A new law is set to ban bank owners in Vietnam from taking up senior positions at non-financial firms, a move aimed at overhauling the banking sector, which has been mired in cross-holding controversy.

In a bid to improve transparency, a new law will prohibit bank executives from running side businesses 

Last week, the National Assembly passed the amended Law on Credit Institutions, which will take effect on January 15, 2018. Under it, people holding senior positions at credit institutions will be prohibited from concurrently running a non-banking firm. Specifically, board members, CEOs, and deputy CEOs of a bank cannot hold top positions in any other businesses.

Analysts expect the new rule to have profound implications for Vietnam’s financial sector, as several bank owners in the country are also running side businesses, most of them are major diversified corporations. For example, Do Quang Hien is the chairman of both Saigon-Hanoi Bank and T&T Group, Vu Van Tien owns both ABBank and Geleximco, Nguyen Thi Nga holds the top position at SeABank and BRG Group, and Do Minh Phu runs both TPBank and Doji.

The list goes on. Techcombank’s chairman Ho Hung Anh is concurrently the deputy chairman at Masan Group. His counterpart at VIB, Dang Khac Vy, also owns Mareven Food Holdings. Vo Quoc Thang, chairman at Kien Long Bank, is also both chairman and CEO of brick maker Dong Tam Group.         

Other examples include Vietjet Air’s chairwoman Nguyen Thi Phuong Thao and Vinamilk’s chairwoman Nguyen Thi Bang Tam, both of whom hold senior positions at HDBank. Most recently, Duong Cong Minh, chairman of Him Lam Group, was appointed Sacombank’s chairman at the lender’s general meeting.

To comply with the new law, these businesspeople must give up their involvement at either the bank or the side business. This will not be an easy decision, but it is necessary for the banking sector, said Nguyen Khac Quoc Bao, head of the Finance Department at Ho Chi Minh City’s University of Economics. The professor said that the amended bill will improve the overall transparency of Vietnam’s finance industry.

“It is also a matter of ethics. A businessman running both a bank and a side business faces a lot of moral dilemmas, especially when it comes to transparency in lending and capital raising activities. The new bill will make it harder for them to misuse the bank’s funds for their private gain,” Bao said.

The most prominent example of such misuse is banking tycoon Tram Be, who owned Binh Chanh Construction Investment and several banks like Sacombank, ACB, Southern Bank, and Eximbank. Tram Be was arrested this year for “serious violations of banking rules” and Sacombank divested its entire stake at Binh Chanh Construction afterwards.

Experts believe that to deal with the new rules, some of the affected owners may ask a relative or business partner to hold the bank’s shares on their behalf. In another high-profile case of embezzlement and fraud, Pham Cong Danh used this tactic when working at Construction Bank. Regulators will need to address this problem when implementing the revised law next year, said analysts. 

The new Law on Credit Institutions also forbids senior executives of any bank to sit on the board of another financial firm, unless it is the bank’s subsidiary or the assignment has been ordered by the State Bank of Vietnam.

The landmark Circular 36/2014/TT-NHNN stated that a commercial bank in Vietnam can only hold stake in two other financial institutions, and can only own less than 5 per cent of each.

VIR