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CU System
CUs more efficient than banks says Celent study
BOSTON (11/15/11)--A new study comparing efficiency ratios of similarly sized banks and credit unions says that credit unions are about 10 points more efficient than banks.

Boston research group Celent noted in its study, "EfficienCU: An Examination of Bank and Credit Union Efficiency Ratios by Asset Tier,"  that "credit unions are consistently more efficient than banks of the same asset tier."  In its comparison of efficiency ratios from 2004, 2206, 2008 and 2010, it noted "a noticeable disparity between relative efficiency" of the two groups.

Celent obtained bank efficiency ratios from Federal Deposit Insurance Corp. 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, said Celent.

The minimum viable size for a bank is between $100 million and $300 million in assets, while the limit is roughly half that for credit unions, said Celent.  "Reasons for this disparity can be seen in the way each type of institutions handles product lines, customer centricity, commercial banking, resource sharing, and technological investment," said the report's abstract.

"Celent sees no reason why this disparity in relative efficiency will not continue into the future," it added.

"Credit unions don't participate in commercial lending, which is an 'inefficient' part of banking.  They also have shared service centers, which enable more scale and greater efficiency," said Bart Narter, senior vice president of Celent's Banking Group and author of the report.

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