According to the report of the State Bank of Vietnam (SBV), there have been 76 credit institutions (CIs) including two state-owned commercial banks, 20 joint-stock commercial banks, two joint-venture banks, nine foreign-owned banks and 43 foreign bank branches that have applied the capital adequacy ratio (CAR) compliant with Circular No. 41/2016/TT-NHNN. Currently, there have been only 14 CIs requesting to apply CAR under Circular No. 22/2019/ TT-NHNN.
The process of building a healthy banking system and promoting sustainable development of national economy is marked by significant strides in restructuring and improving the capacity of CIs, especially in terms of asset quality, profitability, CAR and governance capacity. With that orientation, in 2017, the government issued Resolution 51/ NQ-CP on the implementation of Resolution 07 of the Politburo, which emphasizes that by 2020, commercial banks will apply CAR according to Basel II standards.
In order to enhance the financial capacity of the state-owned commercial banks and ensure the strict compliance with the provisions on the minimum CAR to meet the capital adequacy level under Basel II (standard method), SBV has urged these banks to synchronously carry out solutions to offset the capital shortage. In addition, SBV has actively coordinated with the Ministry of Finance to complete the legal basis to carry out solutions to increase charter capital for these banks.
However, the complicated situation of the Covid-19 pandemic in the past few months has affected the banks’ roadmap to apply Basel II standards. However, experts believe that banks should calculate and speed up the process of implementing Basel II, especially CAR (Circular 41) because this is not only a short-term measure but also a long-term factor to help the banks enhance the health and increase the ability to cope with arising risks. Governor Le Minh Hung also affirmed that, besides dealing with short-term issues, it was necessary to pay more attention to the system development strategy in the coming years under the direction of the government and the prime minister.
Risk management is key
The CEO of a joint stock commercial bank shared that each bank must consider risk management as an overall and key activity, with the orientation of applying international standards on banking activities, in which Basel II is one of the risk management standards must be focused on. The general director of Vietnam International Commercial Joint Stock Bank (VIB), Han Ngoc Vu also acknowledged that the successful implementation of Circular 41 and Circular 13 was not only meaningful to SBV’s regulations but also an important foundation for banks to improve their internal management and continue to improve the quality of business activities.
Increased capital size is a solid foundation for commercial banks to continue expanding business on the basis of maintaining safety ratios, especially CAR as prescribed in Circular 41, and supporting customers in difficulties due to the effects of Covid-19. In fact, to meet Basel II standards, all banks have made great efforts to improve their capital capacity. Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) completed its strategic sale to foreign investors with a transaction of 20.3 trillion dong, bringing the bank’s charter capital to 40.22 trillion dong, thereby helping it officially apply Basel II from December 1st, 2019. Saigon Hanoi Commercial Joint Stock Bank (SHB) successfully issued more than 500 million shares, thereby raising its charter capital to 17.558 trillion, and the equity capital to nearly 34 trillion dong. Nguyen Van Le general director of SHB shared that the increase of charter capital was extremely important, thereby helping SHB to strengthen its financial and governance capacity, enhance competitiveness in the process of international economic integration, create favourable conditions in expanding the operation network, invest in material facilities, and diversify products and services. At the same time, increasing capital is the basis for the bank to fully complete all the pillars of Basel II.
Not only did they meet the capital requirements under Circular 41, but many banks also announced that they had completed all three pillars of Basel II such as Vietnam Maritime Joint Stock Commercial Bank (MSB), VIB, Vietnam Prosperity Joint-Stock Commercial Bank (VPBank) and Tien Phong Commercial Joint Stock Bank (TPBank). This requires great efforts of commercial banks as meeting the conditions of any pillar is not simple. For example, in order to meet the internal assessment process of capital adequacy (ICAAP) implementation of Pillar 2 under Basel II, according to experts from the Korea Financial Supervisory Agency, banks will face many challenges in terms of both system development expenses and challenges of capital requirements.
The challenges have become bigger when the Covid-19 pandemic broke out. But the reality also showed that banks were very determined to achieve all three pillars of Basel II. VietCapitalBank was approved by SBV to carry out the ICAAP construction project from the end of February 2020. Once the project is completed and the ICAAP process is put into operation, the bank will complete all three pillars of the Basel II standard.
At the general Meeting of Shareholders held on April 29, Southeast Asia Commercial Joint Stock Bank (SeABank) planned to continue upgrading the Basel II system in 2020 to maximise CAR, and deploy all three pillars of Basel II. SHB general director Nguyen Van Le also said that, in 2020, on the completion of the final components of the ICAAP framework, SHB would officially complete all three pillars of Basel II. By fully complying with the three pillars of Basel II, the bank would continue to develop and use advanced methods of calculating capital, ensure proximity to international standards, improve transparency of banking, gradually apply Basel III in long-term vision.
