Nguyen Thanh Phuong, deputy chairwoman of Viet Capital Bank (4th left), Warrick Clein, chairman of KPMG Vietnam and Cambodia (5th left) with their executives at a ceremony to mark the adoption of RAROC by the lender in HCM City on Wednesday. — Photo courtesy of the bank

Viet Capital Bank has created a tool called the Risk-Adjusted Return on Capital (RAROC) together with KPMG Tax and Advisory to facilitate risk-based pricing.

Last November the bank became one of the first in Viet Nam to complete all three pillars of Basel II after implementing the second pillar on Internal Capital Adequacy Assessment Process (ICAAP), arguably the most complex of the three.

Deploying RAROC is the next step in using the results from ICAAP in practical operations.

It enables firms to determine the level of risk in each line of business and allocate the required amount of capital accordingly based on new practices when assessing the relationship between risk and return.

It is a tool used by many banks around the world for risk management. — VNS