Ensuring monetary security

The State Bank of Vietnam (SBV)'s draft circular on ranking credit institutions and branches of foreign banks has recently attracted a lot of attention from the public. The issue is considered as quite “sensitive” because thus far the ranking in Vietnam has been conducted by several international rating agencies and domestic companies instead of a public agency such as the SBV.

Illustrative image (Photo: VNA)
Illustrative image (Photo: VNA)

According to a draft document the SBV is circulating to collect opinions, credit institutions that will be rated include commercial banks, financial companies, financial leasing firms, cooperative banks and branches of foreign banks.

Currently, there are three well-known credit rating agencies, including Standard & Poor’s, Moody’s Investor Service and Fitch Ratings. In Vietnam, over recent years, the three rating agencies and a number of domestic companies and organisations, such as the Vietnam Report Joint Stock Company, have also participated in the assessment and publication of information on rating banks to serve the needs of investors and depositors. Meanwhile, management agencies in many countries around the world also rank their credit institutions in particular and financial institutions in general, for the purpose of state management, policy issuance, monitoring of financial markets and banks, as well as protecting depositors’ rights.

Accordingly, the ratings of credit institutions are used by management agencies as an early warning in order to prevent the risk of collapse of each credit institution, as well as the risk of spreading the whole system, from which timely policy and action will be taken in order to ensure the safe operation of the banking and financial system, and protect the assets and interests of depositors.

For various reasons, central banks and financial supervisory agencies in many countries do not publicise their rating of commercial banks. They only make public periodical rating results of international credit rating organisations, which are a reference for investors and depositors to make investment decisions, but clearly citing they are not responsible for the ratings.

Like other management agencies around the world, the SBV’s objective is to evaluate and rank credit institutions and branches of foreign banks operating in Vietnam, in order to serve the state management within the banking sector. Therefore, the formulation of the circular includes clear and transparent provisions on classification methods, criteria for ranking credit institutions and branches of foreign banks.

Unlike the objectives of international credit rating organisations, these rankings will only be used to provide timely warning of risks so that measures can be taken to prevent the fall of an institution and the whole system, which will help to protect the assets and rights of depositors. The SBV will only send the rating result individually to each credit institution, asking that the institution takes timely solutions to address its shortcomings.

It can be seen that for various reasons, the results of credit ratings of organisations or management agencies, will be selected to be publicised or not. But obviously, it is necessary for investors and depositors to be informed about the “health” of credit institutions and banks.

The rankings will also help the SBV to give timely warnings, as well as devise appropriate management measures to ensure monetary security. Currently, the SBV also requires that credit institutions and branches of foreign banks publicise their financial statements, audited by an independent auditing organisation, on their official websites or at the head offices or branches, in addition to publishing them in a number of newspapers in order to serve individuals, organisations, investors and depositors that need to inquire about the performance and financial status of credit institutions and branches of foreign banks.

In addition, accredited international rating agencies and domestic organisations will also periodically carry out research and publications of rating results of credit institutions on the mass media. The results have become an important reference channel for investors and depositors.