Improving risk control in investment in corporate bonds

09:06-10/10/2019

The State Bank of Vietnam (the SBV) has just issued the Document No 6128/NHNN-TTGSNH dated August 08, 2019 requiring domestic commercial banks to control risks in investment in corporate bonds.

According to the SBV, State management over banking operations in the first months of 2019 shows that there still existed risks in investment in corporate bonds as some banks had balances of investment in corporate bonds which accounted for a large part of the total assets and continued increasing quickly.

Specifically, the balances of investment in bonds in construction, real estate were high when the real estate market has not recovered stably; enterprises in this sector have still faced a lot of difficulties in their operations.

Besides, some banks continued its investment in bonds for different purposes with large volumes and great fluctuation, which it was difficult to control; or investment in bonds for the purpose of restructuring debts of issuing institutions in 2019.

To ensure safety in banking operations, curbing risks in buying corporate bonds, the SBV asked commercial banks to review internal regulations and ensure that they are issued fully in accordance with the features of banking business as well as the Circular No 22/2016/TT-NHNN on stipulating credit institutions, foreign bank branches to buy corporate bonds and other legal regulations on limitation, restriction to ensure safety, especially the internal regulations with regard to buying corporate bonds like regulations on procedures for appraising, approving and deciding corporate bond purchase, principles, criteria for reviewing, identifying risk levels of buying bonds…; disseminate these regulations to all units, staff to ensure uniform implementation in compliance with legal regulations and internal regulations.

Besides, in accordance with the provisions in the Circular No 15/2018/TT-NHNN dated June 18, 2018 on amending, supplementing some articles of the Circular No 22/2016/TT-NHNN, buyingcorporate bonds with a purpose of restructuring debts of issuing companies is prohibited.

Investment in bonds for the purpose of investment in programs, projects of real estate sector or to increase the size of capital of issuing institutions operating in real estate sector is strictly controlled to restrict risks.

The Governor of the SBV also require commercial banks to enhance examination, supervision after granting loans, especially supervision over the use of capital for right purposes; regular monitor, review to soon identify unusual signs of companies’ capability to fulfill debt obligations; soon detect, strictly deal with violations of legal or internal regulations on granting credit.

It is necessary to improve control of investment in corporate bonds; actively carry out measures to control debts to restrict bad debts; to enhance capability to review, appraise loans and efficiency of credit risk management; to improve effectiveness of internal control, auditing.

It is also essential to concentrate on reviewing investment in bonds of companies with high balances, especially those with credit relations with a lot of credit institutions/other companies, ensuring compliance with regulations on limitations, capital adequacy ratios in banking operations, especially regulations on limitation of granting capital to one client, and stakeholders.

The SBV stressed that it would strictly penalize violators of legal regulations on investment in corporate bonds.

Research and International Cooperation Department