Completing the three pillars of the Basel II Capital Treaty ahead of schedule, Saigon – Hanoi Commercial Joint Stock Bank (SHB) has fully met the requirements of the State Bank of Vietnam (SBV), receiving a positive assessment of international organizations, contributing to enhancing the reputation of SHB in particular and the entire Vietnamese banking industry in general.
Basel II is the second version of the Basel Treaty, which outlines the general principles and banking laws of the Basel committee on banking supervision. The Treaty includes three main pillars: Pillar 1 on capital adequacy ratio (CAR); Pillar 2 on internal capital adequacy assessment process (ICAAP); Pillar 3 on market transparency and discipline.
In Vietnam, the SBV has issued Circular 41/2016/TT-NHNN and Circular 13/2018/TT-NHNN as the legal framework for implementing the three pillars of Basel II. Right after being approved to deploy Basel II, SHB soon applied and fully complied with the three pillars.
Specifically, in 2018, SHB completed the organizational structure, system of policies, procedures and internal regulations as required in Circular 13, ensuring the internal control system was built in accordance with the regulations of SBV and towards international standards of risk management. In 2019, SHB built and put into operation the risky asset calculation system (RWA) in compliance with Circular 41 according to the roadmap set by SBV. Currently, the bank always ensures to maintain the capital adequacy ratio (CAR) of over 9% – higher than the required minimum level of 8%.
In 2020, SHB continues to implement the items of pillar 2 on the internal capital adequacy assessment process (ICAAP). The ICAAP process is a comprehensive assessment of capital, including senior management’s oversight of risk appetite, risk profile, business plan, capital plan; and the coordination of different units for capital stress test, the calculation of the required capital for critical risks under normal and stressful conditions. Up to now, SHB has completed all items of ICAAP and reported the results of ICAAP implementation to SBV, meeting compliance with all 03 Pillars of Basel II earlier than regulation.
During the implementation of ICAAP, in addition to calculating the amount of capital needed to meet all critical risks, SHB has built stress test models to assess capital adequacy for the next 03 years in both normal and unfavorable conditions. SHB’s stress test scenarios are selected on the basis of analyzing past events and forecasting macroeconomic developments to ensure the requirements, principles of quantitative analysis and practicality when applied.
Completing all 3 pillars of Basel II shows that SHB not only meets the requirements of capital adequacy ratio, but also initially meets the requirements of governance, risk management, and capital management according to international standards. This is the governance platform to help SHB develop in a healthy, safe and efficient manner, improve credit rating, and enhance its competitiveness in the international market.
Mr. Nguyen Van Le – SHB General Director said: “Right now, SHB plans to invest and develop Basel II in an advanced method and towards Basel III standards. This is the basis for SHB to continue to develop a sustainable, comprehensive business strategy and a corridor for risk management and efficient use of capital, thereby providing safe, reliable, and transparent financial and non-financial products for customers.”
Basel II is one of the important international standards, directly affecting the health of commercial banks. SHB’s completion of all three pillars of Basel II is highly appreciated by international organizations. Through this, SHB continues to improve the reputation and position of the bank in particular as well as the Vietnamese banking industry in general, towards international standards, in order to promote and ensure the sustainable development of the whole financial market.