Capital channel for the economy, reducing pressure on capital supply for bank credit

In addition to the credit loan capital of the banking system, capital mobilized from the issuance and issuance of bonds is considered a stable and effective source of capital, contributing significantly to reducing the credit "burden" for the banking system. However, in reality, the operation of the bond market as well as the number of enterprises supplying bonds in the province is still very modest.

Capital mobilized from organizations and individuals has contributed to actively supporting the production and business activities of many enterprises in the province. In the photo: Hannam International Company Limited (Binh Xuyen Industrial Park) specializes in producing garments for export, creating regular jobs for over 300 workers with an average income of 6 - 8 million VND/person/month. Photo: The Hung

Clause 3, Article 4, Chapter I - Securities Law 2014 clearly states: "A bond is a securities product that confirms the legal rights and interests of the owner to a part of the debt of the issuing organization. The bond issuing organization can be the government or an enterprise, responsible for fulfilling commitments on periodic interest payments, and at maturity must return the initial amount to the investor".

Currently, banking activities have 3 main sources of capital mobilization: bank credit capital, stock capital and bond capital.

In particular, bank credit capital focuses on working capital and commercial banking services. The provision of medium and long-term capital through commercial banking services causes great pressure and instability for the banking system, because the mobilized capital is mostly short-term but is used for medium and long-term loans.

As for equity capital, although it is also long-term capital, it is related to the control of the business owner, potentially posing complex problems in management.

On the contrary, capital mobilized from issuing and selling bonds can help businesses have an additional channel for medium and long-term capital with stable interest rates, in accordance with the Government's policy on balanced development between the capital market and the money and credit markets.

Issuing bonds will help businesses diversify their capital mobilization methods, reducing their dependence on credit from commercial banks. As a result, businesses will have more financial resources to invest in infrastructure, machinery and equipment to serve long-term production and business activities.

However, the process of managing and supervising credit activities, including the field of bond supply, still has many potential risks, which can affect the sustainable development of the bond market in general.

Based on the direction of the State Bank of Vietnam (SBV) on guarantee activities and corporate bond issuance agency, in order to ensure the safety of banking activities in the area, on November 29, 2022, the State Bank of Vietnam, Vinh Phuc branch issued Document No. 1008 on guarantee activities, corporate bond issuance agency; insurance agency business activities.

In particular, the Directors of commercial bank branches and foreign bank branches - collectively referred to as credit institutions (CIs) - are required to strictly comply with regulations related to the activities of guaranteeing and acting as agents for issuing corporate bonds such as Decree No. 153 of the Government regulating the offering and trading of individual corporate bonds in the domestic market and offering corporate bonds to the international market (amended and supplemented); Circular No. 40 of the State Bank of Vietnam regulating the licensing and organization and operation of commercial banks, foreign bank branches, and other foreign organizations with banking activities in Vietnam (amended and supplemented)...

For guarantee and bond issuance agency activities, credit institution branches are only allowed to provide services related to corporate bonds under the license granted by the State Bank and in accordance with relevant legal regulations.

Credit institutions' branches provide complete and accurate information to investors according to the approved bond issuance plan, ensuring that there is no content that causes investors to confuse between buying corporate bonds and depositing money at the credit institution.

Only distribute bonds to investors who have been identified as professional securities investors by the issuing enterprise or an authorized securities company after ensuring that the investor has had access to, fully understood the information and signed a confirmation document as prescribed in Article 8 of Decree No. 153 of the Government (amended and supplemented); it is not allowed to solicit or support investors who are not eligible to buy privately issued corporate bonds.

In case of commitment to investors on repurchasing corporate bonds, a contract must be signed with the investor (clearly stating the terms and conditions on repurchasing bonds) and must fully comply with the provisions of specialized laws.

Quarterly, local branches of credit institutions must promptly report on corporate bond issuance guarantee and agency activities in writing/email as prescribed.

According to a report by the State Bank of Vietnam, Vinh Phuc branch, it is estimated that by the end of July 2023, the total mobilized capital in the province will reach 118 trillion VND (an increase of 7.68% compared to the end of 2022).

Of which, deposits from economic organizations reached VND 38.3 trillion (down 3.08% compared to the end of 2022, accounting for over 32% of total mobilized capital); savings deposits reached VND 79 trillion (up more than 14% compared to the end of 2022 and accounting for approximately 67%); issuance of valuable papers reached VND 700 billion (down more than 10% compared to the end of 2022 and accounting for 0.6%).

In the capital mobilization structure, only residential deposits have grown well, making up for the shortage from economic organization mobilization and issuance of valuable papers. In addition, there is no source of capital mobilization from the provision of government bonds as well as corporate bonds because currently in the province there is no unit registered to issue bonds.

To contribute to encouraging enterprises to participate in bond issuance and promote the healthy and safe development of the bond market, there should be more mechanisms and policies to support "seed" capital for enterprises to increase investment and expand their production and business scale.

Thereby, contributing to improving financial capacity, diversifying products and services for enterprises, creating a solid foundation for enterprises to gradually meet the conditions for bond issuance according to State regulations.

Viet Son

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