
Vietnam's Banking Crisis: Can a 15-Year Rescue Save SCB from the Brink of Collapse?
2025-03-18
Author: Ming
HANOI: In a dramatic turn of events, the Saigon Joint Stock Commercial Bank (SCB) has been thrust into the spotlight as Vietnam grapples with its biggest financial scandal to date.
In a staggering move, the central bank has approved a bailout that represents 5% of Vietnam's projected 2024 economic output—around nearly US$26 billion. A local investor, Sun Group, has stepped in as a 'white knight,' proposing a 15-year plan for repayment that many are watching with bated breath.
The Maelstrom Begins
The maelstrom began with the startling arrest of real estate mogul Truong My Lan in October 2022, which triggered an alarming run on SCB. This alarming incident has shed light on the vulnerabilities within Vietnam's banking system, which is struggling to maintain stability amid broader economic challenges.
The global trade war, fueled by tense relations with the United States, has exacerbated the situation, particularly as President Donald Trump has imposed tariffs affecting trade flows.
Financial Stability and Special Loans
Documents reviewed by Reuters reveal that SCB remains almost entirely reliant on special loans from the State Bank of Vietnam (SBV) to stabilize its operations. The rescue plan has outlined that the central bank’s lending could skyrocket to a staggering 657 trillion dong (approximately US$25.8 billion) in the first year.
Restructuring Roadmap
Under this restructuring roadmap, SCB plans to initiate repayment to the central bank in the 14th year of the rescue, contingent upon favorable market conditions. The timeline for this distressing yet crucial plan hopes for approval as early as next month.
Uncertain Future
However, uncertainty looms over whether Sun Group's ambitious plan, dated February 17, will receive the backing of the Vietnamese government or the ruling Communist Party. Attempts to secure comments from key stakeholders, including SCB and the finance ministry, have remained unanswered.
Financial Deterioration
As the situation unfolds, SCB's alarming financial state continues to deteriorate. Following Lan's arrest, depositors rapidly withdrew funds, leading to a staggering decline from 669 trillion dong at the beginning of October 2022 to a mere 19.2 trillion dong by the end of that year.
Lack of Oversight and Accountability
The scandal has revealed a critical lack of oversight in banking practices; SCB's capital adequacy ratio was reported as an alarming minus 176% by the end of 2024. The ongoing turmoil has raised numerous concerns.
SCB's charter capital reports from 2017 indicated a troubling capital adequacy of minus 4.2%, though auditors previously painted a rosier picture, failing to flag potential issues. This raises serious questions about the integrity of financial reporting and the responsibility of external auditors.
Sun Group's Strategy
In an effort to steer SCB back to profitability, Sun Group's plan outlines a strategy that includes a minimum investment of 3 trillion dong to strengthen SCB's capital foundations.
The hope is to generate income through strategic investments in government bonds and infrastructure projects, leveraging recovered assets tied up in bad loans and collateralized properties.
However, skeptics caution that the bulk of SCB's questionable credits were extended to companies linked to Lan, often supported by inflated collateral valuations, which could complicate recovery efforts.
Looking Ahead
As Vietnam navigates this financial crisis, all eyes are on SCB and Sun Group. Will this ambitious rescue plan truly stabilize one of the nation's largest banks, or will it lead to a deeper financial quagmire?
The unfolding drama not only impacts Vietnam’s economy but also echoes the urgent need for systemic reforms in the banking sector. Stay tuned for updates on this evolving crisis!