Welcome to the world of retail banking where financial institutions serve individuals and SMEs (small and medium-sized enterprises). Running a bank requires efficient operations, optimal utilization of resources, and making informed business decisions. One effective way to achieve these goals is by monitoring essential KPIs or key performance indicators that allow you to track and measure your bank's performance.

Here, we've listed seven top KPIs that can help you understand your retail bank's position in the market. By tracking and interpreting these metrics, you can gain valuable insights into customer behavior, business operations, growth potential, and more. So, let's delve into the world of essential KPIs that every bank should track.

  • Customer satisfaction level: This KPI measures how satisfied your customers are with your bank's services and products. The higher the satisfaction level, the more likely your customers are to stay loyal and spread good word of mouth.
  • Percentage of loan approvals: This KPI reflects how many loan applications your bank approves compared to the total number of applications received. A higher percentage is a good indicator of your bank's credit risk assessment, underwriting capabilities, and customer outreach.
  • Average customer balance: This KPI gives an idea of how much each customer holds in their bank account on average. A higher average balance indicates better customer engagement, cross-selling opportunities, and profitability for the bank.

These KPIs and others like them can be tracked and calculated to help improve your bank's performance and stay ahead of the competition. Keep reading to discover more about these critical metrics and how to measure them effectively.



Customer satisfaction level

One of the most important key performance indicators for retail banks is the customer satisfaction level. This metric helps banks understand how satisfied their customers are with the services they offer and whether they are meeting their expectations.

Definition

Customer satisfaction level (CSAT) is a measure of how well a retail bank meets its customers' expectations. It is a score that reflects the satisfaction level of customers with the services provided by the bank.

Use Case

Measuring customer satisfaction level allows retail banks to identify areas where they need to improve their services. It helps them understand customers' expectations, which are constantly changing, and tailor their services to meet these changing needs.

How To Calculate KPI

To calculate the customer satisfaction level, divide the number of satisfied customers by the total number of customers surveyed, then multiply the result by 100 to get a percentage. The formula is:

Customer Satisfaction Level (%) = (Number of Satisfied Customers / Total Number of Customers Surveyed) x 100

Calculation Example

Suppose a retail bank sent out customer satisfaction surveys to 100 customers and received feedback from 80. Of those surveyed, 70 said they were satisfied with the services provided by the bank. To calculate the customer satisfaction level:

Customer Satisfaction Level (%) = (70 / 80) x 100 = 87.5%

KPI Advantages

  • Helps retail banks identify areas for improvement
  • Ensures retail banks meet customers' changing needs
  • Reflects how well a retail bank is performing in meeting customers' expectations

KPI Disadvantages

  • May not capture an accurate representation of all customer experiences
  • Relies on customer surveys, which may not be completed by all customers
  • Can be costly and time-consuming to administer surveys

KPI Industry Benchmarks

The average customer satisfaction level for retail banks is around 80%. However, this varies across different types of banks and their target customer segments.

Tips & Tricks

  • Offer incentives to customers who complete satisfaction surveys
  • Use different channels, such as email, text, and mobile apps, to reach more customers
  • Periodically review and revise surveys to capture customers' evolving expectations


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Percentage of loan approvals

As a retail bank, measuring the percentage of loan approvals is a crucial metric to track. This KPI mainly answers the question:

Definition

The percentage of loan approvals is a metric that measures the ratio between the total loan applications approved and the total number of loan applications received.

Use Case

This KPI helps retail banks to evaluate their credit risk and asset quality. By calculating the percentage of loan approvals, retail banks can identify the reasons behind the denials and try to improve their loan approval process, which could eventually lead to an increase in loan approvals.

How to Calculate KPI

The formula for calculating the percentage of loan approvals KPI is:

Percentage of loan approvals = (Total number of loan applications approved / Total number of loan applications received) x 100

Calculation Example

Let's say a retail bank received 100 loan applications in a month, and they approved 80 of them. The percentage of loan approvals for that month would be:

Percentage of loan approvals = (80 / 100) x 100 = 80%

KPI Advantages

  • The percentage of loan approvals KPI helps retail banks to monitor their loan approval process and identify areas for improvement.
  • It provides insights into the risks and quality of the bank's assets.

KPI Disadvantages

  • It doesn't take into account the quality of the loan applications.
  • The KPI could be misleading if the bank's loan application process is not consistent.

KPI Industry Benchmarks

The percentage of loan approvals KPI benchmark varies for different types of loans, demographics, and regions. However, in general, retail banks aim to keep their loan approval rate above 60%.

Tips & Tricks

  • Automate your loan application process to reduce inconsistencies.
  • Provide clear and concise instructions to customers for filling out loan applications.
  • Use data analytics to identify patterns behind the denials, and apply insights for better loan approvals.


Number of new account openings

As a retail bank, keeping track of the number of new accounts being opened is crucial for business growth. This metric is a vital component to understanding the success of your marketing campaigns and overall growth in customer acquisition.

Definition

The number of new account openings is a KPI metric used to measure the success of your bank's marketing and sales efforts in acquiring new customers. This metric tracks the total number of new accounts opened within a given time period.

Use Case

The number of new account openings is a critical metric for retail banks to measure as it directly impacts business growth. By tracking the number of new accounts opened, banks can identify areas of improvement in their marketing and sales strategies, and evaluate the success of any new marketing campaigns.

How to Calculate KPI

To calculate the number of new account openings KPI, use the following formula:

New account openings = Total number of new accounts opened in a given time period

For example, if you want to track the number of new accounts opened in a month, you would take the total number of new accounts opened in that month and use that as the numerator in the formula.

Calculation Example

Let's say your retail bank opened 100 new accounts in a month. Using the formula, we can calculate the number of new account openings KPI as follows:

New account openings = 100

This means that your retail bank had 100 new account openings in that month.

KPI Advantages

  • Provides insights into the success of marketing campaigns and customer acquisition strategies
  • Allows for proactive changes to be made to marketing and sales strategies
  • Helps track business growth and the impact of new marketing campaigns

KPI Disadvantages

  • Does not account for the quality of new accounts opened
  • May not provide an accurate representation of customer retention, as new accounts may not always translate to customers staying with the bank
  • May not account for factors outside of marketing and sales strategies, such as economic conditions, that impact new account openings

KPI Industry Benchmarks

The benchmark for new account openings varies depending on the size of your bank and the market conditions. However, a well-performing bank should aim to have a new account openings growth rate of 5-10% annually.

Tips & Tricks

  • Review your referral program to encourage new account openings
  • Track the demographics of new accounts to identify trends in customer acquisition
  • Consider partnering with a fintech company to streamline the account opening process and attract more customers


Average customer balance

Definition: Average customer balance measures the total balance of customer accounts divided by the number of customers. This KPI helps retail banks to understand how much money, on average, their customers hold in their accounts.

Use Case: Retail banks can use the average customer balance KPI to assess customer loyalty and identify opportunities to grow their customer base by attracting high balance customers.

How To Calculate KPI: To calculate average customer balance, divide the total balance of customer accounts by the number of customers:

[(Total balance of customer accounts) / (Number of customers)]

Calculation Example: If a retail bank has 500 customers with a total balance of $10,000,000, then the average customer balance would be:

[(10,000,000) / (500)] = $20,000

KPI Advantages: Average customer balance helps retail banks understand the profitability of their customers and identify trends in customer behavior.

KPI Disadvantages: Average customer balance does not provide a complete picture of a retail bank's customer base, as it does not differentiate between active and inactive accounts.

KPI Industry Benchmarks: The industry benchmark for average customer balance varies depending on the type of retail bank and their customer base. Small community banks may have an average customer balance of around $5,000, while large national banks may have an average customer balance of $50,000 or more.

Top tips for improving average customer balance:

  • Offer high-interest savings accounts to attract customers with large balances
  • Incentivize customers to keep their deposits with your bank by offering bonuses or rewards
  • Encourage customers to consolidate their accounts for higher average balances


Interest Income Growth Rate

As a retail bank, monitoring the interest income growth rate is important to keep track of how much money is being earned from loan interest, credit card interest, and other interest-earning accounts. Understanding this KPI can help banks identify their profitable products and services and make better decisions around expanding their offerings.

Definition

The interest income growth rate is the percentage change in a bank's interest income over a given period, typically a year.

Use Case

By tracking the interest income growth rate, retail banks can gain insight into the success of their interest-earning products and services. Banks can use this KPI to identify areas where they are earning more interest revenue, and areas where they may need to improve to increase their profitability.

How to Calculate KPI

To calculate the interest income growth rate, use the following formula:

Interest Income Growth Rate = ((Current Year Interest Income - Previous Year Interest Income) / Previous Year Interest Income) x 100

Where:

  • Current Year Interest Income: The total interest income earned by the bank in the current year.
  • Previous Year Interest Income: The total interest income earned by the bank in the previous year.

Calculation Example

Suppose a bank earned $10,000 in interest income last year, and this year it earned $13,000. By applying the formula above, we can calculate the interest income growth rate:

Interest Income Growth Rate = (($13,000 - $10,000) / $10,000) x 100

Interest Income Growth Rate = 30%

KPI Advantages

  • Provides insight into the success of a bank's interest-earning products and services
  • Helps banks identify areas where they are earning more interest revenue and areas where they need to improve
  • Can be used to estimate future growth and profitability

KPI Disadvantages

The interest income growth rate does not take into account factors like inflation, changes in interest rates, changes in a bank's business model or changes in industry regulations. Therefore, it should be used in conjunction with other KPIs to get a more complete picture of a bank's financial performance.

KPI Industry Benchmarks

Industry benchmarks for the interest income growth rate vary depending on a bank's size, location, and business model. Banks can consult industry reports to determine benchmark rates and compare their performance to peers and competitors.

Tips & Tricks

  • Implement strategies to increase interest income, such as offering competitive interest rates or promoting higher-interest-earning accounts.
  • Explore new interest-earning products and services to diversify your bank's offerings and attract new customers.
  • Consider the impact of external factors such as regulatory changes or economic conditions on interest income growth.


Loan Delinquency Rate

A reliable way to track the overall health of a retail bank is by measuring its performance using KPI Metrics. One of the essential KPIs that retail banks should keep an eye on is the Loan delinquency rate.

Definition

The loan delinquency rate is the percentage of outstanding loans that are past due for payment by a certain number of days, typically 30, 60, 90, or 120 days, or more. When a borrower fails to make a payment on time, the loan becomes delinquent, and the bank records it as a non-performing asset on its balance sheet. The loan delinquency rate is a measure of the bank's credit risk, that is, the risk of default by borrowers.

Use Case

The loan delinquency rate is an important KPI for retail banks because it allows them to assess the quality of their loan portfolio and identify potential credit losses. By tracking the loan delinquency rate, banks can take timely corrective action to recover overdue amounts, restructure loans, or sell non-performing loans to third-party collectors.

How To Calculate KPI

The formula for calculating the loan delinquency rate is:

Loan Delinquency Rate = (Total Amount of Delinquent Loans / Total Amount of Outstanding Loans) x 100

Calculation Example

Suppose a retail bank has outstanding loans of $100 million and delinquent loans of $2 million. The loan delinquency rate would be:

Loan Delinquency Rate = ($2,000,000 / $100,000,000) x 100 = 2%

KPI Advantages

  • Allows retail banks to monitor and manage credit risk
  • Provides early warning signals of potential losses
  • Helps banks identify problem loans and take corrective action

KPI Disadvantages

  • Does not provide a complete picture of credit risk
  • May not reflect the bank's credit policies or the economic environment
  • May be influenced by seasonality, geography, or industry-specific factors

KPI Industry Benchmarks

The loan delinquency rate varies across different types of loans, regions, and economic cycles. According to the Federal Reserve Bank of St. Louis, as of Q1 2021, the loan delinquency rates in the U.S. were:

  • Residential mortgages: 4.0%
  • Commercial and industrial loans: 1.7%
  • Credit cards: 5.0%
  • Auto loans: 1.1%

Tips & Tricks:

  • Set loan policies and protocols for fast and easy debt recovery.
  • Implement collection practises to mitigate risk and ensure compliance with regulatory standards.
  • Regularly review delinquent loan numbers by aging of the loan, product type, branch level, and creditworthiness of the borrower.


Marketing campaign ROI

As a retail bank, measuring marketing campaign ROI is crucial in determining the effectiveness of your marketing strategy. In this section, we will discuss the definition, use case, how to calculate the KPI, calculation example, KPI advantages, KPI disadvantages, and KPI industry benchmarks for the KPI: Marketing campaign ROI.

Definition

Marketing campaign ROI is the measurement of the return on investment of a marketing campaign. It compares the revenue generated from the campaign to the amount of money spent on the campaign.

Use Case

Measuring marketing campaign ROI is essential for evaluating the success of marketing campaigns. By understanding the ROI, retail banks can identify areas where they can improve their marketing strategies and allocate resources more effectively to increase revenue.

How To Calculate KPI

The formula for calculating marketing campaign ROI is:

ROI = ((Revenue - Marketing Cost) / Marketing Cost) x 100%

Calculation Example

Suppose a retail bank spends $10,000 on a marketing campaign that generates $20,000 in revenue. Using the formula, the marketing campaign ROI is:

ROI = (($20,000 - $10,000) / $10,000) x 100% = 100%

KPI Advantages

  • Measures the effectiveness of marketing campaigns
  • Helps in identifying areas of improvement
  • Enables effective allocation of marketing resources

KPI Disadvantages

  • Does not consider non-financial benefits of marketing campaigns
  • Can be influenced by external factors
  • Difficult to attribute revenue to a specific marketing campaign

KPI Industry Benchmarks

The industry benchmark for marketing campaign ROI varies by sector, but in the retail banking industry, the average ROI is around 5:1.

Tips and Tricks:

  • Track the ROI of each marketing campaign to identify the most successful campaigns
  • Compare the ROI of different campaigns to determine which channels are most effective
  • Consider using A/B testing to test different marketing strategies and improve ROI


In conclusion, monitoring and tracking key performance indicators (KPIs) is crucial for the success of any retail bank. The seven KPIs mentioned in this article, including customer satisfaction level, percentage of loan approvals, and average customer balance, can provide valuable insights into your bank's performance, customer behavior, and growth potential. By utilizing these KPIs and others like them, banks can make informed business decisions, improve operations, and achieve optimal utilization of resources. Therefore, staying ahead of the competition requires a deep understanding of these critical metrics and how to measure them effectively.

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