IFC, a member of the World Bank Group, supports the adoption of international risk-management practices in Vietnam to strengthen the banking sector.
Industry executives 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 Government of Switzerland’s State Secretariat for Economic Affairs (SECO), the event was co-organized by IFC, the Swiss Finance Institute (SFI) and Vietnam Banks’ Association (VNBA).
By undertaking an ICAAP, banks are more equipped to assess the level of capital needed to support current and future risks, including a buffer for stress scenarios. Well-run banks view it as a core strategic activity that safeguards operations including in times of stress, rather than as a compliance exercise.
“The need for improving risk management and integrating it with business and capital planning through an ICAAP process has become much more important,” said Kyle Kelhofer, IFC Country Manager for Vietnam, Cambodia and Lao PDR. “Demonstrating credible capital buffers to absorb material risks, beyond regulatory minimum requirements, can generate positive impact on a bank’s operations and resilience, contributing to sustainable growth of both the Vietnam’s banking sector and the entire economy.”
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. The pilot program began earlier this year and has been implemented by 10 local commercial banks.
“Applying Basel II capital adequacy guidelines is essential for commercial banks in Vietnam to upgrade banking operation standards,” said Nguyen Toan Thang, General Secretary of VNBA. “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.”