PERFORMANCE

ASSESSMENT

Performance Analysis
Return Analysis
ROE analysis
Matrix analysis
Data Envelopment Analysis
Risk Analysis
Credit risk
Liquidity risk
Market risk
Price risk
Interest rate risk
Operational risk
Capital Adequacy Analysis

ROE ANALYSIS

ROE Analysis
ROE = ROA X Equity Multiplier

ROA = Net Profit / Total Assets

Equity Multiplier = Total Assets / Total Equity
ROA = Net Profit Margin x Asset Utilization
Net Profit Margin = Net Profit / Operating Revenue
Asset Utilization = Operating Revenue / Total Assets

ROA Analysis
Net Interest Margin = (Interest income Interest
expense)/ Total assets
Net Non-interest Margin = (Non-interest income Noninterest expense) / Total assets
Net Operating Margin = (Total operating income Total
operating expense) / Total Assets

Earnings Spread

Profitability Ratios
Break-even yield ratio
Break-Even Yield =((Interest Expense + Non-Interest
Expense - Non-Interest Income) / Average Earning Assets)
X 100
Cost of funds ratio = (Interest on Borrowings / Total Borrowings)
Return on advances ratio = (Income from Advances / Total
Advances)
Return on advances adjusted for cost of funds ratio = (Income
from Advances Interest on Borrowings) / Total Advances)

Sub-Categorization Analysis
Interest
Rate analysis
Composition analysis
Volume analysis
Non-interest
Fees as a percentage of non-interest income
Trading profits as a percentage of non-interest income
Other income as a percentage of non-interest income

ROE Analysis
Tax Management Efficiency
Net income / Pre-tax net operating income
Expense Control Efficiency
Pre-tax net operating income / Total Operating revenue
Asset Management Efficiency
Total operating revenue / Total assets
Funds Management Efficiency
Total Assets / Total Equity Capital

Operating Efficiency
Operating Income as a Percent of Working Funds
Fund based Income as a Percent of Operating Income
Fee based Income as a Percent of Operating Income

Business Efficiency
Demand Deposit of Total Deposits
Saving Deposit of Total Deposits
Time Deposit of Total Deposits
Deposits within India as Percent to Total Deposits
Deposits Outside India as Percent to Total Deposits

Employee Efficiency
Business per Employee
Profit per Employee
Wages / Total Expenses
Operating Income per Employee
Operating Profit per Employee
Administrative Expenses per Employee
Deposits per Employee
Fund Advances per Employee

Branch Efficiency
Operating Income per Branch
Operating Profit per Branch
Net Profit per Branch
Personnel Expenses per Branch
Administrative Expenses per Branch
Financial Expenses per Branch
Borrowings per Branch
Advances per Branch
Deposits per Branch

Risk Analysis
Standard Deviation / Variance
Net income
ROE
ROA
Market return
Beta
Equity beta
Income beta
Operating beta

Credit Risk
Gross non performing assets / Total loans & leases
Net non performing assets / Total loans & leases
Net non performing assets / Equity

Net NPA
Net NPA = Gross NPA less Provision for NPA
NPA is a loan for which the interest or the principal or
both remain unpaid for two quarters or more.
Gross NPA
Poor credit recovery
Little legal support
Lengthy legal proceedings
Sticky loans

Net NPA
Banks in some countries provide for NPAs as a general
provision and write off losses by identifying them at an early
stage. In such countries, banks would carry very little NPAs in
their books since recovery measures are expedited so as to
avoid bankruptcy. Gross NPA and Net NPA is absent in these
countries.
In India, owing to the time lag involved in the recovery, banks
tend to hold on to advances considered irrecoverable in their
books. In a normal scenario these should be completely
written off from the books. This leads to gross NPAs.

Liquidity Risk
Liquid funds / Total assets
Cash and due from banks / Total assets
Cash and Government securities / Total assets

Market Risk
Price risk
Book value of assets / Market value of assets
Interest Rate risk
Interest sensitive assets / Interest sensitive liabilities

Other Risk
Operational risk
Legal risk
Reputation risk
Strategic risk
Capital risk
Market price / EPS
Net worth / Total assets
CRAR

Capital Adequacy Ratio

Computation of CAR
Tier I capital
Tier II capital
Risk Weighted Assets (RWA)

Capital to Risk Weighted Asset Ratio

(CAR or CRAR)
Capital Adequacy Ratio:
Capital Adequacy Ratio = (Tier I capital + Tier II capital) /
Risk Weighted Assets

Case Analysis of Bank

Performance
Financial Data Analysis
Relating to a Public Sector
Bank is Presented Here

ROE Analysis
ROE = Net profit / Equity = 28%
ROE = ROA x Equity Multiplier = 0.42% x 66.83
ROA = Asset utilization x Net Profit = 0.0951 x
4.42%
OM = (OI-OE)/Assets = 8.03%
NIM = (II IE)/Assets = 1.80%
NNIM = (NII NIE)/Assets = -0.36%
Earnings spread = 2.45%

Breakeven Yield Ratio

Total expense = Interest Expense + Non Interest
Expense
Desired Interest Income = Total Expense - Non-Interest
Income
Average Assets
Breakeven yield = 7.32%
Cost of Deposits = 6.97%
Cost of Borrowings = 1.89%
Cost of funds = 6.92%
Return on advances = 14.77%
Return on advances adjusted to cost of capital = 7.85%

Return on Equity Analysis

Tax Management Efficiency = 33.50%

Expense control Efficiency = 13.20%
Asset Management Efficiency = 9.52%
Funds Management Efficiency = 66.83

Operating Efficiency
Operating Income Efficiency = 9.51%
Fee Based Efficiency = 5.96%
Fund Based Efficiency = 93.36%

Business Efficiency
Demand Deposit of Total Deposits = 7.59%
Saving Deposit of Total Deposits = 16.45%
Time Deposit of Total Deposits = 75.97%
Deposits within India to Total Deposits = 100%
Deposits Outside India to Total Deposits = 0%

Employee Efficiency
Business per employee = 751.60
Profit per employee = 2.19
Wages / Total expenses = 5.00
Operating Income per Employee = 49.58
Operating Profit per Employee = 41.85
Administrative Expenses per Employee = 2.73
Deposits per Employee = 455.41
Fund Advances per Employee = 295.19

Branch Efficiency

Operating Income per Branch = 563.78

Operating Profit per Branch = 475.97
Net Profit per Branch = 24.93
Personnel Expenses per Branch = 56.74
Administrative Expenses per Branch = 31.07
Financial Expenses per Branch = 1.11
Borrowings per Branch = 58.81
Deposits per Branch = 5179.05

Risk Analysis
Coefficient of Variation
Interest income / Total assets = 0.0633
ROE = 0.4716
ROA = 0.4585
Net NPA / Net Advances = 0.2025

Credit Risk
Gross NPA / TA = 1.95%
Net NPA / TA = 0.82%
Net NPA / Equity = 31.31%

Liquidity Risk
Liquid funds / Assets = 11.85
Cash and due from banks / Assets = 9.19%
Cash and Government securities / Assets =
32.11%

Market Risk
Interest sensitivity = 95.83%
Capital adequacy ratio = 13.15%