Nguyen Duc Kien, one of the richest tycoons in Vietnam's banking industry, has been arrested for conducting "illegal business," prompting fears among customers who have withdrawn hundreds of millions of dollars since the news broke out on Monday.
Kien helped founded the Asia Commercial Joint Stock Bank, or ACB, one of Vietnam's largest banks, and his arrest has precipitated turmoil in the company's operations, despite its effort to completely sever ties with Kien.
In addition to Kien, the Supreme People's Procuracy of Vietnam has also approved an arrest warrant for Ly Xuan Hai, ACB's chief executive officer, the Vietnamese online newswire Petrotimes reported Wednesday.
The details of the arrests and investigation have not been released, but the bank is already suffering from the fallout.
The shares for ACB plunged 6.7 percent in Hanoi, while the broader Vietnam Stock Index closed 4.2 percent lower at 392.82 in Ho Chi Minh City, reaching its lowest level since Feb. 1, pushing Vietnam's economy from bad to worse.
The company announced Thursday that the board of directors has authorized Do Minh Toan, an official who has had 14 years of leadership experience at ACB, to replace Hai, who is reportedly cooperating with the investigation.
ACB's Vice CEO Nguyen Thanh Toai said that ACB officials could still contact Hai, but they do not know how long Hai would be detained by the police investigators. He added the bank has not been informed of the contents of Hai's testimony to the authorities.
But it is clear the bank wants to cut all ties with Kien.
"Kien is no longer a major shareholder, nor a board member, and is not involved in the bank's board executives," Toai was quoted saying.
"It is a personal issue [of Kien]," he emphasized. "It does not affect the normal operation of the bank."
According to the Wall Street Journal, state-run media reported Thursday that ACB was given access to up to 46 trillion dong, or $2.2 billion, in emergency central-bank funds to offset the panic among depositors, while depositors had withdrawn about 5 trillion dong, or $240 million, from ACB as of Wednesday.
Toai reassured the customers that ACB has enough liquidity remaining, even though the amount withdrawn from the bank has been far above normal.
"Markets don't like uncertainty," Kevin Snowball, the Ho Chi Minh City-based chief executive of PXP Vietnam Asset Management, told Bloomberg.
"Until such time we get clarity or hear exactly what's going on and why these arrests are being made, there's a good chance the markets would continue to be weak."
In addition, Carlyle Thayer, a professor of politics at the Australian Defense Force Academy in Canberra, commented that Kien's arrest "could be a good political move" as Vietnam's leaders seek to reassure the country's 88 million people that wealth doesn't necessarily buy power.
Vietnam, once hailed as one of the strongest emerging economies in Asia, has been in crisis since 2008. The government has attempted various policies to stimulate the moribund economy, but these measures have only led to soaring property prices in 2010 and high inflation.
Having pledged to deal with the country's banks, which are awash with bad debt, corruption and cronyism, the Vietnamese government has tightened credit to get a grip on inflation, reported the Telegraph.
Kien is also a shareholder in other commercial banks, including Kien Long Commercial Joint Stock Bank and the Vietnam Export-Import Commercial Joint Stock Bank. He is also a major investor in Vietnam's professional football league.
His arrest and the shift in leadership within ACB have incited fear within the Vietnamese business community, creating even more instability in the already-fragile banking sector.