Central bank to end cross-ownership in local banks

The State Bank of Vietnam (SBV) has set a target to stop cross-ownership among credit institutions (CIs) by the end of 2020.
Central bank to end cross-ownership in local banks ảnh 1State-owned enterprises still hold more than 15 percent of Saigonbank’s charter capital. (Source: Saigon Bank)

Hanoi (VNS/VNA) - The State Bank of Vietnam (SBV) has set a targetto stop cross-ownership among credit institutions (CIs) by the end of 2020.

Under Circular No 46/2018/TT-NHNN, which will take effect from March 1 thisyear, major shareholders of a CI and their relatives will not be allowed tohold more than 5 percent of charter capital in another credit institution fromDecember 31, 2020.

Major shareholders and their relatives are also prohibited from increasingtheir stake holdings in any CI in any form, except for special cases regulatedby the central bank.

In addition, CIs are not permitted to lend to major shareholders and theirrelatives after 90 days from the effective date of the new circular untilshareholders meet regulations on holding less than 5 percent of another CI’scharter capital.

According to analysts, the favourable stock market and the country’s positiveeconomic growth had helped some large banks, including Vietcombank, step updivestment from other financial institutions to meet the new regulation.

At the end of 2018, Vietcombank officially completed a plan to reduce itsholding ratio at other CIs, including Military Bank, Eximbank, Saigon Bank, OCBand Cement Financial Company to meet the central bank’s requirements.

According to SBV Governor Le Minh Hung, the bank had directed and supervisedCIs to resolve cross-ownership through share transfer and divestment and mergersand acquisitions in recent years, which had helped reduce cross-ownershipsignificantly.

SBV data showed that the number of pairs of CIs with direct cross-ownership haddecreased from seven in 2012 to one.

Direct share ownership between banks and enterprises also decreased from 56pairs in June 2012 to four: including Eximbank with Viet Dragon SecuritiesCompany, ABBank with An Binh Securities Company, Sacombank with Ben Tre Importand Export Joint Stock Company and Orient Joint Stock Commercial Bank (OCB)with Vien Dong Insurance Company.

For violations of share ownership, Saigonbank, PGBank, Bao Viet Bank andPVcomBank have shareholders which are State-owned enterprises owning more than15 percent of the banks’ charter capital.

Saigonbank, PG Bank and Bao Viet Bank, still have groups of shareholdersrelated to each other owning over 20 percent of the banks’ charter capital.

According to a SBV representative, who declined to be named, cross-ownershipand the problem of dominant shareholder groups had basically been controlledbut was not yet resolved. The main reason was that the settlement ofcross-ownership was actually a matter of transferring shares, so the CIs, whichwere public companies and listed on the stock exchanges, needed a step-by-stepimplementation schedule to determine the time, price and suitable investorswith an aim to ensure maximum benefits for both the CIs and the State.

However, expert Bui Quang Tin said strict regulations on cross-ownership werenecessary to speed up the settlement, as the practice had a negative impact onthe banking system, evident in the high ratio of non-performing loans.

Due to cross-ownership, many banks had increased their charter capital toseveral trillion Vietnamese dong; however, the figures were unrealistic as theycame from loans from other banks. – VNS/VNA
VNA

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