CHAPTER 4: IMPLICATIONS AND RECOMMENDATIONS FOR BIDV
4.2. Recommendations for BIDV to improve the profitability in the future
4.2.2. Maintaining other ratios that affect bank profitability
Total asset, dividend ratio and loan to deposit ratio are ineffective predictors of bank profitability. Apart from capital adequacy ratio, the study also found out that other factors including total asset, dividend and loan to deposit ratio are ineffective predictors of profitability in Vietnamese banks. For BIDV itself, the ambiguous influence of these factors on bank profit suggest that the strategies adopted by BIDV do not need to concern about either of those factors. In fact, the size of bank measured by total assets only indicates the capacity of banks; thus this is more likely relevant to investment bank rather
(LUAN.van.THAC.si).the.determinants.of.bank.profitability.in.commercial.banks.an.analysis.of.BIDV.vietnam(LUAN.van.THAC.si).the.determinants.of.bank.profitability.in.commercial.banks.an.analysis.of.BIDV.vietnam(LUAN.van.THAC.si).the.determinants.of.bank.profitability.in.commercial.banks.an.analysis.of.BIDV.vietnam(LUAN.van.THAC.si).the.determinants.of.bank.profitability.in.commercial.banks.an.analysis.of.BIDV.vietnam(LUAN.van.THAC.si).the.determinants.of.bank.profitability.in.commercial.banks.an.analysis.of.BIDV.vietnam(LUAN.van.THAC.si).the.determinants.of.bank.profitability.in.commercial.banks.an.analysis.of.BIDV.vietnam(LUAN.van.THAC.si).the.determinants.of.bank.profitability.in.commercial.banks.an.analysis.of.BIDV.vietnam(LUAN.van.THAC.si).the.determinants.of.bank.profitability.in.commercial.banks.an.analysis.of.BIDV.vietnam
than commercial bank. Meanwhile, though loan to deposit is shown as an ineffective indicators of profit in general, the qualitative research has found out that the Vietnamese banks tended to heighten lending rate during the economic boom such as between 2008 and 2009 to support activities of the economy; yet control over loans became loosen. As a result, the subsequent periods such as in 2011-2012 saw a huge slump in non-performing loan when the long term loans came to maturity. From this point, it could be seen that the loan to deposit is not a significant factor but it demonstrates the strategy of bank in credit market. Therefore, the indicator should not be drop in decision making process for its indirect influence. Another lesson for BIDV can be drawn from Vietinbank is that the individual credit objective could lead to unnecessary pressure on the credit officers, who might omit certain principles in credit risk evaluation for mission accomplishment. Therefore, BIDV should not assess the credit officers upon the number of loan he could make, yet the level of security attached with the loan he proceeds. This measure could allow BIDV manager to bind responsibility of its credit officers into the overall non- performing loan of the bank.
For BIDV, asset quality, among the most important factors that have influence on profitability, should be carefully reviewed. The increase of NPLs will have resulted in the erosion of profitability. Despite the fact the national banking sector authority has been actively following Basel Accord, and international regulatory framework for banks, there is still a lot of efforts needed to improve from within the banking sector. Poor assets quality is mostly coming from the risky business of the banks. Some banks do not hesitate to put money in risky projects such as real estate properties or gambling stock investment. Competition to acquire bigger customer bases also leads to unhealthy business of the banks. More important, the poor asset quality reported in the documents of the banks
(LUAN.van.THAC.si).the.determinants.of.bank.profitability.in.commercial.banks.an.analysis.of.BIDV.vietnam(LUAN.van.THAC.si).the.determinants.of.bank.profitability.in.commercial.banks.an.analysis.of.BIDV.vietnam(LUAN.van.THAC.si).the.determinants.of.bank.profitability.in.commercial.banks.an.analysis.of.BIDV.vietnam(LUAN.van.THAC.si).the.determinants.of.bank.profitability.in.commercial.banks.an.analysis.of.BIDV.vietnam(LUAN.van.THAC.si).the.determinants.of.bank.profitability.in.commercial.banks.an.analysis.of.BIDV.vietnam(LUAN.van.THAC.si).the.determinants.of.bank.profitability.in.commercial.banks.an.analysis.of.BIDV.vietnam(LUAN.van.THAC.si).the.determinants.of.bank.profitability.in.commercial.banks.an.analysis.of.BIDV.vietnam(LUAN.van.THAC.si).the.determinants.of.bank.profitability.in.commercial.banks.an.analysis.of.BIDV.vietnam
may not reflect the actual situation due to the little transparency in operation of Vietnamese banks and the gap in reporting standards which can be manipulated by the banks. Therefore, it is highly suggested that the authority should review the reporting standard to help better reflect the actual situation while strictly enforcing policies to control the non-performing loans level. For example, credit expansion can only be done if the banks can maintain a certain safety level of Non-performing loans. Besides, requirement for higher capitalization is also a result from the fact that NPLs is becoming a real issue in Vietnam. Higher invested capital to ensure the controlled solvency risk can result in lower profitability. However, it is understandable and acceptable especially in the period of economic difficulty. Banking authority should consider a trade-off between profitability and safety of financial system. A low but sustainable profitability is more appreciated than a high but risky profitability.