SECTION B: LIQUIDITY (2 x 2.5 marks = 5 marks) In this section, you will go deeper in analysing the financial situation of the two banks You are provided with the following liquidity ratios Ratio Formula ENBD Um AlQuwain Bank Cash ratio Cash and due from banks / total assets 8% Loan-to-deposit ratio Total loans / total deposits 12% 122% 95% Based on your comparison of the two banks in the profitability section, discuss the difference in the liquidity position of two banks by answering the following questions: A. What is the effect of higher liquidity (measured by the Cash ratio) on profitability measured by the ROA? B. Umm Al-Quwain Bank has higher Loan-to-deposit ratio. What are the implications of this liquidity position as measured by the loan-to-asset ratio? SECTION C: INTERMEDIATION (5 marks) In this section, you are given the following intermediation ratios and average interest rates: Ratios Formula ENBD Um AlQuwain Bank Net interest margin (interest income - interest expense) / total assets 2.3% 3.8% Average interest rate on loans Interest income / total loans 4.7% 5.3% Average interest rate on deposits Interest expenses / total deposited and debt 2.2% 1.2% Net Spread Average rate on loans - Average rate on deposits 2.5% 4.2% Deposit to assets ratio Total deposit/ total assets 74.4% 63.29 Use the ratios in the above table (and other tables if necessary) to discuss why the reasons and implications for the Net Interest margin and net spread are higher for Um Al Quwain Bank than ENBD's? OTION