Customers who are comfortable with technology are driving the growth of online banking. Research from the United Kingdom’s Juniper estimates that by 2026, digital banking will be used by more than 53% of the world’s population. Banks may save money and time by providing a streamlined digital banking experience for customers, and this, in turn, can lead to new forms of revenue and monetization.
However, to gauge the efficacy of the banks’ digital transformation, it is essential to have key performance indicators (KPIs). This blog delves into the 25 most important bank KPIs that managers like you use to evaluate performance.
Why Banks Need Banking KPIs
Banks can track their progress toward measurable targets using key performance indicators. Strategic goals should be implemented when a bank or credit union establishes them. These banking KPIs reveal how far along the path to success banks are.
Banks might benefit from using banking KPIs to assess progress toward strategic goals. They should record the rationale for their KPIs.
Once a bank has determined its long-term goals, KPIs can be used to ensure they are met. There needs to be constant tracking of KPIs. To begin, it is necessary to assess each key performance indicator to determine its significance and utility. Next, you’ll need to establish a reporting frequency, a monitoring schedule, and reporting criteria.
Financial Performance KPIs
1. ROA (Return on Assets)
In 2023, the top-performing banks achieved an ROA of around 1.25%, while smaller banks averaged around 1.10%. ROA is a common profitability metric used in the banking industry. It sheds light on the profitability of asset use and the state of the budget.
2. Return on Equity (ROE)
In the first quarter of 2023, U.S. commercial banking return on equity rose over two points, with the largest increase since early 2021, reaching 12.9%.
The ability of a bank to generate wealth for its shareholders is reflected in its return on equity (ROE). It shows how well cash is being used and how appealing the bank is to potential depositors and lenders.
3. Net Interest Margin (NIM)
In 2023, the NIM for global banks ranged from 2.5% to 3.2%, with regional variations. The profitability of lending and investment activities is shown by the net interest margin, which is the difference between interest income and interest expenses. The report evaluates the efficiency of the bank’s essential functions.
4. Efficiency Ratio
According to S&P Global Market Intelligence statistics, the efficiency ratio of US banks fell to 52.83% in the first quarter from 54.87% in the fourth quarter of 2022 and 61.62% in the first quarter of 2017. The efficiency ratio compares operating expenses to total income. Profitability and cost control improve with a lower ratio.
Asset Quality KPIs
5. Non-Performing Loans (NPL)
In 2023, European banks had an average NPL ratio of approximately 2.9%, with variations among countries. Nonperforming loans (NPLs) measure the quality of the underlying assets. It’s a must for a robust lending portfolio.
6. Loan-to-Deposit Ratio
According to S&P Global Market Intelligence, the industry average increased to 63.6% in the fourth quarter of 2022 from 62% in the third quarter of 2022 and 57.1% in the fourth quarter of 2021. As of the last three months 2019, it was still below the pre-pandemic average of 72.4%.
By comparing loans and deposits, this ratio gauges a company’s liquidity and lending capacity. It is the basis for sound financing and cash management procedures.
Capital Adequacy KPIs
7. Capital Adequacy Ratio (CAR)
In 2023, European banks had an average CAR of approximately 15.9%, well above regulatory minimums. CAR measures the adequacy of cash on hand in comparison to risky investments. CAR investment banking KPIs can assure the security and safety of an organization’s finances.
8. Cost-to-Income Ratio (CIR)
A CIR of less than 60% is considered efficient. In 2023, the top U.S. banks reported an average CIR of 59.9%. CIR is a metric for business efficiency that looks at how much it costs to make a profit. When the CIR is low, operations are efficient.
Customer Satisfaction KPIs
9. Customer Satisfaction Score
Exceptional banks achieve CSAT scores above 80 on a 100-point scale. In 2023, leading U.S. banks had CSAT scores ranging from 78 to 82. Metrics indicate that the approach is producing positive results. We have increased our customer satisfaction rates to over 80% and redirected over 90,000.
In this case, the satisfaction of bank customers is being measured. Happy clients are more inclined to buy again and tell their friends.
10. Net Promoter Score (NPS)
According to Retently’s analysis of NPS data from the last five years, the average NPS for the healthcare industry is between 34 and 20, while the average NPS for the communication and media industry is between 19 and -6.
Using the propensity to provide a suggestion, NPS measures customer loyalty and advocacy. It is a leading indication of both client happiness and the durability of a brand.
11. Customer Acquisition Cost (CAC)
The Customer Acquisition Cost (CAC) measures how much it costs to get new clients. Reduced CAC allows for more effective expansion and the creation of income.
Transaction Value KPIs
12. Average Transaction Value
This key performance indicator tracks the average value of a bank’s transactions. It’s crucial for maximizing potential earnings.
13. Capital Utilization Rate
This key performance indicator assesses the profitability of the bank’s capital-generation processes. Profitability is increased when money is used effectively.
Liquidity Management KPIs
14. Liquidity Coverage Ratio (LCR)
The LCR measures the bank’s liquidity or its capacity to pay down short-term debts. It is essential for monetary security and rules adherence.
15. Loan Portfolio Diversification
By spreading their bets across a variety of loan products and business sectors, borrowers reduce their overall risk exposure. Better protection against sector-specific crises is achieved, and risk management is improved.
Growth and Expansion KPIs
16. Net Asset Growth Rate
This key performance indicator tracks the expansion of a bank’s net assets. It reveals the state of the company’s finances and its potential for growth.
17. Operating Income Margin
Measures how profitable essential business functions are relative to expenses. When the margin is high, the business is running smoothly.
Mortgage Lending KPIs
18. Mortgage Delinquency Rate
This key performance indicator tracks the amount of overdue mortgage loans. It is a measure of the safety and soundness of mortgage lending.
19. Regulatory Compliance Score
This key performance indicator monitors the bank’s compliance with banking standards. Maintaining credibility and staying out of trouble legally depends on following the rules.
Workforce Productivity KPIs
20. Staff Productivity
Employee productivity is the ratio of production to expenses. Productivity rises thanks to well-organized staffing policies.
21. Asset Quality Index (AQI)
The Asset Quality Index (AQI) are risk KPIs for banks for evaluating a bank’s asset quality. It protects the value of assets and reduces the risk of losses.
Core Deposits KPIs
22. Core Deposit Growth Rate
This key performance indicator assesses the expansion of essential deposits. It’s important for maintaining steady funding and managing cash flow effectively.
23. Digital Engagement Rate
This key performance indicator measures how satisfied customers are with their bank’s online services. In today’s digital era, it’s essential for gaining and keeping clients.
Cross-Selling Success KPIs
24. Cross-Selling Success Rate
The level of cross-selling success can be gauged by looking at how well additional items or services are marketed to current clients. It increases earnings by providing additional benefits to current clients.
25. Brand Equity Score
Brand equity measures how well-known and respected a bank’s name is among consumers. Customers are attracted to and kept by a reputable brand.
The success of a bank can be gauged by analyzing these 25 banking KPIs metrics. They shed light on the bank’s overall health, efficiency, client happiness, and risk management, among other things. Bank executives can define their organizations’ futures through data-driven decisions based on this set of operational KPIs in banking.
What Can Brickclay Do for Your Business?
Brickclay equips banks by providing data engineering and analytics services that are adapted to the unique needs of the banking industry. Banks can benefit from our expertise in data integration engineering, data analytics solutions, regulatory compliance, risk management, customer analytics, operational efficiency, and digital transformation. They use this information and typical banking KPIs to guide their decision-making and drive progress toward their organizational objectives.
To help banks adapt to the ever-changing financial world, we guarantee their individual demands will be satisfied through our dedication to data protection, constant innovation, and tailored solutions.
Working with Brickclay, you may take advantage of data-driven methods to help build the future of your bank. Contact us today for a transformative data-driven journey.
About Brickclay
Brickclay is a digital solutions provider that empowers businesses with data-driven strategies and innovative solutions. Our team of experts specializes in digital marketing, web design and development, big data and BI. We work with businesses of all sizes and industries to deliver customized, comprehensive solutions that help them achieve their goals.
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