Banks set long-term plans for Basel III application

16-Jun-2021 Intellasia | Thoi bao Ngan hang | 5:02 AM Print This Post

Many banks plan to increase their charter capital in 2021. This move is positively evaluated because the increase in capital is important for banks when their scale of operation is expanding, while the equity of many banks increases disproportionately, putting pressure on the Capital Adequacy Ratio (CAR), and posing potential risks to the system. This fact requires banks to continue raising their equity to better meet requirements on CAR, ensuring their CAR meeting Basel II standards and then Basel III standards. Although the banks are currently tasked to meet Basel II standards only, some banks are preparing for applying the higher standards in Basel III such as Tien Phong Commercial Joint Stock Bank (TPBank), Vietnam International Commercial Joint Stock Bank (VIB), Maritime Commercial Joint Stock Bank (MSB), etc.

The reason for proactively implementing Basel III standards, according to a bank leader, is that banks see that applying advanced management methods in the world is necessary for stable, safe and efficient operations on the basis of good governance.

Basel III introduces a number of stricter criteria than Basel II in terms of capital requirements, liquidity to improve sustainability of the banking system, enhancing the ability to cope with financial crisis, contributing to preventing future system losses.

For the banking operations, ensuring capital adequacy and sustainable liquidity is considered one of the key goals for developing stably in line with the bank’s strategic development goals. Therefore, after completing all three pillars of Basel II, banks want to set a longer path for their sustainable development in the future, so they decide to approach some criteria of Basel III standards.

Currently, banks tend to approach both Basel II and Basel III. According to VIB’s deputy general director, implementing Basel III is not an easy task, so banks must pursue both sets of standards to avoid adverse effect to business activities.

For example, MSB has announced the application of credit risk management according to the Basel II’s internal rating method, and at the same time the application of Basel III in terms of risk management in operation, market and liquidity. According to MSB’s general director Nguyen Hoang Linh, the implementation of the advanced Basel II and preparation for Basel III is the driving force as well as a solid foundation for the bank to ensure the balance between growth factors and sustainability and quality in operation, preventing and limiting losses, if any, at the lowest level.

Similarly, Saigon Hanoi Commercial Joint Stock Bank (SHB) Nguyen Van Le said that the bank expects to invest and develop Basel II according to the advanced method and target Basel III standards. This is the basis for the bank to continue to develop a sustainable and comprehensive business strategy, a framework for effective risk management and use of capital, thereby providing safe, reliable and transparent financial and non-financial products to customers.

The practical benefits brought to the bank in terms of both risk management and business performance when applying Basel III are very clear. However, it is not easy to fully carry out all the pillars of Basel III. IF Vietnamese banks are unable to meet the basic elements in terms of capital, modern technological infrastructure, human capacity and qualifications, transparent market, mechanisms, etc. they can hardly approach Basel III standards.

One of the key and most important factors to apply Basel III standards, according to Trung, is to have a strong capital capability. This is the growth pillar for banks in all activities, followed by a good asset quality, information technology, and a high-quality workforce.

Experts said that in the near future, commercial banks need to have a clear strategy, specific assessment on the current situation, determine the priorities in order to have appropriate implementation. The time to complete the pillars of Basel III depends on the health of each bank. Some banks need one to two years or less, but some need longer time. Nevertheless, the early completion of operating regulations according to international standards not only affirms banks’ positions but also helps them score high points in the eyes of foreign investors.

Certainly, it does not mean that banks will try at all costs to pursue the quantity target. The importance is quality, because the application of Basel III will help banks develop safer and more sustainable in the future. However, with a modest capital size, despite being improved, meeting the strict regulations of Basel III may limit the ability of credit supply and reduce the profitability of banks in the short term, particularly in the current context when banks are in need of better financial capacity and more abundant capital source to support businesses and the economy, which have been affected by the epidemic, to soon overcome difficulties.


Category: Finance, Vietnam

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