Customers make transactions at Techcombank’s headquarters in Hanoi (Photo: VNA) Hanoi (VNS/VNA) - The State Bank of Vietnam (SBV) willrank credit institutions and foreign bank branches operating in the country ina move to ensure the safety of the banking system and protect legitimate rightsof depositors.
Under Circular No. 52/2018/TT-NHNN, which will take effect from April 1 thisyear, commercial banks, financial companies, financial leasing firms,co-operative banks and branches of foreign banks will be rated. As for commercialbanks, the SBV will classify them into two groups: large-sized commercial bankswith total assets of more than 100 trillion VND (4.27 billion USD) andsmall-sized banks with total assets of below 100 trillion VND.
The credit institutions and foreign bank branches will be classified in fivegroups – A, B, C, D and E – with A representing the best performing and E theworst.
The classification will be made based on quantitative and qualitative criteria.
Qualitative criteria will measure the health of the institutions’ operationsthrough statistics on assets and capital, as well as financial and businessreports audited by independent auditors, while quantitative standards willgauge compliance with legal regulations of the institutions.
The criteria will be weighed in accordance with how important they are to theinstitutions’ performance and the supervision requirement.
The criteria are divided into six groups – capital adequacy, asset quality,management and earnings, as well as liquidity and sensitivity to market risk –called the CAMELS rating system – a recognised international rating system.
Before June 10 every year, the SBV’s Banking Supervision Agency will submit theranking results of credit institutions and foreign bank branches of thepreceding year to the SBV’s Governor for approval, which will be done beforeJune 30.
However, according to the SBV, the ranking results will not be publicised dueto the delicacy of the issue. The central bank will only send the rating resultindividually to each credit institution, asking the institution to address anyshortcomings.
Responding to a question on why the ranking results will not be publicised, theSBV said that unlike the objectives of international credit ratingorganisations, these ranking results will only be used to provide timelywarning of risks so that measures can be taken to prevent the fall of aninstitution and the whole system, which will help protect assets and rights ofdepositors.
According to the SBV, central banks and financial supervisory agencies in manycountries also do not publicise their ratings of commercial banks. They justmake public periodical rating results of international credit ratingorganisations, which are a reference for investors and depositors to makeinvestment decisions, but clearly citing they are not responsible for theratings.
However, banking expert Phan Minh Ngoc told cafef.vn that it was necessary tomake public the rating results to ensure transparency of information andoperation of credit institutions as the European Central Bank (ECB) did withbanks of its member countries.
According to Ngoc, all related parties, from the people, the Government as wellas domestic and foreign investors have legitimate rights to know abouttransparent information of credit institutions and foreign banks’ branches inthe country while the information can only be obtained in a quality andobjective way from the SBV.
“Transparency in the operational quality of credit institutions will not beguaranteed if the rating results are not publicised,” Ngoc said, adding thatwithout the results, the public is not fully aware of the shortcomings andweaknesses of credit institutions to pressure them to resolve it.
Currently, credit institutions operating in Vietnam are ranked by internationalcredit rating organisations such as Standard & Poor’s, Moody’s and Fitch,based on international standards.-VNS/VNA
Under Circular No. 52/2018/TT-NHNN, which will take effect from April 1 thisyear, commercial banks, financial companies, financial leasing firms,co-operative banks and branches of foreign banks will be rated. As for commercialbanks, the SBV will classify them into two groups: large-sized commercial bankswith total assets of more than 100 trillion VND (4.27 billion USD) andsmall-sized banks with total assets of below 100 trillion VND.
The credit institutions and foreign bank branches will be classified in fivegroups – A, B, C, D and E – with A representing the best performing and E theworst.
The classification will be made based on quantitative and qualitative criteria.
Qualitative criteria will measure the health of the institutions’ operationsthrough statistics on assets and capital, as well as financial and businessreports audited by independent auditors, while quantitative standards willgauge compliance with legal regulations of the institutions.
The criteria will be weighed in accordance with how important they are to theinstitutions’ performance and the supervision requirement.
The criteria are divided into six groups – capital adequacy, asset quality,management and earnings, as well as liquidity and sensitivity to market risk –called the CAMELS rating system – a recognised international rating system.
Before June 10 every year, the SBV’s Banking Supervision Agency will submit theranking results of credit institutions and foreign bank branches of thepreceding year to the SBV’s Governor for approval, which will be done beforeJune 30.
However, according to the SBV, the ranking results will not be publicised dueto the delicacy of the issue. The central bank will only send the rating resultindividually to each credit institution, asking the institution to address anyshortcomings.
Responding to a question on why the ranking results will not be publicised, theSBV said that unlike the objectives of international credit ratingorganisations, these ranking results will only be used to provide timelywarning of risks so that measures can be taken to prevent the fall of aninstitution and the whole system, which will help protect assets and rights ofdepositors.
According to the SBV, central banks and financial supervisory agencies in manycountries also do not publicise their ratings of commercial banks. They justmake public periodical rating results of international credit ratingorganisations, which are a reference for investors and depositors to makeinvestment decisions, but clearly citing they are not responsible for theratings.
However, banking expert Phan Minh Ngoc told cafef.vn that it was necessary tomake public the rating results to ensure transparency of information andoperation of credit institutions as the European Central Bank (ECB) did withbanks of its member countries.
According to Ngoc, all related parties, from the people, the Government as wellas domestic and foreign investors have legitimate rights to know abouttransparent information of credit institutions and foreign banks’ branches inthe country while the information can only be obtained in a quality andobjective way from the SBV.
“Transparency in the operational quality of credit institutions will not beguaranteed if the rating results are not publicised,” Ngoc said, adding thatwithout the results, the public is not fully aware of the shortcomings andweaknesses of credit institutions to pressure them to resolve it.
Currently, credit institutions operating in Vietnam are ranked by internationalcredit rating organisations such as Standard & Poor’s, Moody’s and Fitch,based on international standards.-VNS/VNA
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