Cross-Shareholding Issue in Vietnam's Banking Industry: A Review of the Development and Shortcoming of the Regulatory Framework
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CROSS-SHAREHOLDING ISSUE IN VIETNAM'S BANKING INDUSTRY: A
REVIEW OF THE DEVELOPMENT AND SHORTCOMINGS OF THE
REGULATORY FRAMEWORK
Victor Tran
For the past 10 years, the world has been in the midst of a financial meltdown which is
considered to be one of the worst in history. Vietnam is no exception and since early 2009
has been facing a slew of economic problems. The property market crash, frozen securities
market, and the non-performing loan crisis illustrate the downturn in the financial industry.
The sophisticated cross-shareholding among banks andfirms are among critical structural
problems of Vietnam's banking system. The Vietnamese government has been conducting
projects of banking restructure and legal reform to supervise the cross-shareholding in
banking industry more effectively and restrict its development. The policy-makers thus are
in tremendous need of suggestions and recommendations for the reform of Vietnam's
banking regulatory framework including the restriction and supervision of cross-
shareholding. This paper aims at contributing an analysis on cross-shareholding issue in
the banking industry and development of the respective regulations against cross-
shareholding, and proposals for the improvement ofregulations on cross-shareholding and
policies for unwinding cross-shareholding among banks and corporations.
I INTRODUCTION
1.1 Background
Since 2012, Vietnam has been struggling to avoid a bank run and a financial crisis, and is
trying to handle and minimize the consequences of such a crisis, especially regarding the
issue of non-performing loans ('NPL'), through banking restructure.' The Prime Minister
confirmed in 2012 that the government has been trying to restructure, fix and strengthen
the banking system to eliminate the risk of a collapse of the banking system.2 According to
the research of the Economic Committee of Vietnam's National Assembly, the cross-
shareholding among commercial banks, State-owned enterprises ('SOE'), and private
corporations has been growing to a 'warning level'.' The State Bank of Vietnam ('SBV'),4
Nguyen Hong Son, Tran Thi Thanh Tu and Tran Thi Hoang Yen, 'Bank Restructuring-International Perspectives and
Vietnam Practices' (2014) 3(2) Accounting and Finance Research 36.
2 Bloomberg News, 'Vietnam to buy bad debt from bank to ease risk of collapse', Bloomberg, (online at 5 March 2012)
<https://www.bloomberg.com/news/articles/2012-03-05/vietnam-to-buy-bad-debt-from-banks-to-ease-risk-of-
collapse>.
Economic Committee of Vietnam's National Assembly, Tu Bat On Kinh Te Vi Mo Den Con Duong Tai Co Cau
[From Macro-Economic Instability to the Road of Restructuring] (Tri Thuc Publishing House, 2012) 145.
The State Bank of Vietnam is the central bank performing the state's function in the management of currency, banking
operations and foreign exchange. Its power and duties are vested by Law on State Bank of Vietnam 2010. Regarding
the management of banking operations, Article 4.9 of this Law stipulates that the SBV has the power, inter alia, to
issue, amend or withdraw the establishment and operation licenses for credit institutions, and to approve the merger
and acquisition of credit institutions. It has the rights and duties to carry out inspection and supervision over banks
and banking activities. More importantly, its function also is to ensure the safety of banking operations and systems
of credit institutions. In other words, it is the prudential regulator of banks in Vietnam.
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