This is a potential that needs to be developed in the future. Currently, receivables (debit cards) are not yet developed in Vietnam, but with the trend of non-cash payments and consumer lending growing strongly in the world, Vietnam must soon have regulations on this type of product to develop the credit market and integrate with the international community.
Thus, the law on securitization of bad debts of commercial banks is applied to commercial banks with bad debts, credit rating organizations, specialized intermediary organizations, Vietnamese organizations and individuals and foreign individuals and organizations participating in securitization of bad debts of commercial banks. In addition, the law needs to clearly stipulate the order and procedures for securitization of bad debts in general, including securitization of bad debts of commercial banks; rights and interests of entities participating in securitization of bad debts; violations and handling of violations and disputes in securitization of bad debts; protection of the rights of investors participating in securitization of bad debts.
3.3.2. On the subjects participating in the securitization of bad debt of commercial banks
The subjects participating in bad debt securitization play different roles, so the law on bad debt securitization needs to specifically define the rights and obligations of those subjects.
The originator plays a fundamental role in the implementation of securitization, so it is necessary to specify the rights and obligations of the originator. The originator regulated by the law on securitization of bad debts is commercial banks. The originator has the following rights and obligations: to provide full information about the bad debt and the assets securing the debt when transferring the debt to a specialized intermediary organization; to transfer
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all rights, ownership and interests in the receivables after selling to SPV; comply with the conditions on determining bad debts; take full responsibility for the accuracy and honesty of the documents, information and data provided and be responsible for explaining and reporting additional contents related to the valuation of assets securing bad debts; comply with the regulations on creating securities from bad debts.
In the securitization process, SPV plays a particularly important role. In Korea, the Government issued a separate law to regulate the operation of specialized intermediaries, which is the Act on Efficient Management of Non-performing Assets of Financial Institutions and Establishment of Korea Asset Management Corporation (the KAMCO Act). This law specifically regulates the organization, operation, tasks, and powers of specialized intermediaries. Thanks to that, the operation of KAMCO in particular as well as securities activities are always regulated by a specific legal framework [42]. In addition, the Korean ABS Act also regulates SPVs. Vietnam needs to have specific regulations on the establishment of SPVs to carry out securitization systematically because currently there is no specialized intermediary agency in Vietnam participating in securitization activities. In fact, AMC, VAMC and DATC can participate in securitization activities as SPVs. To facilitate these agencies to participate in securitization most effectively, it is necessary to first complete the regulations on the operations of AMC, VAMC and DATC. There are two possible methods to regulate the operations of SPVs: to develop separate laws to regulate SPVs or to issue regulations in the form of circulars and decrees. Given the current situation in Vietnam, there should be regulations in the form of circulars to be able to promptly adjust and facilitate the implementation of activities.
securitization
SPVs should be regulated as a business entity. To be flexible in handling bad debts, it is possible to promote the use of joint stock companies and limited liability companies as SPVs by a law that specifically regulates the business activities of SPVs, tax reductions, tax exemptions, business restrictions, etc. [17]. SPVs must be particularly independent of the original creditor (commercial bank). Under US law, SPVs can be established as charitable funds, meaning that lawyers establish SPVs as founding members and subscribe to buy all shares of SPV. These lawyers transfer all shares of SPV to a trustee. The trustee will declare a trust for the shares of SPV and is obliged to exercise shareholder rights related to the purpose of securitization. The trustee must also promise to contribute all remaining assets of the SPV to a charitable fund after the end of the trust relationship. In this case, the SPV exists without any actual shareholders [17, p.55]. In addition, there should be regulations on tax exemption/reduction for the transfer of bad debts to create maximum profits for investors. The law on securitization should have clear regulations on the business activities of SPVs, which only include the purchase and sale of debt claims.
At the same time, the rights and obligations of SPVs need to be specifically regulated in legal documents. SPVs must ensure that after purchasing bad debts from originators, they will create new securities and issue securities. SPVs must register the commercial bank's bad debt securitization business plan and can only operate according to the registered business plan. Information about securities must also be publicly announced by the issuing organization so that investors can grasp information about the products they want to invest in. SPVs are obliged to report financial statements and comply with
independent audit of business operations
The establishment and operation of credit rating organizations in securitization activities play an important role in helping to properly price assets and to provide timely and accurate information to investors. Vietnamese law also has regulations on credit rating organizations in Circular 52/2018/TT-NHNN of the State Bank of Vietnam on regulations on rating credit institutions and foreign bank branches, Decree 88/2014/ND-CP regulating credit rating services. These documents provide regulations on legal capital, requirements on conditions for managers of credit rating organizations, etc. Credit rating organizations have the right to provide services to determine the value of securitized debts and receive fees from providing such services. At the same time, credit rating organizations are only allowed to provide services registered in the Business License; The determination of debt value must be transparent, honest, objective, and in accordance with the provisions of law; the organization must be responsible for the results before the law and the service provider according to the signed service contract.
Securitization of bad debts of commercial banks may bring more risks to investors than other types of securities. Therefore, it is necessary to build an entity with the role of supporting investors to participate in purchasing securities created from bad debt securitization. Currently, the Securities Law 2019 stipulates that the Securities Investment Fund Management Company is a fund formed from investors' capital contributions with the purpose of earning profits from investing in securities or other assets, including real estate, in which investors do not have daily control over the fund's investment decisions. Investors can contribute capital to the Securities Investment Fund so that the Fund can purchase securities created from bad debts. This will
help small investors avoid risks due to lack of knowledge and experience in investing in securitization. At that time, the Securities Investment Fund will play the role of an investor in the securitization of bad debts of commercial banks. The law needs to specifically regulate the activities, rights and responsibilities of the Securities Investment Fund in investing in securitization of bad debts. Investors have the right to participate in and conduct securities transactions, meaning that investors are allowed to buy securities on the stock market, specifically bad debt securities. Investors have the right to be provided with accurate, complete and timely information. The value of securities created by securitization of bad debts depends mainly on the value of the assets securing that debt. Therefore, investors need to know information about the commercial bank owning the bad debt, the issuing organization, the value of the debt and the collateral to minimize risks when buying securities. Once owning securities, investors have the right to enjoy the benefits from the securities they own such as profits. At the same time, investors also have the obligation to pay the full value of the securities.
In summary, the law on securitization of bad debts of commercial banks specifically stipulates the rights and obligations of the subjects including: originator; specialized intermediary organization; credit rating organization; investors. The originator is obliged to provide full information about the bad debt and the assets securing the debt when transferring the debt to the specialized intermediary organization; transfer all rights, ownership and interests in the receivables after selling to the SPV;... Meanwhile, the SPV must register the business plan for securitizing bad debts of commercial banks and can only operate according to the registered business plan, must fully disclose information related to the assets securing the bad debt securities. Credit rating organizations carry out the valuation of bad debts of banks.
commercial banks, so this entity has the right to provide bad debt valuation services and receive fees from those services. At the same time, credit rating organizations must be responsible for the results of the bad debt valuation performed. Investors participating in the securitization of bad debts of commercial banks are the weakest of the four entities, so it is necessary to regulate the rights of investors such as: being provided with full information about bad debts, secured assets; enjoying full benefits from purchasing bad debt securities. The entities have a close relationship with each other to ensure that the securitization of bad debts of commercial banks is carried out effectively. Specialized intermediaries and credit rating organizations coordinate with each other to create bad debt securities and then issue them to investors. Thanks to that, commercial banks solve the problem of bad debts. These subjects are always closely linked together and no subject is absent in the process of securitizing bad debt.
3.3.3. On the order and procedures for securitizing bad debts of commercial banks
In order for the securitization of bad debts of commercial banks to be carried out synchronously and effectively, there must be regulations on the order and procedures for securitization. These regulations will create a framework for the securitization of bad debts to be carried out in a certain order and procedure, minimizing risks and violations. The securitization process is carried out in 3 stages: Stage 1: Forming loans and leading to bad debts of credit institutions; Stage 2: Credit institutions sell bad debts to specialized intermediaries; Stage 3: Specialized intermediaries group bad debts into bonds and issue them to the public. First of all, the process of forming loans must strictly regulate the principles and regulations on lending, interest rates, collateral, limits, and information disclosure.
If commercial banks comply with the regulations right from this step, when bad debts occur and must apply securitization, it will reduce risks for investors, and banks will find it easier to handle bad debts. In addition, it is necessary to stipulate that commercial banks, when selling loans to SPVs, will simultaneously transfer bad debts to SPVs. This is to transfer bad debts from the balance sheet of the original creditor (commercial bank). Furthermore, bankruptcy procedures need to be separate from securitization activities. In case the original owner goes bankrupt, the bankruptcy procedures will be carried out without affecting the bad debts that have been previously securitized. Commercial banks and SPVs are economically independent and do not have any economic impact on each other, so the bankruptcy of a commercial bank will not affect the securitized loans. The government can consider using a foreign SPV as a foreign-invested institution. However, it is necessary to specify the tax rate for this organization. Securitization activities can be taxed multiple times from the issuance step of the organization and dividends before the profits reach the investors. The profits that investors receive will be subject to double taxation, thus significantly reducing. Investors will not be interested in buying these securities because their purpose is only profit. They will look for other investment directions that bring higher profits. Therefore, it is necessary to develop regulations on tax exemption, tax reduction, and avoidance of double taxation to ensure the interests of investors.
Securities formed from bad debt securitization activities will be issued by the issuing organization in many different batches. Thanks to that, it is possible to attract more investors to participate. For Vietnam, in order to be able to divide the issuance into many batches and achieve the best results, it is necessary to regulate the number of issuances in each batch. The issuance period between batches should also be regulated at a reasonable level. Securitization activities in Vietnam
has not yet developed, so it is necessary to have specific regulations so that the participants have a clear orientation. In addition, issuing organizations can also separate payment sources into priority parts and secondary parts, issue securities by type of securities or securities series according to different levels of risk or profit.
Vietnamese law lacks regulations on the issuance of securities formed by bad debt securitization activities, or securities issued by SPVs. Currently, according to the provisions of the Securities Law 2019, the public offering of securities must be registered with the State Securities Commission. The organization offering securities must provide a prospectus, a decision of the General Meeting of Shareholders approving the issuance plan, a plan for using the raised capital, and a commitment to list or register securities trading on an organized securities trading system;... The private offering of securities must also be registered and must ensure the obligation to disclose information. Securities brokerage and underwriting activities must also comply with the provisions of the Securities Law. However, these provisions are not suitable for activities with securitization. The issuance of securities by SPVs does not satisfy the requirements of the Securities Law and other regulations on securities. Furthermore, there are no specific legal regulations on the issuance of this type of securities. Therefore, it is necessary to have regulations guiding the securities issuance process, requirements for securities registration dossiers, management of reporting activities, and information disclosure. In addition, there should be specific regulations on the trading market for securities created by bad debt securitization. In essence, bad debt securities are different from ordinary securities. In order to put bad debt securities into trading on the ordinary securities market, the securities must meet the conditions to be listed on the exchange.