VietNamNet Bridge – Cross-ownership, long considered a serious threat to the banking system, is on the wane, according to Dao Minh Tu, Deputy Governor of the State Bank of Vietnam. Some economists, however, disagree.

Tu said at a workshop held in mid-March that the cross-ownership stake in the banking system has dwindled to VND20 trillion. That figure is equal to 6 percent of the chartered capital that the bankers possess in each others’ banks.

Tu contends that the six percent proportion is low, and indeed lower than it has been in the [recent] past.

Vietcombank, for example, once held a 5.1 percent stake in Orient Bank and 5.3 percent of Sai Gon Cong Thuong. But those ownership ratios have decreased to 4.7 and 4.4 percent, respectively. Vietcombank’s ownership share in the Military Bank has also decreased, to 9.6 percent from 11.

While the State Bank expresses optimism about the cross-ownership reductions, some economists are warning that it is too early to rejoice over these initial achievements. They point out that the chartered capital of many banks has increased significantly, while the reported amounts of shares held by the bankers-shareholders remain unchanged.

A report of the State Bank asserts that the total chartered capital of the entire banking system increased by 11.2 percent in 2013. This indicates that the banks’ ownership ratios in other banks have decreased automatically as a result of the chartered capital increases, not because the shareholders have sold off their stakes.

This trend could also be the reason for the decreases in Vietcombank’s ownership ratios in the three commercial banks.

It is not the right time to sigh with relief now, even if the banks’ ownership ratios in other banks have really decreased.

According to Do Thien Anh Tuan, a lecturer of the Fulbright Economics Teaching Program (FETP), the bank-in-bank ownership model (banks holding the stakes of other banks) has proven itself to be even more perilous than the business-in-bank model (businesses as major shareholders of banks).

Under the business-in-bank model, businesses, as the owners of the banks, have often felt free to use the banks’ capital as they see fit. In many cases, this has led to the banks making dubious investments, often putting the institutions themselves at risk.

Many businesses have invested in the banking sector recently, especially after commercial banks called for more capital to increase their chartered capital to VND3 trillion, the minimum required by the State Bank.

A report by Dr. Dinh Tuan Minh, a member of the consultative group for macroeconomic policies belonging to the National Assembly’s Economics Committee, revealed that 40 state owned enterprises and privately run companies had been found to be holding over 5 percent of the banks’ stakes by the end of 2011.

“The big worry is that the ownership ratios held by businesses or individuals in joint stock banks has been increasing,” noted Nguyen Xuan Thanh from FETP.

“The restructuring affairs have made the situation even more serious,” he added.

Regarding the six percent cross-ownership ratio announced by the State Bank, Tuan said the ratio is not low at all.

NCDT