In which cases shall a credit institution be permissible to purchase corporate bond in Vietnam? Which corporate bonds are limit from purchasing in Vietnam?

In which cases shall a credit institution be permissible to purchase corporate bond in Vietnam?

Pursuant to Clause 6 Article 4 of the Circular 16/2021/TT-NHNN stipulating cases in which a credit institution shall be permissible to purchase corporate bond in Vietnam as follows:

A credit institution is only allowed to purchase corporate bond when:

- Corporate bond satisfies following conditions:

+ The corporate bond is issued in accordance with regulations and law.

+ The corporate bond is issued in VND.

+ The corporate bond is under legal ownership of the seller, has not reached maturity which requires payment of both principal and interest, is not subject to any dispute, is allowed to be traded as per the law, is not under forward contract or discount contract or rediscount contract as guaranteed by the seller (except for cases where a credit institution purchases corporate bond to sell for the first time).

- Use purpose of revenues generated from corporate bond issue is legitimate and compliant with bond issuance plans and/or plans for utilizing capital, revenues generated from bond offering and issuance approved as per the law (hereinafter collectively referred to as “plans”);

- Issuer guarantees to redeem bond before maturity when: The issuer repurposes revenues generated from bond issuance during the period in which credit institutions hold the bond; the issuer violates regulations and law on issuance of corporate bond; the issuer violates the plans;

- The plans are feasible and the issuer is financially capable in order to settle both principal and interest of the bond adequately;

- The issuer has no non-performing loan in credit institutions in the last 12 months prior to the date on which credit institutions purchase corporate bond.

Which corporate bonds are limit from purchasing in Vietnam?

Pursuant to Article 8 of the Circular 16/2021/TT-NHNN stipulating corporate bond purchase limit in Vietnam as follows:

Corporate bond purchase limit

1. The total corporate bond purchase balance shall be included in total amount of credit extended of a customer or a customer and a related person according to Article 128 of the amended Law on Credit Institutions and regulations of the State Bank of Vietnam on prudential limits and ratios in operations of credit institutions.

2. Credit institutions shall elaborate on corporate bond purchase limits: Corporate bonds of an issuer; corporate bonds of an issuer and a related person; secured bonds; non-secured bond; readily marketable bonds; bonds held until maturity; corporate bonds being traded.

As regulations above, credit institutions shall elaborate on corporate bond purchase limits: Corporate bonds of an issuer; corporate bonds of an issuer and a related person; secured bonds; non-secured bond; readily marketable bonds; bonds held until maturity; corporate bonds being traded. 

Is it true that only credit institution with non-performing loan ratio less than 3% is only allowed to purchase corporate bond in Vietnam?

Pursuant to Clause 3 Article 4 of the Circular 16/2021/TT-NHNN stipulating corporate bond trading principles in Vietnam as follows:

Corporate bond trading principles

1. Credit institutions may trade corporate bond in accordance with corporate bond trading provisions under the Permit issued by the State Bank of Vietnam.

2. Corporate bond trading of credit institutions must conform to the amended Law on Credit Institutions, Law on Securities, Law on Enterprises, this Circular, and relevant law provisions.

3. Credit institutions that trade corporate bond must have available internal credit rating system and must promulgate internal regulations on corporate bond trading in accordance with this Circular and relevant law provisions.

4. Credit institutions that purchase convertible bond or warrant-linked bonds must comply with the amended Law on Credit Institutions, guidelines of State Bank of Vietnam on capital contribution and share purchase, and relevant law provisions.

5. A credit institution is only allowed to purchase corporate bond when their non-performing loan ratio is less than 3% in the latest classification according to regulations of the State Bank of Vietnam on classification of existing assets, amount of risk provisions, methods of setting up risk provisions, and the use of risk provisions in operations of credit institutions prior to the day of corporate bond purchase.

As regulations above, a credit institution is only allowed to purchase corporate bond when their non-performing loan ratio is less than 3% in the latest classification according to regulations of the State Bank of Vietnam on classification of existing assets, amount of risk provisions, methods of setting up risk provisions, and the use of risk provisions in operations of credit institutions prior to the day of corporate bond purchase.

Best regards!