Cost optimization: Drive profitability and efficiency

Strategies for banks to simplify operations and accelerate cost reduction.


The banking industry faces several challenges due to recent economic, geopolitical and regulatory developments. KPMG has identified the top 10 issues facing banks in 2022 and beyond, and in this article we examine the topic of cost optimization.
  

A driver of profitability and efficiency

Even as bank executives intensify cost transformation programs, our recent research reveals many banks are struggling to make significant headway in digitizing key functions, linking process metrics to key outcomes, and eliminating non-value-add activities.

A recent KPMG survey1of banks identifies several obstacles in making significant headway:

  • The cost of the initiatives and the time and stamina needed
  • Competing management agendas
  • Management turnover, which impedes multi-year programs
  • Targeting the right areas to maximize efficiencies

Even so, the bank executives we polled said they are doubling down on their cost efforts

61%

said cost reduction has increased as a strategic priority

83%

are refocusing their cost optimization efforts

85%

are accelerating them


Taking Action in 2022 – Cost Optimization

Click on each section below for actionable steps you can take now

Set a focused cost agenda

Concentrate efforts initially on a few key areas rather than on multiple small initiatives. Approach them through the lenses of strategy, simplicity, and engineering. Which levers a bank prioritizes, and when, will depend on current performance against benchmarks and targets, the investment in cost reduction, speed, and potential risks associated with each lever pulled.

Rethink the bank’s target operating model

A target of 10 percent of cost reduction could be considered aggressive in one area of a bank (e.g. loan application processing), while a 20 percent optimization may be considered conservative in another area of the same bank (e.g. systems licensing and servicing related to a large book of legacy products that are no longer being sold). An important principle is that target operating models should seek to drive increased simplicity.

Recognize the importance of cost culture and enablers

Our research found the most important ‘soft’ enablers are seen to be a strong cost culture, the ability to commit time and resources long-term, executive accountability, and cost-reduction key performance indicators. However, our CEO survey showed that only 58 percent of banks rated themselves highly on having a strong cost culture. The most important attributes to achieve sustainable efficiency include committed leadership, culture, and accountability.

Shifting to a higher gear
Download the full report to learn about all of the key issues impacting banks in 2022 and beyond

Footnotes

  1. “The New Cost Imperatives in Banking: Gaining Better Efficiencies,’’ KPMG International, 2021


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Mark Ricci

Mark Ricci

Principal, Advisory, KPMG US

+1 704-371-8083