VIB pilots Basel III standards in Vietnam

24-Oct-2020 Intellasia | NDH | 6:02 AM Print This Post

After applying Basel II, Vietnam International Commercial Joint Stock Bank (VIB) continued to be one of the first banks to put the liquidity risk management standard under Basel III into a Vietnam test.

Vietnam had had six banks completing the three pillars of Basel II according to the roadmap of the State Bank of Vietnam (SBV). Other banks were also completing three pillars under the new risk management framework, in which VIB had moved to apply the liquidity risk management standards under Basel III.

Pioneering step of the bank

Towards comprehensive risk management following international standards, VIB continued to be the first bank in Vietnam to announce to put the Basel III liquidity risk management standard into practice. Simultaneously, the bank also applied and complied with safety ratios under SBV’s regulations.

Specifically, according to Basel III, VIB had completed the study on calculating Net Stable Funding Ratio (NSFR), evaluating the data source, and performing the calculation of this ratio at present and in the past. The bank also included a new governance indicator in internal capital governance by setting internal limits and building a strict compliance monitoring mechanism. Pilot activities initially brought positive results when VIB achieved NSFR equivalent to banks implementing Basel III in the world, while the return on equity (ROE) was high.

Han Ngoc Vu, general director of VIB, commented that this was an important milestone of VIB on perfecting a robust governance platform, especially after VIB had become the first Vietnamese bank to announce the completion of all three pillars of Basel II by December 2019.

After announcing the completion of three pillars of Basel II, piloting NSFR Basel III, VIB would continue to invest heavily to complete the advanced method of Basel II, in parallel with the pilot implementation of many items of Basel III. The bank said that it was still regular and would continue to discuss with SBV, consultants and specialised agencies to have the right direction to improve risk management capacity, contribute to building a healthy and prosperous banking industry.

New standards of administration

Basel III was a risk management framework with stricter criteria, announced by the Basel Committee on Banking Supervision (BCBS) in 2010. The new standard’s goal was to cope with financial crises and improve the banking system’s sustainability, contributing to the prevention of possible systemic losses in the future.

These standards were based on two independent goals. Specifically, the Liquidity Coverage Ratio (LCR) improved short-term resilience by requiring banks to maintain sufficient quantities of highly liquid assets to meet their liquidity needs within 30 days. Meanwhile, the NSFR was calculated by the ratio of real stable capital to necessary stable capital, developed based on the requirements of the maturity date structure of assets and liabilities, encouraging the bank to operate on a long-term stable source of capital to minimise the risk of capital shortage in the future, maintain financial stability and protect the interests of depositors. Unlike the ratio of short-term funds used for medium and long-term loans (SMLR), NSFR Basel III was not merely based on the quantitative factor of the remaining term but also consider the behavioural factors, origins, risk coefficients and structure of a bank’s assets and liabilities to determine the strength of its liquidity. Accordingly, the mobilisation from individuals and small businesses with the remaining term of less than one year was a stable source of capital, applying a coefficient of 90 percent to 95%. For corporate deposits, a stricter coefficient of 50 percent was applied.

The necessary stable capital source also separated the bank’s assets by nature to determine the need for a stable capital source to mobilise to ensure that the NSFR was above 100 percent while maintaining good profitability.

According to the periodic monitoring report of BCBS in April, in the Asia market, there were seven banks in four countries officially applying and reporting the LCR, NSFR ratio in the six-month periodic surveys of BCBS.

 

Category: Finance, Vietnam

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