商业银行管理ROSEe课后答案chapterWord下载.docx

商业银行管理ROSEe课后答案chapterWord下载.docx

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II.EvaluatingaBank'

sPerformance

A.DeterminingLong-RangeObjectives

B.MaximizingTheValueoftheFirm:

AKeyObjectiveforNearlyAllFinancial-ServiceInstitutions

C.ProfitabilityRatios:

ASurrogateforStockValues

1.KeyProfitabilityRatios

2.InterpretingProfitabilityRatios

D.UsefulProfitabilityFormulasforBanksandOtherFinancialServiceCompanies

E.BreakingDownEquityReturnsforCloserAnalysis

F.Break-DownAnalysisoftheReturnonAssets

G.WhataBreakdownofProfitabilityMeasuresCanTellUs

H.MeasuringRiskinBankingandFinancialServices

1.CreditRisk

2.LiquidityRisk

3.MarketRisk

4.Interest-RateRisk

5.OperationalRisk

6.LegalandComplianceRisk

7.ReputationRisk

8.StrategicRisk

9.CapitalRisk

I.OtherGoalsinBankingandFinancialServicesManagement

III.PerformanceIndicatorsamongBanking’sKeyCompetitors

IV.TheImpactofSizeonPerformance

A.Size,LocationandRegulatoryBiasinAnalyzingThePerformanceofBanksandCompetingFinancialInstitutions

B.UsingFinancialRatiosandOtherAnalyticalToolstoTrackBankPerformance--TheUBPR.

V.SummaryoftheChapter

AppendixtotheChapter-ImprovingthePerformanceofFinancialFirmsThroughKnowledge:

SourcesofInformationontheFinancial-ServicesIndustry

ConceptChecks

6-1.Whyshouldbanksandothercorporatefinancialfirmsbeconcernedabouttheirlevelofprofitabilityandexposuretorisk?

BanksintheU.S.andmostothercountriesareprivatebusinessesthatmustattractcapitalfromthepublictofundtheiroperations.Ifprofitsareinadequateorifriskisexcessive,theywillhavegreaterdifficultyinobtainingcapitalandtheirfundingcostswillgrow,erodingprofitability.Bankstockholders,depositors,andbankexaminersrepresentingtheregulatorycommunityareallinterestedinthequalityofbankperformance.Thestockholdersareprimarilyconcernedwithprofitabilityasakeyfactorindeterminingtheirtotalreturnfromholdingbankstock,whiledepositors（especiallylargecorporatedepositors）andexaminerstypicallyfocusonbankriskexposure.

6-2.Whatindividualsorgroupsarelikelytobeinterestedinthesedimensionsofperformanceforabankorotherfinancialinstitution?

Theindividualsorgroupslikelytobeinterestedinbankprofitabilityandriskincludeotherbankslendingtoaparticularbank,borrowers,largedepositors,holdersoflong-termdebtcapitalissuedbybanks,bankstockholders,andtheregulatorycommunity.

6-3.Whatfactorsinfluencethestockpriceofafinancial-servicescorporation?

Abank'

sstockpriceisaffectedbyallthosefactorsaffectingitsprofitabilityandriskexposure,particularlyitsrateofreturnonequitycapitalandrisktoshareholderearnings.Abankcanraiseitsstockpricebycreatinganexpectationinthemindsofinvestorsofgreaterearningsinthefuture,byloweringthebank'

sperceivedriskexposure,orbyacombinationofincreasesinexpectedearningsandreducedrisk.

6-4.Supposethatabankisexpectedtopayanannualdividendof$4pershareonitsstockinthecurrentperiodanddividendsareexpectedtogrow5percentayeareveryyear,andtheminimumrequiredreturntoequitycapitalbasedonthebank'

sperceivedlevelofriskis10percent.Canyouestimatethecurrentvalueofthebank'

sstock?

Inthisconstantdividendgrowthrateproblemthecurrentvalueofthebank'

sstockwouldbe:

Po=D1/（k–g）=$4/（0.10–0.05）=$80.

6-5.Whatisreturnonequitycapitalandwhataspectofperformanceisitsupposedtomeasure?

Canyouseehowthisperformancemeasuremightbeusefultothemanagersoffinancialfirms?

ReturnonequitycapitalistheratioofNetIncome/TotalEquityCapital.Itrepresentstherateofreturnearnedonthefundsinvestedinthebankbyitsstockholders.Financialfirmshavestockholders,toowhoareinterestedinthereturnonthefundsthattheyinvested.

6-6Supposeabankreportsthatitsnetincomeforthecurrentyearis$51million,itsassetstotally$1,144million,anditsliabilitiesamountto$926million.Whatisitsreturnonequitycapital?

IstheROEyouhavecalculatedgoodorbad?

Whatinformationdoyouneedtoanswerthislastquestion?

Thebank'

sreturnonequitycapitalshouldbe:

ROE=

NetIncome

=

$51million

=.098or9.8percent

EquityCapital

$1,444mill.-$926mill.

Inordertoevaluatetheperformanceofthebank,youhavetocomparetheROEtotheROEofsomemajorcompetitorsorsomeindustryaverage.

6-7Whatisthereturnonassets（ROA）,andwhyisitimportant?

MighttheROAmeasurebeimportanttobanking’skeycompetitors?

ReturnonassetsistheratioofNetIncome/TotalAssets.Therateofreturnsecuredonabank'

stotalassetsindicatestheefficiencyofitsmanagementingeneratingnetincomefromalloftheresources（assets）committedtotheinstitution.Thiswouldbeimportanttobanksandtheirmajorcompetitors.

6-8.Abankestimatesthatitstotalrevenueswillamountto$155millionanditstotalexpenses（includingtaxes）willequal$107millionthisyear.Itsliabilitiestotal$4,960millionwhileitsequitycapitalamountsto$52million.Whatisthebank'

sreturnonassets?

IsthisROAhighorlow?

Howcouldyoufindout?

sreturnonassetswouldbe:

ROA=

NetIncome

$155mill.-$107mill.

=0.0096or0.96percent

TotalAssets

$4,960mill.+$52mill.

Thesizeofthisbank'

sROAshouldbecomparedwiththeROA'

sofotherbankssimilarinsizeandlocationtodetermineifthisbank'

sROAishighorlowrelativetotheaveragefor

comparablebanks.

6-9.Whydothemanagersoffinancialfirmsoftenpaycloseattentiontodaytothenetinterestmarginandnoninterestmargin?

Totheearningsspread?

Thenetinterestmargin（NIM）indicateshowsuccessfulthebankhasbeeninborrowingfundsfromthecheapestsourcesandinmaintaininganadequatespreadbetweenitsreturnsonloansandsecurityinvestmentsandthecostofitsborrowedfunds.IftheNIMrises,loanandsecurityincomemustberisingortheaveragecostoffundsmustbefallingorboth.AdecliningNIMisundesirablebecausethebank'

sinterestspreadisbeingsqueezed,usuallybecauseofrisinginterestcostsondepositsandotherborrowingsandbecauseofincreasedcompetitiontoday.

Incontrast,thenoninterestmarginreflectsthebanksspreadbetweenitsnoninterestincome（suchasservicefeesondeposits）anditsnoninterestexpenses（especiallysalariesandwagesandoverheadexpenses）.Formostbanksthenoninterestmarginisnegative.Managementwillusuallyattempttoexpandfeeincome,whilecontrollingcloselythegrowthofnoninterestexpensesinordertomakeanegativenoninterestmarginlessnegative.

Theearningsspreadmeasurestheeffectivenessofthebank'

sintermediationfunctionofborrowingandlendingmoney,which,ofcourse,isthebank'

sprimarywayofgeneratingearnings.Ascompetitionincreases,thespreadbetweentheaverageyieldsonassetsandtheaveragecostofliabilitieswillbesqueezed,forcingthebank'

smanagementtosearchforalternativesourcesofincome,suchasfeesfromvariousservicesthebankoffers.

6-10.Supposeabankertellsyouthathisbankintheyearjustcompletedhadtotalinterestexpensesonallborrowingsof$12millionandnoninterestexpenseof$5million,whileinterestincomefromearningassetstotaled$16millionandnoninterestrevenuesaddedtoatotalof$2million.Supposefurtherthatassetsamountedto$480millionofwhichearningassetsrepresented85percentoftotalassets,whiletotalinterest-bearingliabilitiesamountedto75percentoftotalassets.Seeifyoucandeterminethisbank'

snetinterestandnoninterestmarginsanditsearningsbaseandearningsspreadforthemostrecentyear.

snetinterestandnoninterestmarginsmustbe:

NetInterest

$16mill.-$12mill.

Noninterest

$2mill.-$5mill.

Margin

$480mill.

=.00833

=-.00625

searningsspreadandearningsbaseare:

Earnings

$16mill.

-

$12mill.

Spread

$480mill*0.85

$480mill.*0.75

=.0392

=.0333

EarningsBase

$480mill.-$480mill.*0.15

0.85or85percent

6-11.WhataretheprincipalcomponentsofROEandwhatdoeachofthesecomponentsmeasure?

TheprincipalcomponentsofROEare:

a.Thenetprofitmarginornetafter-taxincometooperatingrevenueswhichreflectstheeffectivenessofabank'

sexpensecontrolprogram;

b.Thedegreeofassetutilizationorratioofoperatingrevenuestototalassetswhichmeasurestheeffectivenessofmanagingthebank'

sassets,especiallytheloanportfolio;

and,

c.Theequitymultiplierorratiooftotalassetstototalequitycapitalwhichmeasuresabank'

suseofleverageinfundingitsoperations.

6-12.SupposeabankhasanROAof0.80percentandanequitymultiplierof12x.WhatisitsROE?

Supposethisbank'

sROAfallsto0.60percent.WhatsizeequitymultipliermustithavetoholditsROEunchanged?

Thebank