In this credit rating methodology[1], we explain our general approach to assessing credit risk for financial institutions including banks, finance companies and securities firms, and to assigning issuer-level and debt instrument-level ratings in this sector in Vietnam[2].
As part of our credit analysis in this sector, we establish a stand-alone assessment for a financial institution entity. A stand-alone assessment reflects our opinion of the entity’s intrinsic credit strength, absent any support from an affiliate or government, relative to other financial institutions in Vietnam, and the company’s likelihood of requiring support to avoid a default. We then incorporate affiliate support, which reflects our opinion of the entity’s ability to pay its debt and debt instruments given support from an affiliate, and finally we include government support, that reflects our opinion on the likelihood of support to be provided by the government in an event of stress.
We discuss the qualitative and quantitative factors that are likely to affect rating outcomes in these sectors. We also discuss other considerations, which are factors for which the credit importance may vary widely among financial institutions or may be important only under certain circumstances or for a subset of entities. We discuss our approach to assessing the potential for affiliate support and the potential for government support. Furthermore, since credit ratings are forward- looking, we often incorporate directional views of risks and mitigants in a qualitative way. We determine debt instrument credit rating given our estimation of loss given a failure of a financial institution.
Our presentation of this credit rating methodology proceeds with a discussion of (i) the stand-alone assessment factors and other considerations; (ii) assessing affiliate support; (iii) loss given failure notching guidance; (iv) assessing government support and intervention; (v) assigning issuer-level and debt instrument-level ratings; and (vi) general limitations of the credit rating methodology.
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