Phoc on April 25, 2022 held one more working session with the leaders of the Ministry of Public Security and agencies of the two ministries.

“The spirit of not criminalizing economic and civil relations has once again been promoted,” Phoc said.

The efforts by the Minister, as he explained, aim to implement the Prime Minister’s commitments at the conference on capital market development.

The Prime Minister no less than two times affirmed that the Party and State do not intend to criminalize economic relations, and that there are always policies encouraging businesses to observe the laws, do business effectively and enrich themselves legitimately, thus helping build a prosperous country.

The recent fluctuations in the stock market and corporate bond market are concerning. It is estimated that the capitalization value at the HCM City Stock Exchange (HOSE) has lost $30 billion, while the capitalization value of 20 largest listed companies have decreased by VND400 trillion over the last couple of weeks.

There are many reasons behind this, but analysts emphasize market confidence.

Enterprises are worried about issuing corporate bonds as they don’t know if they might be committing a crime if they use the capital mobilized through bond issuances for other purposes.

For example, one enterprise issues bonds to develop an ‘A’ real estate project. However, after fundraising, the implementation of ‘A’ project gets stuck because of legal problems. Therefore, the enterprise decides to deposit the money at banks or use the money for ‘B’ project which could bring higher profit. The question is: does the enterprise violate the laws if it uses capital for the ‘B’, not ‘A’ , project? 

Banks’ experience

At the 10th session of the National Assembly Standing Committee, when giving comments about the Government's report on thrift practice and waste prevention in 2021, the Finance Minister was quoted as saying that there are loopholes in Decree 153 and the loopholes need to be fixed and the control needs to be tightened.

However, how to ‘tighten control’ needs to be explained clearly so as to not cause concern among investors and businesses, and not affect the development of the bond market. 

According to State Bank of Vietnam (SBV) Governor Nguyen Thi Hong, in order to ensure the safe operation of credit institutions, SBV, through many regulations, tightly controls the purchase of bonds by commercial banks.

Buying and investing in corporate bonds is included in the credit balance of a customer when defining the credit limit in accordance with the Law on Credit Institutions. When buying corporate bonds, banks must appraise bonds based on internal credit rating systems. Banks can buy corporate bonds if they have a bad debt ratio of below 3 percent.

Under the regulations, credit institutions can only buy corporate bonds when the issuance and capital use plans are feasible, and issuers have financial capability to ensure debt payments. Particularly, bond issuers must not have had bad debts at banks for the last 12 months.

Commercial banks are not allowed to buy bonds to restructure issuers’ debts, to make capital contribution to other businesses, or to expand operation scale.

According to Hong, the central bank regularly reviews and amends regulations on the limits and adequacy ratios in the operations of credit institutions. It regularly takes inspection tours to supervise banks’ investments in bonds, so as to give warnings about risks. SBV joined forces with the Ministry of Finance to examine bond issuance in 2019 and 2020.

Actions to reassure market

Both words and actions need to be used to reassure the market. It’s necessary to affirm that developing the corporate bond market is the right policy and Vietnam has been consistent. It’s also necessary to note that the dealing with the three cases of Tan Hoang Minh, FLC and Louis aims at protecting the market and investors so that the market can develop healthily.

In the immediate time, the Tan Hoang Minh case needs to be dealt with to help the company pay debts to investors.

In addition, it is important to join forces with the Ministry of Public Security and other ministries and branches to ‘not criminalize economic relations’ as Minister of Finance Ho Duc Phoc has said.

In the long term, when amending the Securities Law and government’s decrees, the regulations of developed countries should be referenced. For example, individual investors should be allowed to invest in bonds through investment funds, rather than making direct investments. Investment funds with professional capability can make reasonable investment decisions.

The current regulations about individual investors and professional investors, though sufficient in the legal system, have been circumvented by securities companies, while state management agencies can be blamed for ‘loosening management’.

Some analysts have recommended that it would be better to reconsider and upgrade the functions, tasks and rights of the State Securities Commission as the market has developed rapidly with a scale of nearly the same as GDP.

The stock market is the highest symbol of capital flow, of capital, where investor's confidence is always a ‘thermometer’. Market management needs to be transparent, open, accountable and skillful.

Tu Giang