Lecture Retail and merchant banking – Lecture 18

After studying this chapter you will be able to understand: Basic lending principles, what is asset management banking? asset management banking, what is liability management banking? Profitability, profitability management.

gulations and increasing competition from non-traditional financial institutions • Profitability Management Basic Lending Principles Profitability Management • • Profitability management is a total management process, rather than just an accounting or analysis procedure In contrast to asset and liability management, it places primary emphasis on the profit and loss account and secondary emphasis on the balance sheet Basic Lending Principles Profitability Management • • With profitability management, profitability is not merely reported; it is planned, measured and interpreted Planning ensures that efforts are directed toward the achievement of corporate objectives Basic Lending Principles Profitability Management • • Measurement checks and adjusts progress against plan by matching revenue received with related expense Interpretation develops a valid picture of people and businesses, thereby serving as a basis for the next planning cycle Basic Lending Principles Profitability Management • Profitability management involves the monitoring of three distinct types of profitability statistics The profits of bank can be measured in three ways; • By organization • By product • By account Basic Lending Principles Profitability Management • • Organizational profitability is the most familiar type since all banks have some system for reporting the performance of their major organizational units However, an effective profitability management system will also measure the Lecture 19 Basic Lending Principles • Safety Issues Basic Lending Principles Safety Issues • • The persistent failures of banks to lend sensibly in Pakistan and in many other countries have brought the question of safety in lending to the fore; Why banks persistently lend so imprudently and how should lending be done at minimum risk? ... accounting or analysis procedure In contrast to asset and liability management, it places primary emphasis on the profit and loss account and secondary emphasis on the balance sheet Basic Lending... measured and interpreted Planning ensures that efforts are directed toward the achievement of corporate objectives Basic Lending Principles Profitability Management • • Measurement checks and adjusts... also measure the Lecture 19 Basic Lending Principles • Safety Issues Basic Lending Principles Safety Issues • • The persistent failures of banks to lend sensibly in Pakistan and in many other