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Reduce cross-ownership of credit institutions: Directing is not enough

08:06 | 04/08/2017

VCN- With efforts and determination to restructure the system of credit institutions (CIs), ensuring safety for the financial system, the Government and the State Bank of Vietnam give more guidance to reduce the cross-ownership of credit institutions to safe levels. However, directing is not enough, this issue needs the effort and awareness of the banks as well as the stakeholders. 

reduce cross ownership of credit institutions directing is not enough
The situation of cross ownership, cross-investment is gradually being controlled. Source: The Internet.

Still be intricate in ownership

In mid-July, the Prime Minister's Working Group worked at the SBV and issued six mandates to urge the SBV to implement more comprehensive, with stronger solutions. Concerning the cross-ownership of credit institutions, the Working Group considered that, after the SBV issued the Circular 36/2014/TT-NHNN on limits and safety ratios in the operations of credit institutions, foreign ownership, cross-ownership is better controlled by CIs, but still remains.

Despite efforts to implement Circular 36, the Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) still owns more than 7.16% share of Military Bank - MB (down from 9.8% previously); 8.19% shares of Vietnam Export Import Commercial Joint Stock Bank - Eximbank (previously 8.2%); 4.3% shares of Saigon Bank - SaigonBank (previously 5.26%); 5.07% share of Orient Commercial Joint Stock Bank - OCB - this level even increased when Vietcombank previously had only 4.6% stake in OCB.

Thus, this bank is "violating" the provisions of Circular 36 when this Circular provides that a commercial bank can only hold shares of no more than two other CIs, subsidiary they are the affiliated companíe of that bank; the commercial bank owned by other credit institutions must be less than 5% of the voting capital and not be allowed to appoint any person to the board of directors of the credit institution where the bank buys shares, unless the CI is a subsidiary or is taken by a commercial bank who participate in restructuring and processing of weak CIs as designated by the SBV.

Overall, all of the large banks such as VietinBank, Vietcombank, Vietnam Development Bank (BIDV), Agribank have been owning other CIs. In addition, many smaller commercial banks have shares of big banks, but also hold a lot of shares in other credit institutions.

Recently, the Vietnam Securities Depository Center has announced the transfer of 81.3 million MBB shares of Military Bank (MB) to Maritime Bank of Vietnam (Maritime Bank) to the Ha Nam Development Joint Stock Company - belonging to Vietnam Investment and Development Group (VID Group). This is considered a move to reduce cross-ownership at MB of Maritime Bank; but the problem is that the Chairman of the Board of VID Group is the Chairman of the founding committee of Maritime Bank, the "relatives" of the Chairman of the Maritime Bank. Therefore, if the issue of cross-ownership of CIs under various layers is to be seen as a looser, more cumbersome control, so many professionals can see that the visible pairs are the “icebergs”.

In addition to many banks still holding shares in excess of the regulations, many banks and companies have been seeking to reduce this level to comply with Circular 36. Typical Himlam Corporation has withdrawn all shares owned by Lien Viet Post Commercial Joint Stock Bank (LienVietPostBank) and no longer shareholders as of June 23rd. Previously, this company was the founding shareholder, and the largest shareholder in LienVietPostBank owns 14.98% of charter capital, equivalent to 96.77 million shares. This is considered a positive move to avoid cross ownership when the chairman Him Lam sitting on the "hot seat" of Saigon Commercial Joint Stock Bank (Sacombank).

Therefore, the financial market overview report 2016 of the National Financial Supervisory Commission has identified that the cross-ownership situation, cross-investment credit institutions are gradually controlled. According to the SBV, cross-ownership, and cross-investment of credit institutions are dealt with in one step; the situation of shareholders / large groups of bank manipulation is treated a basic step. However, the problem still needs to be resolved more drastically, as many experts say that many pairs of cross-ownership of credit institutions are "hidden" under many layers to serve the interests of the group or to conceal the "creaking" financial situation of banks and related businesses.

Drastically

It can be seen that reducing the cross-ownership of CIs is one of the most important objectives of the restructuring of credit institutions. According to the plan to restructure the system of credit institutions associated with dealing with bad debts in the period 2016-2020, approved by the Prime Minister on July 19th, the goal is to continue to strengthen the financial situation, the management of credit institutions in accordance with law and in accordance with international practice. Therefore, the solution is to supplement the regulations to strengthen the cross-ownership of credit institutions, prevent the abuse of management rights, management, and major shareholder rights to manipulate the activities of CIs and other relevant legal issues.

Accordingly, the Proposal calls for the review, amendment, and supplementation of the concept of "related person" to ensure broader coverage of similar interests; to review and amend the criteria and conditions for the posts of chairman of the Board of Directors, member of the Board of Directors, member of the Control Board, General Director, etc., in a stricter way; revised regulations on shareholding limits for shareholders of credit institutions to publicize shareholders, limiting manipulation etc. In addition, the Proposal also requires the listing of shares of commercial banks on the Stock market to increase mass; Banks must disclose publicly, transparently and accurately informed on their business strategies, ownership, financial position, management structure; improving the accountability of CIs with the public ...

Previously, the State Bank issued many legal documents related to the treatment of cross-ownership of credit institutions, reducing the ownership of capital among credit institutions. The government's direction has repeatedly called for a resolution of this situation. Recently, Resolution No. 61 of the Government's regular meeting in June 2017 requested the State Bank to strengthen the control and prevention of cross-ownership and manipulation in the operations of credit organizations in a timely manner to severely punish violated organizations and individuals.

Despite efforts, this is still a problem for many years. According to bank finance expert, Dr. Nguyen Tri Hieu, these regulations have not been implemented largely due to the consciousness of the shareholders. Because they have a large shareholding, so that they can take advantage of their position to develop their business and take advantage of their shareholdings to gather power, these shareholders do not want to deprive them of their power. "For many, managing a bank is a very powerful financial tool to finance their projects. Despite the credit limits, they still have ways to overcome that limitation", Dr. Hieu commented.

In addition, according to experts, although there are many directions were issued, but the implementation of the related bodies is not very drastically so it can not be thoroughly tested to find out the cross ownership of the hidden institutions in the system to handle thoroughly. Therefore, the above solutions are expected to accelerate the process of treating long “suffering” of the banking industry.

Moreover, to address this situation, according to a study by experts from the National Economics University, the banking sector needs to comprehensively upgrade the level of safety to a new higher standard, according to the Basel plan II, taking into account the new adjustments in Basel plan III. In the medium and long term, reputable credit institutions may choose to add stock options on the international market, increase their financial capacity, create pressure to apply international practices and the best accounting standards in business administration; to create a connection between domestic and foreign capital markets, contributing to stabilizing the domestic capital market. These options will help control and oversee cross-ownership of CIs.

In general, the cross-ownership of credit institutions in our country is still a "chaotic" story by many subjective and objective reasons. But dealing with this problem can not be "calm" as before because the process of global integration has been very exciting, many foreign banks landed in Vietnam, if the banking system is not strong will be difficult to compete, not to mention attracting investors, buying shares. Therefore, transparency, publicity, and compliance with legal standards are prerequisites for the cross-ownership of credit institutions that still exist but are "safe in existence" in our financial system.

By Bình Nam/ Huu Tuc