How does the draft amendment to Circular 16 of the State Bank of Vietnam affect the current corporate bond issue?

(SBV) is collecting opinions of organizations and individuals on the Draft Circular amending and supplementing a number of articles and suspending the effect of Clause 11 Article 4 of Circular No. 16/2021/ TT-NHNN dated 10/11/2021 regulates the purchase and sale of corporate bonds by credit institutions.

How does the draft amendment to Circular 16 affect the current corporate bond issue? Mr. Nguyen Quang Thuan – Chairman of FiinRatings has commented and evaluated this issue.

On the positive side , Mr. Thuan assessed that the SBV’s draft amendments had many positive impacts on corporate bonds.

Firstly , the draft allows banks to buy corporate bonds with the purpose of supplementing working capital when they can manage income from business activities and collect sufficient documents to prove the use of working capital (Clause Clause 1 of this Article). 14 supplement to Article 4).

This point, if applied, will make it easier for credit institutions to invest in corporate bonds to supplement working capital, instead of having to stick to a specific issuance plan, which is usually determined only for programs. , fixed asset investment project. Besides, it also promotes the credit nature of bonds when purchased and supervised by credit institutions.

Second , credit institutions are allowed to buy back corporate bonds that have not been listed or registered for trading on UpCOM that the credit institution had previously sold before December 31, 2023 (Amendment to Clause 11, Article 4).

CEO of FiinRatings said that this is the most significant issue for credit institutions themselves in the context of the pressure to buy back bonds recently when investors required early settlement, in order to remove the pressure that some credit institutions are facing. because it was previously distributed to investors while the Issuer faced cash flow difficulties and could not redeem it.

Besides, this amendment is also reasonable in the context that the centralized secondary market on HNX has not come into operation yet, contributing to creating favorable conditions for credit quality monitoring by banks for organizations. issuers and are often also borrowers of credit institutions.

On the other hand, it also contributes to reducing the share of “floating” bonds in the market that are owned by individual investors with basic information that is “blind” about the issuer if the business is not listed.

Third , credit institutions must use non-cash payment to pay for the purchase of corporate bonds to enterprises or corporate bond sellers (Clause 16 is added to Article 4).

This regulation will control transactions and capital use purposes of enterprises more conveniently in the process of credit monitoring and risk management. This is to avoid cash transactions and thus the purpose of capital use is difficult to ensure verification and assessment by credit institutions and independent parties such as auditors of capital use purposes.

Regarding additional points to make the draft more rigorous, Mr. Thuan made a few notes. Additional draft regulations stipulate that credit institutions can only buy corporate bonds when the Debt/Equity ratio (including the volume of corporate bonds to be issued) does not exceed 5 times based on the most recent audited financial statements. (addition to point e, Clause 6, Article 4). That is, enterprises with higher leverage than this 5.x will not be eligible to buy bonds by credit institutions. This is to avoid the fact that many enterprises are project companies with very high leverage, up to ten and several dozen times, even though they meet the bond issuance criteria of Decree 153 or amended with Decree 65, will not be purchased by credit institutions anymore. .

Other important regulations for each credit institution are still kept, according to the principle: must have NPL < 3%, control the purpose of capital use, have a feasible plan to ensure payment of principal and interest on time. and the enterprise has no bad debt (from Group 3 – Subprime) within the last 12 months on CIC.

In summary , FiinRatings expert believes that the most important thing for the current bond debt problem is the need to refinance or restructure debt that has not been revised this time in the context of bad debt bonds. increasing day by day (Corporate bond bad debt calculated on non-bank bonds is 12% and for BDS bonds, the default ratio is 20.17% as of March 17 and tends to increase further).

Therefore, if this draft amendment to Circular 16 is kept unchanged, it will not have much impact on the resolution of corporate bond issues in particular and including real estate credit. This will also put pressure on the bad debt ratio in the near future if it is not restructured.

Experts believe that this measure is more technical because the key is still the improvement in cash flow from businesses, but the outlook has not shown any signs of improvement. Therefore, a cross-effect on the credit quality of banks is present.

Because when a business is late to pay bonds, it will then be likely to be late to repay bank loans and when it is overdue 91 days, it will be in Group 3 – Subprime debt, the provisioning level is 20% and over 181 days, it will be in Group 4. – Doubtful, 50% provision and the worst is if late payment > 1 year, jump to Group 5 – Loss of capital, 100% provision for bad debts.

“This is an issue that should be evaluated specifically and have follow-up policies to be able to solve the current corporate bond problem and reduce the risk of bad debt to bank credit,” said Mr. Nguyen Quang Thuan.

Ha Anh/Market life