Assets Amount (USD mil) Interest rate (%) Risk weight (%) Amount (USD mil) 1,500 Interest rate (9) 100 500 100 800 Cash and deposits due from banks 3-month Treasury Bills 5-year fixed-rate Government Bonds 400 3 Liabilities & Equity Demand deposit 3-month bank deposits 6-month corporate deposits 24-month individual deposits Equity 1,400 1,800 12100 700 12-month floating- rate corporate loans 1,600 15 50 200 10 year fixed-rate mortgage loans Fixed assets 200 100 This Bank earned USD82 mil in fees and commissions and USD5 mil in securities gain; paid USD145 mil in overhead costs; USD40 in loan loss provision. Tier 1 capital was equal to 85% of equity and Tier 2 capital was equal to 20% of Tier 1 capital. Corporate income tax rate is 20%. a. Calculate net interest margin, earning spread, ROE and CAR of the bank. b. Assuming that interest rate decreases by 3%/year in the next 3 months, value of assets and liabilities are unchanged, short-term assets and liabilities are interest sensitive, except deposits due from banks and demand deposits. Calculate the expected net interest margin after 3 months. Assets Amount (USD mil) Interest rate (%) Risk weight (%) Amount (USD mil) 1,500 Interest rate (9) 100 500 100 800 Cash and deposits due from banks 3-month Treasury Bills 5-year fixed-rate Government Bonds 400 3 Liabilities & Equity Demand deposit 3-month bank deposits 6-month corporate deposits 24-month individual deposits Equity 1,400 1,800 12100 700 12-month floating- rate corporate loans 1,600 15 50 200 10 year fixed-rate mortgage loans Fixed assets 200 100 This Bank earned USD82 mil in fees and commissions and USD5 mil in securities gain; paid USD145 mil in overhead costs; USD40 in loan loss provision. Tier 1 capital was equal to 85% of equity and Tier 2 capital was equal to 20% of Tier 1 capital. Corporate income tax rate is 20%. a. Calculate net interest margin, earning spread, ROE and CAR of the bank. b. Assuming that interest rate decreases by 3%/year in the next 3 months, value of assets and liabilities are unchanged, short-term assets and liabilities are interest sensitive, except deposits due from banks and demand deposits. Calculate the expected net interest margin after 3 months