Banks will be prohibited from buying bonds for the purpose of restructuring the issuers’ existing loans. (Photo: VNA) Hanoi (VNS/VNA) – The State Bank of Vietnamhas tightened regulations on corporate bond purchase by credit institutions andforeign banks’ branches.
Under Circular No. 15/2018/TT-NHNN issued on June 18,which revises Circular No. 22/2016/TT-NHNN dated June 30, 2016, the centralbank prohibits them from buying bonds for the purpose of restructuring theissuers’ existing loans, effective from August 2 this year.
The central bank also stipulates that for corporate bondpurchase, credit institutions and foreign banks’ branches must have an internalcredit rating system besides the system to rate the bond issuers.
They are also required to issue internal regulations on thepurchase of corporate bonds in accordance with the current legal regulations.
Accordingly, internal supervision regulations on corporate bond purchase,especially bonds issued for the purpose of implementing programmes and projectsin areas of potential risk as identified by the assessment of creditinstitutions and foreign banks’ branches, must be established to detect risksand violations to ensure the recovery of principal and interest of corporatebonds.
Credit institutions and foreign banks’ branches must alsoissue internal regulations on specifying the areas of potential risks as wellas their credit and investment policies on the areas.
It is estimated that some 75 percent of corporate bond buyersin Vietnam are commercial banks, which makes these bonds no different from bankloans.
Bui Quang Tin, professor at the HCM Banking University, toldthe Dau tu (Vietnam Investment Review) that some companies sold bondsto banks to restructure their existing loans rather than raise new capital,which defeated the original purpose of bond issuance.
According to Tin, outside investors, especially individualinvestors, usually have no access to a firm’s business activities. Vietnam doesnot have an independent credit rating agency, which makes bond investmentrisky, as investors do not know which issuer can pay back their bonds.
To attract more international investors, Tin suggestedsetting up a credit rating agency, as well as diversifying bond offers to themarket.
Besides, financial experts also believed that a streamlinedlegal framework will pave the way for more corporate bond issuers asfixed-income products, such as bonds, are still attractive to investors, thanksto its safety and lower risks.-VNS/VNA
VNA
