TPBank deploys advanced Basel III level

Having reached Basel III standard, TPBank continues to raise this standard to a higher level when deploying capital according to internal ranking method (basic and advanced).

The Bank has just held a kick-off ceremony for the Basel III Capital Calculation project based on both Basic and Advanced Internal Ratings (FIRB & AIRB). Attending the event were representatives of the State Bank, the Safety Supervision Department of the system of credit institutions, and representatives of KPMG Co., Ltd - the project implementation partner.

The implementation of IRB not only helps the bank to optimize capital costs, but also contributes to improving governance capacity when applying IRB's results to business operations. One of the most prominent applications of IRB is in credit management activities such as limit determination, loan valuation, performance measurement. In parallel, it is proactive portfolio management according to risk levels, risk-adjusted returns and the bank's taste for each specific risk portfolio, thereby contributing to capital allocation decisions. and effective capital planning/strategy. In addition to these applications, TPBank will continue to research and apply the results of IRB during the implementation of the upcoming project to further improve the bank's risk management capacity.

At the event, Mr. Le Trung Kien - Deputy Director of the Safety Supervision Department of the Credit Institutions System, highly appreciated TPBank's orientation and initiative when implementing the Basel III project.

According to Mr. Kien, applying standards in developing the system of credit institutions, besides scale development, technology is the foundation to maintain and ensure the safety of the banking system. This project with a short goal completion schedule as outlined will be a big challenge for TPBank, but when successful, it will create a new step in risk management, increasing core values for a long time. long.

Ông Lê Trung Kiên - Phó cục trưởng Cục Giám sát an toàn hệ thống các tổ chức tín dụng phát biểu tại sự kiện. Ảnh: TPBank

Basel refers to the banking supervision treaties issued by the Basel Committee on Banking Supervision with the objective of enhancing financial stability through improving the quality of banking supervision worldwide. In particular, the Basel III Agreement sets forth the key requirements on capital and liquidity management. The higher the standard, the more demanding on capital, along with the mandatory application of a larger reserve buffer to reduce operational risk. With the previous standard approach (SA), a bank's assets were assigned fixed risk weights, which were specifically assigned to different asset classes based on their respective levels of risk. This helps banks ensure liquidity ratios, leverage and sufficient capital reserves to adapt to market fluctuations and withstand economic shocks.

"However, the ability to reserve more capital than necessary is an under-optimized point of this method because it directly affects the profitability and profitability of the bank," a TPBank representative shared.

Meanwhile, the IRB allows banks to use their own internal risk management models and practices to self-assess the risk components and exposure of their asset portfolios to calculate The capital requirement calculation is more accurate than the simple risk-weighted percentage specified by the SA. Instead of applying a rigid level of risk weight like the old method, estimating risk parameters through specific models helps to measure risk more accurately, most closely reflecting the level of risk. risk of each customer/loan and offers the opportunity to save capital if the bank has a good credit portfolio.

Đại diện TPBank và các khách mời, đối tác tại lễ khởi động dự án tính vốn theo Basel III của TPBank. Ảnh: TPBank

In November 2021, TPBank announced that it had completed all the requirements of Basel III and IFRS 9 and put it into full operation from the fourth quarter. At that time, TPBank was the first Vietnamese bank to be independently reviewed and recognized by a third party, KPMG Vietnam Co., Ltd. In 2022, when many banks in Vietnam are still applying Basel II, TPBank has completed the implementation of Basel III, Basel III Reforms under SA. Until May this year, the bank continued to implement the Basel III Capitalization Project based on the internal rating method (FIRB & AIRB).

To perform calculations under IRB, the bank must meet the requirements for data quality and model governance. The data used to build IRB models must simultaneously ensure completeness, integrity and reasonableness with a minimum length of 5-7 years, so the bank needs to invest resources to collect data. collect data, build and manage datamarts with very large volumes of data. At the same time, the large number of models that need to be built, monitored and verified also requires the bank to have a strong model management framework with a team of highly qualified personnel.

The data collection and construction of IFRS-9 expected credit loss assessment models previously verified by an independent third party - Ernst & Young Malaysia - revealed quantitative patterns in the system. All internal measurement systems are of good quality, creating a favorable foundation for TPBank to continue to research, develop, build and calibrate PD, LGD, and EAD models according to IRB - Basel III. In addition, this bank has put into use advanced technologies such as AI algorithms, machine learning... to support model building and management.

According to a bank representative, in order to do this, the bank must sacrifice profits in the short term to solve the problem of large investment costs, especially investment in information technology systems, processing data, application of advanced algorithms as well as costs for recruiting, training and maintaining high-quality personnel to meet the bank's requirements.

"TPBank's development orientation is to become one of the leading banks in complying with and applying international risk management standards in practice. We have a sufficient background from technology, data and technology. high-quality data and personnel to continue implementing IRB capital calculation this year," shared Mr. Nguyen Hung, CEO of TPBank.

Also according to the bank's representative, the application of these advanced international standards requires much effort and expense, and self-limits their activities according to the strict requirements of the standards.