II. Ratio Analysis

The objective of this section should be to analyze and compare the performance and position of the banks in terms of: (i)Liquidity (ii) Financial Risk (iii) Efficiency (iv)Profitability (v) Market Position (vi)Capital Adequacy. The general process is to first identify the change in the higher level ratios and then determine which of the lower level ratios caused the change. For example, begin by establishing whether ROE went up or down and how the banks ROE changed relative to that of its competitor and own time series. Next, identify which basic return driver from the next level was responsible for the change. Did ROE change because of a change in ROA, a change in the EM, or changes in both? How do the changes compare to those of the other bank? Now break ROA into its components and continue the analysis. Also include other key bank ratios. Keep the discussion focused on the ratios at hand. At each level, determine the changes that drive the difference in the higher level ratios. Do not assume that the driver of a change is obvious. You must indicate the important links. Overall Evaluation and Explanation of Major Changes: Summarize your findings by identifying the three most important reasons the banks ROE differs over time and/or differs from that of its peer group. Explain why you view these as the most important drivers and give real-world reasons for which you believe the differences exist (such as difference/change in focus and objectives, change in the economy, new branches and so forth). Indicate two specific actions you believe the bank should undertake. In the case of negative changes/differences, what could the bank do to correct the issues? For positive effects/differences, how could the bank ensure continued success in these areas?