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Which bank has the lowest Cost-to-income ratio?

Which bank has the lowest Cost-to-income ratio?

Friday 18, 10 2019
CIR is one of the important indicators to evaluate the business performance of banks. Statistics from 27 banks show that there is a clear differentiation between CIR among banking groups, and major banks tend to have lower CIR.
Profits can be an indicator to determine the rankings of banks. However, to assess more equitably the performance of each bank, there are many other criteria, including an important indicator which is the ratio of operating expenses to total operating income (the cost to income ratio – CIR).

The lower the CIR is, the more effective the bank is and the less operating costs it uses to generate a single revenue. Usually, the bigger bank will have lower CIR than the smaller banks. However, CIR is sometimes very timely. For example, increasing investment in technology, in the beginning, will lead to higher operating costs, which will lead to higher CIR, but in the long run when that investment effectively reduces operating costs, helping to improve CIR.
Statistics from 27 banks show that CIR has a clear differentiation among banking groups, ranging from 30% to more than 80%.

The banks with the lowest CIR include BIDV (32%), VietinBank (35%), Techcombank (35%), Vietcombank (37%), VPBank (36%) and MBBank (38%). These are also the most profitable banks in the system.

Banks with average CIR of 40-60% include VIB (42%), OCB (43%), TPBank (44%), HDBank (47%), ABBank (49%), and ACB ( 50%), MSB (54%),etc.
Meanwhile, there are banks with operating costs accounting for more than 60% such as Saigonbank (62%), Sacombank (63%), ... or up to over 80% like NCB (84%).

It can be seen initially that low CIR is mainly in big banks. However, there are exceptions, such as SCB and Sacombank, the two largest private banks with CIR of 78% and 63% respectively.

In the first 6 months of 2019, 11 out of 27 banks had a decrease in CIR compared to the same period in 2018, including VietinBank, Vietcombank, MBBank, VIB, TPBank, PGBank, LienVietPostBank, SeABank, MSB, Sacombank.

In which, in the group of low CIR banks, VietinBank was the most impressive when it decreased from 41% to 35%. In the context of very low credit growth, the bank increased its non-credit income and efforts to save costs, helping profit still grow in the first half of 2019.

Similar to VietinBank, MSB also improved its CIR from 60% to 54% thanks to the reduction in operating costs from over VND 1,000 billion to VND 989 billion. The remaining 9 out of 11 banks were able to reduce CIR mainly due to the higher revenue growth than the increase in operating expenses.

HDBank's CIR is also constantly improving and is currently among the top 10 listed banks with the best CIR. The bank's own CIR is at 43% while the consolidated CIR, including consumer finance, is 47%. This improvement shows that the bank's labor productivity is getting higher and higher while managing operating costs better.

Meanwhile, the majority of other banks have increased CIR. At Techcombank, the increase in CIR is quite understandable when the total operating income increased only slightly by 5% because there is no abnormal income as in the same period of 2018 (from TechcomFinance sale). Meanwhile, the operating expenses of this bank still increased to 31%. According to the bank's leader, the cost increases because the bank is in the process of a large investment in technology, unable to immediately optimize the cost.

In VPBank, CIR increased from 32% to 36% due to a significant increase in operating expenses (28%). Similar to Techcombank, VPBank has spent a lot of money to invest in digital banking. For the parent bank alone, CIR increased slightly from 40.5% to 41.3%. The subsidiary FE Credit increased from 29% to 31%.

While CIR of Techcombank, VPBank, ACB, etc. has increased slightly (an increase of less than 5%), many other banks such as Eximbank, BaoViet Bank, SCB, ... increased sharply due to declining revenue. Specifically, Eximbank's CIR increased from 54% to 66%, BaoVietBank increased from 45% to 71%, SCB increased from 46% to 78%.

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