Vietnam bank receives massive bailout after major fraud scandal

Vietnam's banking sector has faced a significant crisis due to an extensive fraud scandal involving the Saigon Joint Stock Commercial Bank (SCB). The situation escalated after the arrest of a prominent real estate tycoon who had been controlling SCB through proxies. Following the arrest, panic ensued among depositors, leading to a drastic withdrawal of funds. In response to the crisis, the central bank injected US$4 billion within three weeks after the arrest and subsequently implemented a massive bailout amounting to nearly US$26 billion, equivalent to 5 percent of the nation's projected economic output for 2024. The financial assistance from the central bank exposed the vulnerabilities within the Vietnamese banking system, which struggles to maintain oversight and mitigate sector risks. Reports indicate that the central bank's support would reach 657 trillion dong in the bank's first year of restructuring to cover deposit withdrawals. Sun Group, assigned to lead the restructuring effort, plans to make SCB profitable again while facing a decade-long recovery period under the proposed plan. As part of the restructuring process, SCB will commence repayment of the bailout funds during the 14th year of the rescue program, based on prevailing market conditions. A significant aspect of the plan involves investing at least 3 trillion dong in SCB’s charter capital to stabilize the bank’s core capital buffers. However, the restructuring plan acknowledges that recoverable assets, much of which belong to shell companies with inflated collateral values linked to the fraud, represent only a small portion of the overall liabilities. In the aftermath of this banking crisis, the Vietnamese economy grapples with heightened risks resulting from global trade tensions and rising tariffs imposed by the United States under the Trump administration. President Trump’s policies have put additional pressure on Vietnam's export-driven growth, complicating the country's attempts to stabilize its financial institutions while managing both domestic and international economic challenges.