Home » Banking & Finance » Credit ratings ‘would help minimise risks’

Banks have called for the urgent introduction of credit ratings to encourage businesses to operate more transparently, and therefore minimise credit risks.

The call was made at a conference in Ha Noi yesterday, Sept 23, evaluating the influence credit ratings would have on the banking sector and businesses.

“Credit ratings can help the central bank to have adequate information on commercial banks and businesses, based on a particular set of criteria. Banks in turn could update credit risks, increasing profits and expanding operations,” said Dang Thanh Binh, deputy governor of the State Bank of Viet Nam (SBV).

Pham Xuan Hoe, deputy head of the SBV’s Monetary Policies Department said credit ratings would make the operation of commercial banks more effective and would also increase transparency for the whole economy.

Credit ratings have shown that the rate of businesses with good results last year reduced sharply to 10 per cent compared to the 2009 and 2010 statistics, while medium and weak results rose considerably to 29 per cent against the 24 per cent of 2010.

CIC’s evaluation also revealed that banks with heavy debts and medium and weak credit ratings accounted for 95 per cent of the total.

This means that if credit institutions had exact credit ratings, they could have the option of choosing low-risk customers and therefore reduce 95 per cent of bad debts.

“The ratings would promote businesses which operate effectively and reduce the number of uncompetitive ones,” Hoe said.

He suggested that credit ratings have been used as a tool to supervise financial markets with the aim of reducing risks to the banking sector, increasing investment for the economy, especially foreign invested capitals.

Foreign businesses would benefit from the ratings as it would provide a foundation from which to choose a suitable enterprise for investment, he added.

He said ratings were important for credit institutions classifying and choosing suitable customers. More transparency would allow them to create fair credit policies, reducing bad debts and any risks in their operation.

Nguyen Duc Huong, vice chairman of LienVietPost Bank’s management board said credit activities accounted for 50-70 per cent of banks’ income. However, they have faced risks as some borrowers have tried to use capital for the wrong purposes and have been overdue on debt repayment.

“The risks could be prevented if banks choose customers based on credit ratings,” Huong said.

Nguyen Van Tuan, deputy general director of Vietcombank, said loans presenting high risk would naturally be considered very carefully, while customers with high credit ratings would be given priority in transactions.

Tuan said Vietcombank has completed its credit ratings for risks and customer management to meet international standards on banking administration.

Nguyen Thi Dien, general director of An Phuoc Garment Company said credit ratings have also provided businesses with opportunities as they have been a foundation for businesses to evaluate their competition position over others and increased their trust of banks.

In Viet Nam, the first and only Credit Information Centre (CIC) was established in 2002 under the central bank and has provided information for the banking sector, serving the credit risk management. CIC has been a useful information channel for credit institutions to evaluate their customers.

CIC’s database has been the largest in Viet Nam with about 400,000 business documents including 50,000 financial reports updated every year. CIC has provided more than 20,000 credit ratings lists annually for SBV and credit institutions.

At the meeting on yesterday, CIC announced the 1,000 businesses which had the highest credit ratings in Viet Nam this year. This was the fourth time CIC has announced the list of businesses from 35 sectors.

Under the list, 277 businesses had positive ratings of AA to AAA while 723 others had relatively good ratings of BB to A.

CIC presented awards to five credit institutions for having high ratings. They were Vietcombank, Vietinbank, BIDV, Agribank and Maritime Bank.

VietNamNet/VNS

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