The State Bank wants to tighten the ratio of share ownership and lending to shareholder groups to limit the "shadow" of big guys behind banks.
This afternoon, the National Assembly is expected to discuss the revised Law on Credit Institutions, which includes many proposed regulations to address cross-ownership issues.
Cross-ownership is the phenomenon of one bank holding shares in another bank, which according to many experts is still a painful situation in Vietnam. According to National Assembly deputies, cross-ownership of banks increases some risks such as increasing virtual capital through borrowing for investment, contributing capital to each other (directly or indirectly through subsidiaries and grandchildren). Or another consequence is the risk of takeover and domination by large shareholders and related parties: the parent bank, subsidiaries, and affiliated companies jointly invest in an enterprise, owning shares that control the business activities of commercial banks.
One of the important objectives when drafting the revised Law on Credit Institutions is to limit the manipulation of a credit institution by a group of shareholders and related persons. Therefore, the draft Law on Credit Institutions (revised) supplements many provisions to limit manipulation and the influence of a group of shareholders on the operations of a bank.
According to the explanation and acceptance report just sent to the National Assembly delegates, the share ownership ratio for individual shareholders is proposed to be kept as current, that is 5%; the limit for institutional shareholders (including the number of shares that such shareholders indirectly own) is reduced from 15% to 5%; shareholders and related persons are reduced from 20% to 11%.
| Maximum ownership ratio in bank | Current Law | Amendment Bill |
| Individual shareholders | 5% | 5% |
| Shareholders and related parties | 20% | 15% |
| Institutional shareholders (including indirect ownership) | 15% | 10% |
Regarding the restriction of domination in management and administration, the draft Law has stricter regulations on cases where people are not allowed to hold positions and cannot hold the same positions at a credit institution, in order to limit those with authority at the bank from being able to intervene, dominate, and change the decisions of that credit institution in a direction that benefits the group of individuals and organizations that dominate.
In addition, the draft law also adds the responsibility to publicly disclose information about related persons of managers and executives of credit institutions, and the responsibility to publicly disclose information of shareholders owning 1% or more of the charter capital of a credit institution.
In addition to restricting the ownership ratio of a group of shareholders at a bank, the management agency also plans to more strictly control the credit limit for a customer and related parties, limiting the concentration of credit on a group of customers. However, the plan to reduce the credit limit for a customer and related parties will be implemented in a roadmap to avoid sudden impacts on the operations of banks.
Accordingly, the draft stipulates a roadmap to gradually reduce the credit limit to 10% of equity for a customer and 15% of equity for customers and related parties within 5 years to minimize the impact. This rate for non-bank credit institutions is 15% and 25% respectively.
In case of granting credit exceeding the limit, the Prime Minister shall prescribe the conditions and documents for requesting approval of the maximum credit level. The total amount of credit granted exceeding the limit of a bank shall not exceed 4 times its own capital.
Transaction at a commercial bank. Photo: Thanh Tung
Speaking about the solution to handle cross-ownership at the meeting of the National Assembly Standing Committee in mid-September, Governor Nguyen Thi Hong admitted that if we wait for a regulation to thoroughly handle this issue, "it will never happen". She said that the regulation to 'tighten' cross-ownership will help ensure system safety and control risks, but it will affect the stock market and the market regulation of the economy.
The percentage of individuals and organizations holding shares in banks or borrowing capital can be easily counted and monitored. However, the real owners who hold controlling power are not revealed in the records if they ask or hire someone to hold shares on their behalf or set up "ghost" businesses to borrow capital.
For example, according to the latest conclusion of the investigation agency (Ministry of Public Security) at Saigon Bank (SCB), the records only show that Ms. Truong My Lan holds 4.98% of the charter capital. But in reality, Ms. Truong My Lan owns more than 91% of the bank's shares through 27 legal entities and individuals, as of October 2022. From 2012 to 2022, over 90% of SCB's outstanding loans flowed to Ms. Lan's group through thousands of "ghost" companies that were set up.
"The draft Law on Credit Institutions also considers this as a key content for adjustment," Ms. Hong shared. Controlling the ownership ratio of individuals and businesses is also difficult if "they intentionally let others stand in their names, it cannot be handled." This requires the participation of the investigation agency.
Therefore, the State Bank assesses that it is difficult to have any regulations to handle this thoroughly, but it is necessary to handle it comprehensively, including the contents of the revised Law on Credit Institutions and other solutions such as connecting national data on population, business registration as well as coordination of relevant state management agencies, inspection, investigation and auditing agencies.
In addition to reducing cross-ownership that manipulates banking operations, the draft law also mentions measures for early intervention in credit institutions. The National Assembly Standing Committee said that in the process of receiving and finalizing the draft law, the provisions on early intervention, special control, and special lending to credit institutions are provisions that still have many different opinions.
Some opinions said that the early intervention provisions stated in the draft law are still slow, and need to be carefully studied and revised. Therefore, after being accepted, the draft law was revised towards earlier intervention. Specifically, management agencies will have plans to intervene when credit institutions and foreign bank branches have accumulated losses of more than 15% of the value of charter capital, allocated capital and reserve funds.
Regarding special loans, the draft law removes regulations related to banks that are allowed to borrow specially from deposit insurance organizations, other banks and the State Bank that provide special loans to deposit insurance organizations. Instead, banks are allowed to borrow specially from other organizations according to the provisions of law.
The Prime Minister has the authority to decide on special loans with 0% interest rate per year to banks under special control, because this is a case of indirect use of State resources in special cases to ensure system safety.
Quynh Trang - Anh Minh
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