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BRUANBRKINKAG
HOW TO SET THE UNIT
COST FOR EVERY BANKING
PRODUCT AND SERVICE?
Mirjana Trajanovska Banks offer various products ed costs and capital related costs. These
and services. Banks’ perform- costs do not have equal importance and
The author is a Senior Manager ance is measured and present- do not have same share in the cost struc-
of Finance and Liquidity at ed by using certain accounting ture of all the types of banking products
Stopanska Banka AD Skopje methodologies that are largely and services. In this context, most com-
harmonized globally so that clients can monly, special models are developed for
52 compare and chose among the banks. calculation of unit cost for each product
Accounting models, however, do not pro- or service.
vide information about which products
and services are profitable or not, what direct costs
is the profitability by clients and organi- It is well known that direct costs are
zational units, whether processes set are
well synchronized and enable best use those that are directly linked with a par-
of resources, is there room for improve- ticular product or service. For example,
ments, what the risk appetite is and how credit products depend on the price of
it may change in the future. In addition, the sources of funding, investments in de-
banks operate in a very competitive envi- velopment of credit products, administra-
ronment, not only locally, but also inter- tion costs, risk related costs and capital
nationally, which enhances the need for related costs. Deposit products are associ-
cost cutting and efficiency improvement. ated with opportunity costs that appear if
Banks’ management needs all the men- these funds are not placed in credit prod-
tioned information in order to actively ucts, reserve requirements costs, deposit
manage and upgrade the business. In this insurance costs etc. Direct costs are: cost
context, several questions arise: what are of sources of funds / costs of invested
the components of the unit cost of bank- funds, personnel costs and IT costs.
ing products and services and how cost
for specific products and services is calcu- Banks are specialized in providing vari-
lated and allocated. ous credit products. Financing of these
products may come from different sourc-
Usually, banks develop own internal es, of which the most common are:banks’
models and methodologies for calculation capital, deposits, funds borrowed from
of profitability and unit costs for products financial institutions, additional sourc-
and services, but the main components es, such as subordinated loans and other
are: direct costs, indirect costs, risk relat- sources. Total cost of all sources of fund-
ing from which credit products are ap-
September 2015
