Closer supervision needed to minimize manipulation, cross-ownership in banks: SBV governor

The State Bank of Vietnam (SBV) will enhance its supervision of credit institutions to reduce manipulation and cross-ownership in banking activities, said governor Nguyen Thi Hong on Thursday.

Responding to questions raised by legislators on the draft revised Law on Credit Institutions at the ongoing session of the National Assembly, the governor said this is a sensitive law as credit institutions are both businesses operating under the Enterprise Law and intermediary organizations that use people's deposits for lending. Therefore, they must follow separate regulations in the Law on Credit Institutions to ensure safety limits and risk control.

According to Hong, on October 29, the government issued an official report to the National Assembly on the draft law, which stipulates higher responsibilities for the heads of credit institutions and increases transparency through disclosing information about shareholders with an ownership ratio of 1% or more.

"An ordinary employee holding a large amount of shares in a bank should be put under watch to control manipulation and cross-ownership," she said.

Giving more details about this issue, Hong said that the government has repeatedly requested the thorough handling of manipulation and cross-ownership. In the previous draft, the maximum ownership ratio for individual shareholders was set to decrease from 5% to 3%.

“However, during the discussion process, we recognized that even if this regulation is in place, it would not completely solve the problems of manipulation and cross-ownership. The most important thing still lies in the implementation,” she noted.

The ownership ceiling for an individual shareholder, therefore, is kept unchanged at 5%.

“Recent cases, especially the Van Thinh Phat-Saigon Commercial Bank (SCB) scandal, show that if shareholders intentionally take ownership in their name, we cannot control it,” Hong said.

Therefore, it is necessary to access information from ministries and localities to identify whether the business (borrower) and the bank have any relationship or not, she noted.

In addition, the latest draft law also reduces the credit ceiling for customers from 15% to 10%. The drafters set a specific roadmap to reduce this rate in practice.

The governor also emphasized the need to strengthen inspection and supervision, especially banks’ internal supervision processes. The internal supervisory agency needs to have supreme authority to oversee banking operations, she stressed.

Regarding early intervention, the SBV representative said that this is a big issue that needs to be included in the draft law as a legal basis for regulators to quickly come up with a solution for any arising problems.

"We are concerned because banks are financial intermediaries so their activities can easily have spillover effects. If the law does not have regulations on early intervention, when cases like SCB emerge, it will be difficult to take necessary measures to ensure national monetary security," the governor said.