Continued inefficiency at a bank might be robbing important efforts of the resources banks need to be fully successful. But a focus on cutting costs alone is not a formula for long-term success. These factors put exceptional pressure on banks’ operating budgets and generate an understandable appetite among executives for strategies to reduce expenditures in some areas in order to afford the necessary expenditures in technology, marketing, and new capabilities to remain competitive. The Efficiency Ratio is calculated by dividing the bank’s non-interest expenses by their net income. In our experience, banks that achieve significant productivity gains take the following five steps: Pinpoint where costs are today. Bank Efficiency Ratio = Expenses* / Revenue *not including interest expense. are more than is needed in areas that already are productive and are not One of the best ways to review your processes is through a … Improving Efficiency Ratios in Banks Webcast - May 2011 Abstract: Sheila Shaffie, a Master Black Belt and Lean Six Sigma expert, shares how banks and financial institutions can address some of their toughest challenges, and substantially improve efficiency by implementing Quality and … All initiatives designed to improve operational efficiency ratios will fail if the right corporate culture isn’t in place. Today, however, the banking industry faces a new combination of circumstances that are giving special impetus to the need for efficiency. For a larger version, click on the image. One simple improvement to make this a reality is to use new technology platforms in order to automate compliance tracking, data gathering, controls monitoring, data validation and risk monitoring.You should also contain compliance staffing costs with new sourcing models that mix in-house and outsourced resources. Looking beyond the six specific cost-saving strategies discussed here, it’s important to recognize that long-term efficiency is impossible to achieve without a corporate culture that supports and values it. Exhibit 1. improving your bank’s efficiency ratio is through data analysis, Outdated or inefficient banking operations and workflows, Costly implementation of new technology systems, Increased banking compliance requirements. Some banks assertively promote electronic account openings, remote deposit capture via smart devices, and accounts that are designed to be virtually paperless. But this approach is hurting your bank’s efficiency ratio rather than helping it.Before you adopt a new technology platform, first review your affected end-to-end processes to ensure the new technology or system actually improves your banking operations, rather than just adding to them. Again, there is no one-size-fits-all approach. There is a strong correlation between efficiency ratio and return on assets (Exhibit 2), and banks that reduced their efficiency ratio aggressively over recent years have seen substantially higher share-price appreciation and return on equity improvement than peers (Exhibit 3). The lower the ratio, the better. These ratios are used by management to help improve the company as well as outside investors and creditors looking at the operations of profitability of the company. 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