According to the roadmap set by the government, by 2020, commercial banks will have to meet Basel II standards in terms of equity. In particular, at least 12-15 banks should successfully carry out this international set of standards.
Information of the State Bank of Vietnam (SBV) showed that 17 commercial banks (15 domestic banks and two foreign banks) have applied to apply Circular 41/2016/TT-NHNN before the deadline. Up to now, 13 Vietnamese banks and a foreign bank have received approval of Basel II completion, including Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank), Military Commercial Joint Stock Bank (MBBank), 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), HCM City Development Commercial Joint Stock Bank (HDBank), Orient Commercial Joint Stock Bank (OCB), Tien Phong Commercial Joint Stock Bank (TPBank), Vietnam Prosperity Commercial Joint Stock Bank (VPBank), Vietnam Thuong Tin Commercial Joint Stock Bank (Vietbank), Viet Capital Commercial Joint Stock Bank (VietCapitalBank), Southeast Asia Commercial Joint Stock Bank (SeABank), and a foreign bank Shinhan Bank.
By meeting Basel II standards, banks will receive a “more open” mechanism for credit growth room.
In fact, credit growth is now seen as a bottleneck in growth and profitability for many banks.
For example, the credit growth limits of ACB, Techcombank, VPBank and MBBank have respectively been raised from 13 percent to 17%, and from 12 percent to 16 percent for VPBank.
Thus, banks have no other choice than to race to complete Basel II in order to have better condition for developing credit as well as managing risks. Specifically, some small banks have just completed Basel II such as VietBank, VietCapitalBank, etc.
According to leader of VietCapitalBank, from the beginning of 2017, since being aware of the importance of risk management, the bank has established a risk management implementation project under Basel II standards and step by step completed the roadmap to ensure that Basel II is met before the deadline.
To ensure the objectivity and strict compliance with the standards, the bank has cooperated with an international consulting partner KPMG Tax and Consulting Company Limited to develop tools and verify the results.
Nguyen Thanh Nhung, general director of VietBank the latest bank to complete Basel II standards, said that the SBV’s approval to apply Circular 41 before the deadline is an important milestone in the development of VietBank in the near future, creating a transparent and sustainable development foundation.
Nguyen Dinh Tung, general director of OCB said that as being one of the banks that have applied Basel II standards since the end of 2018, implementing Basel II is the optimal measure for banks to withstand with the unpredictable fluctuations of the financial market. Basel II is also considered as an effective risk barrier for banks’ operations.
Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank), Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank) and Export Import Commercial Joint Stock Bank (Eximbank) are racing against time before year 2020 ends. According to Sacombank, it is in the process of completing the implementation of Basel II standards. Meanwhile, VietinBank is facing difficulty in raising charter capital because the bank’s foreign ownership limit has been used up (30%).
Le Duc Tho, Chair of VietinBank’s Board of directors (BOD) said that increasing capital is extremely urgent. At the 2019 annual general meeting, VietinBank proposed to be allowed to pay dividends in shares in the period of 2017 2020. The bank has built a plan to raise charter capital and the SBV has submitted it to the government. VietinBank’s current Capital Adequacy Ratio (CAR) has been close to the minimum level prescribed by law, while the measures to increase equity capital (including both Tier-1 and Tier-2 capital) have been fully exploited.
Since the CAR is at the minimum level, from September 2018 until now, VietinBank has been struggling in growing credit, while the capital demand of the economy is increasing very fast.
Therefore, more than ever, VietinBank expects its charter capital raising plan to be soon approved.
BIDV has completed the sale of capital to foreign shareholder KEB Hana Bank and collected 20 trillion dong to increase charter capital, enhance financial capability, thereby expecting to soon complete Basel II.
In the group of medium and small-scaled banks, An Binh Commercial Joint Stock Bank (ABBank), Kien Long Commercial Joint Stock Bank (Kienlongbank), Bac A Commercial Joint Stock Bank (BacABank), National Citizen Commercial Joint Stock Bank (NCB), and Nam A Commercial Joint Stock Bank (NamABank) also expect to successfully carry out Basel II in the coming year.
NamABank’s general director Tran Ngoc Tam said that the bank is gradually completing the works to submit to the SBV about the implementation of Basel II international standards. Because the most obvious benefit that Basel II brings to Vietnamese banks in general and NamABank in particular is strengthening healthy and transparent competition of the system, enhancing the resistance of banks against market instability and volatility.
One of the challenge that many banks face when implementing Basel II is to meet the minimum capital requirements to increase CAR.
Under Basel II standards, the minimum CAR is eight percent, an arithmetic decrease of one percent compared to Basel I. However, the calculation is more complicated. According to the SBV, the CAR of the whole system is about 12 percent (minimum requirement is nine percent).
The current CAR of state-owned banks is 9.4%, and of private joint stock banks is more than 11.3%. Until 2020, when Basel II is implemented widely, CAR of many banks will further reduced based on the new formula.
Meanwhile, not all banks can easily issue shares to increase charter capital when the market is still difficult. Many banks only increased capital from the dividend surplus.
Typically, NamABank has received approval from the SBV to increase charter capital to 3.890 trillion dong. The capital increase is from the 2018 dividend surplus.
Under the plan, NamABank will increase charter capital to five trillion dong in the near future, including the attraction of foreign capital to enhance financial capability to meet Basel II.
The benefit that Basel II brings to Vietnamese banks is clear, but not only small banks, even larger banks can hardly meet these standards early.
Banking and finance expert Dr Nguyen Tri Hieu said that Basel II not only helps banks minimise risks and best use capital source, it also significantly reduces the damages caused by economic fluctuations.
Above all, the sooner banks complete Basel II application, the better the operation efficiency will be, because the criteria for banks to apply Basel II risk management is fairly strict, from legal framework, databases to capital adequacy issues, etc.
