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2023 has proved to be a challenging year for the banking industry.
While in theory federal interest rate hikes should be a positive for banks (allowing them to benefit from a wider gap between what they collect from borrowers and what they pay to depositors), the reality is more complicated.
As exemplified in the collapse of Silicon Valley Bank earlier this year, rising interest rates put pressure on banks by devaluing bond holdings and reducing people’s capacity to borrow. In these environments, if banks are unable to balance their losses with revenue from their other products, they can find themselves short on capital.
That’s why for financial institutions, agility needs to be the name of the game.
Banks and credit unions need to be able to quickly model the impact of market trends and changes to their net interest margin (NIM) and manage their strategies and portfolio decisions accordingly.
But with many banks and credit unions dealing with rudimentary FP&A processes, that’s easier said than done.
As you consider how your team can streamline planning processes to be more flexible, you might ask yourself:
While there's no simple answer to any of these questions, one thing is certain: agile planning in the banking industry requires a seamless connection between people, processes and technology—especially in the face of ever-present change.
In this blog post, we'll look at three steps finance teams at banks and credit unions can take right now to streamline key planning processes and produce insights faster.
We'll also explore some examples of how financial institutions like yours found success with these hacks and built stronger businesses as a result.
Monitoring interest income is a crucial aspect of your strategic planning process. As the primary source of revenue for all banks and credit unions, you must always keep an eye on your interest margins—right down to the individual product level. You also need to forecast anticipated rate changes in real time to ensure your evolving business plans are as well informed as possible.
However, if account balances are siloed in your enterprise resource planning (ERP) or asset liability management (ALM) system, you won't have an easy way to identify your most profitable financial products. Instead, you'll have to dig through a bunch of spreadsheets to find the data you're looking for--and that's why having one source of truth is so important for net interest margin planning.
By integrating your source systems, automating data inputs and using purpose-built templates for your actuals, forecasts and scenario analyses, you'll get a holistic view of interest income within one secure platform. You'll also be able to back up your business projections with per-product revenue estimates relative to prime lending rates and yield curves. That way, your leaders will have what they need to make timely, data-driven business decisions without all the manual effort.
The finance team at ATB Financial—a retail and commercial banking chain in the Canadian province of Alberta—offers a best-in-class example of agile interest margin planning in action. With Vena for Banks and Credit Unions, ATB's finance team tracks consolidated revenue figures for more than 100 unique banking products.
Having up-to-date data at their fingertips makes it easy to quickly determine whether actual versus budget differences are due to margins or price/volume variances. This gives ATB the freedom to update budgets whenever they need to and plan a lot more confidently with a level detail they didn't have before.
There are few industries in the world subject to greater scrutiny than banking.
Financial institutions in particular are subject to increasingly stringent regulatory reporting requirements, which isn't easy to navigate if you're doing everything manually.
But, if you simplify your reporting cycle with automated consolidations and data entries, SEC filings will feel like a breeze instead of a burden. The same logic applies to larger institutions for CCAR reporting and DFAST submissions; you need to design efficient processes that are easy to understand and execute.
But efficiency is often difficult with regulatory reporting, given how many people are involved in the process.
If budget owners, managers and executives all need to sign off on every filing, you might have multiple versions of the same template floating around in emails. You'll also need to align your stakeholders and define their roles in the reporting process—and that's where establishing repeatable workflows becomes especially important.
Assign tasks based on individual roles and security permissions (in a platform like Vena, you can create an automated workflow for this) to ensure there’s someone directly accountable for each step of the reporting process. As your team repeats the process for each subsequent reporting cycle, your speed and reliability will only get better.
Terry Hardy, former Manager of SEC Reporting at Wells Fargo, has first-hand experience with the benefits of repeatable workflows. He helped implement Vena at the banking giant in 2012, overseeing all aspects of regulatory reporting until his retirement in 2019. With Vena for Banking and Credit Unions, Terry was able to:
Have you ever prepared for a meeting with your board or asset-liability committee, but didn't quite know how to tell the story behind your numbers effectively?
You're probably not alone, because with so many external reporting requirements in the banking and financial services industry, it can be difficult to determine which KPIs to focus on internally while also communicating impact to the right stakeholders in the right way.
But regardless of what metrics you use to define success—whether it's assets under management (AUM) over benchmark, return on assets (ROA), return on equity (ROE), sales per branch or others—how you deliver that data is what's important for driving performance.
Effective data storytelling with easy-to-read dashboards is the key to engaging stakeholders and sharing actionable insights wth agility. After all, numbers on a spreadsheet aren't all that engaging, especially to executive leaders who just want to see the big picture.
If you can actually show stakeholders the numbers with eye-catching graphs and charts, the information you present is more likely to resonate and you'll influence more confident decision making throughout every stage of your planning cycle.
When built well, dashboards allow you to identify relationships between key metrics, provide a visual representation of earnings and maintain complete transparency across the entire organization. As you work to execute your business plans, dashboards give you real-time indicator of emerging trends and performance—making it a lot easier to pivot and adjust your course if necessary.
Enova International—an online financial services firm with more than 1300 employees around the world—does a really great job turning numbers into insightful narratives.
The finance team maintains agility by releasing "flash reports" in Vena at the beginning and end of each close period, which gives management a live look at interest margins and cost of revenue. Vena's real-time dashboards provide context and helpful reference points, making it easy to track the evolution of those metrics as the business grows.
Finance teams at banks and credit unions will always have to deal with complexity. But by taking the steps above to integrate net interest margin templates, streamline reporting workflows and build real-time dashboards for effective, data-driven storytelling, you'll find the flexibility you need to drive improved performance and efficiency across the business.
Use this free Net Interest Margin Planning Template for agile decision-making and plan interest-earning assets at the product level.
As Vice President, FP&A at Vena, Tom Seegmiller is responsible for strategic finance, including business partnering, budgeting and forecasting, with a focus on optimizing enterprise value. Tom is instrumental in the formulation of the financial narrative for the executive leadership team, investors and board members. Tom has always had a focus on driving enhanced business decisions through leveraging financial and operational data. He is an experienced finance executive, having most recently led the finance team at Miovision Technologies. Prior to that, he was in senior FP&A leadership roles at OpenText. Tom enjoys golfing, skiing, exercising and traveling in his spare time, but most importantly, he loves spending time with his wife and daughter.
