Hanoi (VNS/VNA) – Banks should strengthen their controls on the valuation of investments in corporate bonds to avoid excessive risk and misuse of company-raised funds, experts said.
In early April, the Banking Supervision Agency, under the aegis of the State Bank of Vietnam (SBV), conducted an inspection of corporate bond investment activities at seven banks, while the Ministry of Finance inspected a bank.
According to SBV, at the end of 2021, there are 41 credit institutions holding 274 trillion VND (11.7 billion USD) of corporate bonds, of which more than 75% is held by ten major banks – Techcombank, MBBank, VPBank , TPBank, BIDV, Vietcombank, VietinBank, HDBank, ABBank and SeABank. In some banks, the value of corporate bonds exceeds 10% of total assets.
Although the results of the inspection have not been released, a senior SBV official said in an interview with Vietnam Investment Review that a number of lending institutions have not accurately assessed investment plans. issuance of bonds.
In particular, there was a lack of clarity and transparency in how the companies planned to use proceeds from corporate bond sales. The inspection results showed that there are signs that the companies have spent money from the bond issue for the wrong purposes, including cases where the funds have been used to repay debts. bank loans, buy shares, lend and transfer money to issuers.
Economist Nguyen Xuan Nghia said that there is a phenomenon where capital raised from bond issuance is distributed to organizations and individuals who have relationships with each other or where money is withdrawn in large amounts, which which makes the cash flow very complicated and difficult to determine the ultimate use of the funds raised.
Continued growth and huge profits may have caused banks and other investors to ignore potential malfeasance in corporate bond business, Nghia added.
The violations were also the result of a lack of special attention on the part of the board of directors, the management board and the leaders of the units/divisions of certain credit institutions to quickly correct shortcomings and errors internally. Internal inspection, control and audits of credit institutions are not always effective and internal regulations have not been regularly reviewed, updated and supplemented, he added.
Issuers’ financial strength may also be weak, including a high debt-to-equity ratio, zero or low net income from core business activities and retained earnings in recent years, the SBV executive said.
“The determination of bond demand and duration is not based on the issuers’ actual bond issuance plans,” the officer said, adding that tracking, supervising and collecting documentation proving the purposes of the money raised from bond issues by issuers is still a formality, but investors often do not fully exercise the rights permitted by law to manage and oversee the use of funds raised from the bond issue.
Furthermore, the valuation and management of collateral was not strictly controlled due to professional limitations, while some borrowers did not fully follow the provisions of the law, the SBV and the regulations of credit institutions in their loan relationship.
According to an analyst from VNDIRECT Securities Company, credit institutions need to increase their ability to rate and assess debt, especially corporate bond investments, to reduce risk.
Accordingly, the expert suggested that credit institutions strengthen inspection and monitoring of the use of capital by issuers to ensure that capital is used for the right purposes, and strengthen risk management to
investment in corporate bondss.
Furthermore, make credit institutions more accountable in the agreements for the provision of services linked to corporate bonds signed, implement the responsibilities of the representatives of the bondholders in accordance with the regulations. In particular, exercise all rights permitted by law to control and supervise to ensure that funds raised from the bond issue are used for the proper purposes set out in the issuer’s plan./.