Banking regulatory body to evaluate adherence of financial institutions in risk management practices.
Vietnamese banks are navigating a series of challenges in implementing Basel III international banking standards for risk management, according to industry experts. The State Bank of Vietnam (SBV) is proactively addressing these issues through regulatory, infrastructural, and capacity-building measures.
Thịnh, a senior expert on Basel III implementation at the Bank for Investment and Development, highlighted the pressures faced by Vietnamese banks. These include the need to increase capital adequacy ratios (CAR) from 8% to 10.5%, as per the SBV’s new standard, amid global financial market volatility and challenges in raising foreign capital.
Another challenge is the lack of high-quality quantitative data and IT infrastructure. Banks are facing shortages of comprehensive and reliable data needed for advanced risk identification methods such as the Identification and Reconciliation Engine (IRE). Additionally, their IT systems are not yet robust enough to meet Basel III risk management requirements.
Weak capital buffers compared to regional peers also pose a significant risk. While Vietnamese banks’ CAR met Basel II criteria, they remain much lower than the ASEAN average (19.4%), exposing them to risks from increasing non-performing loans (NPLs). Managing and resolving bad debts is another hurdle, with lengthy legal processes hindering bad debt resolution and impacting balance sheets.
In response, the SBV is deploying monitoring measures and tools to assess commercial banks' compliance with Basel III standards. They are also planning to issue new Basel III CAR circulars in 2025 to align capital requirements with international standards and encourage stronger capital buffers.
To standardize data and support risk management, the SBV is promoting the construction of industry-wide banking databases and macroeconomic data systems. They are also collaborating with international organizations such as the IMF, World Bank, and Asian Development Bank to organize training and knowledge transfer workshops on Basel III standards.
The launch of the Risk Management Committee under the Vietnam Banks Association (VNBA) is another key initiative. This committee will provide consultancy on policies and help banks enhance governance and risk management capabilities amid economic volatility.
Nguyen Van Thinh, a senior expert on Basel III implementation, expressed appreciation for the SBV’s system of legal documents, including Circular 41/2016/TT-NHNN and Circular 13/2018/TT-NHNN. Buithi Mien, Deputy Director of Military Bank's Risk Management Department, also expressed appreciation for these documents.
Buithi Mien suggested that the SBV build a data repository for Small and Medium-sized Enterprises (SMEs) to ensure consistent implementation throughout the banking system. This is important due to inconsistencies caused by the requirement for banks to collect information about SME customers for classification purposes.
On the sidelines of a seminar on strengthening banking risk management capacity held by the VNBA, Nguyễn Quốc Hùng, VNBA’s Vice Chairman and General Secretary, stated that the committee will consult on risk management policies and strategies, and support banks in implementing international standards.
In summary, Vietnamese banks face challenges in capital raising, data, IT, and bad debt management under Basel III. The SBV is actively advancing regulatory, infrastructural, and capacity-building measures to support effective implementation and safeguard the banking system.
- The need for Vietnamese banks to enhance their technology infrastructure, particularly in acquiring high-quality quantitative data and upgrading IT systems, is crucial for meeting the risk management requirements of Basel III.
- The banking industry is leveraging artificial intelligence (AI) in risk management, with the State Bank of Vietnam (SBV) promoting the construction of industry-wide banking databases and macroeconomic data systems to standardize data and improve risk assessment.
- The Finance sector, including banking and insurance, is undergoing significant transformation due to Basel III regulations. To maintain competitive edge, Vietnamese banks are focusing on increasing capital adequacy ratios (CAR), managing bad debts, and accessing foreign capital, all while adhering to the SBV's new standards and international best practices.
