Compare and contrast the profitability ratios (ROE and ROA) of banks with assets
ID: 2791527 • Letter: C
Question
Compare and contrast the profitability ratios (ROE and ROA) of banks with assets below and above $100 million in Figure 11-7 from 1990-2013. What conclusions can you derive from those numbers?
Chapter Commercial Banks Industry Overview and ROE on Different Size Barks, 990-200 1-7 ROA 075 0 s0 0.00 1990 1995 ROE (%) 145 13.5 125 11.5 10.5 9.5 8.5 75 6.54 -All banks -S0-$100 milion $100 million-$1 bilion -$1 billion-$10 bilion Over $10 billion 5.5 4.5 3.5 2.5 15 0.5 0.5 -3.5 1990 1995 2010 2013 Fek Deposit insurance Corporation, Oaatety Bating Pulit warious issues wwwticoov
Explanation / Answer
YEAR
1990
1995
2000
2005
2009
2010
2013
ROA in %
Banks
0.5
1
1
1.25
0
0.25
1
Above 100million
0.5
1
1
1.25
0
0.25
1
Below 100 million
0.75
1
0.75
0.75
0.1
0.25
0.7
ROE in %
Banks
7.5
14.5
12.5
13
1.5
3.5
9
Above 100million
10
13
13
13
1.5
3.5
9
Below 100 million
9
11
8.5
7.5
1
3
6
Conclusion-
The initial period beginning from 1990 to 1995 is a growth phase where all, i.e. the bank, above 100 million and the below 100 million were in growth phase. The period of 1990-95 was although a growing phase but a slow growth for all. Later the period 1995 to 2000 was a growth phase where the return from asset remain constant for banks and above $100million fund but below 100 million seen a decrease in return. When Return on equity was concerned, the banks and below 100 million faced a decrease in rate of return whereas the 100 million holds its rate of return constant as of year 1995. The period beginning from 2005 showed a decrease in ROA and ROE for all the three categories. The slow decline in return become sharp decline in the period of 2008 and 2009. In these period the Return form assed comes around zero for all three categories. And the Return of Equity falls below 2. The period 2010 shows some recovery and increased the ROA,ROE bringing back positive sentiment. Although it was the recovery phase but by the period 2013 the all three categories recovered the losses and came back to stabilised state. The below 100 million categories always under performed as compared to the other two categories whether it is ROA or ROE is concerned.
YEAR
1990
1995
2000
2005
2009
2010
2013
ROA in %
Banks
0.5
1
1
1.25
0
0.25
1
Above 100million
0.5
1
1
1.25
0
0.25
1
Below 100 million
0.75
1
0.75
0.75
0.1
0.25
0.7
ROE in %
Banks
7.5
14.5
12.5
13
1.5
3.5
9
Above 100million
10
13
13
13
1.5
3.5
9
Below 100 million
9
11
8.5
7.5
1
3
6
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