Module Code: ECO1102 - Money and Macroeconomics Individual Assignment Guidelines Deadline: 25th October, 2020 Your Task: There are two parts to this assignment. Both parts are compulsory. PART A (35 marks) - Max 1000 words (± 10%) The aim of part A of this assignment is to enable you to be familiar with Balance sheet and income statement of a bank (you can choose any Bank) and to develop your skills in interpreting the information. Bank Performance Analysis Hypothetical Scenario - Your supervisor has recently promoted you to a financial analyst position in the bank. The chief financial officer (your supervisor's boss) is concerned about the bank's financial position in comparison with past trends. To analyze the firm, you have been assigned the task of producing a bank performance analysis. You have done this type of report in your money and macro classes, and you know that the first step is to collect financial data on your bank in order to make the necessary comparisons and suggestions for performance improvements. For ease of calculation, a sample of Balance sheet and Income statement is attached. You can collect the data in Table 1 and Table 2 from annual reports of the bank and government publications. Using balance sheet and income statement data of your chosen Bank, create a bank analysis and performance report for your supervisor that addresses the following issues: 1. Using the balance sheet for each year, a. Create a balance sheet showing all assets as a percentage of total assets and liabilities as a percentage of total liabilities. Which assets on your bank's balance sheet increased over the last three years? Which assets on your bank's balance sheet declined over the last three years? b. Calculate the equity multiplier ratio for each year. How has the equity multiplier of your bank changed over time? 2. Using the income statement for each year, a. Create an income statement with operating income items expressed as a percentage of total operating income. Which items improved over the last three years? Which trends need to be reversed? b. Create an income statement with operating expenses expressed as a percentage of total operating expenses. Which items improved over the last three years? Which trends need to be reversed? 3. Analyze the performance of the bank for each year. a. Calculate the return on assets (ROA) for each year. How has the ROA trend changed over the last three years? b. Calculate the return on equity (ROE) for each year. How has the ROE trend changed over the last three years? 4. Identify the strengths and weaknesses of your bank relative to trends over time. SAMPLE BALANCE SHEET Your Bank, Your Bank, Year 3 Year 2 Assets (Use of Funds) Reserves Your Bank, Year 1 892 648 558 Cash items in process of collection 369 236 169 Deposits at other banks 246 124 179 2,062 739 2,243 673 1,694 538 1,970 1,795 1,436 Securities Federal government Provincial and local governments Loans Commercial and industrial Real estate Consumer Interbank Other 2,708 1,846 348 267 2,467 1,682 318 243 1,974 1,346 254 194 Other assets 862 785 628 12,309 11,214 8,970 2,954 2,691 2,152 2,585 1,723 1,855 1,570 1,884 1,256 1,354 1,234 987 2,954 2,691 2,153 739 1,173 538 12,309 11,214 8,970 Total Liabilities (Sources of Funds) Checkable deposits Non-transaction deposits Savings deposits Small-denomination time deposits Large-denomination time deposits Borrowings Bank capital Total SAMPLE INCOME STATEMENT Your Bank, Your Bank, Year 3 Year 2 Operating Income Interest on loans Interest on securities Other interest 605 133 52 601 151 47 Your Bank, Year 1 441 97 38 Total interest income 790 799 576 Service charges on deposit accounts Other noninterest income Total noninterest income 399 374 291 244 643 169 543 119 410 1,433 1,342 986 304 104 61 402 31 56 286 25 45 307 272 306 178 173 134 1,261 162 158 122 1,203 30 96 87 875 172 139 111 28 26 21 Gains (losses) on securities 7 7 16 Extraordinary items (net) 0 3 2 137 103 72 Total operating income Operating Expenses Interest expenses On deposits On overnight funds and repos Other Noninterest expenses Salaries and employee benefits Premises and equipment Other Provisions for loan losses Total operating expenses Net Operating Income Income taxes Net income PART B (15 marks) - Max 500 words (± 10%) The aim of the Part B of the assignment is to enable you to be familiar with the Management in the Banking industry. Question 1. List ways in which banks deal with credit risk. General Instructions & Format: 1) This is an individual assignment that you should be writing on your own. 2) The word limit for this assignment is 1500 words (+/- 10%); excluding graphs and tables. 3) The assignment must be submitted on time (a soft copy to be uploaded on Turnitin and one hard copy to be submitted to your lecturer) to be considered for evaluation. Turnitin details are as follows: Class ID: Password: 4) Assignments submitted after the deadline will be penalised by deducting 5% of the overall mark for each day up-to 6 days; assignments will not be graded or accepted after 6 days. 5) If you face any problem, please make sure to contact your lecturer before the due date. 6) You are expected to support your work with sources from the literature and use Harvard referencing style as appropriate, in text and in the list of references at the end of your assignment. 7) Format: a. Font: Times New Roman b. Use double spacing and sufficient margins (3-4 cm) c. Headings & subheadings font size: 14 points; the rest of the text: 12 points d. All pages should be numbered; include a table of content Grading: • The assignment will be graded out of 50 marks and will count for 10% of your final grade for this module. • The attached grading scheme will be used to evaluate your work. Academic Integrity: • Fill in the BIBF Assignment Coversheet, scan it or capture it as a picture (to ensure that it does not affect the similarity % counted by Turnitin) and paste it in the first page of your assignment. • Make sure to sign the coversheet. • By signing the coversheet and uploading your work on Turnitin, you confirm that: - The work is your own, and that you have not copied another’s work or allowed anyone to copy your work, and that you have referenced the work of others in an appropriate way. - You have read and understood the BIBF guidelines on Plagiarism and abided with the necessary practice • Students who are suspected to have encountered any form of academic dishonesty will face further investigation. Grading Scheme (out of 50) Category Grade Outstanding Excellent Distinction 35+ Good Meets requirements of Class Good Merit Mid-Level 30-34.5 Meets requirements of Class Good within the Class Credit Mid-Level 25-24.5 Meets requirements of Class Primary Marking Criteria • • • • • • • • • • Comprehensive knowledge • • • • • • • • • • Strong knowledge Understands most but not all of the subject area • • • • • • • • • • Detailed understanding of the subject area Extensive background study Highly focussed answer and well structured Logically presented and defended arguments No factual/computational errors Original interpretation New links between topics are developed New approach to a problem Secondary Marking Criteria • Exceeds expectations for most primary criteria • Complete command of subject and other relevant areas • Ideas/arguments are highly original • Exceeds expectations for some primary criteria • Complete command of subject • Ideas/arguments are highly original • Meets all primary criteria • Command of subject but with minor gaps in knowledge • Ideas/arguments are mostly original • • • Meets most but not all primary criteria Command of subject but with some gaps in knowledge • • • • • • • • • Exceeds expectations for some primary criteria Command of subject but with gaps in knowledge Knowledge of key areas/principles Understands the main elements of the subject area • • • Exceeds expectations for some primary criteria Strong factual knowledge with some weaknesses in understanding Ideas/arguments are limited but are well presented Answer focused on question but also with some irrelevant material and weaknesses in structure Arguments presented but lack coherence Has several factual/computational errors • • Matches all primary criteria • Ideas/arguments are limited with weaknesses in logic/presentation Limited problem solving Some weaknesses in presentation and accuracy • • Matches most but not all primary criteria Moderate factual knowledge with several weaknesses in understanding Ideas/arguments are limited with weaknesses in logic/presentation Excellent presentation with very accurate communication Evidence of background study Focused answer with good structure Arguments presented coherently Mostly free of factual/computational errors Some limited original interpretation Well known links between topics are described Problems addressed by existing methods/approaches Good presentation with accurate communication Limited evidence of background study No original interpretation Only major links between topics are described • Ideas/arguments are mostly original Some ideas/arguments are original Meets all primary criteria Strong factual knowledge and understanding Ideas/arguments are well presented but few are original Meets most but not all primary criteria Strong factual knowledge with minor weaknesses in understanding Most but not all ideas/arguments are well presented and few are original Moderate factual knowledge with some weaknesses in understanding Category Grade Good within the Class Pass Mid-Level 20-24.5 Meets requirements of Class Fail 19.5 and below Primary Marking Criteria • • • • • • • • • • • • • • • • Low-Level Does not Meet requirements of Class • • • • • Knowledge of key areas/principles only Weaknesses in understanding of the subject area Limited evidence of background study Answer only poorly focused on question and with some irrelevant material and poor structure Arguments presented but lack coherence Several factual/computational errors No original interpretation Only major links between topics are described Limited problem solving Many weaknesses in presentation and accuracy For PGT - Insufficient to fulfil the associated learning outcomes Insufficient to fulfil the associated learning outcomes No evidence of relevant knowledge or understanding No evidence of background study Answer relies on irrelevant material and lacks a coherent structure No arguments presented or arguments are not relevant to the assessment Many factual/computational errors No attempt at interpretation No links between topics are described No attempt to solve problems or to address the assessment brief The presentation is very weak containing many inaccuracies Secondary Marking Criteria • Exceeds expectations for some primary criteria • Moderate factual knowledge with several weaknesses in • • • • understanding A few ideas/arguments are presented but with weaknesses Matches all primary criteria Limited factual knowledge with several weaknesses in understanding Very few ideas/arguments are presented • • • Matches most but not all primary criteria Limited factual knowledge with many weaknesses in understanding Very few ideas/arguments are presented and with errors in logic/presentation • • • Exceeds expectations for most primary criteria No evidence of knowledge/understanding Only limited evidence of an attempt to answer the question • • • Exceeds expectations for some primary criteria No evidence of knowledge/understanding Very limited evidence of an attempt to answer the question • • Matches all primary criteria No evidence of knowledge/understanding and/or evidence of misunderstanding No attempt to answer/address the question •
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