The Covid-19 pandemic has had a significant impact on the business performance of banks. However, the early promotion of digital transformation has helped banks control costs, improve operational efficiency and achieve desirable growth in profits.

Digital transformation helps improve bank's business efficiency amid the pandemic.
Photo: ST

Optimizing labor productivity

Digitizing banking operations is becoming a common trend with the participation of most banks. According to the State Bank, 95% of credit institutions have been developing a digital transformation strategy, 39% have approved a digital transformation strategy or integrated it into an information technology business development strategy.

In the next three to five years, 58% of banks expect more than 60% of customers to use digital channels and more than 44% of banks expect a customer growth rate of over 50%. It is estimated that digitization helps banks save up to 60-70% of costs.

The financial statements for the second quarter of 2021 have shown a very positive improvement in the cost control of banks.

For example, at Orient Commercial Joint Stock Bank (OCB), the cost-to-income ratio (CIR) has decreased from approximately 30% in the same period last year to only 28.1% - among the lowest in the industry.

OCB said that increasing investment in technology has helped the bank optimize labor productivity, thereby improving operational efficiency. Specifically, OCB's operating expenses in the second quarter of 2021 only increased by 15% compared to the same period in 2020, while total operating income increased by approximately 40%.

ACB even reduced operating expenses to only VND1,592 billion in the second quarter of 2021, a decrease of approximately 10% compared to the same period last year, while the bank's total operating income strongly increased 52%, reaching VND6,220 billion. This result has helped ACB's CIR drop sharply from 43% in the second quarter of 2020 to only 25.5%.

At TPBank, operating expenses also increased by 6.91% in the first half of this year, much lower than the increase in revenue. The CIR index also fell sharply from 43% at the end of June 2020 to only 36% at the end of the second quarter of this year.

At Sacombank, total operating income in the second quarter of 2021 reached more than VND4,744 billion, up 33%, while operating expenses increased only 18%, at VND2,336 billion. Accordingly, Sacombank's CIR in the second quarter of 2021 was 49.2%, down sharply from 55.4% in the same period in 2020.

Many other banks also recorded a strong improvement of CIR such as VIB down from 42% to only 37%; Techcombank from 33.3% to 28.4%; MB from 34.7% to 32.5%; and VPBank decreased from 31% to 23.4%.

More customers, more cheap capital

Not only helping to control costs, digital transformation opens the playing field for banks in non-cash payment.

In particular, the implementation of electronic identification technology (eKYC) facilitates the opening of bank accounts during the pandemic, thereby promoting strong growth of online payments.

Techcombank said that in the first half of 2021, the bank attracted nearly half a million new customers, bringing the total number of customers to 8.9 million. The volume and value of electronic transactions of individual customers increased by 94.5% and 122.5% respectively over the same period last year.

According to VPBank, by the end of June 2021, the bank's customer file had reached 19 million, of which the parent bank alone was 5.2 million and FE Credit had more than 14 million customers. The rate of new customers opening accounts through digital channels reached 73%, double the same period last year. The number of online transactions also increased by 200%, OCB also recorded an increase in the rate of online payment transactions by more than 30% in the first half of this year.

According to experts, non-cash payment accounts have brought banks a significant amount of demand deposits (CASA) - which have very low interest rates, commonly below 1%, even almost zero, thereby reducing deposit costs and improving net profit margin (NIM).

For example, at Techcombank, the CASA ratio reached 46.1% as of June 30, 2021.

CASA balance increased by 55.1% over the past 12 months and reached VND133.4 trillion. Demand deposits of individual and corporate customers increased by 56.9% and 52.3% respectively over the same period last year. As a result, Techcombank's NIM in the second quarter of 2021 increased by 157 percentage points over the same period last year, to 5.9%. Notably, Techcombank's NIM has increased for nine consecutive quarters and is especially high in the past four quarters.

As a result, Techcombank's income from interest and the like increased by 31.5% in the second quarter of 2021, while interest and similar expenses decreased by 20.6% year-on-year, net profit increased by 67%.

Techcombank has planned to reduce lending rates and transaction fees and prepayment fees to support customers affected by Covid-19 in the second half of 2021. The reduction is up to 1.5% for existing loans of affected customers and 1% on new loans for all business customers and some individual customers. Even so, SSI Research believes that the bank's NIM will still increase thanks to improved capital costs and has decreased significantly in the first six months of 2021.

Similarly, MB also recorded an increase in CASA to 40% (compared to 37% at the end of the first quarter of 2021), helping the average deposit rate continues to decrease to 2.8% (compared to 2.88% in the previous quarter of 2021). As a result, MB's net interest income reached VND6.6 trillion in the second quarter of 2021, up 42% over the same period in 2020.

VPBank's CASA ratio also increased to 18.8% at the end of the second quarter of 2021, significantly higher than 15.5% at the end of 2020.

In a recent banking industry report, ACBS Securities said that banks' NIMs improved significantly since the third quarter of 2020 thanks to a decrease in deposit interest rates by about 200 basis points due to overcapacity of excess liquidity. The social distancing promotes online payments, thereby helping to increase the proportion of CASA and help the bank's capital cost to decrease sharply.

In the long term, ACBS believes that NIM still has room for improvement as CASA continues to grow thanks to accelerating the digitization process and promotional campaigns to promote online transactions.