Private joint stock banks have higher efficiency in using assets

27-Nov-2020 Intellasia | BizLIVE | 6:02 AM Print This Post

Under the strong impact of the Covid-19 pandemic, 2020 is considered a difficult year for both the economy in general and the banking industry in particular. However, the business results in the first nine months of the year still showed positive profit numbers.

In addition to profit figures, the more specific point that the market is interested in is the performance of banks, seen through some indicators such as Return on Equity (ROE), Return on Assets (ROA) and Cost to Income Ratio (CIR).

Banks’ profits in the first nine months of the year still increased although the credit growth of the entire industry was only two third of the same period of 2019. This is partly thanks to the flexibility of banks in promoting non-interest activities, including service activities, product cross selling, foreign exchange trading, insurance distribution, securities investment, etc. to minimise the dependence on credit activities.

In addition, the cost reduction is also one of the important goals set by banks in recent years, particularly in the difficult context of the market this year.

BizLIVE’s survey at 23 banks showed that 15 banks recorded decline in CIR in the first nine months of 2020 compared to the same period of 2019.

According to the third quarter (Q3) consolidated financial statement of Viet Capital Commercial Joint Stock Bank (VietCapitalBank), the total operating income of the bank in the first nine months of 2020 was 998 billion dong, up by 20.7 percent compared to the same period of last year. Meanwhile, the operating costs were cut by four percent. The bank’s CIR, accordingly, sharply fell from 76.5 percent in the first three quarters of 2019 to 61.1 percent in the same period of 2020. This is an important factor that helped the bank’s net profit in the first nine months of 2020 increase by up to 63.7 percent over the same period of 2019, reaching 110 billion dong.

The financial statement of National Citizen Commercial Joint Stock Bank (NCB) showed that the bank’s total operating income in the first nine months of this year was 948 billion dong, up by 29.6 percent over the same period of last year.

Meanwhile, NCB’s operating costs from the beginning of the year until the end of Q3 of 2020 dropped by 3.8 percent compared to the same period of last year. This make the bank’s nine-month CIR to decrease to 61.3%. Although this number is still fairly high compared to the average level, it has improved sharply compared to the 82.6 percent recorded in the same period of last year.

Similarly, at Vietnam Prosperity Commercial Joint Stock Bank (VPBank), the operating costs in the first nine months of 2020 declined by 5.7%, while the total income rose by 7.5%, helping the bank record a surge in after-tax profit of up to 30.6%, reaching 7.516 trillion dong.

Basically, the lower the CI, the more efficient the bank’s operation, because it costs less to generate a single dong of revenue. However, this sometimes is also temporary. For example, if a bank is in an investment period, its CIR will increase. However, in the long term, this investment will help the bank lower operating costs, thereby pulling CIR down.

Statistics showed that the ratio of costs to average income in the first nine months of 2020 was 49.1%, significantly improved compared to the 51.1 percent in the same period of last year.

Up to six out of 23 banks posted CIR of less than 40%. In particular, most members in the top 10 banks with low CIR recorded good profit growth in the first nine months of 2020.

Obvious differentiation in efficiency

Considering the asset exploitation efficiency, Vietnam Technological and Commercial Joint Stock Bank (Techcombank) is having the highest ROA in the surveyed group with 2.2%, which means that for each 100 dong of assets, the bank’s shareholders will receive 2.2 dong of profit. This number has improved considerably compared to the 2.06 percent in the same period of last year.

This ratio was also improved in the second leading bank in the group VPBank with ROA reaching 1.9 percent (1.69 percent in the same period of last year). Vietnam International Commercial Joint Stock Bank (VIB) and Military Commercial Joint Stock Bank (MBB) both held the third position with ROA of 1.6%.

A low ROA is a result of an inefficient investment or lending policy, or excessive operating costs. Conversely, a high ROA reflects the bank’s reasonable asset structure, and effective business and asset investment policy.

The given indicators showed that the efficiency in using assets currently belongs more to private joint stock banks. Large state-owned banks, despite having large total assets, only have a middle-level ROA, in which the ROA in the first nine months of 2020 was 1.1 percent in Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank), 0.7 percent in Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank), and 0.4 percent in Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV).

Meanwhile, considering the efficiency in using capital, Vietnam International Commercial Joint Stock Bank (VIB) is having the highest ROE among the 23 surveyed banks with ROE in the first nine months of 2020 reaching 21.5%. This number is much improved compared to the 20.1 percent that the bank achieved in the same period of 2019.

TPBank ranks the second with ROE of 17 percent (slightly down compared to the 17.1 percent in the same period of 2019), closely followed by Asia Commercial Joint Stock Bank (ACB) with 16.9 percent (19.2 percent in the same period of last year).

VPBank and HCM City Development Commercial Joint Stock Bank (HDBank) also have good ROE of more than 16%, higher than the same period of last year.

Meanwhile, Kien Long Commercial Joint Stock Bank (Kienlongbank) or Viet Capital Commercial Joint Stock Bank (VietCapitalBank) are currently in the bottom with ROE of only three percent and 2.9%, respectively.

 

Category: Finance, Vietnam

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