SBV eyes new measures to curb systemic risks in financial sector

SBV eyes new measures to curb systemic risks in financial sector

In a draft Circular now under consultation, the central bank outlines measures to identify, assess and contain systemic risks in the monetary, banking and financial sectors.

SBV warned weak and non-transparent bank-subsidiary ties could fuel fraud and threaten financial stability. — VNA/VNS Photo

The State Bank of Vietnam (SBV) has cautioned that risks arising from subsidiaries could spill over to parent banks, endangering the stability of the financial system.

In a draft Circular now under consultation, the central bank sets out measures to identify, assess and prevent systemic risks in the monetary, banking and financial sectors.

The draft proposes monitoring five main areas.

First, systemic risks may stem from domestic and global macro-economic and financial conditions, including the real economy, credit flows, external balances and fiscal policy.

Second, risks will be assessed through macro-safety indicators such as excessive credit growth and leverage, credit concentration, liquidity risks and weaknesses in the financial and banking system.

Third, the review will examine how risks spread within the financial system, through links among banks or with other sectors such as securities, insurance, investment funds, enterprises, households and especially the real estate market.

Fourth, scenario analysis will be used to measure the impact of policy changes or sudden economic and financial shocks.

Fifth, stress tests will be conducted every six months, annually, or at the request of the SBV Governor.

According to the SBV, this work is vital as Việt Nam’s banking sector still plays a central role in supplying capital for economic growth. At the same time, credit institutions are expanding into insurance, securities, financial leasing and investment funds. This broader reach creates more connections and therefore more chances for risks to spread.

The bank also warned that weak or non-transparent ties between parent banks and subsidiaries could enable financial fraud. If left unchecked, such risks could trigger a breakdown of the financial system and cause lasting damage to the economy. 

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