The State Bank of Vietnam has approved Vietcombank and Vietnam International Bank to apply the Basel II standards from January 01, 2019, one year ahead of deadline.
Three year ago, Vietcombank and VIB were the two banks out of ten banks selected to pilot Basel II standards and requested to meet the standards with the deadline of 2020. The other banks include Vietinbank, BIDV, ACB, VPBank, Techcombank, MB, Maritime Bank and Sacombank.
Basel II is the second version of the Basel Accord that introduces a series of approaches to control risks of credit, market and operation of banks rather than just focusing on credit like Basel I.
The requirement for capital adequacy ratio (CAR) of Basel II is still the same at eight percent; however, without the increase of charter capital, CAR of banks will become below the required level as the prescribed elements of market and operational risks now added to the denominator.
According to the State Bank of Vietnam (SBV), Vietcombank and VIB have clearly demonstrated their determination to apply standards of Basel Committee in risk management and banking administration through coordination with consulting companies to analyse the status, review the gap in governance, databases, etc., to develop a comprehensive road map for application of Basel II.
At the same time, two banks have organized and implemented a number of projects for the application of Basel II standards.
Vietcombank is one of the largest banks in Vietnam and operating most effectively in the banking sector. Its market capitalization of nearly $9 billion is double that of BIDV and Vietinbank.
The bank has total assets of approximately VND1 million billion (over $42.9 billion), of which loan size accounts for approximately VND627 trillion (over $26.9 billion). The bank is also mobilizing about VND773 billion ($33.2 million) of deposits from customers.
Last year, Vietcombank recorded a pre-tax profit of VND11.3 trillion ($485 million), a record profit in the banking sector. In the first nine months of this year, Vietcombank recorded a pre-tax profit of VND11,683 billion (nearly $502million).
Vietcombank aims to become one of the 100 largest banks in Asia and one of the 300 largest financial banking groups in the world, managed by the best international standards.
Meanwhile, VIB is a medium-sized bank with a capitalization of less than US $1 billion. By the end of September, the bank had total assets of more than VND132 trillion ($5.59 billion). VIB's loan size is about VND90 trillion ($3.86 billion) and the total customer deposits are about VND80 trillion ($3.44 billion).
The bank recorded pre-tax profits of VND1,124 billion ($48.3 million) last year and VND1.72 trillion in the first nine months ($73.9 million).
According to the bank's announcement, the successful implementation of Basel II helped VIB to launch business strategies and well-defined policies on customer, products, risk management and pricing policies to optimize capital and assets at risk.
Previously, in July 2018, VIB became the fifth bank in Vietnam banking system to complete the acquisition of all bad debts sold to Asset Management Company of Vietnam (VAMC), to put its balance sheet in only one book - an important step to apply Basel II.
Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision. Basel II uses a "three pillars" concept, including:
Pillar I: Minimum capital requirements. It deals with maintenance of regulatory capital calculated for three major components of risk that a bank faces: credit risk, operational risk, and market risk.
Pillar II: Supervisory review. It sets up the principles of risk management and supervision through the management system with three lines of defense and strict regulations in the Bank's capital adequacy management process as well as the supervision role of the State Bank.
Pillars III: Market principles and information disclosure. Banks will be required to disclose information that focuses on key parameters, risks and risk management. Such disclosures are considered a prerequisite for the effectiveness of the banking market principle.
