Conditions for credit extension for investment in corporate bonds in Vietnam

Conditions for credit extension for investment in corporate bonds in Vietnam (Internet image)

Regarding this issue, LawNet would like to answer as follows:

1. What is credit extension for investment in shares?

According to Clause 18, Article 3 of Circular 22/2019/TT-NHNN, credit extension for investment in shares means a bank or FBB grants or entrusts extension of credit which will be used by a juridical person or natural person to purchase shares.

2. Conditions for credit extension for investment in corporate bonds in Vietnam

A bank or FBB may extend credit with terms of up to 01 year for clients to invest in corporate bonds if the following conditions are met:

(i) The credit extension comply with the limits and prudential ratios prescribed by law;

(ii) Bad debts ratio is under 3%;

(iii) Risks are properly managed in accordance with regulations of SBV on internal control systems of commercial banks and FBBs, regulations on classification of assets, making of and use of provisions for losses for risk management by credit institutions and FBBs.

* Note: The total credit extended for investment in corporate bonds (including bonds of credit institutions and FBBs) must not exceed 5% of the charter capital/assigned capital of a bank or FBB.

(Clause 1 and 3, Article 11 of Circular 22/2019/TT-NHNN)

3. Cases ineligible for credit extension for investment in corporate bonds in Vietnam

Pursuant to Clause 2, Article 11 of Circular 22/2019/TT-NHNN, a bank or FBB must not extend credit with for a client to invest in corporate bonds in the following cases:

- The collateral is bonds issued by a credit institution, subsidiary of a credit institution or FBB;

- The collateral is the bonds to be purchased by the client with the extended credit;

- The client is one of the organizations and individuals mentioned in Clause 1 Article 126 of the Law on credit institutions (amended);

- The client is a related person of any of the organizations or individuals mentioned in Clause 1 and Clause 4 Article 126 of the Law on credit institutions (amended);

- The client is or is related to one of the organizations or individuals mentioned in Clause 1 Article 127 of the Law on credit institutions (amended);

- The bonds are not listed or registered on the Unlisted Public Company Market (UPCOM);

- The bonds are issued by a subsidiary of the bank;

- The client is a subsidiary or associate company of the credit institution.

4. Regulations on management of ccredit extension for investment in corporate bonds in Vietnam

The management of credit extension for investment in corporate bonds in Vietnam is regulated as follows:

(1) Banks and FBBs shall manage credit extension in accordance with law their internal rules and regulations on credit extension and loan management to ensure proper use of loans according to Clause 1 Article 4 of Circular 22/2019/TT-NHNN.

(2) Banks and FBBs shall keep updating the list of founding shareholders, major shareholders, capital contributors, members of the Board of Directors, the Board of members, the Board of Controllers, executives, holders of other managerial positions, and their related persons.

This list must be made publicly available in the system of banks and FBBs, and be sent directly or by post to SBV in accordance with Point a and Point b Clause 6 Article 4 of Circular 22/2019/TT-NHNN.

(3) A bank or FBB shall submit reports to:

- To the General Meeting of Shareholders or members: reports on credit extended to the entities specified in Clause 1 Article 127 of the Law on credit institutions 2010 (amended in 2017) by the time the general meeting is held;

- To the owner, capital contributors, executives: reports on credit extended to the entities specified in Clause 1 Article 127 of the Law on credit institutions 2010 (amended in 2017);

- To SBV: reports on credit extended to the entities specified in Clause 1 Article 127 of the Law on credit institutions 2010 (amended in 2017);

(4) Extension of credit to subsidiaries, associate companies and the entities mentioned in (2) (except for the cases in which credit extension is not allowed according to Article 126 of the Law on credit institutions 2010 (amended in 2017)) is subject to approval by the Board of members (for banks), General Director or Director (for FBBs)

Except for credit extension decided by the General Meeting of Shareholders. The Board of Controllers shall monitor the approval of credit extension for the aforementioned entities.

(Article 13 of Circular 22/2019/TT-NHNN)

Nguyen Thi Hoai Thuong

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