State bank toughens stance on capital issues

Thursday, Jul 03, 2014 08:39

As many as eight commercial banks have shareholder groups and related parties that own over 20 per cent of the charter capital.— Photo dantri
HA NOI (Biz Hub) — The State Bank of Viet Nam (SBV) has instructed banks to clearly detail their plans for the capital withdrawal of parties whose stakes have exceeded caps.

The central bank has noted that the withdrawal must be completed no later than the first quarter of next year.

"The specific amount of time for handling the capital withdrawal depends on the process of restructuring at each bank; however, they must meet the deadline," remarked Nguyen Hoang Minh, deputy head of the central bank's HCM City branch, as quoted by Phap Luat TP HCM (The HCM City Law) newspaper.

The HCM City Law newspaper reported, while citing SBV's sources, that there are five commercial banks where individual shareholders own more than 5 per cent of the charter capital each and five commercial banks where institutional investors hold more than 15 per cent of the charter capital.

As many as eight commercial banks have shareholder groups and related parties that own over 20 per cent of the charter capital.

Industry experts have pointed out that the loss of control over ownership has led to the manipulation of these banks in ways that conflict with group interests.

The central bank has claimed it will undertake strict supervision of stake-related activities, such as transferring or increasing shareholdings. If anyone is found contravening the law, heavy penalties will be imposed.

Economic think-tank agent Vu Dinh Anh said the real question was whether the central bank could control the issue across the board.

"Penalties will depend on the complex nature of each case, the suspects, and the related parties," Anh noted.

Over-privileged loans

In an attempt to hinder bank manipulation efforts, the SBV has released the draft of a new circular to suppress the increasingly sophisticated "familisation" seen at credit institutions, which is ultimately intended to tackle bad debt and improve the security of the system.

The draft, which is pending public feedback, declares that the total credit limit granted to founding shareholders, major shareholders, family members and related parties must not exceed 5 per cent of the charter capital of a credit institution.

Credit limits for major shareholders and their family members must also not exceed their face-value-based capital contribution to the banks.

The draft restricts credit institutions from granting privileged loans without collateral to auditing companies, auditors, chief accountants, major shareholders, founding shareholders, subsidiaries, companies or those who have established certain relationships with the bank.

Credit institutions must report such lending plans to the shareholders, owners and the central bank.

In another attempt to soften the illusion of bank capital and improve the transparency of capital flows, the draft requires credit institutions to report actual charter capital every six months.

The actual charter capital is determined after taking out risk provision funds and calculating all income and expenditure.

If the value of the actual charter capital is lower than the legislative capital, banks must draw up solutions and report these to the central bank. If the actual charter capital falls below 80 per cent of the legislative capital, the SBV will apply measures to restrict the operations of the banks.

In fact, cross-shareholding issues have complicated the process of restructuring the vulnerable banking system. The entire system was recently on the verge of a crisis following many years of excessive credit growth and easy lending to State corporations, along with cross-shareholding issues.

Financial reform is one of the three pillars in a programme of economic restructuring that Viet Nam unveiled in late 2012. If the deep-seated problems in the banking system cannot be resolved effectively, the progress of the entire economic reform programme might face long delays. — VNS

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