Bankers discuss Basel II capital assessment

Hanoi (VNA) – Banking experts shared their experiences in applying the Basel II capital adequacy guidelines at an IFC-hosted workshop on August 18 in Hanoi.

Nguyen Toan Thang, General Secretary of the Vietnam Banks’ Association (VNBA), said the workshop would enhance bankers’ understanding of the internal capital adequacy assessment process (ICAAP), a key component of central bank regulations worldwide. ICAAP is also central to Basel II, which are international banking guidelines that require financial institutions to have sufficient capital to support the risks incurred in banking operations.

According to banking experts, applying Basel II is indispensable for local banks, especially when Vietnam has become part of the Trans-Pacific Partnership, with most banks of other member countries having applied Basel II or even Basel III.

Thang said the sharing of how ICAAP was used within a bank’s strategy and risk management framework would encourage local commercial banks to develop and use better management techniques to monitor and manage their risks by exploring practical experience, good practices, challenges and the lessons learned.

According to experts at the workshop, undertaking an ICAAP would help banks to assess the capital level required to support current and future risks, including a buffer for crisis scenarios.

Well-run banks across the world view ICAAP as a core strategic activity that safeguards operations such as in times of crisis, rather than as a compliance exercise.

"The need for improving risk management and integrating it with business and capital planning through an ICAAP process has become much more important," Kyle Kelhofer, IFC country manager for Vietnam, Cambodia and Laos PDR, said. "Demonstrating credible capital buffers to absorb material risks, beyond regulatory minimum requirements, can generate positive impact on a bank’s operations and resilience, contributing to sustainable growth of both Vietnam’s banking sector and the entire economy."

Le Trung Kien, Deputy Director of the State Bank of Vietnam’s Department for Banking Operation Safety Policies, said the central bank has initiated a timeline for the adoption of Basel II to promote a more resilient banking sector and further use of international standards in Vietnam. The pilot programme, launched earlier this year, is being implemented by 10 local commercial banks.

Kien said the SBV would soon issue ICAAP guidelines and regulations for commercial banks.

Le Anh Ha, deputy CRO of Vietinbank, which started studying and applying Basel II in 2013, highlighted the cooperation between the board and business for a good ICAAP and said the greatest challenge were human resources, adding that in the local banking system, they lacked people who had experience working with Basel II, except the few who had worked with foreign banks before.

Thus, Ha said Vietinbank was investing a lot in this by training young and talented staff along with learning from international consultants from IFC, SFI and VNBA for the best results.

Ha said while waiting for the SBV’s ICAAP guidance, the bank had prepared several plans for various scenarios.

VietinBank was among 10 banks chosen to implement Basel II from February, with the others being the Bank for Investment and Development of Vietnam (BIDV), Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), Vietnam Technological and Commercial Joint Stock Bank (Techcombank) and Southeast Asia Commercial Joint Stock Bank (ACB), besides Vietnam Prosperity Bank (VPBank), Military Commercial Joint Stock Bank (MB), Maritime Bank and Sacombank, as well as Vietnam International Commercial Joint Stock Bank (VIB).

Supported by the government of Switzerland’s State Secretariat for Economic Affairs (SECO), the workshop was also organised by the IFC, a member of the World Bank Group, the Swiss Finance Institute (SFI) and VNBA.-VNA