Checklist for important KPIs to track in banking companies.

Here is a checklist of important Key Performance Indicators (KPIs) to track in banking companies: 

Net interest margin (NIM): 

Net interest margin (NIM) is a key performance indicator that measures the difference between the interest earned on loans and the interest paid on deposits. A higher NIM indicates better profitability as the bank is earning more interest income than it is paying out in interest expenses. 

Loan-to-deposit ratio: 

It measures the proportion of loans that a bank has compared to its deposits. A higher loan-to-deposit ratio indicates that the bank is lending out more money compared to the amount of deposits it has on hand.  

This can be an indication of risk as the bank may not have enough liquidity to meet its obligations if a large number of customers decide to withdraw their deposits at the same time. However, a lower loan-to-deposit ratio may indicate that the bank is not fully utilizing its deposits to generate income. 

 A balance between loan-to-deposit ratio and net interest margin is crucial for a bank's profitability and liquidity. 

Non-performing loans (NPL) 

Non-performing loans (NPL) ratio is a financial metric that measures the percentage of a bank's total loan portfolio that is considered non-performing or in default. NPLs are loans that are either overdue or in default, meaning that the borrower has not made payments on the loan as agreed. The NPL ratio is calculated by dividing the total amount of non-performing loans by the total amount of outstanding loans. 

Return on assets (ROA) 

It measures a company's profitability by comparing its net income to its total assets. The ROA ratio shows how much profit a company is able to generate from its assets. It is calculated by dividing net income by total assets. The higher the ROA, the more efficiently a company is using its assets to generate profit. 

Return on equity (ROE)  

is a financial performance indicator that measures the profitability of a bank relative to its shareholders' equity. It is calculated by dividing net income by shareholders' equity. A higher ROE indicates that the bank is generating more profit with the money invested by its shareholders. 

Cost-to-income ratio  

 It is another important KPI that measures the efficiency of a bank's operations. It is calculated by dividing operating expenses by operating income. A lower cost-to-income ratio indicates that the bank is operating efficiently and able to generate more income with less expense. A higher cost-to-income ratio may indicate that the bank is spending too much on operations or not generating enough income. 

Capital adequacy ratio (CAR)  

 It is a regulatory financial ratio that measures the proportion of a bank's capital to its risk-weighted assets. It is an important indicator of a bank's financial strength and ability to withstand potential losses from credit and market risks. A higher CAR indicates that the bank has sufficient capital to absorb potential losses and is better positioned to meet unexpected demands for funds. 

Customer satisfaction 

 It is a key performance indicator that measures how satisfied customers are with the bank's products and services. It can be measured through surveys, feedback forms, and other customer engagement methods.  

High customer satisfaction is important as it leads to increased customer loyalty, repeat business, and positive word-of-mouth marketing. Conversely, low customer satisfaction can lead to customer churn, negative reviews, and a damaged reputation. 

Digital turnover rate 

It is a KPI that measures the rate at which employees in digital roles are leaving the organization. This metric is particularly important in industries that are heavily reliant on digital technology, such as IT and digital marketing.  

A high digital turnover rate can indicate issues with company culture, management, compensation, or other factors that are driving employees to leave. By tracking this metric, organizations can identify areas for improvement and take steps to reduce turnover and retain top talent. 

Employee turnover rate 

It  is a broader KPI that measures the rate at which employees are leaving an organization. This metric includes all types of roles and can be a useful indicator of overall workforce satisfaction and engagement.  

A high employee turnover rate can be costly for organizations in terms of recruiting and training new employees, as well as lost productivity and institutional knowledge. 

 By tracking this metric and understanding the reasons behind employee turnover, organizations can take steps to improve retention and create a more positive workplace culture. 

By tracking these KPIs, banking companies can monitor their financial performance, risk management, customer satisfaction, and other key aspects of their business to inform decision-making and drive improvement.