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Table of Contents

1. Introduction.................................................................................................................1

2. Vietnam's financial system.........................................................................................1

2.1. The process of formation and development of Vietnam's financial system....1

2.2. The main features of Vietnam’s financial system.............................................4

2.3. Recommendations................................................................................................9

3. Conclusion.................................................................................................................11

4. List of references.......................................................................................................12

1. Introduction

The financial system plays a crucial role in the economy with mainly functions

which are mobilization and allocation of resources in the economy. The financial

system is not only saving channels for the household sector but also investment

channels for the corporate sector, and is also the conduit of the macroeconomic

policies of the government. The functions of the financial system are common in

most economies. However, the form and organization of the financial system

generally vary in different countries, which depend on the level of development as

well as the structure of the economy. This essay mainly summarizes some basic

information about the process of formation and development of Vietnam's

financial system, gives main features of Vietnam's financial system through four

major components including financial markets, financial institutions, financial

instruments and financial infrastructure, as well as recommends some changes or

reforms in order to improve the system.

2. Vietnam's financial system

2.1. The process of formation and development of Vietnam's financial

system

The history of Vietnam has experienced more than 4000 years, but it can be said

that Vietnam's financial system - banks played a key role – clarity has begun to

form since 1858, when Vietnam became a semi – feudal colony of France. It has

existed since the creation of the State of Vietnam, but the financial system at that

time is very different from today. The most notable event in the feudal relation to

the financial and monetary system of Vietnam was Ho Quy Ly’s dynasty first

released paper money for circulation in the early 15th century.

The development of Vietnam's banking system:

Based on the characteristics of the history, the development of Vietnam's banking

system can be divided into four stages:

Banking system in the French colonial period:

Before the French arrived on Vietnam in 1858, Vietnam didn’t have

banking and credit institutions. By the end of the 19th century, when colonial rule

was established throughout Indochina, Vietnam, became a market monopolized by

the French. There were two banks found in this period: Indochina Bank (1875) and

French – Chinese Bank.

From the late 19th century to the first three decades of the 20th century, the

banking activities were under operation of foreigners. Until 1927, a number of

Vietnam capitalists established a new bank named Annam Bank, primarily

supported the agriculture activities. Until 1954, the Vietnamese has had second

bank that was commercial banks of Vietnam.

The banking system in northern Vietnam during the period 1954 – 1975:

1951 – 1954: During this period, the National Bank of Vietnam was set up

and operated relatively independent of the financial system. It performed the

functions: Released denomination bank notes; recovered financial banknotes;…

1955 – 1975: The National Bank implemented the basic tasks including:

Strengthened the currency markets, kept a stable currency, stabilized prices, gave

facilities for recovering in the economy;… There were two specialized banks

established: Vietnam Construction Bank (1957) and Bank for Foreign Trade of

Vietnam (1963).

The banking system in the period 1954 – 1975 in Southern Vietnam:

1954 – 1964: On December 31, 1954, Vietnam National Bank was

established, replacing Indochina Institute, officially released notes for the South of

Vietnam.

1965 – 1975: The transformation of banking activities from 1954 to 1964

was the premise and condition for a thriving period from 1965 to 1972 of the

commercial banks in the South of Vietnam. In the first 7 years of this period, 18

new banks were established, bringing the total up to 31 banks with 178 branches

in the province in 1972.

Vietnam's banking system from 1975 to today:

1975 – 1985: After 1975, the National Bank of Vietnam in the South was

nationalized and merged into the system of the State Bank of Vietnam, released

the new currency and withdrew the old currency in both the North and South in

1978.

1986 – 1990: This was the infancy of the initial reforms, as prerequisite for

the formation and development of a system of Vietnam Bank for a more

comprehensive basis.

1991 to present: The stage of Vietnam's banking system has had a lot of

gradual transformation towards a two – tier banking system modernization.

The development of Vietnam stock market:

Formed the research and development of capital markets (1993)

Established the State Securities Commission (1996)

Opened Stock Exchange Center (2000)

Transferred to the State Securities Commission on Ministry of Finance

(2004)

The development of the insurance market in Vietnam:

In 1929, Vietnam Insurance Company was headquartered in Saigon, but only

worked on car insurance. In the early years, Bao Viet only conducted maritime

operations such as cargo insurance, import and export, ocean shipping ...

insurance.

As of early 2012, there were 57 insurers and insurance brokers operating with total

assets of over 107 trillion, of which there were 29 non-life insurance, 14 insurer

enterprises, 2 reinsurance firms, and 12 insurance brokerage firms. Legally, in

2000, the National Assembly passed the Law on Insurance Business, which not

only contributed to the legal framework for insurance business operations of

insurance companies, but also protected the rights and legitimate interests of

organizations and individuals involved in insurance. In 2010, the legal framework

for insurance business continued to be improved with the Law amending and

supplementing, the Law on Insurance Business, many legal documents guiding

issued synchronously, facilitating activities of the insurance business.

2.2. The main features of Vietnam’s financial system

The main features of Vietnam’s financial system are shown through four main

components:

Financial market: There are many ways to divide the financial markets.

The terms of the financial markets used in the present time include: capital

markets, money markets, foreign exchange markets. Here are some different

conjugations:

Based on the duration of the credit, financial markets can be divided into

two types: money market (short term) and capital markets (long term). In the

developing economies in general, the currency market is often performed by

banks. Long and mid – term capital needs primarily implemented in the form

directly on the stock market. In contrast, most short – term loans, medium term

and long term are offered by commercial banks, the other markets are very small.

In other words, the mobilization and allocation done primarily by financial

intermediaries, including commercial banks which play a major role in Vietnam.

Based on the type of credit, Vietnam has treasury bills market, bond

market, stock market; bank loan market. In particular, the bank loan market is the

most popular.

Primary market and secondary market: Vietnam also has primary market

where securities issuance has been issued for the first time. On this market, the

issuance of securities which is made procedures and consulted by a stock

company, and underwritten by another securities firm. On the secondary market,

there are many types of financial assets traded, including over 700 stocks (in many

different fields like finance, banking, real estate, transport, fisheries ...), 4

investment fund certificates, many government bonds and bonds of financial

institutions (such as BIDV, ACB, VPB ...), and now Vietnam enterprises (such as

Vincom, Hoang Anh Gia Lai, ITACO , Song Da Corporation ...).

Centralized and Decentralized market: In Vietnam, a number of firms

traded on the concentrated market is less, while these are mainly on decentralized

market.

Formal and Informal market: Beside the formal financial markets, where

banks, finance companies, securities companies ... operation, there are informal

markets, where credit cooperatives and micro-credit institutions in rural areas,...

activities in Vietnam. The type of informal credit plays a significant role in socio-

economic development of Vietnam.