European Banks graded by bank efficiency ratio


There are several interesting observations buried deep in the most recent Financial Stability Review from the European Central Bank. We feel that with the next one covering the first half of 2021 due out at the end of July, it will be good to be prepared with some insights of what to look for. That way, you are ahead of the general market’s reactions and can make positive steps to capitalize on the expected positive slant that post-corona economic upswings are bringing to business in Europe in particular, and to banking opportunities for startups in particular.


An analysis of the top 51 banks in Europe ranked by our own Banking Efficiency Ratio shows interesting patterns, as can be seen in the following table:

Rating European banks by efficiency

Some of the general comments emphasised the impact on macroeconomic prospects of the coronavirus pandemic on balance sheets, which dominates the outlook for euro area financial stability.


Euro area banks are reported to be facing asset quality concerns and pressures on profitability. According to the ECB report, European banks are generally well capitalised, but are facing weak profitability prospects.


Looking at the banks through a different lens

We believe that there is one way to pick up on some of the points made in the ECB survey, and by using a different viewpoint to come out with a way of assessing the areas in Europe that represent a more attractive target for startups looking to establish their initial foothold with the assistance of the larger banks.


Throughout our website, we have written extensively on what startup businesses should be looking for from their banks. Some examples are:


We are hoping to expand this range with in-depth analysis of the options offered by the banking sector in Europe post-pandemic.

How to calculate the efficiency ratio for banks?

A good bank efficiency ratio is a measure of how well the bank makes use of its premium expense, which is it’s workforce. With the cost of raising finance at an historic low, the major operational cost for banks today is not interest on deposits or borrowings, but expenditure on personnel. Any bank that can keep a lid on its staff numbers while continuing to grow (measured by accumulation of retained earnings) will be an automatic choice for entrepreneurs looking for their banking partners. In the next table, in which we compare personnel numbers to accumulated net assets, and come up with some interesting findings, which we are calling the Bank Efficiency Ratio.


What is a good bank efficiency ratio?

The efficiency ratio for banks can be calculated by measuring the proportion of total assets to total personnel. The table validates this method, because the banks that we expect to show-up as highly efficient are operating in sophisticated economies, such as Germany, Switzerland and the Nordic states, and they are at the very top of our table. The rationale behind our calculation is that banks that are not hyper-efficient in competitive environments will soon lose their edge against the opposition, and lose their ranking in the top table.

At the other end of the table, the banks in the notoriously inefficient countries, like Russia, are managing to keep a foothold in the top table only by virtue of their special backing from the state. We believe than eventually they will be replaced by upcoming players in the major banking world.

In general, there has been no consistent guide for how to calculate efficiency ratio for banks, nor on what is a good bank efficiency ratio. It became fairly clear in the table that while the countries that are generally held in the highest regard for banking standards are well deserving of this, there are a number of surprises.


UK as a benchmark

The benchmark for European banking has for centuries been the UK, which has for a long time had both the largest and most diverse spread of banks. Right now, without yet having had to go through the long-term deprivation that Brexit is expected to exert, UK banks have fallen behind, sitting right in the middle of the pack of 15, and in terms of total assets as well as number of participants in the top table, having fallen behind France and Germany.


Not entirely surprisingly, two countries that have never been able to master workplace efficiency fall down to near the bottom of the table – Russia in the extreme, and Italy. While it’s not to say that individual banks in these countries can’t buck the trend and offer the same level of efficient service as you can get elsewhere, it does offer a pointer to startups as to where they should be looking first.


Without help, new businesses can be wasting time trying to establish their banking infrastructure in inherently inefficient service providers. Let us be your guide to those first essential steps because we have the necessary experience and knowledge in all aspects of startup banking in Europe.

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