Banks found as playing tricks to increase chartered capital
Banks found as playing tricks to increase chartered capital
A lot of commercial banks have successfully increased their chartered capital by dodging the laws.
Analysts once warned that raising chartered capital to VND3 trillion as required by the State Bank of Vietnam might be an impossible mission, because it was very difficult to issue shares to call for more capital in the context of the gloomy stock market.
However, commercial banks all could increase their chartered capital to VND3 trillion or more just within a short time, which was a big surprise to experts.
Le Thanh Nghi from the State Bank of Vietnam said on Thoi bao Kinh te--Vietnam has pointed out that banks could easily raise their chartered capital by applying the “cross-ownership” model.
According to Nghi, the shareholders of A’s bank might borrow capital from B Bank to invest in B, and vice versa, the shareholders of B’s bank might borrow capital from A Bank to invest in A.
In another case, X corporation owns Y and Z companies. Once both Y and Z contribute capital into A Bank, X would automatically own A Bank.
As a result, while banks’ chartered capital has increased, the total capital of the whole banking system has not increased. In other words, the capital just has flowed between banks, thus leading to the capital increase on paper, not in reality.
Le Phuong Anh from Agribank explained that when raising capital through intermediaries – investment companies, banks would be recognized as having enough chartered capital. Meanwhile, the banks – lenders would be recognized as providing loans, though in fact, the loans did not go to the production.
Nghi said the cross-ownership model’s problem is that it provides wrong figures which are the indicators of the banks’ health.
Chartered capital and equity are the most important indicators to calculate the capital adequacy ratios to measures the safety of banks’ operation. Once the materials provided to calculate the ratio are unreliable, the results would be wrong.
Dao Quang Tinh, Deputy Chief Inspector of the State Bank of Vietnam, said since late 2011, the State Bank has classified banks to find out the “banks with problems with chartered capital.”
When asked how the State Bank would deal with the problematic banks, Tinh said the central bank would follow a flexible method, which allows to “clear weeds, but not to harm rice.”
Nguyen Van Binh, Governor of the State Bank of Vietnam, in a recent meeting with the local press, revealed that six couples of banks with cross-ownership have been found, and 34 banks reportedly have the shareholders, who are the other credit institutions.
Binh emphad the necessity of settling the cross-ownership situation which is now still in a small scale, but is getting more and more complicated, thus bringing high latent risks to the banking system and hindering the bank restructuring process.
“We now can see the banks’ cross-ownership panorama clearly,” Binh said. “The problem needs to be settled to the every root with a lot of comprehensive measures”.
“Our principle is to deal with the problem in a cautious manner in order to avoid any harm to the banking system,” he added.
vietnamnet
