The importance of retail banking KPIs
Retail banking has also faced challenges in measuring abstract and quantifiable indicators. Performance metrics in retail banking can be done using KPIs. The retail bank KPI can be used to measure the progress of a certain organization that belongs to the industry. This measure is intended to help retail banks improve their progress towards achieving their organizational goals.
What are the key performance indicators of a retail bank?
The KPI in retail banking can include the factors that have links to the performance of a retail bank. There may be several KPIs to measure performance. However, it is important to keep the number of KPIs to a minimum and choose KPIs that have direct attributes on their performance.
Total cash deposits held in a month and average annual deposits held can be used as KPIs to measure a retail bank’s performance in taking deposits from customers.
Other factors that can be considered as KPI’s in retail banking:
1) Average number of depositors per retail bank branch
2) Average number of withdrawals made by each depositor
3) Ratio of active depositor to inactive depositor
4) Average number of borrowers in default in a year
5) Average number of credit cards issued by the retail bank
6) Indebtedness risk rate
7) Default risk rate
8) Average number of clients served in a day
9) Average number of closed bank accounts
Revenues, costs, investment returns, interest margin and company assets are other KPIs for retail banks. They may have their own system for recognizing KPIs. KPIs are measurable and quantifiable and must be identified to assess the performance of retail banks.
Certain attributes are also considered to recognize a measurable factor for performance evaluation such as KPIs. Identifying KPIs is crucial and must be carefully considered before they can be used as objects to measure performance. The SMART acronym can be used to identify KPIs. KPIs must be specific, measurable, achievable, relevant, and time-bound.
In addition to the aforementioned KPIs that can be used to measure performance, one of the measurement frameworks used in financial institutions is risk-adjusted return on capital.
Risk-adjusted return on capital or RAROC can be used to perform analysis on risk-adjusted financial performance. It is the ratio of return on capital with adjustment for certain risks involved in the process. As is known in the financial world, capital invested in high-risk forms of investing is likely to produce higher returns than risk-free investments.
RAROC can be used as a retail banking KPI in conjunction with other indicators.
The retail bank has an exact environment to identify the KPIs. Typically, banks are organized financial institutions that comply with the law in conducting transactions with depositors, customers, and consumers. And normally, the KPI is used to detect problems so that the entity can formulate solutions based on the given indicators used to measure its performance.
Senior management at retail banks analyzes KPIs to accurately measure performance. Retail bank KPIs can be financial or non-financial metrics. There may be involvement of customer and depositor demographics, turnover rates, background of banking staff, and technology used.