Vietnam’s anti-graft campaign casts shadow over economy

High-profile detention triggers bank run at Saigon Joint Stock Commercial Bank.

Vietnam has detained some of its most prominent business leaders in a monthslong anti-corruption crackdown, stoking confusion across industry lines and threatening Southeast Asia’s fastest growing economy.

One of the latest arrests sparked a run on the privately held Saigon Joint Stock Commercial Bank (SCB). On Oct. 8, customers flooded SCB branches demanding to withdraw savings, as rumors spread on social media that the bank may be in trouble.

The day before, Vietnamese authorities detained Truong My Lan, founder and chairwoman of property developer Van Thinh Phat Group Holdings (VTP), along with three other executives.

VTP is believed to have deep ties with SCB. The property group is accused of illegally issuing 25 trillion dong ($1.02 billion) worth of company bonds between 2018 and 2019, local media reported.

An entrepreneur with Chinese roots, Lan is the matriarch of one of Vietnam’s wealthiest families. She is believed to have strong connections to local officials in Ho Chi Minh City, and owns numerous luxury properties at the heart of the city. But little is known about VTP, which is privately owned and discloses limited information.

“The company is a mystery,” a financial industry insider said.

SCB has struggled to dispel concerns over its ties to VTP. Vietnam’s central bank on Friday took the unusual step of placing SCB under “special scrutiny” and instructed four state-owned banking groups to send directors to the embattled institution.

Authorities have also restricted reporting by local media on the issue.

Vietnamese authorities have detained several prominent business leaders this year, including from FLC Group and Tan Hoang Minh Group, for fraud and other charges.

“Wrongdoing that undermines the trust of citizens will not be tolerated,” Prime Minister Pham Minh Chinh has said, signaling further crackdowns to come.

But what qualifies as fraud or corruption in Vietnam largely depends on discretion of its authorities.

“The cases against key business figures are linked to the political power struggle” within the Communist Party, which controls Vietnam, a real estate industry source said.

There is concern that big players will hold off on raising large amounts of money for the foreseeable future to avoid painting a target on their backs.

Government agencies are also delaying decisions regarding new investments as a way to minimize the impact of the anti-corruption campaign.

Investment by foreign companies, which are responsible for around 70% of Vietnam’s exports, have been sinking on the year, and a continued crackdown could weigh over the economy as a whole.

By Tomoya Onishi – Nikkei Asia – October 20, 2022