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

by Bart Narter, November 4, 2011
Industry Trends
North America


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.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
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Europe (London)
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Asia (Tokyo)
Yumi Nagaoka
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary




Efficiency Ratios


Why Are Credit Unions More Efficient?



No Commercial Banking



Simpler Product Lines



Real Time Systems



Customer Centricity



Investments in Branch Technology



Sharing Resources






Leveraging Celent’s Expertise



Support for Financial Institutions



Support for Vendors


Related Celent Research


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