Chapter 5 - The foundation of Tech

Risk management

“Advanced risk management capability enables us to mitigate and diversify our risk across different business segments. With this strong foundation, we successfully enhance our customers’ experience and engagement, while strengthening our end-to-end credit management.”

Nguyen Thu Lan

Acting Chief Risk Officer

Overview

Significant investment saw us raise our compliance and risk management capability to new industry standards, while ensuring operational resilience throughout both financial and non-financial risk management functions.

In the third year of Techcombank’s five-year strategy, with a vision to ‘Change banking, Change lives’, Risk Management Division (RMD) continued to achieve great progress. In line with requirements of the Bank’s regulators and stakeholders, we aimed to:

Improve risk management and oversight capacity by actively building up the risk management framework of Techcombank and our subsidiaries
Use data, analytics applied into modelling, and systems to optimise credit underwriting and controls with higher accuracy and efficiency
Strengthen the model risk management framework, including developing and enforcing new policy and standards Bank-wide
Diversify credit portfolios to create an optimal mix along risk, return and long-term sustainability dimensions.

While aiming for the highest standards of compliance and transparency, we exposed current and emerging risks and devised ways to deal with them.

2023 Highlights

We are the first bank in Vietnam to have all financial crime compliance management modules on the cloud.

Liquidity risk management

We made significant progress in liquidity management, getting closer to achieving Basel III standard:

We developed and upgraded our asset-liability management (ALM) forecasting system to ensure our net stable funding ratio (NSFR), liquidity coverage ratio (LCR) and behaviour-adjusted cash flow were adequate for both business-as-usual and stress conditions.
We continuously upgraded our liquidity stress test assumptions and scenarios during the year, so they reflect all stress factors and ensure the Bank’s systems are fit-for-purpose at different risk thresholds. These tests play an important role in strategically optimising our balance sheet.
Liquidity fire-drills were also held periodically to strengthen the capability of functional units across the Bank when responding to stress events. We used what we learned to upgrade the Bank’s liquidity contingency plan in line with our changing business model and organisational structure, and market practice.
We also developed and applied a variety of customer behaviour models to see how they affected figures like CASA, term deposit and others. This is an advanced level of liquidity risk management.

Interest rate risk in the banking book and market risk

Interest rate risk in the banking book

In 2023 we took a big leap forward in the way we manage interest rate risk in the banking book (IRRBB). Our new, more holistic approach applies and monitors three types of risk:

Repricing risk
Basis risk
Option risk

Managing market risk and counterparty credit risk

These 10D VaR and stressed VaR (SVaR) models will be used by business units in 2024 to:

Calculate the reserve capital required for market risk, based on an internal models approach (IMA) to Basel II.5 standards
More accurately capture the trading book’s risk profile.

The IMA should ensure the Bank has enough capital to cover potential losses, and improve resilience in our trading activities.

Operational risk management

The way we manage operational risk has improved markedly through proactive development and application of solutions aimed at protecting customer benefits when they transact with us. These include:

Minimising the risk of fraud from international financial criminals who attempt account takeover, card fraud or other forms of transaction fraud via vigilant monitoring and prevention strategies through a Proactive Fraud Risk Management System
Strengthening early operational risk identification and offering backup solutions so our platforms offer stable and continuous service for both individual and corporate customers.
Reducing technological risks by enhancing the security of information, both on-premise and on-cloud – we are the first bank in Vietnam to have all financial crime compliance management modules on the cloud.

Model risk management

In 2023, TCB formally adopted Model Risk Management (MRM) practices, building on groundwork laid in 2022. We've expanded these efforts to:

Establish comprehensive bank-wide MRM regulations
Ensure the significance of model risk is recognised bank wide
Standardise our model definitions
Outline the model approval and governance process, based on model tiers

We've also put in place a Model Governance Standard, which includes a:

Uniform approach to model inventory
Guidance for identifying models
Method for classifying models by tier and category
Clear definitions of model lifecycle stages and responsibilities and RACI framework.

Internal capital adequacy assessment process (ICAAP)

The internal capital adequacy assessment process (ICAAP) compares required capital to projected supply under various scenarios, including severe macroeconomic conditions. It is performed annually or on an ad hoc basis in response to microeconomic and macroeconomic conditions, or portfolio developments.

2024 Focus

As part of the Bank’s five year strategic transformation journey, RMD will keep improving how the Bank’s risk management performance aligns with local and international standards. This includes adopting regional Basel standards, but also parts of Basel III in the four main risk areas:

Market
Liquidit
Credit
Operational

We will continue to leverage our advanced data and model capabilities to improve our accuracy at predicting and preventing adverse events, and explore possibilities to improve productivity across RMD.

We will research, plan, then implement the internal liquidity adequacy assessment process (ILAAP) so the Bank always has sufficient funds available to meet demand, at a reasonable cost.

We will improve our ability to comply with the capital rules for wholesale trading activities that are set out in Basel III’s Fundamental Review of the Trading Book (FRTB). We continue to be the pioneering bank in Vietnam striving to meet both SBV and Basel III guidance.

To manage operational risk, we will continue our strong investment in minimising application fraud as well as enhance technology transformation in operational risk management to optimise processes and products, thereby increasing benefits for customers.