Ownership tweaks show commitment to improve

The Law on Credit Institutions highlights the reduction of the maximum ownership rate for institutional shareholders at commercial banks, from 15 per cent of chartered capital to 10 per cent. How do you assess this change?

Le Hoai An, banking trainer and consultant

Banking manipulation issue has been a major concern for the State Bank of Vietnam (SBV) over the past decade. In particular, following the restructuring of Saigon Commercial Joint Stock Bank (SCB) in 2022, this effort has been further strengthened with a series of checks at commercial banks on potential misconduct in lending issues with related parties. These are seen as important steps to promote transparency and minimise financial risks.

This is a move showing that the SBV is continuing to step-by-step address the problem of banking manipulation, which has been a cancer for the banking sector for years. While banking manipulation has always been as sophisticated and complex as the ownership matrix in the SCB case, the positive side of the regulation is that it has created a mechanism that prevents new manipulators of those seeking to acquire bank shares.

At the same time, the regulations are flexible in allowing existing institutional shareholders with ownership over the regulatory threshold to have time to adjust without creating troubles across the industry.

Therefore, the SBV’s steps are essential to implement the restructuring of the banking system step by step in a sustainable way. We have to put the safety of the system first, as we steadily make the adjustments through each stage.

Which bank groups could be affected by this regulation?

According to SBV statistics, there are currently 17 shareholders of 13 banks whose ownership ratio exceeds 15 per cent. This suggests that the concentration of equity power in the hands of some operating businesses in commercial banks can create potential risks.

The fact that some businesses hold high share percentage in commercial banks, while Vietnam’s annual credit growth rate remains high, not only affects healthy competition in the banking sector, but can also create financial and economic instability, if not rigorously regulated.

Banking is a vital sector of the economy and benefits greatly from the trend towards retail, where credit for individuals and smaller businesses needs to play a key role. Commercial banks with good business models and good financial health will benefit greatly from the retail shift trend over the last 10 years, reflected in high credit growth and net interest margins (NIM).

Meanwhile, banks with non-retail-oriented banking business strategies will begin to shrink, not only in terms of profitability but also in competitive advantage. Unsustainable business model could be the root of uncertainty for the system.

Statistics of credit growth and NIM levels of the current listed banks are divided into two groups. Based on a five-year average NIM of more than 3.1 per cent, there will also be some banks with much lower NIM rates and lower credit growth. Banks that are not critical often fall into low NIM, or low credit growth, or both. That’s the group worth paying attention to.

What are your recommendations to improve the market manipulation situation?

The ownership changes show the industry’s commitments to reducing banking manipulation. Most importantly, credit flow governance and management must be improved internally and by the SBV’s supervisory activities. Bank manipulation aims to access huge capital resources of the bank for their illegitimate purposes.

The SBV must control commercial bank loans and deposits to affiliated banks that can manipulate the bank. Bank cash flow changes during high credit expansion or fall can help it determine whether bank credit is going to the economy or key shareholders’ purposes.

The SBV requires periodic financial reports to monitor money transfers and lending transactions with the above business groups. It can clearly assess deposit and loan flow by collecting and analysing these reports, identifying system concerns. We can perfectly increase our monitoring of large clients’ savings and loans for continuous monitoring, especially in institutions with high manipulation risk.

Big data and AI will help the SBV track stakeholder financial flows. Not to mention that technology can completely identify the ownership structure of the organisations involved. It can identify warning signs in business cash flow changes. The ownership structure, management structure, and stakeholders will all be involved, which will swiftly expand the range of tracking and rapid detection of misconduct for inspection into the operation.

Banking sector focuses on credit institution restructuring associated with bad debt settlement The banking sector should take more drastic measures to restructure credit institutions in association with the settlement of bad debts to contribute to curbing inflation and stabilising macro-economic factors, according to insiders.

Central bank asks credit institutions to reduce interest rates The State Bank of Vietnam (SBV) has sent a document to credit institutions and branches of foreign banks and SBV in provinces and centrally-run cities regarding the reduction of interest rates.