Jun 06, 2018 / 14:45

Central bank extends deadline to tackle cross-ownership

The State Bank of Vietnam (SBV) has proposed to extend the time limit set for addressing the excessive shareholding for another year until June 30, 2019 through a new draft circular.

Extending time limit

Under the Circular No.06, the SBV requested credit institutions to coordinate with shareholders with excessive shareholding in working out a plan to reduce the excessive stakes by December 31, 2015.
Illustration photo.
Illustration photo.
The SBV, however, has now proposed a transition period for credit institutions with excessive shareholding in a new draft circular that modifies Circular No.06. 

The new draft law's objective is to regulate the time limit, order and procedures for transition applicable to major shareholders or groups of affiliated shareholders of a credit institution that own 5% charter capital or more at another credit institution.

The move is aimed to create a legal framework to restrict and prevent cross-ownership, improving transparency of the source of capital at a credit institution.

By June 30, 2019, all concerned parties must ensure that the holding of such shareholders or groups of affiliated shareholders in such credit institutions have to comply with the revised Law on Credit Institutions.

After the mentioned deadline, if the party in subject has not managed to comply with permitted share limit, SBV will apply proper measures.

Consequently, the regulator will refuse to approve the plan to appoint members of the Board of Directors and the Supervisory Board, or designate the Director General of the credit institution. Shareholders or related shareholder group currently owning excess shares are barred from increasing the amount of shares owned in a credit institution and from receiving cash dividends (if available) on the amount of excess shares until they manage to comply with the permitted ownwership limit in accordance with regulations, among others. 

The revised Law on Credit Institutions provides that an individual shareholder may not own more than 5% of charter capital at a credit institution, not over 15% for an institutional shareholder, and not over 20% for a shareholder and its affiliated persons. More importantly, a major shareholder of a credit institution and its related group may not own 5% or more of another credit institution. 

Delay in divestment 

Two years since the deadline of December 31, 2015, banks' divestment process is still behind schedule, in spite of the revised Law on Credit Institution in place. 

The divestment effort, however, has been stepped up in the last six months. Recently, Vietcombank has divested its capital in OCB, Saigonbank and Cement Finance Company (CFC). Vietcombank now holds an 8.19% stake at Eximbank and 6.97% at MBBank. In early 2018, Eximbank successfully withdrew its holding from Sacombank, raising VND400 billion (US$17.58 million) in return. 

By the end of 2017, there had not been any individual shareholder that owned over 5% of charter capital in the banking system, informed SBV Governor Le Minh Hung. 

The number of bank pairs with cross-ownership in 2017 rfell to two only from five pairs in the two previous years, while bank ownership with businesses only remained two pairs compared to 56 pairs earlier, informed SBV.

Restricting cross-ownership is a matter of transparency, said Nguyen Xuan Thanh, Director of the Fulbright Economics Teaching Program. The issue, thus, would lead to difficulties in regulating the capital flow, while banks may exploit its cross-ownership to manipulate market and cause risks for customers, Thanh added.

Nevertheless, cross-ownership is a complicated matter, which is difficult to detect and supervise, requiring a thoroughly investigation to tackle. The SBV, in this case, has beefed up efforts in dealing with cross-ownership, requesting shareholders to address their infringements drastically.