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Factors Affecting Bidv's Roe in the Period 2007-2018


Table 2.6: BIDV's growth indicators 2007-2018


Year

Total assets

Total equity

Profit after tax

Billion VND

%

Billion VND

%

Billion VND

%

2007

204,511


11,635


1,531


2008

246,520

20.54

13,484

15.89

1,997

30.44

2009

296,432

20.25

17,639

30.81

2,818

41.11

2010

366,268

23.56

24,220

37.31

3,761

33.46

2011

405,755

10.78

24,390

0.7

3,200

(14.92)

2012

484,785

19.48

26,494

8.63

3,281

2.53

2013

548,386

13.12

32,040

20.93

4,051

23.47

2014

650,340

18.59

33,606

4.89

4,986

23.08

2015

850,670

30.8

42,335

25.97

6,377

27.9

2016

1,006,404

18.31

44,144

4.27

6,229

(2.32)

2017

1,201,662

19.4

48,986

10.97

7,060

13.34

2018

1,313,038

9.27

54,693

11.65

7,542

6.83

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Factors Affecting Bidvs Roe in the Period 2007-2018

Source: [22]; same calculation by author

* Profitability indicators (ROA, ROE) of BIDV in the period 2007-2018

Unit: %


60.00

50.00

40.00

30.00

20.00

10.00

- (10.00)

(20.00)

(30.00)

(40.00)

(50.00)

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

ROA

ROA Growth

ROE

ROE growth

Chart 2.11: Business efficiency ROA, ROE of BIDV

Source: [22]; same calculation by author

Through chart 2.11, it can be seen that BIDV has had quite clear fluctuations in ROA and ROE over the years. As mentioned above, profit after tax, total assets and total


The strong fluctuations in equity from 2007 to 2018 directly affected ROA and ROE. The common point of ROA and ROE is that they both had negative growth rates in 2011, 2012, 2016 and 2018. In 2011, the growth rate of after-tax profit was negative while the growth rate of total assets and total equity both showed signs of increasing (although quite small), causing both indicators reflecting the business performance of commercial banks, ROA and ROE, to fall into negative levels (specifically, ROA and ROE were: 26.96%% and 26.73%, respectively). In this year, BIDV's risk provisions increased dramatically, affecting the two indicators of ROA and ROE. In contrast, 2012 marked an increase in after-tax profit and total assets, but ROA continued to decrease. In 2012 alone, the growth of after-tax profit was much lower than the growth rate of total assets, which affected ROA, causing this indicator to decrease compared to the same period last year (the decrease was lower than in 2011). On the other hand, in 2015, although after-tax profit had a relatively high positive growth rate of 27.9% (equivalent to 1,391 billion VND), ROA still tended to decrease. The reason for ROA's decrease this year was the relatively large increase in growth rate, but a very strong increase in the scale of total assets: 200,330 billion VND. 2016 was one of the years with a very large increase in the size of bank assets, but the slight increase in equity as well as the decrease in profit after tax caused both ROA and ROE indicators in this year to decrease, respectively 21.05% and 14.22%. In 2018, BIDV continued to have an increase in total assets, profit after tax and total equity, however, the growth rate of profit after tax only reached 6.83%, lower than the growth of equity and total assets. This is the reason why ROA and ROE in 2018 both showed signs of decreasing compared to the same period in 2017.

BIDV has made great efforts to increase ROA after consecutive decreases in 2011 and 2012. Although ROA in 2013 only had a slight growth rate of 6.42%, this was a year when BIDV had great success in both growth in total assets and profit after tax. However, in the following three years, BIDV's ROA tended to decrease compared to the same period of previous years due to the increase in


balance between total assets and profit after tax. Although the growth rate of profit after tax is quite large, in these two years (especially in 2015 after the merger of MHB), the scale of BIDV's total assets has increased dramatically. This is the reason why in 2014 and 2015, although BIDV's profit after tax still tended to increase, ROA tended to decrease.

2013 was a year of relatively high growth in BIDV's after-tax profit (27.08%), but the growth rate of total equity was only 4.89%, causing ROE to increase by 7.33%. The increase in ROE stopped in 2016 due to the decline in after-tax profit as well as the small increase in equity.

Table 2.7: ROA of 12 major commercial banks in Vietnam

Unit: %


Commercial Bank

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

BIDV

0.75

0.81

0.95

1.03

0.79

0.68

0.74

0.77

0.75

0.62

0.59

0.57

VCB

1.22

1.14

1.54

1.38

1.15

1.07

0.77

0.79

0.79

0.87

0.88

1.39

MB

1.66

1.57

1.7

1.59

1.38

1.32

1.27

1.25

1.14

1.13

1.11

1.81

TCB

1.29

2

1.84

1.38

1.75

0.43

0.41

0.62

0.8

1.34

2.39

2.87

ACB

2.06

2.1

1.31

1.14

1.14

0.04

0.5

0.53

0.51

0.57

0.74

1.67

STB

2.16

1.4

1.61

1.25

1.41

0.66

1.38

1.16

0.22

0.03

0.32

0.46

SCB

1

1.2

0.58

0.46


0.43

0.02

0.04

0.03

0.02

0.03

0.01

SHB

1.03

1.36

1.16

0.97

1.06

1.45

0.59

0.47

0.39

0.39

0.56

0.55

CTG

0.69

1.45

0.53

0.93

1.36

1.23

1.01

0.87

0.73

0.72

0.68

0.48

NCB

0.76

0.52

0.76

0.78

0.74

0.01

0.06

0.02

0.01

0.02

0.03

0.05

HDB

0.88

0.63

1.01

0.78

0.95

0.62

0.25

0.48

0.59

0.61

1.03

1.48

EIB

1.37

0.53

1.73

1.38

1.66

1.26

0.39

0.03

0.03

0.24

0.55

0.43

Source: [20]; [21];[22]; [23]; [24]; [25]; [26]; [27]; [28]; [29]; [30]; [31] same

Author's math

In the period 2007-2018, BIDV only had one year, 2010, with ROA above 1% (specifically 1.03%), while the remaining years had ROA below 1%. This shows that BIDV's business efficiency is only at an average level. When compared with other large commercial banks in Vietnam, BIDV's ROA is still relatively low, especially when compared to Vietcombank, Vietinbank, MB, Techcombank,


ACB - these are commercial banks with ROA over 1% for many years. Of which, MB is the only commercial bank in the 11-year research period that has an ROA over 1%. In the last years of the research period (2016-2018), it is easy to see that the ROA of commercial banks has a downward trend. Among the large commercial banks in Vietnam, only MB and Techcombank achieved high ROA levels in all three years. In 2018, VCB and ACB also recorded a strong increase in ROA. BIDV and other commercial banks in the last 3 years only achieved relatively low ROA levels.

Table 2.8: ROE of 12 major commercial banks in Vietnam

Unit: %


Commercial Bank

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

BIDV

13.16

14.81

15.98

15.53

13.12

12.38

12.64

14.84

15.06

14.11

14.41

13.79

VCB

17.76

18.39

23.61

20.49

14.72

10.64

10.15

10.55

11.8

14.24

16.84

25.15

CTG

10.79

22.73

10.05

18.58

21.81

18.23

10.7

10.37

10.19

11.35

11.71

8.26

MB

14.17

14.88

15.66

17.91

18.6

18.03

15.09

15.11

10.84

10.85

11.79

19.17

ACB

28.12

28.47

21.78

20.52

26.82

6.21

6.61

7.68

8.04

9.42

13.19

27.73

TCB

14.27

21.03

23.21

22.08

25.21

5.76

4.73

7.22

9.29

16.08

23.94

21.5

STB

19.02

12.31

15.84

13.63

13.72

7.31

13.06

12.28

2.93

0.4

5.05

7.48

SCB

9.84

16.52

7.03

5.9


5.67

0.33

0.68

0.52

0.51

0.81

0.04

SHB

28.35

8.61

13.16

11.81

12.91

17.75

8.21

7.55

7.06

6.9

10.42

10.66

NCB

12.95

5.3

12.18

7.76

5.16

0.06

0.56

0.25

0.19

0.34

0.68

1.11

HDB

16.33

3.59

10.8

19.81

12.01

6.04

2.54

5.38

6.4

9.19

12.24

19.03

EIB

7.36

2.01

8.48

13.43

18.64

13.53

4.49

0.4

0.3

2.3

5.78

4.44

Source: [20]; [21];[22]; [23]; [24]; [25]; [26]; [27]; [28]; [29]; [30]; [31] same

Author's math

BIDV's ROE in the 11-year period had three years reaching above 15%, namely: 2009 (15.98%), 2010 (15.53%), and 2015 (15.06%). In the remaining years, ROE was at

below 15%, showing that BIDV's profitability is still quite low. However, when compared with other domestic commercial banks, it is easy to see that BIDV is almost catching up with its competitors, and increasingly affirming that BIDV's profitability tends to surpass the remaining commercial banks. Evidence for the increasing gap between BIDV's ROE and other commercial banks is shown starting from 2012. 2012 is a


The year of great change for banks such as ACB and TCB - commercial banks that previously led in ROE with a ratio of over 20% - has dropped sharply to below 10%. In contrast to the majority of commercial banks under consideration, BIDV has had a strong increase in ROE since 2012, peaking at 15.06% in 2015, leading the commercial banks under consideration. Starting from 2013, the difference in ROE between BIDV and its competitors was only 2.45%. In 2014 and 2015, BIDV increased its profitability, becoming one of the commercial banks with the highest profitability in the Vietnamese commercial banking system. Thus, from 2013 to 2016, BIDV has been in the top 4 commercial banks with the highest profitability in Vietnam for 4 consecutive years. However, the profitability of Vietnamese commercial banks in general and BIDV in particular is still limited, mostly below 15%. In the last 2 years (2017 and 2018), ROE of some commercial banks reached over 20%, including VCB, Techcombank and ACB. While rival commercial banks had impressive growth in ROE, BIDV only reached 13.79% at the end of 2018.

Unit: %


35.00


30.00


25.00


20.00


15.00


10.00


5.00


-

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

NPM

AU

EM

Chart 2.12: Factors affecting BIDV's ROE in the period 2007-2018

Source: [22]; same calculation by author

The three factors NPM, AU and EM have a direct impact on the ROE of commercial banks. In which, NPM represents cost management efficiency, AU represents asset profitability, and EM represents the capital structure of commercial banks. The increase


of the three factors will lead to an increase in ROE and vice versa. Through the chart, it can be seen that BIDV has always made efforts to increase all three factors in 10 years, however, most of the years in the research period still could not ensure the desired target when ROE growth was negative. Each year of ROE decrease comes from different groups of factors. For example, in 2008, the decrease of AU and EM caused ROE to decrease by 0.37%, in 2010, the decrease of AU and EM, in 2011, due to the cause of NPM alone (36.59%), the rate of ROE decrease was the strongest in the 10 years of research (26.73%); in 2012, it was due to NPM and AU; and in 2016, just because of the 20.69% decrease of NPM, ROE decreased by 14.22% compared to the same period in 2015. NPM continued to decrease in the next two years, causing BIDV's ROE in the last two years of the research period to show signs of decrease. In the 7 years of ROE decrease, 6 years had the participation of NPM, which shows that BIDV has not achieved high and stable cost management efficiency. Especially since 2011, after equitization, BIDV's cost management has shown signs of gradual decrease and has only just recovered, not reaching the peak level as before.

In addition, AU and EM also have a relative impact on ROE. BIDV needs to continue to strive to maintain a reasonable level of AU and EM to help increase ROE. EM is an indicator that is gradually increasing, but is not stable, so BIDV also needs to pay more attention to this indicator because it goes hand in hand with the risks that the bank faces. Although higher EM can help increase ROE, it is also a factor that shows that the bank's risks are getting bigger.

* BIDV's Income management efficiency indicators.

BIDV's income comes mainly from interest income and equivalent income. The proportion of this income fluctuates from the lowest level in 2007 at 82.55% to the highest level of 89.4% in 2011. Other operating income is the income with the second highest proportion in BIDV's total income. However, the proportion of this income has shown signs of continuous decrease from 2007 to 2011, gradually recovering from 2012. If in 2007, the proportion of this income was at 10.72%, then by 2011 it was only 2.41% (this is the year with the highest increase in the proportion of interest income). The proportion of other income has shown signs of growth


since 2011 but has not stabilized. During the recovery period, the highest proportion stopped at 6.2% in 2015.

Unit: %


100.00

90.00

80.00

70.00

60.00

50.00

40.00

30.00

20.00

10.00

-

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018


Interest and similar income

Service income

Income from foreign exchange trading Income from trading securities Other operating income

Income from capital contribution, share purchase

Income from trading investment securities

Chart 2.13: BIDV's income structure in the period 2007-2018

Source: [22]; same calculation by author

Another revenue source with a strong fluctuation in the proportion of total revenue is service revenue. This revenue source increased continuously for 3 years from 2007 to 2009, and 2009 was also the year when the proportion of revenue increased impressively, reaching 7.54% - equivalent to an increase of 56.31% compared to the same period in 2008. It can be seen that in 2009, BIDV developed service revenue sources evenly, including: payment activities (44%), guarantee activities (20%), insurance activities (226%) and other services (95%). In the remaining years, the proportion of service income fluctuated between 5.31% and 7.07%.

Other income has a very modest proportion. Income from foreign exchange trading has the highest proportion in 2008 at 4.81%; income from other business activities is the largest in 2009 at 3.07% and the remaining years


Most are below 1%; income from capital contributions and stock purchases during the period from 2007 to 2015 all had a proportion of below 1%, only in 2016 did it reach 1.63%.

BIDV's costs.

Unit: %


80.00

70.00

60.00

50.00

40.00

30.00

20.00

10.00

-


2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018



interest expense and similar expenses

foreign exchange operating costs

costs from buying and selling investment securities

operating costs

related service costs

Securities trading costs other operating expenses


Chart 2.14: Structure of BIDV's expense proportions in the period 2007-2018

Source: [22]; same calculation by author

The chart of BIDV's expense structure shows that the total expenses of the bank come from two expenses: interest expenses and similar expenses, and other operating expenses. Of which, interest expenses and similar expenses account for the majority (usually over 65% of the bank's total annual expenses). The proportion of this expense does not fluctuate much between years: the lowest is 65.85% in 2015 to 79.71% in 2007. The expense with the second largest proportion is other expenses, including: employee expenses, depreciation expenses and other operating expenses. This expense has been increasing between years. The remaining expenses all have very small proportions compared to the two main expenses above, with the proportions mainly below 4%.

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