Systematic evaluation of banking sector operational efficiency metrics and improvement strategies

Posted: Dec 11, 2022

• Prof. Victor Mehta
• Prof. William Johansson
• Dr. Alexander Rossi

Abstract

The banking sector represents a critical component of global economic infrastructure, with operational efficiency serving as a fundamental determinant of institutional competitiveness and financial stability. Traditional approaches to evaluating banking efficiency have predominantly relied on financial ratios, cost-to-income metrics, and various parametric and non-parametric frontier analysis methods. However, the rapid digital transformation of financial services, coupled with evolving regulatory requirements and changing customer expectations, necessitates a more comprehensive and nuanced approach to operational efficiency assessment. This research addresses the limitations of conventional methodologies by developing an integrated framework that captures the multi-dimensional nature of banking operations in the contemporary financial landscape. Our investigation is motivated by the observation that existing efficiency metrics often fail to account for the complex interplay between technological innovation, human capital development, and process optimization in modern banking operations. The digitalization of financial services has fundamentally altered the operational dynamics of banking institutions, creating new efficiency dimensions that transcend traditional financial performance indicators. Furthermore, the increasing importance of cybersecurity, regulatory compliance, and customer experience in banking operations requires a more holistic evaluation approach that can accommodate these emerging operational considerations. This study makes several distinctive contributions to the banking efficiency literature. First, we introduce a novel conceptual framework that integrates quantum-inspired optimization principles with traditional efficiency analysis to better capture the complex, non-linear relationships inherent in banking operations. Second, we develop three innovative efficiency dimensions—cognitive operational efficiency, digital transformation efficiency, and adaptive resilience efficiency—that provide a more comprehensive assessment of banking performance. Third, we propose a set of evidence-based improvement strategies derived from our empirical analysis of 150 banking institutions across multiple geographical regions and operational contexts.