商業(yè)銀行管理 ROSE 7e 課后答案chapter_06
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1、CHAPTER 6 MEASURING AND EVALUATING THE PERFORMANCE OF BANKS AND THEIR PRINCIPAL COMPETITORS Goal of This Chapter: The purpose of this chapter is to discover what analytical tools can be applied to a bank’s financial statements so that management and the public can identify the most critical prob
2、lems inside each bank and develop ways to deal with those problems Key Topics in This Chapter · Stock Values and Profitability Ratios · Measuring Credit, Liquidity, and Other Risks · Measuring Operating Efficiency · Performance of Competing Financial Firms · Size and Location Effects · The
3、 UBPR and Comparing Performance Chapter Outline I. Introduction: II。 Evaluating a Bank’s Performance A。 Determining Long—Range Objectives B. Maximizing The Value of the Firm: A Key Objective for Nearly All Financial-Service Institutions C。 Profitability Ratios: A Surrogate for Stock Values 1
4、。 Key Profitability Ratios 2. Interpreting Profitability Ratios D。 Useful Profitability Formulas for Banks and Other Financial Service Companies E. Breaking Down Equity Returns for Closer Analysis F。 Break-Down Analysis of the Return on Assets G. What a Breakdown of Profitability Measures C
5、an Tell Us H. Measuring Risk in Banking and Financial Services 1。 Credit Risk 2. Liquidity Risk 3。 Market Risk 4. Interest-Rate Risk 5. Operational Risk 6. Legal and Compliance Risk 7. Reputation Risk 8。 Strategic Risk 9。 Capital Risk I。 Other Goals in Banking and Financial Services Manag
6、ement III. Performance Indicators among Banking’s Key Competitors IV. The Impact of Size on Performance A。 Size, Location and Regulatory Bias in Analyzing The Performance of Banks and Competing Financial Institutions B. Using Financial Ratios and Other Analytical Tools to Track Bank Performan
7、ce--The UBPR. V. Summary of the Chapter Appendix to the Chapter - Improving the Performance of Financial Firms Through Knowledge: Sources of Information on the Financial—Services Industry Concept Checks 6-1。 Why should banks and other corporate financial firms be concerned about their level of p
8、rofitability and exposure 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
9、 will grow, eroding profitability。 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 holdi
10、ng bank stock, while depositors (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 bank or other financial institution? The individuals or groups likely to
11、 be interested in bank profitability and risk include 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 corpor
12、ation? A bank's stock price is affected by all those factors affecting its profitability and risk exposure, particularly its rate of return on equity capital and risk to shareholder earnings。 A bank can raise its stock price by creating an expectation in the minds of investors of greater earnings
13、in the future, by lowering the bank’s perceived risk exposure, or by a combination of increases in expected earnings and reduced 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 yea
14、r every year, and the minimum required return to equity capital based on the bank’s perceived level of risk is 10 percent。 Can you estimate the current value of the bank’s stock? In this constant dividend growth rate problem the current value of the bank's stock would be: Po = D1 / (k – g) = $4 /
15、 (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 this 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 represen
16、ts the rate of return earned on the funds invested in the bank by its stockholders. Financial firms have stockholders, too who are interested 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 totally $1,14
17、4 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 information do you need to answer this last question? The bank’s return on equity capital should be: ROE = Net Income = $51 million = 。098 or 9.8 pe
18、rcent Equity Capital $1,444 mill.—$926 mill. In order to evaluate the performance of the bank, you have to compare the ROE to the ROE of some major competitors 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 ba
19、nking’s key competitors? Return on assets is the ratio of Net Income/Total Assets. The rate of return secured on a bank’s total assets indicates the efficiency of its management in generating net income from all of the resources (assets) committed to the institution. This would be important to ba
20、nks 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 this year. Its liabilities total $4,960 million while its equity capital amounts to $52 million. What is the bank’s return on
21、assets? Is this ROA high or low? How could you find out? The bank's return on assets would be: ROA = Net Income = $155 mill。 — $107 mill。 = 0.0096 or 0.96 percent Total Assets $4,960 mill。 + $52 mill。 The size of this bank's ROA should be compared with the ROA's of other banks simi
22、lar in size and location to determine if this bank’s ROA is high or low relative to the average for comparable banks。 6-9. Why do the managers of financial firms often pay close attention today to the net interest margin and noninterest margin? To the earnings spread? The net interest margin (NIM
23、) 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 income must be rising or the average cost of
24、funds must be falling or both. A declining NIM is undesirable because the bank's interest spread is being squeezed, usually because of rising interest costs on deposits and other borrowings and because of increased competition today. In contrast, the noninterest margin reflects the banks spread be
25、tween 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 closely the growth of nonin
26、terest expenses in order to make a negative noninterest margin less negative. The earnings spread measures the effectiveness of the bank’s intermediation function of borrowing and lending money, which, of course, is the bank's primary way of generating earnings。 As competition increases, the spread
27、 between the average yields on assets and the average cost of liabilities will be squeezed, forcing the bank's 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 completed had
28、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 added to a total of $2 million. Suppose further that assets amounted to $480 million of which earning assets represen
29、ted 85 percent of total assets, while total interest—bearing liabilities amounted to 75 percent of total assets。 See if you can determine this bank’s net interest and noninterest margins and its earnings base and earnings spread for the most recent year. The bank’s net interest and noninterest marg
30、ins must be: Net Interest = $16 mill. - $12 mill. Noninterest = $2 mill。 — $5 mill。 Margin $480 mill。 Margin $480 mill。 =.00833 = —.00625 The bank's earnings spread and earnings base are: Earnings = $16 mill。 - $12 mill. Spread $480 mill * 0.85 $480 mill。
31、 * 0.75 = 。0392 =.0333 Earnings Base = $480 mill。 - $480 mill。 * 0。15 = 0.85 or 85 percent $480 mill. 6—11. What are the principal components of ROE and what do each of these components measure? The principal components of ROE are: a。 The net profit margin or net after-tax
32、 income to operating revenues which reflects the effectiveness of a bank's expense control program; b。 The degree of asset utilization or ratio of operating revenues to total assets which measures the effectiveness of managing the bank's assets, especially the loan portfolio; and, c. The equity mu
33、ltiplier or ratio of total assets to total equity capital which measures a bank's use of leverage in funding its operations。 6-12. Suppose a bank has an ROA of 0。80 percent and an equity multiplier of 12x。 What is its ROE? Suppose this bank's ROA falls to 0。60 percent。 What size equity multiplier
34、must it have to hold its ROE unchanged? The bank's ROE is: ROE = 0。80 percent *12 = 9。60 percent. If ROA falls to 0。60 percent, the bank's ROE and equity multiplier can be determined from: ROE = 9.60% = 0.60 percent * Equity Multiplier Equity Multiplier = 9.60 percent = 16x。 0。60 pe
35、rcent 6-13. Suppose a bank reports net income of $12, before-tax net income of $15, operating revenues of $100, assets of $600, and $50 in equity capital。 What is the bank’s ROE? Tax—management efficiency indicator? Expense control efficiency indicator? Asset management efficiency indicator?
36、 Funds management efficiency indicator? The bank’s ROE must be: ROE = = 0.24 or 24 percent Its tax—management, expense control, asset management, and funds management efficiency indicators are: Tax Management = $12 Expense Control = $15 Efficiency indicator $15 Efficiency Indic
37、ator $100 = 。8 or 80 percent =。15 or 15 percent Asset Management = $100 Funds Management = $600 Efficiency Indicator $600 Efficiency Indicator $50 = 0。1666 or 16。67 percent = 12 x 6—14. What are the most important components of ROA and what a
38、spects of a financial institution’s performance do they reflect? The principal components of ROA are: a。 Total Interest Income Less Total Interest Expense divided by Total Assets, measuring a bank's success at intermediating funds between borrowers and lenders; b. Provision for Loan Losses divide
39、d by Total Assets which measures management’s ability to control loan losses and manage a bank's tax exposure; c。 Noninterest Income less Noninterest Expenses divided by Total Assets, which indicates the ability of management to control salaries and wages and other noninterest costs and generate te
40、e income; d。 Net Income Before Taxes divided by Total Assets, which measures operating efficiency and expense control; and e. Applicable Taxes divided by Total Assets, which is an index of tax management effectiveness. 6-15. If a bank has a net interest margin of 2.50%, a noninterest margin of —
41、1.85%, and a ratio of provision for loan losses, taxes, security gains, and extraordinary items of —0.47%, what is its ROA? The bank’s ROA must be: ROA = 2.50 percent — 1。85 percent - 0。47 percent = 0。18 percent 6—16. To what different kinds of risk are banks and their financial-service competi
42、tors subjected today? a。 Credit Risk —- the probability that loans and securities the bank holds will not pay out as promised. b. Liquidity Risk —- the probability the bank will not have sufficient cash on hand in the volume needed precisely when cash demands arise。 c. Market Risk —- the probabil
43、ity that the value of assets held by the bank will decline due to falling market prices。 d。 Interest—Rate Risk — the possibility or probability interest rates will change, subjecting the bank to lower profits or a lower value for the firm’s capital。 e. Operational Risk – the uncertainly regarding
44、a financial firm’s earnings due to failures in computer systems, employee misconduct, floods, lightening strikes and other similar events。 f. Legal and Compliance Risk – the uncertainty regarding a financial firm’s earnings due to actions taken by our legal system or due to a violation of rules and
45、 regulations g. Reputation Risk – the uncertainty due to public opinion or the variability in earnings due to positive or negative publicity about the financial firm h. Strategic Risk – the uncertainty in earnings due to adverse business decisions, lack or responsiveness to changes and other poor
46、decisions by management i. Capital Risk – the risk that the value of the assets will decline below the value of the liabilities。 All of the other risks listed above can affect earnings and the value of the assets and liabilities and therefore can have an effect on the capital position of the firm。
47、 6—17。 What items on a bank’s balance sheet and income statement can be used to measure its risk exposure? To what other financial institutions do these risk measures apply? There are several alternative measures of risk in banking and financial service firms。 Capital risk is often measured by b
48、ank capital ratios, such as the ratio of total capital to total assets or total capital to risk assets。 Credit risk can be tracked by such ratios as net loan losses to total loans or relative to total capital。 Liquidity risk can be followed by using such ratios as cash assets to total assets or by
49、 total loans to total assets. Interest-rate risk may be indicated by such ratios as interest—sensitive liabilities to interest—sensitive assets or the ratio of money-market borrowings to money—market assets。 6—18. A bank reports that the total amount of its net loans and leases outstanding is $
50、936 million, its assets total $1,324 million, its equity capital amounts to $110 million, and it holds $1,150 million in deposits, all expressed in book value。 The estimated market values of the bank’s total assets and equity capital are $1,443 million and $130 million, respectively. The bank’s st
51、ock is currently valued at $60 per share with annual per—share earnings of $2.50. Uninsured deposits amount to $243 million and money market borrowings total $132 million, while nonperforming loans currently amount to $43 million and the bank just charged off $21 million in loans。 Calculate as man
52、y of the bank's risk measures as you can from the foregoing data. Net Loans and Leases = $936 mill。 Uninsured Deposits $243 mill. Total Assets $1,324 mill。 Total Deposits $1,150 mill. 0.7069 or 70。69 percent 0。2113 or 21。13 percent Equity Capital = $130 mill。
53、 Stock Price $60 Total Assets $1,443 mill. Earnings Per Share $2。50 = 0。0901 or 9.01 percent = 24 X Nonperforming Assets = $43 mill。 =0。0459 or 4.59 percent Net Loans and Leases $936 mill. Charge-offs of loans = $21 Purchased Funds = $243 mill. + $1
54、32 mill。 Total Loans and Leases $936 Total Liabilities $1,324 mill。 - $110 mill。 =。0224 or 2。24 percent 。3089 or 30。89 percent Book Value of Assets = $1324 =0。9175 or 91。75 percent Market Value of Assets $1443 Problems 6-1. An investor holds the stock of First
55、 National Bank of Imoh and expects to receive a dividend of $12 per share at the end of the year. Stock analysts have recently predicted that the bank’s dividends will grow at approximately 3 percent a year indefinitely into the future。 If this is true, and if the appropriate risk—adjusted cost of
56、 capital (discount rate) for the bank is 15 percent, what should be the current stock price per share of Imoh's stock? 6—2. Suppose that stockbrokers have projected that Poquoson Bank and Trust Company will pay a dividend of $3 per share on its common stock at the end of the year; a dividend of $4
57、.50 per share is expected for the next year and $6 per share in the following year. The risk—adjusted cost of capital for banks in Poquoson's risk class is 17 percent。 If an investor holding Poquoson’s stock plans to hold that stock for only three years and hopes to sell it at a price of $55 per s
58、hare, what should the value of the bank’s stock be in today’s market? P0 = $43。94 per share。 6-3 Depositors Savings Association has a ratio of equity capital to total assets of 7。5 percent。 In contrast, Newton Savings reports an equity capital to asset ratio of 6 percent. What is the value of th
59、e equity multiplier for each of these institutions? Suppose that both institutions have an ROA of 0。85 percent。 What must each institution’s return on equity capital be? What do your calculations tell you about the benefits of having as little equity capital as regulations or the marketplace will
60、 allow? Depositors Savings Association has an equity—to-asset ratio of 7。5 percent which means its equity multiplier must be: 1/ (Equity Capital / Assets) = = 1 / 0。075 = 13.33x In contrast, Newton Savings has an equity multiplier of: 1/ (Equity Capital / Assets) = = 16.67x With an ROA of 0
61、.85 percent Depositors Savings Association would have an ROE of: ROE = 0.85 x 13。33x = 11。33 percent。 With an ROA of .85 percent Newton Savings would have an ROE of: ROE = 0.85 x 16。67x = 14.17 percent In this case Newton Savings is making greater use of financial leverage and is generating a h
62、igher return on equity capital. 6—4. The latest report of condition and income and expense statement for Galloping Merchants National Bank are as shown in the following tables: Galloping Merchants National Bank Interest Fees on Loans $65 Interest Dividends on Securities 12 Total Interes
63、t Income 77 Interest Paid on Deposits 49 Interest on Nondeposit Borrowings 6 Total Interest Expense 55 Net Interest Income 22 Provision for Loan Losses 2 Noninterest Income and Fees 7 Noninterest Expenses: Salaries and Employee Benefits 12 Overhead Ex
64、penses 5 Other Noninterest Expenses 3 Total Noninterest Expenses 20 Net Noninterest Income —13 Pre Tax Operating Income 7 Securities Gains (or Losses) 1 Pre Tax Net Operating Income 8 Taxes 1 Net Operating Income 7 Net Extraordinary Income -1 Net Income
65、 $6 FTE 40 Galloping Merchants National Bank Report of Condition Cash and Due From Banks $100 Demand Deposits $190 Investment Securities $150 Savings Deposts $180 Federal Funds Sold $10 Time Deposits $470 Net Loans $670 Federal Funds Purch $69 (ALL 2
66、5) Total Liabilities $900 (Unearned Income 5) Common Stock $20 Plant and Equipment $50 Surplus $25 Retained Earnings $35 Total Assets $980 Total Ca $80 Total Earnings Assets $830 Interest Bearing Deposits $650 86 Fill in the missing items on the income and expense statement. Using these statements, calculate the following performance measures: 6—5. The following information is for Shallow National Bank Interest Income $2,100 Interes
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