Vietnam arrests ex-bank director as probe widens

HANOI, Vietnam (AP) — Police arrested the former head of one of Vietnam's largest banks as part of a widening probe into economic crimes that has spooked investors and depositors in a country struggling to reform its debt-ridden bank sector, state-run media reported Friday.

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 had resigned from the job and a replacement named, the Vietnam News Agency reported. 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. ACB branches in the capital, Hanoi, were quiet Friday.

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. 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. Prior to his arrest, Kien had no management role at ACB.

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 in what was once one of Asia's most promising economies. Much of the debt is owed by conglomerates with links to the government, complicating efforts to clean up the system and causing tensions within its tightly intertwined political and economic elite.

ACB, which Standard and Chartered has a 15 percent stake in, was considered one of the better run of the more than 40 banks in Vietnam.

"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."