Tài liệu Thị trường tài chính và các định chế tài chính_ Chapter 20 doc

1 Chapter 20 Bank Performance Financial Markets and Institutions, 7e, Jeff Madura Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. 2 Chapter Outline  Valuation of a commercial bank  Performance evaluation of banks  Risk evaluation of banks  How to evaluate a bank’s performance  Bank failures 3 Valuation of a Commercial Bank  The value of a commercial bank is the present value of its future cash flows:  The value should change in response to changes in its expected cash flows and to changes in the required rate of return: ∑ = + = n t t t k CFE V 1 )1( )( [ ] - ),( + ∆∆=∆ kCFEfV 4 Valuation of a Commercial Bank (cont’d)  Factors that affect cash flows  Change in economic growth  During periods of strong economic growth:  Loan demand is higher  Commercial banks provide more loans  Demand for other bank products tends to be higher  Fewer loan defaults occur  Expected cash flows should be higher ++ ∆∆∆∆=∆ ? - ),,,()( MANABINDUSRECONfCFE f 5 Valuation of a Commercial Bank (cont’d)  Factors that affect cash flows (cont’d)  Change in the risk-free interest rate  If the risk-free rate decreases and other market rates decline, there may be stronger demand for the bank’s loans  Banks’ cost of funds decreases when the risk-free rate decreases  Change in industry conditions  If regulators reduce the constraints imposed on commercial banks, expected cash flows should increase  Technical innovation can improve efficiencies and enhance cash flows  A high level of competition may reduce the bank’s volume of business or reduce the prices it can charge for its services 6 Valuation of a Commercial Bank (cont’d)  Factors that affect cash flows (cont’d)  Change in management abilities  Managers can attempt to make internal decisions that will capitalize on the external forces that the bank cannot control  Skillful managers will recognize how to revise the composition of the bank’s assets and liabilities to capitalize on existing economic or regulatory conditions 7 Valuation of a Commercial Bank (cont’d)  Factors that affect the required rate of return by investors  Change in the risk-free rate  When the risk-free rate increases, so does the return required by investors: ++ ∆∆=∆ ),( RPRfk f +++ ∆∆∆∆=∆ - ),,,( DEFMSECONINFfR f 8 Valuation of a Commercial Bank (cont’d)  Factors that affect the required rate of return by investors (cont’d)  Change in the risk premium  When the risk premium increases, so does the return required by investors:  Impact of the September 11 Crisis on commercial bank values  Commercial bank valuations declined as a result because economic conditions were weakened and the volume of bank loans declined - ? - ),,( MANABINDUSECONfRP ∆∆∆=∆ 9 Performance Evaluation of Banks  In the recessions of 1982, the early 1990s, and the early 2000s, banks were adversely affected  The international debt crisis of the 1980s had a major impact on the largest banks with loans to less developed countries 10 Performance Evaluation of Banks (cont’d)  Interest income and expenses  Gross interest income is interest income generated from all assets  Affected by market rates and the composition of assets held by banks  Gross interest income on small and medium banks is typically higher than that of other banks  Gross interest expenses represent interest paid on deposit and on other borrowed funds  Affected by market rates and the composition of the bank’s liabilities  In recent years, gross interest expenses have been similar among banks [...]... (ROE) Bank Decisions Affecting Financial Characteristics services offered structure decision 18 Bank Failures     From 1940 to 1980, there were generally fewer than 20 bank failures per year In the late 1980s, there were about 200 failures per year Failures declined in the early 1990s In the mid and late 1990s, the number of bank failures declined substantially 19 Bank Failures (cont’d)  Reasons... recessionary cycle  The  bank may have experienced fraud bank may face increased competition Deregulation has made the banking industry more competitive A reduced net interest margin could lead to failure 20 Bank Failures (cont’d)  Reasons for bank failure (cont’d)  The Office of the Comptroller of the Currency reviewed 162 national failed banks since 1979 and found the following common characteristics: . 1 Chapter 20 Bank Performance Financial Markets and Institutions, 7e, Jeff Madura Copyright 200 6 by South-Western, a division. 1940 to 1980, there were generally fewer than 20 bank failures per year  In the late 1980s, there were about 200 failures per year  Failures declined in