Illustrative image (Photo: VNA)In early April, the Banking Supervision Agency, under the State Bank of Vietnam(SBV) conducted an inspection of corporate bond investment activities at sevenbanks, while the Ministry of Finance inspected one bank.
According to the SBV, by the end of 2021, there are 41 credit institutionsholding 274 trillion VND (11.7 billion USD) of corporate bonds, of which morethan 75% of them are held by ten major banks - Techcombank, MBBank, VPBank,TPBank, BIDV, Vietcombank, VietinBank, HDBank, ABBank and SeABank. At somebanks, the value of corporate bonds exceeds 10% of total assets.
Although the inspection results were not published, a SBV senior leader said inan interview with Vietnam Investment Review that a number of creditinstitutions failed to accurately assess bond issuance plans.
In particular, how companies planned to use the proceeds of corporate bondsales lacked clarity and transparency. Results from the inspection showed thereare signs that firms have spent money from bond issuance for the wrongpurposes, including cases where funds were used to repay bank loans, buyshares, lend, and transfer the money back to the issuers.
Economist Nguyen Xuan Nghia said that there is a phenomenon where capitalraised from the issuance of bonds is circulated around to organisations andindividuals that have relationships with each other or where the money iswithdrawn in large quantities, causing the cash flow to be very complicated anddifficult to determine the ultimate use of funds raised.
Pursuing growth and huge profits may have caused banks and other investors tooverlook potential malfeasance in the corporate bond activities, Nghia added.
The violations also resulted from a lack ofclose attention by the board of directors, the executive board, and the leadersof units/divisions of some credit institutions in promptly correcting theshortcomings and mistakes internally. Inspection, control, and internal auditsof credit institutions are not always effective, and internal regulations have notbeen regularly reviewed, updated, and completed, he added.
The issuers’ financial capacity can also be weak, including a highdebt-to-equity ratio, no or low net revenue from main business activities, andundistributed profit in recent years, the SBV senior leader said.
"The determination of demand and term of bonds is not based on the actualbond issuance plans of the issuers," the officer said, adding that themonitoring, supervision, and collection of documents proving the purposes ofthe money raised from bond issuances by issuers are still a formality, butinvestors often fail to fully exercise the rights permitted by law to manageand supervise the use of funds raised from bond issuance.
Moreover, the valuation and management of collateral have not been strictlycontrolled due to professional limitations, while some borrowers have not fullyfollowed the provisions of the law, the SBV and the regulations of the creditinstitutions in their loan relationship.
According to a VNDIRECT Securities Company analyst, credit institutions mustincrease their capacity for rating and appraising debt, particularly corporatebond investments, in order to reduce risks.
Accordingly, the expert suggested that credit institutions need to step upinspection and supervision of the issuers' use of capital to ensure that thecapital is used for the right purposes, and strengthen risk management forcorporate bond investments.
In addition, increasing the responsibility of credit institutions in theservice provision agreements related to signed corporate bonds, implementingthe responsibilities of the bondholders' representatives in accordance withregulations. In particular, exercise all the rights permitted by law to controland supervise to ensure that funds raised from the bond issuance are used forthe right purposes stated in the plan of the issuer./.
VNA
