aTA Divide each side by aTA ER EXP IE OE PLL aTA aTA aTA aTA ie ER Interest

Ata divide each side by ata er exp ie oe pll ata ata

This preview shows page 4 - 6 out of 6 pages.

aTA Divide each side by aTA : ER = EXP = IE + OE + PLL aTA. aTA. aTA. aTA i.e. ER = Interest expense ratio (IE) + Non-Interest Expense Ratio (OE) + Provision for loan losses (PLL) (AU) Asset Utilisation TR = II + OI + SG Divide each side by aTA: AU = TR = II + OI + SG aTA. aTA. aTA. aTA (OE) Non-Interest Expense OE can change due to changes in: Personnel Expenses Occupancy Expenses Technology Expenses Other Overhead Expenses (OI) Non-Interest Income OI can change due to changes in: Fees Trust Activities Service Charges Other Non-Interest Income Quiz: 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%?
Image of page 4
Aggregate Profitability Measures Net interest Margin (NIM) Net Interest Income / Average Earning Assets Spread Interest Income / Average Earning Assets - Interest Expense / Average Interest Bearing Liabilities Burden (Non-Interest Expense – Non-interest Income) / Average Total Assets. Lower numbers are better Efficiency Ratio Non-interest Expense / (Net Interest income + Non-interest Income) Lower numbers are better Earning Base = aEA aTA EA = 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 income aEA
Image of page 5
3.7 Risk Analysis Credit Risk Liquidity Risk Market Risk Operational Risk Reputation Risk Legal Risk Credit Risk Historical Loss Rate The potential variation in net income and market value of equity resulting from this non- payment or delayed payment.
Image of page 6

You've reached the end of your free preview.

Want to read all 6 pages?

  • One '14
  • Balance Sheet, Generally Accepted Accounting Principles,  Profitability

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture