Banking KPI's – Metrics Used To Assess A Banking Entity's Performance By Sam Miller At Isnare.com Ezine Articles

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 key 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 nature. Customer satisfaction has been a common metric used by businesses. This can also be metric used in the financial industry.

If many customers are satisfied by a business, it literally means 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 key performance indicators, are used more commonly to assess 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 through the following measurements: gross profit, non-interest incomes level, fee income level, and interest spread.

The gross profit is a common component 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. On the other hand, non-interest income divided by operating income results to non-interest income level.

Computing for the interest spread involves a complex equation. To derive the interest spread amount, the interest income is divided by interest earning sales. The result of the first equation is deducted to the ratio of interest expense and interest bearing liabilities.

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 derive 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 derive the interest margin.

Metrics to measure the performance of company assets include non-performing assets, return on average assets, and reserve requirements. Risk metrics, on the other hand, include capital adequacy ratio and value-at-risk measurements.

Banking KPI’s can be similar in various banks. These metrics have quantifiable attributes. For a banking entity to measure quantifiable and abstract metrics, a balanced scorecard can be used.

Published At: Isnare Free Articles Directory http://www.isnare.com
Permanent Link: http://www.isnare.com/?aid=244433&ca=Business+Management

Important Notice DISCLAIMER: All information, content, and data in this article are sole opinions and/or findings of the individual user or organization that registered and submitted this article at Isnare.com without any fee. The article is strictly for educational or entertainment purposes only and should not be used in any way, implemented or applied without consultation from a professional. We at Isnare.com do not, in anyway, contribute or include our own findings, facts and opinions in any articles presented in this site. Publishing this article does not constitute Isnare.com's support or sponsorship for this article. Isnare.com is an article publishing service. Please read our Terms of Service for more information.