Vietnam Tycoon Arrest Sends Stocks Plunging As Tensions Surface

Posted on August 21, 2012


Nguyen Duc Kien

Vietnam’s arrest of a high-profile banking tycoon triggered the largest stock market drop in almost four years amid investor concern that it signaled wider vulnerabilities in the country’s financial system.

Nguyen Duc Kien, who helped found Asia Commercial Bank, Vietnam’s fourth-biggest lender by market value, was arrested two days ago, according to a central bank statement. Police are investigating violations at three companies managed by Kien, 48, after he allegedly “conducted business illegally,” according to the statement.

“The sword of Damocles that’s been hanging over Vietnam is the banking sector, and everyone knows that someday they’re going to have to deal with it,” said Edwin Gutierrez, portfolio manager at Aberdeen Asset Management in London, which oversees about $9 billion in emerging-market debt including Vietnamese bonds. “With the lack of clarity, in the markets there’s a shoot first and ask questions later mentality.”

Prime Minister Nguyen Tan Dung’s government is seeking to shore up a banking system saddled with the highest bad debt in Southeast Asia that credit-rating companies cite as a threat to the economy. The arrest of Kien, who has links to the prime minister, may also be related to Dung’s ongoing rivalry with President Truong Tan Sang for power within the Communist Party ranks, according to Steve Norris, a Singapore-based analyst at Control Risks Group.

“I don’t think removing this tycoon in itself is enough to decisively weaken the prime minister or threaten overall stability,” he said. “It’s just another example of these tensions going on beneath the surface that we very rarely see.”

Stocks Plummet
Dung, who was reappointed to a five-year term last year, has faced criticism over his management of debt-ridden, state- owned Vietnam Shipbuilding Industry Group, known as Vinashin. Sang formerly headed the Central Committee’s central economic commission before he was appointed as president last year, one of the country’s top three leadership positions.

Banking stocks contributed to a 4.7 percent slump in the benchmark VN Index (VNINDEX) on the Ho Chi Minh City Stock Exchange yesterday, its biggest drop since October 2008.

Shares in Asia Commercial Bank fell 7 percent in Hanoi trading, the maximum daily drop permitted by the Hanoi Stock Exchange.

Kien held a senior position managing Vietnam’s professional soccer league and his family was among the 30 wealthiest in the country last year, according to VnExpress.

‘Very Surprised’
Kien lives in a three-story house ringed by an iron fence that overlooks West Lake in a wealthier section of Hanoi. Expensive cars were often parked outside his home on weekends for parties, said Tran Trung Thanh, 33, who lives nearby.

“When the police came, people around here felt very surprised,” he said. “We thought that he’s working in the banking system so he must be doing clean business.”

Two different mobile phones belonging to Kien were turned off. Nguyen Duc Nhanh, Hanoi’s police chief, yesterday said he couldn’t immediately comment when reached by Bloomberg News on his mobile phone.

Police summoned Asia Commercial Bank Chief Executive Officer Ly Xuan Hai for questioning in connection with Kien’s arrest, deputy CEO Nguyen Thanh Toai said by phone yesterday. Kien’s shareholding in the bank is currently less than 5 percent, according to Toai. He 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 yesterday declined to comment on the developments at Asia Commercial Bank when reached by mobile phone.

Bad Debt
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 yesterday.

Vietnam’s bad debt is the highest by percentage among the six Southeast Asian economies covered by Moody’s Investors Service, said Karolyn Seet, a Singapore-based assistant vice president. Vietnam’s central bank said non-performing loans within the banking system reached 8.6 percent at the end of March.

“There’s a lot of bad debt out there because a lot of loans were made for projects that haven’t worked out,” said Jonathan Pincus, a Ho Chi Minh City-based economist at the Harvard Kennedy School’s Vietnam program. “Lending decisions were made because of relationships and connections rather than because of the quality of the projects themselves.”

The concerns over the banking system surfaced in a parliamentary session yesterday involving the central bank governor that was broadcast live on television. Nguyen Thi Kim Ngan, vice chairman of Vietnam’s National Assembly, told State Bank Governor Nguyen Van Binh that the central bank needs to quickly help weak lenders to prevent the system from collapsing.

‘Party Legitimacy’
Speaking in parliament, Binh urged commercial banks to boost lending to help businesses while maintaining standards to avoid bad debts. The central bank will be “very cautious” in cutting interest rates further, he said.

The VN Index has increased 19 percent this year, third- highest in Southeast Asia after Thailand and the Philippines. The dong has gained 1 percent against the dollar in that time.
Kien’s arrest “could be a good political move” as Vietnam’s leaders seek to reassure the country’s 87.8 million people that wealth doesn’t buy power, according to Carlyle Thayer, professor of politics at the Australian Defense Force Academy in Canberra. The Communist Party, which took control of the entire country in 1975, restricts organized dissent.

“The atmosphere is to come down hard, to show the public that any questionable financial activities are being taken seriously by the party,” Thayer said. “The party wants to respond to the perception that questionable financial activities are hurting the party’s legitimacy.”


Arrest of Vietnam tycoon unnerves markets

The arrest of one of Vietnam’s most prominent tycoons has sent shockwaves through the Communist-ruled country and further undermined confidence in what was once one of the world’s hottest emerging markets.

Nguyen Duc Kien, founder of Asia Commercial Bank – one of Vietnam’s biggest lenders and part owned by Standard Chartered – and a leading figure in the country’s football industry, was arrested on Monday night on suspicion of conducting “illegal business” by failing to obtain the proper licences, the government said on Tuesday.

The well-connected 48-year-old football fanatic could face up to two years in prison if found guilty of the charges, which relate to his chairmanship of three small investment firms rather than ACB, in which he no longer holds any management position.

As news of the surprise arrest broke on Tuesday, Vietnam’s main stock market index fell 5 per cent and the central bank pumped VND5tn ($240m) into the inter-bank market to stave off fears of a bank run by anxious ACB depositors.

Mr Kien is the second of Vietnam’s new generation of tycoons to fall foul of the Communist authorities in recent months, following the ousting of businesswoman Dang Thi Hoang Yen from Vietnam’s Communist party-controlled parliament in May.

Like Ms Yen and their peers, he used his political connections to amass great wealth as Vietnam’s Communist party opened up the economy over the past two decades, following a path laid out by neighbouring China.

But rapid growth has come at the cost of economic instability, with inflation crises, currency devaluations and major corruption scandals at state-owned companies damaging Vietnam’s status as a key emerging market. And now those once lauded as economic pioneers are finding themselves under pressure.

Annual GDP growth, which averaged more than 7 per cent in the decade before the inflation crisis of 2008, slowed to just 4.7 per cent in the second quarter of this year as the government choked off credit in an effort to fight inflation and renew confidence in the currency.

Mr Kien is chairman of the Hanoi Football Club and drove the foundation of a new football league that controversially broke away from direct state control last year. Although he no longer holds office at ACB and has reduced his shareholding to less than 5 per cent, according to the bank, he and a former founding partner Tran Mong Hung are still believed to exercise significant influence over ACB. Mr Kien also holds stakes in several other Vietnamese lenders.

Carl Thayer, an expert on Vietnamese politics at the Australian Defence Force Academy in Canberra, said that the arrest of such a prominent businessman would require political backing from the highest levels of the government and the Communist party.

With Vietnam’s economic growth model floundering, he said there were tentative signs of a backlash against the “super rich” who seem to have benefited from the boom at the expense of national economic stability.

But Mr Thayer said that while “other businessmen may be concerned that they may be next, there’s a limit to how far this can go”.
A Vietnam-based expatriate businessman noted that the relatively light charge against Mr Kien could be designed to “send a message to someone much higher up” – or, could just be a “slap on the wrist.”

Nguyen Van Binh, the central bank governor, tried to reassure depositors that ACB was not affected by the scandal. However, he underlined broader concerns about the state of the banking sector by revealing to Vietnam’s parliament that non-performing loans at some lenders have risen as high as 60 per cent despite reported bad debts of less than 2.5 per cent. “Some banks have no capital at all now,” he said.

Standard Chartered Bank owns 15 per cent of ACB while Jardine Matheson, the Hong Kong-based conglomerate, owns 7 per cent and Dragon Capital, a Vietnam-based fund manager, owns 6.7 per cent. ACB is the largest non-state bank in Vietnam, with assets estimated at around VND256tn and a market capitalisation of VND22.6tn.

Financial Times

Vietnam bank mogul’s arrest spooks investors

Kien’s rise in Vietnam banking sector is often associated with Prime Minister’s daughter Nguyen Thanh Phuong, who got an MBA from International University in Geneva, Switzerland. Phuong’s MBA was financed by her father’s monthly salary of US$200/month.

HANOI — Vietnam said Tuesday it had arrested a top banking tycoon for illegal business activities, sending ripples through financial markets as the central bank urged the public not to panic.

Nguyen Duc Kien, 48, a shareholder in some of Vietnam’s largest financial institutions, was taken into custody late Monday after police raided his Hanoi home and seized documents.

“Kien was arrested for illegal business activities,” according to an announcement posted on the government’s official website.

Multi-millionaire Kien is a founder of Asia Commercial Bank (ACB), one of the largest banks in Vietnam, which counts global banking giant Standard Chartered as one of its “strategic partners”.

His arrest sent “shockwaves across the country”, according to the state-run Tuoi Tre newspaper.

It also triggered fears of a bank run which could hurt a banking sector struggling with toxic debts, falling profitability and liquidity problems owing to credit tightening by the authorities aimed at taming inflation.

The governor of the State Bank of Vietnam, Nguyen Van Binh, said Tuesday that he was aware of the risk of a fallout from Kien’s arrest and that the central bank stood ready to intervene.

“To ensure the safety of the whole system, the State Bank of Vietnam has measures available to ensure liquidity for ACB and other banks if there is a mass withdrawal (of money from banks)”, he said in a televised speech.

Binh said the arrest was not related to the ACB, but concerned accusations of wrongdoing at three smaller financial companies where Kien is chairman.

Several ACB branches in the capital Hanoi visited by AFP on Tuesday appeared normal with no signs of mass withdrawals by panicked customers.

ACB issued a statement Tuesday saying Kien’s arrest would not impact its performance, even as its share price slumped on the Hanoi Stock Exchange.

Bank spokesman Nguyen Thanh Toai described the arrest as “a personal issue”.

“The detention of Kien is the decision of the authorities so it does not affect the normal operation of the bank,” Toai said, adding that Kien held less than five percent of shares in the group.

ACB’s share price plunged almost seven percent to 24,100 Vietnam dong ($1) by the close on Tuesday on the Hanoi Stock Exchange, dragging down the wider market.

The benchmark HNX index ended down 3.7 points or 5.24 percent.

Kien is said to hold shares in ACB, Sacombank, Eximbank, VietBank and others and was reportedly involved in drafting the country’s new bank reforms.

Eximbank and Sacombank were quick to stress that Kien was not a major shareholder in their institutions, according to media reports.

The banker rose to public prominence as a vocal critic of corruption in Vietnamese football, using his role as chairman of Hanoi Football Club to sound off against Vietnam’s Football Federation.

His arrest comes as the communist party broadens an anti-corruption drive launched last month, said Vietnam expert Carl Thayer, emeritus professor at the University of New South Wales in Australia.

The ruling party wants to demonstrate that it is tackling high-level corruption, he told AFP, adding “the atmosphere for some reason is just right for going after big fish”.

Kien’s arrest may also signal deep political infighting among the country’s elite — a sign of a “subterranean battle” between rival factions aligned to the prime minister and the president, he said.

Some of the elite may be concerned that Prime Minister Nguyen Tan Dung has amassed too much power “and needs to be pulled back in a peg,” he said.

If so, this could explain the attack on Kien — who is seen as being aligned with Prime Minister Dung and is the subject of speculation on blogs over his business dealings with Dung’s daughter, Thayer added.


Posted in: Corruption