Vietnam to prohibit bankers to own other companies

Sep 4th at 13:07

04-09-2012 13:07:52+07:00

The National Finance Supervision Council is making a new move towards the strengthening of the supervision over the bank ownership modes in an effort to prevent the dual risk.

A lot of cases, where the “big guys” controlled the stock prices, swayed commercial banks, drew up “virtual” business plans to borrow trillions of dong from banks, have been discovered recently. However, experts believe that a lot of other big guys who “pull the strings from behind the scene”, still have not shown their faces.

Sharing the same viewpoint, Truong Dinh Tuyen, a member of the National Advisory Council for Monetary Policies, said it is necessary to set up a new regulation to prohibit bankers to own other companies, adding that the same thing has been applied by South Korea after the crisis.

In fact, bankers themselves understand the risks. Do Minh Phu, President of Doji Group and President of Tien Phong Bank, said people think that bank shareholders would be borrow money from the banks more easily. However, in fact, the Law on Credit Institutions stipulate strict regulations on the issue. Once shareholders act as the members of the board of directors, they cannot borrow money from banks.

“Therefore, we do not expect to turn Tien Phong Bank into the financial portal for Doji group. Doji can contribute trillions of dong into the bank, but it cannot borrow money from it, even just 100 million dong,” Phu said.

“You may have heard about the bad consequences caused by the mode of cross-ownership (some banks contribute capital into other banks). Therefore, we always have to follow the principles to avoid possible risks,” he added.

Also according to Phu, in Vietnam, it is impossible for someone to hold 51 percent of stakes of a bank or more, because under the Law on Credit Institutions, a shareholder and relating people cannot hold more than 20 percent of the chartered capital of a credit institution.

The current laws do not have any regulation that prohibits the investors in the banking sector to make investment in other business fields as well. However, in fact, it is easy for shareholders or groups of shareholders to join forces to “swallow” the banks. Bankers can also easily pump capital to their subsidiaries by simply registering the subsidiaries under the names of other people.

Currently, the capital adequacy ratios of Vietnamese commercial banks are relatively high. Some banks reportedly have the high ratio of up to 30 percent. Meanwhile, the average ratio in developed economies is just 8-9 percent. However, the problem is that the reported high ratio might not be the true one.

Nguyen Xuan Thanh from the Fulbright Economics Teaching Program said that if banks really have the capital adequacy ratio of 20-30 percent, they would be absolutely able to settle their bad debts without the support of the government.

Thanh has also warned that the increased capital of the banks in recent years is just “bogus capital”. In fact, the bankers, who own some banks, might borrow capital from some banks to pour into other banks, while the banks’ capital remains unchanged.

According to Dr Vo Tri Thanh, Deputy Head of the Central Institute for Economic Management, other governments in the world stipulate the regulations to minimize the interest conflicts of the big shareholders of the banks and backdoor companies. However, businesses and banks still can dodge the laws. The situation seems to be more serious in Vietnam, the country which still lacks experiences in bank management.