Cracking down on cross-ownership of banks

Monday, 2016-02-29 18:57:32
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Many commercial banks are under pressure of disinvestment to obey the regulations on ownership limits
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NDO - Commercial banks are actively reducing cross-ownership in other credit institutions by selling cross owned stakes or restricting the buying of stakes in accordance with the State Bank of Vietnam's circular No.36 on safe ratios in operations of credit institutions. 

According to the circular issued in late 2014, commercial banks owning shares in more than two credit institutions must have carried out disinvestment to abide by the rules before February 1, 2016. It also regulates that a commercial bank can only hold shares in no more than two credit institutions except its subsidiaries. In addition, the circular limits a bank's holdings at 5% of a credit institution's stakes, except for special cases.

There remain several commercial banks under pressure of disinvestment to obey the regulations on ownership limits including Vietcombank, Eximbank, Southernbank, Saigonbank, and MaritimeBank among others.

Maritime Bank sold 64.2 million shares in Military Bank to Dragon Capital on February 19, 2016 to earn nearly VND1 trillion (US$45 million), reducing its ownership in Military Bank to 4.96% instead of 8.97% , congruent with the rules on ownership limits.

Maritime Bank invested in Military Bank shares at a rate of 8.86% since 2011. At the same time, it owned a 10.16% stake in Mekong Bank and an 11% stake in the Textile Finance Company. The mergers of Mekong Bank with Maritime Bank addressed cross-ownership issues at the banks.

Meanwhile, Eximbank owned a 9.6% stake in Sacombank and the rate was reduced to 8.76% in late 2015. The bank will continue to carry out disinvestment in Sacombank to lower its ownership to below 5%.

After more than a year implementing the circular No.36, many banks are now in breach of the Central Bank's rule and have yet to disinvest as regulated.

Vietcombank is an example, which is holding stakes in four banks and a financial company. Vietcombank is holding more than a 9.6% stake in Military Bank; 8.24% stake in Eximbank; 5.07% stake in Orient Commercial Joint Stock Bank (OCB); 8% stake in Saigonbank and 10.9% stake in Cement Finance JSC.

The stagnant disinvestment was attributed to the bleak stock market, declining prices of banking shares, high non-performing loans and high provisions, resulting in heavy losses if carrying out divestment.

The ownership cap of 5% was set to restrict large shareholders, cross-ownership and the manipulation of bank operations. However, it has been shown that bank shareholders can break the ownership rules by transferring their stakes to other organisations or individuals to ensure the ownership rate under 5% for their benefits. Whether bank stakes are being sold transparently or not has been a question raised during the disinvestment process.

State Bank Deputy Governor, Nguyen Phuoc Thanh said that the State Bank would crack down on cross-ownership in the future, advising weak banks to seek partners to carry out mergers to erase cross-ownership.