With the State Bank of Vietnam’s approval to comply with Circular 41, MSB also announced that it has completed the last pillar of Basel II – Internal Capital Adequacy Assessment Process (ICAAP), the bank will move towards higher international risk management standards such as Basel III.
Vietnam’s banking sector has been taking radical steps to adopt international capital rules, reporting requirements and trading practices. The State Bank of Vietnam (SBV) by setting a deadline for the country’s leading banks to comply with the Basel II requirements.
Vietnam Maritime Commercial Joint Stock Bank (MSB) has embarked on the Basel II journey and became one of the first banks in Vietnam to fully comply with Circular 41 and now Circular 13 before the regulator’s deadlines, the bank also completed the three pillars of Basel II, which are minimum capital, supervisory review and market discipline.
A solid risk management framework and transparent operation will create a foundation for MSB to expand its business sustainably and effectively.
We talked Oliver Schwarzhaupt – Chief Risk Officer about risk management activities at MSB.
After more than 1 year of completing Basel II, can you share about the impact of this on MSB’s operations?
MSB completed Pillars 1 and 3 from 6/2019, pillar 2 from 3/2020 – nearly a year earlier than SBV requested. MSB is also one of the pioneers in completing Basel II.
During more than 1 year applying Circular No.41 (Basel II’s Pillar 1), the CAR of MSB is always above 10%. Credit growth is in line with the SBV’s regulations and the NPL ratio is always below 3%.
Pillar 2 – ICAAP is a comprehensive assessment of capital, including: determining the bank’s risk profile, developing a strategy, risk appetite, calculating the required capital for material risks. Thereby, the bank can determine the target capital to compensate for material risks and develop sustainably even in stress scenarios, and allocate capital effectively for business activities – Return on risk weighted asset (RORWA).
With the implementation of ICAAP, MSB conducted capital stress tests and assessed the Bank’s capital adequacy according to its business strategy for the next 3 years and under stress scenarios with a sharp decline in credit quality and deposit quality.
Completion of ICAAP – the last pillar of Basel II is a source of transparent and comprehensive information to help enhance MSB’s reputation in the Vietnamese and international markets.
For MSB, the implementation of Basel II is not only about complying with SBV’s regulations but also is an effective management tool to establish metrics and standards to ensure the bank operates safely and change the Risk-based decision-making, increasing transparency and competitiveness for MSB.
Completion of Basel II from March 2020, what is the MSB’s next steps?
The completion of Basel II is the clearest demonstration of MSB’s efforts which not only stops at compliance but also shows that MSB always considers meeting Basel II’s requirements as important tasks within its long-term vision on risk management, towards higher international standards to help MSB manage its business proactively, transparently, safely and sustainably.
However, MSB will continue to apply the best practices and comply with the SBV’s regulations to make the financial health and improve the bank’s governance capacity. According to the 2020 – 2023’s roadmap, MSB will implement FIRB (the foundation internal rating based approach) for credit risk, towards Basel III on risk management of the Bank, the first step is to apply Basel III for operational and liquidity risks. In addition, MSB has planned to apply IFRS9 in finance and risk management. The application of the best practices helps MSB adjust its strategic direction on the basis of effective risk management to achieve safe and sustainable business and development goals.
How does the current risk management strategy affect the target customers and products of the bank?
With the goal of proactive risk management, companion, orientation and business promotion, MSB has been well implementing the strategic direction to enhance the role and activeness of the units in the Risk Management Division, which is the second line of defense to orient and support business activities by proposing Risk appetite, Risk Management Strategy and completing the system of policy regulations on risk management.
Target customers and their risk levels are oriented and selected from the beginning on the basis of business strategy and risk appetite issued by the BOD.
On the basis of the risk limits issued annually by the CEO, product development units and solution developers proactively design products and solutions suitable to target customers and define risk thresholds. In the process of product operation, regularly monitor and evaluate the quality of the portfolio to make timely adjustments.
What preparations does the MSB have for the negative effects of Covid-19?
During the Covid1-9 epidemic, MSB performed impact assessments, capital stress tests and internal capital adequacy assessment on the assumptions that there was a sharp decline in credit and deposit quality. Quarterly, MSB analyzes quantitative data and qualitative information on the macroeconomic situations, the development of economic sectors to determine impacts (large / medium / low) of the epidemic on economic sectors, thereby assessing the impact on MSB’s credit portfolio, provision of bad debts, and the impact on profitability to prepare controls and risk prevention in time.
In addition, MSB always supports customers affected by Covid19 through rescheduling of debt repayment terms, exemption, reduction of interest and fees, keeping the debt group because MSB’s mission is to become a bank that understands and accompanies customers through difficult times.
To ensure credit quality control, MSB maintains active operations of the three lines of defense, establishes risk limits and closely monitors credit portfolio concentration in areas where the high volatility or high risk is potential. MSB always focuses on risk management in all banking operations, especially during the epidemic, MSB always actively analyzes and evaluates the situation to take timely response actions, actively accompany the customers to overcome difficulties, and develop together.