Legal Documents Regulating Cars of Vietnam's Tctd System

2.2.2. Macro factors

Banks' capital decisions are not only affected by banking factors but can also be affected by legal mechanisms, national institutions, tax and accounting regimes, markets, financial structures and business cultures. In particular, business cycles, inflation rates, economic growth rates, real exchange rates, etc. are macroeconomic factors that have a certain impact on banks' CAR (Babihuga, 2007). In addition, according to Schaeck and Čihák (2007), banks tend to maintain higher capital ratios when operating in a more competitive environment and vice versa. In economies that rely on banks, there is less competition from the capital market and therefore, banks will have lower capital ratios.

The correlation between business cycle and CAR varies across countries depending on income and the depth of financial system. A country with lower income and less developed financial system will have higher CAR than higher income countries during economic downturns (Babihuga, 2007).

2.2.2.1. Economic growth rate

GDP growth rate is one of the most commonly used macroeconomic indicators reflecting the growth rate of the economy, as it is a measure of the overall economic activities in the economy. GDP growth rate, calculated as the annual change in GDP, is used as a measure of macroeconomic performance. GDP growth rate is a popular indicator reflecting the 'standard of living' of each country (Yanne et al., 2007). Among the macroeconomic factors, GDP growth rate has a significant impact on the CAR of banks. Most studies, when examining the impact of macroeconomic factors, show that GDP growth rate has an impact on the CAR of banks.

Banks can change their capital levels to adapt to changes in risk arising from changes in the economic environment. During economic downturns, economic activities are less efficient, affecting the quality of banks' assets, especially increasing bad debts. In general, during economic downturns, banking activities face many risks and losses, which "erode" bank capital. Therefore, banks can take preventive measures by holding more capital. In addition, banks that rely on credit ratings to access capital markets may also need to increase capital to maintain their ratings during recessions. During periods of growth, when risks are low, banks can hold less capital.

Thus, the relationship between CAR and GDP Growth Rate is negative (Wong et al., 2005).

However, according to Brewer III et al. (2008), there may be a positive relationship between economic growth and bank CAR. During economic downturns, bank bad debts increase and create losses that reduce bank capital. During periods of economic growth, there is less risk, more efficient banking operations, and higher growth. Therefore, banks have a basis to set a target to increase capital ratios.

2.2.2.2. Inflation rate

High inflation represents an increase in the total price of goods and services, resulting in a decrease in the purchasing power of money. When inflation is high and unexpected, it can cause damage to the economy. High inflation often transfers resources from lenders and savers to borrowers because borrowers can repay their debts with less valuable money.

The inflation rate is determined based on the general consumer price index (CPI). This shows that, as the inflation rate increases, the cost of borrowing becomes more expensive, which worsens the quality of the loan portfolio and threatens the capital adequacy of banks. Therefore, macroeconomic stability is essential to maintain financial market stability and not erode bank capital. When the inflation rate is low, credit market disturbances can be “unbound”, so that inflation does not distort information flows or interfere with resource allocation and growth (Azariadas & Smith (1996); Choi et al. (1996)).

Thus, rising inflation interferes with the ability of the “financial sector to allocate resources efficiently”. The relationship between inflation and banking sector development, especially bank capital adequacy, is negative (Boyd et al., 2001).

Empirical studies by Shaddady & Moore (2015); Williams (2011); Akhter & Daly (2009), Mili et al. (2014) used the annual change in consumer price index (CPI) to measure the impact of inflation on bank CAR and found an inverse relationship between inflation and CAR.

2.2.2.3. Interest rate

Interest rate fluctuations make bank management more difficult because the future value of assets and liabilities becomes uncertain. Since most of a bank's assets are financed by short-term debt, interest rate fluctuations increase the risk of insolvency. As a result of these changes,

Banks have to cope with a more unpredictable and competitive environment (Grullon et al., 1997).

According to Demirguç-Kunt & Detragiache (1997), higher lending rates can adversely affect the ability of borrowers to repay loans. High lending rates lead to higher rates of bankruptcy and high lending risks, which increase the risk for banks. This can negatively impact the capital adequacy of banks, as many borrowers are unable to repay their debts. Therefore, when considering the impact of interest rates on CAR, studies often focus on lending rates. Studies by (Bahihuga, 2007), Williams (2011), Mili et al. (2014) examined the impact of lending rates on banks' CAR through the average lending rate. The results showed an inverse relationship between average lending rates and CAR.

2.2.2.4. Exchange rate

An increase in the exchange rate indicates a decrease in the value of the domestic currency relative to foreign currencies. The exchange rate is a measure of the inflation-adjusted value of the domestic currency relative to a weighted average of a number of foreign currencies. The impact of exchange rate changes on the CAR of banks through profits depends on the scale of the bank's operations in foreign currencies. The impact of exchange rate on CAR depends on the proportion of the bank's assets in foreign countries. For banks with a large number of foreign stocks and assets, when the exchange rate increases, the bank's CAR will be larger and vice versa. For banks with a small number of foreign stocks and assets, when the exchange rate increases, the CAR will be lower and vice versa (Bahihuga, 2007).

In addition, the negative relationship between exchange rate and CAR implies that an increase in real exchange rate reduces foreign direct investment in the banking system and thus reduces bank CAR (Williams (2011); Mili et al. (2014)).

2.2.2.5. Industry capital adequacy level

When assessing the financial strength of a bank, the market and rating agencies can assess the bank's capital adequacy relative to other banks. Therefore, commercial banks often maintain a higher CAR to differentiate themselves from other banks. Banks use their capital as a signal to compete with banks of the same size in the market (Wong et al., 2005). This is how banks use it to change the supervisory agency's perception of the bank in a positive way. Therefore, the higher the average CAR of the industry, the more pressure there is on commercial banks to increase their CAR.

Thus, the overall capital adequacy level of the industry has a certain influence on bank managers in raising capital. Each bank always tries to have a capital ratio that is consistent with the average level in order to send a positive signal to the market and the management agencies (Alfon et al. (2004), Mohamed Romdhane (2012)).

2.2.2.6. Pressure from capital safety regulations

Banks are obliged to comply with capital regulations to ensure safety and soundness in banking operations such as minimum CAR regulations. Minimum CAR can be prescribed for banks or for individual banks depending on the regulations of each country. In case of violation of regulations, banks will be subject to penalties. Therefore, pressure from regulations is an important factor affecting the capital safety of banks.

However, if regulations are not strictly controlled (poor market discipline), regulations may not have much impact on banks' capital levels, banks may not raise capital at higher levels. Thus, regulatory pressure depends on market discipline. Regulatory capital requirements and banks' perceptions of supervision and regulatory violations may influence banks' capital decisions. Depending on the legal and regulatory requirements and supervisory behavior toward capital violations, the level of regulatory intervention, banks may maintain CARs higher than required to reduce the risk of violation. In addition, banks with CARs close to the minimum regulatory requirements respond to changes in regulations more strongly than other banks (Wong et al., 2005).

Regulatory pressure can be assessed in several ways: regulatory pressure reflects the impact of capital ratio fluctuations on the probability of non-compliance with regulatory requirements (Ediz et al, 1998); or regulatory pressure is measured using the Rapid Correction Action Classification (Aggarwal and Jacques, 1998).

CONCLUSION OF CHAPTER 2

In Chapter 2, the Thesis has systematized the theoretical basis of capital safety of commercial banks: different views on capital safety, the role of capital safety, requirements for capital safety as well as theoretical views on factors affecting capital safety.

Capital safety regulations are objective practical requirements aimed at ensuring safe and sound banking operations. When banking operations are not limited to the scope of a country but are international, capital safety regulations must also be unified, in accordance with international practice. Therefore, although the Basel Capital Agreements are not legal and not mandatory, they have become international capital standards that banking systems of different countries apply to different degrees depending on the specific conditions of each country in each period.

Ensuring capital safety means that commercial banks must maintain a sufficient level of capital to cover losses when risks occur, ensure the safety of depositors as well as ensure the safety of the bank to avoid/limit the risk of bank bankruptcy, affecting the banking system as well as the economy. Therefore, management agencies require commercial banks to ensure the maintenance of the minimum CAR as required. When commercial banks ensure the minimum CAR as required, it means that the operation of commercial banks is safe.

However, ensuring CAR is not a simple matter for commercial banks as CAR regulations are increasingly strict, complicated and affected by many factors: (i) micro factors and (ii) macro factors of the economy.

CHAPTER 3

CURRENT STATE OF CAPITAL SAFETY AND FACTORS AFFECTING CAPITAL SAFETY OF VIETNAMESE COMMERCIAL BANKS

3.1. Current status of capital safety

3.1.1. Vietnam's legal regulations on capital safety

To ensure the safety and soundness of the banking system, the State Bank of Vietnam has issued regulations on the operations of the banking system, especially regulations on capital safety. Based on international standards on safety in the operations of the banking system in general and capital safety in particular, Vietnam has issued a series of legal documents with specific regulations on capital safety such as: regulations on charter capital, regulations on tier 1 capital safety ratio, regulations on capital safety ratio. In which, the regulation on capital safety ratio is the most concerned regulation, due to the scope of impact and the complexity of the capital safety ratio. Therefore, within the scope of the thesis, the author mainly focuses on regulations on capital safety ratio.

The Vietnamese banking system has been gradually perfecting its capital safety regulations in accordance with international practices and standards. The roadmap for implementing international capital safety standards for banks has been clearly stated in the development orientation of the banking system in Vietnam in the coming time.

Table 3.1 Legal documents regulating CAR of Vietnam's credit institution system

Legal documents

Year of issue	Year of implementation	CAR Regulations
Decision 297/1999/QD-NHNN5 381/2003/QD-NHNN (amending and supplementing a number of articles and clauses of Decision 297/1999/QD - NHNN5)	August 27, 1999	September 9, 1999	CAR is calculated as Equity over Assets. - Equity includes charter capital and reserve fund to supplement charter capital. - Assets include on-balance sheet risky assets and off-balance sheet risky assets. - CAR ≥ 8% - Risk coefficient: 0%; 20%; 50%; 100%
Decision 457/2005/QD-NHNN	April 19, 2005	5/6/2005	CAR is calculated as Equity over Assets. - Equity is calculated as Tier 1 capital plus Tier 2 capital minus deductions. - CAR ≥ 8% - Risk coefficient: 0%; 20%; 50%; 100%
Circular 13/2010/TT-NHNN	May 20, 2010	10/1/2010	CAR≥ 9% - Risk coefficient: 0%; 20%; 50%; 100% and 250%
Circular	November 20, 2014	1/2/2015	CAR≥ 9%

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• Pre-tax Profit of Bidv Tien Giang in the Period 2011-2015 zt2i3t4l5ee zt2a3gsnon-credit services, joint stock commercial bank zt2a3ge zc2o3n4t5e6n7ts At that time, the Branch had to set aside a provision for credit risks, which reduced the Branch's income. Chart 2.2. Pre-tax profit of BIDV Tien Giang in the period 2011-2015 Unit: Billion VND 140 120 100 80 60 40 20 0 63.3 80.34 89.29 110.08 131.99 2011 2012 2013 2014 2015 Profit before tax (Source: Report on the implementation of the annual business plan of the General Planning Department of BIDV Tien Giang [24]) However, through chart 2.2, it can be seen that BIDV Tien Giang's profit is still increasing continuously, and its operating efficiency is currently leaking. This is a contribution of non-credit services, and this service segment will be increasingly focused on growth by BIDV Tien Giang to ensure the highest profit safety because credit activities have many potential risks. At the same time, focusing on developing non-credit services is consistent with one of the contents of restructuring the financial activities of credit institutions in the project "Restructuring the system of credit institutions in the period 2011-2015" approved by the Prime Minister in Decision No. 254/QD-TTg dated March 1, 2012 [14]: "Gradually shifting the business model of commercial banks towards reducing dependence on credit activities and increasing income from non-credit services". 2.2. Current status of non-credit service development at BIDV Tien Giang. 2.2.1. BIDV Tien Giang has deployed the development of non-credit services in recent times. Along with the development of the Head Office, BIDV Tien Giang's products and services are constantly improved and deployed in a diverse manner to ensure provision for many different customer groups in the area: individual customers, corporate customers, and financial institutions. Typical services are as follows: Payment services, treasury services, guarantee services, card services, trade finance, other services: Western Union, insurance commissions, consulting services, foreign exchange derivatives trading, e-banking services,... 2.2.1.1. Payment services: In accordance with the Prime Minister's Project to promote non-cash payments in Vietnam [15], banks in Tien Giang province have continuously developed payment services to reduce customers' cash usage habits through card services and electronic banking services such as: salary payment through accounts, focusing on developing card acceptance points, developing multi-purpose cards, paying social insurance by transfer, paying bills through banks, etc. Chart 2.3. Net income from payment services in the period 2011-2015 Unit: Million VND 6000 5000 4000 3000 2000 1000 0 3922 4065 4720 5084 5324 2011 2012 2013 2014 2015 Net income from payment services (Source: Report on the implementation of the annual business plan of the General Planning Department of BIDV Tien Giang [24]) Along with the technological development of the entire system, BIDV Tien Giang has a payment system with a fairly stable transaction processing speed, bringing many conveniences to customers. The results of observing chart 2.3 show that the income from payment services that the Branch has achieved has grown over the years but the speed is not high and the products are not outstanding compared to other banks. Domestic payment products such as: Online bill payment, electricity bills, water bills, insurance premiums, cable TV bills, telecommunications fees, airline tickets, etc. bring many conveniences to customers. Regarding international payment, this is an indispensable activity for foreign economic activities, BIDV Tien Giang is providing international payment methods for small enterprises producing agriculture, aquatic food and seafood that have credit relationships with banks in industrial parks in Tien Giang province such as: money transfer, collection, L/C payment. 2.2.1.2. Treasury services: BIDV Tien Giang always focuses on ensuring treasury safety and currency security, always complies with legal regulations, and minimizes risks in operations such as: counting and collecting money from customers, receiving and delivering internal transactions, collecting from the State Bank (SBV) or other credit institutions, receiving ATM funds, bundling money, etc. BIDV Tien Giang's treasury service management department is always fully equipped with modern machinery and equipment such as: money transport vehicles, fire prevention tools, money counters, money detectors, magnifying glasses, etc. to ensure absolute safety in treasury operations, immediately identifying real and fake money and other risks that may affect people and assets of the bank and customers. In addition, implementing regulation 2480/QC dated October 28, 2008 between the State Bank of Tien Giang province and the Provincial Police on coordination in the fight against counterfeit money, in the 3-year review of implementation, BIDV Tien Giang discovered, seized and submitted to the State Bank of Tien Giang province 475 banknotes of various denominations and was commended by the Provincial Police and the State Bank of Tien Giang province [17]. Chart 2.4. Net income from treasury services in the period 2011-2015 Unit: Million VND 350 300 250 200 150 100 50 0 105 122 309 289 279 2011 2012 2013 2014 2015 Net income from treasury services (Source: Report on the implementation of the annual business plan of the General Planning Department of BIDV Tien Giang [24]) However, as shown in Figure 2.4, income from treasury operations is not high and fluctuates. Specifically, in the period 2011-2013, net income increased and increased most sharply in 2013, then in the period 2013-2015, there was a downward trend. This fluctuation is due to the fact that fees collected from treasury services are often very low and can even be waived to attract customers to use other services. 2.2.1.3. Guarantee and trade finance services: BIDV Tien Giang, thanks to the advantages of the province and the favorable location of the Branch, has continuously focused on developing income from guarantee services and trade finance. Chart 2.5. Net income from guarantee and trade finance services in the period 2011-2015 Unit: Million VND 14000 12000 10000 8000 6000 4000 2000 0 5193 5695 2742 3420 8889 3992 11604 12206 5143 5312 2011 2012 2013 2014 2015 Net income from guarantee services Net income from Trade Finance (Source: Report on the implementation of the annual business plan of the General Planning Department of BIDV Tien Giang [24]) Through chart 2.5, we can see that BIDV Tien Giang's income from guarantee services and trade finance has grown over the years. The reason is: Among BIDV Tien Giang's corporate customers, the construction industry is the industry with the highest proportion of customers after the trading industry, this is a group of customers with potential to develop guarantee services. The second group of customers is corporate customers in the fields of agricultural production, livestock and seafood processing with high import and export turnover in the area. are the target of trade finance development. In addition, BIDV Tien Giang also focuses on continuously developing these customer groups to increase revenue for many other products and services in the future. 2.2.1.4. Card and POS services: As a service that BIDV Tien Giang has recently developed strongly, it can be said that this is a very potential market and has the ability to develop even more strongly in the future. Card services with outstanding advantages such as fast payment time, wide payment range, quite safe, effective and suitable for the integration trend and the Project to promote non-cash payments in Vietnam. Cards have become a modern and popular payment tool. BIDV Tien Giang early identified that developing card services is to expand the market to people in society, create capital mobilized from card-opened accounts, contribute to diversifying banking activities, enhance the image of the bank, bring the BIDV Tien Giang brand to people as quickly and easily as possible. BIDV Tien Giang is currently providing card types such as: credit cards (BIDV MasterCard Platinum, BIDV Visa Gold Precious, BIDV Visa Manchester United, BIDV Visa Classic), international debit cards (BIDV Ready Card, BIDV Manu Debit Card), domestic debit cards (BIDV Harmony Card, BIDV eTrans Card, BIDV Moving Card, BIDV-Lingo Co-branded Card, BIDV-Co.opmart Co-branded Card). These cards can be paid via POS/EDC or on the ATM system. In addition, with debit cards, customers can not only withdraw money via ATMs but also perform utilities such as mobile top-up, online payment, money transfer,... through electronic banking services. In order to attract customers with card services, BIDV Tien Giang has continuously increased the installation of ATMs. As of December 31, 2015, BIDV Tien Giang has 23 ATMs combined with 7 ATMs in the same system of BIDV My Tho, so the number of ATMs is quite large, especially in the center of My Tho City, but is not yet fully present in the districts. Basic services on ATMs such as withdrawing money, checking balances, printing short statements,... BIDV ATMs accept cards from banks in the system. Banknetvn and Smartlink, cards branded by international card organizations Union Pay (CUP), VISA, MasterCard and cards of banks in the Asian Payment Network. From here, cardholders can make bill payments for themselves or others at ATMs, by simply entering the subscriber number or customer code, booking code that service providers notify and make bill payments. Chart 2.6. Net income from card services in the period 2011-2015 Unit: Million VND 3500 3000 2500 2000 1500 1000 500 0 687 1023 1547 2267 3104 2011 2012 2013 2014 2015 Net income from card services (Source: Report on the implementation of the annual business plan of the General Planning Department of BIDV Tien Giang [24]) Through chart 2.6, it can be seen that BIDV Tien Giang's card service income is constantly growing because the Branch focuses on developing businesses operating in industrial parks, which are the source of customers for salary payment products, ATMs, BSMS. Specifically, there are companies such as Freeview, Quang Viet, Dai Thanh, which are businesses with a large number of card openings at the Branch, contributing to the increase in card service fees [25]. Table 2.6. Number of ATMs and POS machines in 2015 of some banks in Tien Giang area. Unit: Machine STT Bank name Number of ATMs Cumulative number of ATM cards POS machine 1 BIDV Tien Giang 23 97,095 22 2 BIDV My Tho 7 21,325 0 3 Agribank Tien Giang 29 115,743 77 4 Vietinbank Tien Giang 16 100,052 54 5 Dong A Tien Giang 26 97,536 11 6 Sacombank Tien Giang 24 88,513 27 7 Vietcombank Tien Giang 15 61,607 96 8 Vietinbank - Tay Tien Giang Branch 6 46,042 38 (Source: 2015 Banking Activity Data Report of the General and Internal Control Department of the Provincial State Bank [21]) Through table 2.6, the author finds that the number of ATMs of BIDV Tien Giang is not much, ranking fourth after Agribank Tien Giang, Dong A Tien Giang, Sacombank Tien Giang. The number of POS machines of BIDV Tien Giang is very small, only higher than Dong A Tien Giang and BIDV My Tho in the initial stages of merging the BIDV system. Besides, BIDV Tien Giang has a high number of cards increasing over the years (table 2.7) but the cumulative number of cards issued up to December 31, 2015 is still relatively low compared to Agribank, Vietcombank, Dong A (table 2.6). div.maincontent .content_head3 { color: black; font-family:"Times New Roman", serif; font-style: normal; font-weight: bold; text-decoration: none; font-size: 14pt; } div.maincontent .p { color: black; font-family:"Times New Roman", serif; font-style: normal; font-weight: normal; text-decoration: none; font-size: 14pt; margin:0pt; } div.maincontent p { color: black; font-family:"Times New Roman", serif; font-style: normal; font-weight: normal; text-decoration: none; font-size: 14pt; margin:0pt; } div.maincontent .s1 { color: black; font-family:"Courier New", monospace; font-style: normal; font-weight: normal; text-decoration: none; font-size: 14pt; } div.maincontent .s2 { color: black; font-family:"Times New Roman", serif; font-style: italic; font-weight: normal; 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• System of Documents and Internal Regulations on Operational Risk Management of Vietnam Joint Stock Commercial Bank for Industry and Trade
• Credit risk management at Vietnam International Commercial Joint Stock Bank - Hanoi Branch - 12
• Improving business efficiency of Vietnam Technological and Commercial Joint Stock Bank - 2
• Developing lending to small and medium enterprises at Vietnam Joint Stock Commercial Bank for Industry and Trade - Bac Ninh Branch - 12

Legal documents

Year of issue	Year of implementation	CAR Regulations
36/2014/TT-NHNN			- Risk coefficient: 0%; 20%; 50%; 100% and 150% - Market risk and operational risk are not yet taken into account in total risk-weighted assets.
Circular 06/2016/TT-NHNN	May 27, 2016	7/1/2016	CAR≥ 9% - Risk coefficient from 0%; 20%; 50%; 100% and 200% Market risk and operational risk are not yet taken into account in total risk-weighted assets.
Circular 41/2016/TT-NHNN	December 30, 2016	1/1/2020	CAR≥ 8% - CAR is calculated as equity over total risky assets. - CAR takes into account both credit risk and risk operations and market risk.

Source: State Bank (1999, 2005, 2014a, 2016a, 2016b)

In 1999, the State Bank of Vietnam issued Decision 297/1999/QD-NHNN5, the first legal document officially regulating CAR, followed by Decision 457/2005/QD-NHNN. However, the regulations on CAR in these Decisions were quite simple and did not meet the basic standards of Basel I. There was even confusion about the calculation of Equity Capital in Decision 297/1999/QD-NHNN5, Equity Capital was determined by charter capital and reserve fund to supplement charter capital. Due to this confusion combined with difficulties in banking operations at that time, many banks did not meet the minimum CAR of 8%. On the other hand, during this period, compliance with CAR regulations was not given much attention and was not closely monitored.

Banking activities in Vietnam during this period revealed many limitations and weaknesses in both financial capacity and management capacity. Meanwhile, in 2007, Vietnam began to open its economy, creating conditions for foreign enterprises, especially foreign credit institutions, to participate in the domestic market. The participation of foreign credit institutions in the domestic market has created opportunities for Vietnamese commercial banks to access modern banking technology but also posed many difficulties and challenges for the Vietnamese banking system. It requires the Vietnamese banking system to improve its competitiveness through improving financial capacity, management capacity... To improve competitiveness, it is necessary to first ensure safety and soundness in banking activities, towards international standards, ensuring an equal business environment between domestic and foreign credit institutions. The global financial crisis in the period of 2008-2010 once again showed that banking activities increasingly contain many potential risks.

risks, safety regulations require increasingly stricter.

Therefore, for banking management agencies such as the State Bank, it is necessary to complete policy regulations towards international standards. Therefore, to supplement the shortcomings in Decisions 297 and 457 on capital adequacy ratio and towards international standards on capital adequacy Basel II, the State Bank of Vietnam has issued documents replacing these Decisions such as: Circular 13/2010/TT-NHNN, Circular 36/2014/TT-NHNN (Circular 06/2016/TT-NHNN, amending and supplementing a number of articles of Circular 36) and most recently Circular 41/2016/TT-NHNN.

Currently, commercial banks in Vietnam must calculate CAR according to Circular 36 and must ensure a minimum CAR of 9% and a minimum Tier 1 capital ratio of 4%. CAR of commercial banks in Vietnam is calculated by equity capital over total risk-weighted assets. The minimum Tier 1 capital ratio is calculated by Tier 1 capital over total risk-weighted assets. In which, equity capital is determined by the total of Tier 1 capital and Tier 2 capital minus deductions, and total risk-weighted assets are total assets adjusted for credit risk.

Thus, the calculation of CAR according to Circular 36 has ensured the standards of Basel I but not the standards of Basel II. Because according to Circular 36, CAR has not taken into account operational risks and market risks, and has not fully reflected the level of credit risk because it has not taken into account the customer rating level, the calculation of Tier 1 capital, Tier 2 capital and deductions is not completely in accordance with Basel II.

According to the set roadmap, Vietnamese commercial banks are moving towards implementing Basel II capital safety standards, stipulated by Circular 41/2016/TT-NHNN. The calculation of CAR according to Circular 41 will begin to be applied to the entire banking system in Vietnam from January 1, 2020. According to Circular 41, banks must ensure a minimum CAR of 8% and CAR is calculated according to Basel II standards, meaning CAR takes into account credit risk, operational risk and market risk instead of calculating CAR according to previous regulations (Circular 36) - CAR only takes into account credit risk. However, the regulations on CAR in Circular 41 only ensure the basic regulations of Basel II. Therefore, the implementation and calculation of CAR in Vietnam has its own characteristics that are different from other countries.

Compared with Circular 36, Circular 41 has some differences in the calculation of CAR as follows:

First, the difference in the way of calculating Equity according to current regulations (Circular

36) compared with circular 41.