Banking

13 pages carry this tag.

Concept Guides

Concept Guide

Sector-Specific Valuation (Banks, Insurance, Real Estate)

The same valuation multiple applied to a bank and a software company would be meaningless.

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Formulas & Ratios

Formula

CASA Ratio

The CASA ratio is the share of a bank's total deposits that sits in current and savings accounts, the cheapest money a bank can raise.

Formula

Cost of Funds

Cost of funds is the blended average interest a bank pays across every kind of deposit and borrowing it uses to fund its loans.

Formula

Net NPA Ratio

Net NPA is the percentage of a bank's loans, after provisions, that are not coming back. It measures the one skill a bank cannot do without: judging who will repay.

Formula

Advances Growth

Advances growth is the year-on-year increase in the loans a bank has disbursed. Since banks earn interest on loans, faster loan growth means faster earnings growth.

Formula

Capital Adequacy Ratio

The capital adequacy ratio measures how much capital a bank holds against its risk-weighted loans, which decides how much further lending it can support.

Formula

Net Interest Margin

Net interest margin is the interest a bank earns minus the interest it pays, as a percentage of the funds it holds, after allowing for money it could not lend out.

Formula

Return on Assets (Banks)

Return on assets measures a bank's net profit against its total assets, which for a bank means the loans it has given out.

Formula

Common-size analysis restates every line of a bank's profit and loss as a percentage of interest income, and every funding source as a share of the balance sheet, so banks of any size can be compared line by line.

Formula

Gross NPA Ratio

Gross NPA is the share of a bank's total loans on which interest or principal has been overdue for more than 90 days, before any provisions are deducted.

Formula

Provision Coverage Ratio

The provision coverage ratio is the share of a bank's gross non-performing loans that has already been written off against profit through provisions.

Formula

Cost to Income Ratio

The cost to income ratio measures a bank's operating expenses, branches, staff, technology, against its total income from interest and fees. It is the efficiency ratio for lenders, where asset turnover does not apply.

Formula

Credit to Deposit Ratio

The credit to deposit ratio shows what share of the deposits a bank has collected it has lent out as loans. It measures how fully the bank is using its cheapest source of funds.