Signature Research

Driving Down the Bank Efficiency Ratio: Despite Digital Adoption, Vast Improvements Remain

The efficiency ratio has always been the single most important metric for banks seeking to understand their productivity

12-minute read
Driving Down the Bank Efficiency Ratio: Despite Digital Adoption, Vast Improvements Remain

In our survey of over 150 bank executives, we found that boosting productivity is the number one strategic priority at mid-market banks. In fact, more than half of our survey respondents selected boosting productivity ahead of new customer growth, expanding digital presence, and improving security. Digital technology emerged as the primary driver to boosting productivity. While consensus is clear, the results also revealed a stark perception gap in how successful efforts to boost productivity and lower efficiency ratio have been.

  • Improving efficiency is a top priority in the mid-market. Ninety-eight percent of survey respondents indicated they are currently implementing strategies to improve efficiency. The time to boost productivity is now and digital technology is the way to do it: 61% indicated that leveraging digital technology is how they would get there.
  • But, there’s a catch. Banks are making gains but not at the pace of an increasingly digital industry. Nearly 80% of our survey respondents perceive that they have been extremely or very successful in improving efficiency/productivity at their banks in the past year, but only 34% have a bank efficiency ratio at or below 50%. In fact, from 2015 to 2018, less than 20% of mid-market banks have shown a 5-point improvement in efficiency ratio. Less than 10% have made 10-point improvements.
  • Technology isn’t being leveraged to its full extent. Not only are banks not making notable gains in reducing efficiency ratio, they’re indicating lackluster results with new technology. Ninety-one percent of respondents report high technology acceptance but only 43% indicated they are seeing results.
  • The industry is making the right investments to make significant gains in productivity, but must focus on optimizing their technology investments before results will follow.
  • Given that the mid-market’s priority around boosting productivity via technology dovetails with broader industry trends toward digital operating models, is it time to ask: Is the mid-market ready to rewrite the rules around the optimal bank efficiency ratio?

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