Hanoi (VNS/VNA) - Cross-ownership in the country’sbanking system had almost been eliminated, a recent report by theState Bank of Vietnam (SBV) showed.

According to the report, the number of credit institutionswith direct cross-ownership had decreased from seven in 2012 to none.

Direct share ownership between banks and enterpriseshad also fallen from 56 pairs in 2012 to one: the Asia CommercialBank (ACB) with the Hoa Phat-A Chau Real Estate Company.

Industry insiders attributed the improvement to the SBV’sstrict regulations on cross-ownership over the past year. Under theseregulations, harsh penalties will be imposed on banks that fail tobring their ownership in other credit institutions to below 5 percentbefore June 30 this year. Penalties include possible rejection of bankproposals regarding top positions, such as members of the board of directorsand supervisory boards, as well as CEO.

Major shareholders in credit institutions and theirrelatives will not be allowed to hold 5 percent or more of charter capital inanother bank from next year.

Major shareholders and their relatives are also prohibitedfrom increasing their stake holdings in any credit institutions in any form,except for special cases regulated by the central bank.

In addition, credit institutions are not permitted to lendto major shareholders and their relatives until the shareholders meetregulations on holding less than 5 percent of another credit institution’scharter capital.

Non-compliant shareholders will also have their dividendrights and right to serve on the board of directors suspended, and will beprohibited from increasing their stake in their respective banks.

The revised Law on Credit Institutions, which was passed bythe National Assembly and came into effect last year, has also prohibited bankleaders from taking up senior positions in other businesses. Prior to thecentral bank’s new regulation, it was a common practice for a person toown both a bank and a business.

Besides, the favourable stock market and the country’spositive economic growth have helped large banks step up divestment from otherfinancial institutions to meet the central bank’s regulations.

Expert Bui Quang Tin said the strict regulations on cross-ownershipwere necessary, as the practice had a negative impact on the bankingsystem, evident in the high ratio of non-performing loans.

Due to cross-ownership, many banks increased their chartercapital to several trillion of VND; however, the source of thecapital was unreal as it came from loans taken from other banks.-VNS/VNA