VietNamNet Bridge – Under Government’s Decree No 88, the Ministry of Finance will begin receiving applications to set up CRAs from mid-November, a long awaited moment believed to mark a milestone in the debt market.

While CRAs have existed for years in other parts of the world, they remain unfamiliar in Vietnam, where the issuance of bonds have never been rated by any independent CRA. This is believed to be the reason why the Vietnamese bond market lags behind other countries.

Under the decree, all institutions and businesses must present ratings given by one or more CRAs when issuing debt instruments.

The credit rating institutions, individuals or businesses must not be units operating in the fields of accountancy, auditing, securities and banking. Since the institutions, by their nature, are not CRAs, they must follow procedures to register businesses to be able to provide credit rating services.

“A legal framework for CRAs will give a push to the development of the finance market,” said Tran Anh Dao, deputy general director of the HCM City Stock Exchange.

An analyst said credit rating services have been provided to businesses for many years by institutions similar to CRAs.

Auditing firms, for example, provide information about businesses’ health under specific contracts, but the information is never publicized.

He also noted that the first CRAs in Vietnam were set up several years ago and have been operational since then, including Vietnam Credit and CRV.

The State Bank of Vietnam (SBV) itself also has a credit rating agency, named the Credit Information Center (CIC), but the center never gives ratings to credit institutions, but to businesses which are clients of credit institutions.

The analyst, who is a retired banker, on one hand, lauded the decision to establish private CRAs, but said that it was still too early to say about their performance.

He warned that CRAs would have to operate in an environment with unfavorable conditions, that is, a market with a lack of transparency and strict rules on information exposure.

“State management agencies and organizations may give the excuse of ‘national security’ when refusing to provide information. And businesses may refuse to cooperate with rating agencies because current laws do not set clear regulations on information exposure,” he said.

There is also another barrier to be met by CRAs – the negative reaction by the institutions or companies that will receive credit ratings.

The CRAs set up before the release of Decree No 88 might have learned a lesson from this attitude.

Several years ago, a privately run CRA faced strong opposition from commercial banks when it released a report about bank ratings. The commercial banks were backed by the State Bank, which said the CRA’s ratings were “unreasonable”.

TBKTSG