High costs and a lack of data are preventing Vietnamese banks from meeting the 2015 deadline set for the implementation of Basel II regulations in the country.
A recent study by KPMG Ltd revealed that 85 per cent of polled banks in Viet Nam viewed the costs of Basel II implementation as a big problem while 78 per cent viewed the lack of detailed historical default data as a huge stumbling block.
The Basel Committee on Banking Supervision (BCBS), which regulates international finance and banking, earlier formulated a set of banking regulations called Basel II.
Basel II is the second of the Basel Accords, which aim to set standards and regulations on the amount of capital a financial institution must set aside to reduce risks associated with investing and lending practices. Basel II is set for full implementation worldwide in five years.
Viet Nam is not a BCBS member and is therefore not bound by the BCBS timeline set for Basel II implementation. However, the State Bank of Viet Nam (SBV) has set a 2015 deadline for Basel II implementation in the country as part of its plan to restructure the domestic credit institution system, since risk management gaps remain a major reason for increasing bad debts.
At a recent seminar on Basel II implementation which KPMG Ltd and the SBV organised, Craig Davis, Advisory Partner from KPMG Australia, said collecting historical data was very important because it served as the basic indicator for operational and emerging risks and as an input for backup plans.
Some bankers said it might not all be about transparency in data collection but rather, inconsistent implementation of international standards on banks. This problem has challenged consultants engaged in collecting and accessing historical data, which may consume up to three years.
Davis stressed the pivotal role of banks’ executive boards which should take responsibility for business strategies and risk-taking. He added that banks should build a three-layer shield: possess risks, review and access risks, and secure independence.
In terms of costs, a bank may have to pay from US$5 million to $10 million for a framework for risk management and about $50 million for information system equipment.
KPMG suggested that SBV enhance the supervision and inspection of safety ratios, executive boards, senior leaders and risk management bodies.
Earlier this month, the SBV selected 10 commercial banks to pilot Basel II standards. According to VnEconomy, the banks include Vietcombank, Vietinbank, BIDV and MB. Also joining Sacombank and Techcombank in the same list are ACB, VPBank, VIB and Maritime Bank.
Michael Krakowski, Director of the GIZ Macroeconomic Reform Programme, told Viet Nam News earlier this year that the country should quickly adopt and implement Basel II standards as an important step towards achieving banking reforms.
However, industry insiders said the implementation process needed a reasonable roadmap as the Vietnamese banking system was still young compared with other systems around the world.
The SBV has required lenders to carry out its Circular No 09/20/TT-NHNN on debt classification and risk provisional fund establishment from June, in an effort to make them healthier.