Some of the important ratio measures of

bank profitability that are generally used

are as follows:

1.
2.
3.
4.
5.

Return On Equity (ROE)

Return On Assets (ROA)
Net Interest Margin
Net Non Interest Margin
Net Bank Operating Margin

What are these ratios?

How are they calculated?
What are their significances?
How can we interpret these ratios?

Return On Assets (ROA)=

Net Income after taxes

--------------------------Total Equity Capital

Return On Assets (ROA)=

Net Income after taxes

--------------------------Total Assets

Net Interest Margin=

Interest Income Interest Expenses

-----------------------------------------Total Assets

Net Non Interest Margin=

Non Interest Income Non Interest Expenses

-----------------------------------------Total Assets

 Net Bank Operating Margin =

Total Operating Income Total Operating
Expenses
------------------------------------------------------------------------------------------

Total Assets

Each of these ratios looks at a different

aspects of bank profitability.
ROA is an indicator of managerial efficiency.
It indicates how capable the management
of the bank has been converting the
institutions assets into net earnings.

ROE is a measure of the rate of return

flowing to the banks shareholders. It
approximates the net benefit that the
shareholders have received from investing
their capital in the bank i.e. placing their
funds at risk in the hope of earning a
suitable profit.

The Net Interest Margin measures how large

a spread between interest revenues and
interest costs management has been able
to achieve by close control over the banks
earning assets and the pursuit of the
cheapest sources of funding

The Non Interest Margin measures the

amount of non interest revenues stemming
from various service charges and other
service fees the bank has been able to
collect (known as fee income) relative to the
amount of non interest cost incurred.