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Ratio definitions

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Ratio definitions

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Preliminary remarks The 36 pre-calculated ratio s are

Preliminary remarks

The 36 pre-calculated ratios are calculated on the lines of Global Summary format shown below.

2000

LOANS

2065

OFF BALANCE SHEET ITEMS

2120

DIVIDEND PAID

2005

OTHER EARNING ASSETS

2070

LOAN LOSS RESERVE

2125

TOTAL CAPITAL RATIO

 

(MEMO)

 

2010

TOTAL EARNING ASSETS

2075

LIQUID ASSETS (MEMO)

2130

TIER 1 RATIO

2015

FIXED ASSETS

 

2135

TOTAL CAPITAL

2020

NON-EARNING ASSETS

2080

NET INTEREST REVENUE

2140

TIER 1 CAPITAL

2025

TOTAL ASSETS

2085

OTHER OPERATING INCOME

2150

NET CHARGE OFFS

2030

CUSTOMER & S.T FUNDING

2090

OVERHEADS

2160

HYBRID CAPITAL (MEMO)

2035

OTHER FUNDING

2095

LOAN LOSS PROVISIONS

2165

SUBORDINATED DEBT (MEMO)

2040

OTHER (NON INT BEARING)

2100

OTHER

2180

DUE FROM BANKS (MEMO)

2045

LOAN LOSS RESERVES

2105

PROFIT BEFORE TAX

2170

IMPAIRED LOANS (MEMO)

2050

OTHER RESERVES

2110

TAX

2185

DUE TO BANKS (MEMO)

2055

EQUITY

2115

NET INCOME

2195

INTANGIBLES (MEMO)

2060

TOTAL LIAB & EQUITY

 

2190

OPERATING INCOME (MEMO)

The definitions of these ratios are given hereafter.

The "*" sign refers to a multiplication.The definitions of these ratio s are given hereafter. The mention "AVG" means that the item

The mention "AVG" means that the item is averaged using the arithmetic mean of the value at the end of year t and t-1. In order not to lose information, when figures are available for one year only, ratio s implying average figures are nevertheless calculated using the values of the only available ratios implying average figures are nevertheless calculated using the values of the only available year. The same is true for the values of such ratios relating to the oldest year available in the series shown. In these cases, the values displayed or printed are followed by the sign * showing that the denominator is not averaged.

If anyone of the items included in the calculation of a ratio is not available, the ratio is noted "na". ratio is not available, the ratio is noted "na".

It was felt that any of the ratio s defined hereafter having a value above 1000 % could hardly be considered as ratios defined hereafter having a value above 1000 % could hardly be considered as significant to the analyst. Consequently any ratio with a value above 999.99 % is noted "ns" ("Not significant"). Other occasions where a ratio may be noted "ns" are mentioned hereunder.

Asset Quality

Before analyzing provisions and asset quality ratios it is important to realize that from country to country and indeed within the same country policies vary as to how aggressively or otherwise banks provide for loan losses, when they charge off a loan and whey define loans as non performing. These differences can distort ratios.

4001 LOAN LOSS RES / GROSS LOANS

4001

LOAN LOSS RES / GROSS LOANS

(= 2070 / (2000 + 2070) * 100) This ratio indicated how much of the total portfolio has been provided for but not charged off. It is a reserve for losses expressed as percentage of total loans. Given a similar charge-off policy the higher the ratio the poorer the quality of the loan portfolio will be.

4002 LOAN LOSS PROV / NET INT REV

4002

LOAN LOSS PROV / NET INT REV

(=2095 / 2080 * 100) This is the relationship between provisions in the profit and loss account and the interest income over the same period. Ideally this ratio should be as low as possible and in a well run bank if the lending book is higher risk this should be reflected by higher interest margins. If the ratio deteriorates this means that risk is not being properly remunerated by margins.

4003 LOAN LOSS RES / NON PERF LOANS

4003

LOAN LOSS RES / NON PERF LOANS

(=2070 / 2170 * 100) This ratio relates loan loss reserves to non performing or impaired loans. The higher this ratio is the better provided the bank is and the more comfortable we will feel about the assets quality.

4004 NON PERF LOANS / GROSS LOANS

4004

NON PERF LOANS / GROSS LOANS

Ratio definitions

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(=2170 / (2000 + 2070) * 100) This is a measure of the amount of total loans which are doubtful. The lower this figure is the better the assets quality.

4005 NCO / AVERAGE GROSS LOANS

4005

NCO / AVERAGE GROSS LOANS

(=2150 / (2000 + 2070 ) AVG * 100) Net charge off or the amount written-off from loan loss reserves less recoveries is measured at a percentage of the gross loans. It indicates what percentage of todays loans have been finally been written off the books. The lower this figure the better as long as the write off policy is consistent across comparable banks.

4006 NCO/NET INCOME BEFORE LOAN LOSS PROVISION

4006

NCO/NET INCOME BEFORE LOAN LOSS PROVISION

(=2150 / ( 2115 + 2095 ) * 100) This ratio similarly measures charge offs but against income generated in the year. The lower this figure the better, other things being equal.

4037 IMPAIRED LOANS/EQUITY

4037

IMPAIRED LOANS/EQUITY

(=2170 / 2055 *100) Impaired or problem loans as a percentage of the bank's equity. This indicates the weakness of the loan portfolio relative to the bank's capital. If this is a high percentage this would be cause for concern.

4038 UNRESERVED IMPAIRED LOANS/EQUITY

4038

UNRESERVED IMPAIRED LOANS/EQUITY

(=( 2170-2070 ) / 2055 * 100) Impaired or problem loans not covered by reserves, as a percentage of capital. Also known as the capital impairment ratio. It shows what percentage of the bank's capital would be written off if the reserves or accumulated provisions were 100% of impaired loans and how vulnerable a bank's capital ratio would be as a result.

If Net Interest Revenue (2080) is negative, ratio 4002 is meaningless and is noted "ns". The same is true for ratio 4006 if Net Income before Loan Loss Provision is negative.

Capital

4007 TIER 1 RATIO

4007

TIER 1 RATIO

(=2130)

This measure of capital adequacy measures Tier 1 capital; that is shareholder funds plus perpetual non

cumulative preference shares as a percentage of risk weighter assets and off balance sheet risks measured under the Basle rules. This figure should be at least 4%.

4008 CAPITAL ADEQUACY RATIO

4008

CAPITAL ADEQUACY RATIO

(=2125)

This ratio is the total capital adequacy ratio under the Basle rules. It measures Tier 1 + Tier 2 capital which includes subordinated debt, hybrid capital, loan loss reserves and the valuation reserves as a percentage of risk weighted assets and off balance sheet risks. This ratio should be at least 8%. This ratio cannot be calculated simply by looking at the balance sheet of a bank but has to be calculated internally by the bank. At their option they may publish this number in their annual report.

option they may publish this number in their annual report. Notes : both figures for Ratio

Notes:both figures for Ratios 4007 and 4008 are supplied by the concerned institutions.

4009 EQUITY / TOT ASSETS

4009

EQUITY / TOT ASSETS

(=2055 / 2060 * 100) As Equity is a cushion against asset malfunction, this ratio measures the amount of protection afforded to the bank by the Equity they invested in it. The higher this figure the more protection there is.

4010 EQUITY / NET LOANS

4010

EQUITY / NET LOANS

(=2055 / 2000 * 100) Similarly this ratio measures the Equity cushion available to absorb losses on the loan book.

4011 EQUITY / CUST & ST FUNDING

4011

EQUITY / CUST & ST FUNDING

(=2055 / 2030 * 100) This ratio measures the amount of permanent funding relative to short term potentially volatile funding. The higher this figure the better.

4012 EQUITY / LIABILITIES

4012

EQUITY / LIABILITIES

(=2055 / (2060 - 2055 - 2160 - 2165) * 100) This leverage ratio is simply another way of looking at the Equity funding of the balance sheet and is another of looking at capital adequacy.

4013 CAP FUNDS / TOT ASSETS

4013

CAP FUNDS / TOT ASSETS

(=(2055 + 2160 + 2165) / 2060 * 100)

4014 CAP FUNDS / NET LOANS

4014

CAP FUNDS / NET LOANS

Ratio definitions

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(=(2055 + 2160 + 2165) / 2000 * 100)

4015 CAP FUNDS / CUST & ST FUNDING

4015

CAP FUNDS / CUST & ST FUNDING

(=(2055 + 2160 + 2165) / 2030 * 100)

4016 CAP FUNDS / LIABILITIES

4016

CAP FUNDS / LIABILITIES

(=(2055 + 2160 + 2165) / (2060 - 2055 - 2160 - 2165) * 100)

4017 SUBORD DEBT / CAP FUNDS

4017

SUBORD DEBT / CAP FUNDS

(=2165 / (2055 + 2160 + 2165) * 100) This ratio indicates what percentage of total capital funds are provided in the form of subordinated debt. As this is the least permanent form of capital, the lower this figure is the better.

As an application of the general rule mentioned above, if no figure is available for Subordinated Debt (2165), ratios 4013 to 4017 are noted "na".

Operations

4018 NET INTEREST MARGIN

4018

NET INTEREST MARGIN

(=2080 / 2010AVG * 100) This ratio is the net interest income expressed as a percentage of earning assets. The higher this figure the cheaper the funding or the higher the margin the bank is commanding. Higher margins and profitability are desirable as long as the asset quality is being maintained.

4019 NET INT INC / AVG ASSETS

4019

NET INT INC / AVG ASSETS

(=2080 / 2025AVG * 100) This ratio indicated the same but expressed as a percentage of the total balance sheet.

4020 OTH OP INC / AVG ASSETS

4020

OTH OP INC / AVG ASSETS

(=2085 / 2025AVG * 100) When compared to the above ratio, this indicates to what extent fees and other income represent a greater percentage of earnings of the bank. As long as this is not volatile trading income it can be seen as a lower risk form of income. The higher this figure is the better.

4021 NON INT EXP / AVG ASSETS

4021

NON INT EXP / AVG ASSETS

(=(93800 + 93900) / 91100AVG * 100) Non interest expenses or overheads plus provisions give a measure of the cost side of the banks

performance relative to the assets invested.

4022 PRE-TAX OP INC / AVG ASSETS

4022

PRE-TAX OP INC / AVG ASSETS

(=(2105 - 2100) / 2025AVG * 100) This is a measure of the operating performance of the bank before tax and unusual items. This is a good measure of profitability unaffected by one off non trading activities.

4023 NON OP ITEMS & TAXES/AVG AST

4023

NON OP ITEMS & TAXES/AVG AST

(=(2100 - 2110) / 2025AVG * 100) This ratio measures costs and tax as a percentage of assets.

4024 RETURN ON AVG ASSETS (ROAA)

4024

RETURN ON AVG ASSETS (ROAA)

(=2115 / 2025AVG * 100) This is perhaps the most important single ratio in comparing the efficiency and operational performance

of banks as it looks at the returns generated from the assets financed by the bank.

4025 RETURN ON AVG EQUITY (ROAE )

4025

RETURN ON AVG EQUITY (ROAE)

(=2115 / 2055AVG * 100) The return on equity is a measure of the return on shareholder funds. Obviously here the higher the figure the better but one should be careful in putting too much weight on this ratio as it may be at the

expense of an over leveraged balance sheet.

4026 DIVIDEND PAY-OUT

4026

DIVIDEND PAY-OUT

(=2120 / 2115 * 100) This is a measure of the amount of post tax profits paid out to shareholders. In general the higher the ratio the better but not if it is at the cost of restricting reinvestment in the bank and its ability to grow its business.

4027 INC NET OF DIST / AVG EQUITY

4027

INC NET OF DIST / AVG EQUITY

(=(2115 - 2120) / 2055AVG * 100) This ratio is effectively the return on equity after deducting the dividend from the return and it shows by what percentage the equity has increased from internally generated funds. The higher the better.

4028 NON OP ITEMS/NET INCOME

4028

NON OP ITEMS/NET INCOME

(=2100 / 2115 * 100)

Ratio definitions

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This denotes what percentage of total net income consists of unusual items.

4029 COST TO INCOME RATIO

4029

COST TO INCOME RATIO

(=2090 / (2080 + 2085) * 100) This is one of the most focused on ratios currently and measures the overheads or costs of running the bank, the major element of which is normally salaries, as percentage of income generated before provisions. It is a measure of efficiency although if the lending margins in a particular country are very high then the ratio will improve as a result. It can be distorted by high net income from associates or volatile trading income.

4030 RECURRING EARNING POWER

4030

RECURRING EARNING POWER

(=(2105 - 2100 + 2095 ) / 2025AVG * 100) This ratio is a measure of after tax profits adding back provisions for bad debts as a percentage of Total Assets. Effectively this is a return on assets performance measurement without deducting provisions.

Note - As an exception to the general rule mentioned above: As an exception to the general rule mentioned above:

Ratio 4020 is noted "ns" if Net Interest Revenue (2080) is "na". 4020 is noted "ns" if Net Interest Revenue (2080) is "na".

Ratios 4018 and 4019 are negative if Net Interest Revenue (2080) is negative. Ratio 4022 s 4018 and 4019 are negative if Net Interest Revenue (2080) is negative. Ratio 4022 is negative if Pre-Tax Operating Income is negative. Ratios 4024 and 4025 are negative if Net Income (2115) is negative.

If Average Equity is negative, ratio s 4025 and 4027 are meaningless and are noted "ns". ratios 4025 and 4027 are meaningless and are noted "ns".

Liquidity

4031 INTERBANK RATIO

4031

INTERBANK RATIO

(=2180 / 2185 * 100) This is money lent to other banks divided by money borrowed from other banks. If this ratio is greater than 100 then it indicates the bank is net placer rather than a borrower of funds in the market place, and therefore more liquid.

4032 NET LOANS / TOT ASSETS

4032

NET LOANS / TOT ASSETS

(=2000 / 2025 * 100) This liquidity ratio indicates what percentage of the assets of the bank are tied up in loans. The higher this ratio the less liquid the bank will be.

4033 NET LOANS / CUST & ST FUND

4033

NET LOANS / CUST & ST FUND

(=2000 / 2030 * 100) This loans to deposit ratio is a measure of liquidity in as much as high figures denotes lower liquidity.

4034 NET LOANS/TOT DEP & BOR

4034

NET LOANS/TOT DEP & BOR

(=2000 / (2030 + 2035 - 2160 - 2165) * 100) This similar ratio has as its denominator deposits and borrowings with the exception of capital instruments.

4035 LIQUID ASSETS / CUST & ST FUND

4035

LIQUID ASSETS / CUST & ST FUND

(=2075 / 2030 * 100) This is a deposit run off ratio and looks at what percentage of customer and short term funds could be met if they were withdrawn suddenly, the higher this percentage the more liquid the bank is and less vulnerable to a classic run on the bank.

4036 LIQUID ASSETS / TOT DEP & BOR

4036

LIQUID ASSETS / TOT DEP & BOR

(=2075 / (2030 + 2035 - 2160 - 2165) * 100) This ratio is similar to 4035 but looks at the amount of liquid assets available to borrower as well as depositors.

General note for ratio s in Peer and Statistical analyses : ratios in Peer and Statistical analyses:

For the ratio s 4018, 4019, 4022, 4023 and 4025 which may be positive or negative, the ratios 4018, 4019, 4022, 4023 and 4025 which may be positive or negative, the statements with negative values are ranked after the positive values.

The average ratio relating to a period made of more than one year is computed in arithmetically ratio relating to a period made of more than one year is computed in arithmetically averaging the values of each year (thus, such an averaged ratio is not calculated by applying the formula to the averaged money values). Similarly, the values of the mean associated to a group of banks is calculated by averaging the ratios of these banks, not using average money values

As for the median, when the number of banks is even, the median is taken as the first ranked of the two central values.the ratio s of these banks, not using average money values Copyright © 2016, Bureau van