Bankers discuss internal capital assessment for Basel II

Thursday, Aug 18, 2016 16:19

Cameron Evans, IFC senior specialist, shares experience in applying ICAAP with local banks. — VNS Photo
HA NOI (Biz Hub) — Banking experts shared their experiences in applying the Basel II capital adequacy guidelines at an IFC -hosted workshop today in Ha Noi on August 18.

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 Viet Nam 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.

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

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 stress scenarios.

Well-run banks across the world view ICAAP as a core strategic activity that safeguards operations such as in times of stress, 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 Viet Nam, 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 Viet Nam's banking sector and the entire economy."

Le Trung Kien, deputy director of the State Bank of Viet Nam'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 Viet Nam. 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.

According to Jamal Ahmad, chief risk officer (CRO) of Standard Chartered Bank Viet Nam, ICAAP was not the same in banks because of the dynamic working environment. He, however, said it was vital that the board and business section co-operated as closely as possible for the most effective ICAAP.

Le Anh Ha, deputy CRO of Vietinbank, which started studying and applying Basel II in 2013, highlighted the co-operation 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 Viet Nam (BIDV), Joint Stock Commercial Bank for Foreign Trade of Viet Nam (Vietcombank), Viet Nam Technological and Commercial Joint Stock Bank (Techcombank) and Southeast Asia Commercial Joint Stock Bank (ACB), besides Viet Nam Prosperity Bank (VPBank), Military Commercial Joint Stock Bank (MB), Maritime Bank and Sacombank, as well as Viet Nam International Commercial Joint Stock Bank (VIB).— VNS

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