What are the processes for measuring and evaluating the performance of a financial institution

 Evaluating a Bank's Performance

A.     Determining Long-Range Objectives

B.     Maximizing The Value of the Firm: A Key Objective for Nearly All

Financial-Services Institutions

C.     Profitability Ratios: A Surrogate for Stock Values (Many small banks do not have   an active stock market and product or geographic

subsets of a bank do not have stock prices.)

1.     Key Profitability Ratios (ROE, ROA, NIM, NIMPLL, EPS, Efficiency Ratio, Fee Income Ratio)

2.     Interpreting Profitability Ratios

D.     Measuring Risk in Banking and Financial Services (pp. 181-188) We will not cover these now but will cover them in detail in the appropriate places during the semester. (Credit Risk, Liquidity Risk, Market Risk, Interest-Rate Risk, Foreign Exchange & Sovereign Risk, Off-Balance Sheet Risk, Operational (Transactional) Risk, Legal and Compliance Risk, Reputation Risk, Strategic Risk, and Capital Risk)

 

 Key Performance Indicators among Banking’s Key Competitors (NOTE: when an income statement item for a period is combined with a balance sheet item for a specific time the average of the balance sheet item for the income statement period should be used.)

Discuss the important aspects that should be considered by a banker while financing an industrial project

 Each project should define:

1. Stakeholders

2. Project goals

3. Resources (people, budget etc).

4. Deadline (schedule)

5. Milestones

6. Project scope

7. Known constraints

8. Risk management

 

Explain re-pricing model with example

 The Re-pricing Model called re-pricing GAP model-

1. Income oriented model:

Target variable = Net Interest Income = Interest Revenues – Interest Expenses

2. Interest Rate Gap difference between assets and liabilities sensitive to interest rates changes in a predefined time period

3. An asset or a liability is “sensitive” if, in the relevant time period (“gapping period”), it reaches its maturity or there is a renegotiation of the interest rate G=SA-SL

Explain liability structure financial institutions

 Liability Structure refers to deposit sources of funds that comprise to-

       Core deposits of regular bank customers

       Purchased deposits are acquired on a non-personal basis

       Demand deposits, small time and savings deposits, large time deposits

       Liability management is based on purchased funds.

       Brokered deposits

The components of liability structure are-

1. Amounts owed to central banks

2. Amounts owed to credit institutions

3. Amounts owed to customers

4. Debts evidenced by certificates

5. Liabilities (other than deposits) held for trading

6. Provisions

7. Subordinated liabilities

8. Other liabilities

9. Capital and reserves

 

Explain spread & burden with example

 Spread: An interest rate spread is lending rate minus deposit rate, %.

Interest rate spread is the interest rate charged by banks on loans to private sector customers minus the interest rate paid by commercial or similar banks for

demand, time, or savings deposits. The terms and conditions attached to these rates differ by country, however, limiting their comparability.

 

 Burden:

Burden Rate is indirect costs associated with employees, over and above gross compensation or payroll costs. Typical costs associated with the burden rate include payroll taxes, worker's compensation and health insurance, paid time off,

training and travel expenses, vacation and sick leave, pension contributions and other benefits.

Burden=(Non-interest operating Expenditure - Non-interest operating income) /Average Total Assets

A bank with a low burden ratio is more better off. An increasing trend would show lack of burden bearing capacity