Banking mogul Nguyen Duc Kien’s case is a typical example of dangerous cross ownership, one official has said.

Cross ownership adds risks to the banking system

SBV’s Deputy Governor Dang Thanh Binh made the comment at a press conference on November 20 prior to the international meeting on financial stability and the role of financial supervision in varying environment.

According to Binh, there were no regulations that ban shareholders from holding shares in either multiple banks or banking institutions from holding shares in each other.

“Cross ownership does not foster healthy competition and transparency, but adds risks to the banking system,” he emphasised.

He said that the SBV is taking two measures to deal with the situation. The first one is to clarify the ownership structure of banks.

To this end, the SBV is inspecting the finances and ownership of 30 out of 39 commercial banks.

There are currently two social policy banks, 14 wholly foreign invested banks and their branches and six banking joint ventures in Vietnam, he noted.

The next step is to issue new regulations to strictly tackle inadequacies in banking ownership. Regulations on banking cross ownership are expected to be issued and take effect from next year.

In relation to the case of Kien and the ACB Bank, Binh said that the situation developed as a result of cross ownership.

The SBV is assessing the share ownership and financial situation at ACB and the results will act as the basis to work out measures to deal with the bank’s major shareholders. The SBV will reach a final decision on the case at the conclusion of the inspection, he added.

Dr Dinh Tuan Minh, author of a report on macroeconomic situation for 2012 recently stated that banking cross ownership and banks backed by state owned economic groups had reached an alarming level.

Minh said that even though not all forms of cross ownership are negative, when major shareholders in commercial banks are also big shareholders in enterprises, there is too much temptation for banks to be milked for cash at better rates in the interest of often unprofitable companies.

Banking cross ownership also encourages easy access to credit for corporate shareholders leading to poor risk management. This could result in increased bad debts in the banking sector, he noted.