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Banking & Finance

Three more banks to apply Basel II standards

Released at: 19:21, 19/04/2019

Three more banks to apply Basel II standards

Photo: VPBank

MB, VPBank, and TPBank gain SBV approval to apply Basel II standards from early May.

by Hong Nhung

The State Bank of Vietnam (SBV) on April 17 officially approved three local banks - Military Commercial Joint Stock Bank (MB), Vietnam Prosperity Joint Stock Commercial Bank (VPBank), and Tien Phong Commercial Joint Stock Bank (TPBank) - applying Circular No. 41 on minimum capital adequacy ratio (CAR) requirements, raising the total number of banks with the approval to six.

The three banks will begin to comply with the provisions of Circular No. 41 from May 1, which also means that their all activities will follow Basel II standards from early May.

Basel II is a set of international standards that comprises quantifying risk through indicators and models, improving the risk management structure, enhancing risk policies, refining the risk culture, and increasing market transparency. Applying Basel II reaffirms that VPBank can fulfill higher risk management principles with safer and more sustainable operations.

The banks are among ten selected by the SBV to undergo a pilot scheme on Basel II standards since 2014. Vietcombank, VIB, and OCB have already successfully applied the standards.

Under Basel II, the CAR at banks must reach a minimum of 8 per cent, down 1 percentage point compared to Basel I. The calculation, however, is more complex. A report from MB Securities said that under the Basel II calculation method, the CAR of banks following Basel I standards can be reduced by 1-3 per cent.

The application roadmap for Basel II has been set by the SBV with two phases. Phase 1 has been piloted at ten banks from February 2016: Vietcombank, VietinBank, BIDV, MB, Sacombank, Techcombank, ACB, VPBank, VIB, and Maritime Bank. Phase 2 is basically commercial banks with a level of equity in accordance with Basel II standards, of which at least 12-15 can successfully apply the standards.

By meeting Basel II standards, newly-approved banks will have a more open mechanism on credit growth limits. Credit growth is now seen as a bottleneck in growth and profitability for many banks. At a press conference early this year, Deputy SBV Governor Nguyen Thi Hong said the central bank could allow credit growth at banks meeting Basel II to be higher than other credit institutions.

The minimum capital requirement under Basel II has challenged many banks. In recent years, however, VPBank has fully satisfied this requirement. Its CAR has stayed much higher than the 8 per cent requirement, and at the end of 2018 was 11.2 per cent.

The bank can also gain major benefits in its business operations when applying Basel II. It has struck a balance in recent years between business goals and risk control, with the three rings protection model. All business and support units regularly receive reports on capital usage under Basel II standards, as well as proposals to optimize capital, which minimizes operational risk. Business decisions have also been made based not only on profitability but also quantified risk factors. As a result, VPBank has become one of the most profitable banks in the market.

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