A cartoon illustrates how cross-shareholding works in the banking sector. The man (Bank X) holds a stake in an investment fund and at the same time put his money in Corporation G. Both have some control over a chain of other companies that are affiliated with another Bank S. (Photo: nld.com.vn) Nguyen Duc Do, deputy director of the Institute of Economics and Finance in theAcademy of Finance, said many legal measures had been taken to keepcross-shareholding in check but to little avail.
Investors have plenty of tricks to get around regulations, includingregistering their shareholdings in someone else's name and collaborating withothers to bolster the power of their collective votes.
The only way to prevent the illegal practices, Do said, is to enhance financialtransparency and tighten the control of investors' cash flows.
"What we've learned from other countries is that a transparent financialsystem and a close watch on investors' cash flow could avertcross-shareholding," he said.
Ha Sy Dong, a National Assembly (NA) deputy from Quang Triprovince, shares Do’s view, stating that cross-shareholding is just the tip ofthe iceberg of what malicious investors were deploying to manipulate stockprices.
"It is the behind-the-scene ties between banks and firms that couldtrigger a spillover effect when an adverse financial event occurs," said Dong.
The NA deputy said in a move to weaken the ties, the draft revised Law onCredit Institutions had been formulated to tighten the ceiling on shareholders'ownership in banks.
Under the law, a shareholder would not be allowed to hold more than 3% of abank's capital if he is an individual investor, 10% if an institutionalinvestor, and 15% in other unique circumstances.
A bank, meanwhile, is not allowed to make loans of more than 10%of its equity to a single client.
He also called for financial report disclosure to be mandatory forinvestors holding more than 1% stake in banks to improve transparency in thefinancial sector, putting an end to manipulative practices.
Nguyen Duc Ngoc, a lecturer at the Hanoi Law University, said theincrease in ownership caps is necessary but not enough to nip the problem inthe bud. We also have to keep tabs on higher-tier shareholders.
Hoang Van Cuong, deputy president of the National Economics University, agreedwith lecturer Ngoc. He said the caps might not work because maliciousshareholders can put a portion of their shareholdings under someone else's nameto keep it below the thresholds.
Financial authorities, therefore, must keep shareholders' capital transfersunder surveillance to foil any illicit attempt to "split" theirownership. Heavy fines could be used to prevent accomplices from using theirnames to help shareholders disguise their shareholdings.
NA Chairman Vuong Dinh Hue said the draft law, when passed, would act as a codeof conduct for credit institutions and provide a remedy for cross-shareholding.
"It doesn't matter if a ceiling of 5% or 3% is imposed. All the matters isthat credit institutions are obliged to disclose who is pulling theirstrings," said Hue./.
VNA
