QUESTION 1 (30 Marks)

Banking sector plays an important role in sustaining financial markets and has a significant impact on the success of the economy. Sound financial health of a bank is the guarantee not only to its depositors but is equally significant for the shareholders, employees and whole economy as well. As a sequel to this maxim, efforts have been made from time to time, to measure the financial position of each bank and manage it efficiently and effectively (Din Sangm, 2010)

Required: 1. Using the Mabuchi National bank financial statements below. Discuss and calculate the following performance measures for the year ended 2019. Compare ratios of Mabuchi National bank to average ratios of the other banks within the banking industry.

1.1. ROE (6 Marks)

1.2. ROA (6 Marks) 1

.3. NIM = Net Interest Margin . (6 Marks)

1.4. NPM = Net Profit Margin (6 Marks)

1.5. AU = Asset Utilisation (6 Marks)

Income and expense statement for 2019 Mabuchi National Bank are as shown in the following tables: Mabuchi National Bank N$ millions Interest Fees on Loans 65 000 000 Interest Dividends on Securities 12 000 000 Total Interest Income 77 000 000 Interest Paid on Deposits 49 000 000 Interest on Nondeposit Borrowings 6 000 000 Total Interest Expense 55 000 000 Net Interest Income 22 000 000 Provision for Loan Losses 2 000 000 Noninterest Income and Fees 7 000 000 Noninterest Expenses: Salaries and Employee Benefits 12 000 000 Overhead Expenses 5 000 000 Other Noninterest Expenses 3 000 000 Total Noninterest Expenses 20.000 000 Net Noninterest Income -13.000000 Pre Tax Operating Income 7 000 000 Securities Gains (or Losses) 1 000 000 Pre Tax Net Operating Income 8 000 000 Taxes 1 000 000 Net Operating Income 7 000 000 Net Extraordinary Income -1 000 000 Net Income 6 000 000 FACULTY OF COMMERCE, MANAGEMENT AND LAW 13 Balance Sheet 2019 Mabuchi National Bank N$ Cash and Due From Banks $100.000 000 Demand Deposits $190.000 000 Investment Securities $150.000 000 Savings Deposits $180.000 000 Federal Funds Sold $ 10.000 000 Time Deposits $470.000 000 Net Loans $670.000 000 Federal Funds $ 69.000 000 Total Liabilities $900.000 000 (Unearned Income 5) Common Stock $ 20.000 000 Plant and Equipment $ 50.000 000 Surplus $ 25.000 000 Retained Earnings $ 35.000 000 Total Assets $980.000 000 Common Equity $ 80.000 000 Total Earnings Assets $830.000 000 Interest Bearing Deposits $650.000 000 BANKING INDUSTRY AVERAGE FINANCIAL RATIOS FOR THE YEAR ENDED 2019 BANKING INDUSTRY AVERAGE RATIOS ROE 9% ROA 618% NIM = Net Interest Margin 2.6% NPM = Net Profit Margin 7.6% AU = Asset Utilization 7.5% EM = Equity Multiplier 12.50

QUESTION 2

(30Marks) 2.1. Deliberate on why a bank that undertakes too plentiful risk can become bankrupt and fail. (20Marks) 2.2. Deliberate on why banks need liquidity (10marks)

QUESTION 3 [20 Marks]

XPY Bank reported, Corporate and Investment Bankings headline earnings has doubled to N$4 billion, this is attributable to solid growth across the franchise, most notably in the global markets business and the investment bank. This has helped to offset low credit appetite from corporate clients. Furthermore, XPY Bank reported the following as per the table below Rate sensitive Assets N$500,000 Rate Sensitive Liabilities N$300,000 Net Interest Income N$390,000 Average Assets N$85,000 Required:

3.1. Compute and comment on the Net interest margin (7 marks)

3.2. Compute and comment on the GAP (7 marks)

3.3. Discuss how net interest income can vary directly with changes in the volume of earning assets and interest-bearing liabilities, regardless of interest rate levels . (6 marks)

QUESTION 4 [20 Marks]

4.1. Deliberate on why a bank that undertakes too plentiful risk can become bankrupt and fail.