EfficienCU: An Examination of Bank and Credit Union Efficiency Ratios by Asset Tier

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4 November 2011


When we look at efficiency ratios over the last six years, credit unions are consistently more efficient than banks of the same asset tier. Comparing efficiency ratios from 2004, 2006, 2008, and 2010 shows a noticeable disparity between relative efficiency.

In a new report, EfficienCU: An Examination of Bank and Credit Union Efficiency Ratios by Asset Tier Celent normalizes asset tiers to compare similar-size banks and credit unions. Celent obtained bank efficiency ratios from FDIC reports and calculated credit union efficiency ratios based upon the FDIC formula: noninterest expense less the amortization expense of intangible assets, as a percentage of the sum of net interest income and noninterest income.

The minimum viable size for a bank is between $100 million and $300 in assets, while the limit is about half that for credit unions. Reasons for this disparity can be seen in the way each type of institution handles product lines, customer centricity, commercial banking, resource sharing, and technological investment. Celent sees no reason why this disparity in relative efficiency will not continue into the future.

“Credit unions don’t participate in commercial lending. which is an ‘inefficient’ part of banking,” says Bart Narter, Senior Vice President of Celent’s Banking Group and author of the report. “They also have shared service centers, which enable more scale and greater efficiency.”

This report compares efficiency ratios of credit unions and banks of similar asset sizes going back to 2004. It also examines aspects of each type of institution including product lines, commercial banking, customer centricity, real time functionality, resources, and branch technology.