Law expected to be revised to improve safety of the banking system
Law expected to be revised to improve safety of the banking system
The State Bank of Vietnam (SBV) expected to add many new regulations, including those related to cross-ownership, in the upcoming amended Law on Credit Institutions, to improve the safety of the banking system.
Under an SBV report reviewing and studying the Law on Credit Institutions released recently, the SBV said the implementation of the law has shown many shortcomings that need to be considered and amended to ensure the restructuring of credit institutions and continually improve the legal framework for handling bad debts and ending cross-ownership in banks.
The revision is also expected to complete legal regulations on monetary and banking activities to bring them in line with market principles.
According to the SBV, penalties related to restructuring weak credit institutions will be also enhanced under the upcoming amended law.
The SBV expected the amendment of the law will prevent cross-ownership and governance abuse of major shareholders to manipulate the operations of credit institutions.
Accordingly, the SBV will reduce the holding ratio of a shareholder and his/her related persons to limit the domination and acquisition to ensure the publicity of the credit institution.
At the same time, the SBV will also amend and supplement regulations on organisation, management and administration of the people's credit funds.
On improving the operation quality of credit institutions, the SBV will reduce the credit limit ratio besides studying and reviewing other prudential ratios in the operations of joint-stock credit institutions.
Regarding restructuring weak credit institutions, the SBV plans to amend several regulations to suit the practice of implementing special control regulations on weak credit institutions.
The SBV will add a number of new regulations, including the exemption of responsibility for State inspectors and supervisors against legal risks in the process of handling weak credit institutions as the handling of weak and specially controlled credit institutions is a tough and complicated issue, which can cause legal risks for the SBV in general as well as for State inspectors and supervisors.
Earlier, experts raised concerns about the involvement of real estate companies in commercial banks, warning it may pose risks to the financial system and the whole economy. While it is now harder for real estate tycoons to manipulate banks, there are still certain loopholes that they can take advantage of. Through the complex networks of subsidiaries and affiliated companies, these ultimate shareholders can channel credit to their own companies, bypassing regulations on credit and lending limits for the real estate sector.
According to the experts, the participation of real estate companies in banks can adversely influence these banks’ lending practices. Leaders of real estate companies, who are also ultimate owners of certain banks, can channel more loans to their real estate projects.
Dinh Trong Thinh, senior lecturer of the Academy of Finance, said cross-ownership between real estate companies and banks can cause banks to give the companies priority in getting loans in some cases. This will cause many consequences in the banks’ lending besides creating inequality among firms in access to bank loans.
