March 2002
Intermediate to advanced
176 pages
3h 48m
English
book
Asset and Liability Management: The Banker’s Guide to Value Creation and Risk Control, Second Edition
by Jean Dermine, Youssef F. Bissada
Content preview from Asset and Liability Management: The Banker’s Guide to Value Creation and Risk Control, Second Edition
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Return on equity (ROE)
Let us first introduce the income statement of e-Bank. The income statement of a company shows the change in the wealth of shareholders (the equity) over a specific period of time.
| Income statement ($ million), 2006 | |||
|---|---|---|---|
| Interest income | 90 | Interest earned on loans and bonds | |
| – | Interest expenses | –70 | Interest paid on deposits |
| Net interest margin | 20 | ||
| + | Non-interest income | 30 | Such as commissions from services (for example, credit card fees) or trading revenue |
| Gross revenue | 50 | ||
| – | Provisions for bad debt | –10 | Provisions for losses on loans |
| – | Operating expenses | –22 | Non-interest expenses such as wages |
| Profit before tax | 18 | and computers | |
| – | Corporate tax (40%) | – 7.2 | |
| Profit after tax | 10.8 | ||
The balance sheet of e-Bank is similar to the one presented in Stage 1.
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