Massive fraud case exposes Vietnam’s corrupt bank system

The financial crisis of 2008 showed just how much the world depends on banks being well run. Since then, regulators have been given new powers to keep some of the biggest institutions on a much shorter leash to stamp out risk, greed and corruption.

But this approach hasn’t worked everywhere. On April 11, 2024, a businesswoman in Vietnam was sentenced to death for taking out US$44 billion in fraudulent loans from one of the country’s biggest banks.

Truong My Lan took the money – most of which is unlikely to be recovered – out of Saigon Commercial Bank (SCB) by bypassing a Vietnamese law that prevents anyone from owning more than 5% of a bank’s shares. By using hundreds of shell companies (among other methods) she ended up owning more than 90% of the bank.

Meanwhile, the loans that she took out (worth just under 10% of Vietnam’s GDP for 2024) made up 93% of the bank’s entire lending portfolio. On several occasions she withdrew huge amounts in cash, which she stored in her basement.

Lan is expected to appeal the court’s verdict. But on a basic level, this extraordinary case of fraud exposes the inherent vulnerabilities of banks, which use deposits to fund loans. Put simply, for every £10 ($12.45) deposited, a bank could lend up to £9 ($11.22) to fund mortgages or corporate loans, keeping just £1 ($1.25) as a reserve to allow for withdrawals.

But while depositors can theoretically withdraw their money whenever they want, if they demand a particularly large amount of cash, the bank may not have enough in reserve to cover it. After Lan’s arrest in 2022, SCB faced a bank run (when large numbers of customers try to withdraw their money) and the bank has been under state control ever since.

To avoid this kind of situation, banks