HANOI – Vietnam has mounted an “unprecedented” rescue of Saigon Joint Stock Commercial Bank (SCB), a lender engulfed in the nation’s biggest financial fraud, according to three bank documents and new official information provided to Reuters by a person with access to the documents.

“Without lending, SCB will collapse,” according to the new information provided to Reuters. “If the lending continues, the national treasury will gradually dry up.”

Reuters is not identifying the source more specifically due to the sensitivity of the matter.

The central bank placed SCB under its supervision to stem a run on the bank sparked by the October 2022 arrest of real estate tycoon Truong My Lan, who was sentenced to death last week for masterminding the fraud.

The new information described the situation as “unprecedented” for the massive volume of the cash injections, the complexity of the operation, and the scale of existing and potential damage to Vietnam’s financial system.

Reuters was unable to establish whether the conclusions about the impact on state coffers were broadly shared by other officials currently involved with monitoring SCB.

As of the start of April, Vietnam’s central bank had pumped US$24 billion (S$32.8 billion) in “special loans” into SCB, according to one of the bank documents seen by Reuters.

Lending has slowed slightly but averaged more than US$900 million a month in the past five months, according to that document, a second document with updates from March 15 to March 20, and a third document from November with monthly updates from October 2022 to October 2023.

The central bank did not reply to requests for comment about the rescue effort. Vietnam’s finance ministry referred a question to the central bank. An SCB official declined to comment when contacted by phone.

The State Bank of Vietnam’s previously unreported cash injections into SCB amount to 5.6 per cent of the nation’s annual economic output, or about one-fourth of Vietnam’s foreign exchange reserves.

Since the October 2022 arrest of Lan, SCB’s deposits had plunged 80 per cent to about US$6 billion by December 2023, according to the new official information from the source.

SCB could run out of deposits by mid-year at the current pace, and bad loans had surged to 97.08 per cent of SCB’s credit balance as of October, it said.

Lan had pleaded not guilty to embezzlement and bribery for allegedly siphoning off US$12.5 billion in loans from SCB to shell companies while effectively controlling SCB through proxies. A formerly prominent figure in Vietnamese finance, she will appeal the verdict of the People’s Court of Ho Chi Minh City, one of her lawyers said.

Despite the official support, as of December, SCB continued to face liquidity problems.

It at times struggled to settle payments on time when its customers transferred money to other banks, and to process payments via the country’s main clearing system, according to the new information. This affected customer “psychology”, and created risks to the entire banking and financial system, it said.

Vietnam’s banking sector is already facing heightened risks from prolonged turmoil in the real estate sector. The fraud prosecution is part of the authorities’ “blazing furnace” anti-corruption campaign, which triggered the real estate crisis, weighing on the economy and clouding the outlook for banks.

The central bank and the Vietnam government have repeatedly sought help for SCB from the private sector, specifically calling on foreign investors, state media say, despite restrictions such as a 30 per cent cap on combined foreign ownership of Vietnamese banks.

Late in 2023, the central bank assigned private real estate company Sun Group to craft a plan to restructure SCB, according to the recent information from the source and three people familiar with the plan. Sun Group did not reply to a request for comment.

Reuters could not determine whether the Sun Group plan has been approved.

Any restructuring plan would hinge on the evaluation of real estate assets used by Lan and her companies as collateral for loans, but the legal status of those assets is often unclear, as many are still seeking permits while some violated rules on public land or permits, according to the new information.

Some of the assets include valuable properties in high-end districts in Ho Chi Minh City, but most are unfinished projects. REUTERS