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Tuesday, June 25, 2024

Central bank eases control over corporate bond buybacks

By N. Tan

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HCMC – The State Bank of Vietnam (SBV), the central bank, is providing much-needed support for the illiquid corporate bond market by making it easier for local banks and branches of foreign banks to buy back corporate bonds.

On April 23, the SBV issued Circular 03/2023, suspending Clause 11, Article 4 of Circular 16/2021/TT-NHNN on trading corporate bonds by foreign credit institutions, effective from April 24 to December 31, 2023.

The new circular aims to spur corporate bond market growth amid a liquidity crunch as directed by the Government. With this, banks and foreign bank branches can buy back corporate bonds issued by unlisted companies within 12 months after they were issued.

Circular 16 bans banks from repurchasing the bonds they sold within 12 months and regulates that they are allowed to buy back part of the bonds they sold under some specific conditions.

The corporate bond market grew by leaps and bounds in the years before 2022, with bond sales totaling VND462 trillion in 2020 and VND658 trillion in 2021, showed data from the Vietnam Bond Market Association.

However, the market saw a steep decline in 2022 due to arrests related to securities market fraud, resulting in bond issues plunging to VND255 trillion in the year and making it greatly difficult for debt-ridden companies to sell bonds.

Corporate bond issues have ground to a halt since, with almost no corporate bond issues in January.

Though the market has shown signs of recovery, with corporate bonds worth VND26,425 billion issued in March, the total value of corporate bond issues in the first quarter this year plunged 60% year-on-year at VND28,556 billion.

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