TPBank has a LiveBank model, which provides basic services of a transaction office. Many banks have cut their costs to income ratio thanks to digital transformation. (Photo courtesy of TPBank) The financial report for the first quarter of 2023 of VietinBankshowed the bank’s positive business results were greatly contributed to by thegood control of expenses. The bank’s CIR was cut to 25.3% from 27.2% in thesame period last year. Thanks to the cost reduction, the bank’s net profit frombusiness activities reached more than 12.7 trillion VND, up 24% over the sameperiod of 2022.
At VIB, the CIR ratio dropped sharply from 35.3% to 31.8% in Q12023. The good cost control helped VIB's net operating profit reach 3.36trillion VND in Q1 2023, up 25.6% over the same period last year.
ACB is also one of the banks that reduced significantly the CIRratio in the first quarter of this year from 40% to 31.6%. The bank's operatingexpenses also fell 8% year-on-year to 2.5 trillion VND while operating incomeincreased by 15.6% to 7.92 trillion VND.
Statistics from the financial statements of 28 banks in Q1 2023showed their current CIR ratio had a significant difference. Effective bankssuch as VIB, ACB, Techcombank and MB had with average CIR around 30% whileother banks were less effective with operating expenses accounting for nearlyhalf of the total income.
Not only in 2023 but reducing CIR is a long-term goal of banks asit is an important indicator that measures how the bank's resources are used.The lower the CIR ratio is, the better the bank operates. Vice versa, thehigher this ratio is, the higher the bank has operating costs which becomes aburden to narrow its profitability.
In fact, reducing operating costs is very difficult because bankshave to continuously invest to expand their scale and increase customerexperience. Therefore, the problem is that the bank will have to find a way sothat the growth of costs is lower than income. It means their investment hashigh efficiency and optimise their operational efficiency. This requires adrastic reform of the operating model of banks. In recent years, banks havepoured a lot of money into technology investment and consider digitaltransformation as one of the decisive keys to reducing CIR.
Typically, TPBank has a LiveBank model, which provides the basicservices of a transaction office. The bank’s automated transaction points havemuch lower investment and operating costs than traditional transaction offices,but are still highly efficient as they can reach many users and operate 24/7.
VIB has pioneered in the application of AI technology, biometricsand many other outstanding technologies, such as cloud–native and augmentedreality (AR), to enhance customer experience. The strong investment intechnology early on has helped this bank rapidly grow the retail segment. Thetransaction rate on digital channels at VIB currently reaches 93%. While thecost per transaction on digital banks is much lower than in transactionoffices, it has helped the bank to optimise operations.
Digital transformation has also helped improve banks’ employeeproductivity, reduce paperwork and shorten processes. Instead of massivelyrecruiting like in the past, banks have also focused on training personnel andattracting talent to improve the productivity of each employee.
Effective investment in technology, infrastructure and people topromote growth will help cut the CIR ratio in the long term, which is thedriving force for the banks’ sustainable growth./.
VNA
