Credit ratings: Enhancing credit risk assessment and management
Hanoi, October 25, 2023 - Credit ratings not only contribute to the development of the corporate bond market but also support commercial banks in risk management activities, aligning with international practices and promoting the sustainable development of Vietnam's capital market.
This was the key message of the Seminar "The role of credit ratings in credit risk management" organized by the Vietnam Banking Association ("VNBA") in collaboration with FiinRatings Joint Stock Company ("FiinRatings") and S&P Global Ratings.
The Seminar provided different perspectives from domestic and international experts, representatives of commercial banks, investment funds, guarantors, etc., with the participation of speakers from the World Bank, Asian Development Bank (ADB), S&P Global Ratings, FiinRatings, Mizuho Bank (Singapore), GuarantCo, VNBA, as well as representatives from domestic commercial banks, insurance companies, and investment funds.
Some main topics to be shared and discussed at the Seminar include:
First, the role of credit ratings in bank lending. Corporate credit ratings play an increasingly important role, especially in providing additional information for assessing and managing credit risks. Specifically, credit institutions and banks are provided with more comprehensive information to assess the financial situation, repayment ability, and business risks of rated companies, thereby enhancing their credit risk management and investment management in debt instruments.
Speakers discussed practical applications of credit ratings in credit risk management by credit institutions. With more Vietnamese companies being rated, risk management methods based on international practices such as Basel 3 can be applied by credit institutions in Vietnam. Hence, policies and risk ratios can refer to the independent credit ratings results through standardized approach (SA), in addition to the internal rating-based approach (IRB) of credit institutions. Our speakers also discussed how the application can support credit institutions and authorities in promoting credit growth based on credit quality rather than industry segments.
Second, the seminar discussed the role of applying credit ratings in developing Vietnam’s capital market in general and the corporate bond market in particular. This encourages long-term investment channels in Vietnam and diversify investor base, including domestic and international investment funds, insurance companies, pension funds, and financial institutions.
The classification of bond ratings will support investors in managing investment portfolios based on their risk appetite and level of safety, in accordance with the investment model of the investment institution. According to international and regional practices that are commonly applied, it is suggested that public investment funds, insurance investment funds, or pension funds should prioritize investing in bonds rated at investment-grade or at a specific ratio.
Third, the Seminar also discussed the possibility of applying mandatory credit ratings for certain groups of corporate bond issuers from early 2024, as required by current regulations, including Decree 08, Decree 65 (on private bonds), and Decree 155 (on public bonds).
Fourth, speakers discussed the role of credit ratings in supporting the formation of soft infrastructures for the capital market, including: the formation of interest rate curves in the capital market and corporate bonds, bond pricing, and providing information to facilitate secondary market transactions, etc.
Fifth, the seminar discussed the capacity of current credit rating agencies and their ability to meet market and investor demand, as well as policy changes to establish credit rating standards and control the quality of credit rating service providers in Vietnam’s market.
The Seminar provides multi-dimensional views of independent credit ratings from international standards, practical applications in Vietnam, as well as the experience and effectiveness of implementation in various countries. Credit rating has become an international standard and is applied in many countries across the region, playing a crucial role in promoting a healthy and sustainable development of the capital market.
Presentation decks are available HERE.
FiinRatings Joint Stock Company (“FiinRatings”), a member of FiinGroup and a technical collaboration partner with S&P Global Ratings, is a local licensed Credit Rating Agency in Vietnam. FiinRatings provides credit ratings and related services to issuers, creditors and investors in Vietnam credit market. FiinRatings is also Vietnam first green bonds approved verifier, in accordance with the green bond international standard by the Climate Bonds Initiative. For more information, visit: https://www.fiinratings.vn
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