Circular No. 16/2021/TT-NHNN on the organization of credit institutions and foreign bank branches purchasing corporate bonds

CIRCULAR

Regarding the organization of credit institutions and foreign bank branches to purchase and sell corporate bonds

thực hiện việc mua, bán trái phiếu doanh nghiệp của nước ngoài

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

Pursuant to the Law on Credit Institutions dated June 16, 2010, and the Law Amending and Supplementing Certain Provisions of the Law on Credit Institutions dated November 20, 2017;

Pursuant to the Securities Law promulgated on November 26, 2019;

Pursuant to the Law on Enterprises dated June 17, 2020;

Pursuant to Decree No. 153/2020/NĐ-CP dated December 31, 2020 of the Government on the issuance and trading of corporate bonds in the domestic market and the issuance of corporate bonds in the international market;

Pursuant to Decree No. 155/2020/NĐ-CP dated December 31, 2020 of the Government detailing the implementation of certain provisions of the Securities Law;

Pursuant to Government Decree No. 16/2017/NĐ-CP dated February 17, 2017 on the functions, tasks, powers, and organizational structure of the State Bank of Vietnam;

Article 1.

The Governor of the State Bank of Vietnam issues this Circular to regulate the activities of credit institutions and foreign bank branches purchasing and selling corporate bonds.

Article 1. Scope of Regulation

1. This Circular regulates the activities of credit institutions and foreign bank branches purchasing and selling corporate bonds within the territory of the Socialist Republic of Vietnam.

2. This Circular does not regulate the purchase and sale of bonds issued by credit institutions; the purchase and sale of bonds issued by the Vietnam Asset Management Company Limited; the purchase of corporate bonds through discounting; the purchase and sale of corporate bonds with term agreements between credit institutions and foreign bank branches; the purchase and sale of corporate bonds issued on the international market; the purchase and sale of corporate bonds through rediscounting.

3. The purchase and sale of corporate bonds by credit institutions under special control shall be carried out according to the decision of the State Bank of Vietnam for each credit institution under special control.

Article 2. Applicability

2. The issuer of corporate bonds is a joint-stock company or limited liability company established and operating under Vietnamese law.

3. Other individuals and organizations related to the activities of purchasing and selling corporate bonds as stipulated in this Circular.

Article 3. Definitions

In this Circular, the following terms shall be understood as follows:

1. Corporate bonds are securities with a maturity of one year or more issued by enterprises, confirming the rights and lawful interests of the holder in relation to a portion of the enterprise's debt.

2. Convertible bonds are bonds issued by joint-stock companies that can be converted into ordinary shares of the issuing enterprise according to conditions and terms specified in the bond issuance plan.

3. Secured bonds are bonds secured for full or partial payment of interest and principal upon maturity by assets of the issuing enterprise or third-party assets in accordance with the law on secured transactions; or guaranteed for payment according to the law.

4. Bonds with warrants are bonds issued by joint-stock companies together with warrants, allowing the warrant holder the right to purchase a certain number of ordinary shares of the issuing enterprise according to conditions and terms specified in the bond issuance plan.

5. Green corporate bonds are corporate bonds issued for investment in projects in the environmental protection sector or projects that provide environmental benefits as prescribed by environmental protection laws.

1. Credit institutions may purchase and sell corporate bonds in accordance with the contents of the purchase and sale of corporate bonds recorded in the License issued by the State Bank of Vietnam.

3. Credit institutions purchasing and selling corporate bonds must have an internal credit rating system and must issue internal regulations on the purchase and sale of corporate bonds in compliance with this Circular and relevant laws.

5. A credit institution may only purchase corporate bonds when such credit institution has a non-performing loan ratio below 3% according to the most recent classification period as stipulated by the State Bank of Vietnam regarding asset classification, provisioning levels, risk provisioning methods, and the use of provisions to address risks in its operations prior to purchasing corporate bonds.

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

a) The corporate bonds comply with the provisions set forth in Article 5 of this Circular;

b) The purpose of using funds from the issuance of corporate bonds by the enterprise is lawful and consistent with the issuance plan of corporate bonds and/or the capital usage plan, the amount of funds received from the offering round, issuance round approved in accordance with the law (hereinafter referred to collectively as the plan);

c) The issuing enterprise commits to repurchasing the corporate bonds early when: The issuing enterprise changes the purpose of using funds from the issuance of corporate bonds during the period the credit institution holds the corporate bonds; the issuing enterprise violates the law on the issuance of corporate bonds; the issuing enterprise violates the plan;

d) The plan is feasible and the issuing enterprise has financial capability to ensure full repayment of principal and interest of the corporate bonds on time;

đ) The issuing enterprise does not have bad debts at credit institutions within the 12 months immediately preceding the date the credit institution purchases the corporate bonds.

7. In addition to complying with other provisions of this Article, a credit institution may only purchase corporate bonds issued by an enterprise that has changed the purpose of using funds from the issuance of corporate bonds in accordance with the law before the credit institution purchases the corporate bonds if the issuing enterprise is rated at the highest level according to the internal credit rating regulations of the credit institution at the nearest point in time.

8. Credit institutions shall not purchase corporate bonds in the following cases:

a) Corporate bonds issued where the purpose includes restructuring the issuer's own debts;

b) Corporate bonds issued where the purpose includes contributing capital or purchasing shares in another enterprise;

c) Corporate bonds issued where the purpose includes increasing the scale of operating capital.

9. Credit institutions shall not sell corporate bonds to their own subsidiaries, except in cases where the credit institution is the mandatory transferor required to sell corporate bonds to a commercial bank that is the mandatory transferee.

10. Branches of foreign banks shall not purchase convertible bonds or bonds accompanied by warrants.

a) Complying with other provisions of this Article;

b) The buyer of these corporate bonds from the credit institution pays the full purchase price of the corporate bonds at the time the credit institution enters into a bond sale contract with the buyer;

c) The corporate bond issuing enterprise is rated at the highest level according to the internal credit rating regulations of the credit institution at the nearest point in time before the credit institution purchases the corporate bonds.

13. The currency in transactions for purchasing and selling corporate bonds shall be the Vietnamese Dong.

Article 5. Corporate bonds may be traded for purchase and sale.

Corporate bonds may be traded for purchase and sale when they meet the following requirements:

1. They are corporate bonds issued in accordance with the provisions of the law.

2. They are issued in Vietnamese dong.

3. They are legally owned by the seller, have not reached their maturity date for principal and interest repayment, and the seller commits that there are no disputes over the corporate bonds, they are permitted to trade according to the law, and they are not in a state of term purchase and sale, discounting, or rediscounting (except in the case where credit organizations purchase corporate bonds issued for primary sale).

Article 6. Internal regulations

2. Internal regulations must clearly define the responsibilities and obligations of each department and individual involved in the implementation of purchasing and selling corporate bonds.

3. Internal regulations must at least include business procedures and risk management regulations for the activity of purchasing and selling corporate bonds.

a) Credit organizations shall submit internal regulations to the State Bank of Vietnam (through the Banking Inspection and Supervision Authority), except in the case stipulated in point b of this Clause;

b) Credit organizations subject to micro-prudential supervision by the State Bank branch in provinces and centrally-administered cities shall submit internal regulations to the State Bank branch in those provinces and centrally-administered cities.

Article 7. Responsibilities of credit organizations when purchasing corporate bonds

1. Assess whether the principles set out in Article 4 of this Circular are met to consider and decide on the purchase of corporate bonds.

3. Require the issuing enterprise of corporate bonds to pay off the principal and interest of the corporate bonds upon maturity. In cases where the issuing enterprise of corporate bonds is unable to repay the principal and interest of the corporate bonds upon maturity or when the issuing enterprise of corporate bonds does not repurchase the corporate bonds before maturity as committed in point c of Clause 6 of Article 4 of this Circular, the credit organization shall take measures to recover the principal and interest of the corporate bonds.

4. During the period of holding corporate bonds, at least once every six months, the credit organization shall assess the production and business situation of the issuing enterprise, evaluate its financial condition, and its ability to repay the principal and interest of the corporate bonds.

5. Handle any issues arising during the process of purchasing corporate bonds in accordance with relevant legal regulations to ensure the recovery of the principal and interest of the corporate bonds.

Article 8. Limit on Purchasing Corporate Bonds

2. Credit institutions shall specify the limits on purchasing corporate bonds: Bonds issued by one corporation; bonds issued by one corporation and related parties; secured corporate bonds; unsecured corporate bonds; corporate bonds held for sale; corporate bonds held to maturity; corporate bonds for trading.

Article 9. Classification, Provisioning for Risk, and Risk Management for the Outstanding Amount of Purchased Corporate Bonds

1. For corporate bonds listed on the securities market or registered for trading on the Upcom trading system, credit institutions shall implement risk provisions and usage according to the laws governing the establishment and handling of inventory write-down reserves, investment losses, non-performing receivables, and product, goods, service, and construction project warranties.

2. For unlisted corporate bonds, credit institutions shall implement classification, risk provisioning, and risk management for the outstanding amount of purchased corporate bonds according to the State Bank of Vietnam's regulations on asset classification, provisioning levels, risk provisioning methods, and the use of provisions to manage risks in credit institution operations.

Article 10. Accounting, Statistics, and Record Keeping for Purchasing and Selling Corporate Bonds

1. Credit institutions shall account for purchasing and selling corporate bonds according to the accounting regulations prescribed by law.

2. Credit institutions shall report statistics on their activities of purchasing and selling corporate bonds, including green corporate bonds, according to the State Bank of Vietnam's regulations on reporting and statistical systems for credit institutions.

3. Credit institutions shall retain records of purchasing and selling corporate bonds according to the legal regulations on record retention for credit.

Article 11. Transitional Provisions

For purchase and sale contracts for corporate bonds signed before this Circular takes effect, credit institutions and customers shall continue to perform the contents of the signed purchase and sale contracts in accordance with the then-effective laws at the time of signing. Any amendments or supplements to these contracts from the date this Circular takes effect shall only be implemented if the amended or supplemented content complies with the provisions of this Circular.

Article 12. Implementation Provisions

1. This Circular shall take effect from January 15, 2022.

2. The following provisions shall cease to be effective from the date this Circular takes effect:

a) Circular No. 22/2016/TT-NHNN dated June 30, 2016, regulating credit institutions and foreign bank branches purchasing corporate bonds;

b) Circular No. 15/2018/TT-NHNN dated June 18, 2018, amending and supplementing certain articles of Circular No. 22/2016/TT-NHNN dated June 30, 2016, regulating credit institutions and foreign bank branches purchasing corporate bonds.

The Director of the Office, the Head of the Monetary Policy Department, and the Heads of units under the State Bank of Vietnam, the Governors of the State Bank of Vietnam branches in provinces and centrally-administered cities, credit institutions, and foreign bank branches are responsible for implementing this Circular./.