Banks earn the substantial part of their earning and profits from these long term loans. Securities are merely there to act as a contingency buffer for banks’ liquidity requirements while at the same time earning interest. Securities, as aforementioned, are interest-earning part of a bank’s reserves. Conclusion We briefly discussed how and why a bank’s balance sheet is different from that of a company. We also described and explained various segments and percentages of the balance sheet in order to emphasize the critical importance of loans over other categories.
If customers do not emphatically make known their expectations of the organization, the bank attempts to predict what the customers’ expectations are based upon prior observed behavior. This complex effort is essential to managing the customer experience effectively. However, strong customer relationships are not built as a one-way street. Royal Bank believes that its competitive advantage lies in its ability to optimize between the client’s needs and the bank’s objectives. To facilitate that optimization, SMR&A at Royal Bank has grouped customers into four categories according to its strategic objectives: 1.
Baring bank is undoubtedly take the matrix model, and it has three main flaws to improve: (1) In the international banking organization system, the local branch of the management must bear the responsibility of first-line supervision. Although operational personnel cannot directly report everything to the local top management, the local top management must have a clear understanding of the business situation and its consequences. (2) For the activities out of mainstream, the so-called innovation or new business, bank management must have pay enough attention and control
Risk is a natural element of banking business. It is a condition that raises the chance of losses and uncertain potential events which could manipulate the success of the financial institutions. The uncertain future events could include disappointment of a borrower to pay back a credit, variation of foreign trade rates, fraud, non-compliance with laws and principles and other actions due to the failure of the bank (Khan & Ahmed, 2001; Meyer, 2000; Khalid & Amjad, 2012). As Khalid & Amjad (2012) noted commercial banks are in the risk business. In the process of providing financial services, they assume various kinds of financial risks.
Advantages and Disadvantages of High Reserve requirement RRR is a central bank regulation that issued by the central bank to force banks working in the country to deposit a certain amount of its deposits with no interests at the central bank to cover any future risks that may arise. It is different from one country to another. Reserve requirement works as a security net, and it is a paramount tool in managing liquidity in the market. But it can also have an adverse effect on the multiplier inside an economy. Reserve Requirement Ratio adopted by many countries has many advantages.
The external users of accounting information is Creditors. Terms of credits are set assessment of their customer financial health. Next is Investors is for analysing the feasibility of investing in the company. Customer also one of external user. Customer for assessing the financial position of its suppliers which is necessary for them to maintain a stable source of supply at long term services.
2) LONG-TERM SOLVENCY Ratio analysis is equally useful for accessing the long term financial viability of a firm. This respect of the financial position of a borrower is of concern to the long term creditors, security analyst & the present & potential owners of a business. The long term solvency is measured by the leverage /capital structure & profitability ratio. Ratio analysis is that focus on earning power & operating efficiency. Ratio analysis reveals the strength & weakness of a firm in this respect.
Liquidity People deposit money at these companies with confidence that they will repay their money when they need it. To maintain such confidence of the depositors, the company must keep this point in mind while investing its excess fund in different securities or at a time of lending in different sectors so that it can meet the short-term obligation when they become due for payment. v. Purpose of Loan Why does a customer need a loan? This is a very the important question for any banker. If borrower misuses the loan granted by these companies they can never repay and company will pass heavy bad debts.
Question one Ratio plays important role in analysing company’s performances, whether the company made improvement from previous year or to compare against other company similar industry. It also shows investor especially for creditors such as bank to know their financial performances. From the question, the bank manager told that ABC Limited has too low working capital and too high gearing ratio. Working capital relates the company’s current assets and current liabilities. It measures the ability of the company to pay their current liabilities with their current assets.
1. GENERAL INTRODUCTION Financial statement are prepared primarily for decision making. They play dominant role in setting the framework of managerial decisions. But the information provided in the financial statement is not an end in itself as no meaningful conclusions can be drawn from these statements alone. However, the information provided in the financial statements is of immense use in making decisions through analysis and interpretation of financial statement.