Banks often ask “How does my bank compare to others?” Banks want to know where they stand among their peers in terms of their performance. Where are they ahead of their peers, and where are they lagging behind?
Peer group analysis is also a key tool for banking supervisors. Quantitative ratings play an important role in the European Banking Authority’s (EBA) Guidelines on how supervisors should review and evaluate the banks they supervise; supervisors are focusing increasingly on banks’ business models and profitability; and the European Central Bank is using peer analysis to identify ‘outliers’ within a harmonized model of pan-European banking supervision.
KPMG’s ECB Office has therefore developed KPMG Peer Bank, a benchmarking tool that is designed to deliver comparative peer group insights for major European banks.
KPMG Peer Bank provides banks with an opportunity to see where they stand against their peers, not only regionally and nationally but within any chosen peer group – users have the option to create as many peer groups as they like. The tool offers wide functionality, in terms of the range of available data points and calculated ratios, and the flexibility and delivery of the tool.
KPMG Peer Bank is built on data from the EBA’s transparency exercises. The EBA has been conducting transparency exercises on an annual basis since 2011, publishing bank-by-bank data on major European banks to promote a greater understanding of banks’ capital positions and exposures, to complement banks’ own Pillar 3 disclosures, and to enhance market discipline.
KPMG Peer Bank is updated with new data as it is published by the EBA. The most recent EBA transparency exercise was published in December 2016, with data as at end-December 2015 and end-June 2016. The data cover the capital positions, risk exposures and asset quality of 131 banks from 24 countries across the European Economic Area, yielding over 100,000 data points. The tool adapts the interface to data changes without the need for user intervention.
Peer groups - In addition to a set of standard peer groups constructed by KPMG, banks and other users can use Peer Bank to identify a peer group based on banks with similar indicators, and to create their own peer groups.
Banks have used this facility of KPMG Peer Bank to explore who their peers are, in particular across Europe rather than just within their home country. Banks have then used this facility to create peer groups based on close competitors, business models, ownership structures (for example cooperatives), and exposure to specific markets or economic conditions. This has enabled banks to view themselves through different lenses and to identify their relative strengths and weaknesses.
Benchmark Ratios – To assist users to perform benchmarking, KPMG has developed more than 100 key performance ratios, covering areas such as capital and leverage ratios, profitability, cost to income, non-performing loans and provisioning coverage ratios, forbearance ratios and collateralization. In addition, users can customize their own ratios and other points of comparison, using the full range of data published by the EBA (as compared with the ten standard indicators calculated by the EBA).
Banks have been particularly interested in data points and ratios relating to non-performing loans and coverage ratios, profitability drivers (interest, non-interest and market trading income, return on assets and cost to income ratios), capital adequacy and risk weighted asset density.
Analytics - For each ratio or data point, the basic KPMG Peer Bank tool enables banks to compare themselves against the EU average, county average and peer group average; and to position themselves in terms of a percentile ranking with respect to their peer group.
More advanced analytics are also available, including trend analyses of the time series of financial indicators and ratios (the data currently run from December 2012 to June 2016, and this will build up as the EBA continues to publish data); clustering analyses to define new views of a bank’s business model categorizations; and correlation analyses that highlight the most important key performance indicators for a bank’s peer group. KPMG professionals can also support banks integrating the Peer Bank with their business processes.
Banks have used these analytics to identify both strengths and vulnerabilities in their business models, and to provide one starting point for the assessment of alternative strategies.
KPMG member firms have used Peer Bank as auditors, to understand better the performance and market positioning of banks for whom they are external auditors. KPMG professionals have also used Peer Bank to analyses the drivers of the profitability of European banks and as a platform for estimating the impact of proposed ‘Basel 4’ changes on individual banks and for clusters of banks.
Supervision - KPMG Peer Bank can help banks to improve their dialogue with their supervisors by enabling a bank to predict or replicate the supervisory view of how they benchmark against their peer group.
With assistance from KPMG member firms’ knowledge and experience of supervisory approaches, banks have been able to use KPMG Peer Bank to identify issues likely to be raised by their supervisor and to prepare themselves accordingly.
Accessible technology - KPMG Peer Bank is based on an up to date web-based Java platform, enabling real-time analysis. Benchmark data can also be exported to a compatible spreadsheet format (such as Microsoft ® Excel ®) for further analysis or inclusion in a bank’s own reports and databases. The tool’s responsive interface allows users to customize their experience and to access the tool from mobile devices.
Banks and other users have found Peer Bank easy to use and have exploited many of the analytic possibilities. In particular, banks have taken the opportunity to compare performance indicators with banks from other countries, which has not previously been so straightforward.