Cross-ownership in Vietnamese banks will be controlled with stringent new regulations.

Under a State Bank of Viet Nam’s draft law, which revises the Law on Credit Institutions, cases of purchase, sale or transfer of shares with a value of 1 per cent or more of the banks’ charter capital must have the SBV’s written approval before implementation.

The money to buy banks’ shares must be proved legally and must not have originated through loans.

Besides these, the draft law also stipulates that major shareholders and related persons must not own more than 5 per cent of the charter capital of another credit institution. This regulation is aimed at making the capital contribution of shareholders transparent, preventing cross-ownership or unreal capital hike.

Echoing the new draft regulations, general secretary of the Vietnam Banks Association Nguyen Toan Thang said that the banking sector’s restructuring now required the SBV to handle the cross-ownership thoroughly.

Nguyen Van Than, chairman of the Vietnam Association of Small- and Medium-sized Enterprises, and former chairman of a commercial bank, said that strict regulations on cross-ownership was necessary, as it had caused many bad results for the banking system, including the high ratio of non-performing loans. Many banks increased their charter capital to several thousand billions of dong; however, the capital source was unreal, as it came from loans taken from other banks.

However, together with the strict regulations, economists and National Assembly’s deputies said that the SBV must also ensure its supervision is more effective to detect violations by shareholders, as they can still find loopholes to break the law, despite its severity.

According to director of the SBV’s Legal Department Doan Thai Son, the cross-ownership had not been handled thoroughly, even though it has been four years since the implementation of the project on restructuring the banking system.

Commercial banks said that the slow process of divestment to reduce cross-ownership was owing to the low prices of bank shares. Selling the stake at low prices would not be fair to shareholders, and the prices must be at least equal to the prices at which the shares were bought, they said. Meanwhile, the current financial market is no more favourable than it was 10 years ago, which hampers investors’ divestment plans. — VNS