Asset and Liability Management: The Banker’s Guide to Value Creation and Risk Control, Second Edition

Solution to Stage Three

1:

The balance sheet and income statement of your bank are as follows: Balance sheet (end of the year, $ million) Assets 110 Debt (including deposits) 105     Equity 5 Total 110 Total 110   Income statement ($ million)   Interest income 8.2 – Interest expenses –5.25   Net interest margin 2.95   Non-interest revenue 0.8   Gross revenue 3.75 – Provisions for bad debts –1.3 – Operating expenses –1.1   Profit before tax 1.35 – Taxes –0.54   Profit after tax 0.81 Solutions to ratios are the following: We can verify that: ROE = (profit after tax)/(equity) = 0.81/5 = 16.2% ...