Cost management in the banking industry often falls into focusing solely on cost-cutting. However, for cost improvements to be successful, they should be sustainable. This requires a continuous review of spending, optimizing current resources, driving efficiencies, and shifting savings to investment Contact online >>
Cost management in the banking industry often falls into focusing solely on cost-cutting. However, for cost improvements to be successful, they should be sustainable. This requires a continuous review of spending, optimizing current resources, driving efficiencies, and shifting savings to investments that deliver value to the bank and its customers.
This is the cost transformation mindset. And it requires additional metrics for gauging success.
Explore our survey data and get the latest insights on cost optimization in banking in this new report by KPMG International.
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KPMG International''s initial analysis of survey results from global banks,indicates a consistent decrease in banks cost-to-income ratio (CIR) pre-COVID, followed by an increase during FY19-21 likely due to staff, technology costs, and loan loss provisioning. Recently, improvements in CIR have been observed, largely due to top-line gain from rising interest rates that have boosted profitability.
However, with rising inflation, cost management has become more crucial for banks. Services and people costs tend to increase in line with inflation, and the risk of reduced income is becoming a reality in many countries due to the cost of living/borrowing crisis.
While CIR and return on equity (ROE) are widely used to gauge bank performance, a deeper focus is needed to measure performance more broadly.
By considering customer metrics such as the cost-to-serve (CTS) and full-time equivalents (FTE) per customer, banks can focus on productivity, efficiency, and profitability. Implementing new technologies, simplifying processes, and introducing efficiency initiatives can increase customer value.
In the KPMG Banking cost transformation survey, 82 percent of respondents identified deep cultural challenges in achieving sustainable cost reductions, despite significant technology investments. Most banks aim to reduce costs, but their cost-reduction objectives often do not align with their broader ambitions, and a cost-culture mindset is not embedded throughout the organization.
Cost transformation in banks does not always permeate the entire organization, even when executives are compensated for meeting cost objectives. Some banks have implemented horizontal and vertical cost structures to align business needs with spending. Executives responsible for a vertical, such as retail banking, are also responsible for its associated costs.
The KPMG Banking cost transformation survey showed that despite recent improvements in CIR, there is a clear need to deliver additional value — and at a greater pace — in the next wave of cost transformation investments. Research suggests that this will be in the region of 10 percent in cost efficiencies over the next 12 months and as high as 20-30 percent over the next three years. Set against an inflationary headwind, these will be significant targets to achieve.
Based on the foundational work that many banks have already put in place, leaders are more confident about where the costs sit. Eighty-six percent of bank executives feel they have strong cost-base mapping in place, with three out of four believing they have the right incentives in place for leaders to achieve their targets.
In KPMG professionals'' experience working with bank executives, many examples point to the impact of these executives'' investments on the operating expenses of contact centers and branches that shift to digital channels, the front-to-back digitization of core value streams such as personal lending and mortgages, and the consolidation of functions to drive scale. However, unanticipated headwinds, changes in customer demands and the challenges of stopping to do certain things means that all too often the gains made are reversed as other costs are added.
As banks look at the next wave of cost transformation investments, the themes are consistent as the strategy begins to extend beyond traditional frontline functions into the FTE base in corporate-headquartered departments and functions such as Finance, Risk and Compliance and Marketing.
KPMG has developed a 12-lever model that sits alongside Value Analysis/Value Engineering thinking and provides banks with an opportunity to consider their options for increasing value and reducing the cost to serve. With most banks endeavoring to drive value with one or more of the levers, it continues to maintain its relevance.
The broad learnings gained from KPMG professionals'' experience with banks and other financial services organizations leads to three steps for banks to consider in developing their cost transformation strategies and assessing, funding and executing the supporting business cases.
KPMG firms have an international team of cost transformation professionals who have worked with the world''s leading global, regional and local banks. We can help assess potential earnings improvements, define functional cost-saving strategies and develop an execution plan tailored to your organization.
In November 2023, KPMG International conducted a survey with over 200 banking leaders, supported by extensive benchmarking and 1-1 interviews with leaders who are developing the next wave of strategic cost and value optimization investments.
For more detail about the structure of the KPMG global organization please visit https://kpmg /governance.
This report investigates the importance of household savings, its relationship with the economic growth of a country, and how some countries, by adopting innovative solutions and policies, have inculcated a savings mindset among their citizens. The report further delves into the culture of household savings in Saudi Arabia, and how the country''s household savings rate can be improved to a global standard of 10 percent that is recognized as the minimum level to ensure long-term financial stability. Household savings and investment are two vital cogs in the proper functioning of an economy.
An acceptable rate of economic growth typically requires an adequate rate of investment and therefore, a satisfactory supply of savings. While investment is recognized as a goal of economic policy as it improves productivity and increases the competitiveness of an economy, savings form the core of capital formation that fuels economic development. Nations that take conscious initiatives to encourage and nurture formal savings are more likely to witness higher levels of sustainable economic growth, human development and living standards.
The main objective of this paper, in addition to identifying the core factors that impact a country''s household savings rate, is to identify achievable policies and initiatives, which, if implemented, may lead to improvement in the savings mindset of the Saudi population. We used our analysis, especially of the successful policy adoption by other nations, to come up with relevant policy recommendations.
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The people of Saudi Arabia do not save enough, which is a significant long-term economic challenge. In 2018, 45% of Saudi citizens had no savings and more than 80% had no investment plans, according to a survey conducted by the Riyali Financial Literacy Program and Souqalmal . Meanwhile, Saudis are borrowing at very high rates. Saudi banks have outstanding consumer loans worth nearly $100 billion, excluding lending for education, healthcare, and housing.
Such behavior is not surprising given that Saudi Arabia provides pension and social benefits that are generous even by GCC standards. The result is insufficient personal savings and a pension system that is unsustainable. As part of a move to a more balanced economy, in which state provision is more targeted and resource management is more efficient, Saudi Vision 2030 has set a goal of increasing savings from 6% to 10% of total household income.
More savings will have broad effects. Individuals will have greater income security over the long-term because the government''s current pension programs cannot last indefinitely. People will also have more control over their finances for major decisions such as buying a house and retirement. Society will benefit from a more sustainable social welfare model. There will also be additional capital for economic investment, with more vigorous asset management and more developed capital markets. In the future, the public and private sectors could work together to encourage demand for saving solutions and increase the supply of saving products and advice.
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