Cost to Income ratio (CIR) is one of the important indicators in addition to Return on Equity (ROE), Return on Assets (ROA), Net Interest Margin (NIM), etc. to evaluate business performance of banks.
Basically, the lower the CIR, the less operating expenses, and the more effective the bank is. Normally, the CIRs of bigger banks are often lower than small banks’. At some point of time, if a bank increases investment in technology, the costs of operation will increase and thus lead to the increase in CIR. However, in the long term, the effective investment will reduce operating costs and help improve CIR.
Statistics from 27 banks show that there is a clear differentiation in CIR among banks, ranging from 30 percent to more than 80 percent.
Banks with the lowest CIR include Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV, 32 percent), Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank, 35 percent), Vietnam Technological and Commercial Joint Stock Bank (Techcombank, 35 percent), Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank, 37 percent), Vietnam Prosperity Commercial Joint Stock Bank (VPBank, 36 percent), and Military Commercial Joint Stock Bank (MBBank, 38 percent). These are also the most profitable banks in the system.
Banks with average CIR of 40-60 percent include Vietnam International Commercial Joint Stock Bank (VIB, 42 percent), Orient Commercial Joint Stock Bank (OCB, 43 percent), Tien Phong Commercial Joint Stock Bank (TPBank, 44 percent), HCM City Development Commercial Joint Stock Bank (HDBank, 47 percent), An Binh Commercial Joint Stock Bank (ABBank, 49 percent), Asia Commercial Joint Stock Bank (ACB, 50 percent), Maritime Commercial Joint Stock Bank (MSB, 54 percent), etc.
Meanwhile, at some other banks, the operating costs account for more than 60 percent, such as Saigon Commercial Joint Stock Bank for Industry and Trade (Saigonbank, 62 percent), Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank, 63 percent), etc. This ratio is even more than 80 percent at National Citizen Commercial Joint Stock Bank (NCB).
As mentioned in the above, the low CIRs are mainly seen in big banks. However, there are some exceptions, such as Saigon Commercial Joint Stock Bank (SCB) and Sacombank the largest private joint stock banks record CIR of respectively 78 percent and 63 percent.
In the first six months of 2019, 11 out of 27 banks posted CIR decline compared to the same period of 2018, including VietinBank, Vietcombank, MBBank, VIB, TPBank, Petrolimex Group Commercial Joint Stock Bank (PGBank), Lien Viet Post Commercial Joint Stock Bank (LienVietPostBank), Southeast Asia Commercial Joint Stock Bank (SeABank), MSB, and Sacombank.
In the group of banks with low CIRs, VietinBank was the most impressive case with CIR falling from 41 percent to 35 percent. In the context when the credit growth is very limited, the bank has increased revenue from non-credit activities and made efforts to cut costs, maintaining profit growth in the first half of 2019.
Similarly, MSB also managed to reduce CIR from 60 percent to 54 percent thanks to the cut in operating costs from over one trillion dong to 989 billion dong.
The remaining nine out of 11 banks experienced decline in CIR mainly because their revenue grew faster than the increase of operating costs.
The CIR of HDBank has also continuously been improved and the bank is currently one of the top 10 listed banks with the best CIR. The separate bank’s CIR is 43 percent, while the consolidated CIR, including consumer finance segment, is 47 percent. This improvement shows the bank’s increasing labour productivity and better operating cost management.
Meanwhile, the majority of other banks saw CIR increase. At Techcombank, the rise in CIR is understandable because its total operating income only grew slightly by five percent as there was no abnormal income as in the same period of 2018 (thanks to the sale of TechcomFinance). Meanwhile, the bank’s operating costs still increased by 31 percent. According to the bank’s leader, the rise in costs is because the bank is in the process of making large investment in technology and it is unable to immediately optimise the costs.
For VPBank, the CIR rose from 32 percent to 36 percent due to the fairly strong increase in operating costs (28 percent). Similar to Techcombank, VPBank has spent a lot of capital in digital banking investment. For the parent bank alone, the CIR slightly increased from 40.5 percent to 41.3 percent. For its finance company FE Credit, the CIR increased from 29 percent to 31 percent.
While CIRs at Techcombank, VPBank, ACB, etc. recorded slight increase (less than five percent), many other banks saw very large increase in CIR, such as Export Import Commercial Joint Stock Bank (Eximbank), Bao Viet Commercial Joint Stock Bank (BaoVietBank), SCB, etc., due to revenue decline. Specifically, CIR rose from 54 percent to 66 percent at Eximbank, from 45 percent to 71 percent at BaoVietBank, and from 46 percent to 78 percent at SCB.
