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Cablegate: State Trading in Vietnam - U.S. Banks Want Level Playing

This record is a partial extract of the original cable. The full text of the original cable is not available.

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

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