Quản trị rủi ro trong kinh doanh của ngân hàng thương mại Việt Nam theo hiệp ước Basel

ựa trên những chuẩn mực cơ bản của ủy ban giám sát ngân hàng –BIS và thực tiễn hoạt động của các NHTM Việt Nam, Luận án “Quản trị rủi ro trong kinh doanh của ngân hàng thương mại Việt Nam theo Hiệp ước Basel” đã hoàn thành những nội dung sau: 1. Hệ thống hóa cơ sở lý luận các chuẩn mực quản trị rủi ro theo Hiệp ước Basel; nêu rõ những nội dung cơ bản của Basel I, Basel II và Basel III, so sánh điểm khác biệt và điều kiện để áp dụng các chuẩn mực Basel; 2. Phân tích thực trạng hoạt động của các NHTM Việt Nam hiện nay theo các chuẩn mực của Hiệp ước Basel, với những cơ hội và thách thức của hệ thống NHTM Việt Nam trong tiến trình hội nhập kinh tế quốc tế. 3. Đề xuất các nhóm giải pháp và khuyến nghị để các NHTM Việt Nam tiếp cận và áp dụng các chuẩn mực quản trị rủi ro trong hoạt động ngân hàng theo Hiệp ước Basel. Các giải pháp và kiến nghị của Luận án đề xuất được dựa trên cơ sở chiến lược phát triển ngành ngân hàng đến năm 2020 và xu thế hội nhập kinh tế khu vực và thế giới. Tuy nhiên, áp dụng thành công các chuẩn mực Basel, đặc biệt là Basel II tại hệ thống NHTM Việt Nam là một vấn đề lớn, đòi hỏi thời gian và sự phối hợp đồng bộ của nhiều bên liên quan. Do vậy, những giải pháp, kiến nghị của Luận án chỉ là đóng góp ban đầu cho tiến trình áp dụng các chuẩn mực quản trị rủi ro trong hoạt động ngân hàng theo Basel tại các NHTM Việt Nam. MINISTRY OF EDUCATION AND TRAINING FOREIGN TRADE UNIVERSITY --------o0o-------- NGUYEN ANH TUAN RISK MANAGEMENT IN BUSINESS OF VIETNAMESE COMMERCIAL BANKS UNDER THE BASEL ACCORD Major: World economy and international economic relation Code: 62.31.07.01 DOCTORAL THESIS SUMMARY SUPERVISOR: 1. Assoc.Prof, Dr Nguyen Thi Quy 2. Assoc.Prof, Dr Nguyen Dinh Tho Hanoi, 2012 The thesis was completed at Foreign Trade University Address: Number 91, Lang Pagodar street, Dong Da, Ha Noi, Vietnam Supervisor: 1. Assoc.Prof, Dr Nguyễn Thị Quy 2. Assoc.Prof, Dr Nguyễn Đình Thọ Reviewer 1: Prof, Dr Nguyen Ke Tuan Reviewer 2: Assoc.Prof, Dr Le Thi Kim Nhung Reviewer 3: Dr Nguyen Huu Thuy The thesis is defended in front of the Assessment Committee of Foreign Trade University Number 91, Lang Pagodar street, Dong Da, Ha Noi At 3.00 pm date 27 th September 2012 The thesis can be found at National Library of Vietnam and Library of Foreign Trade University PUBLICATIONS Article 1. Nguyen Anh Tuan, “Studying Basel Committee’s guidance on the basic principles in operational risk managing and monitoring in banking activities”, Journal of financial and monetary market Number 19, 1st October 2007 2. Nguyen Anh Tuan, “Funding transfer pricing tools”, Journal of Banking Number 24/2009 3. Nguyen Anh T uan, “Insight into the finance and banking sector”, Foreign Trade University’s International scientific conference with topic “Global Finance and Banking Management”, October 2011 1 PREFACE 1. Rational of the thesis The trend of globalization, regionalization is taking place increasingly powerful and becomes an inevitable trend for any economy. This is particularly true for developing and less developing economies which needs a significant amount of capital for investment activities, including the Vietnam economy. With the signing of the Bilateral Trade Agreement (Bilateral Trade Agreement - BTA) with the United States in December 2001 and the official accession to the World Trade Organization (World Trade Organization - WTO) of Vietnam in November 2006, Vietnam’s banking and financial services sector confronts the presence and the direct competition of foreign financial institutions on the domestic market. The opening commitments of Vietnam as a member of APEC and the Association of Southeast Asian countries with the specific schedule for the opening of each economic sector is not only an opportunity to Vietnam financial banking sector to develop and expand markets, but also a genuine and obvious challenges. The current pressing issue to tackle is to enable Vietnam’s banking and financial system to make a genuine contribution to the development of Vietnam Socialist-oriented market economy regulated by the State. Over the past two decades, Vietnam financial banking sector has been maturing and developing both in quantity and quality. However, according to the evaluation of the World Bank’s organizations (World Bank – WB), International Monetary Fund (International Monetary Fund – IMF) and the major and prestigious credit rating agencies in term of Vietnam’s banking industry as Fitch Ratings and Moody’s, the corporate governance in general and the risk management in particular almost commercial banks in Vietnam remains weak. Up to this time, most of Vienamese banks merely pay attention to an only risk management – credit risk. Meanwhile, practical risk management activities of commercial banks all over the world took a step forward in comparision to 2 the credit risk management with a focus on value portfolio (Portfolio Value) using tool value at risk (Value at risk – VAR), including operational risk, business risk, organizational risk,… The nature of banking’s activities revolves around risk management. Therefore, the critical issue posed for Vietnam's banking sector (including the state management mechanism and business activities practices) now and in the near future is to develop the legal framework, safety risk management and monitoring process, to approach and applicate the international principles and practices. After meeting the requirements of the international principles and practices, the services which provided by Vietnamese commercial banks will be accepted in international financial banking transactions. In addition, even on the domestic market, risk management under international principles and practices will make the commercial banks ensure the safety of their business activities. International Convergence of Capital Measurement and Capital Standards - commonly known as Basel Capital Accord - is an agreement on a mechanism for management, administration and monitoring activities of commercial banking system, aimed at risk management and financial market stability. This Accord was developed and uniformly applied by the central banks of 10 developed countries that are members of Bank for International Setttlement - BIS. Due to the benefits of these standards, a variety of countries which are not members of BIS as well as developing countries have started out research and apply successfully. With the objective of systematizing the contents of the Basel Accord and proposing practical solution groups which help commercial banks complete risk management process, gradually approach the Basel standards, the author has selected researching into project: “Risk management in business of Vietnamese Commercial Banks under the Basel Accord”. 2. Literature review In Vietnam, there has been a number of essays, thesises, scientifics which research into risk management in business of commercial banks refer to the Basel Accord. However, researches into the Basel Accord with the meaning of 3 this accord’s applications in commercial banking management is limited and not systematical. 3. Research object On the basis of learning about the contents of the Basel Accord as a standard of banks’ risk management and safety activities monitoring, the thesis analyzes the capabilities and demonstrates the need to apply standards of risk management under Basel in Vietnam commercial banking system and proposes solutions to strengthen risk management for Vietnamese commercial banks. 4. The subject of the thesis and the scope of research Subject of the thesis is to study the applicability of the Basel’s standards on risk management of Vietnamese commercial banks in Vietnam. Scope of the thesis is Basel’s risk management standards, depth analysis on the situation of Vietnamese commercial banks’ risk management activities under the three pillars of Basel II since Vietnamese banking system officially has two level. Then, the thesis gives total solutions for approaching and applying Basel’s standards in term of risk management of Vietnamese commercial banking system. 5. Reasearch tasks - Clarifying the common and basic concepts as well as contents of commercial banks, risk and risk management in the operation of commercial banks. - Analysis of the Basel Accord’s contents in terms of the international standards of risk management in the operation of commercial banks and the situation of application in the world. - Assessing the situation of Vietnamese commercial banks’risk management. - Proposing some macro and micro solutions in order to strengthen risk management abilities in business activities of Vietnamese commercial banks based on the Basel Accord’s guidelines and standards. 4 6. Methodology - Application of Party and State’s political opinion of on international economic integration, finance and banking sector’s developing strategy. - Dialectical materialism method of Marxism - Leninism - Inheritance and application of research results on risk management - Methods of synthesis, analysis, data survey, data, facts. 7. The new findings of the thesis - Analyse the basic content of the Basel Accord, the formation and development process, situation of applying the Basel Accord in the world. The meaning, role and importance of applying the Basel Accord in developing countries and Vietnam. - Reference the Basel Accord’s standards as the guidelines in risk management activities of banks, including credit risk, market risk (interest rate, exchange rate), risk liquidity, operational risk, safety operational monitoring mechanisms and disclosure. - Analyse the situation of risk management in Vietnamese commercial banks at present, which focus on analysing shortcomings and weaknesses in the risk management activities of Vietnamese commercial banks, especially the state commercial banks. - Identify challenges for Vietnam commercial banking system related to the risk management in process of banking sector’s international integration, which focus on state commercial banks which are conducting equitization. - Characterise some models to quantify the risks in the business of Vietnamese commercial banks with parameters consistent with market and operational characteristics of Vietnamese banks. - Propose solution groups to enhance the quality of risk management in business activities of Vietnamese commercial banks. 8. Layout of the thesis 5 Beside the preface, conclusion, list of tables, list of abbreviations, references and appendixes, the thesis consists of three chapters: Chapter 1: General issues of risk management in business of commercial banks under the Basel Accord Chapter 2: Situation of Vietnamese commercial banks’s risk management in business Chapter 3: The solutions to enhance risk management in the business of Vietnamese commercial banks under the Basel Accord. CHAPTER 1 GENERAL ISSUES OF RISK MANAGEMENT IN BUSINESS OF COMMERCIAL BANKS UNDER THE BASEL ACCORD 1.1. Commercial banks and risk management in commercial banks’ business 1.1.1. Commercial banks The law Credit Institutions No. 47/2010/QH12 stipulates: "Commercial banks are types of banks which can do all banking activities and other business activities as prescribed by this Law aim at profit”. Thus, commercial bank is an important intermediate financial institutions in the market economy. Through this intermediate financial institutions system, freedom cash in society will be mobilized, concentrated at the same time that capital is used to extend credit to other economic organizations and individuals for the purpose of socio-economic development. Commercial banks have three basic functions, such as: credit intermediary function, payment intermediary and payment facilities management function, banking service provision function. 1.1.2. Risk on commercial banks’ business acitivities From the point of commercial banks’ business activities, risk is defined as the unexpected change in assets value (including assets and liabilities) and other obligations. All the activities of commercial banks are risky or unforeseen 6 factors could cause losses to the bank. There are many risk classifications. According to the most commonly used classification, risks include credit risk, market risk, liquidity risk, operational risk and other risks. 1.1.3. Risk management on commercial banks’ business activities Risk management involves risk identifying, measuring, monitoring, controling, managing and handling. According to the risk management practices of commercial banks in the world, risk management activities are made by a number of key principles such as: risk accepted principles, risk permitted authorized principles, independent management principles of individual risk, ... Risk management process including these steps: (1) Risks identify and rules and regulations system development, (2) Risk analysis and risk quantification, (3) Risk acception, management and reporting. 1.2. Risk management on commercial banks’ business under the Basel Accord 1.2.1. The formation and developing process of the Basel Accord To prevent the risk of global financial banking crisis, especially after the collapse of Herstatt bank Bankhaus of West Germany in 1977, the central monetary policy operation agencies (the central bank or an agency with similar functions) of 10 developed countries founded the Basel Committee (The Basel Committee on Banking Regulations and Supervisory Practices) to develop the general frameworks which control risks for the international activities banks. Up to now, the Basel Committee has 27 members. In fact, the Basel Committee is a platform for member countries to exchange and cooperate on issues related to monitoring activities of commercial banks in each countries. Basel I was born in 1988, required capital adequacy ratio of at least 8%. Basel II issued in June 2004 to overcome the limitations of Basel I. In June 2011: issued Basel III which amended and supplemented some contents compared to Basel II. 7 1.2.2. The content of risks management in business of commercial banks according to the Basel Accord Activities of a bank are usually funded from two sources, loans or equity. Bank loans (including deposits) are the liabilities that if would not be paid on time, it could push the bank into the repay inability status. In contrast, the owner's investment may be profit or loss but do not push banks into the inability to pay debts as above. So, in terms of other factors equal, the proportion of a bank's activities are funded by greater equity, the bank will be able to continue to pay debts in the difficult economic period. This argument forms the basis for the banking supervisory experts evaluate capital adequacy ratio as a basic element determining the safety and effectiveness of the bank. The bank which often maintain sufficient capital and capital is added from a higher result, is a stable, healthy and effective bank. The undercapitalized banks with low net worth will be easily to fragile when faced with risks or changes of the business environment. With the above arguments, the main content of the Basel Accord in 1988 focused on the regulations on capital as well as system risk ratio for each type of banks’ assets. The Basel Committee believed that these provisions were useful framework for banks in activities of risks managing and monitoring, at the same time as the basis for banks to issue policies, procedures and practices of risk management in banking activities. Basel I consists of 3 parts: Part 1 talks about the elements that constitute the capital; Part 2 refers to the systematic risk proportion and Section 3 discusses the target capital ratio. Basel II is structured, including three pillars: (1) minimum capital requirements, is an extension of the standardized rules set out in the Treaty of 1988, (2) Supervisory process on safety capital ratios and internal assessment process, and (3) The application of market principles to encourage the disclosure of information as well as perform safe banking business practices. Basel II requires banks to maintain a large amount of capital enough to cover their risky activities, including credit risk, market risk and operational 8 risk.. Accordingly, Basel II provides a capital ratio, the numerator is the bank's own capital and a denominator is assets at risk (measure risks in banking activities). Minimum capital ratio prescribed in Basel II is 8%. Basel II refers to three types of risks in banking activities. In addition to credit risk and market risk have been defined in the 1988 Treaty of capital, Basel II adds a further risk is operational risk. Second pillar based on a series of detailed instructions, which clearly states the need for banks to assess the capital in relation to their general risk level, and on the inspection agencies, supervisors must review the results of this assessment and have the appropriate measures in case of necessity. The purpose of this is not only to ensure banks have enough capital to cover risks in the business, but also to encourage banks to build and apply risk management techniques better. The purpose of the third pillar "market principles" in the new treaty is intended to complement the minimum capital requirements in the first pillar and the role of head of inspection agencies in the second pillar. An important characteristic of the new Treaty of capital is that banks are given more autonomy authorities in determining their capital requirements based on internal assessment system. Therefore, market discipline in the third pillar of the new treaty will help the market participants can have better conditions to evaluate information on the level of risk and size of bank’s capital, thereby creating conditions for banks and inspection agencies manage risk more efficient, further improving the stability of individual banks in particular and the banking system in general. Basel III revises and adds some contents to Basel II. As a whole, Basel III strengthens capital requirements of banks and introduces new regulations on the banking liquidity and banking leverage. The standard capital and new capital buffers will require banks hold more capital and have higher quality capital than the capital under the current provisions of Basel II. Basel III provides some new regulations on the rate of ordinary shares, preserve capital reserves, reserves for counter-cyclical, the stable liquidity ratio and the stabilization reserve rate. 9 Member countries will start implementing roadmap convert the new capital standards on 01/01/2013, means that these countries will have to convert the above standards into national law or regulation before the 01/01/2013, and Basel III also provides a specific schedule for implementation of capital requirements under Basel III. 1.3. The situation of application the Basel Accord in commercial banks of some countries in the world According to the Basel Committee, Basel I has been applied in over 100 countries and is known as the standards on commercial banks’ safety operation monitoring and supervisory by world banking industry. Among the member countries of the Basel Committee, with participation in the construction of the Basel II content, these countries had indirectly admitted responsibility and commitment to apply Basel II, although some countries only committed partially applied. The countries of the European Union (EU) applied the regulations on safe minimum capital in Basel II under the new law which launched by the European Commission (EC). Based on the practical application of the Basel II on risk management in several countries around the world, the author draws some specific lessons in applying Basel. International experience shows readiness to apply the Basel and Basel II in particular depends on a number of factors such as: (i) Status of banks’risks management system; (ii) Expected costs/benefits; (iii) Pressure level of central banks; (iv) The rival banks’ preparation of Basel implementation. Under central bank’s perspective, the factors will be considered when preparing to appy the new accord including: (i) The nation priorities; (ii) Readiness level of the legal framework and management; 10 (iii) Accounting standards; (iv) Human resources and professional team; (v) Soundness of coporate governance; (vi) Market discipline; (vii) The presence and level of reliability of the credit rating companies; (viii) Equality playing issues. CHAPTER 2: SITUATION OF VIETNAMESE COMMERCIAL BANKS’ RISK MANAGEMENT IN BUSINESS 2.1. Overview of Vietnamese commercial banking system Vietnamese commercial banking systerm has formed and developed since 1990, now become an extensive network. Operation mechanism: two levels in which the State Bank manages all aspects related to banking activities. According to the State Bank’s data, until June 2011, there were 53 banks, including 5 state banks, 1 social policy bank, 37 private joint sotck commercial banks, 5 joint venture banks, 5 banks with 100% foreign owned, 48 foreign bank branches in Vietnam and 48 representative offices of foreign banks. Until now, there has been 3 of 5 state banks equitized, including Vietcombank, Vietinbank and BIDV, but the Sate still owns the large shares. Therefore, the author arranged three banks above into group of state commercial banks. Among the financial institutions mentioned above, 5 state commercial banks accounted for nearly 60% market share overall banking services with the dense network of branches, transaction offices, automated teller machines, credit card payment machines,… nationwide. About the operational capacity of Vietnamese commercial banking system: - Capital raising: capital raising activities of credit institution system has increasing growth rate per month and the whole 2011, the capital raising growth rate was higher than credit growth rate. Compared to passed years, the proportion of state banks’ capital raising have tended to decrease from about 11 80% in the early 2000s, to now only account for nearly 45%. One of the causes of the decline in the market share is the rise of joint stock commercial bank system. The joint-stock commercial banks create a relative competitive advantage by improving service quality, diversifing the types of products and services, improving the financial capacity and in particular to increasing interest rate higher. - Credit plays an important role in the monetary circulation of the economy. In pass ten years, Vietnam has an average credit growth rate in high group of the world, approximately 32%, higher than GDP growth rate of the same period. - Total payment: total payment (M2) has increased continuously over months in accordance with changes in growth of credit and capital raising. According to the banking operation report issued in December 2011 by the State Bank, total payment to the date of 21 st December 2011 increased 9.27% compared to the end of 2010, with the target set by Resolution 11 was 15-16%, in which cash circulating outside the banking system rose 5.49%. - Earning growth rate: the average earning growth rate in 2008 reached 26%, in 2009 reached 47%, in 2010 reached over 25% and in 2011 reached about 35%. 2.2. The situation of Vietnamese commercial banks’ risk management in business according to Basel Accord In recent years, Vietnamese commercial banks have make attetion to risk management activities as part of business strategy in order to increase the level of operation safety and promote competitive advantage, by investing in technology to meet the standards of risk management. A lot of banks has found solutions in risk management through the foreign consultant units such as McKinsey, Deloitte, Ernst&Young,… However, in general, risk management model of Vietnamese comercial banking system has not same sets, individual nature and not really effective. 12 2.2.1. The situation of Vietnames commercial banks’ capital management under Basel Accord The rate of minimum capital adequacy (capital adequacy ratio) to ensure that banking operation was safe under the first pillar of Basel Accord is calculated as follows: CAR = (Tier 1 capital + Tier 2 capital)/ Risk weighted assets With this approach, to evaluate the situation of capital management in Vietnamese commercial banks compared with the Basel formula, Thesis evaluates, reviews each factor of formula above including equity capital and other risks affect to asset quality of commercial banks in Vietnam. The State Bank of Vietnam has issued several documents providing the equity capital as 457/2005/QD-NHNN Decision which regulated on safety ratios in credit institutions’ operation, 13/TT-NHNN Circular which regulated on safety ratios in credit institutions’ operation, 19/TT-NHNN Circular, 22/2011/TT-NHNN Circular, 33/2011/TT-NHNN which modified some contents of Circular 13. - About the own capital situation: Group of state commercial banks: at the time of the year 2000, the bad debt situation was too high, might lead to the bankruptcy of the state commercial banks, the state commercial banks built Restructuring Program which is concentrated on improving finanical situation by increasing own capital scale and handling bad loans. After funding by the Government, total equity of five banks increased to more than 18,000 billion VND in total equity of the entire Vietnamese commercial bank system was 35,000 billion VND (counted for 51%). Group of stock commercial banks: from 2000 until now, the joint-stock commercial banks has better performance and could increased capital themselves. In addition, joint-stock commercial banks also constantly replenished their own capital through issuing shares, leading to rapidly 13 increasing equity over the years, contributing significantly enhance safety operational ratio of joint-stock commercial banks. The capital of Vietnamese commercial banks at present has improved but is still lower a lot compared to the capital of an average foreign bank or financial group. The charter capital is limitted will cause a lot of difficulties in supplying investment capital, particularly for large projects. Moreover, Vietnam is in the integration process, especially Vietnam officially joined the World Trade Organization (WTO), the competiors which are foreign banks with a strong influx of capital, the capital scale of Vietnamese commercial banks certainly have to increase further to ensure either safety opreation ratio or business expansion ability, in order to meet the new requirements from the market. - About the risk management: Credit risk: Among the business activities of comercial banks, credit is the primarily activity but high risk. The efficiency achieved is not match the actual risk level has continued to be the reasons threat to the operation of commercial banks. According to the report of the State Bank of Vietnam, total outstanding loans of banking system at 31 st December 2011 was about 3.120.000 billion VND, in which the bad debt ratio is about 3.6%. However, according to Fitch – one of three the most prestigious financial assessment institution in the world, the real debt quality of Vietnamese banks remain weak, the result of lax accounting standards compared to international IFRS standards. If the loan was rigorously classified to IFRS standards, the banks’capacity to meet new capital requirements will become more difficult. The commercial banks made a number of measures to control credit risk, such as: promulgating and reoranizing new documents to manage credit risk better; bulding and applying credit scoring system; classifying debt; risk provisioning; setting secure credit limit and the maximum credit limit for customers and strategic business factor. Market risk: in the case of Vietnam, besides the provisions on foreign exchange transactions, Vietnam has not yet issued regulations on risk market as 14 stocks, futures, options contract and the derivative. It is noted that Vietnam has not applied the Basel Accord’s principles on adjusting minimum capital adequacy ratio for market risk because market risk in Vietnam has not yet played a critical role in banking risk of credit institutions. Besides, the experience and skills of banking supervision on market risk and derivative products are also limited. Operational risk: the Vietnamese commercial banks are not aware of all types of operational risk, therefore, there is not a bank which has appropriate and redundant provision for this risk type. However, it can be stated that operational risk for Vietnamese commercial banking system is now very high, especially when the fiancial currencies banking market is in the process of international economic integration. Operational risk can be transferred directly to a serious loss, even in some cases to shake the entire financial and monetary system of the country. Liquidty risk: Liquidity risk management activities in Vietnamese commercial banks are stills weak due to the objective and subjective reasons. Currently, some banks have adopted capital transfer valuation tool FTP which helps to control interest rate risk and liquidity risk efficiently. Bottom line: It can be seen that the Vietnamese commercial banks have made great efforts in raising equity capital and most stock commercial banks have achieved capital adequacy ratio (CAR) of 8%, but if compared to the calculation of the safety factor of Basel including market risk, there is very few commercial banks in Vietnam achieved the capital adequacy ratio above 8%. 2.2.2. The situation of inspections, monitoring and compliance with legal provisions of Vietnam banking system according to Basel Accord Currently, the State Bank of Vietnam has set up an inspection and supervision organization structure fairly as distributed functional model. The supervision function does not focus on one department. It is scattered and taken by the different department of the Vietnam State Bank. Supervisory method in banking is compliance inspections method. This method is limited and not suitable with the currently development situation. 15 In commercial banks: the monitoring system is applicated to the model: The control department belongs to Board of Director, internal inspection department belongs to Operation Board, internal audit department at branches equivalent as a department. With the supervision system as above, commercial banks have increased the effectiveness of risk management in business. However, until now, commercial banks have not issued any documents guiding the process of intrenal monitoring imlementation because the State Bank of Vietnam has not any documents stated functions, tasks, execution orders of inspection and supervision at commercial banks. Inspection and supervision of commercial banking system in Vietnam is limited at present and has many problems need to be addressed, especially compared to the principles of Basel. This is really a big challenge for Vietnam commercial banking system in the future. 2.2.3. The situation of statistical information report problem according to market principles in the Vietnamese commercial banks Statistical information system of each Vietnamese commercial banks has to meet the needs of statistical report for State Bank of Vietnam, the General Department/Department of statistics to help these state management agencies perform their funtions under law provisions. At the same time, it also meets the demand of statistical information for business management activities of banks. To meet the incerasing demand of information for the state bank’s adiministration, gradually step by step in accordance with international practice, the state bank has issued documents regulated on reporting, lead to state bank’s statistic activity has made fundamental changes to meet the information requirement in the context of international integration. In addition, the state bank also issued regulations on financial reporting regime for credit institutions, which regulated on the information collection about safety operation, independent audtiting and fiancial and operation information disclosure of credit institutions. The banks also must build, issued statistic report indicators for internal business management. For the group of foreign banks in Vietnam, statistical 16 information and accounting information are complete, allows a better management of financial risks. Meanwhile, for Vietnamese commercial banks, the information quality is different. Some banks perform ralatively well the statistical information. Some banks do this work not well. Bottom line: statistical reporting activities at the commercial banks in Vietnam now has some restrictions on the legal framework, the completeness and accuracy of data provided. transparency and information disclosure. The main cause of the limitations is due to: the central bank has not established a system of regulations on the openness and transparency of information; The ICT usage by banks still face many difficulties and inconsistencies; The banks not really serious about serving quality statistical reports, and statistical staff is lacking in both quantity and quality. 2.3. Overall assessment of risks management activities in business of Vietnamese commercial banks under the Basel Accord 2.3.1. The results obtained First, banks have to pay more attention to maintaining minimum capital adequacy ratio. Second, banking supervision activities are also emphasized. Third, the information disclosure under market principles has been made regularly and has been more transparency. 2.3.2. Some weaknesses and causes - Organizational structure, functions and duties related to the risk management, inspection and information disclosure are not reasonable leading to overlap and not clearly demarcated responsibilities. - The regulations, business policies and risk management are weak, limited and not synchronous. - The staff are lack of experience. - The technology is obsolete and outdated Causes: According to survey results in 21 Vietnamese commercial banks, 95.24% of banks are aware of the importance of risk management in banking business, 17 100% of banks make a lot of attention to the Basel Accord and 90.48% of banks assess that Basel Accord has an important role in strengthening financial security for Vietnam banking system. However, the factors cause the most difficulties for the application of Basel in risk management of Vietnamese commercial banks are human resources, information technology infrastructure and law frame. In addition, although commercial banks confirmed the role of risk management is very important, but they did not focus on investing in risk management capabilties as pronounced. Specifically: 85.71% of banks refered expanding assets in banks’activities strategy; 71.43% of banks focused on the second objective is to increase equity in order to achieve higher asset growth speed. Investing in concentrated information technology system, building data management ability are the most important activities but rank lowest strategic priorities. Besides, there are also some reasons as follow: - The commercial banks’capital scale is small while the range of activities is large. - The banks have not focused on the formulation of policies, procedures and regulations. - Recruitment and training do not meet job requirements. - Some other objective reasons. CHAPTER 3 THE SOLUTIONS TO ENHANCE RISK MANAGEMENT IN THE BUSINESS OF VIETNAMESE COMMERCIAL BANKS UNDER THE BASEL ACCORD 3.1. Evaluating the applicability of Basel’s treaty to the Vietnamese Commercial Banks 3.1.1. The needs to strengthen risk management for businesses of the Vietnamese commercial banks under the Basel’s treaty The joining of Vietnam to the World Trade Organization (WTO) on 11/2006 marked the period of deeper integration of the Vietnamese Economy to 18 the World Economy. With a commitment to open the financial market in the WTO’s negotiating process, foreign banks shall be active and treated equally with the domestic banks. This causes a competitive pressure on the Vietnamese commercial banking system. Like other countries’ banking system, the safeness, efficiency and sustainability are the goal that Vietnamese banks are aiming at. Therefore, the application of international standards in risk management is necessary in order to improve the stability of the financial system and ensuring the Vietnamese banking system to active healthily. 3.1.2. The oriented development strategies and integration of the Vietnamese banking sector. By 2020, the Vietnamese banking system continues to create breakthroughs results, building a banking system that is stable and sustainable with the world average scale, ensuring the stability and safety of the financial market. The motto of commercial banks is “Safety – Efficiency – Sustainability – International integration”. In addition, banks also build a orientation to enhance risk management under the Basel’s treaty. Specifically: - Enhancing the institution’s capability, restructuring organization models and actives in accordance to the international practice. - Strengthening of financials capability. - Enhancing the ability of information technology applications in transaction, processing and administration. 3.1.3. Opportunities and challenges in applying the Basel’s treaty to the risk management of the Vietnamese commercial bank The international economic integration create incentives and opportunities for Vietnamese banks to evolved into a banking system that is dynamic, safe, effective and consistent with international practice. This also create a driving force to reform and evolve for the Vietnamese banking system, especially improving management, improving the legal 19 environment in the banking sector, closing the gap between the Vietnamese currency market and the international practice, to meet the international integration and commitment with international organization. The more intelligible law will help facilitate better assessment for borrower, lenders including banks will charge lower risk fee. In addition, there is also a more active participation of foreign banks in Vietnam. This is one of the main reason promoting Vietnamese commercial banks to improve its professionalization in banking, banking management, asset management , risk management, improving credit quality, enhancing the efficiency of capital used and the development of new banking services. In addition, Vietnamese commercial banks will face many challenges from economic integration and for the banking sectors like institutional challenges, structural, financial capacity, and human resources. The international economic integration increases capital transactions and the risk of banking system, while management and information system to monitor banks is still in its infancy, is not consistent with the international practice. Economic integration also leads to transformation of high quality human resources: foreign banks are willing to legally recruit skilled manpower with an attractive incentive that Vietnamese banks will not be able to offer. 3.2. Solutions to improve risk management for Vietnamese commercial banks under Basel’s treaty. 3.2.1. Solution for the Government and central bank Although the International Monetary Fund (IMF) and the World Bank (WB) were widely announced their desire to support countries to prepare for decision whether, when and how to implement Basel II. However, both institutions emphasis that at the national level, Basel I remains a viable option in the near future, while Basel II should be based on a solid foundation of standards accounting and management, practices of pricing, classification and provisioning possible risks, the legal framework and resources adequate supervision. When the factors are yet to convergence, countries want to apply Basel II to improve its financial infrastructure as part of Basel II implementation 20 roadmap. In this orientation, the work that the Government and the central bank can do in the early stages in the formation of a risk monitoring framework include: Finance infrastructure upgrades Improving the quality of credit information center Training and development of a new surveillance culture The Central Bank is the licensing agency for all banking activities and observance of policies and laws on monetary and banking activities in the territory of Vietnam. 3.2.2. Solutions for banks to meet minimum capital rules - Continue to issue shares to increase its own capital - Merger of commercial banks to increase the size of own capital - Enhance business efficiency, equity supplement free - Consistently apply international standards in credit risk management, market risk and operational risk 3.2.3. Solutions to meet the Basel standards on the process review and supervision of banking activities 3.2.3.1. For State Bank: - Renewing the organizational model of inspection agencies, banking supervision - Renewing the form and content inspection activities, banking supervision - To improve the infrastructure to support the inspection and supervision of banks - Renew licenses and operate a system of safety regulations of banking activities 21 - Strengthening international cooperation in banking supervision activities and cooperation between banking supervision with the financial supervisory authorities in the country, the law-enforcement agencies in the country 3.2.3.2. For commercial banks: - Develop banking management model as the best international practices - Change the supervisory process - Construction and application of effective reward and punishment mechanism 3.2.4. Solutions to meet the market principles, information disclosure 3.2.4.1. For State Bank: - Solutions to improve the efficiency of statistical information - Applying the public policy and transparency of information - Applying a fine mechanism/ discipline cases reported incorrect information in accordance with regulations 3.2.4.2. For Commercial Bank: - Organize statistical report implement at commercial banks - Develop centralization data base 3.2.5. Solutions for banks to support the successful application of systems of risk management standards under the Basel Accord - Training staff - Defining the functions, tasks and role of risk management at all levels in Vietnamese commercial banks - Technological information innovation in banks - To study and implement selective principles of Risk Management issued by the Basel Committee 22 3.3. Recommendations conditions to implement solutions to enhance risk management in business of commercial banks under the Basel Accord The thesis proposes a number of recommendations to the central bank and commercial banks to implement the solution enhance risk management in the business of commercial banks under the Basel Accord. On the part of commercial banks: Banks should achieve the level of certain risk management, invest more in infrastructures, particularly the appropriate information technology to meet international standards, to apply the good practices on corporate governance and the rule to set and operate systems of internal control and risk management (credit, market, liquidity and operational). The bank must establish a professional system of internal risk management consistent with best practice and meet the minimum requirements of the banking supervisory authorities to detect, measure, manage and monitor appropriate types of risks in banking activities. The banks need to recruit and train human resources in sufficient quantity and quality to operate the risk management system, particularly for market, credit and operational risk management systems as risk modeling. On the part of the State banks: State Bank must be competent to prescribe and use prudential regulations (quantitative and qualitative) to control the risks in banking activities. The safety regulations are not a substitute for management decisions of the bank, but rather the prudent minimum standards to ensure that banks conduct activities reasonable. Banking supervisory authorities need to have good coordination with other agencies and other financial supervision in the country and abroad to monitor the non-banking finance activities and international banking operations. Prerequisites for an efficient banking supervision system is: the appropriate institutional and legal framework of banking supervision; healthy and sustainable macroeconomic policies; appropriate public infrastructure; effective market discipline; clearly procedure for resolving banking problems. 23 Conditions and the readiness to apply the Basel Accord depends on several factors such as: current status of risk management system of banks; expected cost/benefi, and the pressure level of the central bank. According to the point of central bank, the factors will be considered when preparing the new treaty including: The national priorities; The availability of legal framework and management; The accounting standards; human resources and expert staff; Discipline market presence and level of reliability of the credit rating companies. CONCLUSION The Basel Accord with standardized content of credit risk, market risk and operational risk management is considered a turning point in the process of reforming the global risk management. Due to the benefit of this accord, the Basel Accord in general and Basel II in particular has become global standards on risk management. According to the investigation of the Basel Committee on Banking Supervision, there has nearly 100 national banks of countries outside the G-10 state of intent to implement the Basel Accord in the domestic commercial bank system’s operational framework. It can not be denied that the bank managers of developing countries are under pressure to move in the direction of Basel II, Basel III. It is the fact that as other banking systems, the goal of Vietnam's banking system is safe, effective and sustainable. Furthermore, in comparison with international practice, the level of risk in credit activities of commercial banks in Vietnam, especially in the state banks is quite high and difficult to anticipate the consequences. Therefore, the analysis and application of the Basel standards is not only essential to ensure the safe operation of commercial banks in Vietnam but also is the safety of the entire economy in the context of international economic integration. With these strict standards, Basel in general and Basel II in particular creates real challenges in the implementation, even for the modern banks in the world. So, it is not surprise the application of the Basel experiences major 24 barriers in the banking systems of developing countries, including Vietnam, requires the cooperation and consensus of many related departments. By combining the methods of analysis, synthesis, statistics, comparisons, ... based on the basic criteria of the banking monitoring committee BIS and practices of Vietnamese commercial banks, thesis “Risk management in business of Vietnamese Commercial Banks under the Basel Accord” has completed the following contents: 1. Systematize the theory of risk management standards under the Basel Accord; outlines the basic content of the Basel I, Basel II and Basel III, comparing differences and conditions to apply the Basel standards; 2. Analysis the situtation of Vietnamese commercial banks’ operation under the current Basel standards, with the opportunities and challenges of Vietnam commercial banking system in the process of international economic integration. 3. Proposes solutions and recommendations to Vietnamese commercial banks to access and apply the standards of risk management in banking activities under the Basel Accord. Solutions and recommendations of the thesis is based on banking sector’s development strategies by 2020 and trend of regional and global economic integration. However, successful application of the Basel standards, particularly Basel II, in Vietnam commercial banking system is a major problem, which requires time and coordination of multiple related departments. Therefore, solutions and recommendations of the thesis is an initial contribution to the process of applying the standards of risk management in banks’operation under the Basel in Vietnamese commercial banks.