The results by Moody’s shows that BIDV’s credit rating index is on par with the national level. Specifically, five categories were selected for appraisal. Credit ratings on deposits in Vietnamese dong and foreign currency were set at ‘Ba1’ and ‘B1’, as an issuer in dong and foreign currency at ‘Ba1’ and ‘Ba3’, and for independent financial strength, the rating was ‘E’. The ‘E’ rating means BIDV’s financial strength is very weak compared to the common standards. However, it is not a concern or worry because everybody knows the financial strength or business administration of many Vietnamese companies, especially state-owned firms, is very weak, even if it has not been rated. The meaning of BIDV’s act is different, and it is meaningful.

Losing money to wash dirty linen in public

Vietnam has an idiom: "It is best to wash one’s linen at home". So it was quite strange when BIDV spent billions of dong to hire foreigners to consider and evaluate its weakness and tell the whole world about it. However, it is actually a sound and necessary task.

A disease still exists in the body even if the body has not been examined. The good of a check-up is the patient has a clinical record as the foundation for curing diseases, if he has them, or improving his health.

BIDV did that. Before asking Moody’s to evaluate its strengths, BIDV already knew that they were weaknesses but they didn’t know what they were. When the rating result came, they knew clearly how weak their financial strength was compared to the common standards.

The story gets more interesting

In developed countries, if an organisation is rated at the ‘E’ level for its financial strength, it will not have any opportunity in the market. But it is totally different in developing and transforming economies.

It is simply because in those countries, almost all companies are weak and they are different in terms of development prospects or the way they take advantage of opportunities. Moody’s not only ranked BIDV’s financial strength at the ‘E’ level, but also pointed out which factors contributed to the level. This is foundation for BIDV to improve its credit and take advantage of future opportunities. It is easier to cure a disease if we know what it is.

Improving corporate value

The question is, did BIDV’s value fall after the bank announced its low credit rating index? The answer is no, because the goal of BIDV is building a modern model of business with the participation of foreign strategic investors.

Professional investors, when they decide to invest in a company, carefully evaluate that firm before making decision. If the company has not yet been rated, the investors will do this task themselves or hire other rating firms to do it.

Of course, if they have to do it themselves, they will deduct ‘fees’ for this task when they determine the purchasing price. Once the firm has done this task already, of course, investors can’t deduct those fees.

In brief, a task that can make corporate value increase, work as a foundation for growth and force a company to get better is a necessary one.

At the macro level, this task will be more meaningful when corporate credit ratings become popular, and the economy will have a financial system and strong companies. This is the significant basis for sustainable growth and development.

Source: VietnamNet