Definition of cost:income ratio
The cost:income ratio (or efficiency ratio) measures operating costs as a percentage of operating income. The ratio, which will vary across the bank, should be as low as possible (but not so low that it compromises customer service). Banks hope to reduce their cost income ratio as the business grows thanks to economies of scale. The idea is that additional revenue from existing or new customers has a relatively low cost associated with it and so is increasingly profitable. This is sometimes described as 'positive jaws' between income and expense growth - ie income grows faster than expenses, creating bigger profits.
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