Credit Rating - A Must in Vietnam

 

This is a matter of concern for many financiers and enterprises. The experience in other countries shows that, apart from developing the financial market, the credit rating service sector will also provide managers with a system to boost the development of the market-oriented capital market.

 

At the international conference on “Developing Credit Rating Sector in Asia-Pacific” held by VCCI and Vietcombank in Hanoi on June 12, Mr. Vo Tri Thanh of the Central Institute of Economic Management (CIEM), said, there are several reasons to support the development of the credit rating sector in Vietnam. First, Vietnam is at the dawn of the capital market, thus, it is essential to set up institutions to increase the transparency of this market. Then, this is a foundation to uphold the faith of investors into the market. With sufficient information about the market, investors can weigh up risks in their investments to the most exact level.

 

In addition, Vietnam needs regulations on the financial market in accordance with international and regional norms. Therefore, it should have information tools in place to measure risks at both national level and sectoral level. And, this requires a methodology to rate risks when comparing with regional markets.

 

According to Deputy Minister of Finance Le Thi Bang Tam, the establishment of credit rating agency (CRA) is an important gauge to expand the development of the capital market. The problem is whether Vietnam should have its own CRAs or use services provided by international CRAs.

 

According Mr. Thanh, although international CRAs can provide better quality services, domestic CRAs have better knowledge of Vietnamese conditions, norms and other institutions in business activities. Consequently, domestic CRAs can have more suitable gauges for credit rating than international CRAs. In addition, domestic CRAs are able to provide small-scaled credit rating services because Vietnam has a large number of small and medium-sized enterprises (SMEs). Meanwhile, small-scale services are not of concern to international CRAs unless they regard SMEs s a strategy in penetrating the market.

 

However, a strong capital market needs to create and expand in other respects, such as financial institutions (banking and non-banking), government bond market (to make a standard interest rate curve), financial rules, executive system, and information publication and accounting standards among others. In other words, the development of the credit rating sector is merely a required condition not a necessary one to develop the capital market. But, this is very important for the initial definition of purposes of CRA establishment. After that, requirements and regulations in organisation and operation of CRAs can be considered.

 

At a macro level, the set-up of domestic CRAs can help create a system to develop the capital market. The permission for the operation of the credit rating sector can provide a good surveillance tool for the lawmakers because when an organisation has poor credit rating, it will need special attention and measures to resolve related issues.

 

However, the establishment of domestic CRA is basically a “learning then practising” process. Thus, according economists, if the education and training system are still weak, Vietnam will lack capable people for this sector.