商业银行学答案第八版罗斯Chap006.docx

商业银行学答案第八版罗斯Chap006.docx

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商业银行学答案第八版罗斯Chap006

CHAPTER6

MEASURINGANDEVALUATINGTHEPERFORMANCEOFBANKSANDTHEIRPRINCIPALCOMPETITORS

GoalofThisChapter:

Thepurposeofthischapteristodiscoverwhatanalyticaltoolscanbeappliedtoabank’sfinancialstatementssothatmanagementandthepubliccanidentifythemostcriticalproblemsinsideeachbankanddevelopwaystodealwiththoseproblems

∙

KeyTopicsinthisChapter

∙StockValuesandProfitabilityRatios

∙MeasuringCredit,Liquidity,andOtherRisks

∙MeasuringOperatingEfficiency

∙PerformanceofCompetingFinancialFirms

∙SizeandLocationEffects

∙Appendix:

UsingFinancialRatiosandOtherAnalyticalToolstoTrackFinancialFirmPerformance-TheUBPRandBHCPR

ChapterOutline

I.Introduction:

IIEvaluatingPerformance

A.DeterminingLong-RangeObjectives

B.MaximizingtheValueoftheFirm:

AKeyObjectiveforNearlyAllFinancial-Service

Institutions

C.ProfitabilityRatios:

ASurrogateforStockValues

1.KeyProfitabilityRatios

2.InterpretingProfitabilityRatios

D.UsefulProfitabilityFormulasforBanksandOtherFinancial-ServiceCompanies

E.ReturnonEquityandItsPrincipalComponents

F.TheReturnonAssetsandItsPrincipalComponents

G.WhataBreakdownofProfitabilityMeasuresCanTellUs

H.MeasuringRiskinBankingandFinancialServices

1.CreditRisk

2.LiquidityRisk

3.MarketRisk

4.PriceRisk

5.InterestRateRisk

6.ForeignExchangeandSovereignRisk

7.Off-Balance-SheetRisk

8.Operational（Transactional）Risk

9.LegalandComplianceRisks

10ReputationRisk

11.StrategicRisk

12.CapitalRisk

I.OtherGoalsinBankingandFinancial-ServicesManagement

III.PerformanceIndicatorsamongBanking’sKeyCompetitors

IV.TheImpactofSizeonPerformance

A.Size,LocationandRegulatoryBiasinAnalyzingthePerformanceofBanksand

CompetingFinancialInstitutions

V.SummaryoftheChapter

AppendixtotheChapter-UsingFinancialRatiosandOtherAnalyticalToolstoTrackFinancial-FirmPerformance-TheUBPRandBHCPR

ConceptChecks

6-1.Whyshouldbanksandothercorporatefinancialfirmsbeconcernedabouttheirlevelofprofitabilityandexposuretorisk?

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

6-2.Whatindividualsorgroupsarelikelytobeinterestedinthesedimensionsofperformanceforafinancialinstitution?

Theindividualsorgroupslikelytobeinterestedinthedimensionsi.e.,BankprofitabilityandRiskare–Otherbankslendingtoaparticularbank,borrowers,largedepositors,holdersoflong-termdebtcapitalissuedbybanks,bankstockholders,andtheregulatorycommunity.

6-3.Whatfactorsinfluencethestockpriceofafinancial-servicescorporation?

Abank'sstockpriceisaffectedbyallthosefactorsaffectingitsprofitabilityandriskexposure,particularlyitsrateofreturnonequitycapitalandrisktoshareholderearnings.Researchevidenceovertheyearshasfoundthatthestockpricesoffinancialinstitutionsissensitivetochangesinmarketinterestrates,currencyexchangerates,andthestrengthorweaknessoftheeconomy.Abankcanraiseitsstockpricebycreatinganexpectationinthemindsofinvestorsofgreaterearningsinthefuture,byloweringthebank'sperceivedriskexposure,orbyacombinationofincreasesinexpectedearningsandreducedrisk.

6-4.Supposethatabankisexpectedtopayanannualdividendof$4pershareonitsstockinthecurrentperiodanddividendsareexpectedtogrow5percentayeareveryyear,andtheminimumrequiredreturn-to-equitycapitalbasedonthebank'sperceivedlevelofriskis10percent.Canyouestimatethecurrentvalueofthebank'sstock?

Inthisconstantdividendgrowthrateproblemthecurrentvalueofthebank'sstockwouldbe:

Po=D1/（r–g）=$4/（0.10–0.05）=$80.

6-5.Whatisreturnonequitycapital,andwhataspectofperformanceisitsupposedtomeasure?

Canyouseehowthisperformancemeasuremightbeusefultothemanagersoffinancialfirms?

ReturnonequitycapitalistheratioofNetIncome/TotalEquityCapital.Itrepresentstherateofreturnearnedonthefundsinvestedinthebankbyitsstockholders.Financialfirmshavestockholders,whotooareinterestedinthereturnonthefundsthattheyinvested.

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

IstheROEyouhavecalculatedgoodorbad?

Whatinformationdoyouneedtoanswerthislastquestion?

Thebank'sreturnonequitycapitalshouldbe:

ROE=

NetIncome

=

$51million

=0.234or23.39percent

TotalequityCapital

$1,144mill.-$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?

Thebank'sreturnonassetswouldbe:

ROA=

NetIncome

=

$155mill.-$107mill.

=0.0096or0.96percent

TotalAssets

$4,960mill.+$52mill.

Thesizeofthisbank'sROAshouldbecomparedwiththeROA'sofotherbankssimilarinsizeandlocationtodetermineifthisbank'sROAishighorlow.

6-9.Whydothemanagersoffinancialfirmsoftenpaycloseattentiontodaytothenetinterestmarginandnoninterestmargin?

Totheearningsspread?

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

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$16millionandnoninterestrevenuestotaled$2million.Supposefurtherthatassetsamountedto$480million,ofwhichearningassetsrepresented85percentofthattotalwhiletotalinterest-bearingliabilitiesamountedto75percentoftotalassets.Seeifyoucandeterminethisbank'snetinterestandnoninterestmarginsanditsearningsbaseandearningsspreadforthemostrecentyear.

Thebank'snetinterestandnoninterestmarginsmustbe:

NetInterest

=

$16mill.-$12mill.

Noninterest

=

$2mill.-$5mill.

Margin

$480mill.

Margin

$480mill.

=0.00833

=-0.00625

Thebank'searningsspreadandearningsbaseare:

Earnings

=

$16mill.

-

$12mill.

Spread

$480mill*0.85

$480mill.*0.75

=0.0392

=0.0333

=

0.0059

EarningsBase

=

$480mill.–（$480mill.*0.15）

=

0.85or85percent

$480mill.

6-11.WhataretheprincipalcomponentsofROE,andwhatdoeseachofthesecomponentsmeasure?

TheprincipalcomponentsofROEare:

a.Thenetprofitmarginornetafter-taxincometoTotaloperatingrevenueswhichreflectstheeffectivenessofabank'sexpensecontrolprogramandservicepricingpolicies;

b.ThedegreeofassetutilizationorratioofTotaloperatingrevenuestoTotalassetswhichmeasurestheeffectivenessofmanagingthebank'sportfoliomanagementpolicies,especiallythemixandyieldonassets;and,

c.TheequitymultiplierorratioofTotal