The global economic downturn that started in 2007 affected most sectors in the Canadian economy, particularly the financial sector, including the banking industry. For example, the common shares of Toronto Dominion Bank decreased from $ 68.12 per share on January 2, 2011, to $ 32.80 per share on February 23, 2012, before they started climbing up in March 2012 onward. Because banks lend money to individuals and companies, one would expect the banks to experience some difficulty in collecting money from their customers during an economic downturn. Go to the websites and consult the annual reports of Scotiabank, Canadian Imperial Bank of Commerce, and Royal Bank of Canada for fiscal year 2012.
Required:
1. What is the amount of the provision for credit losses that each bank reported on its statement of earnings for both 2011 and 2012?
2. Compute the ratio Provision for credit losses/ Net interest income for both 2011 and 2012. Did the ratio increase from 2011 to 2012 for each of these banks? If so, what could have caused the increase? Explain.
3. What is the amount of the allowance for loan losses that each bank reported on its statement of financial position (balance sheet) at the end of its 2012 fiscal year?
4. Compute the ratio Allowance for loan losses/ Total loans receivable for both 2011 and 2012, and comment on the change in the ratio from 2011 to 2012.