Big 4 auditors 'can't determine the use of bond capital by banks

According to the Vietnam Bond Association, Decree 65 requires enterprises issuing individual bonds to periodically disclose information every 6 months and annually on the use of capital with outstanding bonds audited by a qualified auditing organization. Immediately after Decree 65 was issued, banks sent a petition to the Ministry of Finance, but in Decree 08/2023/ND-CP (amending Decree 65), this problem has not been resolved.

There are difficulties and obstacles in implementing Decree 65/2022

The Vietnam Bond Association continues to receive feedback from members about the possibility of not being able to disclose information on the audit report on capital use for individual bonds with outstanding debt in 2022 within the prescribed deadline of March 31, 2023, because the auditing companies have not been able to do so.

Specifically, for banks, the amount of money collected from capital mobilization channels (savings deposits, bonds, promissory notes, certificates of deposit, etc.) will be combined and merged into the total mobilized capital to serve activities such as lending, trade finance, etc. In practice, banks cannot identify the specific source of bond capital collected from a specific bond issuance used for specific loans and investments.

The problem is further complicated by the common case where a bond-backed loan is repaid by the customer before the bond matures. Typically, in this case, the bank needs to reinvest the bond proceeds into new loans. This is a continuous capital turnover cycle, and this makes it impossible to track the use of bond proceeds based on the principle of matching the cash flows from the bond issuance with the corresponding loan outflows.

According to the requirements of auditing companies, in order to audit the report on the use of proceeds from bond issuance, banks must have an information technology system to check the correctness between the cash flow from bond issuance and the corresponding lending cash flow. However, banks do not have the information technology capacity to monitor the cash flow from bond issuance and especially with the characteristics of continuous capital circulation as mentioned above.

Therefore, for issued bonds, the banking systems do not meet the audit requirements. For bonds that will be issued, it will also be very difficult for banks to comply with the audit requirements. Therefore, currently, the "Big 4" auditing firms have not confirmed that they will audit the report on the use of proceeds from bond issuance for outstanding bonds for the period of 2022 (information must be disclosed on March 31, 2023).

On the other hand, there is no guidance from the Ministry of Finance on the method and manner of auditing the purpose of using bond capital for enterprises in general and banks in particular.

Securities firms and consumer finance companies face the same problems as banks.

According to representatives of auditing companies, banks should propose to the Ministry of Finance and competent State agencies to remove the regulation requiring audits on the use of money raised from bond issuance. Banks are monetary business organizations, with strict risk regulations, so the above audits are meaningless, and the implementation of the requirements is very complicated and difficult to implement.

If the above issues are not resolved, it will lead to many consequences. In particular, banks cannot issue new bonds, bonds to supplement Tier 2 capital, affecting the mobilization of medium and long-term capital, thereby affecting the provision of capital for businesses and the economy...

Source: https://thanhnien.vn/big-4-kiem-toan-bo-tay-xac-dinh-su-dung-von-trai-phieu-cua-cac-ngan-hang-18523032910083371.htm