Credit Unions Less Efficient Than Banks, Study Says
“Fewer employees is the trigger to producing high deposit rates and a better bottom line."
Credit unions are less efficient than banks and thrifts when it comes to assets per employee, according to new data from financial institution research firm Moebs Services.
According to the Lake Forest, Ill.-based company, thrifts averaged $9.7 million of assets for every employee, banks averaged $8.8 million of assets per employee and credit unions averaged just $5 million of assets per employee. Banks had 9.3% more employees than thrifts, but credit unions had 48.5% more employees than thrifts in the analysis, it said.
“Fewer employees is the trigger to producing high deposit rates and a better bottom line. There are many measures of employee efficiency, or less staff, but the granddaddy of all people ratios is millions of assets per employee,” the study said.
Credit unions with $5 billion to $10 billion in assets were the most efficient types of credit unions, with $7.1 million in assets per employee. The most efficient banks and thrifts had $25 billion to $50 billion in assets and had $10.2 million of assets per employee.
Thrifts accordingly had higher deposit rates than credit unions and banks, and they produced more interest revenue than credit unions and banks did, according to the study.
“Historically, thrifts have shunned checking accounts. Thrifts have started to offer checking accounts, yet thrifts target checking to higher deposit users. Checking at most depositories costs around 1% of assets and requires many more employees,” it added. Bigger isn’t always better when it comes to scale by asset size and employees, Moebs Services also noted.
The benchmark for all thrifts, banks and credit unions was $8.4 million of assets per employee.
Credit unions and other financial institutions below that employee efficiency benchmark need to improve quickly, and those that are meeting or exceeding the benchmark still have to keep looking for ways to increase productivity, it said.
“The total number of depositories peaked in 1969 at 42,108,” Moebs Services CEO and Economist Michael Moebs said. “Today, 50 years later, there are a bit less than 11,000 and still declining. Of all noninterest expenses, employee cost is critical. Less employees who are paid better is the gold standard for success now and in the future.”