A regional bank takes 22% out of its cost base without closing a branch

The challenge

The bank had grown steadily for a decade on the back of mortgage lending and a loyal customer base in its home region. As interest rates settled, its net interest margin narrowed and its cost-income ratio climbed to 58 percent, well above peers. Two previous cost programs had produced savings on paper that did not show up in the accounts.

The board’s working assumption was that the branch network, 140 locations, many in small towns, would have to shrink. The leadership team was reluctant. The branches were central to the bank’s reputation, and in many towns it was the last lender on the high street.

Our approach

We started by mapping the full £540 million cost base to the activities that drive it, rather than to the departments that report it. That exercise changed the conversation. Branches accounted for less than a fifth of operating cost. Far larger amounts sat in servicing operations, a product range that had grown to 230 variants, and a technology estate with four overlapping core platforms.

Working with each function’s leadership, we built the program around four moves:

• Consolidating back-office servicing from nine sites into three, with standard processes and automated document handling
• Cutting the product range from 230 variants to 64, retiring products that served fewer than 2,000 customers
• Decommissioning two of the four core platforms and renegotiating the bank’s twenty largest technology contracts
• Changing branch roles to focus on advice and lending, with routine servicing moved to digital and telephone channels

Every saving was tied to a budget line and a named owner, and signed off by the finance team before it was counted. A small transformation office, led by a senior manager from the bank, ran a weekly review against the general ledger.

The impact

Eighteen months after the program began, the bank’s annual cost base was £119 million lower, a reduction of 22 percent. The cost-income ratio fell to 47 percent. Customer satisfaction scores were unchanged in branches and rose six points in telephone servicing, where waiting times halved.

Every branch stayed open. Several now generate more lending than before, because staff spend their time with customers instead of processing paperwork. The savings have held through the bank’s most recent annual budget, and the transformation office has become a permanent part of the finance function.