Nervous people headed to branches of the Hanoi-based lender ACB in August 2012 to withdraw a total of $240 million following news of the arrest of the bank’s founder, Mr. Nguyen Duc Kien, on fraud charges. 

The arrest sent shockwaves through Vietnam, triggering a 9.2 per cent slide in the stock market in the first week after the incident and causing depositors to pull funds from one of Vietnam’s largest lenders. 

Less controversially, another southern bank tycoon was arrested during the same year, followed by his departure from the bank. 

“What has happened at Sacombank is my fault,” Mr. Dang Van Thanh told a conference last October. 

While ACB has moved on after Mr. Kien’s arrest, the opposite is true of Sacombank. 

It was recently named as one of five banks to undergo restructuring, as directed by the State Bank of Vietnam (SBV), and now all eyes are closely watching Mr. Thanh’s movements.

Make or break

Twenty-six years after Sacombank was established, the bank was run by two businessmen. One was Mr. Thanh, the co-founder of the bank and known for the success of his family business, the Thanh Thanh Cong Group, which mainly operates in the sugarcane industry. 

In one of the most controversial acquisitions in the history of Vietnam’s banking system, Mr. Thanh was overthrown by a majority of Sacombank’s shareholders, led by businessman Mr. Tram Be. 

In his last days, Mr. Thanh served as a Board of Management member in name only, and together with his two sons was then arrested. 

They were investigated over their management of the bank, including the buying and selling of assets and loans given to family companies. They were released after 48 hours. 

The incident later faded away, with no formal conclusion made public, but Sacombank’s Board of Management announced the transfer of nearly 80 million shares belonging to Mr. Thanh’s family, to “offset loans and bonds of related companies that were still due.” 

Under his reign, Sacombank was the first private bank to list on the stock exchange, in 2006, and soon had notable strategic investors, including the International Finance Corporation (IFC), ANZ Bank, and Dragon Capital. 

It had 432 branches and transaction offices nationwide at the time of Mr. Thanh’s departure, with more than VND140 trillion ($6.15 billion) in total assets and annual net profits of VND4 trillion ($175.7 million). 

The second phase of Sacombank’s lifespan lasted four years, with the central bank in February approving the resignations of Mr. Be and his son, Mr. Tram Khai Hoa, from the board. 

This is part of a government plan to reform the banking system, the central bank said, but “Mr. Be and related parties will continue to bear responsibility in resolving pending issues at Sacombank.” 

Even though Mr. Be and Mr. Hoa’s time at Sacombank have ended, their impact remains. 

Sacombank became the fifth-largest lender in the local banking sector in 2015 after its voluntary merger with Southern Bank. 

Previously among three private lenders with the highest annual net profits, the joint entity was supposed to bring greater benefits to Sacombank’s shareholders and customers. 

But the bank was hit almost instantly post-merger, with a pre-tax loss of VND671 billion ($29.5 million) in 2015’s fourth quarter, making its pre-tax profit for 2015 as a whole only VND1.29 trillion ($56.6 million), a fall of 55 per cent against 2014. 

Sacombank was dragged down by the amount of toxic debts at Southern Bank, where Mr. Be and his family held some 20 per cent of capital. 

Southern Bank reported a 3.39 per cent bad debt ratio as at December 30, 2013, but the exact figure was later revealed by State Audit of Vietnam (SAV) as 45.6 per cent as at June 30, 2012 and 55.31 per cent as at November 2013. 

The last hope for Sacombank disappeared when it reported a 67.5 per cent fall in annual net profits last year. to VND372.5 billion ($16.3 million), putting it on the list of the five weakest banks in need of immediate treatment.

Part of the plan

Renewed calls for restructuring have come with teeth this time, with the central bank in January saying its core mission this year is to restructure the five weakest lenders, including the three ailing institutions, OceanBank, VNCB, and GPBank, it transformed into wholly State-owned concerns in 2015 and which became known as “zero dong banks”, together with Dong A Bank and Sacombank. 

Of the five troubled banks, only former Sacombank executives have not been arrested. The former Chairman of GP Bank, Mr. Pham Ba Long, and the former CEO of Dong A Bank, Mr. Tran Phuong Binh, were arrested in March and December last year. 

The former Chairman of VNCB, Mr. Pham Cong Danh, has already been sentenced to 30 years in jail, while the trial of former Ocean Bank Chairman, Mr. Ha Van Tham, began in late February. 

In a plot twist, post-merger in 2015, Mr. Be authorized the central bank, or any individuals or organizations it may designate, to take over his entire holdings and those of related shareholders in Sacombank if the lender was to be consolidated. 

On the same day of his departure, the central bank disclosed that the Vietnam Asset Management Company (VAMC), the bad debt bank the government set up in 2013 to help consolidate the country’s fragmented banking sector, had been given Mr. Be’s holdings.

The authorization from Mr. Be was unprecedented. 

“Authorization from a shareholders holdings for an individual or organization to take over a holding is quite normal, but for the central bank, the direct managing authority of a commercial bank, to step in and take over a major shareholder’s holdings has never happened before,” Chairman of law firm Basico, Mr. Truong Thanh Duc, told VnEconomy.vn, a sister publication of VET. 

“There has never been a case where authorization came from central bank orders.”

From a legal perspective, there was a conflict of interest in the decision made by the central bank. 

The Law on Enterprises in 2014 regulates that the legal representative of an enterprise is to exercise their delegated rights and perform their delegated obligations honestly and prudently and to the best of their ability, in order to guarantee the lawful interests of the enterprise. 

In other words, the law regulates that the VAMC can make a decision that is in the best interests of Mr. Be. 

The central bank, however, cannot fully do so, and must lean towards the common good and take into account the safety of Sacombank’s operation and the rights of its depositors. 

By authorizing the passing of his entire holdings in Sacombank to the central bank, Mr. Be became exempt from any civil or criminal responsibility over losses. 

According to Mr. Duc, the worst-case scenario would see Mr. Be lose his entire holdings but he would not bear any responsibility to other shareholders and customers, even if the bank’s financial situation was in a difficult state following the merger with Southern Bank.

In its October 2016 report, Moody’s confirmed Sacombank’s “B3” long-term ratings and “caa1” BCA, and changed the outlook to negative. 

The confirmation of the caa1 BCA reflects the high solvency and liquidity risks faced by Sacombank post-merger. 

The B3 long-term ratings of Sacombank were confirmed because Moody’s continues to incorporate one notch of uplift, based on the rating agency’s expectation of moderate support from the Vietnamese Government. 

The negative outlook on Sacombank’s ratings reflects the uncertainty around the strategic direction of the bank, its unclear ownership structure, and the true scope of asset quality challenges.

The Ho Chi Minh City Securities Corporation (HSC), meanwhile, estimated that the central bank, via VAMC, holds more than 51 per cent of Sacombank’s shares, even though Mr. Be’s holdings were reported at some 14.13 per cent in financial reports. 

According to HSC, the central bank’s decision to accept the resignations of Mr. Be and his son may have been in accordance with Sacombank’s restructuring plan. 

“This move shows that the restructuring plan might have received the Prime Minister’s approval, as the central bank approved the plan two months earlier,” HSC wrote in a February report.

New blood needed

Even though Sacombank is going through a rough patch, it remains appealing to many. The retail segment has always seen heavy competition among banks, and network scale is an important factor in mobilizing capital.

Some conditions need to be applied during Sacombank’s restructuring. 

The first relates to cross ownership, which remains a thorn in the side of authorities and was the major cause of the failure of the three “zero dong banks”. 

Vietnam is planning to introduce a law that requires large shareholders in privately-owned banks to disclose their assets and incomes to prove they are in a financial position to own stock. 

SBV Governor Le Minh Hung has also vowed to crack down on abuse of power and stock manipulation by groups of large shareholders at banks. 

“We will be introducing stricter regulations requiring bank chiefs disclose how they have financed their stock ownership,” Mr. Hung told a banking sector review meeting in January in Ho Chi Minh City. 

“They could be banned from joining a board of executives for life if they are caught breaking the law.”

Secondly, the new management board at Sacombank needs to not only be qualified and experienced but also have a good reputation among the corporate and financial community. 

The banking industry is the backbone of the economy, and those that participate in the restructuring process at Sacombank must have a clean record to receive further policy support from the government in terms of policy. 

Surprisingly, there is one person who is qualified and stands ready. Now that Mr. Be is gone, the banking system may see Sacombank’s co-founder make a return to the fold. 

Soon after Vietnam saw a new government arrive last June, Mr. Thanh appeared in the media after three years in the shadows, saying he was ready to play the banking game again. 

There have been rumors that he is keen to acquire Eximbank, which still holds 9.16 per cent of Sacombank, but it is now clear that Mr. Thanh prefers to return to his old place of work. 

“We have prepared the conditions necessary for Sacombank’s restructuring,” the proposal sent to the central bank by Evercore Group, Redsun Capital Limited, and Mr. Thanh stated. 

“First, we ask for the SBV’s permission to conduct due diligence and correctly evaluate the current state of Sacombank.”

Mr. Thanh’s group proposed strengthening Sacombank’s financial capability via pumping in VND20.6 trillion ($903.7 million) to its charter capital, which remained at VND18.85 trillion ($832.6 million) as at December 31, 2016. Second, a bad debt settlement council will be formed and will recover backlogs. 

The next step will be using Sacombank’s existing revenue sources to make allowances for bad debts. No official comment from Mr. Thanh or SBV agencies were available at the time of writing. 

A final decision, however, will be announced on April 28, when Sacombank holds its 2017 annual general meeting and votes on a Board of Management for the 2017-2021 tenure. 

But caution is still needed. The past might have kept Mr. Thanh and Mr. Be apart, but the two banking tycoons share a common interest. 

They were both involved in nepotism at Sacombank, and that resulted in the bank being where it is today. 

Also, after the departure of Mr. Be and his son, the current Sacombank Board of Management is left with seven members, three of whom used to be Southern Bank executives. 

This poses a substantial need for new blood to appear on the board for the next term, so a clean start can be made. 

VN Economic Times