SBV to rate local credit institutions

According to a draft document the SBV is circulating for opinions, credit institutions to be rated include commercial banks, financial companies, financial leasing firms, co-operative banks and branches of foreign banks.

The institutions will be classified in five groups - A, B, C, D and E - with A representing the best performing and E the worst.

The classification will be made based on quantitative and qualitative criteria.

Qualitative criteria will measure the health level of the institutions’ operation through statistics on assets and capital, as well as financial and business reports audited by independent auditors, while quantitative standards will gauge compliance with legal regulations of the institutions.

The criteria or groups of criteria will be weighed in accordance with how important they are to the institutions’ performance and the supervision requirement.

The criteria are pided into six groups - capital adequacy, asset quality, management and earnings, as well as liquidity and sensitivity - called CAMELS rating system – a recognised international rating system.

Responding to a question on why the ranking results is not publicised, the SBV said on September 18 that unlike the objectives of international credit rating organisations, these ranking results 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 protect assets and rights of depositors.

Therefore, the SBV will only send the rating result inpidually to each credit institution, asking the institution to timely take solutions to address its shortcomings.

Central banks and financial supervisory agencies in many countries also do not publicise their rating of commercial banks. They just 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.

Currently, credit institutions operating in Vietnam are ranked by international credit rating organisations such as Standard & Poor’s, Moody’s and Fitch, based on international standards.