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Enabling CFO Analysis of the Bank Efficiency Ratio

by Graham Goble on October 5, 2016

Topics: Financial Reporting

BankBI goes beyond just reporting what the numbers are or what the changes in the numbers are. It enables executives to start with those bank efficiency ratios and then drill down to understand; why has my return on assets changed? Why am I less efficient this month compared to last month?

Bank Efficiency Ratio

That’s the whole KPI tree analysis within BankBI that enables you to start with any financial number or ratio and then drill down to see the underlying makeup of that ratio, getting a visual indication of whether you are up or down.

I was with the CFO of a bank recently and we were looking at the efficiency ratio of the bank for the end of August against July and they were less efficient in August than in July, so we looked at that and asked were my expenses higher? No, the expenses were actually lower.

Were my assets significantly different? No, they weren’t, so the implication was that it was income that was less in August than in July.

We drilled down into income and we didn’t see much difference in the run rate on the loan portfolio but other income was significantly down.

So, we went in to look at that and it turned out to be the foreign exchange change for the month. The net impact on the bank’s efficiency ratio for that month to month was not caused by higher expenses or less lending or less fees.

It was caused by a movement in one currency against another currency which meant that there was an FX revaluation month to month which was significant enough to move the bank efficiency ratio calculation by a small percentage point.

That’s one illustration of how if I was looking at a dashboard and I just saw that I was less efficient than the previous month. I could still find those numbers, but I would probably have to go and look at the balance sheet in some detail and I’d have to get a calculator out and do some calculations.

In the BankBI application it’s a few clicks away and the answers are instantaneous as to what’s caused that change month to month.

Interrogate Data Instantly

Imagine you are that CFO and next month you have to present that to the board and somebody is going to say; why are we less efficient this month than last month? He can instantly open it up and say it’s because of the FX revaluation this month is this to this and that’s what’s driven the majority of that change.

What it allows CFO’s and CEO’s to do is to ask those questions, examine the answers, get clarity on that and so you move on. There is no need to spend time analysing the expenses, assets and income in the board room and say “I’ll come back to you later when I’ve worked it out”.

You can actually use the application there and then to interrogate the results and come up with those explanations. You can answer ad hoc or unexpected questions when you know your way around the application.

This is gold dust to a CFO who can sit in a board meeting and even if you are the only one with the application you can take those questions and drill into the KPI tree and maybe filter a branch breakdown, looking at assets, fees or average rate of products disbursed this month.

Whatever it is you’ll see those drivers in that KPI tree analysis. It will give you every point in your chart of accounts that has changed month to month and it will allow you to build up that picture of how a ratio or the value has changed and therefore how your performance is affected by outside conditions like the US Dollar exchange rate for example.

That has an impact and a risk and is something that you need to be aware of and monitoring.

It’s an application that is going to enable you to get to those answers more rapidly which can help you make better decisions.

There are no significant IT skills required.

Simplicity is Key

If I come back to the example with the CFO, he’s using the application along with the CEO of that bank.

Neither of them has attended a BankBI training course. They just literally have a user ID and a password and they’re opening the application and using it on a tablet with touch-driven gestures and because of this, it’s intuitive.

That’s the significant difference, we’re not talking about a reporting system where you have to know and understand reporting codes and menu structures. We are talking about an app experience on the phone, tablet or desktop.

It has to be designed that way because it needs to be engaging. We can’t have the CEO or CFO needing three hours of training just to use the application. That’s just never going to happen.

A good test for us is if they don’t need training and they are able to use the application they can then take it into the boardroom and use it on the fly.

It has to feel like something that has been downloaded from an app store or market place and it has to have that same engaging user interface and usability quality.

Efficiency Ratios Deconstructed

Download the bank efficiency ratio eBook now to get help breaking down the efficiency ratio results for analysis purposes. 

Download eBook. Efficiency ratio eBook. Performance management is all about working out what you need to measure and how often you need to monitor it.

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