Share the article
twitter-iconcopy-link-iconprint-icon
share-icon

Emerging economies lead in cost-to-income ranking

Chinese banks dominate the ranking for best cost to income among lenders, while on a regional basis, Asia, Latin America and the Middle East all perform impressively.
Share the article
twitter-iconcopy-link-iconprint-icon
share-icon
Cost to income

Banks’ cost-to-income ratios are a benchmark measure of the efficiency of a bank in terms of cost control. The indicator measures the ratio of costs to gross operating income before impairments are deducted.

What stands out within The Banker's Top 25 Cost-to-Income Ratios table is that on a bank-by-bank basis, Chinese lenders once again have the lowest costs – with the four banks in the top positions all keeping their cost-to-income ratio below 40% for the second year running.

What is even more striking is that the Asian banking sector has seen its average cost-to-income ratio fall from 55.2% to 50.88% this year, while its operating costs have grown by 8.8%. This shows that while they continue to generate new income, they are being extremely effective at keeping a lid on costs and improving their overall operational efficiency.

Meanwhile, Latin America’s banks are obviously exerting tighter controls on managing costs compared to last year’s ranking. Their operating costs rose by 2.6%, from 13% last year to 15.6% this year and their cost-to-income ratio has dropped from 61.7% to 55.27%.    

African banks have continued to see their operating costs fall, albeit by a slower margin of 5.49% compared to 15% last year. Their average cost-to-income ratio has risen marginally from 49.7% to 49.88%.

In contrast, central and eastern European banks have been the least efficient in controlling costs. Their aggregate operating costs spiked by 13.12%, while their cost-to-income ratio grew by 25.87% to 56.19%.

Meanwhile, western European banks have done a good job of reducing their operating costs by 5.88% but their cost-to-income ratio has risen from 55.1% to 58.97%. Given that western European banks’ aggregate return on assets stands at 0.09% this year, controlling costs is crucial to helping the sector return to profitability. 

Similarly, North America’s cost-to-income ratio has increased marginally to 64.63% despite considerable efforts to slash operating costs, which fell by 6.96% compared to an increase of 8.8% last year. Unlike Asia-Pacific and Middle Eastern banks, which have been investing in new technologies, Western banks have been relying on existing infrastructure.

Regionally speaking, Middle Eastern banks have had a good year. They boast the lowest cost-to-income ratio in the Top 1000 ranking of 39.69%, down from 41.37% in 2011’s list.

In terms of individual banks, it is worth flagging up that the top three least efficient banks from the Top 25 table are all from the US – Bank of America (80.62%), Morgan Stanley (80.37%) and Goldman Sachs (78.11%).

Was this article helpful?

Thank you for your feedback!