Lessons from International Capital Adequacy Assessment Process for Vietnam commercial Banks

Abstract

While Pillar 1 of the regulatory capital framework Basel 2 stipulates capital requirements for credit, market and
operational risk, Pillar 2 focuses on the economic and internal perspective of banks’ capital adequacy. To ensure
capital adequacy, banks are required to have an Internal Capital Adequacy Assessment Process (ICAAP) in
place that enables them to identify, measure and aggregate all material risk types and calculate the economic, or
internal, capital necessary to cover these risks. In addition to this, banks should actively manage their overall risk
profile. The ICAAP is essential to the preservation of financial stability and will be subject to a higher degree of
supervision in the near future. Under the principle of proportionality, requirements for the ICAAP are in line with
banks’ specific characteristics and business models