One example of cross-banking ownership is SCB- Van Thinh Phat.

When the Vietnam National Assembly's delegates reviewed the draft amended Law on Credit Institutions in the group during the 5th session of the 15th National Assembly, cross-banking ownership became a heated topic.

"Underground waves" of cross-ownership

Members of the National Assembly have proposed that the government adopt drastic measures to limit  cross-ownership in the country's banking industry in order to maintain a healthy system.

According to Mr. Ha Sy Dong, Vice Chairman of the People's Committee of Quang Tri Province, cross-ownership, manipulation, group interests, "backyard" loans, etc. in the banking industry are intricate and concerning. There are hazards associated with increasing virtual capital through investment loans and mutual capital contributions.

Mr. Nguyen Hai Nam, a member of the National Assembly Economic Committee, expressed worry regarding bank and financial business cross-ownership. Behind one bank is most likely another lender, and behind a financial corporation is another firm. "Vietnamese laws must be strict enough to deal with cross-ownership in banking and finance", said Mr. Nam.

Many economists believe cross-banking ownership is the result of the following factors:

First, there are various gaps in Vietnam's banking rules that allow for infractions and types of cross-ownership in the banking sector.

Second, the lack of senior management in firms forces banks to participate in borrower governance operations in order to monitor capital usage.

Third, major corporations frequently seek to diversify their investments by forming a new bank or acquiring bank shares. Businesses will be able to readily acquire large-scale bank loans at lower prices through the cross-ownership of banks.

More powers for banking inspectors

To limit  cross-ownership, the draft amended Law on Credit Institutions sets the share ownership ratios of individual shareholders, institutional shareholders, and their related persons at 3%, 10%, and 15%, respectively, compared to the current 5%, 15%, and 20%... However, such regulations are insufficient; further ones are required to prohibit cross-bank ownership.

Mr. Nguyen Hai Trung, Director of Hanoi City Police said the draft amended Law on credit institutions only decreases the ownership percentage of individuals and organizations, improves the popularity of credit institutions, and extends more connected object facets are required. The draft law, on the other hand, merely mentions technical methods to limit  huge stockholders. As a result, he requested that two more issues be considered. First, adopting rules to increase the State Bank of Vietnam's (SBV) involvement in limit ing abuses of large shareholder rights and governance rights to control credit institution operations. Second, further ways to limit  law evasion are required, such as utilizing many other persons in the name of shares to form a group of major shareholders to manage credit institutions.

Ownership is not the issue, according to Lawyer Truong Thanh Duc, Director of ANVI Law Firm, but loan supervision is another one. The owner who controls 70% of the bank's capital but appropriately directs the loan is not as harmful as the owner who owns just 5% of the bank's capital but makes improper loans. As a result, the State Bank of Vietnam (SBV) must establish a framework to monitor and punish unlawful lending conduct.

Currently, due to unlawful access, the SBV's banking inspection and supervision agency cannot request information from persons unrelated to credit institutions, making it impossible for inspectors to understand the bank's status.

In Mr. Truong Thanh Duc’s opinion, it is critical to increase the function of the SBV's banking inspection and supervisory agency, allowing them to probe and even participate in criminal investigations. Because it is impossible for them to uncover cross-ownership in the banking industry without enhanced power.

"The banking inspection and supervisory agency must have evidence before recommending the police investigate. However, they cannot have evidence unless the investigating function is in place," Mr. Truong Thanh Duc explained.