Vietnam banking system tangled in web of cross ownership

By Thanh Nien News, TN News

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A woman pays her electricity bill at a branch of the Southern Bank in Ho Chi Minh City. A 2013 report by the Southern Bank showed that the family of its biggest shareholder Tram Be owned 20.81 percent of the bank’s registered capital. Photo: Dao Ngoc Thach

The government has asked commercial banks to cut cross ownership several times to strengthen the system, but experts say lenders are still stuck in a "spiderweb."

Prime Minister Nguyen Tan Dung repeated the order earlier this year, asking banks to list to avoid cross ownership, which can endanger the financial market and the entire economy.

The fact that eight weak and ineffective banks were forced to merge recently is considered by many analysts a successful start to end cross holding.

But economist Nguyen Minh Phong said the sector is still “swinging like spiderweb” between state commercial banks and joint stock banks.

Phong said nearly ten joint stock commercial banks share some holdings with state banks including Vietcombank, the country’s fourth-largest bank by assets, and Military Bank, Eximbank and OCB.

Eximbank meanwhile owns shares of other joint stock banks like Sacombank and VietABank.

Phong said cross-holding is not always a bad thing, as it allows mutual support in funds, technology and experience.

“But it really causes a disaster if it is not strictly controlled and one holder of dominating shares can decide the fate of different banks.”

Phong said the worst scenario is that all credit safety standards will be broken as the banks will not follow any rules and instead listen only to the voice of the dominant shareholders, “to bump money through the back door” to customers that have close relationships with the shareholders.

In such a scenario, bank reports are highly dubious, he said.

Dr. Nguyen Xuan Thanh, director of the Public Policy Program at the Ho Chi Minh City-based Fulbright School, said regulations limit ownership of a person to 5 percent of a bank’s registered capital, and an organization 15 percent, except for special cases.

The ultimate cap is 20 percent for a group of related people.

But the reality is there are many lenders who are dominated by a group of individuals, Thanh said.

A 2013 report by the Southern Bank showed that its biggest shareholder Tram Be owned 8.36 percent of its registered capital, his son who is deputy board chairman Tram Trong Ngan 4.42 percent, his daughter who is the bank’s deputy general director Tram Thuyet Kieu 7.36 percent and her husband 0.67 percent.

That’s 20.81 percent of the bank’s capital for the family.

A BacABank report showed that its general director owns nearly 7 percent of its share and its board chairwoman 5.2 percent.

Le Xuan Nghia, former vice chairman of the National Financial Supervisory Commission, said several individual shareholders are turning banks into their hostages.

“Some banks reported long-term and middle-term loans but only to the owner or the owner’s company. And the due day will keep being pushed back as current regulations allow banks to extend loans.”

Nghia said those shareholders need to be forced to withdraw their money from the banks.

Economist Bui Kien Thanh said cross holding prevents banks from controlling their cash flow and is thus the origin of bad debt.

Thanh said the central bank needs to investigate shareholders that violate the limits and punish them. 

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