Recent banking incidents unveil systematic flaws

The recent turmoil in Vietnam’s banking sector has revealed many systemic problems in risk management, capital management, and monetary policy, leading to the failures and collapses of many large banks.

The Hanoi court last Friday sentenced the former head of state-owned PetroVietnam Nguyen Xuan Son to death after finding him guilty in a mass trial of 51 officials and bankers accused of graft and mismanagement that led to losses of US$69 million.

The court also sentenced his counterpart at Ocean Bank Ha Van Tham to life imprisonment, in a major graft case. 

According to documents provided by the court, during his chairmanship, Tham and his accomplices committed many violations, such as paying interests higher than the ceiling rate and outside of contracts, causing serious losses to Ocean Bank and its shareholders, and affecting the implementation of the central bank’s monetary policy.

In May 2015, OceanBank was acquired by the State Bank of Vietnam at VND0.

The crackdown has drawn the attention of society and raised the alarm on the flaws in commercial banks’ management.

Indeed, despite many efforts in regulating the financial acitivities, the enforcement of supervising policies among commercial banks has been considered as weak and asynchronous, leading to raising concerns over maintaining and developing a robust banking system.

“In fact, the State Bank of Vietnam (SBV) 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,” said PhD. Nguyen Tri Hieu, a baking expert as asked about the shortcomings of the SBV in controlling commercial banks' activities. “In addition, the SBV also discovered many cases when the rate is set higher than the ceiling interest rates. Besides, a number of banks that make the interest payments through the form of customer care were treated.”

“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 infringers. It is too late for VNCB and Ocean Bank cases, but we need to draw experience to take appropriate measures to build a healthy, stable and humane banking sector,” he added.

Despite many disorders, many think-tanks assert that Vietnam’s banking system has generally remained relatively resilient over the past period. However, the Government in general and the SBV as well as other policymakers in particular should take actions to reduce risks and improve the health of the banking sector with a view to reach the sustainable development.