AP News

Vietnam arrests ex-bank director as probe widens

HANOI, Vietnam (AP) — Police have arrested the former director of one of Vietnam's largest banks as part of a widening probe into economic crimes that has spooked investors and added to doubts about the financial stability of a country once seen as an emerging Asian giant.

Former Asia Commercial Bank chief Ly Xuan Hai was arrested Thursday night for "deliberately acting against the state regulations on economic management," hours after he resigned from the job and a replacement was named, the Vietnam News Agency reported Friday. The crime carries a maximum punishment of 20 years in prison, the agency said. It was unclear whether Hai had any lawyers, and no more details were available.

ACB said it had halted lending as a result of the troubles, but that it was operating normally. On Thursday, as rumors swirled about the bank, it said jumpy customers were withdrawing money from the institution, raising fears of a possible bank run.

On Monday, the bank's co-founder Nguyen Duc Kien was arrested on allegations of "illegal trading," triggering the largest ever drop on the country's main stock exchange. ACB's share price has dropped some 15 percent. Seeking to reassure the public, the central bank then said that Kien's alleged crimes were not related to his past activities at ACB and pledged extra liquidity to the bank.

Kien withdrew from the management of ACB in 2010, but still holds stock there and in other Vietnamese banks.

Information is tightly controlled in Vietnam, but there has been speculation that the arrests of Kien and Hai were related to efforts by the communist government to reform the banking system, which has the highest level of bad debt in Asia and is hurting growth, currently running at around 4 percent.

Much of the debt is owed by state-owned conglomerates that were encouraged by the government to borrow money during the global economic crisis in 2009 and 2010 to try to create jobs. But many of them used the money to expand into other ventures, including speculation in the property market, and have been unable to repay the money. Efforts to clean up the system are believed to be causing tensions within the country's tightly intertwined political and economic elite.

ACB, owned 15 percent by Standard and Chartered, was considered one of the better run of the more than 40 banks in Vietnam. Fears of more arrests are causing political uncertainty and unnerving those with exposure to banking stocks, contributing to the decline in investor confidence.

"It's quite an ominous sign for ACB," said Stephen Norris, a Vietnam analyst at Control Risks, a political and security consultancy group. "The fact they have arrested this guy suggests they have some quite serious dirt at him. Behind the scenes is a big power struggle about how they are going to deal with the bad debt. That is the driver of political tensions."

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