New banking guidebook to promote security

The launching ceremony was organised by the State Bank of Vietnam, International Finance Corporation (IFC), Netherlands Development Finance Company (FMO), and Dragon Capital Group. Representatives of 30 commercial banks in Vietnam attended the ceremony, along with various stakeholders.

The guidebook aims to help Vietnamese commercial banks improve oversight over and management of related-party transactions, as well as increase the transparency of such transactions. “Related party transactions” are business deals or arrangements between two parties apriori joined by a special relationship.

With the new guidebook, bank directors and senior management can find a source of best practices and examples on the execution of related party transactions. The booklet also contains suggestions on implementing these practices easily and effectively.

Experts attending the ceremony commented that the book might be truly helpful for banks, especially as derailed related party transactions have been the cause of some major financial scandals in recent years.

“Abusive related party transactions have significantly weakened the banking sector and challenge the integrity of the Vietnamese capital market. It is time commercial banks complied with the standards and practices regulating related party transactions,” said Nguyen Huu Nghia, chief inspector of the Banking Supervision Agency.

Likewise, IFC corporate governance officer Nguyen Nguyet Anh noted that related party transactions were often viewed prone to carry possible conflicts of interest.

“These transactions should be subject to rigorous review. It is a recommended practice that banks should outline their related party transactions policies as part of their governance policy framework,” said Anh.

Other experts stressed that a strong related party transactions environment and leadership ‘at the top’ was important for internal bank gatekeepers. As banks can have an impact on the Vietnamese economy as a whole, greater oversight would be necessary over the governance of each financial institution.

“Related party transactions, if not conducted at arm’s length, are a threat to the financial sector in many countries, not only in Vietnam,” said Marnix Monsfort, FMO manager of Financial Institutions in Asia. “Commercial banks thus must ensure that the terms and conditions of related party transactions should never be more favourable than transactions with non-related parties under similar circumstances.”

Echoing Monsfort’s viewpoint, chairman of Dragon Capital Group Dominic Scriven noted that the corporate governance reform was currently at the top of the agenda of regulators, institutional investors, and boards of directors. According to Scriven, good corporate governance, including a qualified and independent board of directors as well as the transparency of related party transactions, was always critical.