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Experts said the establishment of CRAs was a positive sign to the market and investors, as it was expected to boost debt market transparency. — Photo baothanhhoa
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HA NOI (Biz Hub) — Domestic credit rating agencies (CRA) will be established in the country for the first time, marking a new stage in the development of the domestic finance market.
Under Decree 88/2014/ND-CP, a newly-issued regulation, the Ministry of Finance will begin receiving applications for the setting up of CRAs in the middle of November 2014. Authorities expect two to four CRAs to be set up in the initial stages.
An official legal framework for the establishment of CRAs will serve as a major momentum for the future growth of domestic finance and securities markets, most especially the debt market, industry insiders said.
The CRA is a familiar model to international financial markets but is new to Viet Nam, where bonds have yet to be rated by independent rating organisations. As a result, Viet Nam's bond market has lagged far behind world standards.
Experts said the establishment of CRAs was a positive sign to the market and investors, as it was expected to boost debt market transparency.
Currently, the bonds, which are mainly issued for banks to renew debts, are unrated. The CRAs can now rate securities market products, especially corporate bonds.
The finance ministry is also considering adding a condition that bonds must be rated by one or more CRAs.
Do Viet Dung of the finance ministry's Bank and Finance Department said corporate bonds worth roughly VND30 trillion (US$1.4 billion) were issued every year.
Total outstanding bond market debt was estimated to be around 2.3 per cent of gross domestic product, a small ratio compared with that of other countries in the region. However, the corporate bond market still has a huge potential.
The establishment of CRAs will also help to better control bad debts, as CRAs rate the financial and solvency status of companies and organisations that borrow from credit institutions.
Previously, auditing firms provided services similar to those of CRAs. However, the services are provided to each customer only, and no release of public information takes place.
According to Decree 88, CRAs are barred from operating in the accounting, auditing, securities and banking sectors to ensure independence, fairness, honesty and transparency.
CRAs must each have a legal capital of VND15 billion ($707,500), excluding the legal capital of other businesses where CRAs are allowed to operate. They are also barred from giving capital to other CRAs.
Organisations and individuals who own five per cent of a CRA's charter capital are likewise barred from contributing capital to or holding shares in other CRAs. The decree also bars organisations and individuals from using State capital to set up CRAs. — VNS