View
206
Download
0
Category
Tags:
Preview:
Citation preview
1
CHAPTER FIVECHAPTER FIVEMeasuring And Evaluating Measuring And Evaluating
The Performance Of The Performance Of Banks And Their Principal Banks And Their Principal
CompetitorsCompetitors
2
Determining the Bank’s Long-Determining the Bank’s Long-range Objectivesrange Objectives
A fair evaluation of any bank’s performance should start by evaluating whether it has been able to achieve its objectives.
3
Maximizing the Value of the Maximizing the Value of the FirmFirm
If the stock of a bank fails to rise in value, current investors will start to sell the stocks and the bank may face difficulty in raising new capital for future growth.
Performance based classification of banks
Category Position
A Best Performer
B Moderate performer
C Average Performer
D Below Average performer
E Losing and Bad performer
CAMELS RATINGS
The components of a bank's condition that are assessed
(C) Capital adequacy, (A) Asset quality, (M) Management Capability, (E) Earnings, (L) Liquidity and (S) Sensitivity to Market Risk
6
Key Profitability Ratios in Key Profitability Ratios in BankingBanking
CapitalEquity Total
TaxesAfter IncomeNet (ROE) CapitalEquity on Return =
Assets Total
TaxesAfter IncomeNet (ROA) Assetson Return =
Assets Total
IncomeInterest Net Margin Interest Net =
Assets Total
Incomet NoninteresNet Margin t NoninteresNet =
7
Key Profitability Ratios in Banking Key Profitability Ratios in Banking (cont.)(cont.)
Assets Total
Expenses Operating Total
- Revenues Operating Total
Margin OperatingBank Net =
gOutstandin SharesEquity Common
TaxesAfter IncomeNet (EPS) SharePer Earnings =
8
Bank RisksBank Risks
Credit RiskCredit RiskLiquidity RiskLiquidity RiskMarket RiskMarket Risk Interest Rate RiskInterest Rate RiskEarnings RiskEarnings RiskCapital RiskCapital Risk
9
Credit RiskCredit Risk
The Probability that Some of The Probability that Some of the Bank’s Assets Will Decline the Bank’s Assets Will Decline in Value and Perhaps Become in Value and Perhaps Become WorthlessWorthless
10
Credit Risk MeasuresCredit Risk Measures
Nonperforming Loans/Total LoansNonperforming Loans/Total Loans Net Charge-Offs/Total LoansNet Charge-Offs/Total Loans Provision for Loan Losses/Total LoansProvision for Loan Losses/Total Loans Provision for Loan Losses/Equity CapitalProvision for Loan Losses/Equity Capital Allowance for Loan Losses/Total LoansAllowance for Loan Losses/Total Loans Allowance for Loan Losses/Equity CapitalAllowance for Loan Losses/Equity Capital Total Loans/Total DepositsTotal Loans/Total Deposits
11
Liquidity RiskLiquidity Risk
Probability the Bank Will Not Have Probability the Bank Will Not Have Sufficient Cash and Borrowing Capacity to Sufficient Cash and Borrowing Capacity to Meet Deposit Withdrawals and Other Cash Meet Deposit Withdrawals and Other Cash NeedsNeeds
12
Liquidity Risk MeasuresLiquidity Risk Measures
Purchased Funds/Total AssetsPurchased Funds/Total Assets Net Loans/Total AssetsNet Loans/Total Assets Cash and Due from Banks/Total AssetsCash and Due from Banks/Total Assets Cash and Government Securities/Total Cash and Government Securities/Total
AssetsAssets
13
Market RiskMarket Risk
Probability of the Market Value Probability of the Market Value of the Bank’s Investment of the Bank’s Investment Portfolio Declining in Value Portfolio Declining in Value Due to a Rise in Interest RatesDue to a Rise in Interest Rates
14
Market Risk MeasuresMarket Risk Measures
Book-Value of Assets/ Market Value of Book-Value of Assets/ Market Value of AssetsAssets
Book-Value of Equity/ Market Value of Book-Value of Equity/ Market Value of EquityEquity
Book-Value of Bonds/Market Value of Book-Value of Bonds/Market Value of BondsBonds
Market Value of Preferred Stock and Market Value of Preferred Stock and Common StockCommon Stock
15
Interest Rate RiskInterest Rate Risk
The Danger that Shifting Interest The Danger that Shifting Interest Rates May Adversely Affect a Rates May Adversely Affect a Bank’s Net Income, the Value of Bank’s Net Income, the Value of its Assets or Equityits Assets or Equity
16
Interest Rate Risk MeasuresInterest Rate Risk Measures
Interest Sensitive Interest Sensitive Assets/Interest Sensitive Assets/Interest Sensitive LiabilitiesLiabilities
Uninsured Deposits/Total Uninsured Deposits/Total DepositsDeposits
17
Earnings RiskEarnings Risk
The Risk to the Bank’s Bottom The Risk to the Bank’s Bottom Line – Its Net Income After All Line – Its Net Income After All ExpensesExpenses
18
Earnings Risk MeasuresEarnings Risk Measures
Standard Deviation of Net IncomeStandard Deviation of Net IncomeStandard Deviation of ROEStandard Deviation of ROEStandard Deviation of ROAStandard Deviation of ROA
19
Capital RiskCapital Risk
Probability of the Value of the Probability of the Value of the Bank’s Assets Declining Below the Bank’s Assets Declining Below the Level of its Total Liabilities. The Level of its Total Liabilities. The Probability of the Bank’s Long Run Probability of the Bank’s Long Run SurvivalSurvival
20
Capital Risk MeasuresCapital Risk Measures
Stock Price/Earnings Per ShareStock Price/Earnings Per ShareEquity Capital/Total AssetsEquity Capital/Total AssetsPurchased Funds/Total Purchased Funds/Total
LiabilitiesLiabilitiesEquity Capital/Risk AssetsEquity Capital/Risk Assets
Recommended