Implementation of Internal Capital Adequacy and Assessment Process in Vietnamese Commercial Banks

Duong Thuy Nguyen (), Hang Thu Do (), Trang Thi Thu Nguyen () and Ngan Bich Nguyen ()

Asian Economic and Financial Review, 2021, vol. 11, issue 11, 873-893

Abstract: The internal capital adequacy and assessment process (ICAAP) was first introduced in the second pillar of Basel II in 2004 to offset the deficiencies of Basel I and capital adequacy regulations in the first pillar of Basel II. This process is aimed at identifying and measuring risks generated in banks’ activities, and then provides the requirements for internal capital levels and methods to raise capital to deal with these risks. In fact, the implementation of Basel II and ICAAP in Vietnamese commercial banks has attained notable achievements, but it also revealed some major weaknesses. The purpose of this research is to evaluate the implementation of ICAAP in Vietnamese commercial banks in eight components of the ICAAP addressed by Basel II using the survey method and then to simulate the implementation of ICAAP in a Vietnamese commercial bank. From the facts and the simulation of the ICAAP framework in this study, the authors offer some suggestions for Vietnamese commercial banks to implement ICAAP effectively in their banking operations.

Keywords: Internal capital adequacy and assessment process (ICAAP); Basel II; Capital planning; Risk management; Stress test; Vietnamese commercial banks. (search for similar items in EconPapers)
Date: 2021
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