Circular No. 22/2016/TT-NHNN dated June 30, 2016 of the State Bank of Vietnam on the purchase of corporate bonds by credit institutions and branches of foreign banks

CIRCULAR

Prescribing the purchase of corporate bonds by credit institutions and foreign bank branches[1]

Pursuant to June 16, 2010 Law No. 46/2010/QH12 on the State Bank of Vietnam;

Pursuant to June 16, 2010 Law No. 47/2010/QH12 on Credit Institutions;

Pursuant to the Government’s Decree No. 156/2013/ND-CP of November 11, 2013, 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 prescribing the purchase of corporate bonds by credit institutions and foreign bank branches.

Article 1. Scope of regulation and subjects of application

1. Scope of regulation

a/ This Circular prescribes credit institutions’ and foreign bank branches’ purchase of corporate bonds in the territory of the Socialist Republic of Vietnam;

b/ This Circular does not prescribe the purchase of bonds issued by credit institutions, foreign bank branches or the Vietnam Asset Management Company; purchase of corporate bonds among credit institutions and foreign bank branches themselves; purchase on a definite term or purchase through negotiation with recourse of corporate bonds in the form of discount; and purchase of bonds issued on the international market.

2. Subjects of application

a/ Credit institutions and foreign bank branches eligible for purchase of bonds are those established and operating under the Law on Credit Institutions, including commercial banks, financial companies, and foreign bank branches;

b/ Corporate bond issuers are enterprises established and operating in the territory of the Socialist Republic of Vietnam under the Law on Enterprises and relevant laws and issuing bonds for sale to purchasers under the laws on issuance of corporate bonds and public offering of securities;

c/ Individuals and legal entities other than credit institutions or foreign bank branches are residents involved in the purchase of corporate bonds prescribed in this Circular.

Article 2. Interpretation of terms

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

1. Corporate bond means a type of debt securities issued by an enterprise, which certifies the enterprise’s obligation to pay bond principal and interest and other obligations (if any) toward bond owners.

2. Convertible bond means a type of bond issued by a joint-stock company, which may be converted into common stocks of the bond issuer under conditions already specified in the bond issuance plan.

Article 3. Principles of corporate bond purchase

1. Credit institutions’ and foreign bank branches’ purchase of corporate bonds must comply with the Law on Credit Institutions, the Law on Securities, the Law on Enterprises, this Circular and relevant laws.

2. A credit institution or a foreign bank branch eligible for purchase of corporate bonds must have an internal credit rating system which has the bond issuer in its rating list and internal regulations on purchase of corporate bonds in accordance with this Circular and relevant laws, which must cover at least the following contents:

a/ The order and procedures for appraising, approving and deciding on the purchase of corporate bonds; principles of decentralization and authorization in making decision on and approving the purchase of corporate bonds; regulations on risk management in the purchase of corporate bonds, ensuring publicity and transparency in appraising and deciding on the purchase of corporate bonds;

b/ Principles and criteria for assessment and determination of risk levels of the bond purchase applicable to types of enterprises and corporate bonds;

c/ Credit management policies and limits, risk measurement and administration systems, risk handling conditions, measures and processes;

d/ Internal control of corporate bond purchase activities.

3. The purchase of convertible bonds must comply with the Law on Credit Institutions and the State Bank of Vietnam’s guidance on capital contribution and share purchase.

4. The currency used in corporate bond purchase transactions must be Vietnam dong.

5. Credit institutions and foreign bank branches may not borrow loans from other credit institutions and foreign bank branches to purchase corporate bonds.

Article 4. Types of corporate bonds eligible for purchase

1. Bonds issued under the law on issuance of corporate bonds.

2. Bonds issued under the law on public offering of securities, except the case prescribed in Clause 3, Article 6 of this Circular.

Article 5. Responsibilities of credit institutions and foreign bank branches

1. To appraise and examine corporate bond issuance plans and conditions in order to consider and decide to purchase corporate bonds when the following conditions are fully satisfied:

a/ For the purchase of corporate bonds issued for first-time sale (including credit institutions’ purchase of quantities of corporate bonds not yet sold out according to the corporate bond issuance underwriting commitment):

(i) Bonds are issued in accordance with law;

(ii) The purpose of use of proceeds from the bond issuance is lawful and compliant with the bond issuance plan;

(iii) The bond issuer is financially capable for paying bond principals and interests on time;

(iv) The bond issuer is committed to redeeming premature bonds in case it violates regulations on issuance of corporate bonds or breaches the corporate bond issuance plan.

b/ For redemption of corporate bonds from legal entities and individuals:

(i) The conditions prescribed at Point a of this Clause;

(ii) Corporate bonds are under the legal ownership of the sellers without dispute, are currently not mortgaged, collateralized or guaranteed for other obligations; are not yet mature for principal payment; and are permitted for transactions under current regulations.

2. To sign contracts on purchase of unlisted corporate bonds in accordance with relevant laws and the following provisions:

a/ A corporate bond purchase contract must have at least the following contents: quantity of purchased bonds, purchase price, total amount of money for bond purchase, bond interest rate; mode of payment for purchased bonds; time limit for and mode of bond payment; handling of the parties for their breaches of the bond purchase contract; and handling of arising disputes. Other contents may be agreed by contracting parties in accordance with this Circular and relevant laws;

b/ A security contract, in case of purchase of secured bonds, must comply with the law on security transactions.

3. To monitor and supervise themselves or through bond issuing agents the bond issuer’s use of proceeds from the bond issuance; if detecting that the bond issuer uses proceeds from the bond issuance not according to the purpose indicated in the bond issuance plan and not as committed with bond owners, to request the bond issuer to redeem premature bonds.

4. To request the bond issuer to pay for mature bonds; if the bond issuer is incapable of paying for mature bonds, to deal with security assets for asset-secured bonds in accordance with law, request the bond payment underwriter to pay for underwritten bonds, and initiate a lawsuit against the bond issuer or bond payment underwriter that breaches the bond payment commitments.

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

Article 6. Corporate bond purchase limits

1. The total outstanding debt of corporate bond purchase shall be included in the total outstanding credit debt for a client or for a client and related persons under Article 128 of the Law on Credit Institutions and the State Bank of Vietnam’s regulations on limits and safety ratios in operations of credit institutions and foreign bank branches.

2. Credit institutions and foreign bank branches shall specify corporate bond purchase limits: purchase of bonds of a single bond issuer; purchase of bonds of a single bond issuer and a related bond-issuing enterprise; purchase of secured or non-secured corporate bonds; and purchase of corporate bonds for sale, investment and keeping until their maturity date.

3. Foreign bank branches may not purchase convertible bonds.

Article 7. Risk ratio, setting-up of risk provisions and handling of risks for outstanding debt of purchased corporate bonds

1. The risk ratio for the outstanding debt of purchased corporate bonds must comply with the State Bank of Vietnam’s regulations on safety ratios in operations of credit institutions and foreign bank branches.

2. Credit institutions and foreign bank branches shall set up risk provisions and handle risks for the outstanding debt of purchased corporate bonds as follows:

a/ For corporate bonds already listed on the stock exchange or registered for trading on the unlisted public companies market (UPCom), credit institutions and foreign bank branches shall set up provisions for bond investment price decrease and deal with such provisions in accordance with law and the Finance Ministry’s guidance on the setting-up and use of financial investment price decrease provisions;

b/ For corporate bonds not yet listed on the stock exchange or not yet registered for trading on the unlisted public companies market (UPCom), credit institutions and foreign bank branches shall set up risk provisions for the outstanding debt of purchased corporate bonds under the State Bank of Vietnam’s regulations on risk provision levels and methods and use of provisions for handling risks in operations of credit institutions and foreign bank branches.

Article 8. Cost-accounting, making statistics and preservation of corporate bond purchase files

1. To conduct cost-accounting for purchased corporate bonds under the State Bank of Vietnam’s regulations on the accounting regime of credit institutions and foreign bank branches.

2. To make statistical reports on the purchase of corporate bonds under the State Bank of Vietnam’s regulations on the statistical reporting regime of credit institutions and foreign bank branches.

3. To preserve corporate bond purchase files under the law on archival of credit files.

Article 9. Organization of implementation

1. This Circular takes effect on August 15, 2016, and replaces the State Bank’s Circular No. 28/2011/TT-NHNN of September 1, 2011, prescribing the purchase of corporate bonds by credit institutions and foreign bank branches.

2. Pursuant to this Circular and relevant laws, credit institutions and foreign bank branches shall issue or amend and supplement internal regulations on the purchase of corporate bonds and promptly send these regulations to the Banking Supervisory Agency for inspection and supervision of their purchase of corporate bonds.

3. For corporate bond purchase contracts signed before the effective date of this Circular, credit institutions, foreign bank branches and clients may continue to implement such contracts or reach agreement to modify them in accordance with this Circular.

4. 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; chairpersons of Boards of Directors or Members’ Councils and directors general (directors) of credit institutions and foreign bank branches shall implement this Circular.-

For the State Bank Governor
Deputy Governor
NGUYEN THI HONG