The Banker collects cost/income ratio data from banks as a measure of efficiency among banks across the globe. While methodology among banks across regions varies and there are regional variations in what is included, The Banker endeavours to provide a global picture, but this is determined by banks' approach to this measure.

The calculation divides operating expenses, including depreciation but without provisions, by the sum of the net interest income and non-interest income. The higher the ratio, the more inefficient the bank or group of banks are deemed to be.

For the first time in four years, Japan has been displaced as the most inefficient country by the US. The development stems, in part, from a decline in Japan's overall ratio, which fell from 73.61% in the 2008 rankings to 68.44% in 2009. This ratio, lower than Japan's 2005 showing of 69.39%, marks an encouraging departure from the long-term cost/income deterioration that has, in recent years, characterised the country's banking sector.

With 17 out of the Top 25 Japanese banks producing reduced pre-tax profits for the 2009 ranking, the income side of the ratio actually declined, however, suggesting that Japanese banks have succeeded in cutting costs and improving the overall efficiency of their operations.

The US banks put in a poor performance where efficiency is concerned. In last year's rankings, the country displayed a significant deterioration in its cost/income ratio, which rose from 59.91% in 2007 to 63.54% in 2008, due to drastically reduced profits at the country's major banks. This year the trend has accelerated, with the ratio rising to 71.51%. This figure again seems to reflect significantly reduced profits at US banks due to the subprime crisis.

Latin America and EU27 banks also slipped slightly, with Latin America's ratio rising from 56.95% to 60.27% and the EU's rising from 58.54% to 66.97% for this year. In keeping with previous years, Asia's cost/income ratio improved again, making a small downward adjustment from 49.19% in the 2008 ranking to 48.12% in 2009. The Middle East banks, which boast the strongest efficiency in the rankings, slipped again if only marginally from 39.91% to 41.05%.

The rest of Europe, mainly non-EU and central Europe, deteriorated from 50.93% to 54.12%, while the rest of the world improved again this year from 57.72% to 54.05%.

Emerging economies, with the exception of Latin America, have broadly maintained their relative efficiency while by contrast the developed West, badly hurt by a dramatic decrease in profitability, has slipped significantly.

Average cost/income ratio by region

Average cost/income ratio by region

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