Banks Cut Costs and Improved Efficiency to Remain Profitable

by PaymentsJournal 0

Lower expenses drive banks earnings

One of the key drivers of US banks’ earnings during the quarter were lower expenses. The prevalent zero-interest-rate environment is acting as a drag on bank earnings. US banks (KBE) (FNCL) earn lower returns on their assets, as well as lower interest-based income, when interest rates are low.

In order to boost profitability in a low–interest rate environment, banks are reducing expenses by restructuring their businesses and focusing on their core businesses.

As banks and other financial institutions evaluate their branch banking strategies, many are taking a long, hard look at their branch reconfiguration efforts. Consequently, the topic of branch size placement are top of mind for today’s banks and credit unions, as banking customers increasingly embrace digital banking and self-service channels for many of their day-to-day transactions. The trend for increased use of mobile and online banking and ATMs at the expense of teller visits will likely increase, as will the expansion of the role of branches as information and advice centers and places for increased engagement between banking customers and financial institutions.

Overview by Ed O’ Brien, Director, Banking Channels Advisory Service at Mercator Advisory Group

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