GRM 720: BANK ASSET-LIABILITY MANAGEMENT ASSIGNMENT (DUE DATE: FRIDAY, 24 MARCH 2023) Bank X and Bank Y are two of the top 5 banks operating in Zambia. As of December 31, 2022, Bank X held 14% of the total assets and deposits in the Zambian banking sector, while Bank Y held 16%, respectively. The two banks have a comparable number of branches and ATMs spread out over the country and are typical commercial banks engaged in both retail and wholesale business. REQUIRED: To answer the questions, refer to the summary financial statements of Bank X and Bank Y in Annex 1 (and the associated Excel worksheets). Each of the questions from 1 to 5 is worth 20 marks, which are distributed as follows: A (10 marks); B (5 marks); and C (5 marks). Here is the breakdown of the 10 marks in A: 70% for completing the problem set; 30% for the written component. (Total Marks: 100) Notes: You must use the information from Unit 4 to prepare for this assignment. For all balance sheet items, you must use average amounts when performing the ratio analysis (e.g., average assets for (2022) = [Total assets (2022) + Total assets (2021)] divided by 2). You must present all the numerical answers to two decimal places. The assignment must be submitted through Moodle only. Answers which are handwritten and scanned must be readable. Plagiarism is a serious offence and is treated by the University as a form of dishonest means in assessment. If it is determined that a student plagiarised from another student, 30 marks will be taken away from both students. Please note that all the ratios refer to the year 2022 1. Return on Assets (ROA) A. Calculate the ROA ratios for Bank X and Bank Y and what can you conclude from the results obtained. B. By decomposing the ratio into its major components, clearly show the sources of the difference in the two banks ROA ratios. Please summarise the results in a table format. C. What is(are) the major contributor(s) for the difference in the performance of the two banks as revealed by the results in (B) above? 2. Return on Equity (ROE) A. Calculate the ROE ratios for Bank X and Bank Y and what can you conclude from the results obtained. B. Clearly demonstrate how the Equity Multiplier (EM) and Return on Assets (ROA) are related to Return on Equity (ROE). Please summarise the results in a table format. C. What is(are) the major contributor(s) for the difference in the performance of the two banks as revealed by the results in (B) above? 3. Net Interest Margin (NIM) A. Calculate the NIM ratios for Bank X and Bank Y and what can you conclude from the results obtained. B. By decomposing the ratio into its major components, clearly show the sources of the difference in the two banks NIM ratios. Please summarise the results in a table format. D. What is(are) the major contributor(s) for the difference in the performance of the two banks as revealed by the results in (B) above? 4. Burden ratio A. Calculate the burden ratios for Bank X and Bank Y and what can you conclude from the results obtained. B. By decomposing the ratio into its major components, clearly show the sources of the difference in the two banks burden ratios. Please summarise the results in a table format. C. What is(are) the major contributor(s) for the difference in the performance of the two banks as revealed by the results in (B) above? 5. Efficiency Ratio A. Calculate the efficiency ratios for Bank X and Bank Y and what can you conclude from the results obtained. B. By decomposing the ratio into its major components, clearly show the sources of the difference in the two banks efficiency ratios. Please summarise the results in a table format. C. What is(are) the major contributor(s) for the difference in the performance of the two banks as revealed by the results in (B) above? ANNEX 1 BALANCE SHEETS AS AT 31 DECEMBER: (K' Million) 2021 2022 2021 2022 Assets Balances with banks 2,003 681 9,218 7,917 Investment in securities 6,122 9,449 4,768 4,780 Total loans and advances 7,831 10,152 6,927 8,091 Allowance for Loan losses (339) (364) (553) (470) Total earning assets 15,617 19,918 20,361 20,318 Notes and coins 686 696 1,830 1,809 Balances with BoZ 1,598 2,894 2,394 4,036 Other assets 1,624 2,894 1,169 1,393 Total assets 19,525 26,401 25,753 27,556 Liabilities and Shareholders' equity Demand deposits 10,111 12,230 15,520 14,409 Savings deposits 1,717 2,350 977 1,102 Time deposits 3,663 4,563 4,549 4,467 Total deposits 15,491 19,144 21,046 19,978 Balances due to banks 0 - 437 649 Other borrowed funds 1,325 1,633 347 250 Total interest bearing liabilities 16,816 20,777 21,830 20,878 Non-interest bearing liabilities 1,477 3,479 1,668 3,467 Shareholders' equity 1,233 2,145 2,255 3,212 Total liabilities and shareholders' equity 19,525 26,401 25,753 27,556 BANK X BANK Y INCOME STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (K' Million) Bank X Bank Y Interest Income Interest income from loans and advances 1,925 1,456 Interest income from investments in securities 1,612 856 Interest income from banks and financial institutions 7 23 Total Interest Income 3,543 2,335 Interest Expense Interest expense paid on deposits 750 333 Interest expense paid to banks and financial institutions 249 187 Interest expense paid on other borrowed funds - 17 Total Interest Expense 999 537 Operating Income (Total Revenue) Interest Income 3,543 2,335 Non-interest income 1,538 1,236 Total Operating Income 5,082 3,570 Operating Expense Interest expenses 999 537 Provision for loan losses 165 110 Non-interest expenses 2,222 1,472 Total Operating Expense 3,386 2,119 Profit before taxes (or Pre-tax Net Operating Income) 1,696 1,452 Taxes 640 565 Profit after taxes (or Net Income) 1,056 887