To assess the Asset Quality,the following ratios need to be analyzed:
- Loans Loss
- Non-performing loans to total loans
- Loan Recoveries ratio
- LOAN LOSS RESERVES
- Earnings coverage
- Capital Adequacy
- Capital Formation Ratio
- Capital to Assets Growth
- Gross Capital to Average Assets plus Reserves
ADEQUACY OF LOAN LOSS RESERVE
| Ratio | Purpose | Formula | ||||||
| Loan Loss Reserve Ratio |
| Reserves For Loan Losses —————————- Total Loans | ||||||
Illustration: Simple Illustration: Details of ABC Bank:
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| Interpretation:If reserves deteriorate as a result of large write offs,perhaps in excess of the provision for loan losses made in the year,then the quality of the assets will be impacted.It is not always possible to state whether this is adequate,since it depends on the quality of the assets,industry concentration of loans and the write off history of the bank. | ||||||||
- Asset Quality-Loans Loss
- Asset Quality –Earnings Coverage
- Asset Quality-Non Performing Loans To Total Loans
- Asset Quality Of Banks And Financial Institutions- Introduction
- What Is Meant by Asset-based Finance? What Are some of the differences between Asset-based finance and Cash Flow-based Loans/Finance
- Market Value Added (MVA)
- Asset And Interest Cover
FCCA,CA(MIA)with more than 26 years of post-qualifying working experiences. Previous working stints with one of the big accounting four,Regional GFC & Group Treasurer in a group of Malaysian and Group CFO in Singapore public listed concern.Also author to another very popular free educational accounting cum finance blog:http://basiccollegeaccounting.com under the branding of College Accounting Coach.
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