Banks are striving to improve their performance and efficiency ratios, with mixed results. Across-the-board cost cutting can appear to be an easy lever to pull — but that risks impairing growth and differentiation. Investing in agility and talent is necessary but can be difficult to sell internally given investor expectations.
Given those constraints, bank leaders want to take actions that will have the highest positive effect on the efficiency ratio. PwC's proprietary data and analysis of the leading factors that drive the efficiency ratio aims to help leaders understand the tradeoffs and make better-informed decisions on how to improve their cost of funds, deposit and fee mix, employee productivity and back-office expenses.
Key Findings:
- Efficiency Ratio Drivers: Key factors like net interest margin (NIM) and operational efficiency play a significant role in achieving a competitive efficiency ratio, with potential for up to a 10-percentage-point improvement.
Portfolio Mix and Cost Efficiency:
- Consumer Deposits: Today's environment is shifting compared with history, a higher share of consumer deposits helps reduce funding costs.
- Revenue Diversification: Efficient banks derive a greater share of revenue from fees.
- Lean Cost Structure: Top-performing banks maximize middle- and front-office productivity by leveraging digital solutions and optimizing staffing.
Take a closer look at the factors driving top-performing banks and actionable strategies for operational improvement.