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Le Hong Hiep

Decades after the liberalisation of Vietnam’s banking sector, private banks remain tightly controlled by a handful of owners, many of whom use their banks to funnel cheap loans into their other businesses.
This practice, which dates back to the early 1990s, was laid bare by the case of Truong My Lan, who became the first private businessperson in Vietnam to face capital punishment for embezzlement after she was convicted of siphoning billions from Saigon Commercial Bank (SCB) and leaving it – and Vietnam’s financial system – in a precarious position.
On December 3, an appeal court in Ho Chi Minh City upheld a death sentence for Lan, the majority owner of SCB and former chairwoman of the property developer Van Thinh Phat Group.
For almost a decade, Lan treated SCB as her personal “piggy bank”, withdrawing vast sums to fund risky real estate ventures. According to court documents, between October 2018 and October 2022, she orchestrated the creation of 2,527 fraudulent loan records to siphon 1,066 trillion dong (US$42 billion) from the bank.

By the time of her arrest in October 2022, Lan and her accomplices still owed SCB trillions of dong, much of which was classified as bad debt. A court verdict in April 2024 confirmed that Lan’s actions caused losses exceeding 677 trillion dong (US$27 billion). To stabilise the bank and prevent systemic collapse, the State Bank of Vietnam had already injected US$24 billion into SCB as of April last year.
Legally, Lan’s death sentence is justified under Vietnam’s 2015 Criminal Code, which permits the death penalty for embezzlement exceeding 1 billion dong. Lan’s punishment, however, also serves as a cautionary tale for others in Vietnam’s banking sector. It signals the grave consequences awaiting those who exploit financial institutions for personal gain, highlighting the government’s determination to address the deep-seated risks posed by cross-ownership and related lending.
The SCB scandal is not an isolated incident but a symptom of a broader vulnerability in Vietnam’s banking sector.
By 1996, 52 joint-stock commercial banks had emerged in the country, often funded by investors returning from the former Soviet Union and Eastern Europe. These investors exploited their banks to provide themselves with favourable loans and, in some cases, used nominees to gain control of financial institutions.
Today, this dynamic persists, with many private banks still under the sway of a small group of influential individuals. These owners direct funds from their banks to related entities, creating significant risks for the financial system. Despite efforts by the State Bank of Vietnam to curb cross-ownership, results have been limited.
In January last year, the National Assembly introduced amendments to the Law on Credit Institutions to address these systemic issues. The new rules impose stricter caps on ownership: individual shareholders are now limited to 5 per cent of a bank’s charter capital, institutional shareholders to 10 per cent, and groups of related entities to 15 per cent. Shareholders with 1 per cent or more of a bank’s charter capital must disclose their ownership details. Additionally, lending regulations that took effect in July 2024 limit a customer’s total outstanding loans to 10 per cent of the bank’s equity by 2029, with loans to related parties capped at 15 per cent.


Enforcement remains a hurdle, however. Bank owners often use nominees, proxies, or shell companies to obscure their holdings, making it difficult for regulators to identify true ownership. The same tactics are used to bypass lending restrictions, perpetuating the risks of related-party lending.
This dynamic has been described as a “chronic disease” afflicting Vietnam’s banking system. The consequences, as the SCB case illustrates, can be catastrophic – not only for individual banks but for the broader financial system. Regulators face a delicate balancing act: imposing stricter controls risks destabilising the economy, while leniency could invite further abuse.
The death sentence for Lan may act as a deterrent, but it is unlikely to solve the systemic issues plaguing Vietnam’s banking sector. Addressing this “chronic disease” requires more than punitive measures – it demands structural reforms and stronger enforcement mechanisms.
South Korea’s experience with chaebol-dominated banks may offer valuable lessons. Faced with similar challenges, South Korea restructured its banking sector to limit cross-ownership and increase transparency, reforms that ultimately strengthened its financial system. Vietnam may need to adopt a similar approach, ensuring that political will aligns with the urgency of the problem.
Without decisive action, another SCB-like scandal may be inevitable. The death sentence handed down to Lan is a dramatic warning, but it cannot be the final word. Vietnam must seize this opportunity to address the causes of its banking vulnerabilities and safeguard its financial future.
Le Hong Hiep is a Senior Fellow and Coordinator of the Vietnam Studies Programme at the ISEAS – Yusof Ishak Institute. This article was first published by ISEAS – Yusof Ishak Institute’s commentary website fulcrum.sg


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This Week in Asia

Opinion

Truong My Lan’s death sentence serves as a warning, but Vietnam needs structural reforms to address the sector’s vulnerabilities


Truong My Lan’s death sentence serves as a warning, but Vietnam needs structural reforms to address the sector’s vulnerabilities.


Banking & finance

Crime

Central banks

Corruption in Asia

Private banking

Scams and swindles

Regulation

Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


Column

Asian Angle

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Truong My Lan’s death sentence serves as a warning, but Vietnam needs structural reforms to address the sector’s vulnerabilities

Truong My Lan’s death sentence serves as a warning, but Vietnam needs structural reforms to address the sector’s vulnerabilities