The legal capital of a bank in Vietnam is currently VND 3,000 billion, as stipulated in Decree No. 141/2006/ND-CP. However, to ensure safety ratios in the context of a rapidly growing economy and fierce competition, most banks have increased their charter capital by tens of times the minimum requirement.
To achieve the impressive charter capital they hold today, many banks have opted to forego cash dividend payments for several consecutive years.
At the seminar “Building a Sustainable Financial Group in Vietnam” held on December 5, lawyer Truong Thanh Duc, Director of ANVI Law Firm, opined that the owners of joint-stock commercial banks often tend to increase their ownership ratio. As a result, the increase in capital mostly comes from individuals, and many shareholders even contribute capital that is essentially personal in nature.
According to Mr. Duc, this has led to a situation where, during certain periods, it is estimated that more than half of the joint-stock banks are controlled by a handful of individuals.
Lawyer Truong Thanh Duc (center): During certain periods, it is estimated that more than half of the joint-stock banks are controlled by a handful of individuals. Source: VietTimes. |
However, unlike the roadmap for reducing credit extensions (from 15% to a 1% annual reduction to 10% of equity by 2029, and similarly reducing the outstanding balance for each group of customers and related parties from 25% to 15%), there is no specific roadmap for reducing ownership, and the State Bank is given full authority.
The Law on Credit Institutions of 2024 stipulates that individual shareholders can own a maximum of 5% of a bank’s charter capital, while institutional shareholders cannot own more than 10%. Credit institutions are also required to publicly disclose the list of shareholders owning 1% or more of the charter capital. This helps to ensure transparency in the supervision of banks. However, as of now, only 23 banks have complied with this regulation.
“A person who is not subject to personal income tax but is a shareholder holding 1% of a bank’s capital, and a company related to the owner borrowing a lot of money from the bank—if this information is made public in detail, the public will see it, and the authorities will have to look into it immediately. However, if there are 10 shareholders, each holding just under 1%, the total amount is almost double the limit for an individual shareholder, and they are not subject to public disclosure, which means they are not closely monitored,” said lawyer Truong Thanh Duc.
According to him, without tight control, it is easy for interwoven, interconnected, and collusive ownership to occur.
Mr. Pham Xuan Hoe, former Vice President of the Banking Strategy Institute, Vice Chairman and General Secretary of the Vietnam Finance and Leasing Association, said that if a bank belongs to the ecosystem of a financial group, it will be able to take advantage of each other’s strengths. However, the limitation is that there are still intricate cross-ownership issues, and in conditions of lack of transparency, it is extremely difficult to control. Along with this is the easy channeling of capital to backyard companies, creating systemic risk, internal favoritism to circumvent the law, and lack of transparency.
“The ecosystem of a state-owned financial group is simpler and purely focused on the financial sector. In contrast, the ecosystem of a private financial group has a more complex structure, with many non-financial subsidiaries, including real estate companies,” said Mr. Pham Xuan Hoe.
Sharing at the seminar, Dr. Le Xuan Nghia, a member of the National Financial and Monetary Policy Advisory Council and former Vice Chairman of the National Financial Supervision Commission, emphasized that transparency is one of the most important requirements of the Law on Credit Institutions of 2024. However, it is not easy to verify the source of contributed capital to ensure transparency due to the overall low level of transparency in society.
According to Dr. Nghia, without real administrative and legal reforms, there will continue to be a lack of transparency, as seen in the case of SCB Bank.
According to financial and banking expert Dr. Nguyen Tri Hieu, the Law on Credit Institutions sets a lower ownership ratio for individuals than for legal entities. Shareholders can circumvent ownership regulations by asking others to hold shares on their behalf.
“But this is usually not hidden from the authorities. If they want to be decisive, they can investigate who is related to whom in the bank—it’s not difficult,” said Dr. Nguyen Tri Hieu.
Dr. Hieu suggested that the Decree guiding the Law on Credit Institutions of 2024 could introduce sanctions, such as revoking the license of a bank that repeatedly violates the regulations, for instance, three times.
By Tuan Nguyen
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