White Paper

"Optimizing Revenues and Costs across the Bank"

Profitability management - the key to optimising revenues and costs across the bank

It is no secret that, in recent years, the banking industry has been faced with numerous issues. For one, tensions between falling margins and increasing cost have been pressuring the banking sector for quite some time.

Falling revenues are the result of lower credit and deposit volumes, low structural contributions from maturity transformation or eroding interest margins in client business, while increasing costs, on the other hand, have been recorded as a result of higher investments in digital products, innovative customer platforms as well as the pressure to meet regulatory standards.

These demanding tensions could be successfully mastered through an integrated profitability management – thus, income and value contributions of individual business areas and products could be compared on a cost basis, hence creating the necessary transparency to derive the right impulse for management.

There are, however, a few central components of profitability management, that address both revenue and cost management tools:

1. Revenue and cost management – a comprehensive calculation on single deal level with both revenue and costs provide relevant results, that hold the key ratios for periodic and present value profitability analysis.

2. Different perspectives – Profitability management can refer to several aspects, while certain profitability figures can be calculated using specific methods for the external perspective, such as accounting, and others for internal perspective, such hand a contribution margin scheme.

3. Central provision of data – Profitability management requires a harmonized, quality-checked data base, that should contain master data and cash flow for all relevant contracts on single deal levels.

4. Reporting – The calculated figures should be available for evaluation along different dimensions, such as product, customer, sales, profit, etc. Furthermore, these figures ought to be used in various external and internal reports within financial departments.

We can determine that banks can benefit from several advantages when deciding upon the implementation of an integrated profitability management, with just some of the advantages consisting of clear profit responsibilities within the bank or ad-hoc responses to operative requests and strategical questions.

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