US embassy cable - 05HOCHIMINHCITY294

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000294 
 
SIPDIS 
 
SENSITIVE 
 
DEPARTMENT PLEASE PASS USTR, ELENA BRYAN 
STATE FOR EAP/BCLTV AND EB/TPP/ABT/BTT 
USDOC FOR 4430/MAC/ASIA/OPB/VLC/HPPHO 
TREASURY FOR OASIA 
 
E.O. 12958: N/A 
TAGS: EFIN, ETRD, ECON, EINV, BEXP, PREL, VM, FINREF 
SUBJECT: STATE TRADING IN VIETNAM - U.S. BANKS WANT LEVEL PLAYING 
FIELD 
 
REF:  A) HCMC 104 B) HCMC 178 C) HCMC 213 
 
1. (U) This is the fourth in a series of cables on industry 
perspectives in southern Vietnam on the role of the state in the 
economy. 
 
2. (SBU) SUMMARY: U.S. banks in Ho Chi Minh City report that while 
they operate relatively freely in Vietnam, they often face tougher 
requirements and higher standards than local banks.  Vietnamese 
banks operate under more favorable conditions when it comes to 
capital requirements, branching, and licensing.  According to U.S. 
banks, leveling the playing field between foreign and local banks 
is a necessary first step to improving Vietnam's financial sector. 
END SUMMARY. 
 
CAPITAL AND BRANCHING REQUIREMENTS ARE ONEROUS 
 
3. (SBU) In meetings with EconOff, representatives of Citibank, 
Far East National Bank and the law firm of Baker & McKenzie noted 
that the most obvious inequity between foreign and Vietnamese 
banks operating in Vietnam is capital requirements.  Local banks 
are only required to put up approximately USD 1.3 million to open 
a bank branch.  U.S. and other foreign banks, however, must put up 
USD 15 million for every branch.  In theory, these regulations 
also apply to automatic teller machines (ATMs), so that a U.S. 
bank would have to come up with USD 15 million in capital for each 
ATM location.  In fact, Citibank was originally prohibited from 
placing an ATM in the lobby of its office building and instead had 
to keep the ATM in its 15th floor offices.  Authorities told 
Citibank initially that placing the ATM in the lobby would 
constitute banking "outside the premises," which would mean the 
ATM was a separate branch subject to the USD 15 million capital 
requirement.  Following the implementation of the U.S.-Vietnam 
Bilateral Trade Agreement (BTA), the Vietnamese relaxed their 
stance on Citibank's ATM and allowed it to be placed in the lobby 
as part of Citibank's sole HCMC branch.  Citibank and other banks 
note, however, that any attempt to place ATMs in locations other 
than at the branch office would run up against the USD 15 million 
requirement. 
 
4. (SBU) In addition to capital requirements, U.S. banks face 
other onerous branching restrictions.  The GVN requires that bank 
branches operate independently and cannot be considered part of a 
single entity.  A bank wanting offices in Hanoi and HCMC must open 
two separate branches.  As Far East National Bank points out, this 
regulation results in logistical and operational inefficiencies. 
Furthermore, representative offices are strictly limited in the 
functions they can perform; expanding the role of a rep office 
would require its transformation into a bank branch with all the 
attendant capital and licensing requirements. 
 
LICENSING IS LIMITED AND THE PROCESS IS OPAQUE 
 
5. (SBU) U.S. banks report ongoing licensing issues.  While 
domestic commercial banks may obtain licenses with unlimited 
validity, the State Bank of Vietnam (SBV) grants foreign banks 
licenses for 20 to 30 years.  For example, Far East National Bank 
opened a branch in HCMC in 2004 with a license to operate for 20 
years.  In addition, banks are prohibited from providing a service 
unless their license specifically permits it.  Banks must apply to 
amend their license or apply for a new license in order to expand 
their services.  For example, U.S. banks are allowed to accept USD 
demand and fixed deposits from non-borrowing customers under the 
terms of the BTA, but the SBV requires banks to obtain a license 
to provide this service.  To get around this onerous requirement, 
Far East National Bank will often provide small loans to customers 
so that the bank can then receive the customers' deposits. 
Finally, the licensing process itself is opaque and lacks 
uniformity.  Citibank notes that there is no checklist to which a 
bank can refer in going through the licensing process and there is 
no guarantee that the GVN will issue a license, even if the 
necessary requirements are met. 
 
OTHER PROBLEMS INCLUDE LENDING LIMIS, ATM FUNCTIONS 
 
6. (SBU) Another inequity to which U.S. banks are informally 
subject are lending limits.  Far East National Bank notes that 
although Vietnamese law prohibits lending more than 15 percent of 
the bank's capital to a single borrower, the GVN routinely waives 
this rule for state-owned banks.  Another potential inequity could 
arise with regard to ATM functions.  Baker & McKenzie notes that 
U.S. banks could face difficulties in the future when they want to 
make their ATMs full-service machines, to include deposits and 
transfers.  (NOTE: Baker & McKenzie reports that currently 
virtually all ATMs in Vietnam are cash-dispensing machines only. 
END NOTE.)  The Vietnamese texts of the BTA and other agreements 
translate "ATM" into "cash-dispensing machine."  There is concern 
that U.S. banks in the future may not be able to operate full- 
service ATMs barring a change in this language. 
 
COMMENT 
 
7. (SBU) On the whole, U.S. banks are optimistic about doing 
business in Vietnam.  They see tremendous potential for expanding 
their business and for the development of other financial 
services. However, they say the GVN must address inequities and 
strengthen weak legal structures.  These weaknesses include 
inadequately enforcing creditor claims, lack of a legal definition 
of overdue debt, lack of adherence to international accounting 
standards, etc.  An important first step in developing Vietnam's 
financial sector would be a level playing field for foreign and 
domestic banks. 
 
WINNICK