Basel is one of the risk management standards applied at most leading commercial banks in the world for many years. In Vietnam, from 2017 backwards, the concept of Basel II remained unfamiliar, but from late 2018 until now, it has become more familiar with the market.
This familiarity is the result of the decision of the State Bank of Vietnam (SBV) to assign 10 banks to pilot the implementation of the Basel II on capital safety (the first pillar of Basel II) six years ago, which latter was specified in Circular 41/2016/TT-NHNN in the end of 2016. The 10 selected names are large banks at that time, including Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank), 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), Military Commercial Joint Stock Bank (MB), 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) and Vietnam Prosperity Commercial Joint Stock Bank (VPBank).
To apply Basel II, banks must make careful preparation and promote investment in both manpower, technology and operating costs to standardise risk management in accordance with international standards which are much stricter than Vietnamese standards. Applying Basel II, the Capital Adequacy Ratio (CAR) of banks may decline by about 1.5 to three percentage points, which means that the CAR will fall from 10-11 percent or more to above eight percent the minimum level required.
By the end of November 2018, the first two banks on the list of selected banks were approved by the SBV to early apply the Circular 41, namely Vietcombank and VIB. At that time, SBV’s leader said that the agency would create favourable conditions in credit growth and network expansion for banks early meeting Basel II.
The message of the SBV has motivated the remaining banks. Earlier this year, the SBV continued to appraise and approve seven new members to successfully carry out Basel II in 2019, ahead of the stipulated deadline in 2020. Two of these seven banks including Orient Commercial Joint Stock Bank (OCB) and Tien Phong Commercial Joint Stock Bank (TPBank) were allowed to early carry out Basel II (OCB from the beginning of 2019 and TPBank from early May).
In April 2019, three more banks received approval of the SBV to apply Circular 41, including ACB, VPBank and MB. Techcombank has recently been added to the approved list and will early carry out Basel II from July 1st 2019.
Thus, so far, eight out of 17 banks have implemented Basel II, of which six of them are on the initial list of 10 banks.
It is known that among the 10 banks piloting Basel II, one bank withdrew from the list, which means that it would not early apply Basel II and will follow the roadmap of the Basel II 41 with the deadline in 2020. For MSBone of the three remaining banks on the initial list, its general director Huynh Buu Quang, in a quick talk with reporter, said that the bank has completed the procedures, submitted the SBV, and is expecting to be approved soon.
Among the three state-owned banks in the initial list of 10 banks, Vietcombank has played a pioneering role and is enjoying favourable condition in terms of credit, but BIDV and VietinBank are in difficult situation. The CARs of these two banks are both below 10 percent and the pressure of increasing capital is becoming heavier and heavier. VietinBank has run out of room to sell shares to foreign investors while BIDV has not completed the deal to sell capital to its South Korean partner Hana KEB which has been going on for several years. What these two banks expect the most is to increase charter capital by increasing charter capital through retaining dividends, but this expectation has not been approved due to obstacles from the State shareholder, although leaders of the two banks have repeatedly proposed.
Some people said that the difficulty in raising capital of the two banks will break their plan to meet the Basel II standards on schedule. Thus, the SBV tends to expand the objects not yet having to apply Circular 41. That was mentioned in the draft circular regulating the safety ratios and limits in the operations of banks and foreign bank branches for which the SBV is gathering comments.
Specifically, one of the important content of the draft is that banks under special control and banks not yet meeting the regulation on capital safety will not have to apply Circular 41, but the SBV’s Governor will decide on each specific case.
With this draft, many experts said that since many banks in the world have applied Basel II for a long time and are preparing to complete Basel II, it is late for Vietnam to apply Basel II and if the application continues to be postponed, it may not be completed. In addition, it will also affect other banks, and is unfair for banks which have strived to meet Basel II.
According to Dr Phan Minh Ngoc, for banks which fail to carry out Basel II standards in the beginning of 2020 and the later deadlines (as regulated), the SBV need to strictly handle the cases, possibly by limiting the maximum credit growth, or even applying sanctions to the bank’s management board, putting under special control with strict roadmap and seriously striving to meet Basel II. If it is done, it will not only ensure the rigor of the law and the safety and development of the system but also ensure fairness for banks which have tried and succeeded before/ on time. The drastic and strict handling of the SBV as mentioned in the above is also very important to narrow the huge gap in the operating standards between the banking system of Vietnam and of the region and the world.
