When investment professionals evaluate banks, they are confronted with bank-specific issues such as to how to measure debt and reinvestment needs. Banks use debt as a raw material to mold it into other profitable financial products, and sometimes it is not clear what constitutes debt.

Three metrics to help any investor better analyze banking stocks. Three metrics to help any investor better analyze banking stocks. Choosing a Bank Stock: 3 Key Metrics. Business Metrics Definition. A Business Metric is a quantifiable measure that is used to track and assess the status of a specific business process. It's important to note that business metrics should be employed to address key audiences surrounding a business, such as investors, customers, and different types of employees, such as executives and middle managers. Banking KPIs and metrics can be implemented throughout any bank to measure the performance of its employees, its products, and its adherence to industry regulations (i.e., compliance). Most banks – particularly large commercial banks (e.g., Chase Bank, Bank of America, etc.) – offer a wide range of products and services to their customers. Return on Average Equity — Community banks in our KPI population continue to generate earnings at a high level. The pace of the growth in community bank returns on investment, which have now been realized for the past 36 months, is however beginning to subside, as shown by the decline from 9.70% in 2018 to 8.96% in 2019. Choosing a Bank Stock: 3 Key Metrics. And we'll start with the three most important metrics when analyzing a bank: Net interest margin (NIM). Or 30 years, we'll need to dig in further. A performance indicator or key performance indicator (KPI) is a type of performance measurement. KPIs evaluate the success of an organization or of a particular activity (such as projects, programs, products and other initiatives) in which it engages.

Apr 10, 2004 Can somebody help in the following: (1) What are the commonly used metrics / “should be” metrics for a bank engaged in say Retail Banking, Corporate Banking, Investment Banking, Treasure, Asset Management, Card Services etc.

Financial companies also tend to have very small capital expenditures and depreciation, plus not all typical working capital accounts are present. For these reasons, analysts avoid using metrics involving firm and enterprise values. Instead, they focus on equity metrics, such as price-to-earnings (P/E) and price-to-book (P/B) ratios. Analysts also perform ratio analysis by calculating bank-specific ratios to evaluate banks.

Important Ratios for Evaluating the Banking Sector

P/E and P/B Ratios

The P/E ratio is defined as market price divided by earnings per share (EPS), while the P/B ratio is calculated as market price divided by the book value per share. P/E ratios tend to be higher for banks that exhibit high expected growth, high payouts, and low risk. Similarly, P/B ratios are higher for banks with high expected earnings growth, low-risk profiles, high payouts, and high returns on equity. Holding all things constant, return on equity has the biggest effect on the P/B ratio.

Analysts must deal with loss provisions when comparing ratios across the banking sector. Banks create allowances for bad debt that they expect to write off. Depending on whether the bank is conservative or aggressive in its loss provision policy, the P/E and P/B ratios vary across banks. Financial institutions that are conservative in their loss provision estimates tend to have higher P/E and P/B ratios, and vice versa.

Another challenge that hampers comparability of ratios across banks is their levels of diversification. After the Glass-Steagall Act was repealed in 1999, commercial banks were allowed to be involved in investment banking. Since then, banks became widely-diversified and are commonly involved in various securities and insurance products.

With each line of business having its own inherent risk and profitability, diversified banks command different ratios. Analysts usually evaluate separately each line of business based on its business-specific P/E or P/B ratios and then add up everything to obtain the overall bank's equity value.

Efficiency and Loan to Deposit Ratios

Investment analysts commonly use ratio analysis to evaluate banks' financial health by calculating bank-specific ratios. The most prominent ratios include the efficiency, loan to deposit, and capital ratios. The loan to deposit ratio indicates a bank's liquidity; if it is too high, the bank may be susceptible to a bank run due to rapid changes in its deposits. The efficiency ratio is calculated as a bank's expenses (excluding interest expense) divided by the total revenue.

Capital Ratios

Capital ratios receive a lot of attention due to the Dodd-Frank reform that requires large and systematically important financial institutions to undergo stress tests. The capital ratio is calculated as a bank's capital divided by the risk-weighted assets. Capital ratios are usually calculated for different types of capital (tier 1 capital, tier 2 capital) and are meant to assess banks' vulnerability to sudden and unexpected increase in bad loans.

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Writing in CB Insight, Marquis Software’s Jay Kassing related a comment made to him by a friend:

“Too many bank marketers aren’t as interested in results as they are in checking things off their to-do list. These marketers are more interested in getting things done because delivering on what you promise to get done holds a great deal of cache with senior management. It is very good to be seen as doer. At most every place like this…hard marketing results are never discussed…the catch-phrase ‘it will be good for the brand’ is commonplace, but provable facts aren’t a requirement to get a pat on the back.”

Spot on. Couldn’t agree more. The question this raises is: Why is it this way?

The answer lies in understanding which metrics Marketing tracks, and the metrics it (probably) doesn’t track. Here are the issues:

• Digital metrics don’t link to economic results. Page views, likes, follows, and a whole host of other digital-related metrics are relatively easy (and cheap) to track, but smart managers know there’s little connection between these metrics and bottom line results.
• Campaign metrics don’t scale. Campaign-specific metrics are helpful to gauge the success of particular campaigns, but you can’t just aggregate campaign results to get a picture of how marketing is doing, as a whole.
• ROMI metrics are a joke. Some organizations have attempted to calculate a “return on marketing investment” metric, which, while admirable, falls short of achieving its intended goal because smart managers know that customer/member growth and profitability is impacted by more than just what marketing does.

As a result, management lacks a “language”– a set of metrics–by which CEOs and CMOs can objectively discuss the impact marketing is having on the firm. And so we get the behavior described–accurately and elegantly–by Kassing’s friend.

Four Strategic Marketing Metrics

What marketing needs is a set of strategic measures that give management a platform for evaluating and discussing marketing’s contributions and performance. I’d like to propose four metrics, in particular:

1. Cost of acquisition (COA). I run into plenty of marketers who say they know their cost of acquisition. Sure, whatever. The reality is they don’t know their true cost of acquisition, primarily for two reasons: 1) They don’t track their marketing costs at a level of granularity that enables accurate calculation of COA, and 2) They don’t track acquisition-related costs that occur outside of marketing.

The first point is about not allocating marketing costs to specific products/services that would enable a more accurate calculation of COA. The second point reflects the fact that activities that happen in the branch lead to acquisition, yet are rarely captured in COA calculations. Likewise, in IT, the cost of developing digital account opening tools isn’t typically factored into COA estimates.

And although marketers tell me they know their cost of acquisition, what they’re narrowly referring to is their cost of account acquisition. When I ask them how they segment their customers, and what their cost of acquisition per customer per segment is, the conversation goes silent. And when I ask “what’s your cost of acquiring $1000 in deposits?” they head for the door.

But true COA is a strategic measure. If you know what your cost of acquiring a customer in your most valuable customer segments is, then you might find that an increase in COA over time is being caused by the mix of customers, and not because of inefficient spending or performance on the part of marketing.

If you know what the percentage of COA coming from outside marketing is increasing, you can explore ways to improve branch sales productivity. If you know your cost of acquiring $1000 in deposits, you’ll know if your marketing budget is going to produce that $20 million deposit growth goal you’ve set for 2016.

What Information Is Needed To Generate Key Banking Metrics Online

The list of what-ifs doesn’t stop there. But I will.

2. Customer lifetime value (CLV). I don’t understand the prevailing wisdom on this metric. Marketers talk about CLV as if it were something you can calculate before acquiring a customer, in order to figure out how much to spend to acquire that customer, or to price services for that customer. Good luck with that–too many variables influence what might happen with a customer’s relationship in the days/months/years ahead that make forecasting CLV nearly impossible.

But as a backwards-looking measure, there’s huge value to a CLV metric.

There’s no reason why banks and credit unions couldn’t add up the revenue generated for each customer/member over their tenure with the FI, look at channel activity to make some cost assumptions and allocations, and calculate a lifetime profitability number for each customer/member. If you can segment your customers, you can calculate an average CLV for each segment. Then, with your COA numbers in hand, figure out if it’s really worth investing more in marketing to acquire customers in that segment.

And if, at the aggregate, the bank’s or credit union’s total CLV is increasing year over year, you know you’ve improved either or both acquisition and cross-sell. If the aggregate CLV decrease year over year, you lost too many customers, or were unprofitable in channel delivery.

I don’t know of any FIs calculating CLV this way. Maybe I don’t talk to the right people.

3. Digitally-influenced sales (DIS). If your FI isn’t shifting marketing dollars from offline to online channels, you’re in the minority. If your FI is expecting that shift in marketing dollars to produce a radical shift in the channels in which product applications are submitted, you’re smoking dope. Sure, it will happen someday–but not this year, and not next year.

So for now, you need to know what percentage of the sales coming thru the branch and call center were influenced by the digital channels. Without it, you have no idea if the money you’re shoveling into the digital channels is really working. Likes, follows, and favorites don’t count.

If year over year, the percentage of sales that are digitally influenced isn’t increasing (and increasing significantly), that’s a warning sign. Bank of America says that 60% of its sales are digitally-influenced. Most community bank and credit union executives I talk to have no idea what percentage of their sales is influenced by digital channels, and when they guess, the number is a lot closer to 6% than to 60%.

If management just wants you to “check the box” that you’re doing things in the digital channel, ignore all this.

4. Referral performance score (RPS). Consumer research has shown that the top two ways in which people show loyalty to the companies they’re loyal to is by buying more from them, and referring the brand/company to friends and family. How many of your customers/members grew their relationship last quarter and referred family and friends? If you don’t know, then how you possibly understand how you’re doing at driving customer/member loyalty?

What Information Is Needed To Generate Key Banking Metrics Free

The answer is you can’t, and that’s why you need a new metric. I call it the Referral Performance Score: The percentage of customers that grew their relationship (by adding new types of accounts) multiplied by the percentage that provided a referral. I’d suggest taking the absolute values of those percentages, as multiplying two percentages results in a smaller number.

The RPS measures behavior, not intention. Can you imagine the salespeople in your organization going to the boss at the end of the year and saying “I intended on selling $1m worth of products/services this year, so you should base my bonus on that.” Ludicrous. Yet, many of you continue to measure referral intention instead of behavior. And you don’t even look at what percentage of customers are growing their relationship. Microsoft office 2019 activation key generator. Average number of products per customer is nice, but not very informative.

Words of Wisdom from Ringo Starr

As Ringo once said, “it don’t come easy–you know it don’t come easy.” He was talking about marketing measurement, you know.

The irony here is that tracking at least some of the metrics listed above will help correct a “check the box” mentality, but a check-the-box mentality will help ensure that these metrics never get tracked or used.

If you want strategic marketing metrics, you’re going to have to make a strategic decision to track them, and use them to manage marketing.

What Information Is Needed To Generate Key Banking Metrics Online

I’m not optimistic that a lot of banks and credit unions will make this strategic decision. I presented this list of metrics to two different audiences recently, CU directors (at the CU Director conference) and a group of (really smart) credit union CMOs at Cornerstone Advisors’ Marketing Roundtable.

Anecdotally, the feedback I got from directors was overwhelmingly positive. The reaction from the CMOs was more muted. It’s not that they were against these metrics or didn’t see the value–but with all they have on their plates, they immediately recognized how daunting a task it would be to pull these metrics together.

Advancements in marketing measurement (below the mega-bank level) aren’t likely to come from individual FIs. Instead, the advancements will come from the vendor community. There are a number of fintech vendors coming out with good tools and technologies for marketing measurement (won’t mention them here, lest I get accused of “endorsing” them). You don’t hear a lot about this because, frankly, demand for these tools is nowhere as great as it is for practically all of the other technologies and tools they offer.

What Information Is Needed To Generate Key Banking Metrics For Dummies

That will change. The five- to ten-year trend in community banks and credit unions is a move towards a much more strategic approach to marketing and a more strategic marketing department. With that trend will come a need for more strategic marketing measurement.

What Information Is Needed To Generate Key Banking Metrics For Business

Until then, I hope this Snarketing post gets a lot of page views, likes, and retweets.

What Information Is Needed To Generate Key Banking Metrics Pdf