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Loan KPI To Measure Your Bank's Performance

Mar 24, 2008
In banking, key performance indicators (KPI) play a significant role in determining your bank's level of performance. KPIs may either be financial or non-financial and should be set to suit the bank's organizational framework, strategies and objectives. KPIs vary from one bank to another due to contrast in CEO management approaches.

Many community banks have a multitude of key performance indicators that are more likely to be included in a KPI report. These performance indicators may be incorporated in your KPI report or may be used as basis for establishing a new one.

One is liquidity ratios. Consider settling one or two of the twelve liquidity ratios, at least, to deal with liquidity issues that mostly affect your bank. Another is uninvested funds, which, when taken less the reserve requirements give an ongoing measure on how you perform at keeping the bank's funding going through investments.

Moreover, showing a table of loan commitments beginning the period; new, funded commitments as well as ending balance will show future obligations and movement. Putting average rates for every category will also yield a sound indication of how upcoming loan gains will be affected.

On the other hand, demonstrating a graph of loans outstanding at the beginning of the phase; new, funded loans, principal reductions and total ending loans will show loan activity as well. Looking at the loan portfolio's average rate at the beginning and end of the period will show profitability information.

Meanwhile, loans exceeding a specific dollar amount such as huge loans that are paid early may imply either a potential opportunity or a lost customer. Banks have customers maintaining considerable balances, in which significant increase or decrease in the said accounts can also mean a possible loss or gain. Changes in loan rating categories or levels of loans bigger than the specified amount must be individually listed.

The total quantity and sum of new deposit accounts also provide a growth measure as well. Monitoring by the kind of account such as savings, checking, CD or money market gives better data instead of simply using totals. There is also the total quantity and amount of closed deposit accounts, in which putting new accounts is the central focus although the net increase is considered highly substantial. Replacing accounts on continuously can cost quite a lot.

Furthermore, it doesn't hurt to formally report large or unfamiliar items, in case you are aware of them. Establish a threshold that is low enough to yield important items but is high enough to keep you from producing a list that's a page long list. Keep in mind that limits may depend on the expense item's nature.

Additionally, the earning assets quotient should be differentiated against the previous year or month to date. Also, the ratio of interest-bearing liabilities should be compared to the previous year or month to date results. Always make sure to be on the lookout for trends of both these factors. Don't forget to consider customer count as well.

Lastly, it is important to evaluate your KPIs every year after setting plans for the coming year. Be sure that your KPIs come with measurements that can forecast how the year's goals can be met.
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