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Asset and Liability Management: The Banker’s Guide to Value Creation and Risk Control, Second Edition by Youssef F. Bissada, Jean Dermine

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Solution to Stage Three

1: The balance sheet and income statement of your bank are as follows:
Balance sheet (end of the year, $ million)
Assets110Debt (including deposits)105
  Equity5
Total110Total110
 Income statement ($ million)
 Interest income8.2
Interest expenses–5.25
 Net interest margin2.95
 Non-interest revenue0.8
 Gross revenue3.75
Provisions for bad debts–1.3
Operating expenses–1.1
 Profit before tax1.35
Taxes–0.54
 Profit after tax0.81

Solutions to ratios are the following:

We can verify that:

ROE= (profit after tax)/(equity) = 0.81/5 = 16.2% ...

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