GENERAL INFORMATION

Credit risk is the possibility of a financial loss in banking operations caused by clients failing or unable to fulfill their obligations as committed. A system of credit risk management policies has been developed in line with the following principles: (i) Establish an appropriate credit risk management environment; (ii) credit granting procedure carried out under the close coordination among involved departments; (iii) Identify, measure and monitor risks in each tier of three lines of defense to ensure adequate control over credit risk.

In 2022, the system of credit risk management documentation shall be bettered in line with with the Bank’s business orientation, operational practices and risk management objectives.

Customer assessment and appraisal models are being developed; moreover, an early warning model is initially implemented. In addition, the internal credit rating model is periodically inspected by SHB to enhance its quality. SHB’s loan pricing methods based on risk measures quite similar to Basel IRB better serve informed decision-making process supported by data and statistical models.

SHB E&S risk assessment complies with both the regulatory E&S requirements and taxonomy and guidelines recommended by IFC. The assessment includes the impact of the business plan /project on the environment, labor and working conditions, community health and safety, biodiversity, resettlement, indigenous minorities and cultural heritage.

Monitoring E&S risks is carried out in the periodical customer appraisal after credit extension in order to detect early warnings and minimize arising E&S risks.

In the coming time, SHB will continue to improve the policy framework, regulations, taxonomy related to E&S risks and provide staff with comprehensive E&S risk management training to improve execution capacity and E&S risk management, contributing to sustainable green credit growth.

In 2022, SHB managed operational risk proactively via adopting prevention measures and preparing well for newly arising risks such as: counterfeiting of bank messages (SMS phishing brand name); interruption of operations due to rumors and negative information disclosure related to the bank.

In addition to annual communication and training on operational risk management for employees, in 2022, SHB will strengthen and diversify forms of communication to employees and customers such as building an operational risk manual for Customer Service staff and disseminating more videos warning of various forms of fraud, forgery to Customers,...

In 2022, SHB conducted fire drill at several Branches and Head Office Units, ensuring the availability of backup locations, technology and facilities for remote working as well as testing the alternate operation of the data center and disaster recovery system (DC/DR).

In addition, SHB concentrated on information security, actively monitoring the transmission of data with the support of data loss prevention (DLP) technology.

SHB has implemented cyber security solutions to fully comply with the cyber security regulations prescribed by the SBV. In addition, SHB has applied international cyber security standards and has been certified to comply with the following standards:

• ISO 27001:2013 Standard in 2015
• PCI DSS Card Data Security Standard in 2016
• 3D Secure technology for online transactions of cardholders in 2016
• The Swift Customer Security Controls Framework (CSCF) in 2019

SHB stays updated for the latest global information security trends and adopts flexible measures to limit IT risks.

Market risk: is the risk caused by adverse fluctuations in interest rates, exchange rates, stock prices and commodity prices on the market. SHB faces two main types of market risks: interest rate risk and exchange rate risk. The system of policies, regulations, procedures on market risk management has been consolidated, specifying individual steps from risk identification, measurement, monitoring/control/and report and responsibilities of relevant units.

Along with interest rate risk management policy, centralized exchange rate at Head Office, the Bank has fully applied the market risk limit system such as position/portfolio limit, trader limit, loss/stop loss limit, sensitivity limit, etc. Market risk limits are reviewed at least annually or ad hoc in case of large fluctuations in the market.

SHB has issued and applied liquidity risk limits such as: solvency ratio, Loan-to-deposit ratio (LDR), ratio of short-term funds for medium and long-term loans, total net cash outflow. The limits are evaluated and reviewed annually or on an ad-hoc basis, ensuring compliance with the provisions of law, the market conditions and SHB’s business situation in each period.

Liquidity risk is measured by modeling and the system of liquidity risk indicators such as behavioral model, Gap Maximum cumulative outflow report,... In addition, in 2022, tools to measure liquidity risk conforming to Basel III standards such as Liquidity coverage ratio (LCR) and Net stable funding ratio (NSFR) were adopted.

Along with performing stress tests on liquidity risk every 6 months to quantify risks in different scenarios, SHB measures and assesses compliance with limits to ensure safety. Contingency funding plan (CFP) is in place ensure the ability to pay according to the respective scenarios and circumstances.

SHB issues and applies a limit of bank book interest rate risk in accordance with the size, complexity of business operations and risk appetite as well as the ability to measure and manage bank book interest rate risk, including: Limits on the difference between financial assets and financial liabilities at the same interest rate or repricing gap; Limits on changes in Net interest income (NII) due to changes in interest rates.

SHB measures the bank book interest rate risk for items with interest rates in VND or foreign currencies with a value of 5% or more of total assets through methods and systems of indicators such as: Sensitive Gap interest rate; Evaluation of the impact of interest rate fluctuations on net interest income (NII) and economic value of equity (EVE); Calculation of the required capital for the bank book interest rate risk through the Delta EVE method according to Basel III guidelines.

SHB has developed mechanisms to prevent money laundering in accordance with domestic and international regulatory requirements, meeting the standards of the international banking system, creating necessary conditions for cooperation with international banks, thereby strengthening correspondent banking relationship. Control mechanisms in place include: developing and regularly updating the list of embargoed countries and the areas/currencies embargoed by each country; warnings of banks with high risk or failure to meet requirements on anti-money laundering (AML) and counter-terrorist financing (CTF). So far, no international payment transactions of SHB have been frozen due to violation of embargo regulations.

SHB also strengthens customer transaction monitoring to detect suspicious transactions and illegal transactions. SHB built an automatic system to control customers’ transactions based on pre-set scenarios. All customer transactions will be automatically checked and alerted by the system with transactions showing suspicious signs/violations of the law. The warnings are carefully investigated and immediately reported to the competent state agencies when arising.