While banks around the world had involved Basel II standards for 13 years and were then completing Basel III standards, in Vietnam as of December 3, there had only 14 domestic commercial banks and two foreign banks meeting this standard.
So, what were the difficulties in applying this new standard?
At the seminar on Basel II application in risk management of commercial banks held on the morning of November 30 at the National Economics University, Le Trung Kien, deputy director of Department Two, Supervisory and Inspection Agency, the State Bank of Vietnam (SBV) shared the view from the state management agency about the application roadmap as well as challenges and lessons learned when implementing Basel II Standard in Vietnam.
Accordingly, the legal framework for implementing Basel II based on two circulars that SBV had issued. Circular 13/2018-TT/NHNN would be effective from January 1, 2019, in which the Internal Capital Adequacy Assessment (ICAAP) part would start to take effect on January 1, 2021, to give banks more time to prepare to achieve the target capital. Circular 41/2016-TT/NHNN would officially take effect on January 1, 2020. Currently, 16 banks had applied Basel II standards before January 1, 2020. For banks facing financial difficulties, Basel I could continue to be used, within the time limit was no more than three years. In fact, according to SBV, this was mainly a group of banks subject to special control, while most other banks were ready to follow the schedule. Talking about the challenges of implementing Basel II, Kien said that part of it stemmed from the rapid change of the macroeconomic environment and the current financial market. Because each financial crisis brought new elements, the Basel committee received lessons and then updated the appropriate capital safety standards. Therefore, commercial banks in Vietnam and even SBV must always be proactive and flexible concerning the new capital standards.
Increasing competition environment forced banks to develop new activities, new products, new market segments, apply new technologies while managing risk, calculating assets while the risk was becoming more complicated and potentially inadequate.
The legal environment was not synchronised, did not fully applied according to international practices, which also made the application of Basel II unfavourable, for example, regulations on risk management, regulations on accounting standards related to accounting of bad debts, provisioning, and rules on handling collateral assets.
The official market (financial instruments, real estate, etc.) in Vietnam had not developed, so the determination of the value of collateral assets according to market value, partner credit risk status, using derivative tools to prevent risks still faced many difficulties and were not feasible.
The database (depth, width, quality) was inadequate compared to international standards, leading to the establishment of internal credit ranking systems, building risk models of which accuracy was not guaranteed. According to Kien’s assessment, in Vietnam, the database of the whole system only met about 50 percent of the requirements. However, in the current digital age, especially with Big Data storage and processing technology, the analytical model would be increasingly improved, helping banks to improve risk management capabilities.
At present, Vietnam had not established independent credit rating agencies. The number of customers with credit rating was insignificant compared to the market size.
Also, in the seminar, the deputy director shared more about lessons learned in implementing Basel II. He said that the most important thing then was to realise the benefits and importance of applying Basel II fully so that there would be drastic actions from the Board of directors, the general director, as well as all departments and units of the bank, instead of considering this as job of only the risk management department. Commercial banks need to quickly establish a Basel II implementation steering committee at the bank with a competent authority to direct and handle in time the implementation process. In addition to organising the implementation, banks must also regularly monitor the results, schedule according to plans and flexibly adjust as necessary.
