Brief of BIDV profit making performance in 2006-20- 123docz.net

The Charts below shows the specific ROA/ROE from 2006 to 2017. In this period, BIDV has remained the leading bank in Vietnam with very positive result. The indicators have remarkable changes and shown the efficiency of the bank during this period. From the Figure 1 we can see that:

Figure 2.1 – BIDV ROA & ROE from 2006-2017

(Source: BIDV annual report)

ROA (Return on Asset) is calculated as net profit divided by total assets.

This is a financial ratio that shows the percentage of profit that company earns in relation to its resources. This indicator shows the quality of asset management. The larger the profit, the greater the ratio. ROA of BIDV has been maintained stably at nearly 1% over the years, then has been down from 1.04% in 2009 to 0.63% in 2017. The decline was strongly influenced by business environment. While these years of economic crisis, almost businesses were at risk of bankruptcy but the bank's efforts maintained the

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 ROA 1,98% 1,27% 1,25% 0,94% 1,13% 0,83% 0,79% 0,78% 0,83% 0,85%

ROE 15,33% 15,20% 13,60% 21,05% 17,96% 13,20% 12,38% 13,84% 15,27% 15,40%

1,98% 1,27% 1,25% 0,94% 1,13% 0,83% 0,79% 0,78% 0,83% 0,85%

15,33% 15,20%

13,60%

21,05%

17,96%

13,20% 12,38% 13,84% 15,27% 15,40%

0,00%

5,00%

10,00%

15,00%

20,00%

25,00%

Size Criteria - BIDV

ROA ROE

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stability ratio in the acceptable level of fluctuations. This illustrates the ability of banks to operate the business and its ability to manage its assets effectively.

In addition, because BIDV‟s Total assets increased rapidly in this period also made ROA ratio decrease.

ROE (Return on Equity) is a profitability ratio that measures the ability to generate profits from its shareholder investments in the company. This indicator shows the performance of the company.ROE has significant fluctuation in the range of 13-18%, which is more remarkable when compared to ROA fluctuation. Of which, there have been 2 distinct periods to be recorded (BIDV, 2017). ROE reached the highest level in 2009 with 18.41%

and gradually down to 17.96% in 2010. Notably, the bank profit rocketed despite serious damage from financial crisis in 2008-2009 period. By the end of 2011 when the ending joint stock process, the amount of equity increased, especially the rapid increase of chartered capital that led to a sharp decline in ROE to 13.20% and to 12.38% in 2012 (BIDV, 2017).

Despite such backward step, BIDV still stands among the banks having top profitability in Vietnam. In fact, Tran (2015) advocates that the poor profitability of BIDV partly refers to domestic recession in 2011-2012 which set the long term effect on economic growth. In fact, the downward trend is also the common pattern of all Vietnam commercial bank in this period, as ROE sector averaging at 9.56% in 2012 compared to 14.19% in 2011 (KPMG, 2013). Thus, from ROA and ROE we can see the effectiveness of banking operations in the past period and especially can see the dramatic changes in the size and structure of BIDV.

The ROA and ROE ratios have always been improved and reached the normal level. The income structure has shifted in positive direction. Notably, the bank profit rocketed despite serious damage from the financial crisis in 2008-2009 period. From 2011 onwards, the profit of BIDV has been on a declining trend,

hitting the bottom of 12.38% ROE in 2012. Despite such backward step, BIDV still stands among the banks having top profitability in Vietnam. In fact, Tran (2015) advocates that the profitability of BIDV partly refers to the domestic recession in 2011-2012 which sets the long term effect on economic growth. In fact, the downward trend is also the common pattern of all the commercial banks in this period, as a sector at 9.56% in 2012 compared to 14.19% in 2011 (KPMG, 2013). Considering the fact, it is important to see that the performance of BIDV was still above the average line, recording the effort of the board in maintaining competitiveness

As a result of the implementation of strategic objectives and restructuring in the period 2012-2017, BIDV's growth over the past five years is impressive and comprehensive in all indicators with high growth rates. (average 17% / year), compared with a number of specific targets: total assets increased more than 2.1 times, capital mobilization increased 2.5 times, outstanding loans increased 2.6 times, outstanding retail sales increased about 4 times, profit before tax increased 1.7 times. On the networking, BIDV has 182 first-level branches and nearly 800 transaction offices across the country, increasing 63 branches and 284 transaction offices as compared to 2011 (Cong An, 2016).

In the past five years, BIDV has strengthened cooperation with domestic and foreign organizations, "paving the way" in investment activities abroad, strengthening international economic integration and comprehensive.

Be proactive, actively integrate into regional and international financial market; secure, sustainable and effective credit growth, focusing on priority areas of rural agriculture, export, supporting industries, SMEs, high tech enterprises; dealing with bad debts with integrated solutions and measures;

develop and diversify the list of products and services; establishing and effectively implementing the international economic integration strategy of

BIDV are the key factors help BIDV becomes the leading in banking industry and earn more profit every year.

After reviewed the ROA and ROE through 10 years, we can see the high quality in BIDV operation ability and especially the positive changes in structure of the bank.

Quality Criteria

Table 2.1 - Quality Criteria of BIDV

BIDV CAR NPL LDR LLPR DR

2006 8.65% 0.89% 91.00% 1.46% -

2007 7.85% 1.50% 93.22% 2.20% -

2008 8.94% 1.71% 95.70% 2.55% -

2009 9.54% 1.42% 106.92% 2.62% -

2010 9.32% 1.40% 100.90% 2.08% -

2011 11.07% 2.96% 120.05% 1.99% - 2012 9.65% 3.03% 102.66% 1.74% 4.50%

2013 10.23% 2.30% 93.84% 1.57% 8.50%

2014 9.35% 2.06% 88.80% 1.49% 10.20%

2015 9.07% 1.70% 90.85% 1.27% 8.500%

2016 9.50% 1.95% 90.72% 1.41% 7.00%

2017 9.34% 1.62% 91.41% 1.33% 7.00%

(Source: BIDV annual report)

As we have known that, the bank's operations always have risks. There have major risk factors in every credit, deposit or payment transactions so the ability to accept and control risk or bad debt presents the credit quality, quality of the bank‟s operation.

From the table above we also see that the NPL ratio is always under control at 3%, slightly increase to 3.03% % in 2012. However, the control under 3% is still a positive point of BIDV in the quality of controlling non-performing loan.

According to the statistic in Table above, we can see that the equity of BIDV increased sharply in this period due to many reasons such as increasing chartered capital, the bank's funds increased sharply, the results of annual contributed profits led to the CAR of BIDV is always over 8%. From 2009 to

2017, CAR has always been above 9%, ensuring the minimum requirements of the State Bank. CAR was not increased but remained stable because BIDV used capital to increase its assets and expand its business activities to increase profit.

LDR from 2014 to 2017 around 90%, nearly ensuring the minimum ratio prescribed by the State Bank of Viet Nam.

LLDR well controlled, proving that bad debt is strictly controlled.

This ratios shows the bank's ability to operate and its credit quality is extremely effective.

Effectiveness Criteria

The main purpose of the bank's operation is trying to create profit, so the efficiency of the bank is reflected in its profit after each financial year. This also means that the bank must find ways to maximize total revenue from operations and minimize costs, but still ensure the safety and fulfillment of other criteria.

In the period of 2006- 2017, BIDV has continuously increased in value of income from financial activities. Although minimizing costs is one of the essential purposes, banks always have to increase their reserves and operating expenses to secure their assets and credits that can help them handle the difficult conditions. By doing so, BIDV can affirm the prestige of the bank with their customers and investors. In particular, the cost of credit loss provision increased sharply from 1,437 billion VND in 2006 to 5,293 billion VND in 2010 and11,349 billion VND in 2017. Moreover, the most important is the profit before and after tax should be always guaranteed to increase stably every year. In 2006, pretax profit was 1,112 billion VND and increased to 8,665 billion in 2017. Similarly, the net profit of owners reached a peak of 1,001 billion in 2006 and increased to 6,786 billion VND in 2017.

Figure 2.2 – BIDV Profit before and after tax from 2006-2017

(Source: BIDV annual report)

Moreover, the asset size growth with reasonable structure. Total assets of BIDV have continuously increased from 161,223 billion VND in 2006 to 1,202,284 billion VND in 2017. BIDV is always the top among banks with the largest total assets in Vietnam. The largest proportion of total assets is credit activity. This is the main income generating activity for the bank.

Although the impact of the global recession leading to the financial situation of customers as well as banking business is negatively affected, BIDV's credit quality has been improved remarkably. After all the efforts during the financial crisis before 2010, BIDV has reached their goals as increasing in the profit from 2010 to 2017 as the numbers given from the figure 3.

0 1.000 2.000 3.000 4.000 5.000 6.000 7.000 8.000 9.000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Profit before Tax 1.112 2.028 2.369 3.605 4.625 4.220 4.325 5.290 6.297 7.473 7709 8665 Profit after Tax 1.001 1.529 1.997 2.818 3.758 3.209 3.265 4.030 4.948 5.882 6229 6786

Profit before Tax and Profit after Tax of BIDV (Bil VND)

Profit before Tax Profit after Tax

Figure 2.3 – BIDV Total assets and Owner’s equity

(Source: BIDV annual report)

In the liquidity, The Government implemented a policy package to stimulate interest. The size of credit growth is greater than that of capital growth leading to difficulties in liquidity, competitive pressure share market that led banks to slow down growth. The indicators of deposit growth, debt to capital ratio, and ratio of liquid assets to total liabilities, customer deposits to total liabilities of BIDV still ensures the liquidity and capital growth. Moreover, BIDV always determines safety liquidity and capital growth are top priority tasks. BIDV's liquidity management is carried out daily through the strict management of cash inflows and outflows in the whole system for each currency. Frequently analysis, evaluation, forecasting and commendation on market situation to timely provide solutions. Therefore, BIDV is always active and flexible for all situations in ensuring security and liquidity for the whole system.

161.223 204.511

246.519 296.432

366.267 405.755

484.785 548.386

650.340

850.670

1.006.404

1.202.284

7.551 11.634 13.484 17.639 24.220 24.390 26.494 32.039 33.271 42.335 44.144 48.834

- 200.000 400.000 600.000 800.000 1.000.000 1.200.000 1.400.000 2006

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

BIDV Total Assets and Owner’s equity (Bil VND)

Owner's equity TA

Brief of BIDV profit making performance in 2006-2017

Internal factors effecting the bank profitability

Other external factor effecting the bank profitability