How Peer Insights for Banks Unlock Performance Trends and Business Intelligence

Organizations thrive when they make the right decisions, but they require accurate and timely business intelligence to be able to make the right decisions at the right time. The banking industry is a great example of how important it is to make the right decision at the right time. What separates the finance sector from other businesses is that the finance sector facilitates all the other sectors of the economy.

Banks provide not just essential banking services but also credit as well as investments to many businesses. A bank’s performance is thus not simply the sum-total of the efforts being undertaken by the bank, but also dependent on the performance of the industries where the banks invest as well as the local and national economy because both affect how the banks generate a profit. Banks thus need finely tuned performance metrics and insights that allow them to detect inefficiencies and strategical missteps while at the same time these metrics also highlight opportunities for the growth.

It is critical for the management of any bank to have an in-depth understanding of how different market forces and environment affect the bank and peer insights can play a critical role in providing such insights.

Why Peer Insights Matter for Banks

Every business likes to keep a close watch on their peers and competitors. Smart managers learn not just from their own insights but also from the data and trends of other organizations. It is important to note that peer insights are a complicated matter for banks when compared to other types of businesses. A restaurant or a retail business simply needs to look at the competition from businesses service the same clientele (e.g. customers who want luxury goods, customers looking for something inexpensive) to understand whether they are making the most of the current market trends. This is simple for many businesses to do but not banks.

What Differentiates Banks

Banks are defined not just by location or by ‘’luxury vs. inexpensive’’ type of categories common in other businesses. A bank’s nature depends on multiple factor and each of them influence how market trends and movements affect the bank. It is possible for two banks located near each other and with similar asset sizes to be completely different in nature – one can be a retail bank focused on providing people with convenient banking services, while the other may cater exclusively to businesses and their banking needs.

When a bank starts tracking peer insights the first step is to determine the list of peer banks. Bankers look at other banks which are serving a similar clientele and are invested in similar industries. This is critical because it helps management compare their own performance with banks providing similar services to similar industries. Management can easily see whether its own performance was up to the par by comparing it with the performance of peer banks.

These are critical insights that provide business intelligence to management. The board of the bank may look at the performance of peer banks to chart out a course for the future of the bank. If other banks have had much better results, then the bank may need to rethink its approach. If other banks are performing like the bank performed adequately. If the bank performs better than all the other banks it could be two things – either the bank is the best performing bank, or it may have found a ceiling for the industry/clientele the bank limits itself to, and growth may be achieved by entering new markets.

Banking Ratios and Peer Insights

Banking ratios determine how a bank’s bottom line will be affected by different factors. These ratios tell us about the position the bank has taken – from liquidity to leverages, these ratios depend on the strategy that a bank has chosen. A bank may think the smart move is to limit investments as the markets are going down or may see an opportunity to invest.

In most businesses such intimate ratios and data is private but not in the banking industry. There are many regulations which ask banks to make disclosures about not just their finances but also many operational metrics. These disclosures are a great source of bank ratios and in-depth knowledge about how a bank spent the resources it had to generate a profit.

Looking closely at these ratios and comparing them with a bank’s own ratios can help managers determine what steps to be taken next. If the banks that are more leveraged are performing better, then the bank should think about further leveraging its assets to increase profits. There are hundreds of similar insights which can be gleamed from performance metrics.

Simplifying Business Intelligence

It is possible to manually swift through peer data from Reports of Condition and Income (Call Reports) and Uniform Bank Performance Reports (UBPRs) data from FFIEC’s central data repository. This means that anytime the information is required the manager will have to ask someone to create a peer report and it takes some time to extract all the information and standardize it, so it can be compared with internal data.

Modern peer intelligence solutions provide a much better solution. All the peer metrics are integrated with the other metrics the bank is tracking and presented on an interactive dashboard. Instead of being dependent on reports created on request, the board can track its own metrics in real-time and compare them with performance metrics from peer banks, instantly gaining an understanding of how the bank is performing in context of other banks’ performance.

Interested in seeing how your bank can generate more business intelligence using peer insights? Get in touch with our experts for a demonstration of Predict360 Peer Insights.