Vietnam central bank plans further action against cross-holding in banks

The State Bank of Vietnam (SBV), the country's central bank, is planning to take additional steps to deal with cross-holdings in local banks and clear potential risks to the banking system.

With a better legal corridor and aggressive action, it has managed to considerably reduce cross-ownership cases between banks and corporates as also excessive regulatory holdings, the SBV says in a report sent to the National Assembly, without giving a time frame.

Voting stakes owned by commercial banks at a number of peers have been brought down to below 5% - the regulatory threshold, the report added.

The SBV admitted that it is an uphill task to handle cross-holding in case major shareholders and related people intentionally conceal their stakes or do so in other persons’ names in order to dodge regulations, posing a threat to the system’s transparency.

The central bank has drafted amendments to the revised Law on Credit Institutions, which were discussed by the parliament in mid-2023.

Two major adjustments proposed by the SBV included reducing ownership by shareholders and related people to minimize manipulation and give more supervising power to the central bank; and curbing total lending to a sole client at 10% of a credit institution’s equity and to a client and related people at 15%.

The SBV is working with the parliament’s Economic Committee and other agencies to further refine the draft regulations after taking the lawmakers’ feedback into account.

The SBV governor said that they will enhance supervision of lending and investing activities at banks and their holdings in other entities. Infringements will be dealt with in cooperation with the police, if necessary.

The Vietnamese banking system, plagued with rampant cross-holdings that led to manipulation by some tycoons, forced the government to take unprecedented moves like the acquisition of three ailing private banks at zero cost in 2015. The SBV is still struggling with managing the ailing banks.

Foreign investors have shown interest in investing in local banks, but want the 30% ownership cap loosened.