HANOI: Vietnam's stock markets have lost more than $5.0 billion in value this week since the arrest of two top bankers, as experts warned the scandal could tip the fragile banking sector into full-blown crisis.
Both the founder and the director general of Asia Commercial Bank were arrested this week for economic crimes, triggering a run on deposits and forcing the central bank to provide emergency liquidity to the institution.
After a three-day slump, markets rallied Friday with the benchmark VN Index up 1.75 percent, but the combined market capitalisation of the Hanoi and Ho Chi Minh City exchanges had dropped by $5.62 billion dollars since Monday, according to VietStock data.
The arrest of Ly Xuan Hai late Thursday for "deliberate wrongdoing causing serious consequences" came just hours after the Asia Commercial Bank announced he had resigned from the position of director general, Thanh Nien reported.
It deepened the problems facing ACB, Vietnam's largest private bank, which has seen its share price dive nearly 20 percent and had jittery depositors withdraw at least $384 million since its flamboyant founder was arrested Monday.
On Friday, Fitch ratings agency placed the ACB on Rating Watch Negative saying the arrests could lead to "potential adverse impact... on depositor confidence in ACB and its credit profile."
It left the overall bank ratings -- already among the lowest in Asia Pacific -- unchanged but said it would "closely monitor the potential impact," of this week's developments.
ACB shares rose 3.8 percent Friday, having lost nearly seven percent each day for the last three days.
The broader risk "is that people lose confidence in the (private) banks and there is a massive bank run... it is a systemic economic risk," one banking sector foreign expert told AFP on condition of anonymity.
After a decade of rapid, chaotic bank liberalisation, Vietnam has 42 domestic banks, many of which are overloaded with toxic debt. Last year,the government announced aggressive restructuring plans but the drive has stalled.
Multi-millionaire Nguyen Duc Kien, 48, a shareholder in some of Vietnam's largest financial institutions and one of the founders of ACB, was reportedly involved in drafting the bank reform plans.
His fall highlights the high-risk economic environment where "the line between violation and non-violation when doing business in Vietnam is very small," one Hanoi-based Vietnamese analyst told AFP.
"One can be a very successful businessman today, but can turn into a criminal the very next day," due to the communist country's opaque legal and political systems, he said.
Kien, who was widely seen as being close to the Prime Minister, has been accused of wrongdoing at three smaller financial companies where he is chairman.
He evaded banking regulations by setting up a web of shell companies, licensed in real estate, through which he funnelled millions of dollars to amass stakes in other banks in his family members' names, Tuoi Tre said.
The central bank had said Kien's arrest was not related to the ACB -- where he holds a less than five percent stake. One banker based in Ho Chi Minh City said the authorities were trying to "ring fence" the key institution.
Others warned however that it would be hard to restore public trust in the bank, after the arrest of Hai who worked at the ACB for 15 years.
The $384 million in withdrawals by depositors was recorded over Tuesday and Wednesday, the ACB's new director general Do Minh Toan said according to state media reports.
The bank counts global banking giant Standard Chartered as one of its "strategic partners". The British group has so far remained silent on the matter.
Le Tham Duong of the Ho Chi Minh City-based University of Banks told AFP that the case could eventually have a positive impact.
"We can't leave the system as it is... it is time to clean it up. Today ACB may have some difficulties (but) it will be certainly be much better" in future, he said.
In the meantime, most foreign investors "are still in 'wait and see' mode," Singapore-based Tony Nash, managing director of IHS consulting, told AFP. These two arrests are "not a wholesale indictment of the Vietnamese banking system... yet."
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