Sunday, 17 Dec 2017

Tighten control on bank cross-ownership

Updated at Sunday, 06 Aug 2017, 15:21
The Hanoitimes - The determination and drastic actions by banking regulators to curb funding to bank owner projects are being reinforced.
The State Bank of Vietnam (SBV) announced that it would issue an action plan to guide credit institutions on how to formulate  and implement restructuring plan. Under the plan,  banks are requested  to assess  the current financial situations, management activities, stocks and charter capital and propose restructuring plans. At the same time, SBV will increase supervision of credit institutions so as to be able to issue  early warnings  and handle violations.
 Bank operation at Sacombank.
Bank operation at Sacombank.
Another drastic action seen by the market as a strong resolution to deal with cross ownership is the prosecution of Tram Be, the former vice chairman   of Sacombank. Be allegedly lent Pham Cong Danh, VNCB’s former Chairman, VND1.8 trillion ($79.2 million) to pay off debts, skipping mandatory banking procedures.
Previously, Sacombank restructuring plan submitted to SBV but was rejected several times due to cross-ownership and bad debt inherited from Southern Bank after a merger with Sacombank. 
The new Sacombank chairman Duong Cong Minh, in order to be elected to the position, has to quit his ownership at LienVietPostBank.
According to Article 18 of Circular 36/TT- NHNN, a commercial bank can only own stocks of maximum 2 credit institutions (except the case in which credit institution is a child company of that bank). At the same time, the maximum holding must be less than 5% of the voting capital of such credit institution.
The banking experts   have warned about the risks of cross-ownership in banking system. Even though the current regulation requires banks to not pour capital into businesses which the bank major shareholders are in charge, but these people found many ways to circumvent this regulation, including  ownership of shares through  subsidiaries,
While ownership and banking management are under tight control in other countries, in Vietnam, experts are suggesting resolute actions to  keep banking operations transparent, including heavy penalties.   Only with the reduction of credit inter-connections  can the capital be channeled into needy areas of the economy, creating real values instead of asset bubbles like before.

Eventhough the  Circular 36/TT-NHNN on curbing bank ownership came into effect since February 1, 2016, many banks have not completed the divestment from their partners. However, it is not of much concern in comparison with what happened at credit institutes, where shareholders manipulate and cooperate with each other to carry out camouflaged lending and investments, so that the administrative agencies and investors are unable to evaluate the financial activities and capital availability of financial institute in subject. This put risks on the stability of the credit institute itself and of the financial system, in turn preventing the banking system from any reform – Dr. Nguyen Xuan Thanh, Director of Fulbright Economics Teaching Program.
Cross ownership is the reason for bad debts
The situation of cross ownership between banks with large amount of stocks infringes  the principle of transparency. It will be difficult for capital management, as banks will exploit their cross ownerships to manipulate the market, putting the customers at risks. Cross ownership will lead to the case when banks can use the capital of other banks, making  difficult for regulators to control– Dr. Cao Sy Kiem, former governor of State Bank of Vietnam.
Nguyen Tung - Tram Anh
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