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1、CHAPTER 6MEASURING AND EVALUATING THE PERFORMANCE OF BANKS AND THEIR PRINCIPAL COMPETITORSGoal of This Chapter: The purpose of this chapter is to discover what analytical tools can be applied toa banks financial statements so that management andthe public can identify the most critical problems insi
2、de each bank and develop ways to deal with those problemsKey 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 Appendix: Using Financial Ratios an
3、d Other Analytical Tools to Track Financial Firm Performance-The UBPR and BHCPRChapter OutlineI. Introduction:II Evaluating PerformanceA. Determining Long-Range ObjectivesB. Maximizing the Value of the Firm: A Key Objective for Nearly AllFinancial-ServiceInstitutionsC. Profitability Ratios: A Surrog
4、ate for Stock Values1. Key Profitability Ratios2. Interpreting Profitability RatiosD. Useful Profitability Formulas for Banks and Other Financial-Service CompaniesE. Return on Equity and Its Principal ComponentsF. The Return on Assets and Its Principal ComponentsG. What a Breakdown of Profitability
5、Measures Can Tell UsH. Measuring Risk in Banking and Financial Services1. Credit Risk2. Liquidity Risk3. Market Risk4. Price Risk5. Interest Rate Risk6. Foreign Exchange and Sovereign Risk7. Off-Balance-Sheet Risk8. Operational (Transactional) Risk9. Legal and Compliance Risks10 Reputation Risk11. S
6、trategic Risk12. Capital RiskI. Other Goals in Banking and Financial-Services ManagementIII. Performance Indicators among Bankings Key CompetitorsIV. The Impact of Size on PerformanceA. Size, Location and Regulatory Bias in Analyzing the Performance of Banks andCompeting Financial InstitutionsV. Sum
7、mary of the ChapterAppendix to the Chapter - Using Financial Ratios and Other Analytical Tools to Track Financial-Firm Performance-The UBPR and BHCPRConcept Checks6-1. Why should banks and other corporate financial firms be concerned about their level of profitability and exposure to risk?Banks in t
8、he U.S. and most other countries are private businesses that must attract capital from the publicto fund their operations. If profits are inadequate or if risk is excessive, they will have greater difficulty in obtaining capital and their funding costs will grow, eroding profitability. Bank stockhol
9、ders, 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 holding bank stock, while depositors (especially large
10、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 financial institution?The individuals or groups likely to be interested in the dimensions i.e., Bank profitability and Risk a
11、re - 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 corporation?A banks stock price is affected by all those
12、factors affecting its profitability and risk exposure, particularly its rate of return on equity capital and risk to shareholder earnings. Research evidence over the years has found that the stock prices of financial institutions is sensitive to changes in market interest rates, currency exchange ra
13、tes, and the strength or weakness of the economy. A bank can raise its stock price by creating an expectation in the minds of investors of greater earnings in the future, by lowering the banks perceived risk exposure, or by a combination of increases in expected earnings and reduced risk.6-4. Suppos
14、e 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 year every year, and the minimum required return-to-equity capital based on the banks perceived level of risk is 10 percent. Can you estimate the curr
15、ent value of the banks stock?In this constant dividend growth rate problem the current value of the banks stock would be：P = D1 / (r - g)= $4 / (0.10 - 0.05)二 $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
16、 might be useful to the managers of financial firms?Return on equity capital is the ratio of Net Income/Total Equity Capital. It represents the rate of return earned on the funds invested in the bank by its stockholders. Financial firms have stockholders, who too are interested in the return on the funds that they invested.6-6 Suppose a bank reports that its net income for
