Answer the following questions regarding analysing loan portfolio information, show your workings for the calculation: A) Use
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Question:
- Answer the following questions regarding analysing loan portfolio information, show your workings for the calculation:
A) Use the following information to establish how much Bank A's loan portfolio deviates from the national average: (2 marks)
Bank A | National Ave. | |
Consumer loans | 45% | 25% |
Overdrafts | 5% | 15% |
Business loans | 20% | 20% |
Mortgage | 30% | 40% |
100% | 100% |
B) Assume the standard deviation calculated in part a. of this question for Bank A is very large compared to the standard deviation of other banks. Is it necessarily bad for Bank A? (2 marks)
C) A sample of 10,000 customers of similar size and activity have been observed. On average 115 have defaulted on their obligations per year and only 40 % of the outstanding debt could be recovered. The average exposure per customer is $45,000. Use the ACRA principle and calculate the total expected loss and the "credit risk premium" per customer. (2 marks)
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