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B ABC: Case Studies in Financial Engineering

Bank ABC provided financial information for 2013 including a balance sheet and income statement. It had total assets of €100 billion consisting mainly of credit to customers. Net income was €0.09 billion. The document asks several questions: (1) Calculate key ratios to assess profitability. (2) Examine solvency assuming credit is non-collateralized. (3) Assess liquidity assuming loans are long-term and securities short-term. (4) Identify consequences of a 10% increase in credit impairments. (5) Discuss approaches to calculate capital requirements for impairments. (6) Describe how credit risk models could be used for loan pricing and calculations. (7) Out

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37 views3 pages

B ABC: Case Studies in Financial Engineering

Bank ABC provided financial information for 2013 including a balance sheet and income statement. It had total assets of €100 billion consisting mainly of credit to customers. Net income was €0.09 billion. The document asks several questions: (1) Calculate key ratios to assess profitability. (2) Examine solvency assuming credit is non-collateralized. (3) Assess liquidity assuming loans are long-term and securities short-term. (4) Identify consequences of a 10% increase in credit impairments. (5) Discuss approaches to calculate capital requirements for impairments. (6) Describe how credit risk models could be used for loan pricing and calculations. (7) Out

Uploaded by

Jose Pinto de Abreu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Case Studies in Financial Engineering

Case 6

BANK ABC

Sept 2014

Bank ABC
Please consider the following financial information regarding Bank ABC (in 109)
based in Lisbon and answer the questions:

Balance Sheet (Dec.2013)


Assets
Cash and Claims on Central Banks
Claims and Investments in Other
Credit Institutions
Securities, Derivatives and Investments
Net Credit to Customers
Other Assets

Liabilities + Capital
3 Resources from Central Banks
Resources from Other Credit
2 Institutions
20 Resources from Customers
60 Liabilities represented by securities
15 Other liabilities
Capital

Total

5
55
15
10
5

100 Total

100

Income Statement (Dec.2013)


Net Interest Income
Income (net) from services and commissions
Income from financial operations
Gross Income
Operating Costs
Provisions and Impairments
Income Before Tax
Taxes
Net Income

10

0,9
0,7
0,5
2,1
1,2
0,8
0,1
0,01
0,09

1. Characterize Bank ABC concerning profitability, namely by calculating its main


performance ratios.
2. Assess the banks stance regarding solvency, assuming that all credit to
customers is non-collateralized and all remaining assets are zero weighted for
capital ratio purposes.
3. Assuming that all loans and securities held are long-term, while securities issued
are short-term (payable in less than one year), assess the banks stance regarding
liquidity (also considering the ECB monetary policy rules).

4. Assuming that the only major change in the banks financial statements during
2014 would be a severe deterioration of its credit portfolio, please identify the
main consequences of an increase in impairments of 10% of its credit portfolio.
5. Please assess the main approaches to be considered for the calculation capital
requirements of impairments and of Bank ABC.
6. Please describe briefly how could the bank use credit risk models for loan and
pricing decisions, as well for the calculations mentioned in the previous
question.
7. Please also present briefly the types and main features of the credit risk models
mentioned in the previous question.

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