In recent years, cross-ownership in the banking sector has become a sore issue in Vietnam, causing many serious consequences such as systemic risks, loss of public trust and the risk of manipulation of financial markets. Cross-ownership, simply understood, is a situation in which credit institutions (credit institutions) own each other, directly or indirectly through intermediaries, creating a complex and multi-layered network of overlapping interests. Although Vietnamese law has regulations prohibiting this behavior, the reality shows that many banks are still entangled in the actual operation.
Cross-ownership is not a new problem in the world, but in Vietnam, it has its own peculiarities due to the uneven development of the financial market and the legal system that has not kept up with the development of society and the economy. In the past period, many banks have taken advantage of cross-ownership to increase their influence, manipulate credit activities or hide their weak financial situation. As a result, a series of bank failures, such as the case of the Construction Bank or banks acquired by the State Bank for 0 VND such as Dong A Bank and Ocean Bank, all have traces of cross-ownership.
Provisions of current law
In order to prevent cross-ownership, the Law on Credit Institutions 2024 ("Law on Credit Institutions 2024") has issued many strict and systematic regulations on this issue, from reducing the ownership ceiling, publicizing shareholders from 1%, prohibiting the granting of credit to buy bank shares, etc to expand the concept of related people.
Reduce the "ceiling" of ownership. In Article 63 of the Law on Credit Institutions 2024, the National Assembly stipulates a new limit on the percentage of share ownership in a credit institution. Accordingly, individual shareholders are not allowed to own more than 5% of charter capital (remain the same), but the maximum ownership rate of the organization is reduced from 15% to 10%. Shareholders and related persons are not allowed to hold more than 15% of charter capital – down from 20% previously.
The reduction of the ownership ceiling is a strong step to limit the situation of a group of shareholders manipulating the bank through a fragmented ownership structure, hiding under many different legal entities.
Shareholder disclosure from 1%. For the first time, the law clearly stipulates the obligation to be transparent about shareholder information. Specifically, according to Clause 5, Article 49 of the Law on Credit Institutions 2024, credit institutions must publish on their website the list of shareholders owning 1% or more of charter capital, including information about related persons. Shareholders must also be responsible for providing honest and complete information to the bank and the State Bank.
This regulation is expected to force hidden shareholders to come forward, who in fact hold control of the bank but in the name of shares through relatives, employees, or backyard companies.
Prohibition of granting credit to buy bank shares. The Law on Credit Institutions 2024 continues to affirm the key principle that has been set since 2017: credit institutions are not allowed to extend credit to customers to contribute capital or buy shares of other credit institutions.
In Clause 6, Article 134, the Law on Credit Institutions 2024 clearly stipulates: "Credit institutions and foreign bank branches are not allowed to grant credit to contribute capital or buy shares of credit institutions". This regulation aims to prevent "roundabout" transactions – when banks lend money to customers to buy other bank shares, thereby establishing disguised cross-ownership. In trial practice, there have been credit contracts that have been declared invalid for violating this prohibition.
Expanding the concept: "Related persons". In order to avoid taking advantage of legal loopholes, the Law on Credit Institutions 2024 significantly expands the concept of "related persons" in Clause 24, Article 4. Not only including relatives, the new concept also takes into account actual ownership and management relationships, parent-subsidiary-associated companies, and parties who act together to achieve common goals. This helps the regulator easily identify manipulative shareholder groups through a complex ownership chain.
Typical judgments on indirect cross-ownership
One of the typical cases that demonstrates the complexity of this issue is Judgment No. 210/2020/KDTM-PT dated 23/11/2020 of the People's Court of Hanoi (Judgment "210/2020/KDTM-PT"). This judgment has declared invalid a credit contract between AC Commercial Joint Stock Bank and customers, on the grounds that it violates the prohibition of indirect cross-ownership through the granting of credit to buy shares of another bank. The case not only exposes the "loopholes" in law enforcement but also raises a big question about the responsibility of credit institutions in controlling the purpose of using loans when granting credit to customers.
Case development
Judgment 210/2020/KDTM-PT stemmed from a credit contract between AC Commercial Joint Stock Bank and two individual customers, Mr. TTB and Ms. NGTH. According to the contract, the purpose of the loan is "investment, securities trading – purchase of EIB shares" (Joint Stock Commercial Bank for Import and Export of Vietnam). The total loan amount is VND 100 billion, and all of this money has been used to buy 5,519,600 EIB shares. After that, these shares were re-pledged to AC Bank itself as collateral for the loan.
On the surface, this is a regular credit transaction for the purpose of investing in stocks. However, the Hanoi People's Court discovered the nature of indirect cross-ownership in this case. Concrete:
- AC Bank grants credit to customers to buy EIB shares.
- Customers use loans to own shares in EIB.
- AC Bank receives back EIB shares as collateral, thereby indirectly holding interests related to EIB.
The Prime Minister visits HDBank's digital transformation exhibition booth. Source: National Assembly
The Court's opinion
AC Bank argued that the customer's purchase of EIB shares on the exchange is not a "capital contribution" or "direct ownership", therefore it does not violate the law. However, the Court rejected this argument, affirming that the act of buying shares – even through an exchange – still led to the formation of share ownership in another credit institution. When AC receives back shares as collateral, this increases AC's influence on EIB, creating indirect cross-ownership consequences.
The court declared the credit contract invalid based on Article 123 of the Civil Code 2015, on the grounds of violating the prohibition of the Law on Credit Institutions[1]. Specifically, Article 126 of the amended Law on Credit Institutions 2010 strictly prohibits banks from lending to customers to buy shares of other banks. The Court found that, although AC Bank did not directly open an account or own shares in EIB, the granting of credit and receiving EIB shares as collateral created a cross-ownership structure in the form of credit.
The form of indirect cross-ownership through credit – as was the case in Judgment 210/2020/KDTM-PT – makes the problem even more complicated. Instead of directly buying each other's shares, banks provide capital to customers (individuals or businesses) to buy shares of another credit institution, then receive back those shares as collateral. On the surface, these are legitimate transactions, but in essence, they create a cross-ownership circle in disguise, increasing systemic risk.
This verdict has important implications in many aspects. Firstly, the judgment clearly affirms that all acts of granting credit leading to ownership of shares in other credit institutions, whether directly or indirectly, are in violation of the law. Second, the bank cannot justify that it does not know the purpose of using the customer's capital, especially when the bank itself receives back the assets purchased from the loan as collateral. Thirdly, it creates a legal precedent and is an important basis for courts to handle similar cases in the future, contributing to strengthening discipline in the banking system.
The ruling of the Hanoi People's Court not only affects AC Bank but also sends a clear "message" to the entire Vietnamese commercial banking system that similarly structured credit transactions – borrowing capital to buy bank shares and using the same shares as collateral – will face the risk of being declared invalid. This forces banks to review all their credit activities, especially in the field of securities investment.
In addition, the judgment also poses a challenge in handling legal consequences when the contract is invalidated. Currently, the determination of responsibility for repayment of capital, loan interest or incurred costs still has many inadequacies, easily leading to disputes between banks and customers.
What is the solution for stakeholders
We believe that in order to thoroughly solve the problem of cross-ownership in the banking industry, it is necessary to have synchronous coordination between legislative bodies, management agencies and credit institutions themselves. The SBV, in its role, needs to issue a circular specifically guiding how to determine the "purpose of borrowing" and "collateral" in credit transactions related to bank shares. This helps clarify the boundary between legal investment activities and cross-ownership "circumvention of the law". In addition, the SBV should proactively review credit transactions with signs of indirect cross-ownership, especially securities investment loans secured by bank stocks for guidance and timely handling plans. For commercial banks, it is necessary to stipulate the obligation to periodically report to the SBV on all credits related to credit institution shares, including through customers, associates or third parties. At the same time, commercial banks themselves need to develop a strict internal control process to ensure that loans are not misused, especially in transactions related to credit institution shares. In similar cases, raising the awareness and skills of credit officers in detecting and preventing indirect cross-ownership is essential to prevent unfortunate incidents from occurring.
Judgment 210/2020/KDTM-PT is not only a legal ruling but also a "valuable lesson" for commercial banks in Vietnam. The judgment has clearly affirmed that cross-ownership, in any form, directly or indirectly, poses a great risk to the stability of the banking system. However, to thoroughly solve the issue of cross-ownership, it is not possible to rely solely on court rulings. It is necessary to have synchronous reforms from the legal framework, supervision mechanism to the awareness of relevant parties. Only then can Vietnam's financial system develop sustainably, improving its reputation not only for customers but also for international rating and rating organizations. At the same time, this also helps Vietnam's banking system avoid potential crises in the future.
Lawyer Nguyen Van Phuc
HM&P Law Firm
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[1] Law on Credit Institutions 2010, amended and supplemented in 2017.
