The law should be revised to improve the security of the banking system

VIETNAM, November 4 –

HÀ NỘI — The State Bank of Vietnam (SBV) plans to add many new regulations, including those related to cross-ownership, in the upcoming amended Credit Institutions Law to improve system security banking.

In a report of the SBV reviewing and studying the law on credit institutions published recently, the SBV stated that the implementation of the law revealed many shortcomings which need to be examined and amended to ensure the restructuring of credit institutions and continuously improve the legal framework for dealing with bad debts and ending cross-shareholdings in banks.

The revision should also supplement the legal regulations on monetary and banking activities to bring them in line with market principles.

According to the SBV, sanctions related to the restructuring of weak credit institutions will also be reinforced under the next amended law.

The SBV expects the change in the law to prevent cross-shareholdings and abuse of governance by major shareholders to manipulate the operations of credit institutions.

Accordingly, the SBV will reduce the holding ratio of a shareholder and its related persons to limit dominance and acquisition to ensure the publicity of the credit institution.

At the same time, the SBV will also amend and supplement the regulations on the organization, management and administration of credit unions.

With regard to improving the quality of operation of credit institutions, the SBV will reduce the credit limit ratio in addition to studying and revising other prudential ratios in the operations of joint stock credit institutions.

Regarding the restructuring of weak credit institutions, the SBV plans to modify several regulations to adapt to the practice of implementing special control regulations on weak credit institutions.

The SBV will add a number of new regulations, including exempting state inspectors and supervisors from liability from legal risks in the process of dealing with weak credit institutions, because dealing with weak credit institutions and specially inspected is a difficult and complicated matter, which can lead to legal risks for the SBV in general as well as for state inspectors and supervisors.

Earlier, experts raised concerns about the involvement of real estate companies in commercial banks, warning that it could pose risks to the financial system and the wider economy. While it is now more difficult for property moguls to manipulate banks, there are still some loopholes they can take advantage of. Through complex networks of subsidiaries and affiliates, these ultimate shareholders can channel credit to their own businesses, circumventing regulations on credit and loan limits for the real estate industry.

According to experts, the participation of real estate companies in banks can negatively influence the lending practices of these banks. Managers of real estate companies, who are also ultimate owners of some banks, can channel more loans into their real estate projects.

Đinh Trọng Thịnh, a lecturer at the Academy of Finance, said cross-ownership between real estate companies and banks can cause banks to prioritize businesses for loans in some cases. This will lead to many consequences in bank lending in addition to creating inequalities between companies in access to bank loans. —VNS

About Ruben V. Albin

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