To assess the Asset Quality of Banks/Financial Institutions,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
| Ratio | Purpose | Formula | ||||||||
| Earnings Coverage Ratio |
| Total Net Operating Income+ Provision for loan losses ————————Net Write Offs | ||||||||
Illustration: Details of ABC Bank:
| ||||||||||
| Interpretation: For ABC Bank,its earning is adequate to cover the amounts written off. The earnings coverage ratio is very important.Normally,when the earnings coverage is equal to or below 3 times,it’s high time to examine and determine the reason(s). | ||||||||||
- Asset Quality – Adequacy Of Loan Loss Reserves
- Asset Quality-Loans Loss
- Asset Quality-Non Performing Loans To Total Loans
- Quality Of Earnings
- Asset Quality Of Banks And Financial Institutions- Introduction
- Asset And Interest Cover
- What Is Economic Value-Added (EVA) And The Comparision To Earnings Per Share Or Return On Assets
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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