Lessons from the Oceanbank case

TheLEADER’s conversation with Ph.D Nguyen Tri Hieu, a banking expert on this issue.

What are your thoughts about ongoing rescue of Oceanbank (Ocean Commercial Joint Stock Bank) after it was bought by the State Bank of Vietnam with VND0?

Ph.D Nguyen Tri Hieu: That the State Bank of Vietnam (SBV) bought Oceanbank and Construction Bank (CB Bank) at VND0, and this was considered the best way to prevent a systemic breakdown of banking system.

In addition, the purchase of these banks at zero cost also saves the national budget because the government does not have to spend money to buy the banks that do not operate effectively.

The SBV chose to repurchase two banks instead of letting them go bankrupt. In essence, this is a form of "nationalization" because Oceanbank and CB Bank became state-owned banks through the form of one member limited liability company.

What are the risks when the large state corporation buys a large stake in a commercial bank and requires its affiliates keep money with those banks?

Ph.D Nguyen Tri Hieu: In the banking sector, concentration risk that means focusing capital mobilization or lending activities on some large customers is a kind of greatest risk.

In the case of Oceanbank, it became too heavily dependent and exposed to a single customer, namely PetroVietnam (PVN).

Since the bank was acquired by the SBV, the close relationship with the Petrovietnam disappeared and Oceanbank has to look for other customers to replace.

Do you think that "puting all eggs in one basket" is the source of all problems?

Ph.D Nguyen Tri Hieu: Oceanbank became a hostage to its relationship with PVN. It become so dependent upon PVN for deposits that some people in the bank succumbed to bribery in order to obtain them.

However, there is not only Oceanbank but also many other banks that get into the same situation when they depend on deposits from state-owned enterprises in Vietnam.

In the fierce competition to mobilize capital, the deposit rate cap is the "red line" and anyone who crosses this line will have advantages in attracting capital.

Do you see any shortcomings in the State Bank's management of commercial banks?

Ph.D Nguyen Tri Hieu: In fact, the State Bank of Vietnam has issued many circulars and guidelines on ceiling interest rates. The banks also regularly report to the State Bank of Vietnam on deposit rates and lending rates. In addition, the State Bank also discovered many cases when the rate is set higher than the ceiling interest rates.

We cannot blame the State Bank for its promulgation of necessary regulations and information for compliance and enforcement by members of the banking sector.

However, looking back on what has happened, the SBV has made clear regulations specifically to prohibit overpayment of regulated interest rates, prohibiting out-of-pocket payments in "care" customers, closely inspecting the implementation while giving specific penalties to deter the violators.

It is too late for VNCB and Oceanbank cases, but we need to draw experience to take appropriate measures to build a healthy, stable and humane banking sector.