Hallmarks of Success for Banks: Efficiency Ratios

The efficiency ratio measures non-interest expense, or operating costs, as a percentage of net revenues.

Efficiency ratio
= non-interest expense / net revenues
= operating costs / net revenues

Basically, it tells how efficiently the bank is managed.

Many good banks have efficiency ratios under 55% (lower is better).


For comparison, the average efficiency ratio of all insured institutions in the fourth quarter of 2002 was 58.4%, according to the FDIC.

Look for banks with low efficiency ratios as evidence that costs are being kept in check.


Related posts:
Hallmarks of Success for Banks
Hallmarks of Success for Banks: Strong Capital Base
Hallmarks of Success for Banks: ROE and ROA
Hallmarks of Success for Banks: Efficiency Ratios
Hallmarks of Success for Banks: Net Interest Margins
Hallmarks of Success for Banks: Strong Revenues
Hallmarks of Success for Banks: Price-to-Book