Net loans over total assets is a liquidity risk measure. The results for the bank are:
Showing that there is an improvement compared to 2007 allowing them to have more cash and reserves and lower chance to hit a liquidity crunch.
Solvency Risk Measures are ratios that help investor decide whether they want to invest or they want to stay out of the bank/company. One of the solvency ratios is the Equity Capital/ Total assets. The results for RBS for 2010 is 5%, for 2009 is 6%, for 2008 is 3% and finally for 2007 is 5%. Those figures show that there is not a big difference between the different years showing that the bank keeps stable the equity funding to total assets. Any decline in this ratio put to a risk the shareholders and debt-holders.
Lloyds TSB Bank
Products & Services:
- Current account with value added account
- Free Banking
- Best online banking provider
-
‘grace period option’
- Student account
- Savings account
- Opportunity to Invest
- Credit Cards
- Platinum Credit cards
- Loans
- Mortgages
- Insurance
- Range of services assisting going abroad
- Business Banking
Profitability Measures
Lloyds TSB bank is a big UK bank much similar to the Royal Bank of Scotland. The bank’s Return on Equity Capital for the same period of four years are: ROE for 2010 is -0.5%, for 2009 is 7%, for 2008 is 8% and for 2007 is 3%. The results show that Lloyds managed to profit for the first 3 years but in 2010 they had lost and the outcome was a negative ROE. For 2009 and 2008 the percentages are quite good compared to the rest of the years because of the fair profit that the bank accomplished. The next ratio is the Return on Assets (ROA) and the results are: for 2010 is negative 0.03%, for 2009 is 0.03% , for 2008 is 0.2% and for 2007 is 0.1%. Again we can observe that because of the loss in 2010 there is a negative percentage in the ration but for the rest 3 years the bank manages to return profit so they do not descend below zero. Never the less the performance according to the profitability is not the greatest.
Risk Measures
Again we examine the loans-to-deposits ratio which for Lloyds TSB bank is:
These results are relatively high for the banking industry and we can see that for the last couple of years the bank started giving out more loans than they take deposits which is a negative thing endangering the interest of the depositors.
The results for provision for loan losses are as follow:
This show that since 2007 they started setting aside more money for bad debts because of the financial crisis and many of the debtors cannot afford to pay off their debt and also the results are comparatively even among other banks.
The Gap analysis and the interest sensitive assets/ interest sensitive liabilities are very important ratios in order to determine which bank is better. For Lloyds TSB the results for the interest sensitive gap are 2010: 204608$, 2009: 205789$, 2008: 46014$, 2007: 48913$ which means that for the four years the bank has a positive gap but still this is not a good thing because the bank could lose huge amount of money. The relative interest sensitive gap for the four years is: 2010 is 20%, for 2009 is again 20% , for 2008 is 10.4% and for 2007 is 13.8%. Those results are quite bad because of the high percentage meaning that more money could be lost in the future because those assets depend on interest.
Net loans/ Total Assets for the four year period:
Compared to other banks this is a big percentage meaning that the bank is having low amounts of cash and reserves and are more likely to go to a liquidity crunch.
The Equity Capital divided by Total Assets for the Lloyds TSB bank is as follows: 2010 is 5%, for 2009 the result is 4%, for 2008 is 2% and for 2007 is 4%. There is an improvement for the last couple of years meaning that the risk for the shareholders and debt-holders minimized but still can be better.
HSBC bank
Products & Services:
- Current Account “ premier”
- Current Account “advanced”
- Internet Banking
- HSBC Passport Account
- Student/ Children Account
- Personal Loans
- Flexi Loans
- Premiere Personal Loans
- Credit Cards
- Mortgages
- Insurance
- Savings Account
- Range of International Services
- Business Banking
Profitability Measures
The ROE for HSBC for the four years is: 2010 is 9%, 2008 is 4%, 2007 is 6% and for 2007 is 14%. This shows that the bank did quite well managing to have profit for the last 4 years compared to other banks and in 2010 they increased their return on equity capital to 9% percent which is the highest for the period. The Return on Assets (ROA) for 2010 is 0.5% , for 2009 is 0.2% and it is the same for 2008 and in 2007 it is 0.8%. The results show that the managers accomplished profit using successfully the assets of the bank. Still the best result is in 2007 but HSBC managed to get positive outcome for the last 3 years.
Risk Measures
The loans-to-deposits ratio:
The results show that for the course of the four years the bank received more deposits than loans meaning that they have big amounts of cash and reserves and are basically liquid.
The provision for loan losses are:
The results are not the best having a decline in 2010 but are still constant for the whole period. Never the less the amount of money the management has is low compared to other banks.
The interest sensitive gap for HSBC for 2010 is -356081, for 2009 is -379847, for 2008 is -324862 and for 2007 is -263156 which mean that the bank has a negative gap for the period of four years. The results are not that good because the best option is to be around zero meaning that such a huge negative gap could again result in loss of money for the bank. The relative sensitive gap for HSBC for 2010 is -14%, for 2009 is -16%, for 2008 is -12% and for 2007 is -11%. The results show that the bank is constant but it still needs to lower the gap between the interest sensitive assets and interest sensitive liabilities.
Net Loans/ Total Assets
The results for the banks are stable for the period with slight improvements in the recent couple of years meaning that they are having little more cash and reserves making them little more liquid than 2007.
Equity Capital/ Total Assets for HSBC for the four year period are: 2010 it is 6%, for 2009 is 5%, for 2008 is 4% and finally in 2007 is again 5%. The results show that there is an improvement since 2008 and there is an increase in the equity funding meaning that there is a low risk for the banks shareholders and debt-holders.
Comparison of the three banks
Looking at the three banks HSBC, RSB and Lloyds TSB and their performance we can conclude that HSBC did a little bit better than its competitors especially in the profitability measures because HSBC turn in profit for the four year period. Again in the risk measures HSBC has the slight advantage having a better loans-to-deposits ratio than RSB and Lloyds TSB but still the bank needs to increase their provisions for loan losses in order to secure any bad debts. HSBC and RSB are trying to set aside big reserves and cash in order to avoid any liquidity crunch. Lloyds TSB has the lowest amount of cash and reserves making them more prone to illiquidity. In the Gap analysis and interest sensitive ratio the advantage goes to RSB, they have a positive gap but it is much closer to the perfect zero than the other banks. Finally in the equity capital/ total assets ratio the results for the three banks are almost identical achieving a low risk state for their shareholders and debt-holders. If we observe closely we can see that there is major difference in the last 3 years compared to 2007 for all the banks. The huge factor behind this dissimilarity is the world financial crisis and the recession that followed around the world.
Appendix 1
1.1 Ratio Calculation
RBS
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