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However, the EU has a strong financial services market, and the EVFTA is expected to have a significant impact on the future of financial services as well as the Vietnamese economy.
Banking and insurance to increase export value
The finance industry includes banking, insurance, and securities, which are considered the backbone of the economy with large-scale impacts on other industries.
In recent years, financial enterprises have grown strongly in size, revenue, and profit. Data showed at the workshop on the impacts of the EVFTA on the Vietnamese financial telecommunications sector organised by the Vietnam Chamber of Commerce and Industry (VCCI) that by the end of 2018, Vietnam had about 388 businesses and organisations licensed to operate in the financial sector, including 64 insurance businesses, 126 banks and non-bank credit institutions, and 198 securities institutions.
Experts said that the growth of the finance industry is driven by new trends in consumer spending as people spend more on insurance, consumer loans, payment plans, online payment, and e-commerce.
This trend will continue growing in the near future, especially in early 2020 as the EVFTA officially takes effect. The financial sector will be more open and many foreign businesses will bring their modern services to meet the increasing consumption needs of the people.
Analysing the impacts of the EVFTA on the financial sector, Nguyen Thi Thu Trang, director of the WTO and International Trade Center, VCCI, said that competition in financial services will benefit consumers, businesses, and the economy. This is also a means for Vietnamese businesses to reduce capital costs, save production costs, as well as improve their own competitiveness.
Although the direct impact of the commitments on opening financial services in Vietnam is basically negligible, the indirect impacts are far larger.
Data from the Ministry of Planning and Investment showed that the EVFTA commitments will help increase Vietnam's GDP in 2019-2023 by 2.18-3.25 per cent, and by 4.57-5.3 per cent in 2024-2028, while during 2029-2033 the increase will be 7.07-7.72 per cent.
Thanks to this impact, the banking and insurance industry will also increase export value by 21 per cent compared to the time before the EVFTA.
In addition, the indirect impacts of the EVFTA will increase service demand, helping to improve the business environment in a more stable way, thereby leading to investment opportunities in EU economies and opportunities to co-operate with EU partners.
Market liberalisation necessary
However, experts are of the opinion that taking advantage of these opportunities depends largely on whether Vietnamese businesses take the initiative to understand and seize the opportunities.
The challenges from the EVFTA for the Vietnamese financial industry are insignificant. The financial industry will only open reinsurance services and the foreign ownership limit will not change in the first five years.
After that, foreign ownership in joint ventures might go up to 100 per cent.
However, the financial industry will face competitive pressure from foreign service providers. Financial service providers from the EU investing in Vietnam or providing cross-border services will create fierce competition and require domestic enterprises to adapt and catch up.
In addition, applying technology, ensuring information security as well as the safety of transactions to meet the high demand will also gain priority after the EVFTA.
Experts at the workshop also suggested removing hurdles to create a more favourable business environment for enterprises.
In addition, Vietnam is applying a strict market management method in finance. Therefore, the domestic financial market has not been opened up to a sufficient level. This strict control might help domestic financial services providers to maintain their position on their home turf, however, it would reduce the pressure on domestic companies to develop.
On the flip side, the restrictions on opening up the market also reduces co-operation opportunities with strong partners domestically or to reach out to foreign markets.
