Savings Bank Ltd. Balance sheet As at 31/12/2018 Assets$(000)Liab. & Equity$(000) Cash100,000Payables60,000 Investments260,000Deposits700,000 Loans700,000Long-term bonds200,000 Other 40,000Equity140,000
Question:
Savings Bank Ltd.
Balance sheet
As at 31/12/2018
Assets$(000)Liab. & Equity$(000)
Cash100,000Payables60,000
Investments260,000Deposits700,000
Loans700,000Long-term bonds200,000
Other 40,000Equity140,000
Total1,100,0001,100,000
The investment portfolio comprises private equity (20%), a corporate zero coupon bond (30%), government bonds (40) and shares in publicly traded companies (10%).
The loan portfolio has 5% delinquency and the average return is 6.5%.
Deposits are primarily short-term. The renewal rate is declining and is expected to continue into the medium term. The average deposit rate is 2.5%.
Interest rates are expected to rise in the short term.
A. Based on the balance sheet and the information above, identify three risks facing the bank. Explain. (6 marks)
B. Recommend to management one strategy to reduce each risk (6 marks)
C. Discuss the bank's capital adequacy based on the information given (3 marks)
Expert Answer:
Savings Bank Ltd Risk Analysis A Risks Facing the Bank 6 marks Interest Rate Risk 3 marks The bank has a significant portion of its liabilities deposi... View the full answer
Financial Accounting An Integrated Approach
ISBN: 9780170349680
6th Edition
Authors: Ken Trotman, Michael Gibbins, Elizabeth Carson
