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After digital transforming, CIR fell at many Commercial Bank

The first 6 months of 2022 business results report of the banking industry continued to record many positive signs, with profits of most members growing well compared to the same period last year.


Besides promoting lending at the beginning of the year to optimize profits, the above positive results also come from banks' ability to control, reduce and effectively use costs. This has also been revealed in the numbers in the first 6 months reports of banks.


A survey of 26 banks showed that most banks (65%) recorded a decrease in the ratio of cost to total income (CIR) in the first 6 months of this year, with a decrease ranging from nearly 1% to 22% higher than the same period last year. The average CIR of the banking group dropped sharply to 38.5%, compared with 40.7% in the same period last year.



Chart: CafeF


SHB's interim merged financial statements showed that the bank's total operating income (TOI) reached nearly VND9.5 trillion, up 25.3% compared to the same period last year.


Meanwhile, consolidated operating expenses (OPEX) in the first 6 months of the year were reduced by 9.4% compared to the same period in 2021, to more than VND 1.9 trillion, mainly thanks to the renewal of the business model, promote information technology system, develop digital banking products and services.


At the end of the first 6 months of the year, the bank's merged cost-to-income ratio (CIR) was only at 20.5%, a sharp decrease compared to 28.4% in the same period in 2021. To generate 100VND of income, SHB only has to spend 20.5VND in expenses. With this result, SHB is currently the bank with the lowest CIR in the system.


At VPBank, by the end of the first 6 months, total operating income increased by 36.6% over the same period, reaching nearly 31.6 trillion VND. Meanwhile, operating expenses only increased by 20.4% over the same period, helping CIR be shortened to 20.6%, a sharp decrease compared to 23.4% in the same period last year and continued to be in the group of banks with the lowest CIR in the system.


According to VPBank's leaders, the main driving force behind the bank's high performance is its strong digitalization strategy that has been implemented over the years. Digital technology also helps banks to better manage, save a lot of human resources, manage risks, and limit losses for the bank.


Following VPBank was VietinBank with an expense-to-income ratio of 27%, down from 28.5% in the same period last year. VietinBank said that increasing investment in technology has helped the bank optimize labor productivity, improving operational efficiency. Specifically, the bank's operating expenses in the first 6 months only increased by 5.1% while total operating income increased by 11.1% over the same period.


Some other banks also have low CIR, including BIDV (27.7%), SeABank (30.3%), Techcombank (30.3%), Vietcombank (31.6%), MBB (32, 6%),…



Chart: CafeF


Among the 26 banks in the survey group, Saigonbank is the bank with the most impressive CIR improvement as it has successfully brought the expense-to-income ratio from a high of 59.6% in the first 6 months of 2021. to 37.4% in the first 6 months of this year, equivalent to a decrease of 22 percentage points. The reason is that the bank's total operating income increased by 36.1% while operating expenses decreased by 14.4% over the same period.


Similarly, at Eximbank, total operating income increased by 50% over the same period while operating expenses only increased by 10.7%, helping to reduce CIR in the first 6 months by 17 percentage points over the same period. At VietBank, CIR also decreased by 10 percentage points, LienVietPostBank decreased by 9 percentage points, SeABank decreased by 8 percentage points, etc.


Digital transformation is the deciding factor

Essentially, a lower CIR ratio shows a more efficient bank, since it costs less to generate a dollar of revenue.


And digital transformation is one of the decisive keys to help reduce the CIR ratio of banks.


Normally, the regulator only allows a few new branches and transaction offices to be opened each year. However, the AutoBank or LiveBank point model operating almost as a transaction office is not limited to open speed and service time.


This helps banks overcome the limitation of expanding the market, and overcome the pressure of annual personnel costs in traditional branches.


Data from a bank shows that the average cost for a transaction at a traditional branch is about 23,000 VND, but with LiveBank it is just over 11,000 VND/transaction, equivalent to a 50% reduction. Even with eBank, it only takes 2%, which is less than 500 VND/transaction.


Similarly, the operating cost (including investment and maintenance) of LiveBank is only 20% of that of a traditional branch.


The application of technology to increase the productivity of AI Chatbot, leading to a 30% reduction in the load on the call center force, or such as voice recognition biometrics technology (Voice Biometrics) has helped reduce 15% of call handling time...


With the above meaning, digital transformation today is no longer a concept, but has become a concrete action that determines the survival and survival of any organization, especially banks. That is also the reason for banks to race to invest in technology for digital transformation.


Besides digital transformation to cut costs, diversifying and creating new services, enhancing experience and increasing convenience, optimizing internal processes, streamlining the apparatus, improving Increasing employee productivity also helps improve the operational efficiency of banks.


However, from another point of view, a high CIR of a bank is sometimes not negative, as with banks in the investment stage, it will increase CIR, but in the long term, this investment will help the bank reduce operating costs, lowering CIR in the future.

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