商业银行学答案第八版罗斯Chap006.docx

1、商业银行学答案第八版罗斯Chap006CHAPTER 6MEASURING AND EVALUATING THE PERFORMANCE OF BANKS AND THEIR PRINCIPAL COMPETITORSGoal of This Chapter: The purpose of this chapter is to discover what analytical tools can be applied to a banks financial statements so that management and the public can identify the most c

2、ritical problems inside each bank and develop ways to deal with those problems Key Topics in this ChapterStock Values and Profitability RatiosMeasuring Credit, Liquidity, and Other RisksMeasuring Operating EfficiencyPerformance of Competing Financial FirmsSize and Location EffectsAppendix: Using Fin

3、ancial Ratios and Other Analytical Tools to Track Financial Firm Performance-The UBPR and BHCPRChapter OutlineI. Introduction: II Evaluating PerformanceA. Determining Long-Range ObjectivesB. Maximizing the Value of the Firm: A Key Objective for Nearly All Financial-Service InstitutionsC. Profitabili

4、ty Ratios: A Surrogate for Stock Values1. Key Profitability Ratios2. Interpreting Profitability Ratios D. Useful Profitability Formulas for Banks and Other Financial-Service CompaniesE. Return on Equity and Its Principal ComponentsF. The Return on Assets and Its Principal Components G. What a Breakd

5、own of Profitability Measures Can Tell UsH. Measuring Risk in Banking and Financial Services1. Credit Risk2. Liquidity Risk3. Market Risk4. Price Risk5. Interest Rate Risk6. Foreign Exchange and Sovereign Risk7. Off-Balance-Sheet Risk8. Operational (Transactional) Risk9. Legal and Compliance Risks 1

6、0 Reputation Risk11. Strategic Risk12. Capital RiskI. Other Goals in Banking and Financial-Services ManagementIII. Performance Indicators among Bankings Key CompetitorsIV.The Impact of Size on Performance A. Size, Location and Regulatory Bias in Analyzing the Performance of Banks and Competing Finan

7、cial Institutions V. Summary of the ChapterAppendix to the Chapter - Using Financial Ratios and Other Analytical Tools to Track Financial-Firm Performance-The UBPR and BHCPRConcept Checks6-1. Why should banks and other corporate financial firms be concerned about their level of profitability and exp

8、osure to risk?Banks in the U.S. and most other countries are private businesses that must attract capital from the public to fund their operations. If profits are inadequate or if risk is excessive, they will have greater difficulty in obtaining capital and their funding costs will grow, eroding pro

9、fitability. Bank stockholders, depositors, and bank examiners representing the regulatory community are all interested in the quality of bank performance. The stockholders are primarily concerned with profitability as a key factor in determining their total return from holding bank stock, while depo

10、sitors (especially large corporate depositors) and examiners typically focus on bank risk exposure.6-2. What individuals or groups are likely to be interested in these dimensions of performance for a financial institution?The individuals or groups likely to be interested in the dimensions i.e., Bank

11、 profitability and Risk are Other banks lending to a particular bank, borrowers, large depositors, holders of long-term debt capital issued by banks, bank stockholders, and the regulatory community.6-3. What factors influence the stock price of a financial-services corporation?A banks stock price is

12、 affected by all those factors affecting its profitability and risk exposure, particularly its rate of return on equity capital and risk to shareholder earnings. Research evidence over the years has found that the stock prices of financial institutions is sensitive to changes in market interest rate

13、s, currency exchange rates, and the strength or weakness of the economy. A bank can raise its stock price by creating an expectation in the minds of investors of greater earnings in the future, by lowering the banks perceived risk exposure, or by a combination of increases in expected earnings and r

14、educed risk.6-4. Suppose that a bank is expected to pay an annual dividend of $4 per share on its stock in the current period and dividends are expected to grow 5 percent a year every year, and the minimum required return-to-equity capital based on the banks perceived level of risk is 10 percent. Ca

15、n you estimate the current value of the banks stock?In this constant dividend growth rate problem the current value of the banks stock would be:Po = D1 / (r g) = $4 / (0.10 0.05) = $80.6-5. What is return on equity capital, and what aspect of performance is it supposed to measure? Can you see how th

16、is performance measure might be useful to the managers of financial firms?Return on equity capital is the ratio of Net Income/Total Equity Capital. It represents the rate of return earned on the funds invested in the bank by its stockholders. Financial firms have stockholders, who too are interested

17、 in the return on the funds that they invested.6-6 Suppose a bank reports that its net income for the current year is $51 million, its assets total $1,144 million, and its liabilities amount to $926 million. What is its return on equity capital? Is the ROE you have calculated good or bad? What infor

18、mation do you need to answer this last question?The banks return on equity capital should be:ROE =Net Income =$51 million= 0.234 or 23.39 percentTotal equity Capital$1,144 mill.-$926 mill.In order to evaluate the performance of the bank, you have to compare the ROE to the ROE of some major competito

19、rs or some industry average.6-7 What is the return on assets (ROA), and why is it important? Might the ROA measure be important to bankings key competitors?Return on assets is the ratio of Net Income/Total Assets. The rate of return secured on a banks total assets indicates the efficiency of its man

20、agement in generating net income from all of the resources (assets) committed to the institution. This would be important to banks and their major competitors.6-8. A bank estimates that its total revenues will amount to $155 million and its total expenses (including taxes) will equal $107 million th

21、is year. Its liabilities total $4,960 million while its equity capital amounts to $52 million. What is the banks return on assets? Is this ROA high or low? How could you find out?The banks return on assets would be:ROA =Net Income=$155 mill. - $107 mill.= 0.0096 or 0.96 percentTotal Assets$4,960 mil

22、l. + $52 mill.The size of this banks ROA should be compared with the ROAs of other banks similar in size and location to determine if this banks ROA is high or low.6-9. Why do the managers of financial firms often pay close attention today to the net interest margin and noninterest margin? To the ea

23、rnings spread?The net interest margin (NIM) indicates how successful the bank has been in borrowing funds from the cheapest sources and in maintaining an adequate spread between its returns on loans and security investments and the cost of its borrowed funds. If the NIM rises, loan and security inco

24、me must be rising or the average cost of funds must be falling or both. A declining NIM is undesirable because the banks interest spread is being squeezed, usually because of rising interest costs on deposits and other borrowings and increased competition today.In contrast, the noninterest margin re

25、flects the banks spread between its noninterest income (such as service fees on deposits) and its noninterest expenses (especially salaries and wages and overhead expenses). For most banks the noninterest margin is negative. Management will usually attempt to expand fee income, while controlling clo

26、sely the growth of noninterest expenses in order to make a negative noninterest margin less negative.The earnings spread measures the effectiveness of the banks intermediation function of borrowing and lending money, which, of course, is the banks primary way of generating earnings. As competition i

27、ncreases, the spread between the average yields on assets and the average cost of liabilities will be squeezed, forcing the banks management to search for alternative sources of income, such as fees from various services the bank offers.6-10. Suppose a banker tells you that his bank in the year just

28、 completed had total interest expenses on all borrowings of $12 million and noninterest expense of $5 million, while interest income from earning assets totaled $16 million and noninterest revenues totaled $2 million. Suppose further that assets amounted to $480 million, of which earning assets repr

29、esented 85 percent of that total while total interest-bearing liabilities amounted to 75 percent of total assets. See if you can determine this banks net interest and noninterest margins and its earnings base and earnings spread for the most recent year.The banks net interest and noninterest margins

30、 must be:Net Interest =$16 mill. - $12 mill.Noninterest=$2 mill. - $5 mill.Margin$480 mill.Margin$480 mill.= 0.00833= -0.00625The banks earnings spread and earnings base are:Earnings=$16 mill.-$12 mill.Spread$480 mill * 0.85$480 mill. * 0.75= 0.0392= 0.0333=0.0059Earnings Base=$480 mill. ($480 mill.

31、 * 0.15)=0.85 or 85 percent$480 mill.6-11. What are the principal components of ROE, and what does each of these components measure?The principal components of ROE are:a. The net profit margin or net after-tax income to Total operating revenues which reflects the effectiveness of a banks expense con

32、trol program and service pricing policies;b. The degree of asset utilization or ratio of Total operating revenues to Total assets which measures the effectiveness of managing the banks portfolio management policies, especially the mix and yield on assets; and,c. The equity multiplier or ratio of Total