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aTADivide each side by aTA : ER = EXP= IE+ OE+ PLL aTA. aTA. aTA. aTAi.e. ER = Interest expense ratio (IE) + Non-Interest Expense Ratio (OE) + Provision for loan losses (PLL)(AU) Asset UtilisationTR = II + OI + SGDivide each side by aTA: AU = TR= II+ OI+ SGaTA. aTA. aTA. aTA(OE) Non-Interest ExpenseOE can change due to changes in:Personnel ExpensesOccupancy ExpensesTechnology ExpensesOther Overhead Expenses(OI) Non-Interest IncomeOI can change due to changes in:FeesTrust ActivitiesService ChargesOther Non-Interest IncomeQuiz: What is the return on equity for a bank that has an equity multiplier of 14, an interest expense ratio of 4%, and a return on assets of 90%?
Aggregate Profitability MeasuresNet interest Margin (NIM)Net Interest Income / Average Earning AssetsSpreadInterest Income / Average Earning Assets - InterestExpense / Average Interest Bearing LiabilitiesBurden(Non-Interest Expense – Non-interest Income) / Average Total Assets.Lower numbers are betterEfficiency RatioNon-interest Expense / (Net Interest income + Non-interest Income)Lower numbers are betterEarning Base = aEAaTAEA = Balances with central banks + Interbank Lending + (Total trading securities and other financial assets designated at fair value – Aus equity securities – Other securities – Aus equity securities) + (Available for sale securities at fair value – Aus equity securities – Overseas equity securities – Unlisted securities) + Total net loans + regulatory deposits with central banks overseas.Net interest Margin = Net Interest incomeaEA
3.7 Risk AnalysisCredit RiskLiquidity RiskMarket RiskOperational RiskReputation RiskLegal RiskCredit RiskHistorical Loss RateThe potential variation in net income and market value of equity resulting from this non-payment or delayed payment.