The scandal surrounding real estate developer Van Thinh Phat Group and Saigon Commercial Bank (SCB) shows that violations in cross-ownership and cronyism have become complicated and increasingly sophisticated, posing a huge challenge for regulators when it comes to preventing businesses from controlling banking activities.
The investigative agency under the Ministry of Public Security has issued a conclusion on its investigation into the case of embezzlement; violating regulations on banking and other related activities; giving and receiving bribes; abusing positions and power while performing official duties; showing a lack of responsibilities causing serious consequences; and abusing trust for property appropriation at Van Thinh Phat, SCB and relevant units and organizations.
Truong My Lan, chairwoman of Ho Chi Minh City-based Van Thinh Phat, has been accused of controlling operations at SCB to appropriate over VND304 trillion ($12.53 billion).
The Ministry of Public Security's investigative agency also proposed prosecuting Lan for giving bribes, violating regulations on banking activities, and embezzlement.
According to the conclusion, from December 2011 to January 1, 2012, Lan held a 81.43% stake at SCB under the names of 32 shareholders; 98.74% of the shares in TinNghiaBank under the names of 36 shareholders, and a 80.46% stake at First Commercial Joint Stock Bank under the names of 24 shareholders.
The three banks were merged on January 10, 2012 under the name of Saigon Commercial Bank (SCB), and Lan asked 73 shareholders to hold 85.606% of SCB's shares on her behalf. She then bought more shares to increase her ownership ratio in the bank to 91.545% on January 1, 2018.
As of October 2022, SCB had a charter capital of VND15.23 trillion ($630 million) with a total of 4,129 shareholders recognized by the State Bank of Vietnam. In particular, Lan owned nearly 91.536% of the bank’s charter capital in the names of 27 legal entities and individuals. She directly owned 4.982%.
Lan did not hold a position at SCB but owned a controlling stake of 85% to 91.5% at the bank. With this stake, she arranged for people she trusted to be given key leadership positions on SCB’s board of directors and executive board, giving her control of all the activities at the bank.
Lan was accused of using SCB to raise capital, then directed her subordinates at the bank and Van Thinh Phat to prepare loan documents to take money from depositors, said investigators.
Cross-ownership problem difficult to solve
The SCB-Truong My Lan case will go down in the history of the banking industry as causing unprecedented losses.
Previous major bank manipulation cases such as OceanBank-Ha Van Tham, Vietnam Construction Bank (VNCB)-Pham Cong Danh, TrustBank-Hua Thi Phan, Southern Bank-Tram Be posted losses of only several to tens of trillions of Vietnam dong (VND1 trillion = $41.34 million), while the figure in this case reached hundreds of trillions, equivalent to 6% of Vietnam's GDP, larger than the combined assets of Vietnam's five dollar billionaires.
Speaking at a September 18 meeting of the National Assembly Standing Committee on cross-ownership and large shareholders’ control of banking operations, SBV Governor Nguyen Thi Hong said cross-ownership and cronyism are limitations facing the banking system.
Being aware of this problem, the Party Central Committee, National Assemby and Government have repeatedly asked for a legal framework on this issue, she said.
“There will never be a regulation that can thoroughly solve this problem. Instead, such regulation must be included in not only the Law on Credit Institutions, but also other legal documents to ensure transparency in the operations of banks, businesses and people,” she said.
Regarding a proposal to reduce the ownership ratio in a credit institution, Hong said that it is difficult to control the ownership ratio of individuals and businesses if they intentionally let others take the name. This needs the involvement of investigative agencies, she noted.
Major cases that have been brought to light show that an individual controlling a bank can have an "underground" ownership rate of up to 60-70%, and even over 90%. They sometimes do not directly hold any positions at the bank but make decisions about credit granting, lending activities, and improper use of capital. These violations often take place over a long period of time and are becoming increasingly complex and large in scale.