MZ 1

Commercial
Banking
Management
Bank Capital Management
Group 5
Outline Content
Part 1: Theoretical disucussion Part 2: Practical discussion
1. Definition of capital 1.Introduce about MB Bank
2.Two - tired system 2.The bank capital management of MB

Bank
3.Capital adequacy requirements under
Vietnam’s prevailing regulation
4.Issues in capital management for managing

bank stability and prosperity
Part 1
1.Definition of capital
For many financial firms the word capital has a special meaning. It refers
principally to the funds contributed by the owners of a financial institution.
• In the case of a bank this means the stockholders- investors in the
common and preferred stock that a financial firm has issued.
• In the case of banking's closest competitors, the thrift institutions, the
"owners" may be stockholders if the thrift is a corporation
• May be its customers in the case of a credit union or mutual savings
bank.
Inconclusion
• The term capital in the financial-services field refers to funds
contributed principally by the owners- money invested in a financial
firm and placed at risk in the hope of earning a competitive return
• And, capital is the ultimate line of defense against failure, giving the
financial firm time to respond to the risks it faces and return to
profitability again. Capital also supplies long- term money to get a new
financial institution started, provide a base for future growth, and
promote public confidence in each financial firm.
2. Two - tired capital system:
The Basel III Agreement on capital requirements:
Tier 1 (core) capital is considered the highest Tier 2 (supplemental) capital represents a secondary layer
quality capital and provides the most of capital that provides additional loss absorption capacity
Includes: for a bank.
• common stock and surplus Include:
• undivided profits (retained earnings) • The allowance (reserves) for loan
• qualifying noncumulative perpetual preferred • Lease losses
stock • Subordinated debt capital instruments- Mandatory
• minority interest in the equity accounts of convertible debt
consolidated subsidiaries • Intermediate-term preferred stock
• elected identifiable intangible • Cumulative perpetual preferred stock with unpaid
• Assets less goodwill and other intangible assets dividends
• Equity notes and other long-term capital instruments
that combine both debt and equity features.
Basel III stipulated that for a bank to qualify as adequately capitalized it must have:
• Ratio of Core Capital (Tier 1) to Risk Weighted Assets (RWA) must Be At Least 6%
• Within the Tier 1 capital, there is a requirement for Common Equity Tier 1 (CET1) capital,
which should be at least 4.5% of RWA.
• Ratio of Total Capital (Tier 1 and Tier 2) to Risk Weighted Assets Must Be At Least 10.5%
• The Amount of Tier 2 Capital Limited to 100 Percent of Tier 1 Capital
3. Capital adequacy requirements under
Vietnam’s prevailing regulation
• Under Vietnam’s prevailing regulation, banks and foreign

bank branches are required to maintain a minimum
Capital Adequacy Ratio (CAR) of 8 percent of total risk -
weighted assets. This regulation is outlined in Circular
No. 41/2016/TT-NHNN, which aligns with Basel II C: Own capital
standards.
• However, currently many commercial banks in Vietnam Risk-Weighted Assets (RWA): Assets are
adjusted based on their risk level.
have been implementing Basel III according to the
minimum requirements such as VIB, TP Bank, MSB, Capital Requirements for Operational Risk
SeABank, LBBank. (KOR): The capital needed to cover operational
risk.
Capital Requirements for Market Risk (KMR):

The capital needed to cover market risk.
4. Issues in capital management for managing bank stability
and prosperity
Credit risk Capital adequacy Liquidity risk Operational Risk Market risk
Is a fundamental Banks need to hold Banks need to have Operational risk as Banks are involved
concern in capital sufficient capital enough liquid the risk of loss due in trading activities
management for bank (reserves) to absorb assets (easily to inadequate or and hold investment
stability and losses from convertible to cash) failed internal portfolios. These
prosperity. It's the risk unexpected events to meet their short- processes, people, expose them to
that borrowers default like loan defaults or term obligations and systems or due market risks like
on their loans, economic (deposits, to adverse external changes in stock
causing the bank to downturns. withdrawals). events. prices, exchange
lose the principal rates, or bond yields.
amount and
potentially interest
earned.
Part 2: Practical
discussion
Bank capital management of one

commercial bank in Vietnam
I. Introduce about MB Bank
• MB Bank is Military Commercial Joint Stock Bank, often referred to as

Military Bank and its abbreviation is MB.
• MB Bank was established on November 4, 1994. Up to now, MB Bank's

charter capital is 52,871 billion VND.
• MB is the pioneer bank to meet Basel II standards in the Vietnamese market.
• And now, MB Bank is implementing Basel III according to the roadmap.

II. The bank capital management of MB Bank:
According to the Information Disclosure Report according to Pillar 3 Basel II as at

June 30, 2023
• At the time of reporting, MB has 07 subsidiaries, of which 02 are insurance

enterprises excluded when calculating the consolidated capital adequacy ratio,
including: Military Insurance Corporation (MIC) and MB Ageas Life
Insurance Company Limited.
1.Capital adequacy ratio
Unit: Million
• As at 31th December 2023, MB reported Capital Adequacy Ratio at 10.75%

on a capital base of VND99.130.305.000.000 in consolidated and
VND93.322.786.000.000 in separate.
• Capital Adequacy Ratio is calculated automatically by designated software
built based on Circular No. 41/2016/TT - NHNN dated 30 December 2016 on
Capital Adequacy Ratio for branches of foreign banks, namely Basel II.
2. Credit risk
2.1. Credit risk according to credit rating
Unit: Million
2.2. Asset according to credit risk and 2.3. Risk - weighted assets by sectors:
counterparty credit risk
Unit: Million
2.4. Risk - weighted assets before and after
applying risk mitigation
Unit: Million
Through the above data, the total assets group calculated by credit risk and
counterparty credit risk accounts for the highest proportion of total assets with
credit risk. Next comes the group risk - weighted assets by sectors.
• MB has issued a full system of regulatory
documents related to credit granting activities
and credit risk management
Credit risk
management strategy
• MB strengthens the identification of
concentrated risks and takes effective
management measures to disperse risks,
minimizing arising risks that affect credit
quality, liquidity, income and core activities. of
MB and the Group
• Credit risk management process: includes 04 main

steps (1) Risk identification, (2) Risk
measurement, (3) Risk monitoring, (4) Risk
control
3. Operational risks
Unit: Million
• MB Bank has a high level of operational
risk, with total operational risk assets
accounting for more than 80% of total risk
assets.
Your paragraph text • The highest operational risk is concentrated

in the IC Component, related to the bank's
traditional business activities.
Operation risk
• Information technology risk management management strategy
• Fraud risk management
• Outsourcing risk management
• Business continuity management (BCM)

4. Market risks
Unit: Million
Interest rate risk:
• MB Bank has a high proportion of interest rate
sensitive assets (such as loans and securities):
• This group accounts for the highest proportion of
total assets calculated by market risk (accounting
for 70.77%).
• Interest rate fluctuations can significantly affect
the value of this asset group and thereby affect
MB Bank's profits.
• MB develops a system of policies, processes,
regulations and comprehensive instructions for risk
management. The market risk limit system is fully
established according to international standards Market risk
including:
- Open status limit (NOP);
- Stop-loss limit (Stop — loss)
management strategy
- Sensitivity limits (PV01 – delta, gamma, vega);
- VaR limit
• The market risk management process is
implemented in a closed manner through 04 main
steps (1) Risk identification, (2) Risk measurement,
(3) Risk monitoring, (4) Risk control
Thank You For
Listening!

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Commercial

2.Two - tired system 2.The bank capital management of MB

4.Issues in capital management for managing

• Under Vietnam’s prevailing regulation, banks and foreign

Capital Requirements for Market Risk (KMR):

Bank capital management of one

• MB Bank is Military Commercial Joint Stock Bank, often referred to as

• MB Bank was established on November 4, 1994. Up to now, MB Bank's

• MB is the pioneer bank to meet Basel II standards in the Vietnamese market.

• And now, MB Bank is implementing Basel III according to the roadmap.

According to the Information Disclosure Report according to Pillar 3 Basel II as at

• At the time of reporting, MB has 07 subsidiaries, of which 02 are insurance

• As at 31th December 2023, MB reported Capital Adequacy Ratio at 10.75%

• Credit risk management process: includes 04 main

Your paragraph text • The highest operational risk is concentrated

• Outsourcing risk management

• Business continuity management (BCM)

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