Banks given green light to redeem corporate bonds

Prime Minister Pham Minh Chinh has instructed the State Bank of Vietnam (SBV) to amend regulations to enable credit institutions to immediately redeem corporate bonds.

At a working session with the central bank on Saturday, the cabinet leader asked the SBV to complete a draft circular amending Circular 16/2021 on the purchase and sale of corporate bonds by credit institutions and branches of foreign banks.

The new draft allows credit institutions to buy back corporate bonds unlisted on the stock market or unregistered on the unlisted public company market (UPCoM) that they sell without having to wait 12 months from the date of selling as currently stipulated in Circular 16.

The PM noted that the revised regulations aimed to create more favorable conditions for banks to make bond investments and offer credit in order to increase supply and liquidity and develop a safe and efficient market.

The corporate bond market experienced overheated growth in 2020 and 2021 with an issuance value of nearly VND462 trillion ($19.66 billion) and VND658 trillion ($28 billion), respectively, according to the Vietnam Bond Market Association (VBMA).

However, the market slowed after the mid-2022 arrests of real estate business leaders for bond issuance violations and improper use of mobilized capital.

Meanwhile, bond maturity pressure is on the rise, with nearly VND273 trillion ($11.62 billion) this year, according to VNDirect Securities Company's estimate. A series of businesses, especially real estate developers, have reported that they failed to fulfill principal and interest repayment obligations.

To deal with this situation, the government and relevant agencies have taken a series of measures, including the issuance of Decree 08 amending and supplementing Decree 65 on private placement of corporate bonds.

Decree 08, effective from March 5, 2023, allows issuers to extend their bond maturities by up to two years and pay principal and interest with assets other than cash.

The new decree also suspends a regulation in Decree 65 on defining an individual's status as a "professional securities investor". According to the old rule, in order to buy private placement corporate bonds, individual investors needed to hold a securities portfolio, excluding margin loan value, worth at least VND2 billion ($84,300) for 180 days.

The new decree has helped the bond market gradually warm up after nearly half a year of stagnation. In the first three months of 2023, businesses mobilized more than VND24.7 trillion ($1.05 billion) from the bond market.

Regarding regulations on debt restructuring and extension and keeping debt groups unchanged, the cabinet leader asked regulators to consider expanding the beneficiaries and extending the application period.

“We need more inspections and supervisory tools and increased decentralization to raise the responsibility of banks and make timely and effective policy responses,” the Prime Minister noted.

According to draft regulations, struggling businesses are allowed to postpone debt repayments without having their debt category changed for up to 12 months.

At the meeting, Chinh also asked the central bank to direct commercial banks to further lower interest rates and submit a plan to restructure weak credit institutions, especially the Saigon Commercial Bank (SCB).

Last October, the SBV placed SCB under special control over stability concerns. The central bank said the move was intended to strictly control and limit negative impacts on the private bank and the banking system.

The week before, SCB branches and transaction offices reported a run on deposits due to concerns about the bank’s financial health.

The SBV was also required to coordinate with the Ministry of Construction to quickly deploy a VND120 trillion ($5.1 billion) credit package for social and worker housing development, as well as complete the draft amended Law on Credit Institutions.