Overview
There are number of different ratios and other calculations that are used to assess bank performance. Some measures can be calculated from the banks financial statements. Other measures can only be calculated using information not available to the public and are used to assess a banks health by its executives.
Bank Performance
The following are common accounting measures of bank performance.
- Return on Equity: is a measure of a banks return on the shareholder equity. There are variations of return on equity such as return on tangible equity that are designed to overcome ROE's limitations.
- Return on Capital:
Asset Performance
One area of focus in bank performance, is the performance of its assets. Measures of asset performance can help the executives to manage the banks porfolio in order to achieve its performance goals.
- Return on Assets (ROA) : net profit after taxes divided by total assets
- Net Interest Income: interest income minus interest expense
- Net Interest Margin: interest income minus interest expense divided by average assets.
- Cost to Income: operating expenses / operating revenue
- Economic Value Added: return on invested funds - weighted average cost of invested capital - weighted average cost fo debt * net debt
Risk Adjusted Performance (RAP)
Consistent with risk adjusted performance used in other areas of finance, banks also will try risk adjust their performance measures in order to make apples to apples comparisons. This leads to various Risk Ajusted Performance (RAP) Measures.