Multi-millionaire Nguyen Duc Kien, a shareholder in some of Vietnam’s largest financial institutions and a founder of Asia Commercial Bank (ACB), was detained last Monday.
The bank’s former head joined him in custody three days later.
The arrests, for unspecified economic crimes, caused panic, wiping some US$5 billion (S$6.3 billion) in value from Vietnam’s stock markets and triggering a bank run as depositors rushed to pull hundreds of millions of dollars out of ACB.
But the bigger concern is the potential for political instability, says a report by intelligence group Stratfor.
“Kien’s arrest could signify increasing discord among political elites and factions,” it said.
The tycoon is widely reported to have close connections to Prime Minister Nguyen Tan Dung and his daughter, a Swiss-trained private banker.
Since the 1990s, as Vietnam opened up economically, power has moved from the communist party to the state and, since he assumed the post in 2006, to Mr Dung, said to be the country’s most powerful premier ever.
He has used this power to push for high growth rates and champion a South Korean chaebol-style development path, relying on huge state-owned companies to drive economic growth.
At first, Vietnam was notching up 7 per cent-plus annual growth rates and quickly became a favourite of foreign investors, including global banking giant Standard Chartered, which owns 15 per cent of ACB.
But with economic growth now just 4.4 per cent year-on-year in the first half of this year, foreign direct investment down nearly 30 per cent in the same period and debt in the fragile banking system at “alarming levels”, there has been increasingly vocal criticism of Mr Dung.
Vietnam expert Carl Tha-yer said a new round of factional fighting has begun and that “the main battleground is economic reform and probity, including the state- owned sector and the banking sector, and weeding out entrenched large-scale corruption”.
While the moves against Mr Kien are not expected to force Mr Dung from his post, more of his allies are likely to be targeted, observers predict.