insights.jpg

3 Essential Components Of Lean Banking Just For The CFO

By Michael Deely

Lean Banking For Your Middle-Market Bank’s Chief Financial OfficerNo other person at your bank is under so much pressure as the Chief Financial Officer. Not only are you, as the CFO, responsible for keeping your bank in business, but you have to keep your financials afloat amidst a turbulent economy and a tempestuous regulatory environment.

However, you don’t have to be troubled about these economic pressures or compliance changes if you have the right framework for addressing and overcoming challenges at your bank: the lean banking framework. 

How does lean banking help you manage and monitor your bank’s financials more efficiently? Here are just three components of lean banking that help you as a Chief Financial Officer achieve your goals without being held back by banking compliance regulations or continually compressed margins:

CFO Essential #1: Maintain A Balanced Efficiency Ratio

Your bank’s efficiency ratio is one of the most important metrics in determining your future profitability and long-term financial health as an organization. This is why a low efficiency ratio is an essential component of lean banking, especially for CFOs.

Many CFOs focus too much time and energy on either one side of their bank’s efficiency ratio or another (such as reducing non-interest expenses, or increasing non-interest income). But, in order to keep your bank running most efficiently, you need a balanced methodology for efficiency ratio management.

A lean banking approach combines both cost reduction (such as streamlined workflows, process improvement and value-stream mapping) and rallying the revenue side of your ratio (through improved sales processes and growing share-of-wallet with current customers). By balancing both sides of your ratio, you ensure that new regulations or unexpected costs won’t catch your bank by surprise – or put you out of business.

CFO Essential #2: Contain Compliance Costs

As we’ve covered before, the old model of banking compliance management is too expensive (and inefficient) to maintain. The days of having singular responsibility housed in your Compliance, Risk and Audit Departments is gone and lean banking demands a new approach to handling compliance regulations.

You need to work alongside your Chief Compliance Officer or Chief Operations Officer to “bake” risk and compliance management into your current workflows, processes and operations. Rather than being a separate function from your other banking operations, compliance steps need to be an integral part of every employee’s functions.

Furthermore, it’s time to start taking back customers from your non-regulated, alternative lending competitors: Long-term rapport and relationship-based pricing are both aspects your competition simply can’t provide with their one-off solutions. So, once you streamline your compliance management, market this aspect of your business to current and prospective customers to grow your share-of-wallet with both groups.

CFO Essential #3: Monitor Value Vigilantly

A recent study found that up to 40 percent of costs in financial services are wasteful and deliver no added value to your customer. This level of waste is simply unacceptable for banks trying to remain competitive in today’s economy, so you need the right tools and approach to audit your value-creating processes – and swiftly eliminate waste from those same workflows.

The first step to eliminating waste at your middle-market bank is through value stream mapping. Much like process mapping, value stream mapping charts the details of how value is created at your bank. With your processes mapped down to the last detail, your decisions are better informed when it comes to process improvement.

Next, with your value stream map complete, it’s time to start eliminating wasteful practices through value-added analysis. A robust value-added analysis identifies which steps in your processes add value to the final customer, which steps are necessary for banking compliance and which steps are non-value-added. With each step properly identified, you’re able to increase the efficiency of your value-added steps and eliminate or reduce non-value-added functions.

The work of any Chief Financial Officer is never easy, especially at a financial institution that’s squeezed from both economic turbulence and tightening compliance regulations. Yet, with a lean banking approach – and these three essentials – your work as a CFO is more effective so that you’re prepared and equipped to navigate the evolving financial industry.

As a CFO, you need to keep your bank functioning as efficiently as possible. Click below to download a free whitepaper from Big Sky Associates and discover how a lean banking approach directly benefits your bottom line.

Download Your Free Report - 6 Bottom-line benefits of process improvement for your post-recession middle market bank