Other reserves 6894 revenue reserves 19840

Other reserves 6,894 6,492 1.6% 1.6%
Revenue reserves 19,840 17,262 4.5% 4.3%
SHAREHOLDERS’ FUNDS 37,708 34,233 8.6% 8.5%
Non-controlling interests 2,498 3,453 0.6% 0.9%
TOTAL EQUITY 40,206 37,686 9.1% 9.4%
Anand Srinivasan, Department of Finance 54

ROE
10.75%
ROA
0.99%
Expense Ratio
1.81%
Interest expense Ratio
0.62%
Non-interest expense ratio
1.03%
Provision for loan losses
0.16%
Tax Ratio
0.17%
Asset Utilization
2.97%
Interest Income Ratio
2.12%
Non Interest Income ratio
0.85%
EM
10.82
Anand Srinivasan, Department of Finance 55

Maximizing the Market Value of Bank
Equity
• Effective Management of:
– Assets
– Liabilities
– Off-Balance Sheet Activities
– Interest Rate Margin
– Credit risk
– Liquidity
– Non-Interest Expense
– Taxes
Anand Srinivasan, Department of Finance 56

Maximizing the Market Value of Bank
Equity
• CAMELS Ratings
– Capital Adequacy
– Asset Quality
– Management Quality
– Earnings
– Liquidity
– Sensitivity to Market Risk
Anand Srinivasan, Department of Finance 57

Maximizing the Market Value of Bank
Equity
• CAMELS Ratings
– Ratings from 1 (best) to 5 (worst)
• 1 & 2
– Sound banks
• 3
– Some underlying problems
• 4 & 5
– Problem banks
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Managing Risks and Returns
• Risk Management
– Credit Risk
– Liquidity Risk
– Market Risk
– Operational Risk
– Reputation Risk
– Legal Risk
Anand Srinivasan, Department of Finance 59

Anand Srinivasan, Department of Finance 60
Credit Risk

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Credit Risk

Anand Srinivasan, Department of Finance 62
Credit Risk

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Credit Risk

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Credit Risk

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Credit Risk
Maximum exposure to Credit Risk – not taking in account
collateral, netting and credit enhancements.

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Market Risk
Measures used: VAR (Value at Risk) and Tail VAR
VAR: Value at Risk (VaR) is a measure of the risk of
investments. It estimates how much a set of investments might
lose, given normal market conditions, in a set time period such
as a day.
if a portfolio of assets has a one-day 5% VaR of $1 million, that
means that there is a 0.05 probability that the portfolio will fall
in value by more than $1 million over a one day period.
Source: Wikipedia

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Market Risk
Tail value at risk ( TVaR ), also known as tail conditional
expectation ( TCE ) or conditional tail expectation ( CTE ), is a
risk measure associated with the more general value at risk . It
quantifies the expected value of the loss given that an event
outside a given probability level has occurred.
In the previous example, Tail VAR is a measure of expected
losses when the market has moved such that the bank has
losses over $ 1 million
Source: Wikipedia

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Anand Srinivasan, Department of Finance 69
Market risk
DBS: Market risk measured using VAR and Tail VAR over 1 day
horizon, and with a 95% confidence interval.