Limit Credit Risks with Collateralized Bank Finance

According to experts, along with strict regulations on credit limits for a group of customers at the Credit Institutions Law (Amendment) 2024, banks must proactively collaborate and finance large-scale projects to limit concentration risks and share benefits.


At the seminar on “Credit Institutions Law (amended): Effective Allocation of Resources” organized by VnEconomy on February 3, experts and market participants raised a number of viewpoints to prevent cross-ownership, manipulation of banks, and limit credit concentration risks at banks.


Article 55 of the Credit Institutions Law (amended) 2024 stipulates: the ownership ratio of a shareholder is reduced from 15% to 10% of the charter capital of the credit institution; the ownership ratio of shareholders and related persons is reduced from 20% to 15% of the charter capital of the credit institution.

According to lawyer Truong Thanh Duc, Director of An Vi Law Firm, to avoid negative consequences and banking crises that pose risks to the entire system, it is necessary to focus on addressing several issues. Firstly, the ownership ratio of shares. When shareholders and related parties hold a large ownership ratio, they will naturally dominate the banking activities. Secondly, the lending ratio, and thirdly, governance and management.

“Compared to the world, the ownership ratio of banks in Vietnam has been tightly controlled, but there have still been cases of bank manipulation and many valuable lessons to learn from. Therefore, it is necessary to closely manage all stages. With the amended Credit Institutions Law, the ownership ratio of individual shareholders remains unchanged, still 5% per person, but the ownership ratio of related individuals or organizations/legal entities is reduced,” lawyer Truong Thanh Duc said.

Mr. Duc emphasized that it is not only about limiting the ownership ratio, but also the detailed regulations in the implementation guidelines of the law need to be designed to control the source of contributed capital of shareholders. “If the money is contributed by shareholders to the bank, it is very positive, but in reality there are cases where the capital is inflated or falsely boosted – meaning the owners withdraw money from the bank account and then give it to the person whose name is on the list of shareholders of the credit institution,” lawyer Truong Thanh Duc pointed out a common situation.

In addition, Article 49 of the Credit Institutions Law (amended) also supplements regulations on providing and disclosing information to shareholders owning 1% of the charter capital of the credit institution.

Article 210 on transfer of shareholding allows shareholders and related persons to continue holding shares exceeding the regulated ratio, but a schedule of divestment must be in place.

Nguyen Quoc Hung, Deputy Chairman of the Vietnam Banks Association, assessed that these regulations will have a positive impact in preventing cross-ownership and bank manipulation.

For example, in the case of Saigon Commercial Bank (SCB), in fact, one individual held over 90% of the bank’s shares through hundreds of people acting as nominees, but the regulatory authority did not know who the representative was until an investigation was launched.

“Shareholders owning 1% of the capital must also disclose transparent information so that management agencies and the public know their strength. Whether the money they contribute to the bank is real or not. Through the information to be disclosed, such as personal information, occupation, financial situation, the management authority can identify the nominees,” Mr. Hung analyzed.

Agreeing with the Deputy Chairman of the Vietnam Banks Association, lawyer Truong Thanh Duc said that if a person has never paid personal income tax but owns 1-2% of the bank’s capital, people will find out.

“All lists of bank shareholders, customers with large outstanding loans accounting for 10% or 20% of the total outstanding loans must be publicly announced on the website of the bank and the regulatory authority in order to truly supervise,” Mr. Duc expressed his opinion.

Although it doesn’t have external shareholders as it is 100% state-owned, the Vietnam Bank for Agriculture and Rural Development (Agribank) is also actively reviewing related persons who hold management and executive positions to disclose information in accordance with the new regulations.

In addition, Nguyen Quoc Hung has repeatedly emphasized that to effectively handle the manipulation of banks, it is necessary to enhance the supervisory role of the Board of Directors and the Board of Supervisors at credit institutions.

“The number of independent members of the Board of Directors of credit institutions needs to be increased. Independent members of the Board of Directors and the Board of Supervisors must monitor the implementation of resolutions of the General Meeting of Shareholders. Any decisions of the Board of Directors and the Executive Board that are incorrect or inconsistent with the resolutions of the General Meeting of Shareholders must be reported promptly,” Mr. Hung recommended.


Article 136 of the Credit Institutions Law (amended) reduces the credit limit ratio for customers from 15% to 10% of the bank’s own capital for commercial banks, branches of foreign banks, people’s credit funds, and microfinance institutions according to the roadmap until 2029; reduces the credit limit ratio for customers from 25% to 15% of the bank’s own capital for non-bank financial institutions according to the roadmap until 2029.

According to experts, with the new regulation, credit institutions will have to diversify their credit portfolio and minimize concentration risks. This regulation aims to reduce credit limit for related customer groups, helping to develop sustainable lending activities in the long run. However, in the short term, banks lending to related customer groups will face pressure to restructure their loans…

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