Trang Chủ
Banking activities face many risks
Vietnam is witnessing many tremendous and positive economic changes, among which finance banking is one of the fields with the largest openness, increasingly integrating deeply into the international financial system. However, at the same time, when the capital burden for the economy is still placed on the shoulders of the banking system, banking activities face many risks. There were credit institutions that fell into a state of illiquidity and needed help from the State Bank (SBV).
In that context, commercial banks in Vietnam have made fundamental changes in risk management activities, focusing on building a risk management culture and applying international standards. Currently, the development of a risk management culture of commercial banks is quite proactive, along with raising awareness about risk management of not only leaders but each bank staff. This helps the bank to develop appropriate regulations for early prevention and to have a plan to cope with increasingly diverse risks, ensuring that there are no unexpected losses to the bank.
It is also urgent to develop a risk management model according to the international standards Basel II. On December 30, 2016, the SBV issued Circular 41/2016/TT-NHNN stipulating the capital adequacy ratio for banks and foreign bank branches (Circular 41) to guide Pillar I (according to the standard method) and Pillar III of the Basel II Capital Standards. Currently, 86% of commercial banks and foreign bank branches apply the capital adequacy ratio according to Circular 41. By January 2023, the remaining commercial banks and foreign bank branches will apply Circular 41 in determining the capital adequacy ratio.
On May 18, 2018, the SBV also issued Circular 13/2018/TT-NHNN stipulating the internal control system of commercial banks and foreign bank branches to guide Pillar II. (internal capital adequacy assessment process - ICAAP) of Basel II Capital Standard for banks to be implemented from January 2021.
With the full implementation of the pillars of Basel II Capital Standards according to the Circulars of the SBV, the financial soundness and risk management capacity of banks in Vietnam have been significantly improved, contributing to strengthening the resilience to shocks of the economy such as the Covid-19 pandemic, adverse fluctuations and external instability that have taken place recently.
Deposit insurance tools are flexibly and effectively used
The above measures have brought about positive changes in the risk management culture of commercial banks in Vietnam, but they still stop at the perspective of individual banks. From the standpoint of systematic risk management and prevention, deposit insurance is a tool that is used flexibly and effectively but has yet to be fully utilized, especially in the restructuring process of the banking system. Therefore, raising awareness about the role and importance of deposit insurance tools, especially in the context that the CIs system in Vietnam is integrating deeper, becomes essential. Deposit insurance reimbursement has demonstrated the role of the Deposit Insurance of Vietnam (DIV) in protecting the legitimate rights and interests of depositors, enhancing people's trust, contributing to political stability and social order, and preventing the risk of a bank run in the operation of the CIs system.
The DIV is a State-own financial institution with the primary operations: Issuing deposit insurance certificates; collecting deposit insurance premiums; off-site supervision; periodic examination; financial support; reimbursement; debt recovery and liquidation of collateral; financial investment… to strengthen the confidence of depositors; contributing to maintaining system security. When the CIs system in Vietnam is facing many challenges due to international integration, especially from the perspective of risk management, the role of the DIV is increasingly evident in the following points:
Firstly, to maintain the system's safety, the DIV examines and supervises the activities of insured institutions to detect signs of risky activities of institutions that violate state regulations. On that basis, the DIV has developed, proposed, and recommended appropriate solutions or reported to the SBV for appropriate resolution measures.
To date, the DIV is protecting depositors' deposits at 1,283 insured institutions, including 97 banks and foreign bank branches, 1,181 People's Credit Funds, one cooperative bank, and four microfinance institutions. These institutions are all granted with certificates of deposit insurance participation and are charged and collected premiums in accordance with the provisions of the law. The DIV periodically conducts monthly, quarterly and annual supervision for 100% of insured institutions. In addition, the DIV conducts extraordinary examinations on weak insured institutions which are detected to have signs of risk or violating regulations through off-site supervision. In addition, to effectively participate in the restructuring process of weak credit institutions, the DIV also implements the following tasks: providing special loans to credit institutions placed under special control, participating in the formulation of bankruptcy plans of CIs placed under special control, participating in assessing the feasibility of the plan of restoring the People's Credit Fund; disseminating deposit insurance policies through various channels and mass media to raise public awareness; actively participating in the process of asset liquidation of insured institutions subject to reimbursement to maximize recovery value.
Secondly, to prevent systemic risks, the DIV has always taken positive action, coordinated with the SBV and insured institutions to promptly overcome problems, thereby ensuring the stability of the banking and financial system.
During more than 20 years of operation, the DIV has reimbursed depositors at 39 People's Credit Funds in 11 provinces and cities for 1,793 insured people with 26.78 billion dongs. The DIV directly made payments for 34 People's Credit Funds, authorizing credit institutions to make payments on the behalf of 5 People's Credit Funds. In general, the reimbursement of deposit insurance, both by direct and authorized methods, is made accurately and promptly, protecting the legitimate interests of depositors, contributing to stabilize security, order, and social safety in localities where People's Credit Funds have fallen, participating in the final settlement of the handling of legal entities for People's Credit Funds facing long-term and irreparable difficulties.
Thirdly, in term of reinforcing depositors' confidence, the DIV only accepts reimbursement of deposits in dong at insured institutions. This is also one of the factors contributing to anti-dollarization, improving people's confidence in the national currency. This solution will also contribute to minimizing exchange rate risk due to asymmetry in currencies between assets and sources for the banking system in Vietnam.
It is undeniable that the efforts of the DIV in recent years have made an important contribution to ensuring the safety of the financial-banking system and increasing people's confidence. But the activities of the DIV are not outstanding, and the role of the DIV needs to be clearly shown in the process of restructuring credit institutions. The supervision and examination of insured institutions of the DIV have yet to achieve the expected effect.
To further enhance the role of risk management for the system of credit institutions and actively participate in the process of restructuring weak credit institutions, it is necessary to pay attention to the following issues: Raising the deposit insurance coverage limit; strengthening the coordination between the DIV, the Ministry of Finance and the SBV in exchanging and handling information and situations; participating in restructuring weak credit institutions; supervising risks of insured institutions in accordance with international standards to warn early of risky activities; assigning the supervisory tasks of the DIV to avoid overlapping with other agencies and ministries with the same function.
International integration opens up many opportunities for domestic credit institutions to exchange, learn experiences, and transfer new technologies from foreign banks. However, as the integration deepens, the probability of systemic risk tends to increase because the links between credit institutions become tighter through investment and cross-ownership activities. Therefore, the DIV needs to promote further its role of maintaining customers’ confidence and focus on good implementation of risk management, contributing to keeping the CIs system stable.
