2. Given the following balance sheet and income statement of a

Lebanese Commercial bank

Assets		Liabilities
	$ Million		$ Million
Cash	20	Demand Deposits	100
Interbank Deposits (rated AAA)	50	Saving & Time Deposit	35
Loans (rated BBB)	100	Bonds	80
Government Securities in Lebanese Lira	40	Common Stocks	20
Fixed Assets	15	Retained Earnings	5
Government Securities in dollars	30	Convertible Bonds CoCos	10 5
Total Assets	255	Total Liabilities & Equities	255

Note: Lebanon is rated Default (D) by S&P after it defaulted on its dollar

Eurobonds in March 2020

Income Statement
	$ Million
Interest Income on Loans	1
Interest Income on Investment securities	2
Interest Income on Interbank Deposits	8
Interest paid on Savings & Time Deposits	4
Interest paid on bonds	1
Provision for loan losses	2
Non-interest Income	3
Non-interest Expenses	2
Taxes	1

1. Is this bank adequately capitalized? (5%)

2. Find Asset Utilization, Equity Multiplier and Profit Margin. (6%)

3. Find Net Interest Margin, interest expense ratio and Spread. (6%)

4. Assume this bank has only two assets divided equally between real estate loans and dollar denominated Lebanese government bonds. If the bank is forced to sell its real estate loans, it will receive 75 cents to the dollar compared to a fair market price of 90 cents to the dollar. If the bank must liquidate the Lebanese bonds before maturity, it would receive 95 cents to the dollar compared to 100 cents under normal market conditions. Calculate the liquidity index, is the liquidity risk of this bank high or low? (8%)