商业银行学答案第八版罗斯Chap.docx
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商业银行学答案第八版罗斯Chap
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.TheequitymultiplierorratioofT
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