PROFITABILITY MEASUREMENT: 6 QUESTIONS MAY BE THE ANSWER

In a recent research report, Thomas K. Brown of Donaldson, Lufkin & Jenrette poses six questions that investors should ask a bank. The questions, reprinted below, say volumes about the importance of eVectively deploying information technology.

1. Do you have customer proWtability and segmentation information available to those dealing directly with the customer, whether in the branch or over the phone? If the company is not even developing customer proWtability or segmentation information at the point of customer contact, be concerned.

2. How does the bank measure the performance/proWtability of a branch? If the answer is primarily based on the deposits or asset levels of the branch rather than activity level, be worried.

3. Does the bank reward branches/branch employees on the basis of cross-selling ratios? If the answer is yes, and the bank doesn't have customer proWtability information at the point of customer contact, there's a problem.

4. Does the bank oVer telephone banking services? Can loan applications be taken and approved over the phone? If the bank doesn't even plan to take consumer loan applications over the phone, be concerned.

5. Do you monitor account closures to understand why? Do you know the proWtability of accounts that are closed? It doesn't do any good to try to lower the attrition rate of accounts. The focus must be on retaining the most proWtable accounts.

6. What percentage of your nonresidential consumer loans were originated outside of the branch? If the percentage is less than 20%, the company is lagging.