Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) said that it had applied internal capital adequacy assessment process (ICAAP) of the Pillar 2 from July 2020, thanks to which the bank would meet all three Pillars of Basel II earlier than regulations. Therefore, Vietcombank was the sixth bank to complete all three pillars of Basel II soon, along with Vietnam International Commercial Joint Stock Bank (VIB), Vietnam Maritime Joint Stock Commercial Bank (MSB), Vietnam Prosperity Joint-Stock Commercial Bank (VPBank), Tien Phong Commercial Joint Stock Bank (TPBank), and Southeast Asia Commercial Joint Stock Bank (SeABank).
ICAAP was a comprehensive process that helped banks conduct their capital adequacy assessments to not only ensure compliance with the requirements of the State Bank of Vietnam (SBV) on the minimum capital adequacy ratio but also to achieve the business targets set under the risk appetite and risk management strategy.
Vietcombank’s leaders said that in order to build an ICAAP that best suited the actual operation, in addition to ensuring compliance with the requirements of SBV in Circular 13/2018/TT-NHNN, the bank had proactively consulted the standards and guidelines recommended by the Basel Committee, the opinions of reputable consulting units (such as Oliver Wyman, E&Y), as well as sharing common practices with some major banks in the region and the world. During the implementation of ICAAP, in addition to three key risks that had been assessed at Pillar 1 (credit risk, market risk, operational risk), Vietcombank had identified and calculated the additional capital for some key risks of Pillar 2 (such as centralised risk, interest rate risk on bank book).
Along with calculating the amount of capital to meet for all major risks, Vietcombank had built stress test models to assess the amount of capital needed to meet the business plan for the next three years. In particular, stress test scenarios were selected based on analysing past events and forecasting macroeconomic developments, like the factor of the Covid-19 pandemic.
Through a comprehensive evaluation process involving the Risk, Finance and Business Divisions, the endurance test showed that the difference in capital adequacy ratio (CAR) of Vietcombank between the normal operation scenario and the unfavourable movements were about 0.7%.
On that basis, Vietcombank had built a capital plan to proactively ensure the capital buffer for the case of unfavourable circumstances and at the same time to meet the business plan and risk appetite of the bank. Thanks to that, the bank had become a leading bank in terms of business results as well as safety, sustainability in operations.
In addition to completing ICAAP ahead of schedule, Vietcombank continued to actively carry out Basel II initiatives in an advanced manner, focusing on building and completing PD models (probability of default), LGD (loss given default), EAD (earnings at default).
