VietNamNet Bridge – The country needed only two credit rating agencies (CRA), in addition to international CRAs, when conducting single rating services, according to the Viet Nam Association of Financial Investors (VAFI).

This was stated by VAFI in a document sent to the Ministry of Finance (MoF) to comment on the ministry's draft regulation for the establishment and operation of credit rating agencies.

The association said international practice showed a country should not have a lot of CRAs, which would eventually lead to unfair competition and would not guarantee service quality.

According to MoF's draft, posted on the Government's website for public comment, credit rated companies would operate under the model of joint stock or limited firms and would have legal capital of VND15 billion (US$714,000).

Cross-ownership among credit rating firms would be banned while individual and institutional investors could own less than 20 per cent of a credit rating firm's contributed capital. Foreign investors were allowed to have stakes in local credit rating firms.

According to the association, small financial markets like Viet Nam could not attract strategic investors as the yields were low, along with the firms' dislike of being rated. Therefore, the Government needed to build a legal framework to establish the operating environment for CRAs.

In Thailand, for example, the Thai government required firms make credit ratings when listing on the stock market. Banks and insurance firms in the Philippines and many countries in Latin America also had to make credit ratings yearly.

VAFI recommended the Ministry of Finance co-operate with the International Financial Company (IFC) and Nomura Securities Institute to gain more experience in formulating policies and attracting strategic partners for setting up CRAs.

Viet Nam had never had a professional credit rating agency. Some credit rating information provided by some private firms was incomplete, unreliable and even had detrimental effects on financial markets or had caused misunderstandings for small investors and the public, the association said.

By giving credit ratings to companies seeking to raise funds, such firms would help increase both demand and supply in the bond and monetary markets and warn investors of risks.

Source: VNS