news - FMO supports release of Vietnam Guidebook for Banks

A consortium of four parties, the State Bank of Vietnam (SBV), International Finance Corporation (IFC), the Netherlands Development Finance Company (FMO), and Dragon Capital Group (DCG), launched a Guidebook on Related-Party Transactions for Vietnamese Commercial Banks on January 14, 2016. The launch event was attended by management of more than 30 commercial banks, related stakeholder’s representatives and the media.

In Vietnam’s banking sector, related party transactions - business deals or arrangements between two parties who are joined by a special relationship prior to the deals - have been pretty common and a major reason resulting in a number of financial scandals in the recent years. “Abusive related party transactions have significantly weakened the banking sector and increasingly become a challenge to the integrity of Vietnam capital markets,” said Mr. Nguyen Huu Nghia, Chief Inspector-Banking Supervision Agency (BSA). “It’s time commercial banks must strictly comply with standards and practices for related party transactions.” The guidebook aims to help Vietnamese commercial banks improve related party transactions oversight and management as well as increase transparency of related party transactions. Bank directors and senior management can find a source of best practices and examples on related party transactions execution, which suggests easy and effective implementation. “Related party transactions are always viewed as situations which are open to possible conflict of interest and should be subject to rigorous review,” said Ms. Nguyen Nguyet Anh, IFC’s Corporate Governance Officer. “It is a recommended practice that a bank should outline its related party transactions policy as a part its governance policy framework.” Banks are engines of growth and generate a multiplier impact on the economy.  Failure of one bank has a systemically larger impact on the banking system and the economy. Therefore greater care should be taken in the governance of each bank.  “Related-party transactions, if not conducted at arm’s length, are a threat to the financial sector in many countries, not only in Vietnam,” said Marnix Monsfort, Manager of Financial Institutions in Asia for FMO. “Commercial banks thus need to ensure that the terms and conditions of related party transactions should never be more favourable than transactions with non-related parties under similar circumstances.” A strong related party transactions environment and leadership ‘at the top’ is important and empowers internal bank gatekeepers.  Strong corporate governance is conveyed through a company’s leadership characteristics, its systems of accountability and thorough fairness, transparency and responsibility to the institution and its stakeholders. “Corporate governance reform is now at the top of agendas for regulators, institutional investors and boards of directors,” said Mr. Dominic Scriven, Chairman of Dragon Capital Group. “A good corporate governance function, including attracting qualified independent board directors and the transparency of related party transactions is critical.”

Download the PDF here.