Expense Management Policy Is a Necessity

By Thierry, Jacques | American Banker, July 30, 1984 | Go to article overview

Expense Management Policy Is a Necessity


Thierry, Jacques, American Banker


Since the beginning of the 1970s, the underlying trend of economic growth has been significantly weaker in Western Europe than in the United States. And the remarkable vigor up to now of the present American economic recovery has reinforced our awareness of this difference.

From a banker's point of view, this has meant that the environment in Western Europe for domestic banking business has been a particularly demanding one. In such an environment, there has had to be a constant focus on expense management.

Indeed, it may be said that Western Europe has provided almost laboratory-like conditions for testing how banks can efficiently reduce their overhead operating expenses under conditions of slow economic growth.

In the case of our own bank, Banque Bruxelles Lambert, the necessity of framing a rational expense management policy was something we became acutely aware of a decade ago. Our bank wwas the fruit of a merger in 1975, when the Belgian retail banking boom (that had started in the 1960s) was just coming to an end. The merger was carried out during a period when staff redeployment could no longer be facilitated by the continuing rapid expansion of a retail banking network.

By an ironic twist of fate, we were obliged to devote a great deal of attention to the reduction of overhead operating expenses before most other banks were, in their turn, forced to do likewise as a result of the persistent deterioration in the economic environment. It was a head start that proved to be a blessing in disguise.

Now, with nearly 10 years' experience behind us, we feel with some confidence that we have established an expense management policy that is conceptually coherent and has actually proven its worth.

Policy Goals

Any expense management policy is necessarily centered on containing staff costs within reasonable limits. The cost, after all, of salaries and other employee benefits tends to amount to at least half the total overhead operating expenses. For banks in Belgium, the proportion, because of structural reasons, often exceeds three-quarters.

It is, however, a fact of management experience that a policy aimed only at reducing staff costs runs a high risk of failure. It is an essentially defeatist policy that may seriously compromise the growth dynamic of the enterprise in question. Rationalization is not to be equated with a scaling down of activities.

Thus, a worthwhile expense management policy should not usually be one of retrenchment. Nor should it be narrowly conceived. It is necessary that it be properly inserted in a strategic planning framework and that its main support be large-scale investment in systems technology and equipment.

These two prerequisites are, perhaps, self-evident ones. But it is worthwhile reflecting a moment on what they might entail.

Our own insertion of expense management policy in a strategic planning framework has been basically a formal expression of the fact that the control of overhead operating expenses is a matter that has to be treated in the broad context of optimizing a bank's global management performance.

As for the actual interplay between expense management policy and strategic planning, retail banking up to now has been the main object of attention.

In Belgium, as in other Western European countries, the retail banking practice of only a decade ago has had to be radically transformed. It is no longer possible or even desirable to maintain numerous staff, with a wide variety of specific functions, in ordinary branch offices.

The thrust of our strategy in this area has been to redefine staff functions and skills so that staff members are specialized not so much in particular areas of banking technique as in their ability to provide a broad range of servicesto a particular category of bank customer.

In addition, we have been trimming the excesses of earlier retail banking expansion: Branches that are no longer profitable have been closed down as a matter of course, though this has not prevented us from opening new branches wherever possible. …

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