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Banking & Finance

SBV: Banks to be rated but privately informed

Released at: 11:41, 19/09/2017

SBV: Banks to be rated but privately informed

SBV Headquarter Office in Hanoi. Photo: SBV

Draft circular from central bank describes ratings as "sensitive" and not for public consumption.

by Quang Huy

Banks in Vietnam are to be classified into five rating categories, A (Excellent), B (Good), C (Average), D (Bad), and E (Weak), the State Bank of Vietnam (SBV) plans in a draft circular on issuing ratings for credit institutions and foreign banks.

The ratings will be determined based on a set of criteria, including capital, assets, administrative management, liquidity, and business results. The SBV Governor will approve the final ratings based on the previous year’s performance every June 30, according to the draft.

The draft also states that the results will not be made public on the central bank’s website, with each rated institution privately informed instead. The central bank explained that the ratings contain “sensitive information” that should not be widely publicized, and that ratings are undisclosed in many other countries.

However, Mr. Nguyen Khac Quoc Bao, Dean of the Finance Department at the University of Economics Ho Chi Minh City, said that issuing credit ratings for banks and publicizing the results is common practice internationally. “Bank ratings are an essential means of increasing the transparency of the banking system as it allows people to understand the ‘health’ of a credit institution, particularly its risk level,” he said.

Once people know the risk level of a bank, they will know where to put their money. Mr. Bao said it was understandable that the central bank wants to keep bank ratings secret, for fear of rattling the market, but the seemingly cautious move would lead to problems. “What if the information the central bank tries to keep secret is leaked to the market?” he asked.

This point was echoed by Mr. Tran Minh Hiep, a lecturer from the Ho Chi Minh City University of Law. He said that “for internal use only” ratings information, once leaked, would “cause even more instability in the market.”

Banking expert Mr. Bui Kien Thanh said that customers need to know if a bank is “healthy” before depositing their money. “Similarly, it is crucial for businesses to understand a bank’s liquidity before deciding to take out a loan,” he said.

“There is a misconception that banks in Vietnam will never go bankrupt because they are all backed by the central bank,” Mr. Bao went on. “Most people will therefore care less about a bank’s risk level than its interest rates, while there are, in fact, weak banks that accept deposits at high interest rates.”

Mr. Bao said banks should see the ratings as motivation for them to improve their performance, rather than a “sensitive matter”. “For banks with strong performance, the ratings will be another means for them to boost their reputation and fortify their positions in the market,” he said. “Bank ratings are a time- and money-consuming task and for no reason should the central bank perform them only to keep the results for ‘internal use only’.”

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