Vietnam's central bank to assess compliance of banks in risk management

The State Bank of Vietnam (SBV) will deploy monitoring measures and tools to assess the compliance of commercial banks in implementing requirements related to risk management, especially compliance with Basel III international banking standards, an SBV official said on Wednesday.

At a seminar on strengthening banking risk management capacity held by the Vietnam Banks Association (VNBA), Nguyen Duc Long, director of the SBV’s Department of Banking System Safety, said: “This is one of the SBV’s important orientations to improve governance efficiency, ensuring the safety of the banking system in the context that many new challenges are arising.”

Bui Thi Mien, deputy director of Military Bank's (MB) risk management department, told the event that the SBV has so far issued a system of documents guiding the implementation of Basel, such as Circular 41/2016/TT-NHNN regulating the capital adequacy ratio for banks and foreign bank branches and Circular 13/2018/TT-NHNN regulating the internal control system of commercial banks and foreign bank branches.

These are important documents for implementing Basel III in Vietnam, affirming the strong determination of the SBV to strengthen the risk management capacity of the banking system in line with international practices, she noted.

According to Mien, credit institutions are having to collect information about small and medium-sized enterprises (SME) customers themselves to classify the SMEs according to legal regulations, which causes inconsistencies throughout the banking system.

She said: “The SBV should build a data repository for the SMEs to ensure consistent implementation throughout the entire banking system and optimise the resources of the system.

“The Loss Given Default (LGD) model is a difficult model, but the data at each credit institution is not yet complete. Therefore, she expects the SBV to build a shared data repository to ensure the calculation of all debt settlement costs and improve the quality of LGD models built by credit institutions.”

In addition, according to Mien, credit institutions are implementing the Internal Capital Adequacy Assessment Process (ICAAP), but only based on the macro scenario developed by each individual credit institution, resulting in an inability to see the impact on the entire banking system when macro factors change.

Therefore, Mien recommended that the SBV issue standardized stress test scenarios (similar to those implemented annually by the U.S. Federal Reserve) so that credit institutions can implement them consistently, thereby increasing the effectiveness of the SBV when using the stress test results of credit institutions to manage policies.

Meanwhile, Nguyen Van Thinh, a senior expert on Basel implementation at BIDV, said there are some challenges for the banking industry in its journey to improve risk management according to Basel III. They are the challenges of increasing capital, managing data and technology systems, adjusting business models, and utilising quantitative models.

"Credit institutions are under pressure to increase capital to meet the CAR requirement from 8% to 10.5% according to the SBV’s new standard, while the global financial market is volatile and the ability to raise foreign capital is facing many difficulties," Thinh said.

Thinh also noted that there is a lack of high-quality quantitative data to implement the identification and reconciliation engine (IRE) method, as well as a lack of a robust and comprehensive IT system to meet the requirements of risk management.

It is also necessary to promote the construction of banking industry databases and macroeconomic data to standardize the data so that banks can share and supplement guidance on loss data accounting.

On the Basel III implementation roadmap, Thinh recommends the SBV to classify banks by size to apply in stages, and encourage large banks to pioneer in testing.

The BIDV’s representative also expects competent authorities to promote training and knowledge transfer about Basel III through coordination with international organizations, such as the IMF, WB, and ADB, to organize training courses and specialized workshops.

On the sidelines of the event, a risk management committee under the Vietnam Banks Association (VNBA) was launched.

Speaking at the launching ceremony, Nguyen Quoc Hung, VNBA’s vice chairman and general secretary, said that, in addition to consulting the VNBA on risk management policies and strategies, the committee will also support banks in implementing international standards, enhancing governance capacity, and responding to new challenges in the increasingly volatile economic and financial context.

“This is a very meaningful event demonstrating the determination of the VNBA and credit institutions in preventing, early identifying, managing, stopping and promptly handling arising risks, to protect the interests of customers and contribute to ensuring the safety of the credit institution system,” Hung said.