Green credit represents a global trend within the financial industry, with particular relevance to Vietnam’s finance and banking sector. It aims to achieve a balanced and harmonious development that fosters green growth and sustainability, promoting harmony between the economy and the environment.

Acknowledging the significance of green credit, SHB is increasingly prioritizing growing green credit while integrating social and environmental risk management practices into in credit extension activities.

SHB has issued internal regulations for integrating social and environmental management practices into its credit assessment procedures, making socio-environmental risk assessment a compulsory component in the credit approval process for customers. This evaluation enables SHB to identify clients with environmentally sustainable initiatives and projects characterized by minimal social and environmental risks, thereby facilitating their financing. Additionally, SHB offers support and guidance to clients in implementing measures and action plans to mitigate, minimize, or eliminate adverse social and environmental impacts associated with their business ventures. This approach aims to encourage clients to transition towards cleaner, safer, and more environmentally friendly production and business practices.

In 2023, with guidance and assistance from IFC experts, SHB finalized regulations concerning social and environmental risk management in lending activities with small and medium-sized enterprises. These regulations were crafted to align with both the requirements of the State Bank of Vietnam and the assessment standards set by the IFC. Additionally, SHB entered into a collaboration agreement with ADB to implement a consultancy package aimed at developing a social environment risk management system for trade finance. Through the support of both IFC and ADB, SHB anticipates enhancing the effectiveness of its social and environmental risk management system in credit extension activities, gradually reaching international practices and standards.

In the coming time, SHB will persist in enhancing its policy frameworks, regulations, and assessment criteria concerning social and environmental risks, with guidance from IFC and ADB. Additionally, SHB will bolster training initiatives for personnel tasked with managing and evaluating socio-environmental risks to enhance implementation proficiency. These endeavors aim to optimize socio-environmental risk management, thereby fostering sustainable growth in green credit.

The risk due to incomplete or faulty internal processes, human factors, errors, system failures or external factors causing financial losses or non-financial negative impacts to SHB (including legal risks) is defined as operation risk.

SHB has fully implemented the operational risk management framework to align with Circular 13/2018/ TT-NHNN requirements and international standards. In 2023, SHB focused on executing Risk Assessment Processes for various areas such as pre-issued regulations, processes, products, e-banking activities, and outsourcing, while also assessing the efficacy of control points within the Bank’s processes and activities. Apart from its annual training sessions, SHB conducted a series of programs aimed at transferring knowledge of risk identification and assessment to Line 1 Units at the Head Office, providing direct operational risk management insights to unit managers. Furthermore, SHB developed newsletters and videos on operational risks for Customer Service officers, intensified warnings about fraud, counterfeiting, and the misappropriation of high-tech assets for customers, and conducted tests throughout the year to assess potential transaction interruption scenarios for Business Units, including testing the alternate operation of the Core system at the data center (DC-DR).

Information Technology (IT) risk is the possibility of loss when performing activities related to information systems. IT risks relate to management and use of hardware, software, communications, system interfaces, operations and people.

The IT department at SHB is organized with an operating model according to ITIL (Information Technology Infrastructure Library) standards. SHB fully complies with the State Bank’s safety and security regulations, and has applied international security standards to improve internal IT system security (ISO 27001:2013, PCI DSS, 3D Secure, SWIFT CSCF Security Framework).

In 2023, SHB made significant progress by transitioning services to the cloud environment, enhancing user experience, offering round-the-clock services, and mitigating IT risks. Throughout the year, SHB formulated and executed regulations and risk assessment processes for its IT infrastructure, conducting risk evaluations for critical IT systems and bank projects.

Market risk encompasses the potential for adverse fluctuations in interest rates, exchange rates, stock prices, and commodity prices within the market. SHB confronts two primary types of market risks: interest rate risk and exchange rate risk. The Bank has established and fortified a comprehensive system of policy documents, regulations, and processes for managing market risk. These guidelines delineate the steps involved in identifying, measuring, monitoring/control, and reporting on market risks, as well as outlining the responsibilities of relevant units in market risk management.

In conjunction with the centralized management of interest rate and exchange rate risk at the Head Office, SHB has instituted a comprehensive framework of market risk limits for management. These include status/portfolio limits, teller limits, loss/stop loss limits, and sensitivity limits. Market risk limits undergo periodic reviews, at least annually, or irregularly in response to significant market fluctuations. Measurement of market risk is conducted utilizing methods and systems such as Open position, PV01 sensitivity, and profit and loss assessment based on market value (MtM), along with VaR risk assessment. These measurement methods and tools are subject to regular review and refinement to accurately assess risks, aligning with market conditions and SHB’s business landscape in each respective period.

Liquidity risk is the risk of not being able to fulfill debt obligations when due, or being able to fulfill debt obligations when due but having to pay costs higher than the average cost of the market.

SHB advocates diversifying mobilized capital sources and mobilization terms to increase liability stability; Maintain a reasonable balance between assets and liabilities, ensuring enough highly liquid assets. Mobilization plans are built and monitored safely and effectively in each period based on each unit’s business plan and the overall strategy of the entire bank, ensuring daily liquidity and in case of crisis. SHB promotes diversification in sourcing and terms of capital mobilization to enhance the stability of liabilities, while also maintaining a prudent balance between assets and liabilities, ensuring an adequate reserve of highly liquid assets. Mobilization plans are devised and monitored in each period, aligning with the business plans of each unit and the overarching strategy of the Bank as a whole. This approach ensures daily liquidity and preparedness for potential crises

SHB has established and implemented liquidity risk limits, including: maximum net cash flow, solvency ratio, LDR ratio, and the ratio of short-term capital to medium and long-term loans. Daily measurement and monitoring of liquidity risks are conducted. Furthermore, SHB has successfully implemented liquidity risk management in accordance with Basel III standards (LCR, NSFR), which was reviewed and validated by KPMG in 2023.

Interest rate risk in the banking book is a risk due to adverse fluctuations of interest rates on the bank’s income, asset value, liability value and off-balance sheet commitment value. To mitigate this risk, SHB maintains a prudent balance in the term structure/revaluation period between assets and liabilities. This is achieved by applying appropriate base interest rate policies to determine loan interest rates, thus mitigating potential interest rate risks such as repricing risk and basis risk.

SHB issues and applies bank book interest rate risk limits tailored to the scale and complexity of its business operations and risk tolerance. These include limits on interest rate gap and net interest income (NII). The Bank assesses interest rate risk for both VND and foreign currencies, valued at 5% or more of total assets, using methodologies and indicators such as interest rate gap sensitivity, evaluation of interest rate fluctuations on NII and economic value of equity (EVE). Additionally, SHB determines the required capital for bank book interest rate risk management using the Delta EVE method, in line with Basel III guidelines.

Through activities that strengthen cooperation with international banks, SHB has established mechanisms to control anti-money laundering efforts in compliance with both domestic and international regulations, meeting international standards. This facilitates collaboration with international banks, enhancing the correspondent banking system and increasing revenue from international payment transactions. The control mechanisms in place include regularly updating lists of sanctioned countries, sectors, and currencies by each nation; issuing warnings and recommendations regarding correspondent relationships with high-risk banks or those not meeting anti-money laundering and counter-terrorist financing requirements. To date, SHB has not had any international payment transactions frozen due to sanctions violations.

SHB also enhances customer transaction monitoring to detect suspicious or illegal activities. The Bank has developed an automated system to monitor customer transactions based on pre-established scenarios. All customer transactions are automatically reviewed, and suspicious or illegal activities are flagged. These alerts are thoroughly investigated and immediately reported to relevant state authorities when necessary. Additionally, SHB widely disseminates information about illegal tactics to its staff to minimize risks for both customers and the Bank.