How To Enhance Your Bank Efficiency Ratio Through Process Improvement

By Michael Deely

Bank Efficiency Ratio And Process ImprovementMiddle-market banks across the spectrum have felt the trend: Your efficiency ratio has been steadily creeping up over the past few years. While your healthy bank efficiency ratio hovered around 60-65%, it has recently been edging into the 70s and 80s – and you want to know what to do about it.

What’s causing this creep on your bank’s efficiency ratio? It’s usually a combination of factors, such as:
  • Increased compliance requirements
  • Decreased revenues due to compressed margins
  • Weaker demand for customer borrowing
  • Costly implementation for additional technologies (such as mobile banking)

The secret to enhancing your efficiency ratio is to harness the power of process improvement to streamline your operations.

Why Process Improvement?

Everything your employees do is part of a larger process within your bank, so if you want to trim your operations and improve your efficiency, you need to focus on improving business processes.

Simply cutting costs, pruning payrolls and giving pep talks isn’t enough to effect deep change in your operations, and these actions more than likely increase your costs and reduce value to the customer over the long term. On the other hand, process improvement is a framework focused on enhancing performance in the long run, which improves overall quality and keeps your efficiency ratio low.

Communicate To Your Team

One of the first steps to take when implementing process improvement at your bank is to communicate to your team the value of a low efficiency ratio, how you calculate it and what trends your ratio has recently experienced.

Let your team know that you’re undertaking process improvement steps to decrease your efficiency ratio, and also let them know what parts you plan to have them play in those steps. In addition, it’s critical to illustrate what role process improvement plays in your overall strategic plan and long-term goals.

Identify Leadership & Accountability

Before you dive into process improvement, be sure to identify the project manager, the members of the process improvement team and whom that team will report to – whether it’s a steering committee, a specific manager or the bank’s board. Everyone should be clear on his or her role in enacting the process improvement so that your efforts aren’t mired in poor communication.

Determine an overall agenda for how your team enacts the process improvement and set a timetable for how often the committee or leader receives updates. Both your agenda and the regular updates should include a review of your efficiency ratio to ensure your process improvement efforts are making an impact on overall efficiency.

Eliminate Process Waste

Once you’re in the midst of process improvement, remember that the key to improving the performance of your banking operations doesn’t involve cutting people – it involves cutting waste and inefficiency from the process. Once waste is eliminated from a process, your people are able to perform their jobs more effectively.

While the tools for process improvement are numerous, you don’t need a team of Lean Six Sigma Black Belts in order to be effective. Focus on improving business processes through simple steps, such as reducing handoffs, eliminating duplicate activities and organizing workers around process flows instead of functional silos. In addition, utilize non-complicated tools like root-cause analysis, affinity diagrams and group brainstorming to fuel your process improvement ideas.

Focus On Customer-Centric Quality

In today’s banking environment, quality is a given for customers. Because customers have so many options (including from rising alternative competition), they expect a high quality experience from your bank – or they’ll go elsewhere. In order to retain these customers and maintain a low efficiency ratio, you need to embed customer-centric quality into the heart of your process improvements.

Ensure that your process improvement efforts are customer-centric by using tools and approaches like Voice of the Customer. Understanding the customer’s perspective and expectations is critical to improving processes that deliver a quality experience. And, as customer expectations change and evolve, you need to adjust your process improvement efforts as well.

Maintaining a low efficiency ratio for your bank is a never-ending task, but a process improvement framework ensures that no matter what challenges come your way – whether new compliance regulations or compressed margins – you’re prepared to face them with a reliable, proven approach.

Need help getting started with process improvement for your bank? Click below to download our free guide:

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