ManagementofFinancialInstitution外文文献.pptVIP

Chapter Three Evaluating Returns, Risks and Overall Performance Using basic ideas from business finance Attaining the main objective of maximising the value of shareholders’ investment Key return measures for a company ROE, etc. Additional information needed including risk measures such as nature of costs Parallels with financial institutions Key return and risk measures for a bank Measuring returns – financial statement information Measuring risks Liquidity risk Interest-rate risk Credit risk Capital risk Measuring returns ROA or ROE? Important ratios - Refer table 3.2 on page 92: Interest margin = Net interest revenue/earning assets Net margin (after tax) = operating profit after tax/ revenues Asset utilisation = Revenues/ Assets Return on assets = Operating profit after tax/ assets Leverage multiplier = Assets/ equity Return on equity = Operating profit after tax/ equity Liquidity risk An ADI’s needs for meeting deposit outflows and loan increases and its actual or potential sources of liquidity from either selling an asset that it holds or acquiring additional liabilities How to measure - Short term securities/ deposits Interest rate risk Primarily caused by movements in interest rates How to measure – Interest sensitive assets/ interest sensitive liabilities Credit risk The risk that the capital and or interest of a loan will not be repaid. How to measure: Medium loans/ assets Capital risk How much assets values may decline before the position of depositors and other creditors are jeopardised. How to measure: Capital / assets Setting objectives for returns and risks Setting objectives for returns and risks, e.g. highest returns for a given level of risk or the lowest risks for a given level of return Comparison of objectives with actual performance for the period being examined Return–risk trade-offs Entail decisions about: Level of capital (equity) Types of liabilities/assets to focus on Evaluating performance Sources of comparison: Trends over