Some questions of the analysis of financial results of banking activities (end). Return on assets at the enterprise and in the bank Total profitability of the bank formula
The relationship between profit and profitability of a credit institution, their characteristic features
The main goal of a credit organization is to maximize profits with its stable, sustainable, long-term operation and strong positions in the banking business.
At the same time, the profit indicator is the main indicator of the effective work of banks.
Remark 1
The volume of profit or loss received by banks reflects the effectiveness of all active and passive operations. Therefore, the definition of the financial result of the bank, its components and factors influencing the change in dynamics, occupy one of the main places in the analysis of the work of commercial banks.
The amount of profit depends mainly on the amount of income received and the amount of expenses incurred.
Remark 2
Profit during the current year is determined by the bank's balance sheet by calculation as the difference between the bank's income and expenses. At the end of the financial year (after the preparation of the annual accounting report), a separate balance sheet reflects the profit of the previous year, which is distributed at the annual meeting in the areas approved by the shareholders (members) of the bank.
The amount of net profit approved by independent auditors serves as the basis for the growth and renewal of banks' property, increasing the amount of equity capital, which guarantees a stable financial position and liquidity of the balance sheet, ensures an appropriate level of dividends, and improves the quality of banking products and services.
Volumes, structure and changes in the dynamics of the credit institution's profit are analyzed in various directions. These include:
- analysis of profit volumes for the current year;
- calculation and analysis of balance sheet profit and its structure;
- analysis of net profit;
- directions of use of net profit;
- analysis of the amount of profit received by each structural unit;
- profitability of the main directions of banking activity, etc.
In practice, the analysis of the profit level of banks involves three methods:
- Conducting a structural analysis of sources of profit;
- Analysis of factors affecting profit (factorial analysis);
- The study of the system of applied financial ratios.
The size of profits and their structure, despite the importance of this indicator, sometimes does not show the whole picture of the level of efficiency of banks. The final stage of the analysis of the profitability of banks involves the calculation of their profitability or rate of return.
Definition 1
The general economic meaning of profitability indicators is that they justify the profit received by the bank from each spent (own and borrowed) ruble.
Profitability indicators of a commercial bank
There are various indicators of profitability.
When calculating the overall level of profitability (Rtotal), it becomes possible to evaluate the total profitability and profit, which falls on 1 ruble. of all income (share of profit in income):
Picture 1.
World banking practice refines this indicator by calculating the overall profitability, which is calculated as the ratio of the total amount of profit received during the analyzed period to the authorized capital:
Figure 2.
In other words, $ROE$ (return on eguity) is calculated in the world as the ratio of the total balance or net (after taxes from profit) profit ($P$) to the size of own ($K$) or paid authorized capital.
This indicator ($ROE$) characterizes the efficiency of banks' activities, showing the performance of shareholders' (participants') own funds. The resulting value of $ROE$ directly depends on the ratio of equity capital and borrowed resources in the total currency of the banks' balance sheet. It is believed that with an increase in the share of equity capital, the reliability of banks increases, but it becomes more difficult to ensure high profitability of one's capital.
Another important indicator of overall profitability is the rate of return on all banking assets ($ROA$ - return on assets), which shows the amount of profit attributable to the ruble of assets. It is used to characterize active operations, the effectiveness of bank management in general. The calculation is made by the formula:
Figure 3
where $A$ - shows the average value of assets.
A positive trend in the dynamics of this profitability indicator shows an increase in the efficiency of using bank assets, but a rapid increase in this indicator characterizes the maximization of the degree of risk when placing assets.
The calculation and analysis of profitability for certain types of active operations (credit, investment, foreign exchange, etc.) allows you to establish the amount of income received for each classification group of active operations and compare with the corresponding amounts of expenses incurred for the same operations:
Figure 4
- $RaI$ - profitability of i-th types of operations;
- $Di$ - the amount of income received from operations of i-th types;
- $Ai$ - the average amount of assets used in transactions of the $i$-th type.
The profitability of passive operations, through which banks' funds are raised, is determined by the ratio of the total amount of funds raised to the total amount of banks' investments:
Figure 5
When calculating the overall profitability (efficiency) of attracted liabilities, the profitability indicators for specific types of borrowed funds (deposits, own securities, interbank loans, etc.) should be detailed.
Profitability management of a credit institution
The definition of the inter-level division of the profitability management of banks includes:
- overall profitability management of banks;
- management of profitability of a separate line of work of banks;
- profitability management of banking products.
Profitability management of a particular line of banking activity takes place at the level of the responsibility center - a functional division of banks responsible for a certain line of banking activity, i.e. for the category of homogeneous banking products, and the financial result obtained from it.
Evaluation of the financial performance of the units should be carried out in several stages.
The first stage is the budgeting of the unit (determination of income, expenses in the implementation of its activities);
At the second stage, the centers of profitability and cost centers are identified;
At the third stage, the amounts of income transferred by this unit to other functional units are calculated when using the funds they attract;
And, the last stage determines the assessment of the effectiveness of each line of activity of banks, the final result of the centers of profitability is calculated.
Profit management of banks at the micro level is also carried out by managing the profitability of a particular banking product. Its profit from the sale is calculated taking into account market prices and cost.
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profitability bank market
Introduction
1. Profitability of the bank
3. Profitability analysis
Conclusion
Appendix
Introduction
Profitability is the most important indicator of the activity of any business entity. Throughout the stage of market transformation of the financial and credit system of Russia, the high level of this indicator of the activity of commercial banks was ensured, first of all, by the favorable situation for them in the financial markets. The availability of concessional loans from the Central Bank, the stable depreciation of the ruble on the interbank currency exchange, and the increased yield of government short-term securities guaranteed banks a uniquely high level of profitability.
A certain experience in the use of financial methods of profitability management at the on-farm level was accumulated in our country during the period of the planned economy. In the mid-80s, in connection with the transition of most enterprises to the self-financing regime, they became widespread in construction, industry and transport. However, their introduction practically did not affect the banking system, which continued to operate under conditions of strict centralization of management, based solely on administrative methods. It is indicative that a similar situation has been preserved in commercial banks, most of which were originally created as non-state structures.
At the moment, a commercial bank is able to offer a client several hundred types of various banking products and services. Broad diversification of operations allows banks to retain customers and remain profitable even under very unfavorable market conditions. But not all banking operations are used daily in the practice of a commercial banking institution. The main task in the process of organizing the activities of the bank and its structural divisions is to realize at least the three most significant goals - to achieve high profitability, sufficient liquidity and security of the bank.
The purpose of this work is to analyze the profitability of a commercial bank on the example of PJSC Bank VTB 24.
To achieve this goal, it is necessary to solve the following range of tasks:
Define the concept of profitability, reveal its meaning and characterize the main areas of its application;
Conduct a profitability analysis of PJSC Bank VTB 24.
The appendix to this work presents the published forms of reports for the period under review by PJSC Bank VTB 24.
1. Profitability of the bank
Profitability is a very important indicator of the overall performance of a bank. Profitability characterizes the level of return on 1 ruble. invested funds, which, in relation to a commercial bank, means the ratio of the amount of profit received and the funds contributed by the shareholders (shareholders) of the bank. The entire analysis of the profitability of banking activities is based on a close relationship between profitability and return on assets, capital adequacy, and the share of profit in income. In other words, banks with equal opportunities may achieve different results, and, conversely, banks with significant differences in return on assets and capital adequacy may achieve the same profitability. The profitability (yield) of a commercial bank is one of the main cost indicators of effective banking.
2. Calculation of bank profitability indicators
Calculation of the bank's profitability indicators is carried out using published reports. The bank's profitability should be considered in conjunction with liquidity indicators and the structure of the asset and liability balance.
For the calculation, such financial parameters are used as:
Net income (profit after tax) page 22 in the Statement of Financial Performance;
Value of assets (total assets) p. 12 balance sheet;
Operating assets amount 4, 5, 6, 7 balance lines;
Net income page 18 of the income statement;
Equity (capital) page 1 of the report on the level of capital adequacy to cover risks, the amount of reserves to cover doubtful loans and other assets;
Authorized capital page 1.1.1. a report on the level of capital adequacy to cover risks, the amount of reserves to cover doubtful loans and other assets;
Using these indicators, we calculate the following profitability indicators. Calculation of indicators is carried out according to the published reports as of 01.10.2014 and for comparison according to the data as of 01.01.2014. PJSC Bank VTB 24.
Return on assets (ROA) (K1) is determined by the ratio of net profit to assets. This indicator characterizes the overall level of profitability of all assets.
K1=net profit / value of assets*100.
K1 n.p. \u003d 20729863 / 202949877 * 100 \u003d 1.02.
K1 k.p. \u003d 16433088 / 2297347348 * 100 \u003d 0.72.
Return on operating assets (K 2) is determined by the ratio of net profit to the amount of operating assets.
K2=net profit / working assets*100.
K2n.p. \u003d 20729863 / 1784053799 * 100 \u003d 1.16.
K2k.p. \u003d 16433088 / 2104165892 * 100 \u003d 0.78.
The net worth multiplier (K 3) is calculated as the ratio of assets to equity.
K3 = value of assets / equity.
K3n.p. \u003d 2029498877 / 219571432 \u003d 9.24.
K3k.p. \u003d 2297347348 / 247092986 \u003d 9.29.
Return on equity (K 4) is determined by the ratio of net income to the amount of equity capital. This indicator characterizes capital adequacy, it is one of the most important indicators of profitability. It should be the focus of the analysis. It measures profitability from the point of view of shareholders.
K4 \u003d net income / capital * 100.
K4n.p. \u003d 137158021 / 219571432 * 100 \u003d 62.47.
K4k.p. \u003d 100609613 / 247092986 * 100 \u003d 40.72.
Return on equity (authorized) capital (ROE) (K 5) is calculated in the development of the return on capital as the ratio of net income to the amount of authorized capital.
K5 \u003d net income / authorized capital * 100.
K5n.p. \u003d 137158021 / 74394401 * 100 \u003d 27.86.
K5k.p. \u003d 100609613 / 91564891 * 100 \u003d 17.95.
Indicators (K 1 and K 2) are calculated on the basis of all assets and operating assets, respectively, they only indirectly characterize the efficiency of the bank. Indicators (K 4 and K 5) measure profitability from the point of view of the owner of the capital. The disadvantage of these indicators is that they can be very high even with insufficient equity or authorized capital. Therefore, it is advisable, when calculating these coefficients, to take into account when determining equity not only their paid, but also unpaid parts. The amount of the bank's unpaid authorized capital is reflected in off-balance sheet accounting.
3. Profitability analysis
Table 1.
Table 1 presents a comparison of profitability indicators K1, K2, K3, K4, and K5, the growth rate for the period is calculated. The indicator - net return on assets (ROA) - characterizes the effectiveness of bank placements. As of 01/01/2014 it was 1.02%, after three subsequent quarters it decreased to 0.72%. In general, the value of the net return on assets of the bank in question corresponds to the standards in world practice, according to which K1 can be up to 4% and higher. The decrease in ROA in dynamics is due to the simultaneous decrease in net profit and growth in the bank's assets.
The most well-known indicator of profitability in the world theory of banking is the return on equity (authorized) capital (ROE). Its value at the beginning of 2014 was 27.86%, and by October 1, 2014 it had decreased to 17.95%. The decrease in the return on equity is directly related to the reduction in the bank's net profit and the simultaneous growth of its share capital.
Conclusion
The indicator of profitability is especially important in today's market conditions, when management needs to constantly make a number of extraordinary decisions to ensure profitability, and, consequently, financial stability.
Factors that affect profitability are many and varied. Some of them depend on the activities of specific teams, others are related to the technology and organization of production, the efficiency of the use of production resources, the introduction of the achievements of scientific and technological progress. Profitability indicators are important characteristics of the factor environment for the formation of bank profits. Therefore, they are mandatory when conducting a comparative analysis and assessing the financial condition.
Appendix
General information about the Bank.
Information about the Bank.
VTB 24 (PJSC) is one of the largest participants in the Russian banking services market. We are part of the international financial group VTB and specialize in servicing individuals, individual entrepreneurs and small businesses. The bank's network is formed by 1062 offices in 72 regions of the country. We offer our clients the main banking products accepted in international financial practice. Among the services provided: the issuance of bank cards, mortgage and consumer lending, car loans, remote account management services, credit cards with a grace period, term deposits, safe deposit boxes, money transfers. Part of the services is available to our customers around the clock, for which modern telecommunication technologies are used.
The shareholders of VTB 24 (PJSC) are VTB Bank (open joint stock company) - a share in the authorized capital of 99.9170%, minority shareholders - a total share in the authorized capital - 0.083%. The authorized capital of VTB 24 (PJSC) is 91564890547 rubles. The bank's staff adheres to the values and principles of the international financial group VTB. One of the group's main tasks is to maintain and improve Russia's developed financial system. The activity of VTB 24 (PJSC) is carried out in accordance with the general license of the Bank of Russia No. 1623 dated October 29, 2014. Supervision of the activities of VTB 24 (PJSC) in accordance with Federal Law No. 86-FZ dated July 10, 2002 "On the Central Bank of the Russian Bank of Russia)” is carried out by the Department for Supervision of Systemically Important Credit Institutions of the Bank of Russia.
Requisites.
Name of the bank.
company (full official) name in Russian - Bank VTB 24 (public joint stock company);
corporate (full official) name in English - Bank VTB 24 (public joint-stock company);
abbreviated name in Russian - VTB 24 (PJSC);
abbreviated name in English -- VTB 24 (PJSC);
Details VTB24.
Corr. account: 30101810100000000716 at OPERA MOSCOW.
TIN: 7710353606.
BIC: 044525716.
OKPO code: 20606880.
OKONH code: 96120.
PSRN: 1027739207462.
Gearbox: 775001001.
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It is advisable to continue the study of the structure and dynamics of the bank's income and expenses by analyzing the formation of the financial result. Table 6 shows data on the amount of profit of various types.
Table 6. Dynamics of profit of Bank A
| Expense group | 2009., thousand roubles. | 2010., thousand roubles. | Growth rate of the amount, % | 2011., thousand roubles. | Growth rate of the amount, % |
|---|---|---|---|---|---|
| Profit from banking operations and other transactions | 494 073 | 1 411 571 | 186 | 1 016 227 | -28 |
| Operating profit | -93 131 | -1 306 395 | 1 303 | -940 437 | -28 |
| Profit from other operations | -32 339 | -12 029 | -63 | 627 | 105 |
| balance sheet profit | 368 603 | 93 147 | -75 | 76 417 | -18 |
| income tax | 88 465 | 22 355 | -75 | 15 283 | -32 |
| Net profit | 280 138 | 70 792 | -75 | 61 134 | -14 |
Profit from banking operations and other transactions represents the difference between income and expenses (group A of the income statement). Therefore, it is considered the main type of profit, which reflects the effectiveness of the bank's main banking operations and other transactions. According to Table 6, it can be noted that in all three periods under review, this indicated value of the item was positive and was the main element of the bank's net profit.
Operating profit is the difference between income and expenses of group B of the income statement. According to Table 6, over the past three years, Bank A received only operating losses, which every year more and more significantly reduced the final financial result of its activities. The reason for the losses under this item is a significant excess of group B expenses over the corresponding income. This concerns, first of all, paid and received commission fees and deductions to funds and reserves.
The main absolute indicator of the effectiveness of a commercial bank is net profit. Let's analyze the dynamics of Bank A's net profit. According to Table 10, the indicator in question has been steadily declining over the course of three years quite significantly.
So, if in 2009 the bank's net profit amounted to 280 million rubles, then in two years it decreased by more than 4 times and settled at around 61 million rubles. The main factor that influenced the significant reduction in net profit is the outstripping growth of the bank's expenses compared to its income.
The study of the absolute value of net profit must be supplemented by coefficient analysis. The main relative performance evaluation indicators are profitability indicators (Table 7).
Table 7. Profitability indicators of Bank A and their dynamics, %
| Profitability indicators | 2009. | 2010. | Growth rate | 2011. | Growth rate |
|---|---|---|---|---|---|
| The overall profitability of the bank, Р 1 | 15,8 | 2,1 | -87 | 1 | -52 |
| Net return on assets (ROA), Р 2 | 2,7 | 0,6 | -78 | 0,5 | -17 |
| Total return on assets, Р 3 | 3,5 | 0,8 | -77 | 0,5 | -38 |
| Return on equity, Р 4 | 27 | 4,6 | -83 | 3,7 | -20 |
| Return on equity (ROE), Р 5 | 82 | 17,4 | -79 | 15 | -14 |
| Profitability of earning assets, Р 6 | 3 | 0,7 | -77 | 0,6 | -14 |
According to Table 7, the overall profitability of the bank, which characterizes the amount of profit per unit of costs, in 2009 was almost 16%. This means that for every ruble of expenses incurred, the bank received a profit of 16 kopecks. It should be noted that this indicator is quite high and indicates the efficient operation of a commercial bank. However, in dynamics there is a significant decrease in the value of P1 to 1% in 2011. The overall profitability declined due to a significant decline in profits and an increase in the bank's total expenses.
The indicator - net profitability (ROA) - characterizes the effectiveness of bank placements. In 2009, it was at the level of 2.7%, which meant receiving almost 3 kopecks of net profit for each ruble of Bank A's assets. Over the next two periods, the profitability decreased to 0.5%. In general, the values of the net profitability of the assets of the bank in question correspond to the standards in world practice, according to which the value of P 2 can be up to 4% and higher. The decrease in ROA in dynamics is due to the simultaneous decrease in net profit and growth in the bank's assets.
Return on equity, which characterizes the efficiency of the bank's top management, is one of the most important indicators for shareholders. In 2009, the P 4 indicator was 27%, which means 27 kopecks of net profit for each ruble of equity capital. This value corresponded to the standard level, which is 15-40%. However, in 2010-2011 the situation changed for the worse, and the return on equity decreased to 3-5%. First of all, this is due to the fact that during the periods under review there was a significant decrease in the bank's net profit and an increase in its own capital.
The most well-known indicator of profitability in the world theory of banking is the return on equity (ROE). Below in this paper, a factor analysis of ROE will be carried out, so at the moment we should go to the last indicator presented in Table. 6, - profitability of earning assets. Its value shows what the ROA level would be if all the bank's assets were profitable. In 2009, the value of P 6 was 3%, and two years later it dropped to 0.6%. This means that if all the bank's assets were profitable, the return on its assets would not be 2.7%, but 3% in 2009. The decrease in the profitability of earning assets was caused by the reduction in the bank's net profit and the simultaneous growth in the value of income-generating assets.
The bank's income, expense and profit analysis indicators are a set of four most important ratios, the first of which is the ratio of commission and interest income. With it, you can evaluate the ratio of risk-free and risky income of the bank. According to table 8, initially in 2009 the value of this coefficient was equal to 0.4. This means that commission income, which in banking practice is referred to as risk-free income, amounted to 40% of interest (risk) income. Then, during 2010-2011, the coefficient K 1 decreased to 0.007. This trend is negative, since the value of this coefficient should be as high as possible. The fall in its level is a consequence of a significant decrease in commission income and an increase in interest.
Table 8. Bank A Performance Evaluation Indicators and Their Dynamics
| Name of coefficients | 2009. | 2010. | Growth rate | 2011. | Growth rate |
|---|---|---|---|---|---|
| Ratio of commission and interest income, K 1 | 0,4 | 0,03 | -92,5 | 0,007 | -77 |
| Ratio of interest income and expenses, K 2 | 1,9 | 1,8 | -5 | 1,4 | -22 |
| Risk-free cost coverage ratio, K 3 | 0,2 | 0,01 | -95 | 0,002 | -80 |
| Cost efficiency ratio, K 4 | 1,2 | 1,02 | -15 | 1,01 | -0,9 |
The ratio of interest income and expenses of the bank evaluates the profitability of the bank's operations associated with risk. According to Table 8, for the three years under consideration, the K2 coefficient decreased from 1.9 in 2009 to 1.4 in 2011. A decrease in this indicator indicates a decrease in the efficiency of the bank's activities with an increase in risks. The main reason for such dynamics is the growth of interest expenses, outstripping the growth of similar incomes of the bank.
Another indicator used in the analysis of income, expenses and profits of a bank is the risk-free expense coverage ratio, which shows how much income from risk-free operations covers total expenses. The value of K 3 for Bank A does not correspond to the normative value (K 3 should tend to 1) and throughout the analyzed period it decreases, tending to 0. The main factor that caused such dynamics is the simultaneous reduction in commission income and the growth of the total expenses of the bank. The last coefficient from the group under consideration is the cost-effectiveness coefficient, which evaluates the efficiency of the bank, its ability to cover expenses with income. For the analyzed bank, the value of K 4 corresponds to the standard value - more than 1. This indicates the profitability of the activity. However, in dynamics, the value of K 4 is reduced, so the bank's management needs to take urgent measures to maximize income and minimize costs. It is precisely because of the growth in costs that outpaces the growth in income that the value of the cost efficiency ratio decreases.
Along with the coefficient method, factor analysis is also used in evaluating the effectiveness of bank management. With its help it is possible to investigate the net income and return on equity. Table 9 provides ancillary data for profit analysis based on the DuPont factorial model. The coefficients H 2 , H 3 and H 4 are calculated according to formulas 1 and 2. The values of net profit and total income are taken from the profit and loss statements of equity capital and assets - from the balance sheet.
Table 9. Ancillary Data for DuPont Profit Analysis
| Element name | 2009. | 2010. | Deviation | 2011. | Deviation |
|---|---|---|---|---|---|
| 1. Net profit, thousand rubles. | 280 138 | 70 792 | -209 346 | 61 134 | -9 658 |
| 2. Own capital (K), thousand rubles. | 1 021 918 | 1 533 650 | +511 732 | 1 658 148 | +124 498 |
| 3. Total income, thousand rubles. | 2 700 844 | 4 459 357 | +1 758 513 | 5 569 927 | +1 110 570 |
| 4. Assets, thousand rubles | 10 503 822 | 11 070 925 | +567 103 | 11 300 679 | +229 754 |
| Total income per 1 ruble of assets, N 2 (p. 3 / p. 4) | 0,26 | 0,40 | +0,14 | 0,49 | +0,09 |
| Equity multiplier, N 3 (p. 4 / p. 2) | 10,3 | 7,2 | -3,1 | 6,8 | -0,4 |
| Profit in the ruble of total income, N 4 (line 1 / line 3) | 0,1 | 0,016 | -0,084 | 0,011 | -0,005 |
According to Table 9, we consider the dynamics of the coefficients H2, H3 and H4 from the Dupont model. The growth of the H2 value indicates an increase in the total income of the bank by 1 ruble of assets from 26 kopecks in 2009 to 49 kopecks in 2010. This is a consequence of the outstripping growth of the bank's total income compared to its assets. The equity multiplier, on the contrary, was steadily declining - from 10.3 to 6.8 due to the fact that the bank's assets grew much faster than the value of its own capital. The third coefficient - profit in the ruble of total income - was initially at a very low level - 0.1, which means a net profit of 10 kopecks for each ruble of income. At the same time, over the next two years, the H4 coefficient decreased by another 10 times. The main factor that influenced the dynamics of the H4 indicator was the simultaneous reduction in net profit and growth in Bank A's income (Chart 5).
Figure 5. Dynamics of factor analysis coefficients according to the DuPont model
Next, we determine the impact of changing each factor of the DuPont model on the final result in the form of a bank's net profit. To do this, it is necessary to consistently substitute in formula 3 on the right side the value of the change in the corresponding parameter in the reporting year compared to the previous one. First of all, it is necessary to calculate the influence of factors on the change in net profit in 2009.
The total influence of all factors was: - 237,262 - 12,764 + 17,059 + 23,621 = -209,346 thousand rubles.
According to the results of calculations, it can be concluded that due to the growth of the bank's equity capital, its net profit increased by 24 million rubles, and due to an increase in total income by 1 ruble of assets, its net profit increased by another 17 million rubles. However, the other two factors affected the profit negatively: the decrease in the equity multiplier caused a reduction in net profit by 13 million rubles, and a decrease in the amount of profit in the ruble of total income - by another 237 million rubles. Thus, the total impact of all four factors reduced the bank's net profit in 2010 by 209 million rubles.
Below is a calculation of the impact of the same factors on the change in net profit in 2011.
The total influence of all factors was: - 21847 - 2735 + 10334 + 4590 = - 9658 thousand rubles.
The results of the calculations show that due to the growth of the bank's equity capital, its net profit increased by 4.6 million rubles, and due to an increase in total income by 1 ruble of assets, its net profit increased by another 10 million rubles. However, the remaining two factors had a negative impact on profit: the decrease in the equity multiplier caused a reduction in net profit by 3 million rubles, and a decrease in the amount of profit in the ruble of total income - by another 22 million rubles. Thus, the total impact of all four factors reduced the bank's net profit in 2010 by 9.6 million rubles.
Return on equity (ROE) is the next indicator to be investigated by factor analysis. Table 10 shows auxiliary data for the necessary calculations, intermediate elements of the ROE factor model (formula 5), as well as the value of the profitability indicator itself.
Table 10. Ancillary data for ROE factor analysis
| Element name | 2009. | 2010. | Deviation | 2011. | Deviation |
|---|---|---|---|---|---|
| 1. Net profit, thousand rubles. | 280 138 | 70 792 | -209 346 | 61 134 | -9 658 |
| 2. Share capital, thousand rubles. | 340 000 | 406 240 | 66 240 | 406 240 | 0 |
| 3. Operating income, thousand rubles. | 2 676 751 | 4 440 613 | 1 763 862 | 5 543 905 | 1 103 292 |
| 4. Assets, thousand rubles | 10 503 822 | 11 070 925 | 567 103 | 11 300 679 | 229 754 |
| Net profit margin (line 1 / line 3) NMP | 0,1 | 0,02 | -0,008 | 0,01 | -0,01 |
| Asset utilization ratio (page 3 / page 4) KIA | 0,25 | 0,4 | 0,15 | 0,49 | 0,09 |
| Equity multiplier (p. 4 / p. 2) MAK | 30,9 | 27,3 | -3,6 | 27,8 | 0,5 |
| ROE (page 1 / page 2), % | 82 | 17,4 | -64,6 | 15 | -2,4 |
The decrease in NMI indicates a decrease in the amount of net profit attributable to each ruble of operating income. For three years, the indicator under consideration decreased from 10 kopecks of net profit per ruble of operating income to 1 kopeck. This is a consequence of the simultaneous reduction in the bank's net income and the growth of its operating income. KIA similarly declined annually from 0.13 to 0.09, and then to 0.07, as operating income increased much faster than the assets of a commercial bank. The third coefficient - MAK - was initially at a fairly high level - 30.9. At the same time, over the next two years it decreased slightly (Fig. 6).
Figure 6. Dynamics of ROE factor analysis indicators
The reason for this decrease is the outstripping growth of the value of the bank's assets in comparison with its share capital. The key indicator of the model under consideration is ROE. Its initial value in 2009 was 82%, which indicates a fairly high return on investment by shareholders. In 2010, there was a sharp decrease in profitability to 17.4%, and in 2011 - to 15%. The decrease in the return on equity ratio is directly related to a significant reduction in the bank's net profit and a simultaneous increase in its share capital.
The total influence of all factors was: - 9.6 + 41.9 - 96.9 = -64.6%
According to the results of the calculation, it can be concluded that due to the decrease in NMP, the ROE value decreased by 96.9%, and due to the decrease in MAC, the ROE indicator decreased by another 9.6%. However, the growth of KIA also caused an increase in the return on equity by 41.9%. Thus, the influence of all three factors reduced the ROE value by 64.6%.
Below is a calculation of the influence of the same factors on the change in ROE in 2011.
The total influence of all factors was: 0.4 + 4 - 6.8 = -2.4%
The results of the calculations indicate that due to the decrease in NMF, the ROE value decreased by 6.8%. However, the growth of KIA caused an increase in the return on equity by 4%, and the growth of MAK - by another 0.4%. Thus, the influence of all three factors reduced the ROE value by 2.4%.
Thus, the analysis of the profitability of Bank A showed the presence of high profits from banking operations and other transactions, as well as the presence of significant operating losses. The bank's net profit tends to reduce its size. The bank's profitability indicators are also declining in dynamics, which is a consequence of the reduction in net profit. The main factor that caused the decrease in the financial result of activity is the outstripping growth of expenses in comparison with the bank's income. For the same reason, the profitability of the bank's equity capital decreased quite significantly.
So, this article provides an example of a coefficient and factor analysis of the financial results of a commercial bank, which can be of practical use both for students when writing term papers and theses, and for bank specialists whose managers are interested in identifying the causes of dynamic changes in performance indicators.
RETURN ON CAPITAL OF A COMMERCIAL BANK AS AN INDICATOR OF EVALUATION OF ITS ACTIVITIES
Khusainova Svetlana Rinatovna
5th year student, Department of Mathematical Methods in Economics, Bashkir State University, Russian Federation, Republic of Bashkortostan, Ufa
Kartak Vadim Mikhailovich
scientific adviser, Dr. phys.-math. Sci., Professor, Belarusian State Pedagogical University named after Akmulla, Russian Federation, Republic of Bashkortostan, Ufa
Return on capital is the most important indicator of the efficiency and performance of any business entity, whether it is an enterprise engaged in industry, whether it is an organization related to the financial and credit system. But we are interested in the return on capital of a commercial bank.
In the financial and credit system of the Russian Federation, the level of this indicator is quite high. This is due to the favorable situation for banks in the financial market. The bank's return on equity reflects the efficiency of the use of bank funds. It allows you to see how high the efficiency of attracting and placing resources at the disposal of the bank. Low numbers indicate that the customer base is not large enough. Even if market conditions are not entirely favorable, banks are able to remain profitable and retain customers through broad diversification, that is, offering customers a variety of banking products and services.
Until recently, the analysis of banking activities in the Russian Federation was not carried out, since there was no need for this. At present, when commercial banks have become more independent, such an analysis is necessary, and this analysis should be carried out by each bank independently. Such an analysis allows management to consider the most favorable credit policy and make a number of other decisions in order to ensure the profitability of the bank.
Return on equity is the ratio of net income to equity. Undoubtedly, capital is of great importance for a commercial bank. It is clear that banks, like other subjects of economic relations, must have a certain amount of money, otherwise we call them resources. As a rule, by resources we mean own or borrowed funds that banks have and through which banking operations are carried out. Having a large capital, the bank reduces the risk of problems associated with banking operations. It should also be noted that thanks to the capital, the bank has the opportunity to borrow funds from other sources at relatively low interest rates. And, of course, the more capital a bank has, the better its reputation, that is, a large capital guarantees stability to the bank.
As for net profit, its source is operating activities, which include the provision of loans and services, transactions with currency and securities. Naturally, lending interest rates must be higher than deposit rates, otherwise the bank will not make a profit. The same is true with prices from buying and selling securities and currencies.
If we take OJSC Sberbank of Russia as an example, then it occupies a leading position in the ratings of Russian banks in almost all indicators, but in terms of return on equity it lags behind other banks and is only in 145th place (as of March 2014) . It is inferior to many lesser known banks that some of us have not even heard of. Does this really mean that these banks work more efficiently, that their financial condition is better, and that it is they who should give preference to depositors, because ratings exist for that. However, this does not happen.
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Name of the bank |
Return on equity, % |
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Transnational Bank |
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Vanguard |
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Alfa Bank |
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Bashkomsnabank |
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Citibank |
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Sberbank of Russia |
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UniCredit Bank |
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Finam Bank |
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Investcapitalbank |
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Vneshprombank |
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Investorbank |
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Transcapitalbank |
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Gazprombank |
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Rosselkhozbank |
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Promsvyazbank |
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Bank of Moscow |
Here, as we can see, Sberbank ranks seventh. If we take countries such as the USA and Great Britain, then the average return on capital is about 10-12%. For the Russian inflationary economy, this indicator should be higher, therefore, the return on equity of OJSC Sberbank of Russia, equal to 20.24%, is quite acceptable.
At present, the number of banks is increasing, which indicates that OJSC Sberbank of Russia has an increasing number of competitors. Of course, many new banks do not inspire such confidence as the leading commercial bank in Russia, but one must also take into account the fact that interest rates on deposits in these banks are much higher, and, accordingly, interest rates on loans are lower. Therefore, we can assume that the number of Sberbank customers will no longer grow as fast as before. However, under the tough external conditions of the economy, it will be very difficult for less demanded banks to compete with Sberbank of Russia. And the main advantage in this, probably, is the huge branch network of Sberbank, as well as the fact that the bank is in demand not only in the Russian Federation, but also on the international market.
However, it is not at all necessary that the largest banks should have the highest rates of return on capital. Banks with equal opportunities can achieve very different outcomes. Conversely, completely different banks (that is, with different capital and asset returns) can have the same return on equity.
The assessment of return on capital is the most important link in the financial analysis of the state of any organization engaged in financial activities. Not always a decrease in the return on capital portends trouble, that is, bankruptcy. This indicator should be considered in comparison with previous periods or with the return on equity of other organizations.
The reasons for which the return on equity of a bank may decrease are a decrease in the volume of services, an increase in expenses and an increase in assets. A decrease in service volumes can be caused by a decrease in demand for services and even poor management performance. To provide the bank with a sufficiently high return on capital, it is necessary to strive for maximum profit.
But not all organizations seek to improve the return on capital. There are strategies in which businesses or financial institutions seek to reduce this figure, but at the same time, say, double their assets. This happens when the world economy ceases to be stable, customer behavior changes, which leads to slow growth in the banking sector.
Banks are a very important component of the economy and the monetary economy of any country, their activities are inextricably linked with the needs of reproduction. Banks are the creators of the basis of the market mechanism, thanks to which the country's economy functions. Commercial banks regulate the movement of all cash flows, including credit, help ensure the most beneficial use of the financial resources of society and the flow of capital to those sectors of the country's economy where the return on investment will be maximum.
Unfortunately, banking activity is subject to risks that need to be identified, assessed and eliminated in time, if possible. Underestimation of risks can cause the bank to go bankrupt, which, in turn, will cause damage to its customers and shareholders. Nowadays, banks are trying to take this issue seriously. On the other hand, customers, whether they are individuals or legal entities, treat the servicing bank more responsibly. Accordingly, the analysis of the effectiveness of the financial condition of a commercial bank is currently relevant. Thanks to this analysis, it is possible to establish trusting and mutually beneficial relationships between the bank and its customers, which is very important.
The economic situation in the country changes every year, many new banks appear, and, accordingly, competition increases, so any bank strives for stability, which is the most important condition for the functioning of the bank and attracting more customers.
The three most significant goals for the bank and its structural subdivisions are to achieve high profitability, sufficient liquidity and security.
Listliterature:
- Banki.ru [Electronic resource]. - Access mode. - URL: http://www.banki.ru/banks/ratings
- Banking: textbook / O.I. Lavrushin, I.D. Mamonova, N.I. Valentseva [i dr.]; ed. Honored Act. Sciences of the Russian Federation, Doctor of Economics. sciences, prof. O.I. Lavrushin. 8th ed., ster. M.: KNORUS, 2009. - 768 p. ISBN 978-5-390-00452-4
- Brigham Yu., Erhardt M. Analysis of financial statements // Financial management = Financial management. theory and practice. 10th ed. / Per. from English. under. ed. Ph.D. E.A. Dorofeeva. St. Petersburg: Peter, 2007. - S. 131. - 960 p. - ISBN 5-94723-537-4.
- The official website of OJSC "Sberbank of Russia" - [Electronic resource]. - Access mode. - URL: http://www.sberbank.ru/jewish/ru/about/today (date of access: 04/09/2014).
