Representatives from the banking sector attended a half-day workshop to discuss how best to implement the Internal Capital Adequacy Assessment Process (ICAAP), a key component of central bank regulations worldwide. Supported by the Swiss State Secretariat for Economic Affairs (SECO), the event was co-organized by IFC, the Swiss Finance Institute (SFI) and Vietnam Banks’ Association (VNBA).
ICAAP is central to the Basel II framework, which are international banking guidelines that require financial institutions to have sufficient capital to support the risks incurred in banking operations. The State Bank of Vietnam has initiated a timeline for the adoption of Basel II to promote a more resilient banking sector and further use of international standards in Vietnam. A pilot program conducted by the SBV began earlier this year and includes 10 local commercial banks that implement ICAAP.
‘The State Bank of Vietnam has implemented several measures to upgrade the risk management system at credit institutions. Amongst others, the new method on loan classification and loan loss provisioning adopted in circular 02 is the significant step in this regards. Yet, more need to be done. ICAAP is the central tool to pursue this important mission. ICCAP helps to build the buffer of the financial system for the sustainable development. It is also time to envision and build a solid and productive financial system.’ said Miroslav Delaporte, Country Director of Swiss Cooperation Office in Vietnam. The message was reiterated by Mr. Nguyen Toan Thang, General Secretary of VNBA, who stated that “This workshop will help bankers enhance their understanding of ICAAP by showing how it is used within a bank’s strategy and risk management framework. It will also encourage banks to develop and use better risk management techniques to monitor and manage their risks by exploring practical experience, good practices, challenges and lessons learned in establishing ICAAP and integrated risk management.”
“The need for improving risk management and integrating it with business and capital planning through an ICAAP process has become much more eminent,” said Kyle Kelhofer, IFC Country Manager for Vietnam, Cambodia and Lao PDR. “Demonstrating credible capital buffers to absorb all material risks, beyond regulatory minimum requirements will definitely generate positive impact on a bank’s operations and resilience, contributing to sustainable growth of the banking sector and the entire economy.”
During the next months, SBV with the support of IFC will continue piloting implementation of BASEL II. The experience and lessons learnt from this exercise will provide necessary feedback to SBV to properly develop a roadmap to fully adopt BASEL II in the medium term in Vietnam.
