Political – legal environment

Vietnam is a one-party state country. While many countries are faced with civil wars, ethnic conflicts and terrorism, Vietnam, a multi-nationality country with 54 ethnic groups, has a stable political regime. Since 1986, the Vietnam Government has committed to implement the international economic integration policy. Currently, Vietnam is a member of many international and regional organizations. Vietnam now has accessed the AFTA, and has concluded a bilateral trade agreement with the United States. Vietnam is also orienting itself toward gaining membership in the WTO (tentatively by early 2006).

With the increasing integration of its economy into the global economy, Vietnam is working hard to lift restrictions on foreign banks' operations in Vietnam. The goal is to fall in line with the requirements of the U. S. -Vietnamese Bilateral Trade Agreement of 2001 as well as those of the WTO on the basis of equal treatment between different credit institutions, regardless of ownership, to create a sound competitive environment. Recently, the State bank of Vietnam (SBV) has issued a series of regulations complying with international banking practices and standards.

According to the commitment on the proposal to join WTO of Vietnam, from 2010, Vietnam banking market will fully open and operate under international standards regarding management, supervision and technology. After many years of economic stagnancy, since 1986, Vietnam has been undergoing a transition from a centrally planned to a market-oriented economy and has succeeded in achieving rapidly economic growth. At present, Vietnam has became one of the fastest-growing economies in the world, averaging around 8 per cent annual gross domestic product (GDP) growth from 1990 to 1997, 6.5 per cent from 1998-2003 and 7. 7 per cent in 2004.

In the past years, on the integration process, Vietnam has left many favor policies on SOEs. With low legal capital, poor equipment, low competitiveness of product. In result, in 2003, around 77 per cent of SOEs were reportedly making profits, but only less than 40 per cent of SOEs had profit rates equal or higher than the market interest rate. Meanwhile, the development of the private economic sector was great. From 2000 to 2003, over 150,000 enterprises were established, the total registered capital accounted for 27 per cent of the total investment.

These enterprises have created 6 million jobs. (source: http://www. mofa. gov. vn/en/tt_baochi/nr041126171753/ns050913095612) Moreover, thanks to the development of the economy, Vietnamese people seem richer and have a higher need of using banking services and products. On the banking and financial market, the securities market is still in the nascent stage of development and still suffers from many problems. The Vietnamese commercial bank is the main credit source for investment activity.

According to the Vietnam accounting standards, all commercial banks operating in Vietnam have gotten profit in the past years. But the ratio of return over equity (ROE) of private banks and foreign banks were higher than these ratios of SOCBs. Technology on the modern banking operation takes a more important role than ever before. The variety of functions and advance services to the banking sector are logical candidates for automation. The technological innovation not only brings effectiveness to banking operations and the economy but also allows users the convenience of greater service choice.

However, the capacity to apply modern banking technology to Vietnamese banks is limited. With backward banking technology, Vietnamese banks could offer the traditional banking services such as deposit and money transfer with low quality and long time process. Recently, some big Vietnamese banks have installed modern banking technologies. That can help those banks to offer many modern banking services such as debit, credit card, e-Banking, Home Banking, Internet Banking and get more advantage on doing business.