Customers at a branch of the Vietnam Bank for Agriculture and Rural Development . On the inter-bank market, the exchange rate at the close of December 13 was VNĐ23,173 per dollar, also VNĐ4 up. — VNA/VNS Photo

The foreign exchange market is witnessing an unusual phenomenon: the đồng is not just steady against the US dollar but also 0.16 per cent up from its rate at the end of late 2018.

Between December 9 and 13, the State Bank of Việt Nam (SBV) made some adjustments to its key dollar- đồng rate, keeping it at VNĐ23,160 to the dollar, a gain of VNĐ4 from the previous week.

On the inter-bank market, the exchange rate at the close of December 13 was VNĐ23,173 per dollar, also VNĐ4 up.

The open market did not see much change either, with the buying and selling rates remaining at VNĐ23,200 and VNĐ23,230.

Market observers expect the foreign exchange market in the coming weeks to remain at the November levels of around VNĐ23,200 to the dollar.

They pointed out that the strengthening of the đồng during what is the year’s peak business season is an unusual phenomenon since in past years it used to depreciate sharply at this time due to a surge in the demand for the greenback for settling contracts by both businesses and individuals.

One reason for this is the huge sums of foreign exchange coming in, with supply being surplus to demand since the beginning of the year.

According to the Đầu tư Chứng khoán (Securities Investment) newspaper, in November alone foreign direct investment flows were worth US$1.41 billion while the trade balance saw a small surplus of around $100 million.

It was the sixth consecutive month of trade surplus, and took the figure for the first 11 months of the year to a record $9.1 billion.

The director of a commercial bank in HCM City, who does not want to be named, said the FDI flowing into Việt Nam enabled the central bank to buy $850-900 million from banks in November, increasing its accumulative purchase since the beginning of the year to $16 billion.

The World Bank estimates overseas remittances coming to Việt Nam this year to reach $16.7 billion, up 4.6 per cent from last year.

The gap between the interest rates on the đồng and the US dollar was 2 per cent in recent months and is expected to widen to 2.5-3.5 per cent, further strengthening the Vietnamese currency.

Some positive news coming recently from the Chinese and the US administrations about their trade war has helped steady the global monetary market, analysts said.

A BIDV executive said that given the likelihood of a bigger foreign currency surplus estimated at $1 billion and the early signs of a ceasefire in the trade war, the exchange rate would remain steady in the coming period. 

Central bank seeks to cap foreign ownership in digital wallets

In a draft decree on non-cash payments to replace Decree No 101/2012 issued by the Government in 2012, the SBV plans to cap foreign ownership in digital wallet providers.

The limit is likely to be fixed at 49 per cent.

As of November 30, mobile wallets were licensed by the SBV, including MoMo, Moca, Payoo, SenPay, Zalopay, Airpay, VNPay, Monpay, ViettelPay, 1Pay, Nganluong, VTCpay, Mpay, and Wepay.

Currently there is no foreign ownership cap.

Experts said the industry has been booming in recent years, causing a flood of foreign capital to flow into it.

Foreign investors now own a major share of the companies. For instance, Thailand’s True Money owns 90 per cent of 1Pay, Japan’s NTT Data Group has bought 64 per cent of Payoo, South Korean investors Global Payment Service and UTC Investment Co Ltd hold 65 per cent in VNPT EPAY, and global funds Warburg Pincus, Goldman Sachs and Standard Chartered Private Equity own around 64 per cent of MoMo.

An SBV official said it is high time to cap foreign ownership since digital wallets are a conditional business and the law seeks to prevent foreign investors from manipulating payment activities in the country.

Thus, the central bank has found it necessary to have new regulations for managing the industry, including bringing a limit on foreign ownership, she said.

The market has grown to a certain size, and regulators need to tighten control over it to ensure the security and safety of the country’s payment system, she explained.

The new SBV decree is also in line with the current regional trend as most countries in the neighbourhood have brought limits on foreign ownership of digital wallet companies, she said.

In Indonesia and China, for instance, the limit is 20 per cent, while in Malaysia, it is 30 per cent, she said.

Without strict control over foreign investors’ participation, there is a risk of tax evasion, money laundering and illegal cross-border money transfers, she added.

Many experts concurred with her saying the central bank’s move would help avoid manipulation of the market by foreign investors, ensure the security and safety of banking and financial activities, especially since the rapid growth in technology has made it easier than ever to transfer money, including across borders.

But some analysts disagree with the plan to restrict foreign ownership, warning it might affect profits and persuade foreign investors to pull out altogether.

Popularising non-cash payments in the country needs deep pockets to invest in fintech, which is however considered a risky bet. Foreign investors not only have plenty of resources but also possess advanced technologies including in fintech, they said. 

Any ownership cap could become a barrier to attracting them, they warned.

Some also raised concerns about Việt Nam being sued if it limits foreign ownership based on its commitments to the World Trade Organisation and CPTPP.

In any case, imposing a foreign ownership limit on digital wallet companies would not be a very effective measure in terms of ensuring the security of the financial sector because several foreign-invested banks are licensed to operate in Việt Nam and are able to freely enter the industry, they pointed out.

What do the mobile wallet service providers think of the central bank’s new plan?

Some said it would not have a major impact since many companies have Vietnamese names but are actually owned by foreign fintech companies. —VNS