a higher or no cap of foreign holding in domestic banks needs to be further considered by the SBV for prudent change. The SBV was also negative about the possibility of introducing a new prime interest rate mechanism in the near future.
In order to effectively implement the State Bank Law and the Credit Institution Law, which both take effect in 2011, the SBV plans to issue around 46 guiding documents in 2012.
* As reported by the Vietnam Economic Times, Vietnam Association of Financial Investors (VAFI) secretary general Nguyen Hoang Hai recently proposed the Ministry of Finance to permit foreign investors to purchase non-voting shares (NVS), holders of which are entitled only to dividends and have no voting right like common shareholders, of Vietnamese businesses, with a view to increasing stock market commodities available for foreign investors, especially institutional ones, and these investors’ trading volumes and improving the market liquidity.
The move would benefit both Vietnamese businesses and foreign investors because businesses (controlled by major shareholders) can issue additional shares to raise capital without losing their control and the law-established state control over some sectors such as banking, insurance and press can be maintained while more foreign investment in these sectors can be attracted or at least retained by extending foreign “room” in listed large and profitable businesses.
According to Mr. Hai, permission for foreign investors’ trading in non-voting shares would help develop the stock market. He is of the view that most foreign institutional investors in the Vietnamese stock market, especially foreign fund management companies, global stock brokers and investment banks without resident presence in the country, are not rigid about holding voting or non-voting shares but care much for the quality and prospects of companies of which they hold shares because each of them is currently investing in numerous companies.
At present, almost all listed businesses offer the same maximum room for foreigners (49%), or lower (30%) for banks.
This limit is fairly rational as viewed by some experts, who argued VAFI’s proposal is unnecessary as the Vietnamese bourse is not yet of a high development level. They proposed continued equitization and listing of large telecoms, aviation and power companies instead of room extension.
* In order to limit the excessive export of unprocessed materials, especially cajuput and rubber tree timber (for use as crossties and tram rails) and iron ores, the Ministry of Finance has recently proposed the Prime Minister to decide to raise the rate of export duty on unprocessed timber to a maximum of 20% from current 5%, according to Tuoi Tre (Youth) newspaper.
Regarding export iron ores, the Vietnam Steel Association (VSA) has asked the Ministry of Finance to take effective measures to fight the cross-border smuggling and control export of iron ores, including increasing the export duty rate for iron ores to 40%, the ceiling rate applicable to unprocessed natural resources, from July 2.
The Ministry of Finance has suggested an export duty rate of 1.3-2% on construction steel and 3% on steel ingots. For cement and clinker, it proposed the rates of 5.3% and 5%, respectively.
As announced by vice director of the Tax Policy Department Luu Duc Huy on May 28, the Ministry is also considering an increase in the export duty rate on coal, from current 10% to 15%, in order to check coal export. For other minerals and metal ores with too high export value in 2010, it will consider raising export duty rates by 5-10%.
* Only irregular incomes of VND 1 million for more (against current VND 500,000) would be subject to personal income tax withholding of 10%, recently proposed by the Ministry of Finance. This proposal, together with proposed higher family circumstance-based reduction will be considered by the National Assembly at the coming session.
The Ministry also suggested income tax exemption for securities investors from August 1, 2011, to the end of 2012, in order to help them overcome current losses.
Incomes being stock dividends are also expected to be exempted from tax soon with a view to treating bank depositors and stock investors equally.
The Ministry is considering the proposal on a higher import duty on luxury cars so as to lessen the trade deficit.
* The Ministry of Finance has recently revealed in local mass media a draft list of priority programs and projects to be considered for government guarantee. These programs and projects would be divided into 7 groups, including: Key and urgent investment programs and projects in all sectors in which investment has been decided by the National Assembly or the Prime Minister; targeted credit programs of the State implemented by state-owned social policy banks in the sectors decided by the Prime Minister; programs and projects funded with commercial loans combined with ODA sources in the form of syndicated credit; programs and projects in the energy and mining sectors (power generation, oil refinery and gas, aluminum mining); programs and projects on construction and development of infrastructure facilities (building and operation of deep-water seaports, formation of airplane squadrons and building of expressways and national bridges under Prime Minister-approved plans, and procurement of locomotives and wagons for the investment project on the national railway system under the National Assembly’s resolutions); programs and projects to manufacture key mechanical engineering products for use as import substitutes; and other programs and projects decided by the Prime Minister.
These programs and projects must satisfy the stringent conditions specified in the Law on Management of Public Debts and current legal documents on grant and management of government guarantee.
* Regarding the provision of cross-border insurance products, Clause 2, Article 1 of the December 6, 2010 Law Amending a Number of Articles of the Insurance Business Law (the Law), which takes effect on July 1, 2011, stipulates “foreign-invested enterprises and foreigners working in Vietnam that wish to be insured may choose to buy insurance products of Vietnam-based insurers or use cross-border insurance services.”
However, Secretary General of the Vietnam Insurers Association Phung Dac Loc was cited by the Vietnam Economic Times as having suggested the addition of specific provisions on management of foreign exchange related to the collection of cross-border insurance premiums, settlement of cross-border insurance benefits and sale of cross-border insurance products, especially in case insurers and insurance brokers fail to satisfy Clauses 1, 2 and 3, Article 3 of the Law and should be automatically suspended from providing cross-border insurance services into Vietnam.
The Vietnam Insurers Association also views that the maximum level of annual appropriation from insurers’ insurance premium revenues for setting up funds for protection of the insured, which is 0.3% as required by the new Law, is too high, and suggests a lower level of 0.1%.
Some insurance experts are anxious about the enforceability of the Law’s new provisions on bidding and competition in the insurance market whilst current regulations on competition remain insufficient and unspecific. They suggest promotion of competition and further improvement of transparency bidding among insurers with effective measures to prevent insurance market monopoly and syndication and severe penalties for illegal intervention in customer choice of insurers.
* In order to prevent “property bubbles”, effectively control investment capital flow in the real estate market and fight speculation while maintaining the market’s activity and avoiding bad impacts on credit institutions and social life, the Ministry of Construction has proposed to the Prime Minister some solutions, including early promulgating a set of criteria for loans for real estate developers and dealers, limiting loans for hi-class real estate projects, studying the foundation of a house saving fund to financially support people with housing needs and a real estate trust investment fund to create more capital sources for the real estate market, issuing regulations to ensure that foreign investment in real estate is made according to registered capital amounts, and requiring a higher construction completion percentage prior to capital raising.
Another important recommendation of the Ministry is a ban on cash payment for real estate transactions, especially for capital contribution contracts and sale and purchase of houses to be built in the future and house rent, in order to minimize risks facing both sellers and buyers.
Former Deputy Minister of Natural Resources and Environment Dang Hung Vo told the Vietnam Economic Times that the Government should encourage via-bank real estate transactions by giving a tax relief to transacting parties.
Banks would be obliged to verify needs and solvency of purchasers before deciding on sale of real estate to people with real housing needs, instead of direct sale by developers to customers under capital contribution contracts as at present.-