Credit rating in Vietnam is like “putting the cart before the horse”, so to make it part of the culture will be really challenging, said Phung Xuan Minh, chairman of Saigon Ratings, the first credit rating agency in Vietnam.
Becoming a pioneer in a certain field is not simple. Could you please share the reason why you chose the credit rating field so early and the difficulties you have faced?
In 2005-2010, Vietnam was still in the early stages of economic reform. Basically, the Vietnamese financial market at that time was very primitive, limited and underdeveloped in many aspects. The capital market serving the needs of economic development and the business system was mainly based on the bank credit channel although the number and scale of commercial banks participating in the market remained very limited. The stock market had just been born while the corporate bond market was not yet formed.
With personal knowledge, understanding and experience in several areas such as corporate financial consulting, investment funds, securities and real estate business, and after a period of research and forecasting the development trends of the national financial market in general and the corporate bond market in particular in the medium and long term, at the beginning of 2010, we began to focus on credit rating and decided to establish the first independent credit rating agency (CRA) in the Vietnamese financial market.
We faced a lot of difficulties at that time. Firstly, the market was unfamiliar with corporate bonds and there was no credit rating activity in the country. When establishing Saigon Ratings, someone told me to "sell porridge and tea rather than credit rating because this field has never been heard of". Meanwhile, the stock market was only a few years old, so the awareness, thinking, and understanding of the market were very limited, let alone credit rating.
Secondly, when Saigon Ratings started operations, there was no legal framework to apply for an official operation license. At that time, a few businesses offered credit ratings for some businesses and banks online, but they were criticized. However, no one "blew the whistle" because there was not a legal corridor. From 2010 to 2012, Saigon Ratings began studying this field and at the end of 2014, the Ministry of Finance issued Decree 88, allowing credit rating organizations to be established.
The third difficulty came from the actual implementation process. Because we were the pioneer, there were no models in Vietnam for us to learn from, so we had to rely on experience of credit rating agencies in the region. At that time, I went to Japan, South Korea, Thailand and Malaysia which had been developing a credit rating culture 20-30 years before Vietnam. In South Korea, the president of a credit rating group shared that: "I had 15 years of suffering, called “putting the cart before the horse”, until the state issued a regulation mandating credit rating. Before that, no one cared about it." After hearing his story, I was very discouraged.
However, we still managed to maintain the system and personnel quality according to the regulations of the Ministry of Finance until 2017, when Saigon Ratings was licensed. But even after we had the license, for the first two years, there were no phone calls to order our services. When we proactively called businesses, we received the same answer: "What's credit rating for? There's no need."
Having gone through these difficulties, Saigon Ratings has gradually asserted its position. Currently, we lead in the number of rated issuers in Vietnam. The company has provided services to nearly 30 issuers (financial and non-financial) in different economic sectors and industries in the country.
What do you and Saigon Ratings expect in the near future with credit rating in the corporate bond market?
Credit rating is an international practice, applied by most developed countries towards sustainable capital markets. However, after 10 years, organizations such as the IMF and the ADB still assess that Vietnam does not have and has not yet developed a credit rating culture, making it difficult to develop the capital market. Even some regulations mandating credit rating only apply to a very small group.
In Vietnam, there are too many experts and individual investors that take a herd mentality and focus on interest rates, while in developed countries, investors only look at rating results to make investment decisions. In particular, their regulators are clearly aware that corporate bonds are an important part of the capital market.
To promote strong economic development, in the current integration conditions, it is necessary to develop the corporate bond market, together with the credit and stock markets. In the next 2-3 years, the rebound of the corporate bond market will create momentum to develop the whole economy and support businesses.
However, to do this, the state must resolutely protect investors, form a credit rating culture to minimize information asymmetry, and provide full information for investors so they can make their own investment decisions and take responsibility themselves.
According to recommendations from many international organizations, Vietnam should issue a decree, like many countries, stipulating that issuers must have mandatory credit ratings for the first three years if they want to issue bonds. It’s like wearing a helmet - if it is mandatory for three years, then it becomes a habit and a culture. Hopefully credit rating will be a driving force to protect investors and become a culture in Vietnam.
In addition, international practices show that it takes 3-4 years for rating businesses to compile enough resources. Vietnam also needs 3-5 years for domestic organizations to be strong enough to meet the rating needs of the country.