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Simpson, CFA As banks have very different operating structures than regular industrial companies, it stands to reason that investors have a different set of fundamental factors to consider, when evaluating banks.
This is not meant as an exhaustive or complete list of the financial details an investor needs to consider, when contemplating a bank investment. Loan Growth For many banks, loan growth is as important as revenue growth to most industrial companies.
The trouble with loan growth is that it is very difficult for an outside investor to evaluate the quality of the borrowers that the bank is serving.
Above-average loan growth can mean that the bank has targeted attractive new markets, or has a low-cost capital base that allows it to charge less for its loans. On the other hand, above average loan growth can also mean that a bank is pricing its money more cheaply, loosening its credit standards or somehow encouraging borrowers to move over their business.
Deposit Growth As previously discussed, deposits are the most common, and almost always the cheapest, source of loanable funds for banks.
Accordingly, deposit growth gives investors a sense of how much lending a bank can do. There are some important factors to consider with this number. First, the cost of those funds is important; a bank that grows its deposits by offering more generous rates, is not in the same competitive position as a bank that can produce the same deposit growth at lower rates.
Accumulating deposits, particularly at higher rates, is actually bad for earnings if the bank cannot profitably deploy those funds. By and large, lower is better. The capital adequacy ratio is the sum of Tier 1 and Tier 2 capital, divided by the sum of risk-weighted assets.
Nowadays, capital ratios also play a larger role in determining whether regulators will sign off on acquisitions and dividend payments. Return on equity is especially useful in the valuation of banks, as traditional cash flow models can be very difficult to construct for financial companies, and return-on-equity models can offer similar information.
Credit Quality The importance of credit quality ratios is somewhat self-explanatory. A non-performing loan is a loan where payments of interest or principal are overdue by 90 days or more, and it is typically presented as a percentage of outstanding loans.
Net charge-offs represent the difference in loans that are written off as unlikely to be recovered gross charge-offs and any recoveries in previously written-off loans.Informed, Nuanced Analysis on Libya. Libya-Analysis® is a one-of-a-kind consultancy organisation with years of experience producing evidence-based analysis, forecasting and research on regardbouddhiste.com help our clients make sense of the latest political, economic, commercial and security developments in Libya and provide both background information and real time insights into the complex dynamics.
An Analysis of Commercial Bank Exposure to Interest Rate Risk David M. Wright and James V. Houpt, of the Board’s Division of Banking Supervision and Regulation, pre-. National Commercial Bank: Update to Capture 1H Results and More Challenging Operating Conditions Moody's Investors Service 27 Jul The World Bank Group works in every major area of development.
We provide a wide array of financial products and technical assistance, and we help countries share and apply innovative knowledge and solutions to the challenges they face. Today, September 26, thousands of activists are protesting in Prague, in the Czech Republic, against the policies and institutional structures of the International Monetary Fund (IMF) and the World Bank.
Liquidity Risk Commercial Banks: The liquidity stress tests assess the ability of a bank to withstand unexpected deposit withdrawal without recourse to any outside liquidity support. The scenarios have been developed based on stringent assumptions and assumes unexpected deposit withdrawals in different proportions (depending on the .