Circular 16/2021/TT-NHNN prescribing the purchase and sale of corporate bonds by credit institutions and foreign bank branches

CIRCULAR

Providing the purchase and sale of corporate bonds by credit institutions and foreign bank branches^[1]

Pursuant to the June 16, 2010 Law on the State Bank of Vietnam;

Pursuant to the June 16, 2010 Law on Credit Institutions and the November 20, 2017 Law on Amending and Supplementing a Number of Articles of the Law on Credit Institutions;

Pursuant to the November 26, 2019 Law on Securities;

Pursuant to the June 17, 2020 Law on Enterprises; 

Pursuant to the Government’s Decree No. 153/2020/ND-CP of December 31, 2020, on private placement of corporate bonds and trading of privately placed corporate bonds in the domestic market and offering of corporate bonds to the international market;

Pursuant to the Government’s Decree No. 155/2020/ND-CP of December 31, 2020, detailing the implementation of a number of articles of the Law on Securities;

Pursuant to the Government’s Decree No. 16/2017/ND-CP of February 17, 2017, defining the functions, tasks, powers and organizational structure of the State Bank of Vietnam;

At the proposal of the Director of the Monetary Policy Department;

The Governor of the State Bank of Vietnam promulgates the Circular providing the purchase and sale of corporate bonds by credit institutions and foreign bank branches.

Article 1. Scope of regulation

1. This Circular provides the purchase and sale of corporate bonds by credit institutions and foreign bank branches in the territory of the Socialist Republic of Vietnam.

2. This Circular does not regulate the purchase and sale of bonds issued by credit institutions; purchase and sale of bonds issued by the Vietnam Asset Management Company; purchase of corporate bonds in the form of discount; definite-term purchase and sale of corporate bonds among credit institutions and foreign bank branches themselves; purchase and sale of corporate bonds issued on the international market; and purchase and sale of corporate bonds in the form of rediscount.

3. The purchase and sale of corporate bonds by credit institutions placed under special control must comply with the State Bank of Vietnam’s decision applicable to each of such credit institutions.

4. The purchase and sale of corporate bonds between credit institutions placed under special control and supporting credit institutions must comply with approved plans on recovery of credit institutions placed under special control.

Article 2. Subjects of application

1. Credit institutions and foreign bank branches (below collectively referred to as credit institutions) established and operating in accordance with the Law on Credit Institutions (which was revised).

2. Bond issuers that are joint stock companies and limited liability companies established and operating in accordance with Vietnam’s law.

  3. Other individuals and organizations involved in the purchase and sale of corporate bonds under this Circular.

Article 3. Interpretation of terms

In this Circular, the terms below are construed as follows:

1. Corporate bond means a type of securities of a term of at least 1 year that is issued by a corporation, certifying its holder’s lawful rights and interests to a portion of liabilities of the bond issuer.

2. Convertible bond means a type of bond issued by a joint stock company and convertible into common stocks of the bond issuer according to the conditions and terms specified in the bond issuance plan.

3. Secured bond means a type of bond that is eligible for security for payment of the whole or part of interests and principals upon its maturity with assets of the bond issuer or assets of a third party in accordance with the law on secured transactions, or is eligible for payment guarantee in accordance with law.

4. Warrant-linked bond means a type of bond issued together with warrants by a joint stock company, enabling the warrant holder to purchase a certain quantity of common stocks from a bond issuer according to the conditions and terms specified in the bond issuance plan.

5. Corporate green bond means a corporate bond issued for investment in environmental protection projects and projects bringing about environmental benefits in accordance with the law on environmental protection.

Article 4. Principles of corporate bond purchase and sale

1. Credit institutions may purchase and sell corporate bonds in accordance with corporate bond purchase and sale contents specified in licenses granted by the State Bank of Vietnam.

2. Credit institutions’ purchase and sale of corporate bonds must comply with the Law on Credit Institutions (which was revised), Law on Securities, Law on Enterprises, this Circular, and relevant laws.

3. To be eligible for purchasing and selling corporate bonds, a credit institution must have an internal credit rating system and issue internal regulations on purchase and sale of corporate bonds in accordance with this Circular and relevant laws.

4. Credit institutions purchasing convertible bonds and warrant-linked bonds shall comply with the Law on Credit Institutions (which was revised), the State Bank of Vietnam’s guidance on capital contribution and share purchase, and relevant laws.

5. A credit institution may purchase corporate bonds only when its non-performing loan ratio is below 3% as lately classified in the period prior to the time of purchase under the State Bank of Vietnam’s regulations on classification of assets, levels and method of deduction for setting aside risk provisions and use of provisions for handling risks in operations of credit institutions.

6. A credit institution may purchase corporate bonds only when:

a/ Corporate bonds comply with Article 5 of this Circular;

b/ The purpose of use of proceeds from the bond issuance is lawful and compliant with the bond issuance plan and/or plan on use of capital and proceeds from the private placement/offering of bonds approved in accordance with law (below collectively referred to as the plan);

c/ The bond issuer commits to redeeming premature bonds in case it repurposes the proceeds from the bond issuance during the period the credit institution holds bonds; the bond issuer violates regulations on issuance of corporate bonds; or the bond issuer breaches the plan.

d/ The plan is feasible and the bond issuer is financially capable for fully paying bond principals and interests on time;

dd/ The bond issuer has no non-performing loan in credit institutions in the period of the 12 months before the credit institution purchases corporate bonds.

7. In addition to complying with other provisions of this Article, a credit institution may purchase corporate bonds for which the bond issuer has repurposed the proceeds from the bond issuance in accordance with law before the credit institution purchases bonds only when the bond issuer is rated the highest at the time nearest to the time of bond issuance under the credit institution’s regulations on internal credit rating.

8. A credit institution may not purchase corporate bonds that are issued for one of the following purposes:

a/ To reschedule debts of the bond issuer;

b/ To contribute capital to or purchase shares from other enterprises;

c/ To increase working capital of the bond issuer.

9. A credit institution may not sell corporate bonds to its subsidiaries, unless it is the party entitled to compulsory transfer of corporate bonds to the commercial bank being the transferee.

10. Foreign bank branches may not purchase convertible bonds and warrant-linked bonds.

11. Within 12 months after selling corporate bonds not yet listed on the securities market or not yet registered for trading on the Unlisted Public Company Market (UPCoM) (below referred to as unlisted corporate bonds), a credit institution may not purchase unlisted corporate bonds it has sold and/or unlisted corporate bonds issued in the same lot/issuance with unlisted corporate bonds it has sold. After 12 months from the date of selling unlisted corporate bonds, the credit institution may only purchase unlisted corporate bonds it has sold and/or unlisted corporate bonds issued in the same lot/issuance with unlisted corporate bonds it has sold when:

a/ The credit institution complies with other provisions of this Article;

b/ The bond purchaser has made full payment by the time of signing the contract on sale of corporate bonds with the credit institution;

c/ The bond issuer is rated the highest at the time nearest to the time the credit institution purchases corporate bonds under the credit institution’s regulations on internal credit rating.

12. Clause 11 of this Article does not apply to the purchase and sale of corporate bonds between commercial banks entitled to compulsory transfer of corporate bonds and transferees, and the definite-term sale of corporate bonds.

13. Currency used in corporate bond purchase and sale transactions is Vietnam dong.

Article 5. Corporate bonds eligible for purchase and sale

Corporate bonds will be eligible for purchase and sale when fully meeting the following requirements:

1. Being issued in accordance with law.

2. Being issued in Vietnam dong.

3. Being under the lawful ownership of the sellers, not becoming mature for full payment of principals and interests, being free from dispute as committed by the sellers, being permitted for transactions under law, not currently being used for definite-term purchase and sale, discount or rediscount (unless credit institutions purchase corporate bonds issued for sale for the first time).

Article 6. Internal regulations

1. Pursuant to the Law on Credit Institutions (which was revised), this Circular and relevant laws, a credit institution shall issue and annually review its internal regulations on purchase and sale of corporate bonds (below referred to as internal regulations) in conformity with its management model and business characteristics, ensuring its operation safety.

2. Internal regulations must define responsibilities and obligations of sections and individuals involved in the purchase and sale of corporate bonds.

3. Internal regulations must at least contain professional processes and rules on risk management for purchase and sale of corporate bonds.

4. Pursuant to this Circular and relevant laws, within 10 (ten) working days after issuing, amending or supplementing its internal regulations on purchase and sale of corporate bonds, a credit institution shall:

a/ Send such internal regulations to the State Bank of Vietnam (through the Banking Supervisory Agency), except the cases specified at Point b of this Clause;

b/ Send its internal regulations to the concerned provincial-level branch of the State Bank of Vietnam, for credit institutions subject to micro-safety inspection and supervision by provincial-level branches of the State Bank of Vietnam.

Article 7. Responsibilities of a credit institution when purchasing corporate bonds

1. To appraise the satisfaction of the principles specified in Article 4 of this Circular in order to consider and decide on purchase of corporate bonds.

2. To monitor and supervise the bond issuer’s use of proceeds from bond issuance; to request the bond issuer to redeem premature bonds if detecting that the bond issuer uses proceeds from bond issuance not for the purpose stated in the plan or in the written commitment with the credit institution.

3. To request the bond issuer to pay principals and interests of bonds upon their maturity; to handle and recover bond principals and interests if the bond issuer is incapable of paying principals and interests upon bond maturity, or fails to redeem premature bonds as committed at Point c, Clause 6, Article 4 of this Circular.

4. While holding corporate bonds, to assess the bond issuer’s production and business situation, financial status and ability to pay bond principals and interests at least once every 6 months.

5. To address problems arising in the course of purchasing corporate bonds in accordance with relevant laws so as to recover corporate bond principals and interests.

Article 8. Corporate bond purchase limits

1. The total outstanding amount of purchased corporate bonds shall be included in the total outstanding loan balance for a client or for a client and affiliated persons under Article 128 of the Law on Credit Institutions (which was revised) and the State Bank of Vietnam’s regulations on limits and prudential ratios in operations of credit institutions.

2. Credit institutions shall specify corporate bond purchase limits: bonds of a single bond issuer; bonds of a single bond issuer and an issuing affiliated person; secured or non-secured corporate bonds; corporate bonds invested and ready for sale; corporate bonds invested and kept until their maturity; and corporate bonds for trading.

Article 9. Classification, setting aside of risk provisions, and handling of risks for outstanding amounts of purchased corporate bonds

1. For corporate bonds already listed on the securities market or registered for trading on the UPCoM, credit institutions shall set aside and use risk provisions in accordance with regulations on setting aside and settlement of provisions for inventory devaluation, investment losses, bad receivables, and warranty for products, goods, services, and construction works at enterprises.

2. For unlisted corporate bonds, credit institutions shall classify, set aside risk provisions, and handle risks for, outstanding amounts of purchased corporate bonds under the State Bank of Vietnam’s regulations on classification of assets, levels and method of deduction for setting aside risk provisions and use of provisions for handling risks in operations of credit institutions.

Article 10. Cost-accounting, making statistics and preservation of corporate bond purchase and sale files

1. Credit institutions shall conduct cost-accounting for purchase and sale of corporate bonds under the regulations on accounting regime.

2. Credit institutions shall make statistical reports on purchase and sale of corporate bonds, including corporate green bonds, under the State Bank of Vietnam’s regulations on the statistical reporting regime applicable to credit institutions.

3. Credit institutions shall preserve corporate bond purchase and sale files under the regulations on archive of credit files.

Article 11. Transitional provision

For corporate bond purchase or sale contracts signed before the effective date of this Circular, credit institutions and clients may continue to perform such contracts in accordance with the law effective at the time of contract signing. From the effective date of this Circular, the modification of those contracts may be made only when the to-be-modified contents comply with this Circular.

Article 12. Implementation provisions

1. This Circular takes effect on January 15, 2022.

2. The following circulars cease to be effective on the effective date of this Circular:

a/ Circular No. 22/2016/TT-NHNN of June 30, 2016, prescribing the purchase of corporate bonds by credit institutions and foreign bank branches;

b/ Circular No. 15/2018/TT-NHNN of June 18, 2018, amending and supplementing a number of articles of Circular No. 22/2016/TT-NHNN of June 30, 2016, prescribing the purchase of corporate bonds by credit institutions and foreign bank branches.

Article 13. Organization of implementation

The Chief of the Office, the Director of the Monetary Policy Department, and heads of units under the State Bank of Vietnam, directors of provincial-level branches of the State Bank of Vietnam, credit institutions and foreign bank branches shall organize the implementation of this Circular.-

Governor of the State Bank of Vietnam
NGUYEN THI HONG