Semester 2, 2017

FINANCIAL INSTITUTIONS MANAGEMENT II

SMALL GROUP DISCOVERY EXPERIENCE

Group Assignment
This assignment is to be done in a group of two to four students. Group members can be from
different tutorial classes. The maximum word limit is 4200 words. Appendices (including, for
example calculations) can be attached and will not be counted in the word limit. All of the sources
you have cited in your assignment must be included in a reference list, which is placed at the end of your
report before the appendices.

The assignment should be submitted electronically via the Turnitin Assignment tool on MyUni by
one member for the whole group by 4pm on Friday, 27 October 2017. The link for the Turnitin
Assignment tool has been created under the Assignment page entitled SGDE Group
Assignment- Turnitin Submission on the MyUni site. You can upload your assignment directly
by following the prompts. For guidance on how to submit your assignment electronically via
MyUni, go to http://www.adelaide.edu.au/myuni/student/tutorials/ and click on the
Assignments: Submit an Assignment tutorial.

A penalty of 1 % of the total marks allocated to this assignment will apply for each day late.

A bonus of 2.5 marks is applied for early submission of the assignment (by 4pm on Tuesday, 24
October ). If the assignment is submitted later than this time, then the bonus is not applied.

The main objective of this assignment is to understand banks activities and risks and to analyse
the impact of the financial crisis on a banks activities, financial performance and risks.

You are required to choose 2 banks (either commercial or investment banks): one Australian
bank and one Asian bank. You need to explain the motivation for choosing the banks in your
report. The time period of analysis is from 2007 to 2013 to capture the impact of Global
Financial Crisis that developed in late 2008, and European Sovereign Debt Crisis that developed
in 2010.

This assignment requires an in-depth analysis on the financial statements of the banks you have
selected. The information required (financial reports, market and industry analysis etc.) can be
downloaded from the banks websites and other sources.

Financial Institutions Management II - Semester 22017 Page 1

Part I: Asset and Liability Composition (50% of marks)

Present a clear and concise analysis on fund (capital) raising activities (liability + equity
composition) and asset portfolio allocation (asset composition) of the banks reflected in the
banks balance sheets.

In your analysis you have to clearly explain the major differences of the banks asset and liability
compositions and the impact of the 2008 global financial crisis and the 2010 European debt crisis
on the banks asset and liability +equity compositions.

Assessment details:
a. Explain the motivation for choosing the banks
Why did you think the banks you chose would make an interesting comparison?
Possible reasons might be size, location, areas of operation, or core activities.

b. Identify the main types of assets and liabilities for each bank
Examine the compositions of the assets and liabilities from 2007 to 2013 for each
bank (you may want to focus on four types of assets and liabilities: three largest types
of assets and liabilities and include the other smaller types in one group).
Explain potential risk exposure due to the asset and liability structure.

c. Compare and discuss changes in asset and liability compositions over the sample period :
Compare and discuss the asset and liability compositions of the banks
Explain how the asset and liability compositions have changed over the sample
period, especially during the crisis periods.
Explain how you think the global financial crisis and the European debt crisis
affected the asset and liability compositions.

Hint: You should not only be noting the quantitative change of assets and liabilities, but also
possible reasons as to why the change occurred e.g. market conditions, changes in cost of
funds, changes in needs of the bank. For example, assignments that state liability A changed
by X%, as the cost of funds increased would get a significantly better mark compared to,
liability A changed by X%. You do not need to do this for every asset or liability, nor do you
need to go into extreme depth, but you should make an attempt to understand why a change
has occurred. The notes of financial statements can be useful for this!

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Part II: Financial Performance Analysis (50% of marks)

Critically analyse financial performance of the banks and discuss the impact of the global
financial crisis and the European debt crisis on the performance of the banks.

In undertaking the performance analysis, you are required to use the Return on Equity (ROE)
decomposition model discussed in topic 2. This model provides a starting point for examining a
financial institutions performance by decomposing its financial ratios.

In order to obtain a better understanding about the banks performances, not only do you need to
analyse key performance indicators, but also identify trends in those indicators.

Assessment details:

a. Discuss changes in ROEs and the sources of the changes in ROEs for each bank over the
sample period :
o How has the profitability (ROE) for each bank changed over the sample period?
o What have been the reasons of the changes in ROEs ?
Decompose the ROE into the main components: ROA and EM to identify
the driving factors (strengths and weaknesses) of the ROE.
Analyse further the sources of ROA by breaking down the ROA into its
components: Asset Utilisation and Profit Margin ratios.
Identify the sources of the changes in Asset Utilisation and Profit Margin
ratios by looking into the components of asset utilisation and profit margin
ratios in more detail.

b. Explain how the global financial crisis and the European debt crisis affected the banks
profitability.

Note:
Information about ROE items is available in Consolidated Income Statements
(Statement of Earnings/Income) and Balance sheets in financial reports.
Additional readings for this part: (Topic2_App2A(Lange3e) from Lange, Saunders and
Cornett, 3rd edition and Topic 2_App7A(Saunders) from Saunders 7th ed ) are available
in the Readings folder within Modules on MyUni.
Similarly to part I, when you are discussing ratios or multiples do not just state the
quantitative change. It is important to try to understand why the change occurred.
Simply stating The ROE for 2008 is X and the ROE for 2009 is Y, this is a big
change! is not useful analysis. Should you wish to move into a finance related role,
comparing companies using multiples is a fairly common task for interns & graduates,
so this is good practice!

--End of Assignment--

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