Under what circumstances is a bank not allowed to buy corporate bonds?
VietReader 19-11-2020, 23:16

The State Bank has just announced the Draft Circular regulating the purchase and sale of corporate bonds by credit institutions (credit institutions) on the basis of inheriting Circular No. 22/2016 / TT-NHNN dated June 30. / 2016 (Circular 22), Circular 15/2018 / TT-NHNN dated June 18, 2018 and supplement and amend a number of contents to suit the reality and performance of credit institutions.

The purpose of the draft Circular is to ensure the healthy and sustainable development of credit institutions’ purchase and sale of corporate bonds; at the same time, supplementing the regulations on the purchase and sale of corporate bonds between credit institutions and the sale of corporate bonds by credit institutions to complete the legal framework for the purchase and sale of corporate bonds by credit institutions; thereby managing these activities consistently with credit granting and debt buying and selling activities of credit institutions.

In which, a noteworthy content is the draft Circular providing a series of cases where credit institutions are not allowed to buy corporate bonds.

Firstly, the draft stipulates that credit institutions cannot borrow capital from other credit institutions to buy corporate bonds.

This regulation is in accordance with the provisions of Circular No. 36/2014 / TT-NHNN dated November 20, 2014 on prudent limits and ratios in the operations of credit institutions, Circular 22/2019. / TT-NHNN dated 15/11/2019 replaces Circular 36/2014 / TT-NHNN (effective from 01/01/2020) and the operation of credit institutions, contributing to ensuring safety. in the activities of credit institutions.

Second, credit institutions are only allowed to buy corporate bonds when their bad debt ratio is below 3% according to audited financial statements in the year preceding the year of purchasing corporate bonds, except for cases of purchasing corporate bonds under the restructuring plan approved by competent authorities. the right to approve in accordance with the law.

Credit institutions are not allowed to buy bonds (including buying from the initial issue and repurchasing from other organizations and individuals) of an issuing company that has incurred bad debts at buying credit institutions and at other credit institutions within the last 12 months. up to the time of purchasing approval decision ”.

This regulation aims to limit credit institutions that cannot control bad debt ratio below 3% but still buy and sell corporate bonds, and at the same time contribute to limiting bad debts and improving credit quality of credit institutions.

Third, credit institutions are not allowed to buy corporate bonds to be issued in which the purpose is to restructure debts of issuing enterprises.

The State Bank said that over the past time, credit institutions have bought corporate bonds issued for the purpose of restructuring debts, with potential risks, especially in the condition that bond issuers continue to face difficulties in real estate activities. and inability to repay principal and interest on maturing bonds, leading to the issue of additional bonds to continue debt restructuring.

Accordingly, if a corporate bond is issued for many different purposes, including debt restructuring, the credit institution may not buy corporate bonds.

Fourth, credit institutions are not allowed to buy corporate bonds issued for the purpose of contributing capital or buying shares in other enterprises.

According to the State Bank, this regulation is to limit credit institutions not to buy bonds issued to contribute capital or buy shares in other enterprises, because through the inspection of credit institutions’ activities, some cases are discovered. bonds with the purpose of implementing investment programs and projects of enterprises, increasing the size of working capital, but actually mobilizing capital to contribute capital, buy shares in other enterprises, to these enterprises. project implementation or continue to contribute capital, buy shares.

Therefore, it is difficult for credit institutions to control the purpose of capital use, cash flow from bond issuance sources, project implementation …

Fifth, credit institutions buy corporate bonds for the purpose of holding to maturity, when converting the purpose of holding bonds and selling these corporate bonds to other credit institutions, within 12 months, they will not buy back sold corporate bonds and / or bonds within 12 months. Vouchers are issued in the same lot / same batches as sold corporate bonds, except for the case of selling corporate bonds under the restructuring plan approved by competent authorities in accordance with law.

This regulation aims to manage the purchase and sale of corporate bonds among credit institutions in agreement with the management of debt purchase and sale activities of credit institutions and relevant legal regulations, to avoid cases where credit institutions sell corporate bonds to other credit institutions. year end and buy back at the beginning of next year to find ways to not comply with the regulations of the State Bank of Vietnam on controlling annual credit growth limit.

Source: bizlive.vn – Translated by fintel.vn

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