Banking Simulation Report

Topics: Balance sheet, Stock market, Interest rate Pages: 12 (3791 words) Published: June 4, 2012
Period two report

Al Fahim Bank


Al Fahim Bank is located in Switzerland which works in the national and international bank market. At the end of the second period, Al Fahim Bank attained an annual surplus of SFr 507 million after tax. The bank achieved high level of improvements in the profit and loss accounts with the highest commission income and the least operating expenditure. Al Fahim Bank currently has the highest income from interest business then all other competitors. The Banks expenditure was raised by 78 million SFr. The balance sheet decreased by SFr 2 billion which is still below average in comparison to larger banks. Al Fahim Bank has set future goals to reward its shareholders by increasing the bank’s share prices which would lead to higher dividends. Al Fahim Banks has set the primary goal to have the highest share price between all competitors. The bank will do its best to achieve a minimum profit of 30% by the end of the first period and a minimum of 20% for each period after. Long Term Objectives

To have the highest share price of any bank:
At the beginning of the current management teams’ contract, the management team decided that having the highest share price should be a priority during the forthcoming periods. The management team set forth a strategy to raise the banks share price during the periods by utilizing several methods. The banks’ main method of raising its share price was by focusing on profitability. Furthermore, it was also essential to make sure that the bank always paid a reasonable dividend in order to satisfy the banks shareholders.

Improve liquidity:
The bank will improve its liquidity in order to avoid any cash flow problems. Liquidity should be around 1 billion SFr. The bank will not have any bridging credit and will not keep high liquidity. To increase profits by 50% at the end of the 4 periods:

To earn a minimum of 20% at the end of period 1, and to gain a minimum of 10% at the end of the other three periods.

SWOT analysis period 2:

Strengths: * The only profitable bank in period one with over 3.2 billion SFr * Highest share price between all banks * Surplus of 167 million SFr in capital adequacy * 0 bridging credit * Smooth cash flow * Excellent level of training * Excellent job satisfaction * Highest P/E ratio in comparison to other banks * Highest commission income * Highest success rate between all banks| Weaknesses: * Low balance sheet in comparison to other banks * High commission rate * Poorest asset administration performance between all other banks * High number of employees which makes hours available daily higher than hours needed daily| Opportunities: * Eastern Europe growth potential * Developments in both eastern and western Europe are determining global economic trends * Weaker economic growth is again helping ease inflation * Central bank is easing monetary policy * Positive impact on stock market due to downward trend of capital market rates * Expected increase from demand deposits and investments deposits by 3% * Expected increase in lending business by 3% * Due to customers saving deposit/medium term notes expected to increase by 20%| Threats: * Urgent need for capital expenditure * Interest rates are getting higher * Foreign interest rates are expected to rise by around 1% * Foreign share prices are being affected by interest rate developments * Weaker economic growth is again helping ease inflation * Euro exchange rate * Due to customers term deposit expected to decrease by 3%|


Lending / Deposit business decisions:
In the previous period, Al Fahim Bank had a high level of liquidity. In order to decrease the liquidity, the management team has decided to lower interest rates in the lending business in order to attract customers to take loans from the bank. This would decrease liquidity but also gain profit. On the deposit...
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