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L3. Measuring and Evaluating the Performance of Banks & their…
L3. Measuring and Evaluating the Performance of Banks & their Principal
Competitor
Risk factors banks face
Credit
• Liquidity
• Operational
• Legal and compliance
• Market
• Price
• Interest rate
• Reputation
• Strategic
• Capital
Stakeholders of bank performance
Stockholders
• Bank management
• Regulators
• Depositors
• Business community
External performance
Public confidence
Regulatory compliance
Public confidence
c
Present value of future cash flows
Determinants of stock price
P0=
Size of cash flows
• Timing of cash flows
Riskiness of cash flows
Vo= D1/(1+r)^1 + P1/(1+r)^1
P1= D2/(1+r)^2 + P2/(1+r)^2
Vo= D1/(1+r)^1 + D2/(1+r)^2 + D3/(1+r)^3 +......Pn/(1+r)^n
Valuation using P/E ratio
Profitability ratios
ROE
ROA
NII
Net non IR margin
Net Operating margin
EPS
Earnings spread = Total IR income/Total EA - Total IR exp/Total IR-bearing L
NPM
AU
EM
Operating efficiency ratio
