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McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
Bank Management and Financial Services, 7/e
Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
6-3
Introduction
• This chapter focuses on the most widely used indicators of
the quality and quantity of bank performance and their
principal competitors
• Focus on the most important dimensions of performance –
profitability and risk
• Financial institutions are simply businesses organized to
maximize the value of the shareholders’ wealth invested in
the firm at an acceptable level of risk
• Must continually be on the lookout for new opportunities
for revenue growth, greater efficiency, and more effective
planning and control
McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
Bank Management and Financial Services, 7/e
Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
6-4
Evaluating Performance
• Performance must be directed toward specific objectives
• A fair evaluation of any financial firm’s performance should
start by evaluating whether it has been able to achieve the
objectives its management and stockholders have chosen
• A key objective is to maximize the value of the firm
McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
Bank Management and Financial Services, 7/e
Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
Bank Management and Financial Services, 7/e
Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
Bank Management and Financial Services, 7/e
Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
Bank Management and Financial Services, 7/e
Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
Bank Management and Financial Services, 7/e
Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
Bank Management and Financial Services, 7/e
Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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or
where
McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
Bank Management and Financial Services, 7/e
Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
Bank Management and Financial Services, 7/e
Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
Bank Management and Financial Services, 7/e
Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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or
McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
Bank Management and Financial Services, 7/e
Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
Bank Management and Financial Services, 7/e
Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
Bank Management and Financial Services, 7/e
Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
Bank Management and Financial Services, 7/e
Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
Bank Management and Financial Services, 7/e
Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
Bank Management and Financial Services, 7/e
Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
Bank Management and Financial Services, 7/e
Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
Bank Management and Financial Services, 7/e
Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
Bank Management and Financial Services, 7/e
Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
5-27
Quick Quiz
• What individuals or groups are likely to be interested in the banks’
level of profitability and exposure to risk?
• What are the principal components of ROE, and what does each of the
these components measure?
• What are the most important components of ROA and what aspects of
a financial institution’s performance do they reflect?
• Why do the managers of financial firms often pay close attention
today to the net interest margin and noninterest margin? To the
earnings spread?
• To what different kinds of risk are banks and their financial-service
competitors subjected today?
• 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 seem to apply?
McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
Bank Management and Financial Services, 7/e
Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
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McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
Bank Management and Financial Services, 7/e
Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.