Commercial Banking
Assignment 1
Executive Summary
The purpose of this report is to evaluate the performance of both Hong Leong Bank and its peer bank RHB Bank for the financial year ended in 2010. The DuPont model is used to provide the information on the bank’s liquidity, profitability, efficiency and leverage status that allows financial analyst to evaluate on the performance of the bank as a result of the changes of these factors. A trend comparison for year 2010, 2009 and 2008 is conducted and evaluated its respective ratios and other financial data. The peer comparison of financial ratios between RHB Bank & Hong Leong Bank is evaluated and analysed to see which bank performs better in 2010. The other key ratios are also calculated in for deep analysis on to see how well these two banks in Malaysia perform in 2010. In addition, its credit risk that includes the risk management and its policy of both banks is then evaluated and compared to see which bank manages its credit risk properly. Finally, this report provides an overview of the performance of both RHB Bank and Hong Leong Bank for the financial year ended in 2010 and conclude which bank perform better in terms of various financial ration and management of credit risk.
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Assignment 1
Part A: Bank Performance
Question 1: Dupont Model: a. Dopont Model:
The DuPont model analysis is a common form of financial statement analysis and this model provides information on the bank’s liquidity, profitability, efficiency and leverage status that allows financial analyst to evaluate on the performance of the firm as a result of changes in one or more of these factors (Milbourn & Haight, 2005). According to Narayanan (2010), the DuPont model provides a starting point to determine the strength and weakness of the firm. It is also a very powerful financial tool to assist financial analyst, shareholders, investors and bankers in understanding the profitability of the firm and a tool that
Executive Summary
The purpose of this report is to evaluate the performance of both Hong Leong Bank and its peer bank RHB Bank for the financial year ended in 2010. The DuPont model is used to provide the information on the bank’s liquidity, profitability, efficiency and leverage status that allows financial analyst to evaluate on the performance of the bank as a result of the changes of these factors. A trend comparison for year 2010, 2009 and 2008 is conducted and evaluated its respective ratios and other financial data. The peer comparison of financial ratios between RHB Bank & Hong Leong Bank is evaluated and analysed to see which bank performs better in 2010. The other key ratios are also calculated in for deep analysis on to see how well these two banks in Malaysia perform in 2010. In addition, its credit risk that includes the risk management and its policy of both banks is then evaluated and compared to see which bank manages its credit risk properly. Finally, this report provides an overview of the performance of both RHB Bank and Hong Leong Bank for the financial year ended in 2010 and conclude which bank perform better in terms of various financial ration and management of credit risk.
II
II
Assignment 1
Part A: Bank Performance
Question 1: Dupont Model: a. Dopont Model:
The DuPont model analysis is a common form of financial statement analysis and this model provides information on the bank’s liquidity, profitability, efficiency and leverage status that allows financial analyst to evaluate on the performance of the firm as a result of changes in one or more of these factors (Milbourn & Haight, 2005). According to Narayanan (2010), the DuPont model provides a starting point to determine the strength and weakness of the firm. It is also a very powerful financial tool to assist financial analyst, shareholders, investors and bankers in understanding the profitability of the firm and a tool that
References: Hong Leong Bank. (2011). Annual Report: 2010. Retrieved September 14, 2011 from http://www.hlb.com.my/data/ar2010.pdf RHB Bank. (2011). Annual Report: 2010. Retrieved September 12, 2011 from http://www.rhb.com.my/corporate_profile/investor_relation/pdf/annual_reports/2010/RHB%20Bank%20Berhad%202010.pdf Gup, B. E., Avram, K., Beal, D., Lambert, R., & Kolari, J. W. (2007). Commercial Banking. Milton, Qld: John Willey & Sons Hassan, H., & Mohammed, F. (2007). Banks’ risk management: a comparison study of UAE national and foreign banks. The Journal of Risk & Finance, 8(4), 394-409. Hong Leong Bank Berhard. (2009). Annual Report: 2009. Retrieved September 14, 2011 from http://www.hlb.com.my/data/ar20091.pdf Milbourn, G., & Haight, T. (2005). Providing Students with an Overview of Financial Statements Using the Dupont Analysis Approach. The Journal of American Academy of Business, Cambridge. 9(3), 46-50 Narayanan, L. (2010). How DuPont Analysis Reveals Return on Equity Ratio. Managing Credit, Receivables & Collections. 2(1), 12-14. Pinsent, W. (2010). Decoding DuPont Analysis. Retrieved September 2, 2011, from http://www.investopedia.com/articles/fundamental-analysis/08/dupont-analysis.asp Class Dupont. (2010). Current Financial Accounting. Retrieved September 10, 2011, from http://www.sjrbiz.info/Current%20Classes/Financial%20Accounting%20Class/Dupont%20Model%20in%20a%20Nutshell.pdf