Credit rating: “passport” for brands to go global

Information publicity and transparency is one of primary principles the World Trade Organisation (WTO) requires from all member states.

A locality needs to have its competitiveness rated to attract investment capital. A company must have financial statements when they want to issue shares to raise capital or list shares on the stock market. Information transparency requirements prove that credit rating is becoming an indispensable need in the current process of economic development. Reporter Huong Ly interviews Prof. Nguyen Khac Minh, Head of Editorial Board for “Vietnam Credit Rating Annual Report”, on the issue.

Could you tell what the purposes of credit rating are? How is credit rating in Vietnam?

In developed countries in the world, the release of credit worthiness of a nation, an organisation or a company is very common. In the world, there are many credit ratings agencies like Standard & Poor’s, Moody’s or Fitch. In Vietnam, the Vietnam Chamber of Commerce and Industry (VCCI) annually releases Provincial Competitiveness Index (PCI) – a tool for measuring and assessing the standards of economic governance in Vietnam’s 63 provinces and cities. Under the sponsorship of the Presidential Office, Credit Rating of Vietnam Joint Stock Company (CRV) and the Vietnam Business Forum Magazine in collaboration with several scientific organisations studied and undertook the Vietnam Credit Rating Annual Report.

In a market economy largely driven by globalisation and economic integration developments, economic relations are progressively expanded but they also entail more risks. Besides, in a market economy, all participants always want to have independent assessments on operations, development prospects, and credit positions before making investment decisions, carrying out M&As (mergers and acquisitions), financing credit, forging partnership or supplying goods. Therefore, credit rating is an indispensable requirement, always exists in the market economy, and is also the most important factor for risk management.

Many organisations and businesses have realised the importance of credit rating. It has to spend a lot both money and time to get reliable information on their partners and many businesses have been familiar with disclosing their “health.” This indicates that Vietnamese businesses are approaching closer to world-class operating criteria.

Do you mean businesses get more gains than pains once rated?

Credit ratings tell a rated company should be or not cooperated and a suitable degree of cooperation. The rated company will know its actual operating states, development prospects and risks it may face. Moreover, this indicator importantly helps the company to have easier access to credit decisions, determine credit limits, credit terms, interest rates and security with banks, etc. On the stock market, this information tells securities investors about the status of issuers and appropriate actions to their portfolios, etc.

Being rated good or higher means the company gets a passport to globalise its brand name and edge up its competitiveness. In fact, several banks and insurers in Vietnam were rated by world-leading credit ratings agencies like A.M. Best and Fitch Ratings. With their ratings by these agencies, Vietnamese businesses can confidently stay abreast leading financial groups in the world.

Could you tell the differences of this year’s report from the last year?

Unlike other Vietnamese economic researches in 2010, the 2011 report will be more of practical meaning than academic. This research will pinpoint such information as financial indicators that reflect the vulnerability of the economy on the basis of quantitative indicators drawn from modified models from models employed to study other economies like Thailand and South Korea to reveal economic vulnerabilities in the development process.

The report also analyses several export-oriented industries at the company level. For the first time, the report assesses 20 major banks in Vietnam with four main indicators: Technological progress index (CRVI), productivity index (pindex), scale index (sindex) and market orientation index (csindex).

It is worth mentioning that we present the probability of bankruptcy of companies listed on the stock market in this report. Our remarks will be very useful for investors when the market is tracking the bottom.

Not long ago, a credit rating agency rated a Vietnamese bank and it immediately received aggressive feedback from other commercial banks. Will this report rate banks? Do you anticipate responses from banks when the report is released?

As you would expect, our report not only analyses and rates 20 banks but also some leading companies like Vinamilk. The objective of rating leading banks and corporations is to build four sets of indexes which can measure weaknesses and strengths of each company in relation to its peers and to itself in different years in the Vietnamese business environment in terms of technological strategy, productivity, scale, market orientation. I used to hear of a protested rating report but I had no comment on this matter. Importantly, rating a business does not mean sorting or listing its name in order. It must have a high degree of accuracy. To rate a listed company, we use an integrated approach. For example, when we evaluate financial situations, we use 54 indicators in audited financial statements and some popular methods developed countries. Therefore, the report will ensure research method and high applicability.

Would you mind telling how to boost up the development of credit rating in Vietnam?

In the world, well-reputed credit rating agencies can rate countries like rating investment attraction or public debt risks in Greece and Spain, and their ratings are always accepted and appreciated. This is because credit rating is protected by the laws.

In Vietnam, listed companies are not fined for late publicity of corporate earnings reports. If information disclosure is legalised, the corporate information system will be updated and transparent. Legislating credit rating information disclosures is an important factor to restrict false, unclear or imprecise information.

Tags: Credit rating