Entrepreneurs need to know the banking industry’s key performance indicators to make sound business decisions. This article will outline the most important KPIs to track and measure to determine a bank’s success.
Banking Industry Key Performance Indicators
The banking industry is constantly changing and evolving, so entrepreneurs must stay up-to-date with the latest trends. Tracking and measuring the correct KPIs can give you a clear picture of how well your bank is performing and where improvements need to be made.
Here are some of the essential banking industry KPIs to track and measure:
- Loan growth: This KPI measures the year-over-year growth of loans. It is a good indicator of demand for banking products and services.
- Deposit growth: This KPI measures the year-over-year growth of deposits. It is a good indicator of customer confidence in the bank.
- Non Performing assets: This KPI measures the percentage of loans that are not being repaid. A high percentage of non performing assets can indicate financial trouble for the bank.
- Net interest margin: This KPI measures the difference between the interest earned on loans and the interest paid on deposits. A higher net interest margin indicates that the bank is more profitable.
- Efficiency ratio: This KPI measures the bank’s operating expenses as a percentage of its revenue. A lower efficiency ratio indicates that the bank is more efficient and profitable.
- Return on equity: This KPI measures the bank’s profitability in relation to its shareholders’ equity. A higher return on equity indicates that the bank is more profitable.
- Capital ratio: This KPI measures the ratio of a bank’s capital to its assets. A higher capital ratio indicates that the bank is better able to absorb losses.
By tracking and measuring these KPIs, entrepreneurs can clearly see how well their banks are performing and where improvements need to be made. Stay up-to-date with banking industry trends and make sound business decisions for your bank’s success.
How to Track and Measure Key Banking KPIs
There are a few ways to track banking KPIs. One way is to use banking software that includes built-in KPIs. Another way is to use Excel spreadsheets or Google Sheets to track banking KPIs manually.
If you decide to track banking KPIs manually, we recommend using the following formulas:
- Loan growth: [(Total loans outstanding at end of period – Total loans outstanding at beginning of period) / Total loans outstanding at beginning of period] x 100
- Deposit growth: [(Total deposits outstanding at end of period – Total deposits outstanding at beginning of period) / Total deposits outstanding at beginning of period] x 100
- Non Performing assets: [(Total non performing assets at end of period – Total non performing assets at beginning of period) / Average total assets] x 100
- Net interest margin: [(Interest earned on loans – Interest paid on deposits) / Average total assets] x 100
- Efficiency ratio: [(Operating expenses – Interest expense) / Total revenue] x 100
- Return on equity: [(Net income – Preferred dividends) / Average total equity] x 100
- Capital ratio: [(Total capital at end of period – Total capital at beginning of period) / Average total assets] x 100
KPIs are essential tools that can help entrepreneurs make sound business decisions. Make it a point to track and measure them.
Conclusion
Banking industry KPIs are essential tools that entrepreneurs can use to track and measure the success of their banks. By staying up-to-date with banking trends and monitoring the correct KPIs, entrepreneurs can make sound business decisions for their bank’s long-term success.