What's unique to the Financial Services industry is the heightened emphasis on risk assessment and regulatory compliance. KPIs help address these unique challenges by monitoring credit risk, market risk, and operational risk, as well as ensuring that the institution adheres to the ever-changing legal landscape. By leveraging KPIs, financial service providers can better navigate the complexities of the market, mitigate potential financial losses, and uphold the rigorous standards that govern their operations.
KPI |
Definition
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Business Insights [?]
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Measurement Approach
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Standard Formula
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Assets under Management (AUM) More Details |
The total market value of the investments that a person or entity manages on behalf of clients.
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Helps in assessing the size and success of an investment management firm, and can indicate potential economies of scale.
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The total market value of the investments that a person or entity manages on behalf of clients.
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No standard formula as it is the aggregate value of managed investments at a specific point in time.
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- AUM tends to increase over time as the value of investments grows and new clients are acquired.
- Market downturns or economic recessions may lead to a decrease in AUM as investment values decline.
- What are the primary drivers of AUM growth or decline in our organization?
- How does our AUM performance compare with industry benchmarks or market conditions?
- Focus on client acquisition and retention to increase AUM.
- Diversify investment portfolios to mitigate the impact of market downturns.
- Implement effective investment strategies to maximize returns and attract new clients.
Visualization Suggestions [?]
- Line charts showing the trend of AUM over time.
- Pie charts to illustrate the composition of AUM by investment type or client segment.
- Market volatility can lead to rapid declines in AUM, impacting revenue and profitability.
- Client dissatisfaction or loss can result in significant AUM reduction and damage to the firm's reputation.
- Portfolio management software to track and analyze AUM by investment type and client.
- CRM systems to manage client relationships and identify opportunities for AUM growth.
- Integrate AUM tracking with financial reporting systems to provide a comprehensive view of the organization's performance.
- Link AUM data with client relationship management platforms to align investment strategies with client needs and preferences.
- An increase in AUM can lead to higher revenue and profitability for the organization.
- Conversely, a decrease in AUM may require cost-cutting measures and strategic adjustments to maintain financial stability.
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Bad Debt Expense More Details |
The amount of an organization's receivables that it does not expect to actually collect, indicating the quality of receivables and effectiveness of credit policy.
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Provides insights into the creditworthiness of customers and the effectiveness of credit and collection policies.
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The amount of receivables that a company does not expect to collect.
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Total Value of Unrecoverable Receivables during a period.
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- An increasing bad debt expense may indicate a deterioration in the credit quality of customers or economic downturn.
- A decreasing bad debt expense could signal improved credit policies, better collection processes, or a healthier customer base.
- What is the average age of outstanding receivables, and how does it compare to historical data?
- Are there specific customer segments or industries that contribute disproportionately to the bad debt expense?
- Regularly review and update credit policies and risk assessment criteria.
- Implement stricter collection procedures for overdue accounts.
- Consider offering discounts for early payment to incentivize prompt settlement of invoices.
Visualization Suggestions [?]
- Line charts showing the trend of bad debt expense over time.
- Pareto charts to identify the most significant contributors to bad debt expense.
- High bad debt expense can strain cash flow and profitability.
- Failure to address bad debt issues can lead to a deterioration of the organization's financial health and credit rating.
- Accounting software with robust receivables management and reporting capabilities, such as QuickBooks or Xero.
- Credit scoring and risk assessment tools to evaluate the creditworthiness of customers, such as Experian or Dun & Bradstreet.
- Integrate bad debt expense tracking with customer relationship management (CRM) systems to identify patterns and behaviors of high-risk customers.
- Link with financial planning and analysis (FP&A) systems to forecast and budget for potential bad debt losses.
- Reducing bad debt expense can improve the organization's financial stability and creditworthiness.
- However, overly stringent credit policies may limit sales and customer acquisition, impacting revenue growth.
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Capital Adequacy Ratio (CAR) More Details |
A measure of a bank's capital relative to its risk-weighted assets, ensuring that the bank can absorb a reasonable amount of loss.
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Reflects a bank's ability to absorb potential losses and meet depositor's demands.
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The percentage of a bank's capital to its risk-weighted assets.
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(Tier 1 Capital + Tier 2 Capital) / Risk-Weighted Assets
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- Increasing CAR may indicate a stronger capital position and ability to absorb potential losses.
- Decreasing CAR could signal increased risk exposure and potential financial instability.
- What factors are contributing to changes in our CAR?
- How does our CAR compare to regulatory requirements and industry benchmarks?
- Regularly assess and adjust the composition of capital to ensure it aligns with risk profiles.
- Implement risk management strategies to mitigate potential losses and maintain a healthy CAR.
- Explore opportunities to optimize asset allocation and reduce risk-weighted assets.
Visualization Suggestions [?]
- Line charts showing the trend of CAR over time.
- Stacked bar charts comparing capital components against risk-weighted assets.
- Low CAR may lead to regulatory sanctions and constraints on business operations.
- Inadequate capital adequacy can undermine investor confidence and credit ratings.
- Financial risk management software for accurate calculation and monitoring of CAR.
- Regulatory compliance tools to ensure adherence to capital adequacy requirements.
- Integrate CAR calculations with financial reporting systems for comprehensive risk disclosure.
- Link CAR monitoring with strategic planning processes to align capital allocation with business objectives.
- Improving CAR can enhance the bank's ability to withstand economic downturns and market volatility.
- Conversely, a declining CAR may lead to reduced lending capacity and increased borrowing costs.
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CORE BENEFITS
- 30 KPIs under Financial Services
- 15,468 total KPIs (and growing)
- 328 total KPI groups
- 75 industry-specific KPI groups
- 12 attributes per KPI
- Full access (no viewing limits or restrictions)
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Charge-off Rate More Details |
The percentage of loans that a lender has written off as a loss after the borrower has failed to make payments for a certain period, indicating credit risk and loan performance.
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Indicates the health of a loan portfolio and the risk of financial loss.
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The percentage of debts that a lender believes it will not collect.
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Total Value of Loans Charged Off / Total Value of Loans Issued
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- An increasing charge-off rate may indicate a deteriorating credit environment or a higher number of borrowers defaulting on loans.
- A decreasing rate could signal improved credit risk assessment and management, leading to better loan performance.
- Are there specific loan products or customer segments that contribute disproportionately to the charge-off rate?
- How does our charge-off rate compare with industry benchmarks or economic conditions?
- Enhance credit risk assessment processes to identify high-risk borrowers more effectively.
- Implement proactive collection strategies to minimize delinquencies and defaults.
- Explore alternative lending models or products to diversify credit risk and minimize the impact of charge-offs.
Visualization Suggestions [?]
- Line charts showing the trend of charge-off rates over time.
- Pie charts to visualize the distribution of charge-offs by loan product or customer segment.
- High charge-off rates can lead to significant financial losses and impair the lender's ability to extend new credit.
- Consistently high charge-off rates may indicate weaknesses in underwriting standards or risk management practices.
- Credit scoring and risk assessment software to improve the accuracy of borrower evaluations.
- Debt collection and recovery platforms to streamline the process of recovering delinquent loans.
- Integrate charge-off rate analysis with loan origination systems to refine underwriting criteria and minimize future defaults.
- Link charge-off rate tracking with financial reporting systems to accurately reflect the impact of losses on the lender's financial statements.
- Reducing the charge-off rate can improve the lender's profitability and capital adequacy, but may require initial investments in risk management infrastructure.
- Conversely, a high charge-off rate can damage the lender's reputation and lead to increased regulatory scrutiny and compliance costs.
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Cost-to-Income Ratio More Details |
A measure of operational efficiency that compares operating expenses to operating income, used in the banking industry to assess a bank's efficiency.
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Highlights efficiency in converting income into actual profit.
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Operational costs in relation to income.
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Operating Expenses / Operating Income
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- A decreasing cost-to-income ratio may indicate improved operational efficiency and cost management.
- An increasing ratio could signal higher operating expenses relative to income, potentially impacting profitability.
- Are there specific areas of high operating expenses that are driving the ratio up?
- How does our cost-to-income ratio compare with industry benchmarks or similar financial institutions?
- Implement cost reduction strategies such as streamlining processes and reducing non-essential expenses.
- Focus on increasing revenue through cross-selling, upselling, or expanding service offerings.
- Invest in technology and automation to improve operational efficiency and reduce costs.
Visualization Suggestions [?]
- Line charts showing the trend of the cost-to-income ratio over time.
- Comparative bar charts displaying the ratio for different business units or departments.
- A high cost-to-income ratio can indicate inefficiencies and hinder the ability to remain competitive.
- Failure to address a rising ratio may lead to reduced profitability and financial stability.
- Financial management software like SAP or Oracle for detailed expense tracking and analysis.
- Business intelligence tools to identify areas of high expenses and opportunities for revenue growth.
- Integrate cost-to-income ratio analysis with budgeting and financial planning systems for more accurate forecasting.
- Link the ratio with performance management systems to align incentives with cost control and revenue generation.
- Reducing the cost-to-income ratio may lead to improved profitability but could require initial investments in process improvements.
- Conversely, a high ratio may affect investor confidence and credit ratings, impacting the organization's ability to raise capital.
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Customer Lifetime Value (CLV) More Details |
The total worth to a business of a customer over the whole period of their relationship.
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Estimates how valuable a customer is to a company over time, informing customer acquisition and retention strategies.
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The total worth of a customer to a business over the entirety of their relationship.
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(Average Purchase Value x Purchase Frequency) x Customer Lifespan
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- Increasing CLV over time may indicate successful customer retention and loyalty strategies.
- Declining CLV could signal issues with customer satisfaction, service quality, or competitive pressures.
- What factors contribute to the increase or decrease in CLV for different customer segments?
- How does our CLV compare to industry benchmarks, and what can we learn from high-performing competitors?
- Invest in personalized customer experiences and targeted marketing to increase customer loyalty and retention.
- Focus on improving customer satisfaction and service quality to extend the lifetime value of each customer.
- Implement loyalty programs and incentives to encourage repeat business and higher spending per customer.
Visualization Suggestions [?]
- Line charts showing the trend of CLV over time for different customer segments.
- Pareto charts to identify the most valuable customer segments contributing to overall CLV.
- Low CLV may indicate a high churn rate and the need to address customer dissatisfaction or service issues.
- Over-reliance on a small number of high-value customers may pose a risk if their business is lost.
- Customer relationship management (CRM) software to track and analyze customer interactions and behaviors.
- Data analytics tools to segment customers and identify patterns that impact CLV.
- Integrate CLV tracking with sales and marketing systems to align efforts with high-value customer segments.
- Link CLV data with customer support systems to provide tailored service to high-value customers.
- Improving CLV can lead to increased revenue and profitability, but may require upfront investment in customer experience initiatives.
- Declining CLV can signal potential revenue loss and the need to address underlying customer relationship issues.
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In selecting the most appropriate Financial Services KPIs from our KPI Library for your organizational situation, keep in mind the following guiding principles:
It is also important to remember that the only constant is change—strategies evolve, markets experience disruptions, and organizational environments also change over time. Thus, in an ever-evolving business landscape, what was relevant yesterday may not be today, and this principle applies directly to KPIs. We should follow these guiding principles to ensure our KPIs are maintained properly:
By systematically reviewing and adjusting our Financial Services KPIs, we can ensure that your organization's decision-making is always supported by the most relevant and actionable data, keeping the organization agile and aligned with its evolving strategic objectives.