How much better can your financial institution perform this year?

As a leader of a financial institution, you’re responsible for your business’ current financial position. While you lead many initiatives, meeting your financial goals and financial metrics is priority. It affects your stakeholders, including the individuals you serve in your community.

They rely on your financial stability and sustainability, expecting that your institution will be in their community for years to come as their connection to quality financial services.

Your current financial position is made up of three basic financial statements:

  1. Your balance sheet which shows your assets, liabilities and equity on a stated date
  2. Your income statement which shows your business’ net income over a period of time
  3. Your cash flow statement which shows how cash is coming and going over a period of time

At Oradian, we work with leaders of financial institutions to better understand their current financial position. We focus on key elements of your balance sheet, your income statement and your cash flow statement.

By offering you a customised cost-benefit analysis, we are enabling you to have more clarity about where and how you can improve your business’ financial position.

Know your balance sheet, know your net worth

As explained by BBVA, a leading global financial services group, a bank’s balance sheet is, “a key way to draw conclusions regarding a bank’s business and the resources used to be able to finance lending.”

Your balance sheet is made up of your assets, liabilities and equity or net worth. Your financial institution’s balance sheet is like a pulse point that enables you to know indicators about your business’ vitality including:

  • Liquidity: your ability to meet your obligations to your funders
  • Solvency: your credit quality and indebtedness
  • Profitability: your ability to generate profit from your allocated capital

Before you can start improving these metrics, you need to have detailed insight into your balance sheet. When you have clarity about the specific line items within your assets, liabilities and equity that are affecting your liquidity, solvency and profitability, you can take informed next steps toward improvement.

Your income statement provides insights about your performance

Your income statement shows your revenues, expenses, gains, and losses. While income statements can be called by a number of titles, like an earnings report, operating statement or profit and loss account, it primarily includes:

  • Your revenues from your activities
  • Your gains from selling any assets
  • Your expenses from your activities
  • Your losses from selling your assets

The bottom line of your income statement shows if you are operating at a net gain or a net loss. This tells you about your profitability: if you are spending more than you are earning or earning more than you are spending. In summary, your income statement speaks to your ability to operate profitably.

Your cash flow statement shows how effective your operating activities are

Your cash flow statement is a report about how your business and its activities generated cash and used cash over specific period of time.  Your cash flow statement shows how your business is bringing cash in or spending cash on your:

  • Operating activities
  • Investing activities
  • Financing activities

Your cash flow statements can be used in a few different ways. One of the primary uses is to compare your financial institution’s net income to the cash your operating activities generate. A general rule is that the net income you report should turn into cash.

Use your financial statements to make wise business decisions

Your financial statements are crucial pieces of information that guide your strategic decision-making. When you analyse your balance sheet, income statement and cash flow, you can calculate key performance indicators (KPIs) that gauge your bank’s health and operations. Some examples include your:

  • Return on Assets (ROA): the ratio of net income to average total assets
  • Return on Equity (ROE): the ratio of net income to average equity
  • Portfolio yield: the ratio of interest and fee revenue to average loan portfolio

Depending on the size and segmentation of your bank’s portfolio, your portfolio yield can be monitored on a more detailed level, such as the product or customer segment level. Looking more closely at your portfolio yield can help you respond to questions such as:

  • How profitable are our individual portfolio segments?
  • How fast are we collecting our interest revenue within each segment?
  • Which sources of funding are the most cost-efficient?
  • How do our operating costs correspond to the size of our portfolio?

Conducting a cost-benefit analysis with Oradian

For our community of financial institutions or institutions considering joining, Oradian enables leaders of financial institutions to build a cost-benefit analysis using key elements of their balance sheet, income statement and cash flow statement. This cost-benefit analysis is a tool for analysing your decisions regarding your institution’s IT system and IT strategy.

Oradian’s cost-benefit analyses are led by Oradian’s Business Development Managers and designed to highlight the differences between buying your own on-premise IT system versus subscribing to Oradian’s cloud-based core banking platform. The analyses cover a variety of cost considerations including:

Software costs

  • Maintenance and back-ups of the system
  • Upgrading your system
  • Hiring IT specialists to fix bugs
  • Cost for software maintenance
  • Use of VPN connection
  • Cost of user licenses

Hardware costs

  • Buying, maintaining, repairing and upgrading servers
  • Investments on any IT infrastructure
  • Licenses for servers
  • Additional licenses per new branches or users
  • Cost of time spent training your staff on IT security
  • Cost for performance monitoring

Operational costs

  • Paperwork and printing
  • Travel between branches, head office and clients
  • Duplication of work
  • Downtime or interruption of operations
  • Staff productivity

Opportunity costs

  • Missed opportunities
  • Uninformed decision-making
  • Lost employees and knowledge

With a cloud-based banking platform, customers in rural areas reported an average reduction of 60% in costs for opening a new branch, allowing them to rapidly expand. 

Improving your financial position with informed decisions about cloud technology

The cloud frees you from installing and managing your own networks, servers, operating systems,  storage and software – reducing your upfront capital costs and eliminating the need to hire specialist IT skills. Another benefit of the cloud is that you can access your data, software and applications from a mobile device or a computer if you have access to the Internet.

Your IT strategy and your decisions regarding technology affect your current financial position. These expenses and their implications will show up on your balance sheet, your income statement and your cash flow statement. It’s essential that you are making informed decisions when selecting any kind of technology, especially when it comes to core banking platforms.

Schedule your free cost-benefit analysis with Oradian now