Banking KPI’s – Metrics Used to estimate a Banking Entity’s Performance
Banking KPI’s include certain metrics that are quantifiable and specific. They can be categorized to six classifications, such as income metrics, cost metrics, company asset metrics, investment metrics, interest margin metrics, and risk metrics.
KPI’s or meaningful performance indicators are metrics used to measure the progress of an organization towards the attainment of its goals. These metrics can be financial or non-financial in character. Customer satisfaction has been a shared metric used by businesses. This can also be metric used in the financial industry.
If many customers are satisfied by a business, it literally method good progress for the business. However, seeing and knowing your customers are satisfied with your product or service is not enough. It is also important for a business to have statistical or mathematical information with regards to customer satisfaction.
The progress of an organization can be determined not just on the data inscribed on financial statements. Management must also present measures that show the performance and progress of the organization.
The metrics, such as meaningful performance indicators, are used more commonly to estimate the performance of a company on different areas and activities. The metrics as mentioned above can be broken down to various measurements.
In the income metrics category, a company can measure the performance of its income by the following measurements: gross profit, non-interest incomes level, fee income level, and interest spread.
The gross profit is a shared part in an income and expense statement of businesses. It is computed by deducting the cost of sales to sales.
The fee income level in the case of service-oriented businesses can be derived by dividing the operating income to the fee income. however, non-interest income divided by operating income results to non-interest income level.
Computing for the interest spread involves a complicate equation. To origin the interest spread amount, the interest income is divided by interest earning sales. The consequence of the first equation is deducted to the ratio of interest expense and interest bearing limitations.
Meanwhile, measuring the costs of the business operation can be done by using different ratios such as: cost to asset ratios, overhead cost ratio, and cost of income. The cost of asset ratios is derived by dividing the average assets over the period to the operating expenses. The ratio of overhead costs and sales produces overhead cost ratio, while the operating expenses divided by operating income results to cost to income ratio.
The return on capital employed, return on operating capital, and return on equity are investment metrics. These metrics involved taxes, capital, earnings, and interest.
The interest margin metrics, meanwhile, are based on profit margin. To origin the profit margin, you have to divide the amount of sales to the amount of profits. Operating margin and interest margin are other metrics in interest margin category. Operating profits divided by sales produces operating margin, while the difference of interest income and interest expense divided by the average interest earning on assets is the equation to origin the interest margin.
Metrics to measure the performance of company assets include non-performing assets, return on average assets, and save requirements. Risk metrics, however, include capital adequacy ratio and value-at-risk measurements.
Banking KPI’s can be similar in various edges. These metrics have quantifiable attributes. For a banking entity to measure quantifiable and recondite metrics, a balanced scorecard can be used.