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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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Appendix: ROE breakdown

Denoting:

A = total assets

D = total debt

E = equity

EOA = earnings on assets

COD = cost of debt

OE = operating expenses

t = corporate tax rate

Exercise: Stage Three
Q1: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 income0.8
 Gross revenue3.75
Provisions for bad debts– 1.3
Operating expenses ...

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