million 2007 2017 Gross Loans 835,691 326,998 Less: Reserves for Impaired Loans/ NPLs 6,441 3,814 Net Loans to Customers 829,250 323,184 Other Earning Assets: of which 907,983 302,232 Loans and Advances to Banks 219,460 56,986 Derivatives Other Securities Total Earning Assets Fixed Assets 337,410 160,843 347,682 83,310 1,737,233 625,416 15,319 3,509 Non-Earning Assets: of which 147,967 109,131 Total Assets 1,900,519 738,056 Deposits & Short term funding: of which 1,150,740 452,415 Total Customer Deposits 682,365 367,034 Deposits from Banks 312,633 77,900 Other interest bearing liabilities: of which 578,933 221,677 Derivatives 332,060 154,506 Trading Liabilities 91,021 33,037 Long term funding 155,852 34,134 Other (Non-Interest bearing liabilities) 78,924 7,114 Equity 91,426 49,093 Total Liabilities & Equity 1,900,519 738,056 Interest received 33,420 11,034 Less: Interest paid 20,752 2,047 Net Interest Revenue 12,668 8,987 Noninterest Income: of which 13,795 3,901 Net Gains (Losses) on Trading and Derivatives 1,327 733 Net Fees and Commissions 6,154 2,455 Operating Revenue 26,463 12,784 Less: Net Impairment Charges 2,106 522 Less: Overheads: of which Personnel Expense Noninterest Expense Profit before Tax 14,457 10,372 7,552 4,676 14,457 5,696 9,900 2.239 Less: Tax 2,052 824 Net Income 7,712 1,415 Off Balance Sheet Items 400,099 136,050 Total on and off-balance sheet items 2,300,618 874,106 Total Capital 67,974 42,763 Tier 1 Capital 44,364 35,998 Total Capital Ratio, % 11.2 21.3 Tier 1 Ratio, % 7.3 17.9 Liquid Assets 479,388 182,967 Number of employees (number) 160,900 71,200 The table shows select balance sheet and income statement items at 2007 and 2017 for a large bank in the UK. The financial statements data are in millions of pounds sterling except the number of employees. Calculate each balance sheet item as a percentage of total assets and calculate each income statement item as a percentage of operating revenue. [i] Sum total assets and off-balance-sheet items to create an indicator of the size of the bank. Comment on the mix of activities at the bank and offer an informed comment on the change in bank size between 2007 and 2017. [ii] What does the structure of the bank's assets suggest about its business model? Which, if any, changes in the business model do you observe between 2007 and 2017? [iii] What does the structure of the bank's liabilities suggest about its business model with respect to funding? Which, if any, changes in the business model do you observe between 2007 and 2017? [iv] What does the composition of the bank's income statement suggest about its business model with respect to the traditional banking model and a more diversified model? Which, if any, changes in the business model do you observe between 2007 and 2017? [v] Calculate the return on assets measure of bank profitability and the equity multiplier or leverage ratio. Using the two variables, calculate the return on equity measure of returns to bank shareholders. Which changes do you observe between 2007 and 2017? [vi] Examine at Tier 1 and total capital ratios. What do they infer about the bank's capital position in 2007 and 2017? Which factors can explain the significant increase in bank capitalisation? [vii] Calculate the interest rate spread as the difference between interest received-to-gross loans and interest received-to-purchased funds (sum of deposits and short term funding, and other interest bearing liabilities). Discuss which, if any, changes you observe between 2007 and 2017. [viii] Calculate the burden and the cost-income ratio for the bank in 2007 and 2017. Explain why the bank is in a stronger or weaker position in 2017 than a decade earlier. [ix] Using the ratio of reserves for impaired loans-to-net loans and the ratio of net impairment charges-to-operating revenue to proxy the credit risk, what do you infer about developments in the bank's asset quality? Express the item Liquid Assets as a percentage of total assets. What do you deduce about the bank's liquidity risk in 2007 and 2017? [x] Use the number of employees to construct measures of bank productivity: assets per employee; net loans per employee; personnel cost per employee; operating revenue per employee. What do the ratios tell you about bank productivity