商业银行管理ROSEe课后答案ch精编ter

JennywascompiledinJanuary2021商业银行管理ROSEe课后 答案 八年级地理上册填图题岩土工程勘察试题省略号的作用及举例应急救援安全知识车间5s试题及答案 ch精编terCHAPTER6MEASURINGANDEVALUATINGTHEPERFORMANCEOFBANKSANDTHEIRPRINCIPALCOMPETITORSGoalofThisChapter:Thepurposeofthischapteristodiscoverwhatanalyticaltoolscanbeappliedtoabank’sfinancialstatementssothatmanagementandthepubliccanidentifythemostcriticalproblemsinsideeachbankanddevelopwaystodealwiththoseproblemsKeyTopicsinThisChapterStockValuesandProfitabilityRatiosMeasuringCredit,Liquidity,andOtherRisksMeasuringOperatingEfficiencyPerformanceofCompetingFinancialFirmsSizeandLocationEffectsTheUBPRandComparingPerformanceChapterOutlineI.Introduction:II.EvaluatingaBank'sPerformanceA.DeterminingLong-RangeObjectivesB.MaximizingTheValueoftheFirm:AKeyObjectiveforNearlyAllFinancial-ServiceInstitutionsC.ProfitabilityRatios:ASurrogateforStockValues1.KeyProfitabilityRatios2.InterpretingProfitabilityRatiosD.UsefulProfitabilityFormulasforBanksandOtherFinancialServiceCompaniesE.BreakingDownEquityReturnsforCloserAnalysisF.Break-DownAnalysisoftheReturnonAssetsG.WhataBreakdownofProfitabilityMeasuresCanTellUsH.MeasuringRiskinBankingandFinancialServices1.CreditRisk2.LiquidityRisk3.MarketRisk4.Interest-RateRisk5.OperationalRisk6.LegalandComplianceRisk7.ReputationRisk8.StrategicRisk9.CapitalRiskI.OtherGoalsinBankingandFinancialServicesManagementIII.PerformanceIndicatorsamongBanking’sKeyCompetitorsIV.TheImpactofSizeonPerformanceA.Size,LocationandRegulatoryBiasinAnalyzingThePerformanceofBanksandCompetingFinancialInstitutionsB.UsingFinancialRatiosandOtherAnalyticalToolstoTrackBankPerformance--TheUBPR.V.SummaryoftheChapterAppendixtotheChapter-ImprovingthePerformanceofFinancialFirmsThroughKnowledge:SourcesofInformationontheFinancial-ServicesIndustryConceptChecks6-1.WhyshouldbanksandothercorporatefinancialfirmsbeconcernedabouttheirlevelofprofitabilityandexposuretoriskBanksintheU.S.andmostothercountriesareprivatebusinessesthatmustattractcapitalfromthepublictofundtheiroperations.Ifprofitsareinadequateorifriskisexcessive,theywillhavegreaterdifficultyinobtainingcapitalandtheirfundingcostswillgrow,erodingprofitability.Bankstockholders,depositors,andbankexaminersrepresentingtheregulatorycommunityareallinterestedinthequalityofbankperformance.Thestockholdersareprimarilyconcernedwithprofitabilityasakeyfactorindeterminingtheirtotalreturnfromholdingbankstock,whiledepositors(especiallylargecorporatedepositors)andexaminerstypicallyfocusonbankriskexposure.6-2.WhatindividualsorgroupsarelikelytobeinterestedinthesedimensionsofperformanceforabankorotherfinancialinstitutionTheindividualsorgroupslikelytobeinterestedinbankprofitabilityandriskincludeotherbankslendingtoaparticularbank,borrowers,largedepositors,holdersoflong-termdebtcapitalissuedbybanks,bankstockholders,andtheregulatorycommunity.6-3.Whatfactorsinfluencethestockpriceofafinancial-servicescorporationAbank'sstockpriceisaffectedbyallthosefactorsaffectingitsprofitabilityandriskexposure,particularlyitsrateofreturnonequitycapitalandrisktoshareholderearnings.Abankcanraiseitsstockpricebycreatinganexpectationinthemindsofinvestorsofgreaterearningsinthefuture,byloweringthebank'sperceivedriskexposure,orbyacombinationofincreasesinexpectedearningsandreducedrisk.6-4.Supposethatabankisexpectedtopayanannualdividendof$4pershareonitsstockinthecurrentperiodanddividendsareexpectedtogrow5percentayeareveryyear,andtheminimumrequiredreturntoequitycapitalbasedonthebank'sperceivedlevelofriskis10percent.Canyouestimatethecurrentvalueofthebank'sstockInthisconstantdividendgrowthrateproblemthecurrentvalueofthebank'sstockwouldbe:Po=D1/(k–g)=$4/–=$80.6-5.WhatisreturnonequitycapitalandwhataspectofperformanceisitsupposedtomeasureCanyouseehowthisperformancemeasuremightbeusefultothemanagersoffinancialfirmsReturnonequitycapitalistheratioofNetIncome/TotalEquityCapital.Itrepresentstherateofreturnearnedonthefundsinvestedinthebankbyitsstockholders.Financialfirmshavestockholders,toowhoareinterestedinthereturnonthefundsthattheyinvested.6-6Supposeabankreportsthatitsnetincomeforthecurrentyearis$51million,itsassetstotally$1,144million,anditsliabilitiesamountto$926million.WhatisitsreturnonequitycapitalIstheROEyouhavecalculatedgoodorbadWhatinformationdoyouneedtoanswerthislastquestionThebank'sreturnonequitycapitalshouldbe:ROE=NetIncome=$51million=.098orpercentEquityCapital$1,444$926mill.Inordertoevaluatetheperformanceofthebank,youhavetocomparetheROEtotheROEofsomemajorcompetitorsorsomeindustryaverage.6-7Whatisthereturnonassets(ROA),andwhyisitimportantMighttheROAmeasurebeimportanttobanking’skeycompetitorsReturnonassetsistheratioofNetIncome/TotalAssets.Therateofreturnsecuredonabank'stotalassetsindicatestheefficiencyofitsmanagementingeneratingnetincomefromalloftheresources(assets)committedtotheinstitution.Thiswouldbeimportanttobanksandtheirmajorcompetitors.6-8.Abankestimatesthatitstotalrevenueswillamountto$155millionanditstotalexpenses(includingtaxes)willequal$107millionthisyear.Itsliabilitiestotal$4,960millionwhileitsequitycapitalamountsto$52million.Whatisthebank'sreturnonassetsIsthisROAhighorlowHowcouldyoufindoutThebank'sreturnonassetswouldbe:ROA=NetIncome=$155mill.-$107mill.=orpercentTotalAssets$4,960mill.+$52mill.Thesizeofthisbank'sROAshouldbecomparedwiththeROA'sofotherbankssimilarinsizeandlocationtodetermineifthisbank'sROAishighorlowrelativetotheaverageforcomparablebanks.6-9.WhydothemanagersoffinancialfirmsoftenpaycloseattentiontodaytothenetinterestmarginandnoninterestmarginTotheearningsspreadThenetinterestmargin(NIM)indicateshowsuccessfulthebankhasbeeninborrowingfundsfromthecheapestsourcesandinmaintaininganadequatespreadbetweenitsreturnsonloansandsecurityinvestmentsandthecostofitsborrowedfunds.IftheNIMrises,loanandsecurityincomemustberisingortheaveragecostoffundsmustbefallingorboth.AdecliningNIMisundesirablebecausethebank'sinterestspreadisbeingsqueezed,usuallybecauseofrisinginterestcostsondepositsandotherborrowingsandbecauseofincreasedcompetitiontoday.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$16millionandnoninterestrevenuesaddedtoatotalof$2million.Supposefurtherthatassetsamountedto$480millionofwhichearningassetsrepresented85percentoftotalassets,whiletotalinterest-bearingliabilitiesamountedto75percentoftotalassets.Seeifyoucandeterminethisbank'snetinterestandnoninterestmarginsanditsearningsbaseandearningsspreadforthemostrecentyear.Thebank'snetinterestandnoninterestmarginsmustbe:NetInterest=$16mill.-$12mill.Noninterest=$2mill.-$5mill.Margin$480mill.Margin$480mill.=.00833=Thebank'searningsspreadandearningsbaseare:Earnings=$16mill.-$12mill.Spread$480mill*$480mill.*=.0392=.0333EarningsBase=$480mill.-$480mill.*=or85percent$480mill.6-11.WhataretheprincipalcomponentsofROEandwhatdoeachofthesecomponentsmeasureTheprincipalcomponentsofROEare:a.Thenetprofitmarginornetafter-taxincometooperatingrevenueswhichreflectstheeffectivenessofabank'sexpensecontrolprogram;b.Thedegreeofassetutilizationorratioofoperatingrevenuestototalassetswhichmeasurestheeffectivenessofmanagingthebank'sassets,especiallytheloanportfolio;and,c.Theequitymultiplierorratiooftotalassetstototalequitycapitalwhichmeasuresabank'suseofleverageinfundingitsoperations.6-12.SupposeabankhasanROAofpercentandanequitymultiplierof12x.WhatisitsROESupposethisbank'sROAfallstopercent.WhatsizeequitymultipliermustithavetoholditsROEunchangedThebank'sROEis:ROE=percent*12=percent.IfROAfallstopercent,thebank'sROEandequitymultipliercanbedeterminedfrom:ROE=%=percent*EquityMultiplierEquityMultiplier=percent=16x.percent6-13.Supposeabankreportsnetincomeof$12,before-taxnetincomeof$15,operatingrevenuesof$100,assetsof$600,and$50inequitycapital.Whatisthebank'sROETax-managementefficiencyindicatorExpensecontrolefficiencyindicatorAssetmanagementefficiencyindicatorFundsmanagementefficiencyindicatorThebank'sROEmustbe:ROE==or24percentItstax-management,expensecontrol,assetmanagement,andfundsmanagementefficiencyindicatorsare:TaxManagement=$12ExpenseControl=$15Efficiencyindicator$15EfficiencyIndicator$100=.8or80percent=.15or15percentAssetManagement=$100FundsManagement=$600EfficiencyIndicator$600EfficiencyIndicator$50=orpercent=12x6-14.WhatarethemostimportantcomponentsofROAandwhataspectsofafinancialinstitution’sperformancedotheyreflectTheprincipalcomponentsofROAare:a.TotalInterestIncomeLessTotalInterestExpensedividedbyTotalAssets,measuringabank'ssuccessatintermediatingfundsbetweenborrowersandlenders;b.ProvisionforLoanLossesdividedbyTotalAssetswhichmeasuresmanagement'sabilitytocontrolloanlossesandmanageabank'staxexposure;c.NoninterestIncomelessNoninterestExpensesdividedbyTotalAssets,whichindicatestheabilityofmanagementtocontrolsalariesandwagesandothernoninterestcostsandgenerateteeincome;d.NetIncomeBeforeTaxesdividedbyTotalAssets,whichmeasuresoperatingefficiencyandexpensecontrol;ande.ApplicableTaxesdividedbyTotalAssets,whichisanindexoftaxmanagementeffectiveness.6-15.Ifabankhasanetinterestmarginof%,anoninterestmarginof%,andaratioofprovisionforloanlosses,taxes,securitygains,andextraordinaryitemsof%,whatisitsROAThebank'sROAmustbe:ROA=percent-percent-percent=percent6-16.Towhatdifferentkindsofriskarebanksandtheirfinancial-servicecompetitorssubjectedtodaya.CreditRisk--theprobabilitythatloansandsecuritiesthebankholdswillnotpayoutaspromised.b.LiquidityRisk--theprobabilitythebankwillnothavesufficientcashonhandinthevolumeneededpreciselywhencashdemandsarise.c.MarketRisk--theprobabilitythatthevalueofassetsheldbythebankwilldeclineduetofallingmarketprices.d.Interest-RateRisk-thepossibilityorprobabilityinterestrateswillchange,subjectingthebanktolowerprofitsoralowervalueforthefirm’scapital.e.OperationalRisk–theuncertainlyregardingafinancialfirm’searningsduetofailuresincomputersystems,employeemisconduct,floods,lighteningstrikesandothersimilarevents.f.LegalandComplianceRisk–theuncertaintyregardingafinancialfirm’searningsduetoactionstakenbyourlegalsystemorduetoaviolationofrulesandregulationsg.ReputationRisk–theuncertaintyduetopublicopinionorthevariabilityinearningsduetopositiveornegativepublicityaboutthefinancialfirmh.StrategicRisk–theuncertaintyinearningsduetoadversebusinessdecisions,lackorresponsivenesstochangesandotherpoordecisionsbymanagementi.CapitalRisk–theriskthatthevalueoftheassetswilldeclinebelowthevalueoftheliabilities.Alloftheotherriskslistedabovecanaffectearningsandthevalueoftheassetsandliabilitiesandthereforecanhaveaneffectonthecapitalpositionofthefirm.6-17.Whatitemsonabank'sbalancesheetandincomestatementcanbeusedtomeasureitsriskexposureTowhatotherfinancialinstitutionsdotheseriskmeasuresapplyThereareseveralalternativemeasuresofriskinbankingandfinancialservicefirms.Capitalriskisoftenmeasuredbybankcapitalratios,suchastheratiooftotalcapitaltototalassetsortotalcapitaltoriskassets.Creditriskcanbetrackedbysuchratiosasnetloanlossestototalloansorrelativetototalcapital.Liquidityriskcanbefollowedbyusingsuchratiosascashassetstototalassetsorbytotalloanstototalassets.Interest-rateriskmaybeindicatedbysuchratiosasinterest-sensitiveliabilitiestointerest-sensitiveassetsortheratioofmoney-marketborrowingstomoney-marketassets.6-18.Abankreportsthatthetotalamountofitsnetloansandleasesoutstandingis$936million,itsassetstotal$1,324million,itsequitycapitalamountsto$110million,anditholds$1,150millionindeposits,allexpressedinbookvalue.Theestimatedmarketvaluesofthebank'stotalassetsandequitycapitalare$1,443millionand$130million,respectively.Thebank'sstockiscurrentlyvaluedat$60persharewithannualper-shareearningsof$.Uninsureddepositsamountto$243millionandmoneymarketborrowingstotal$132million,whilenonperformingloanscurrentlyamountto$43millionandthebankjustchargedoff$21millioninloans.Calculateasmanyofthebank'sriskmeasuresasyoucanfromtheforegoingdata.NetLoansandLeases=$936mill.UninsuredDeposits$243mill.TotalAssets$1,324mill.TotalDeposits$1,150mill.orpercentorpercentEquityCapital=$130mill.StockPrice$60TotalAssets$1,443mill.EarningsPerShare$=orpercent=24XNonperformingAssets=$43mill.=orpercentNetLoansandLeases$936mill.Charge-offsofloans=$21PurchasedFunds=$243mill.+$132mill.TotalLoansandLeases$936TotalLiabilities$1,324mill.-$110mill.=.0224orpercent.3089orpercentBookValueofAssets=$1324=orpercentMarketValueofAssets$1443Problems6-1.AninvestorholdsthestockofFirstNationalBankofImohandexpectstoreceiveadividendof$12pershareattheendoftheyear.Stockanalystshaverecentlypredictedthatthebank’sdividendswillgrowatapproximately3percentayearindefinitelyintothefuture.Ifthisistrue,andiftheappropriaterisk-adjustedcostofcapital(discountrate)forthebankis15percent,whatshouldbethecurrentstockpricepershareofImoh’sstock6-2.SupposethatstockbrokershaveprojectedthatPoquosonBankandTrustCompanywillpayadividendof$3pershareonitscommonstockattheendoftheyear;adividendof$pershareisexpectedforthenextyearand$6pershareinthefollowingyear.Therisk-adjustedcostofcapitalforbanksinPoquoson’sriskclassis17percent.IfaninvestorholdingPoquoson’sstockplanstoholdthatstockforonlythreeyearsandhopestosellitatapriceof$55pershare,whatshouldthevalueofthebank’sstockbeintoday’smarketP0=$pershare.6-3DepositorsSavingsAssociationhasaratioofequitycapitaltototalassetsofpercent.Incontrast,NewtonSavingsreportsanequitycapitaltoassetratioof6percent.WhatisthevalueoftheequitymultiplierforeachoftheseinstitutionsSupposethatbothinstitutionshaveanROAofpercent.Whatmusteachinstitution’sreturnonequitycapitalbeWhatdoyourcalculationstellyouaboutthebenefitsofhavingaslittleequitycapitalasregulationsorthemarketplacewillallowDepositorsSavingsAssociationhasanequity-to-assetratioofpercentwhichmeansitsequitymultipliermustbe:1/(EquityCapital/Assets)==1/=Incontrast,NewtonSavingshasanequitymultiplierof:1/(EquityCapital/Assets)==WithanROAofpercentDepositorsSavingsAssociationwouldhaveanROEof:ROE=x=percent.WithanROAof.85percentNewtonSavingswouldhaveanROEof:ROE=x=percentInthiscaseNewtonSavingsismakinggreateruseoffinancialleverageandisgeneratingahigherreturnonequitycapital.6-4.ThelatestreportofconditionandincomeandexpensestatementforGallopingMerchantsNationalBankareasshowninthefollowingtables:GallopingMerchantsNationalBankInterestFeesonLoans$65InterestDividendsonSecurities12TotalInterestIncome77InterestPaidonDeposits49InterestonNondepositBorrowings6TotalInterestExpense55NetInterestIncome22ProvisionforLoanLosses2NoninterestIncomeandFees7NoninterestExpenses:SalariesandEmployeeBenefits12OverheadExpenses5OtherNoninterestExpenses3TotalNoninterestExpenses20NetNoninterestIncome-13PreTaxOperatingIncome7SecuritiesGains(orLosses)1PreTaxNetOperatingIncome8Taxes1NetOperatingIncome7NetExtraordinaryIncome-1NetIncome$6FTE40GallopingMerchantsNationalBankReportofConditionCashandDueFromBanks$100DemandDeposits$190InvestmentSecurities$150SavingsDeposts$180FederalFundsSold$10TimeDeposits$470NetLoans$670FederalFundsPurch$69(ALL25)TotalLiabilities$900(UnearnedIncome5)CommonStock$20PlantandEquipment$50Surplus$25RetainedEarnings$35TotalAssets$980TotalCa$80TotalEarningsAssets$830InterestBearingDeposits$650Fillinthemissingitemsontheincomeandexpensestatement.Usingthesestatements,calculatethefollowingperformancemeasures:6-5.ThefollowinginformationisforShallowNationalBankInterestIncome$2,100InterestExpense$1,400TotalAssets$30,000SecuritiesGains(losses)$21EarningAssets$25,000TotalLiabilities$27,000TaxesPaid$16SharesofCommonStock5,000Noninterestincome$700NoninterestExpense$900ProvisionforLoanLosses$100ROE=$405ROA=$405$30,000-$27,000$30,000orpercentorpercentEarnings=$405=$.081persharePerShare5000NetInterest=$2100-$1400=$700=orpercentMargin$25,000$25,000NetNoninterest=$700-$900=-$200=.8percentMargin$25,000$25,000NetOperating=($2100+$700)–($1,400+$900+$100)=$400=orpercentMargin$30,000$30,000AlternativeScenario1:Supposeinterestincome,interestexpenses,noninterestincome,andnoninterestexpenseseachincreaseby5percent,withallotheritemsremainingunchanged.InterestIncome$2,205InterestExpense$1,470TotalAssets$30,000SecuritiesGains(losses)$21EarningAssets$25,000TotalLiabilities$27,000TaxesPaid$16SharesofCommonStock5,000Noninterestincome$735NoninterestExpense$945ProvisionforLoanLosses$100ROE=$430ROA=$430$30,000-$27,000$30,000orpercentorpercentEarnings=$430=$.086persharePerShare5000NetInterest=$2205-$1470=$735=orpercentMargin$25,000$25,000NetNoninterest=$735-$945=-$210=or.84percentMargin$25,000$25,000NetOperating=($2205+$735)–($1,470+$945+$100)=$425=orpercentMargin$30,000$30,000AlternativeScenario2:Ontheotherhand,supposeShallow’sinterestincome,interestexpenses,noninterestincome,andnoninterestexpensesdeclineby5percent,againwithallotherfactorsheldequal.Howwouldthebank’sROE,ROAandpershareearningschangeInterestIncome$1995InterestExpense$1,330TotalAssets$30,000SecuritiesGains(losses)$21EarningAssets$25,000TotalLiabnilities$27,000TaxesPaid$16SharesofCommonStock5,000Noninterestincome$665NoninterestExpense$855ProvisionforLoanLosses$100ROE=$380ROA=$380$30,000-$27,000$30,000orpercentorpercentEarnings=$380=$.076persharePerShare5000NetInterest=$1995-$1330=$665=orpercentMargin$25,000$25,000NetNoninterest=$665-$855=-$190=or.76percentMargin$25,000$25,000NetOperating=($1995+$665)–($1,330+$855+$100)=$375=orpercentMargin$30,000$30,0006-6.BlueandWhiteNationalBankholdstotalassetsof$billionandequitycapitalof$139millionandhasjustpostedanROAofpercent.Whatisthisbank’sROE:ROE=ROA*=*=or%AlternativeScenario1:R0Aincreasesby50%,withnochangeinassetsorequitycapital.Therefore,thenewROA=*=or%.NewROE=%*=%Thisrepresentsa50%increaseinROE.Withnochangesinassetsorequity,theinvestors'fundsaremoreeffectivelyutilized,generatingadditionalincomeandmakingthebankmoreprofitable.AlternativeScenario2:ROAdecreasesby50%,withnochangeinequityorassets.Therefore,thenewROA=*=or%.NewROE=%*=%Thisrepresentsa50%decreaseinROE.Thebank'smanagementhasbeenlessefficient,inthiscase,inmanagingtheirlendingand/orinvestingfunctionsortheiroperatingcosts.AlternativeScenario3:ROA=or%(asintheoriginalproblem)Totalassetsdoubleinsizeto$billionandequitycapitaldoublesinsizeto$278million.Therefore,theequitymultiplier.totalassets/equitycapital)remainsthesame.=$3,380/$278=.Asaresult,thereisnochangeinROEfromtheoriginalsituation.),%*=%).AlternativeScenario4:This,ofcourse,isjustthereverseofscenario3.Sincethechangesinbothassetsandequitycapitalarethesame,theratioofthetwo.,theequitymultiplier)remainsconstant.Asaresult,thereisagainnochangeinROE..=TotalAssets/EquityCapital=$845/$=.Therefore,ROE=%*=%.6-7.MonarchStateBankreportstotaloperatingrevenuesof$135million,withtotaloperatingexpensesof$121million,andowestaxesof$2million.Ithastotalassetsof$billionandtotalliabilitiesof$900millionandhasjustposedanROAofpercent.Whatisthebank’sROENetIncomeafterTaxes=$135million-$121million-$2million=$12million