Vietnam’s arrest of Nguyen Duc Kien, the founder of several banks, triggered the largest stock market drop in almost four years and highlighted investor concern about the vulnerability of the country’s financial system.
Kien, 48, the founder of banks including Asia Commercial Bank (ACB) and Kien Long Bank, was arrested by police yesterday, the central bank said in a statement on its website today. Police are investigating violations at three companies managed by Kien after he allegedly “conducted business illegally,” according to the statement.
The arrest comes as Vietnamese authorities seek to shore up a banking system grappling with increasing bad debt and identified as a threat to the economy by credit ratings companies. Vietnam has struggled to meet economic growth targets, with bank lending stagnating as businesses contend with declining earnings and demand.
“It’s like a spaghetti bowl,” Jonathan Pincus, a Ho Chi Minh City-based economist at the Harvard Kennedy School’s Vietnam program, said of the cross-ownership of the country’s banks. “It’s very difficult to untangle the relationships, particularly because a lot of the relationships are not transparent. It presents a very difficult governance problem for the financial system.”
Banking stocks contributed to a 4.7 percent slump in the benchmark VN Index (VNINDEX) on the Ho Chi Minh City Stock Exchange today, its biggest drop since October 2008. Shares in Asia Commercial Bank, the country’s fourth-largest listed lender by market value, fell 7 percent in Hanoi trading, the maximum daily drop permitted by the exchange.
Police summoned Asia Commercial Bank Chief Executive Officer Ly Xuan Hai for questioning yesterday in connection with Kien’s arrest, deputy CEO Nguyen Thanh Toai told Bloomberg News in a telephone interview today. Kien’s shareholding in the bank is currently less than 5 percent, according to Toai. Kien is no longer involved in management of the bank, the central bank said in its statement.
Other Asia Commercial Bank investors include Standard Chartered Plc (STAN), with a 15 percent consolidated stake, according to Louis Taylor, the CEO of the London-based lender’s Vietnam unit. Taylor declined to comment on the developments at Asia Commercial Bank when reached by mobile phone today.
The State Bank of Vietnam will “closely watch market movements and take necessary measures to help ensure liquidity at ACB if needed,” Nghiem Xuan Thanh, chief administrator at the central bank, said by telephone today.
Two different mobile phones belonging to Kien were turned off. Nguyen Duc Nhanh, Hanoi’s police chief, said he couldn’t immediately comment when reached by Bloomberg News on his mobile phone.
The Hanoi Stock Exchange has asked Asia Commercial Bank for details related to Kien’s detention and the lender will send the information “soon,” Nguyen Vu Quang Trung, the bourse’s deputy general director, said by phone.