The 7 Best Industrial Banking KPIs

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Introduction

Industrial banks are an integral part of the global economy, and tracking key performance indicators (KPIs) has become increasingly important for banks to succeed. To ensure your industrial bank is operating at peak performance, there are seven major KPIs you should track. Each of these metrics can provide insight into the health and functioning of your bank and, when continuously assessed, can help identify areas for improvement. In this blog post, we’ll explain the top seven industrial banking KPI metrics and how to track and calculate each one.

Loan volume

Definition

Loan volume is the total amount of loans issued by a bank in a given period, usually measured within a calendar year. It is one of the most important metrics for banks because it reflects the size of the lending business and the amount of money the bank earns from interest income.

Benefits of Tracking

Tracking loan volume is important for a bank to monitor the growth of its business. It is also useful for banks to track lending volume to compare it to other banks in the industry, as it is one of the key indicators of financial health and performance.

Industry Benchmarks

The average lending volume for banks in the United States is approximately .5 trillion per year. This figure can vary considerably depending on the type of bank and the size of the institution. For example, the largest banks may have loan volumes of up to trillion or more.

How to calculate

The volume of loans can be calculated by adding up all the loans granted by the Bank in a given period. The formula for calculating loan volume is as follows:

Loan volume = ∑ (loan amounts)

Calculation example

For example, if a bank issued a total of billion in loans in one year, the loan volume would be billion. The formula for this calculation would be:

Loan volume = billion

KPI Tips and Tricks

  • Regularly track loan volume to monitor the growth of the bank’s lending activity.
  • Compare loan volume to industry benchmarks to better understand bank performance.
  • Understand the different types of loans issued by the bank, including residential mortgages, commercial loans and consumer loans.
  • Focus on improving loan quality to increase loan volume and maximize returns.
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Loan to deposit ratio

Definition

The loan to deposit ratio is a metric used to measure a bank’s liquidity. It is calculated by dividing a bank’s total loans by its total deposits. It is used to measure the amount of a bank’s funds from deposits and the amount of its funds lending to customers.

Benefits of Tracking

Monitoring the loan to deposit ratio can provide a financial institution with valuable information about its liquidity. It can be used to identify areas where the bank relies too heavily on lending or where it is not taking advantage of its available deposits. Tracking the loan to deposit ratio can also help a bank make better decisions on how to invest its funds.

Industry Benchmarks

The loan to deposit ratio can vary greatly between different industries and regions. Generally speaking, banks should aim for a loan to deposit ratio of at least 70%, although this may vary depending on the type of bank and the region in which it operates.

How to calculate

The loan to deposit ratio is calculated by dividing a bank’s total loans by its total deposits. The formula is:

Loan to deposit ratio = total loans / total deposits

Calculation example

For example, if a bank has 0 million in loans and billion in deposits, its loan to deposit ratio would be 50%. This would mean that 50% of the bank’s funds come from loans and 50% from deposits.

Loan to deposit ratio = 500 million / 1 billion = 50%

Tips and tricks

  • Regularly monitor the loan to deposit ratio to ensure it remains within a healthy range.
  • Focus on increasing deposits to increase the ratio.
  • Take advantage of industry benchmarks to compare your loan to deposit ratio to other banks in your area.
  • Be sure to consider other potential sources of funds, such as investments, when calculating the ratio.
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Loyalty of the clientele

Definition

Customer retention is a measure of how well a business retains customers over a period of time. This metric helps gauge customer loyalty and satisfaction, as well as the effectiveness of customer service and marketing initiatives.

Benefits of Tracking

  • Identify customer loyalty and satisfaction levels.
  • Measure the effectiveness of customer service and marketing initiatives.
  • Keep an overview of customer needs and preferences.
  • Make informed decisions about future investments.

Industry Benchmarks

Industry benchmarks for customer retention vary by business type and industry. Generally, a customer retention rate of 80% or higher is considered good, while a rate of 90% or higher is considered excellent.

How to calculate

The customer retention rate is calculated by dividing the number of customers at the end of the period by the number of customers at the beginning of the period, multiplied by 100. The following formula can be used to calculate the customer retention rate customer base:

Customer retention rate = (customers at the end of the period / customers at the beginning of the period) x 100

Calculation example

For example, a business with 100 customers at the start of the period and 80 customers at the end of the period would have a customer retention rate of 80%.

Customer retention rate = (80/100) x 100 = 80%

Tips and tricks

  • Use customer surveys to better understand customer needs and preferences.
  • Keep customers coming back with rewards and discounts.
  • Encourage customers to refer friends and family.
  • Improve your customer service to ensure a positive customer experience.

Net interest income

Definition

Net interest income (NII) is a key profitability measure for industrial banks. It is calculated as the difference between interest earned and interest paid on deposits and other borrowings. It is an important indicator of financial health and stability for industrial banks.

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Benefits of Tracking

  • NII monitoring helps industrial banks measure their overall financial performance and identify areas of strength and weakness.
  • It is a key indicator of the bank’s ability to generate income from its lending activities.
  • It helps industrial banks compare their performance with their peers in the industry.

Industry Benchmarks

Industrial banks generally use their own benchmark to compare their performance. The average NII for industrial banks is typically around 2-3% of total assets. The industry benchmark may change based on economic conditions, so it is important to follow the industry benchmark and adjust accordingly.

How to calculate

Nii = interest earned – interest paid

Calculation example

For example, an industrial bank has total assets of 0 million and interest earned of million. The bank also has interest paid of one million dollars. The net interest income of the bank would be:

Nii = 2 million – 1 million
Nii = million

Tips and tricks

  • Track NII over time to determine if the bank is achieving its expected performance.
  • Analyze the ratio of interest earned to interest paid to identify how efficiently the bank uses its funds.
  • Compare the NII to the industry index to determine how the bank is performing against its peers.

Recharge rate

Definition

Billing rate is a KPI metric used to measure the amount of loans or credit issued to customers that have not been repaid and deemed uncollectible. It is also known as billing ratio, billing percentage or loan loss rate.

Benefits of Tracking

Tracking the discount rate is important for financial institutions because it provides insight into the deficiency of the institution’s loan portfolio. It also helps inform decision-making regarding lending policies, risk management strategies, and overall financial performance.

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Industry Benchmarks

The billing rate is generally used as a benchmark to measure the performance of a financial institution against similar institutions in the same industry. The average rejection rate for industrial banks is usually between 0.5% and 1.5%.

How to calculate

The billing rate is calculated by dividing the total amount of loans or credit extended to customers who have not been repaid by the total amount of loans or credit extended.

Loading rate = (amount of non-collectible loans / total amount of loans) x 100

Calculation example

For example, if a financial institution extended ,000,000 in loans and 0,000 of those loans were not repaid, the disappointment rate would be calculated as follows:

Billing rate = (0,000 / ,000,000) x 100 = 2%

Tips and tricks

  • Tracking the discount rate over time can help identify loan portfolio trends that can be used to improve the financial institution’s risk management strategies.
  • It is important to compare the billing rate with industry benchmarks to ensure that the financial institution is operating at an acceptable level.
  • Billing rate monitoring can also help identify potential areas for improvement in lending policies and procedures.

Net interest margin

Definition

Net Interest Margin (NIM) is a financial metric used to measure a bank’s profitability. It is calculated as the difference between the interest the bank earns on its loans and investments and the interest it pays on its deposits.

Benefits of Tracking

  • Nim is an important indicator of a bank’s financial health and performance.
  • It provides insight into the bank’s ability to generate revenue from its core business operations.
  • It provides a benchmark for comparison with other similar banks.
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Industry Benchmarks

The average net interest margin for commercial banks in the United States is 3.2%. The average for large banks with over billion in assets is 3.8%.

How to calculate

NIM = (Interest income – interest expense) / total interest-bearing liabilities

Calculation example

Suppose a bank has interest income of million and interest of 0,000 on total liabilities of million.

NIM = ( million – 0,000) / million = 0.2 or 20%

Tips and tricks to improve the KPI

  • Focus on increasing interest income by increasing loan amounts.
  • Focus on reducing interest expenses by increasing the rate of return on deposits.
  • Invest in higher yielding investments and be careful of taking on too much risk.

Non-interest income

Definition

Interest-free income is a measure of the money a bank earns from sources other than interest payments on loans, investments, deposits, and other related activities. It includes income from services such as ATM fees, trust and estate management fees, and other fees associated with providing banking services.

Benefits of Tracking

Tracking interest-free income can help banks make better decisions about their business strategies. It provides insight into the bank’s success in generating non-interest income and the amount of the bank’s overall income that comes from non-interest income sources. By understanding this KPI, banks can make more informed decisions about the types of services they offer and the fees they charge for those services.

Industry Benchmarks

The industry benchmark for non-interest income varies depending on the type of banking services offered. Generally, banks that offer more services are able to generate more non-interest income. The average interest-free income for banks in the United States is about 30% of total income. However, some banks may generate more or less than this average.

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How to calculate

Non-interest income can be calculated by subtracting total interest income from total income. The formula is:

Interest-free income = Total income – Total interest income

Calculation example

For example, if a bank has total income of 0,000 and total interest income of ,000, non-interim income can be calculated as follows:

Interest-free income = 0,000 – ,000 = ,000

Tips and tricks

  • Monitoring interest-free income is a key part of running a successful bank. This can help banks identify areas where they can increase revenue and reduce costs.
  • It is also important to monitor industry benchmarks to ensure the bank is operating at an acceptable level.
  • Non-interest income should be monitored regularly to ensure the bank is maximizing its earning potential.

Conclusion

Accurately tracking and calculating your industrial bank’s key performance indicators is key to predicting profitability and increasing efficiency. The seven metrics discussed in this article provide detailed insight into the health and performance of your industrial bank. Assessing these metrics regularly allows your bank to move towards best banking practices.

By monitoring and managing these KPIs, you can make informed decisions to maximize the performance of your industrial bank. With up-to-date information on customer retention and interest rates, you’ll have the key information required to succeed.

  • Home
  • Loan volume
  • Loan to deposit ratio
  • Loyalty of the clientele
  • Net interest income
  • Recharge rate
  • Net interest margin
  • Non-interest income