Savings Bank Ltd.

Balance sheet

As at 31/12/2018

Assets$(000)Liab. & Equity$(000)

Cash100,000Payables60,000

Investments260,000Deposits700,000

Loans700,000Long-term bonds200,000

Other 40,000Equity140,000

Total1,100,0001,100,000

The investment portfolio comprises private equity (20%), a corporate zero coupon bond (30%), government bonds (40) and shares in publicly traded companies (10%).

The loan portfolio has 5% delinquency and the average return is 6.5%.

Deposits are primarily short-term. The renewal rate is declining and is expected to continue into the medium term. The average deposit rate is 2.5%.

Interest rates are expected to rise in the short term.

 

A. Based on the balance sheet and the information above, identify three risks facing the bank. Explain. (6 marks) 

B. Recommend to management one strategy to reduce each risk (6 marks)

C. Discuss the bank's capital adequacy based on the information given (3 marks)