Is it really effective?

To address cross-ownership, experts suggest that supervision is needed, along with regulations and sanctions corresponding to the percentage of violations, and criminal prosecution should be pursued if there are signs of deception.

At its 5th session, the National Assembly gave its first opinion on the draft Law on Credit Institutions (amended), in which the issue of reducing the shareholding ratio of individual shareholders, institutional shareholders, and shareholders and their related parties from 5%, 15%, and 20% to 3%, 10%, and 15% respectively was hotly debated by the delegates.

Many National Assembly deputies believe that introducing regulations to reduce shareholder ownership ratios and decrease credit limits for a single customer/group of customers only addresses the "symptoms" of cross-ownership…

The situation regarding cross-ownership, manipulation of banking operations, and "backroom" lending is becoming increasingly complex. (Source: VNA)

Is it possible to curb cross-ownership?

According to a report by the State Bank of Vietnam, the reduction in shareholding aims to limit the manipulation of banking operations and restrict cross-ownership.

However, Associate Professor Dr. Dang Van Thanh, Vice Chairman of the National Assembly's Economic and Budget Committee of the 11th term, wondered how this issue would be resolved in practice? Would reducing the shareholding ratio address the fundamental problem?

According to Mr. Thanh, the drafting agency needs to provide a convincing explanation for the basis of these figures or the negative impact of reducing the shareholding ratio in credit institutions, instead of simply arguing that it is unique to Vietnam.

In fact, no banking law in the world addresses cross-ownership as it does in Vietnam. Regulations against cross-ownership under international practices also do not mention such a ratio. Most importantly, the draft Law on Credit Institutions should comply with international practices. Therefore, the drafting agency needs to assess and clarify whether the causes of cross-ownership stem from legal regulations or from the implementation process, thereby making sound and truly effective decisions.

According to Mr. Thanh, lowering this ownership ratio only addresses the "surface" issue; it's a passive solution and lacks sufficiently strong sanctions to deal with violations. Meanwhile, to limit cross-ownership in credit institutions, regulatory agencies must ensure transparency and strictly punish the organizations and individuals involved.

Associate Professor, Dr. Dang Van Thanh argues that combating cross-ownership is not about the 5% or 3% shareholding ratio, but rather about the monitoring mechanism and public reporting to identify the legal entities involved and controlling the banking operations. SCB Bank is a prime example.

According to Mr. Thanh, cross-ownership is a mobile, even invisible, target. To counter this mobile target, the draft Law on Credit Institutions only directs its "cannon" towards a fixed point, an unchanging constant in ownership ratio, resulting in missing the target.

"Cross-ownership seems to be a 'specialty' of Vietnam. This is because the Banking Law and other related laws in many countries seek to establish a dense, early-stage risk prevention network to catch cross-ownership. Even in most countries, such as the US, UK, and China, a peak-twin model has been established, placing banks under supervision not only of the Central Bank but also of another prudential supervisory body."

Laws in other countries limit the maximum ownership percentage due to antitrust principles, rather than seeking to lower it to address cross-ownership as is the case in our country. Many countries even allow an individual and related parties to own up to over 20% of the shares, provided they hold the top leadership position,” Mr. Thanh emphasized.

This has repercussions for the stock market.

According to Mr. Thanh, reducing the shareholding ratio could have practical consequences, negatively impacting the stock market in the short term.

Mr. Thanh further explained that currently, the market capitalization of banks is growing larger, with many commercial banks listed on the stock exchange and exceeding 100,000 billion VND in market capitalization. Meanwhile, the trading volume of the Vietnamese stock market has not improved. This leads to the market being unable to absorb the huge amount of capital from the reduction in ownership ratios, and a simultaneous reduction in ownership ratios by credit institutions would seriously affect the market.

Reducing the percentage of share ownership could have practical consequences, negatively impacting the stock market in the short term. (Source: VNA)

Furthermore, this provision in the draft law is inconsistent with the concept of a major shareholder as defined in Article 4 of the draft law. Article 4 defines a major shareholder as a shareholder holding 5% of the capital of a credit institution. Comparing this with the Enterprise Law and the Securities Law, it becomes clear that major shareholders have an obligation to disclose information, contributing to increased transparency in the operations of credit institutions.

Therefore, when the draft Law on Credit Institutions reduces the shareholder ownership ratio to 3%, it means they are not required to disclose information as major shareholders. Does this ensure transparency and openness?

Furthermore, this regulation could lead to the dispersion of capital from major shareholders of one bank to other banks, subsequently forming alliances of major shareholders of banks, potentially stifling competition among credit institutions and eliminating healthy competition in the market.

Close supervision is needed.

Therefore, according to Mr. Thanh, to address the issue effectively, the model of financial supervisory and inspection agencies related to banks should be reformed, and regulations should be established with corresponding sanctions based on the percentage of violations. Those who commit minor violations could face administrative penalties, while those with signs of deception should be prosecuted criminally.

"Furthermore, banks that do not declare truthfully should have their operating licenses revoked. We need to solve economic problems through economic means and economic sanctions," Mr. Thanh said.

On the other hand, an assessment is needed regarding the functions and responsibilities of the National Financial Supervision Committee, which acts as an advisory body to the Prime Minister in coordinating the supervision of the national financial market (banking, securities, insurance); assisting the Prime Minister in overall supervision of the national financial market...; and placing credit institutions under the supervision of the Central Bank alongside other supervisory bodies.

“Along with improving inspection, supervision, and handling of credit activities, regulatory agencies also need to strictly enforce transparency and openness in transactions. Regulations in this direction would not necessarily reduce shareholding ratios or funding limits; in fact, they could even allow higher funding limits to prevent organizations and individuals from engaging in cross-ownership between their businesses and banks. Simultaneously, strong sanctions should be implemented to severely punish violations,” recommended Associate Professor, Dr. Dang Van Thanh.

Source: https://baoquocte.vn/giam-ty-le-so-huu-co-phan-tai-ngan-hang-co-thuc-su-hieu-qua-235311.html