This website uses cookies to ensure you have the best experience. Learn more

Commercial Banking And Finance Essay

3798 words - 16 pages

Introduction
The aim of this report is to create an awareness of the interest rate which impacts the company. Moreover, the bank recommendations are evaluated whereby interest rate risk is exposed to the bank. There is a recommendation of a rate cut on loans by the bank board along with the growth of loan revenue and thus profit. We have also discussed the strategy to cover any decline in net worth using futures. Our bank, Make Life Easier (MLE) Bank involving the members with their respective ID which are Kok Yee Won (3889479), Lee Choi Yoong (3889459), Ng Mun Yi (3889480) and Sia Cui Lin (3889481).

Interest Rates
Bank profit is influenced by the changes in interest rates
When ...view middle of the document...

Bank costs and revenue will begin to rise almost immediately with their relative response determining the impact on bank profits as in appendix 3 (Flannery 1980). Therefore, bank’s profits rise or fall depends largely on the average maturity of bank liabilities and assets (Flannery 1980). A market rate change endangers bank profitability only if asset and liability returns adjust at significantly different speeds (Flannery 1980).
Low interest rate increases bank profit
The Federal Reserve has signalled that the interest rate will rise due to a slowing inflation and a sluggish economy (Kopecki 2010). The activities of reduced interest rates in order to boost profits of banking sector had been closed and so banks will start to earn less on investments and loans (Kopecki 2010). Therefore, most banks are finding it hard to earn money including Citigroup, Bank of America (BAC) and JPMorgan Chase (JPM) (Kopecki 2010).

When market interest rates increase, the bank’s profit will also increase as banks fund a part of their interest-earning assets with non-interest bearing liabilities, mainly demand and transaction deposits (English, Heuvel & Zakrajsek 2012).
The net interest margins (NIM) is the net interest income as a percentage of average assets that is the difference between the interest income generated by banks or other financial institutions and the amount of interest paid out to their lenders relative to the amount of their assets (English 2002).

The NIM falls by 17 basis points to 3.15% in Citigroup, 16 basis points to 2.77% in BAC and 26 basis points to 3.06% JPM. (A basis point of 0.01 percentage point) (Kopecki 2010). Furthermore, a reduced in NIM will lead to a drop in net interest income (NII) (Kopecki 2010). The NII was drop of $522 million at Citigroup, $849 million at BAC and $1.02 billion at JPM (Kopecki 2010).

The Reserve Bank of India (RBI) stated that rising interest rate and high cost of funds could hurt the profitability of the banking sector (Business Standard 2012). This is because the credit growth is expected to slow down when hardening interest rate and adversely affect the profitability in banks (Business Standard 2012). Bank’s profitability can be improved by increasing NII though non-interest income remained stagnant (Business Standard 2012). The NII for RBI facilitated was growth of 20% in aggregate net profit of the banking system (Business Standard 2012). The interest income in RBI was raised by 18.6% over 7.5% in and interest expense was raised by 10.1% over 4.0% in 2010 (Business Standard 2012).

Low interest rate decrease bank profit
Bank profit will fall if the interest rates increases and bank costs are more rapidly than loan revenues (Flannery 1980). Household and government consumption and investment will increase when interest rates fall (Norges Bank 2003).

Therefore, in our opinion, the bank board’s recommendation of reducing rate on loans in order to increase loan revenue and profit is valid....

Other Papers Like Commercial Banking and Finance

Finance And Banking Essay

259 words - 2 pages An investor recently purchased a corporate bond that yields 9%. The investor is in the 36% combined federal and state tax bracket. What is the bond’s after-tax yield? (2-2) Corporate bonds issued by Johnson Corporation currently yield 8%. Municipal bonds of equal risk currently yield 6%. At what tax rate would an investor be indifferent between these two bonds? (2-3) Molteni Motors Inc. recently reported $6 million of net income. Its EBIT

Banking and Finance Essay

2524 words - 11 pages price of assets such as stock and bonds that the financial institution owns that can lead to profits or losses. 4- Is everybody worse off when interest rates rise? No. People who borrow to purchase a house or a car are worse off because it costs them more to finance their purchase; however, savers benefit because they can earn higher interest rates on their savings. 5- What effect might a fall in stock prices have on business investment

Information Technology (It) for Improving Banking Activities: - a Study on International Finance Investment and Commerce Bank Ltd

1395 words - 6 pages PROJECT PAPER ON Information Technology (IT) for improving Banking Activities:- A study on International Finance Investment and Commerce Bank LTD Thesis for the partial fulfillment of BBA program of BBA (I) in Management Studies PROJECT PAPER ON Information Technology (IT) for improving Banking Activities:- A study on International Finance Investment and Commerce Bank LTD Under supervision ------------------------- Prof. Md. Mosharraf

2401 Exam 07

1340 words - 6 pages OFFICE USE ONLY AFF/AFW2401 Replacement Paper 24.5.07 Page 1 of 18 Monash University Semester One Examination 2007 Faculty of Business and Economics Department of Accounting and Finance EXAM CODES: AFF/AFW2401 TITLE OF PAPER: COMMERCIAL BANKING AND FINANCE EXAM DURATION: 3 hours READING TIME: 10 minutes THIS PAPER IS FOR STUDENTS STUDYING AT: (office use only - tick where applicable) Berwick Clayton Peninsula Distance Education

A Letter to My Parents

571 words - 3 pages Mediterranean cities were the direct ancestors of modern commercial banking. It was only in 1587 that the Banco della Piazza di Rialto was founded in Venice.This is the first real public bank. The Bank of Deposit in Barcelona which had been organized in 1401 and Casa di San Giorgio established in genoa in 1407. Banking in England England’s finance was not fully developed as those in continental Europe. Said finance was not as fully developed as

Banking System of Bangladesh

581 words - 3 pages Bangladesh Limited 3. First Security Islami Bank Limited 4. ICB Islamic Bank Limited 5. Islami Bank Bangladesh Limited 6. Shahjalal islami Bank Limited 7. Social Islami Bank Limited 8. Union Bank Limited Foreign commercial bank: 1. Bank Alfalah 2. Citibank NA 3. Commercial Bank of Ceylon 4. Habib Bank Limited 5. HSBC (The Hong Kong and Shanghai Banking Corporation Ltd.) 6. National Bank of Pakistan 7

Investment Banking

1557 words - 7 pages through the Federal Deposit Insurance Corporation (the FDIC), on amounts up to $100,000. To get FDIC guarantees, commercial banks must follow a myriad of regulations. The typical commercial banking process is fairly straightforward. Customers deposit money into bank, and the bank loans that money to consumers and companies in need of capital (cash). We borrow to buy a house, finance a car, or finance an addition to customers’ home. Companies

History & Development

4310 words - 18 pages Banks Discount Houses Development Financial Institutions Offering Islamic Banking Services Islamic Banking and FinanceHow far have we gone? • Commercial Banks • Insurance and Takaful Internationalization of Islamic Banking and Finance • Numerous countries in this region have began development of Islamic banking and finance – Indonesia: set up first Islamic bank in 1992 – Brunei: established Islamic Bank of Brunei in 1993 – Singapore

Universal Banking

1505 words - 7 pages deposits and providing working capital finance to industry, trade and agriculture. Consequent to the liberalisation and deregulation of financial sector, there has been blurring of distinction between the commercial banking and investment banking. Reserve Bank of India constituted on December 8, 1997, a Working Group under the Chairmanship of Shri S.H. Khan to bring about greater clarity in the respective roles of banks and financial

Marriott Case Study

759 words - 4 pages INDUSTRY RELATED WORD LIST Investment Banking Consultant private equity Leadership venture capital Re-engineering techniques Corporate finance systems professional project finance strategic planning valuation case research methods financial analysis SAP forecasting BAAN competition analysis Peoplesoft country and risk analysis CFA MIS data modeling Commercial Banking relational databases lending

Green Banking

5340 words - 22 pages . Green banking as a concept is proactive and smart way of thinking with a vision for future sustainability of our only Spaceship earth. (Richard Buckminster Fuller, 16 November 2012). It evaluates all the factors before giving the loan whether the project is environment-friendly and has any implication on the future people and planet. Green finance as a branch of green banking makes significant contribution to the transition to resource efficient and

Related Essays

Islamic Banking And Finance Essay

2772 words - 12 pages Islamic Modes of Finance Theory and Key Shariah Principles Modes Of Finance • Two are ideal modes which provide an alternative to interest banking and if implemented on a national level will result in much fairer distribution of wealth in society 1. Mushaarakah – ‫رآ‬ (equity finance) 2. Mudhaarabah - ‫ر‬ (equity finance - sleeping partner) • Two are not ideal as they replicate the effects of conventional banking but nevertheless are

Banking And Finance Essay

285 words - 2 pages . What is a financial intermediary? B. Describe and provide examples of the different categories of financial intermediaries, highlighting any differences among them. (4) Economists have argued [C.Y. Thomas] that Caribbean development has been retarded because the economies do not have sufficiently well-developed financial markets. Does this view sound reasonable? (5) A. Why is understanding and study of finance seemingly becoming so

International Banking And Finance Essay

806 words - 4 pages An Introduction to Multinational Enterprises and International Finance (WEEK 1) – CHAPTER 1&2 SLIDE | NOTES | 3 | * There is a continuum of business environments from very similar to very different. * The term “multinational” implies “cross-border.” However, multinational financial management can take place within a nation’s borders (e.g., Canada or Belgium) or even outside any nation’s borders (e.g., external

Banking And Finance Essay

1958 words - 8 pages unable or unwilling to make interest payments when promised or pay off the face value when bond matures. This could happen to a corporation suffering high losses due to bad economic conditions. Canadian Government bonds are considered to have no default risk, as its backed by the taxation power. These bonds are called default free bonds. The spread between the interest rates on bonds with default risk and default free bonds is called Risk Premium