Hanoi (VNA) ᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚ- The State Bank of Vietnam(SBV) has issued a new circular to prepare for the application of BASEL IIstandards in the domestic banking system.

Under Circular 41/2016/TT-NHNN issued recently,commercial banks must maintain a capital adequacy ratio (CAR) of at least 8 percentfrom January 1, 2020. The new circular will replace Circular13/2010/TT-NHNN that currently regulates minimum CAR of at least 9 percent forbanks. However, according to the central bank,commercial banks that are capable of implementing the new regulation earlierthan the above date can register to apply earlier. The central bank’s move is aimed to prepare forthe application of BASEL II standards in the domestic banking system. UnderBASEL II standards, minimum CAR is required at 8 percent. According to a recent report from the NationalFinancial Supervisory Commission (NFSC), minimum CAR of the entire bankingsystem this year is estimated at 11.3 percent. However, experts estimate that when the BASEL IIis applied, the current CAR at banks would reduce sharply due to an increase inthe amount of their risky assets. The NFSC also reported that a pilot applicationof BASEL II at 10 banks showed that the CAR at the banks will reduce sharplycompared with the current situation. Taking the four State-owned banks ofVietcombank, BIDV, Vietinbank and Agribank for example, their current CARstands at nearly 9 percent, but it reduces to less than 8 percent when applyingBASEL II standards. Vietnam currently applies Basel I for the bankingindustry. However, the central bank has selected the 10 largest and mostprestigious domestic commercial banks to apply in a pilot phase the BASEL IIstandards. The banks, which will pilot capital and riskmanagement methods according to Basel II standards, is due to complete thepilot run by 2018 and the Basel II application will be then deployed at othercommercial banks in the country. Basel II is a new, higher level for Vietnamesebanks in accordance with Basel Accords standards set by the Basel Committee onBanking Supervision. The application is flexible to different countries but theoverall spirit is tighter regulations on banking operations. Industry insiders said the Basel II applicationin Vietnam would be a challenge for local banks; however, it is a must as it isbelieved to be the best solution to make Vietnamese banks healthier. Le Trung Kien, Deputy Director of the SBV’sDepartment for Banking Operation Safety Policies, said banks would facechallenges in human resources and finance when the Basel II is applied,however, applying Basel II’s standards is a key task listed in the programme oncredit institution restructuring. Besides this, Kien said, "it is essentialfor local banks to apply Basel II when Vietnam integrates with the globaleconomy, as most of other regional banks have, so far, applied Basel II or evenBasel III."-VNA