Circular No. 28/2011/TT-NHNN on the organization of credit institutions and foreign bank branches purchasing corporate bonds

CIRCULAR

Regulations on credit institutions and foreign bank branches purchasing corporate bonds

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

Pursuant to the Law on Credit Organizations No. 47/2010/QH12 dated June 16, 2010;

Pursuant to Decree No. 96/2008/NĐ-CP dated August 26, 2008 of the Government stipulating the functions, tasks, powers, and organizational structure of the State Bank of Vietnam;

The State Bank of Vietnam shall regulate credit institutions and foreign bank branches purchasing corporate bonds as follows:

Article 1. Scope of Regulation and Applicability

1. Scope of application

a) This Circular stipulates the purchase of corporate bonds issued for primary issuance to buyers on the domestic primary market of the Socialist Republic of Vietnam (hereinafter referred to as purchasing corporate bonds), including cases where credit institutions purchase remaining corporate bonds not sold to buyers under their commitment to guarantee the issuance of corporate bonds.

b) This Circular does not regulate the purchase and sale of corporate bonds issued by credit institutions and foreign bank branches; the resale of corporate bonds between credit institutions and foreign bank branches; the resale of corporate bonds between credit institutions and foreign bank branches with individuals and organizations that are not credit institutions or foreign bank branches; the purchase and sale of bonds issued on the international market.

2. Applicability

a) Commercial banks, financial companies, and foreign bank branches established and operating in accordance with the Law on Credit Institutions.

b) Enterprises established and operating within the territory of the Socialist Republic of Vietnam in accordance with the Law on Enterprises, issuing corporate bonds for primary issuance to buyers in accordance with the laws on corporate bond issuance and public offering of securities.

Article 2. Interpretation of Terms

In this Circular, the following terms are understood as follows:

1. Corporate bonds are a type of debt security issued by enterprises, confirming the enterprise's obligation to repay both principal and interest to the holder of the bond.

2. Convertible corporate bonds are a type of bond that can be converted into ordinary shares of the same issuing enterprise according to the provisions of the law and conditions determined in the corporate bond issuance plan of the enterprise.

Article 3. Principles for Purchasing Corporate Bonds

1. The purchase of corporate bonds by credit institutions and foreign bank branches shall be carried out in accordance with the Law on Credit Institutions, the Securities Law, the Enterprise Law, this Circular, and relevant legal regulations.

2. The calculation of the outstanding balance of purchased corporate bonds into the credit lending balance shall be implemented in accordance with the regulations of the State Bank of Vietnam during each period.

3. The purchase of convertible corporate bonds must be carried out in accordance with the Law on Credit Institutions and the guidelines of the State Bank of Vietnam regarding capital contribution and share purchase.

4. The currency used in the transaction of purchasing corporate bonds is the Vietnamese Dong.

Article 4. Types of corporate bonds that credit institutions and foreign bank branches may consider purchasing

1. Corporate bonds issued in accordance with the law on corporate bond issuance.

2. Corporate bonds issued in accordance with the law on public offering of securities.

Article 5. Conditions for credit institutions and foreign bank branches to purchase corporate bonds

Credit institutions and foreign bank branches may carry out the purchase of corporate bonds when they meet the following conditions:

1. They are commercial banks, financial companies, or foreign bank branches established and operating in accordance with the Law on Credit Institutions.

2. The content of purchasing corporate bonds is recorded in the establishment and operation license granted by the State Bank of Vietnam.

3. Ensuring the safety ratios in the operations of credit institutions and foreign bank branches as prescribed by the State Bank of Vietnam.

4. Having an internal credit rating system, including credit ratings for issuing enterprises.

5. Issuing regulations on purchasing corporate bonds in compliance with this Circular and related legal provisions, including: Procedures and formalities for assessing and deciding to purchase corporate bonds; responsibilities and authorities of individuals and units in reviewing and deciding to purchase corporate bonds; types and characteristics of corporate bonds purchased by credit institutions and foreign bank branches; conditions of corporate bonds purchased by credit institutions and foreign bank branches; credit management policies and limits, risk measurement and governance systems, risk handling measures and procedures; implementation of safety ratios in business operations; internal control over bond purchasing activities.

Article 6. Responsibilities of credit institutions and foreign bank branches

1. Assessing and inspecting the issuance plan and conditions of enterprises to consider and decide to purchase corporate bonds when all conditions are met:

a) Corporate bonds are issued in accordance with the law.

b) The purpose of using funds from the issuance of corporate bonds must be lawful and appropriate to the industry and business sector of the enterprise.

c) An enterprise issuing bonds must have the financial capacity to ensure timely repayment of principal and interest on the bonds as committed.

d) An enterprise issuing bonds commits to repurchasing the bonds before their maturity date if the enterprise violates laws and regulations concerning the issuance of corporate bonds or breaches the bond issuance plan.

2. Carry out procedures for purchasing bonds and sign purchase contracts for bonds in accordance with civil transaction laws and this Circular.

a) The bond purchase contract shall include the following contents: Quantity of bonds purchased, purchase price of bonds, total purchase amount, bond interest rate; method of bond issuance; method of payment for the purchase of bonds; term and method of bond payment; guarantee for bond payment (if applicable); the enterprise's commitment regarding bond issuance and payment, early repurchase of bonds in case of violation of corporate bond issuance regulations or breach of the bond issuance plan; rights of credit institutions and foreign bank branches to supervise and require enterprises to fulfill commitments related to bond issuance and payment; handling of breaches of the bond purchase contract by credit institutions, foreign bank branches, and issuing enterprises; other agreements between credit institutions, foreign bank branches, and enterprises.

b) A guarantee contract shall be established for the purchase of secured bonds in accordance with the provisions of the law on secured transactions.

3. Monitor the use of funds from the issuance of corporate bonds; if it is found that the issuing enterprise uses the proceeds from the issuance of corporate bonds for purposes not in line with the bond issuance plan and commitments made to investors, then credit institutions and foreign bank branches shall require the enterprise to repurchase the bonds before their maturity date, and credit institutions and foreign bank branches shall not purchase bonds from the enterprise in subsequent issuance tranches under the same bond issuance plan.

4. Require the enterprise issuing bonds to pay the bonds upon maturity; if the enterprise issuing bonds is unable to repay the bonds at maturity, credit institutions and foreign bank branches shall handle the collateral assets for secured bonds, demand the guarantor to fulfill the obligation to pay the guaranteed bonds, initiate legal proceedings against the enterprise or the bond guarantor for violations of payment commitments.

5. Handle issues arising during the purchase of corporate bonds in accordance with relevant laws to ensure the ability to recover the principal and interest of corporate bonds.

Article 7. Limitations on Purchasing Corporate Bonds

1. The total investment in corporate bonds shall be included in the total credit limit for a single customer, including a customer and related parties, as stipulated in Article 128 of the Law on Credit Institutions and related regulations of the State Bank of Vietnam.

2. Credit institutions and foreign bank branches shall specify specific limits on purchasing corporate bonds: Purchasing bonds issued by one enterprise; purchasing bonds issued by one enterprise and related enterprises; purchasing secured and unsecured corporate bonds; purchasing corporate bonds for resale, investment, and holding until maturity.

3. Foreign bank branches shall not purchase convertible bonds.

Article 8. Risk coefficient, provision for losses, and risk management for corporate bond debts

1. The risk coefficient for corporate bond debts shall be implemented in accordance with the regulations of the State Bank of Vietnam on safety ratios in the operations of credit institutions.

2. Credit institutions and foreign bank branches shall establish provisions for losses and manage risks for corporate bond debts as follows:

a) For bonds listed on the securities market or registered for trading on the over-the-counter market of publicly traded companies (UPCom), credit institutions and foreign bank branches shall establish provisions for reductions in investment bond values and manage the reserve according to the laws and guidelines of the Ministry of Finance regarding the establishment and use of reduction reserves for financial investments.

b) For bonds not listed on the securities market or not registered for trading on the over-the-counter market of publicly traded companies (UPCom), credit institutions and foreign bank branches shall establish risk provisions for corporate bond debts according to the regulations of the State Bank of Vietnam.

Article 9. Accounting entries, statistics, reporting, and retention of corporate bond purchase records

1. Corporate bond purchases shall be accounted for in accordance with the accounting regulations of credit institutions as stipulated by law.

2. Statistics and monthly reports on the implementation of corporate bond purchases shall be submitted to the State Bank of Vietnam no later than the 12th day of the month following the reporting month, in accordance with Appendix 01 and Appendix 02 attached to this Circular.

3. Effective Retain corporate bond purchase records in accordance with the legal regulations on the retention of credit records.

Article 10. Implementation Organization

1. This Circular takes effect from October 20, 2011.

2. Based on the provisions of this Circular and relevant laws, credit institutions and foreign bank branches shall issue regulations on corporate bond purchases and submit them to the banking supervisory authority immediately upon completion as a basis for supervising the activities of corporate bond purchases by credit institutions and foreign bank branches.

3. In cases where credit institutions and foreign bank branches have purchased corporate bonds before the effective date of this Circular, they may continue to implement such purchases until the maturity date of the corporate bonds.

4. 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; the Chairmen of the Management Boards, Members of the Boards of Directors, and General Managers (Directors) of credit institutions and related organizations and individuals are responsible for implementing this Circular./.