After Basel II, banks aim for Basel III

03-Jun-2020 Intellasia | Dau tu Chung khoan | 6:02 AM Print This Post

The objective of the banking industry is that by 2025, all banks will apply Basel II standard approach. However, at this point, banks which have early completed the goal are targeting a higher risk management standard: Basel III.

So far, 18 banks have been recognised as meeting Basel II standards under Circular 41/2016/TT-NHNN (including Military Commercial Joint Stock Bank (MB), Vietnam Technological and Commercial Joint Stock Bank (Techcombank), Asia Commercial Joint Stock Bank (ACB), Vietnam International Commercial Joint Stock Bank (VIB), Maritime Commercial Joint Stock Bank (MSB), Orient Commercial Joint Stock Bank (OCB), HCM City Development Commercial Joint Stock Bank (HDBank), Vietnam Prosperity Commercial Joint Stock Bank (VPBank), Tien Phong Commercial Joint Stock Bank (TPBank), Vietnam Thuong Tin Commercial Joint Stock Bank (VietBank), Viet Capital Commercial Joint Stock Bank (VietCapitalBank), Lien Viet Post Commercial Joint Stock Bank (LienVietPostBank), Standard Chartered Vietnam, Shinhan Bank, Nam A Commercial Joint Stock Bank (NamABank), Southeast Asia Commercial Joint Stock Bank (SeABank), Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), and Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank). However, of these, up to 14 banks have not yet met all three pillars of Basel II.

In Vietnam, the implementation of Basle II standards is prescribed in Circular 41/2016/TT-NHNN and Circular 13/2018/TT-NHNN of the State Bank of Vietnam (SBV). In particular, Circular 41/2016/TT-NHNN stipulates the capital adequacy ratio (CAR) of commercial banks and foreign bank branches under the standard approach of Basel II and Circular 13/2018/TT-NHNN regulates the internal control system of commercial banks and foreign bank branches.

VPBank has announced that it has completed the implementation of the last Basel II pillar Internal Capital Adequacy Assessment Process (ICAAP). Along with the completion of the two previous pillars, the last pillar of Basel II is implemented a year earlier than required by the SBV and completed just over half a year after VPBank officially received approval to early apply Circular 41.

Dmytro Kolechko, VPBank’s Head of Risk Management Division, said that the completion of all three pillars of Basel II one year before the deadline of the SBV is the fulcrum for VPBank to continue pioneering the market in meeting the highest international standards. This is considered as the initial foundations for VPBank to pursue the basic standards of Basel III, bringing the bank’s management standards closer to the standards of advanced banks in the world.

The second bank which officially satisfied all three pillars of Basel II standards is VIB. In particular, the first pillar on minimum CAR and the third pillar on market discipline were completed by VIB in 2018, while the second pillar was applied in November 2019.

Han Ngoc Vu, general director of VIB, said that the bank’s risk management platform was transferred from strategic shareholder Common Wealth Bank of Australia (CBA). Setting a clear roadmap when deploying Basel II earlier than the deadline prescribed by the SBV showed that the bank always considers the completion of the three pillars of Basel II as one of the important tasks in the long-term vision of risk management. The bank plans to continue investing in developing Basel II advanced approach, targeting to apply Basel III standards in its risk management.

With the implementation of ICAAP, TPBank has soon completed all three pillars of Basel II. Previously, in April 2019, TPBank was approved by the SBV to apply Circular 41/2016/TT-NHNN on CAR of banks the first pillar of Basel II, and became one of the five banks to carry out this pillar the fastest in the whole system.

According to Nguyen Hung, general director of TPBank, the bank has seriously implemented regulations of Circular 13, reflected in the policies as well as the organisational structure of the bank which have been adjusted to comply with the strict provisions of the law. KPMG also appreciated that TPBank considered meeting the strict standards of Circular 13/2018/TT-NHNN on ICAAP as a key task in the bank’s advanced governance goals.

TPBank is also preparing to carry out International Financial Reporting Standard 9 (IFRS9). KPMG assessed that this is a smart move of TPBank when optimising its resources to carry out IFRS9.

MSB is the fourth bank which announced the application of all three pillars of Basle II. Along with the completion of the first and third pillar in July 2019, the second pillar was completed nearly a year ahead of the SBV’s requirement.

Acting general director of MSB Nguyen Hoang Linh said that the early completion of all three pillars of Basel II is the premise and motivation for the bank to target higher international risk management standards. The bank expects to apply Basel II advanced approach and aim for Basel III standards in its risk management, and plans to apply IFRS9 in financial activities and risk management.

The ICAAP process is a comprehensive assessment of capital, including components from identifying a bank’s risk profile, developing a strategy and risk appetite, calculating the required capital level for critical risks (with a broader coverage than pillar 1, including additional interest rate risks on bank books and centralised risks) not only in normal business conditions but also in unfavourable market developments. Based on that, banks can determine the capital goal to ensure that its business activities are within acceptable risk tolerance.

ICAAP report, together with other reports required by the SBV on risk management and internal control system, is a transparent and comprehensive source of information to enable the SBV to carry out supervision and administration of the system of commercial banks on a risk basis. That is the reason for banks’ efforts to early complete the three pillars of Basel II.

VietCapitalBank has officially launched “Building the ICAAP process” project in accordance with Circular 13/2018/TT-NHNN with the comprehensive consultation of KPMG. According to Ngo Quang Trung, general director of VietCapitalBank, when the project is completed and the ICAAP process is operational, the bank will complete all three pillars of Basel II standards, thereby fully complying with the SVB’s requirements and meeting international practices.

“Through the ICAAP implementation project, based on the risk measurement methods and forecasts in many different scenarios, the business planning orientation as well as capital allocation plan of the bank will be built and improved proactively and effectively,” said Trung, adding that VietCapitalBank will meet the Basel II standards advanced approach right in the third quarter of 2020 ahead of the schedule set by the SBV.

According to BIDV’s representative, the bank has completed risk management and capital control projects, is preparing to early comply with the regulations in Circular 13/2018/TT-NHNN. In mid-January 2020, BIDV and Deloitte announced and handed over the results of the MRA (Market risk amendment) & ICAAP project. Previously, the SBV approved BIDV to apply Circular 41/2016/TT-NHNN by the end of 2019. MRA&ICAAP project was implemented in 12 months with the scope of covering overall risk management and internal assessment capital adequacy in Circular 13/2018/TT-NHNN.

According to the development strategy of the banking industry in the period of 2020 2025, by 2020, commercial banks’ capital level will basically follow Basel II standards, at least 12 15 banks apply Basel II according to standard approach, and at least one or two banks listed in the Top 100 largest banks in terms of total assets in Asia. By 2025, all banks must apply Basel II’s standard approach; pilot the application of Basel III in advanced approach at state-owned banks and private joint stock banks with good governance quality that have applied Basel II in standard approach; and at least two or three banks are among the top 100 largest banks in Asia.

In order to achieve these goals, the banking and finance sector needs to formulate and promulgate regulations and guidelines for credit institutions with sufficient competitiveness in the domestic market, gradually improving the international competitiveness in 2020 and in the period of 2021 2025.

 


Category: Finance, Vietnam

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