The State Bank of Vietnam (SBV) has instructed banks to clearly detailtheir plans for the capital withdrawal of parties whose stakes haveexceeded caps.
The central bank has noted that the withdrawal must be completed no later than the first quarter of next year.
"Thespecific amount of time for handling the capital withdrawal depends onthe process of restructuring at each bank; however, they must meet thedeadline," remarked Nguyen Hoang Minh, Deputy Head of the central bank'sHo Chi Minh City branch, as quoted by Phap Luat TP HCM (The HCM CityLaw) newspaper.
The HCM City Law newspaper reported, while citingSBV's sources, that there are five commercial banks where individualshareholders own more than 5 percent of the charter capital each andfive commercial banks where institutional investors hold more than 15percent of the charter capital.
As many as eight commercial banks have shareholder groups and related parties that own over 20 percent of the charter capital.
Industryexperts have pointed out that the loss of control over ownership hasled to the manipulation of these banks in ways that conflict with groupinterests.
The central bank has claimed it will undertake strictsupervision of stake-related activities, such as transferring orincreasing shareholdings. If anyone is found contravening the law, heavypenalties will be imposed.
Economist Vu Dinh Anh said the real question was whether the central bank could control the issue across the board.
"Penalties will depend on the complex nature of each case, the suspects, and the related parties," Anh noted.
In an attempt to hinder bank manipulation efforts, the SBV hasreleased the draft of a new circular to suppress the increasinglysophisticated "familisation" seen at credit institutions, which isultimately intended to tackle bad debt and improve the security of thesystem.
The draft, which is pending public feedback, declaresthat the total credit limit granted to founding shareholders, majorshareholders, family members and related parties must not exceed 5percent of the charter capital of a credit institution.
Creditlimits for major shareholders and their family members must also notexceed their face-value-based capital contribution to the banks.
Thedraft restricts credit institutions from granting privileged loanswithout collateral to auditing companies, auditors, chief accountants,major shareholders, founding shareholders, subsidiaries, companies orthose who have established certain relationships with the bank.
Credit institutions must report such lending plans to the shareholders, owners and the central bank.
Inanother attempt to soften the illusion of bank capital and improve thetransparency of capital flows, the draft requires credit institutions toreport actual charter capital every six months.
The actual charter capital is determined after taking out risk provision funds and calculating all income and expenditure.
Ifthe value of the actual charter capital is lower than the legislativecapital, banks must draw up solutions and report these to the centralbank. If the actual charter capital falls below 80 percent of thelegislative capital, the SBV will apply measures to restrict theoperations of the banks.
In fact, cross-shareholding issues havecomplicated the process of restructuring the vulnerable banking system.The entire system was recently on the verge of a crisis following manyyears of excessive credit growth and easy lending to State corporations,along with cross-shareholding issues.
Financial reform is one ofthe three pillars in a programme of economic restructuring that Vietnamunveiled in late 2012. If the deep-seated problems in the bankingsystem cannot be resolved effectively, the progress of the entireeconomic reform programme might face long delays.-VNA
The central bank has noted that the withdrawal must be completed no later than the first quarter of next year.
"Thespecific amount of time for handling the capital withdrawal depends onthe process of restructuring at each bank; however, they must meet thedeadline," remarked Nguyen Hoang Minh, Deputy Head of the central bank'sHo Chi Minh City branch, as quoted by Phap Luat TP HCM (The HCM CityLaw) newspaper.
The HCM City Law newspaper reported, while citingSBV's sources, that there are five commercial banks where individualshareholders own more than 5 percent of the charter capital each andfive commercial banks where institutional investors hold more than 15percent of the charter capital.
As many as eight commercial banks have shareholder groups and related parties that own over 20 percent of the charter capital.
Industryexperts have pointed out that the loss of control over ownership hasled to the manipulation of these banks in ways that conflict with groupinterests.
The central bank has claimed it will undertake strictsupervision of stake-related activities, such as transferring orincreasing shareholdings. If anyone is found contravening the law, heavypenalties will be imposed.
Economist Vu Dinh Anh said the real question was whether the central bank could control the issue across the board.
"Penalties will depend on the complex nature of each case, the suspects, and the related parties," Anh noted.
In an attempt to hinder bank manipulation efforts, the SBV hasreleased the draft of a new circular to suppress the increasinglysophisticated "familisation" seen at credit institutions, which isultimately intended to tackle bad debt and improve the security of thesystem.
The draft, which is pending public feedback, declaresthat the total credit limit granted to founding shareholders, majorshareholders, family members and related parties must not exceed 5percent of the charter capital of a credit institution.
Creditlimits for major shareholders and their family members must also notexceed their face-value-based capital contribution to the banks.
Thedraft restricts credit institutions from granting privileged loanswithout collateral to auditing companies, auditors, chief accountants,major shareholders, founding shareholders, subsidiaries, companies orthose who have established certain relationships with the bank.
Credit institutions must report such lending plans to the shareholders, owners and the central bank.
Inanother attempt to soften the illusion of bank capital and improve thetransparency of capital flows, the draft requires credit institutions toreport actual charter capital every six months.
The actual charter capital is determined after taking out risk provision funds and calculating all income and expenditure.
Ifthe value of the actual charter capital is lower than the legislativecapital, banks must draw up solutions and report these to the centralbank. If the actual charter capital falls below 80 percent of thelegislative capital, the SBV will apply measures to restrict theoperations of the banks.
In fact, cross-shareholding issues havecomplicated the process of restructuring the vulnerable banking system.The entire system was recently on the verge of a crisis following manyyears of excessive credit growth and easy lending to State corporations,along with cross-shareholding issues.
Financial reform is one ofthe three pillars in a programme of economic restructuring that Vietnamunveiled in late 2012. If the deep-seated problems in the bankingsystem cannot be resolved effectively, the progress of the entireeconomic reform programme might face long delays.-VNA
