$27 bln fraud case shows issues, but no new risks to Vietnam's banking system: Fitch

A massive fraud case involving a missing $27 billion related to Saigon Commercial Bank (SCB) with links to real estate tycoon Truong My Lan has exposed financial supervisory shortcomings in Vietnam, Fitch Ratings said in a note earlier this week.

However, it "does not present new contagion risks to the banking system," Fitch Ratings noted. "The banking sector’s ‘bb’ operating environment score has reflected Vietnam’s evolving standards of corporate governance and financial supervision," it added.

The State Bank of Vietnam (SBV), the country's central bank, has pumped in money to support SCB following the arrest of Truong My Lan, the defacto leader of the bank. "SBV’s actions demonstrate its high propensity to provide support to systemically significant institutions, even when a bank’s stress results from its own governance failures," Fitch said.

The SBV's move reinforces Fitch's decision to upgrade the Government Support Ratings of all banks in Vietnam in November 2022, shortly after the run on SCB.

SCB is receiving support from the SBV via special loans. At least part of these loans could be repaid eventually, particularly if SCB recovers assets from Truong My Lan, the culprit convicted for embezzling from SCB, Fitch emphasized.

Fitch expects the Vietnamese banking environment to remain stable over the next few years in line with a strengthening economy, which underpins Fitch's standalone credit profiles for banks.

"We project Vietnam will post real GDP growth of 6.5% in 2024," Fitch highlighted.

Fitch believes that Vietnam's underdeveloped macro policy framework has delivered strong growth but is not fully transparent, and could hamper effective management of emerging complexities in the economy and financial sector.

In April, Ho Chi Minh City People's Court sentenced Truong My Lan, chairwoman of Van Thinh Phat Group, to death in one of the most notorious criminal cases in Vietnam. Lan is obliged to pay more than VND670,000 billion (nearly $27 billion) in compensation to Saigon Commercial Bank (SCB).

During her 10 years of running SCB, Lan directed her accomplices to disburse over 2,500 loans to the Van Thinh Phat ecosystem. As of October 2022, Lan and the ecosystem still had nearly 1,300 outstanding loans worth VND670,000 billion (nearly $27 billion) in principal and interest.