VIETNAM, August 18 – HÀ NỘI — Banks should tighten their evaluation controls of company bond investments to keep away from extreme threat and the misuse of funds raised by companies, consultants stated. 

In early April, the Banking Supervision Company, below the State Financial institution of Vietnam (SBV) carried out an inspection of company bond funding actions at seven banks, whereas the Ministry of Finance inspected one financial institution.

In keeping with the SBV, by the tip of 2021, there are 41 credit score establishments holding VNĐ274 trillion (US$11.7 billion) of company bonds, of which greater than 75 per cent of them are held by ten main banks – Techcombank, MBBank, VPBank, TPBank, BIDV, Vietcombank, VietinBank, HDBank, ABBank and SeABank. At some banks, the worth of company bonds exceeds 10 per cent of whole property.

Though the inspection outcomes weren’t revealed, a SBV senior chief stated in an interview with Vietnam Funding Evaluation that numerous credit score establishments did not precisely assess bond issuance plans.

Specifically, how firms deliberate to make use of the proceeds of company bond gross sales lacked readability and transparency. Outcomes from the inspection confirmed there are indicators that companies have spent cash from bond issuance for the mistaken functions, together with instances the place funds have been used to repay financial institution loans, purchase shares, lend, and switch the cash again to the issuers.

Economist Nguyễn Xuân Nghĩa stated that there’s a phenomenon the place capital raised from the issuance of bonds is circulated round to organisations and people which have relationships with one another or the place the cash is withdrawn in giant portions, inflicting the money circulation to be very sophisticated and troublesome to find out the final word use of funds raised.

Pursuing development and large earnings might have prompted banks and different traders to miss potential malfeasance within the company bond actions, Nghĩa added.

The violations additionally resulted from a lack of shut consideration by the board of administrators, the chief board, and the leaders of models/divisions of some credit score establishments in promptly correcting the shortcomings and errors internally. Inspection, management, and inside audits of credit score establishments usually are not at all times efficient, and inside laws haven’t been recurrently reviewed, up to date, and accomplished, he added. 

The issuers’ monetary capability can even be weak, together with a excessive debt-to-equity ratio, no or low web income from major enterprise actions, and undistributed revenue lately, the SBV senior chief stated. 

“The willpower of demand and time period of bonds isn’t based mostly on the precise bond issuance plans of the issuers,” the officer stated, including that the monitoring, supervision, and assortment of paperwork proving the needs of the cash raised from bond issuances by issuers are nonetheless a formality, however traders usually fail to completely train the rights permitted by legislation to handle and supervise the usage of funds raised from bond issuance.

Furthermore, the valuation and administration of collateral haven’t been strictly managed on account of skilled limitations, whereas some debtors haven’t absolutely adopted the provisions of the legislation, the SBV and the laws of the credit score establishments of their mortgage relationship. 

In keeping with a VNDIRECT Securities Firm analyst, credit score establishments should improve their capability for ranking and appraising debt, significantly company bond investments, in an effort to scale back dangers.

Accordingly, the knowledgeable steered that credit score establishments must step up inspection and supervision of the issuers’ use of capital to make sure that the capital is used for the proper functions, and strengthen threat administration for company bond investments.

As well as, growing the accountability of credit score establishments within the service provision agreements associated to signed company bonds, implementing the tasks of the bondholders’ representatives in accordance with laws. Specifically, train all of the rights permitted by legislation to manage and supervise to make sure that funds raised from the bond issuance are used for the proper functions said within the plan of the issuer. — VNS