After six years of promoting restructuring and eliminating cross-owned “gridlock” in the banking system, this situation has decreased significantly. According to the SBV Governor Le Minh Hung, the number of direct cross-ownership pairs has decreased from seven pairs to one pair. Direct share ownership between banks and businesses also decreased noticeably, from 56 pairs six years ago to two pairs. The proportion of shareholders owning more than 15 percent of charter capital also declined to only one bank, compared with 19 banks previously.
“SBV has drastically settled the direct cross-ownership, but the divestment depends on finding partners and the timing of the divestment also needs to be carefully calculated to preserve state capital”, Governor Le Minh Hung said. According to the Project of Restructuring the banking system until 2020, each bank will build a roadmap and plan. Therefore, cross-ownership in the banking system will be dealt with in the near future.
That is the reason why banks have recently started to divest to meet Circular 36/2014/ TT-NHNN. Vietnam Bank for Agriculture and Rural Development (Agribank) has announced that it will auction more than 468,000 shares at Orient Commercial Joint Stock Bank (OCB). Meanwhile, Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) and Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) also boosted the divestment from other credit institutions (CIs). Specifically, Vietcombank withdrew all its equity in OCB after several auctions. Last time, Vietcombank auctioned all remaining OCB shares with nearly 1.48 million shares, starting price of 18,876 dong per share, collecting nearly 27.9 billion dong.
In addition to OCB, Vietcombank has divested from Cement Finance Corporation and Saigon Bank for Industry and Trade (Saigonbank). The bank and Vietinbank are also selling its shares in Vietnam Export Import Commercial Joint Stock Bank (Eximbank) and Military Commercial Joint Stock Bank (MBMBBank). VietinBank’s Board of directors unanimously approved the policy of divesting more than 15.1 million shares at Saigonbank, equivalent to 4.91 percent of the bank’s charter capital.
Commercial banks are only allowed to buy and hold shares of another CI under five percent of voting shares. Banks with equity ratios exceeding the limit must complete the divestment in mid-2019, so the remaining time is not much.
Financial expert Nguyen Van Thuan also said that the divestment under Circular 36 was an important regulation to control the bank along with the members of the board of directors and members’ council with “backyard” in the operation of credit extension and capital contribution.
Although cross-ownership status has fallen sharply, but the SBV Governor also acknowledges, there is still cross-ownership for intentional cases. The authorities must step up inspections to detect these violations.
In fact, banking cross-ownership may be reduced, but there is still somewhere “hiding” under many layers of interest in the coordination group. This still has the potential cause to the economy. Besides, the divestment of enterprises at credit institutions also faces many difficulties. For example, at the beginning of 2018, VNPT failed for the third time when it wanted to sell more than 71 million MSB shares because no investors registered to participate in.
According to experts, the reduction of cross-ownership should be directed, strong and more substantial for credit institutions to comply and help the system become healthier. Therefore, the inspection and supervision of SBV should be implemented strictly and in accordance with the law, in order to closely monitor the safety limits and ratios in banking operations. Moreover, with the support of information technology, the competent authorities such as SBV, the Ministry of Finance, the State Securities Commission can connect to promptly detect and correct data, information.
As regulated, from 2021, a major shareholder of a CI and related persons must not own shares in excess of five percent of other credit institutions’ charter capital.
Specifically, from March 1, 2019, Circular No. 46/2018/ TT-NHNN prescribes the time limit, order and procedures for transition for major shareholders of a CI and related persons of that shareholder owning shares of five percent or more of the charter capital of another CI will officially take effect. That is also the reason banks race to divest from other CIs recently.
Circular 46 also requires CIs to coordinate with major shareholders to review and determine the list of major shareholders and related persons of such shareholders owning shares of five percent or more of the charter capital of another CI. CI co-ordinates with other credit institutions and major shareholder groups to make a plan to deal with the over-ownership of shares, implementing the corrective plan at the latest by December 31, 2020. The percentage of share ownership of the major related shareholder groups complies with the Law on Credit Institutions (amended and supplemented). Therefore, with the minimum recovery plan, there must be a list of major related shareholders, remedial measures and roadmap.
In addition, from the effective date of the Circular, the major related shareholders are not allowed to increase the number of owned shares in the leading credit institution or other credit institutions in any form, except for: Receiving bonus by shares or dividends in shares, purchase of additional issued shares when the lead and other credit institutions increase their charter capital, but must ensure the share ownership ratio after the purchase complies with the limits in the Law on Credit Institutions.
The Circular also stipulates that the lead credit institutions and others are not allowed to issue new credits or credit extension (in case of granting credits) to the relevant major shareholders after 90 days from the effective date of this circular until the major shareholders concerned comply with the share ownership ratio stipulated in Article 55 of the Law on Credit Institutions (amended and supplemented). For other cases of over-ownership, they will be handled by SBV according to Circular No. 06/2015/ TT-NHNN.
Evaluating this new regulation, a banking expert said that SBV issued Circular 46, which was a very positive and decisive move in the process of gradually reducing cross-ownership status in the credit institution system. The strategy of developing banking industry up to 2025 and orientation to 2030 also aims to: “gradually process and eliminate cross-investment, cross-ownership and manipulative properties and coordination in related credit institutions; boosting non-core divestment of commercial banks.”
Handling cross-ownership status has been positive, but it should be frankly acknowledged that there are still many difficulties for banks. According to Bui Quang Tin, the difficulties are related to the re-calculation of the value of shares after the investment period.
Banking business is still expected to be positive, when many banks are listed on the stock market, the price is likely to increase, in case of divestment, it is less likely to suffer losses.
Assessing the situation in 2019, market observers said that the issue of cross-ownership in the credit institution system would have positive changes, because banks were also about to comply with international regulations. In particular, the banks are forced to meet Basel II standards in early 2020. At the same time, Vietnam has officially participated in Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) playground, receiving the participation of many foreign banks entering the financial market. This means an increasing demand for transparency, health, and compliance.
In fact, the process of restructuring the banking system has undergone phase I and is in phase II (2016-2020), with the task of focusing on promoting the modern, safe and multi forms, scales and types of ownership structure, highly competitive based on advanced technology and management skills.
At the same time, it will improve the dominant role of Vietnamese credit institutions, reorganise the operations of micro-credit institutions, create favourable conditions for foreign credit institutions to operate and compete equally in Vietnam. Completely handling cross-ownership status in the system is one of the important driving forces to accelerate this process.
