Some Important Ratio

Some Important Ratio

Net Interest Income = Interest Income - Interest Expense

Net Non-interest Income = Non-interest Income - Non-interest Expenses

Net Interest Margin = (Interest Income – Interest Expenses) / Total Assets

Operating Efficiency Ratio = Total Operating Expenses / Total Operating Income

PLL% = Provision for Loan Losses / Loans

Burden% = (Non Interest Op Expenditure - Non Interest Income)/ Average Assets

ROA = Net Income / Total Assets

ROE = Net Income / Total Equity

Equity Multiplier (EM) = Total Assets / Total Equity

Equity to Asset Ratio = Total Equity / Total Assets

NNIM= Net Non-interest Income / Total Assets

SELECTED PROBLEM:

01.  A summarized Balance sheet and other relevant information of Modern Bank Ltd, is given below:

Liabilities & Capital	Amount (Tk.)	Assets	Amount (Tk.)
Deposit Borrowing Capital	5000 1000 800	Cash Loans	800 6000
Total	6800	Total	6800

Average interest rate on deposit 11% and on borrowing is 5%. Total administrative expenses equal Tk. 150. Investors expected rate of return on the capital is 20%. Total amount of bad loan equals Tk. 75. Calculate Loan Price?

SOLUTION:

Loan Price = (Cost of Fund + Cost of Administration + Cost of Capital) + Risk Premium

                           (Total Deposit * Avg. int. rate) + (Total Borrowing * Borrowing Rate)

               Cost of Fund = …………………………………………………………………………………………………………. %

Total Loans & Advances

(5000 * 11%) + (1000 * 5%)

                                  = …………………………………………… %            = 10%

6000

                       

                                               Total Administrative Expenses                 150

               Cost of Administration = ………………………………………………… % = …………… %    = 2.5%

    Total Loans & Advances                          6000

                                       (Total Capital * Investors expected Rate)                  (800 * 20%)

Cost of Capital =……………………………………………………………………… % = …………………….   %    = 2.67%

                                                   Total Loans & Advances                                       6000

                                            Total Bad & Loss Loan

Risk Premium = …………………………………………………… % = 1.25%

                                           Total Loans & Advances

So, Loan Price = 10% + 2.5% + 2.67% + 1.25% = 16.42%

02.   

SOLUTION:

RWA = (1200*0%) + (1000 * 20%) + (2000*50%) + (4500 * 100%) = 0 + 200 + 1000 + 4500 = 5700

Core Capital = (RWA * 5%) = 285

Minimum Capital Requirement = (RWA * 10%) = 570

03.   

SOLUTION:

ROA = (Net Income / Total Asset)

\ Total Asset = 2000000 / 1.25% = 160000000

ROE = (Net Income / Total Equity)

\ Total Equity = 2000000 / 13.5% = 14814815

\ Equity Multiplier = (Total Assets / Total equity) = 10.80

Equity to asset ratio = (Total Equity / Total Asset) = 9.26%

(iii) New Equity = 14814815 – 1000000 = 13814815

Net Income = 2000000 + 200000 = 2200000

\ ROE = (Net Income / total Equity) = 2200000/ 13814815 = 15.92%

04.        Given: ROE=15%, Tax Rate=40%, Total Asset=25 Crore, Total Liability=15 Crore.

 Net Non-Interest Expense= 1.5%, PLL=0.35% of total Asset.

 Find out the Net Interest Margin (NIM).

SOLUTION:

Given,

Total Assets = Tk. 25 Crore

Total Liabilities = Tk. 15 Crore

So, Total Equity = Tk. (25 - 15) = Tk. 10 Crore

ROE = 15%

So, Profit After Tax = Tk. (10 * 15%) Crore = Tk. 1.5 Crore

So, Profit Before Tax = Tk. 1.50/ (1 - 0.40) = Tk. 2.50 Crore

Here,

Provision for Loan Losses = Tk. 25 * 0.35% = Tk. 0.0875 Crore

Net Non-Interest Income (Expenses) = Tk. 25 * (1.5%) = Tk. (0.375) Crore

We Know,

Profit Before Tax = Net Interest Income - Provision for Loan Losses + Net Non Interest Income

i.e., 2.50 = NII - 0.0875 - 0.375

So, NII = 2.50 + 0.0875 + 0.375 = 2.9625 Crore

So, Net Interest Margin (NIM) = NII / Total Assets

= 2.9625/25

= 0.1185 or 11.85%. (Answer)

05.  Net Interest Income is Tk. 10000, non-interest expenses is Tk. 15000, Liabilities is Tk. 200000 and equity is Tk. 150000, Total income is Tk. 60000, interest expense in Tk. 25000. Calculate (i) ROE, (ii) ROA, (iii)NIM, (iv)NNIM

SOLUTION:

Net Interest Income = Interest Income – Interest Expense

\ Interest Income = 10000 + 25000 = 35000

Total Income = Interest Income + Non-interest Income

\ Non-interest Income = 60000 – 35000 = 25000

\ Net non-interest income = non-interest income – non-interest expense

                                            = 25000 – 15000 = 10000 

Total Asset = Liability + Equity

                   = 200000 + 150000 = 350000

\(i) ROE = (Net Income / Total Equity)

            = {(Net Interest Income + Net non-interest income) / Total Equity}

            = (10000 + 10000)/ 150000 = 13.33%

\(ii) ROA = (Net Income / Total Asset)

            = 20000 / 350000 = 5.71%

\(iii) NIM = Net interest Income / Total Asset = 10000 / 350000 =  2.86%

\ (iv) NNIM = Net Non-interest Income / total Asset = 2.86%          

06.  If a bank has a net interest margin of 2.50%, a noninterest margin of -1.85%, and a ratio of provision for loan losses, taxes, security gains, and extraordinary items of -0.47%, what is its ROA?

SOLUTION: ROA =Net interest margin + Noninterest margin – Ratio of provision for loan losses, taxes, security gains, and extraordinary items

= 2.50% + (-1.85%) – (-0.47%)  = 1.12 %

                                                          

December 2013
****************************

Solution to 6(a)

Net Income 
= Interest Income + Non Interest Income + Securities Gains - Interest Expense - Non Interest Expense – Taxes – Provision for Loan Loss 
= 1875 + 501 + 21 – 1210 – 685 – 16 – 381 
= 105

Total Equity 
= Total Assets – Total Liabilities 
= 15765 – 15440 = 325

ROE 
= Net Income / Total Equity 
= 105 / 325 
= 32.30%

ROA 
= Net Income / Total Assets 
= 105 / 15765 
= 0.66%

NIM 
= (Interest Income – Interest Expenses) / Total Assets 
= (1875 - 1210) / 15765 
= 665 / 15765
= 4.21%

EPS = 105,000,000 / 145,000 = Tk. 724.14 per share

Net Non-interest Margin 
= (Non-interest Income - Non-interest Expenses) / Total Assets
= (501 – 685) / 15765 
= (184) / 15765 
= - 1.16%

Here, 
Total Operating Income 
= Int. Income + Non Interest Income 
= 1875 + 501 = 2376

Total Operating Expenses 
= Int. Expenses + Non Int. Expense + Provision for Loan Loss 
= 1210 + 685 + 381 
= 2276

Net Operating Margin 
= (Total Op. Income – Total Op. Expenses) / Total Assets 
= (2376 – 2276) / 15765 
= 0.63%

NIM=(1875-1210)/12621X100 = 5.26. NNIM= (501-685)/12621 X100=(1.45)

‪#‎MFI - December 2013
***************************

Solution to 4(b)

Given,
Return on Assets, ROA = 0.80%
Equity Multiplier, EM = 12 times

So, Return on Equity, ROE = ROA * EM = 0.80 * 12 = 9.6%

Top of Form

‪#‎MFI - December 2013
***************************

Solution to 4(b)

Given,
Return on Assets, ROA = 0.80%
Equity Multiplier, EM = 12 times

So, Return on Equity, ROE = ROA * EM = 0.80 * 12 = 9.6%

Top of Form

‪#‎MFI - December 2013
***************************

Solution to 4(b)

Given,
Return on Assets, ROA = 0.80%
Equity Multiplier, EM = 12 times

So, Return on Equity, ROE = ROA * EM = 0.80 * 12 = 9.6%

Top of Form

                                  

             

Math Solution- DECEMBER 2013

6 A.

Net Income = Interest Income + Non Interest Income + Securities Gains - Interest Expense - Non Interest Expense – Taxes – Provision for Loan Loss
= 1875 + 501 + 21 – 1210 – 685 – 16 – 381 = TK. 105 M
Total Equity = Total Assets – Total Liabilities 
= 15765 – 15440 = TK. 325 M
Debt= Deposit Account+ Bills Payable+ Borrowings (from Other or any Bank)
******* Contra will not count (Ignore)
Equity= Share Capital + Profit and Loss + Reserve Fund and other Reserves+ Surplus
Debt Equity Ratio or Burden%= Debt/Equity
Net Interest Income NII= Interest Income-Interest Expense
= (Interest on Advances+ Interest on Investment)-0)
Non Interest Income = Commission, Exchange and Brokerage+ Others Revenue+ Profit on 
sale on Investment
Non Interest Expenses = Salary+ Allowance+ MD’s Fee + Legal Fees + Sales Expenses + 
Printing& Stationary + Postage & Telegram + Repair & Maintenance
Net Non Interest Income =Non Interest Income- Non Interest Expense
(Operating Income (Interest Income-Interest Expenses+ Other Income) - 
Operating Expenses (All Expenditure excluding Interest Paid and Provision))
ROE= Return on Equity = Net Income / Total Equity = 105 / 325 = 32.30% 
ROA = Return on Asset= Net Income / Total Assets = 105 / 15765 = 0.66%
NIM = Net Interest Margin= (Interest Income – Interest Expenses) / Total Assets 
= (1875 - 1210) / 15765 = 665 / 15765= 4.21%
EPS = Earnings Per Share = 105,000,000 / 145,000 = Tk. 724.14 per share
Net Non Interest Margin = (Non Interest Income – Non Interest Expenses) / Total Assets
= (501 – 685) / 15765 = (184) / 15765 = - 1.16%
Here, 
Total Operating Income = Int. Income + Non Interest Income 
= 1875 + 501 = TK. 2376 M
Total Operating Expenses = Int. Expenses + Non Int. Expense + Provision for Loan Loss 
= 1210 + 685 + 381 = TK. 2276 M
Net Operating Margin = (Total Op. Income – Total Op. Expenses) / Total Assets 
= (2376 – 2276) / 15765 = 0.63%

Management of Financial Institutions (MFI)
DAIBB - Dec-2013
Solution to 6(a)

Net Income 
= Interest Income + Non Interest Income + Securities Gains - Interest Expense - Non Interest Expense – Taxes – Provision for Loan Loss 
= 1875 + 501 + 21 – 1210 – 685 – 16 – 381 
= 105

Total Equity 
= Total Assets – Total Liabilities 
= 15765 – 15440 = 325

ROE 
= Net Income / Total Equity 
= 105 / 325 
= 32.30%

ROA 
= Net Income / Total Assets 
= 105 / 15765 
= 0.66%

NIM 
= (Interest Income – Interest Expenses) / Total Assets 
= (1875 - 1210) / 15765 
= 665 / 15765
= 4.21%

EPS = 105,000,000 / 145,000 = Tk. 724.14 per share

Net Non-interest Margin 
= (Non-interest Income - Non-interest Expenses) / Total Assets
= (501 – 685) / 15765 
= (184) / 15765 
= - 1.16%

Here, 
Total Operating Income 
= Int. Income + Non Interest Income 
= 1875 + 501 = 2376

Total Operating Expenses 
= Int. Expenses + Non Int. Expense + Provision for Loan Loss 
= 1210 + 685 + 381 
= 2276

Net Operating Margin 
= (Total Op. Income – Total Op. Expenses) / Total Assets 
= (2376 – 2276) / 15765 
= 0.63%

Management of Financial Institutions (MFI)
DAIBB - Nov-2011
Solution to 4(c)

i) Net Interest Income = Interest Income - Interest Expense = (80,000+15,000) - 19,500 = Taka 75,500 thousands.

ii) Net Non-interest Income = Non-interest Income - Non-interest Expenses =(20000+2000+8000) - (7500+3500+2000+2500+25000) = 30000 - 40500 = (10500)

iii) Net Interest Margin = (Interest Income – Interest Expenses) / Total Assets = (95000 - 19500) / 682500 = 11.06%

iv) Operating Efficiency Ratio = Total Operating Expenses / Total Operating Income = (19500+7500+3500+2000+2500+25000) / 125000 = 48%

v) PLL% = Provision for Loan Losses / Loans = 7500 / 295000 = 0.0254 or 2.54%

vi) Burden% = (Non Interest Op Expenditure - Non Interest Income)/ Average Assets = [(7500+3500+2000+2500+25000) - (20000+2000+8000)] / 682500 = 1.53%

vii) ROA = Net Income / Total Assets = 65000 / 682500 =9.52%

viii) ROE = Net Income / Total Equity = 65000 / (200000+115000+130000) = 14.60%

ix) Equity Multiplier (EM) = Total Assets / Total Equity = 682500 / 445000 = 1.53 times

x) Equity to Asset Ratio = Total Equity / Total Assets = 445000 / 682500 = 65.20%