Q2.

Bank Alpha has the following balance sheet and income statement:

Balance sheet (m)

Assets

Liabilities

Cash and balances at central bank

5,000

Demand deposits

16,000

Investment securities

27,000

Time deposits

87,000

Repos

38,000

Repos

27,000

Loans

105,000

Debentures

22,000

Fixed assets

14,000

Tot. Liabilities

152,000

Other assets

6,000

Common stock

15,000

Total assets

195,000

Paid-in capital

6,000

Retained earnings

22,000

Tot. Liab. and Equity

195,000

Income statement

Interest on loans

8,000

Interest on investment securities

7,000

Interest on repos

4,000

Interest on deposits in banks

2,000

Interest income

21,000

Interest on deposits

9,000

Interest on debentures

3,000

Interest expense

12,000

Net interest income

9,000

Provision for loan losses

2,000

Non-interest income

3,000

Non-interest expenses

1,500

Income before taxes

8,500

Taxes

2,000

Net income

6,500

Define and calculate the:

a)

Return on Equity (ROE).

(2 marks)

b)

Return on Assets (ROA).

(2 marks)

c)

Equity multiplier.

d)	Tax Ratio.
	(2 marks)
e)	Net interest margin (NIM).
	(2 marks)
f)	Cost to income (C/I) ratio.
	(2 marks)
e)	Critically discuss the concept of bank performance and, by providing pertinent examples, explain the rationale for financial ratio analysis.