|dc.description.abstract||For the past ten years, the world has been in the midst of a financial meltdown, one of the worsts in history. Vietnam is no exception and since 2010 has been facing a slew of economic problems. The property market crash, illiquid securities market, and the non-performing loan crisis illustrated the downturn in the financial industry. The cross-shareholding among banks and firms are among critical problems of Vietnam’s banking system. Thanks to sophisticated cross-shareholding networks developed since 2000s, bank owners could conceal their actual shareholding or controlling power in banks, avoid prudential regulations, and direct credits to their private or family companies that caused severe loss in banks’ capital and led to many bank failures recently. The Vietnamese government has been conducting projects of banking restructure and legal reform to supervise cross-shareholding violations in the banking industry, restrict its development, and unwind the existing sophisticated cross-shareholding networks more effectively. However, the results are still limited, and the government is planning new projects to continue the comprehensive reform of the banking and financial system. Policy-makers thus are in tremendous need of recommendations for the upcoming reform plans of Vietnam’s banking regulatory framework with focus on the regulation and supervision of cross-shareholding among banks and corporations.
This thesis aims at contributing to an analysis of cross-shareholding in the Vietnamese banking industry from both theoretical and practical perspectives. This analysis draws on agency theory to explain the motives of controlling shareholders in establishing cross-shareholding networks among banks and corporations, and discusses the negative practice of cross-shareholding in Vietnam’s banking industry. Through the practices of cross-shareholding, the controlling shareholders of commercial banks in Vietnam have sidestepped prudential regulations including capital requirements, lending limits and other restrictions, and channelled banks’ funds for their private interest. The non-performing loan crisis, collapses of banks, prosecution of bank-owners and government officials demonstrate the consequences of cross-shareholding practices. The thesis further provides the historical background and institutional reasons for the development of cross-shareholding in Vietnam, and the respective development of regulations and policies against cross-shareholding. The thesis examines the legal issues of cross-shareholding, the shortcomings of legal framework regarding cross-shareholding, and the high-profile cases of banking scandals and collapses relating to cross-shareholding in the banking industry that have been investigated and prosecuted in Vietnam recently. Based on the analysis of the relevant regulations and cases, the research specifies the causes leading to the Vietnamese government’s failure to restrict, supervise, and unwind cross-shareholding in banks and corporations.
To inform my recommendations for the reform of the Vietnamese legal framework pertaining to the restriction, supervision, and unravelling of cross-shareholding, I conduct a comparative study between Vietnam’s jurisdiction with other jurisdictions, specifically Japan and Australia. Vietnam might learn from Japan’s experience in handling and unwinding cross-shareholding due to the similar context of cross-shareholding development and problems. Australia has been acclaimed for its prudential regulations and financial supervision demonstrated by the stability of the banking system and its resilience through the Global Financial Crisis. Accordingly, Vietnamese law-maker should study Australia’s model and consider applying the positive and innovative features of the regulations against cross-shareholding and financial supervision regime in Vietnam.
Through the legal analysis of cross-shareholding issues and comparative studies of various countries’ laws and policies, the thesis presents proposals for a comprehensive reform of the regulatory framework against cross-shareholding including (i) improving the mechanisms for unwinding of sophisticated cross-shareholding networks through share-disposal or merger and acquisition, (ii) enhancing prudential regulations and shareholding regulations by revising outdated and inadequate regulations and updating the relevant laws towards Basel III, (iii) reforming the financial supervision mechanism by studying from the successful model (of Australia), (iv) developing a stronger and more practical sanction regime for violations of cross-shareholding restriction and prudential regulation. The goals of the comprehensive reform will be achieved by combining the structural reform of the supervisory mechanism in Vietnam’s banking industry, the improvement of sanction regime for violation of banking regulations, and the revision and supplementation to the current laws related to cross-shareholding and prudential standards.||