Banks told to be alert to corporate bond issuance risks

The State Bank of Vietnam (SBV) has asked commercial banks to be vigilant about their corporate bond investments, especially those in the real estate sector, in order to minimize their risks.

A number of banks have invested heavily in corporate bonds, accounting for increasingly large proportions of their total assets, according to the SBV.

The central bank noted that their corporate bond investments in the construction and real estate sectors pose a significant risk, since the property market has yet to make a sustained recovery, and businesses in both sectors still face many difficulties.

Also, commercial banks have been ordered to refrain from purchasing corporate bonds for the purpose of restructuring debts of issuing enterprises, and they must also take post-lending supervision measures to reduce their bad debts.

At a conference earlier this month, Deputy Prime Minister Vuong Dinh Hue called for stricter supervision on the issuance of corporate bonds, so that the finance and equity sectors operate properly and safely.

The senior Cabinet leader asked the Ministry of Finance, the State Securities Commission and the SBV to supervise the corporate bond market carefully and create a development plan for the market, which should include lending limits, conditions and ratings.

The move came after a number of enterprises, especially property developers, have offered corporate bonds with high volumes and attractive yield rates of up to 14-15% per annum, which puts pressure on the financial and banking system.

Officials noted that although the corporate bond market needs to be developed in order to reduce the dependence of the economy on commercial banks, corporate bond issuance must be transparent and secure.

Additionally, high yield rates for real estate firms’ corporate bonds must be closely watched, as they may have an impact on the Government’s macroeconomic policies.

Data from the Ministry of Finance shows that total corporate bond sales exceeded VND116 trillion (US$4.9 billion) in the first half of 2019, up 7.4% from one year ago, while some VND36.7 trillion was issued by commercial banks, accounting for 36% of the total.

As of late June, the capitalization of the corporate bond market was equal to 10.2% of the country’s gross domestic product, surpassing the set target of 7% in 2020.


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