No more lending to ‘backyard’ companies, Vietnam PM tells banks

Vietnamese Prime Minister Pham Minh Chinh has instructed banks to cancel all new loans to a small group of businesses or projects of an ecosystem known as “backyard” companies, in a move to improve banking operations.

The PM also ordered a ban on relaxing the credit growth quotas and giving soft loans to companies with ties to banks’ executives.

Chinh made the request at a meeting with 38 executives of commercial banks in Hanoi on Thursday, with the aim of removing hurdles for credit growth.

The request came after rampant crossholding distorted banking activities and created unfair economic practices. The latest case brought to light is the Van Thinh Phat-Saigon Commercial Bank (SCB) scandal in which Van Thinh Phat chairwoman Truong My Lan owned a 4.98% stake in SCB but managed to manipulate the lender through indirectly controlling a 91% holding in reality as of end-2022.

Between 2012 and 2022, over 90% of SCB loans were funneled into Lan’s business network via more than 1,000 shell companies, according to the investigative agency under the Ministry of Public Security.

At the meeting, Chinh ordered the State Bank of Vietnam and relevant authorities to accelerate the banking overhaul and handling of bad debt in the 2021-2025 period. “More efforts are needed to prevent cross-holding and cross-lending that can potentially lead to system insecurity,” he said.

He also urged banks to be more flexible in lending without compromising standards.

“Policies must be highly flexible. We do not lower lending norms, but can we be more flexible?” he asked. “There are companies facing difficulties, but if their projects are feasible, can they borrow?” he continued.

Chinh has repeatedly asked the SBV to work on measures to boost lending over concerns about the economy failing to meet this year’s GDP growth target of 6-6.5%, partly because of weak external demand.

As of November 30, total outstanding loans in the banking system had reached VND13,000 trillion ($535 billion), up 9.15% against the end of 2022, below the whole-year target of 14.5%, SBV data showed. Given the availble room, local banks can pump around $30 billion into the economy in December.

The PM also suggested real estate developers, which are struggling to secure cash flow, should lower selling prices and offer more suitable products that meet buyers’ needs.