Profitability of a commercial bank is low. Bank profitability: formulas and calculation
Profitability- an indicator of the effectiveness of the use of funds or other resources. Expressed as a ratio or as a percentage.
To evaluate an enterprise or a bank, it is customary to use several indicators of profitability:
- return on assets (ROA). Represents the quotient of the profit earned by the enterprise by the average value of assets during the period under review.
When calculating this indicator, both own and attracted assets are taken into account, such as loans, receivables, etc. For example, as of January 1, 2012, Sberbank's net profit amounted to 321,891,079 thousand rubles, and the value of net assets - 10,975,636,300 thousand Thus, the return on assets is 2.9%;
- return on fixed assets (ROFA) is calculated similarly, but instead of assets, only the cost of fixed production assets is taken;
- return on current assets- the ratio of net profit to that part of the assets that is in motion: cash in the current account, goods in the warehouse, etc.;
- return on equity (ROE)- This is an indicator of the effectiveness of the use of own funds of a company or bank. Represents the quotient of net profit and authorized plus additional capital.
Continuing the previous example, we add new data: as of January 1, 2012, the capital of Sberbank was equal to 1,527,170,900 thousand rubles. Then the return on equity is 20.1%.
The difference between return on assets and return on equity shows the level of the so-called financial leverage. The effect of financial leverage arises through the use of borrowed funds;
- return on investment (ROI) is calculated as the quotient of the net profit received and the cost of the initial investment.
Suppose an investor bought ordinary shares of Sberbank in January 2011, when the price was 104.99 rubles per share, and sold it in January 2012 for 80.12 rubles. As a result, he received not a profit, but a loss in the amount of 24.87 rubles on each security. Thus, the investment efficiency turned out to be negative: -24.87/104.99*100%=-23.7%.
In addition to the examples considered, other types of profitability are also calculated: profitability of products, sales, etc.
Why is it necessary to calculate the efficiency ratio of enterprises and businesses? To find the threshold of profitability, which shows how many products you need to produce or sell in order to break even and cover your expenses. This threshold is an important indicator for investors - it shows the stability of the company, its ability to pay off debts and make a profit.
Also, profitability allows you to evaluate the performance of the entire enterprise, comparing it with competitors. If you are not up to their level, then you need to change something in order to stay in the market.
The profitability (yield) of a commercial bank is one of the main relative indicators of the effectiveness of banking activities. The level of profitability of the bank is characterized by the profitability ratio.
The overall level of profitability of the bank (R total) allows you to evaluate the overall profitability of the bank, as well as the profit attributable to 1 rub. income (share of profit in income), %:
This indicator can be refined using a number of coefficients that characterize the degree of profitability of active and credit operations.
The main indicator of the bank's profitability is an indicator that reflects the return on equity,%:
This indicator characterizes the profit attributable to 1 tenge of share capital (authorized fund). The denominator can be expanded by introducing all of the bank's own funds. Shareholders (shareholders) of the bank, comparing the values of this indicator in different banks, can make a decision on the placement of their funds.
The bank's rate of return K 1 depends on the profitability of assets (K 2) and the capital adequacy ratio (K 3), which is expressed by the formula:
This means that the profitability of banking activity is directly dependent on the performance of assets (Profit/Assets) and inversely dependent on the capital adequacy ratio (Equity/Assets). In connection with this circumstance, it becomes clear why it is beneficial for the bank to operate on the verge of risk, i.e. with the least provision of assets with own capital.
In modern conditions, the growth opportunities for K 1 due to a decrease in the capital adequacy ratio are limited, since the growth of assets must be supported by an expansion of the resource base. But in a competitive environment, many banks do not have the opportunity to bring the ratio of capital to assets to the optimal level. At the same time, the high share of the bank's own resources in the structure of liabilities reduces the total cost of resources for the bank and, consequently, increases profitability. Therefore, such banks can have high profits with low income margins.
The reserve for increasing profitability remains an increase in the degree of profitability of assets (K 2). This indicator characterizes the profitability of active operations and estimates the amount of profit per 1 rub. assets.
The main directions of the bank's work to improve the profitability of active operations (K 2) can be determined by decomposing this indicator into two factors:
The profitability of assets is directly dependent on the return on assets (K 4) and the share of profit in the bank's income (K 5). By analyzing the dynamics of each of the indicators, you can identify which of them has a greater impact on the profitability of assets. The coefficient K 4 characterizes the activity of the bank in terms of the efficiency of asset placement, i.e. opportunities to generate income:
those. K 4 \u003d D 1 + D 2. Indicator D 1 affects the level of profitability of individual active operations, the structure of the loan portfolio and the share of loan assets that generate income in total assets.
The coefficient K 5 reflects the bank's ability to control its spending:
those. K 5 \u003d 1 - P 1 - P 2 - P 3. It can be seen from the formula that the smaller the share of each factor in income, the greater the K 5 coefficient.
Interest and non-interest expenses have the greatest impact on the decrease in the share of profit in gross income. The real percentage of cost reduction should be sought in a decrease in the level of interest paid for credit resources.
The scheme of a factor analysis of the profitability (profitability) of assets is shown in Figure 2. The factors shown in the figure should be under the close attention of the bank's management, as they make it possible to understand how to improve the performance of banking activities.
Based on a factor analysis of the profitability of a commercial bank, it is possible to identify factors that reduce its profitability. These include: paid interest on deposits, administrative and business expenses, payments to the budget, reserves for writing off loans. Reserves for the growth of the bank's profitability should be sought in increasing the efficiency of the use of assets and reducing the bank's expenses. From the point of view of profitability, when determining the optimal structure of passive deposit operations, banks should focus on attracting resources in deposits from the population, enterprises, and organizations.
As regards the efficient use of assets, attention should be paid to optimizing the structure of the loan portfolio in order to increase the share of "performing" assets. In addition, it should be remembered that an important source of income for the bank are commissions, fees, payments for banking services.,
The return on assets does not quite adequately characterize the activities of the bank, since not all assets generate income. With the exclusion of such assets, we get a more realistic result of the profitability of active operations:
Thus, the amount of profit attributable to 1 tenge of profitable active operations will be determined.
The difference between K 2 and K 6 makes it possible to judge the potential for improving profitability by reducing the number of assets that do not generate income. First of all, this concerns immobilization own funds. For banks that use borrowed funds as credit resources, absolute equality of these indicators is impossible, since banks are required to keep part of the attracted deposits in the most liquid and, therefore, non-income-generating form. In Western practice, the K 2 indicator is called the return on investment, and K 6 is the return on assets.
An indicator of the profitability of credit operations is the profitability of loans:
including
Figure 2. Scheme of factorial analysis of profitability of assets
These indicators characterize the amount of profit attributable to 1 tenge of loans issued. To assess the effectiveness of bank expenses, the ratio of profit to the total amount of bank expenses (or cost) is often used. This indicator will characterize the profit per 1 tenge of expenses.
Analyzing profitability indicators, it is possible to identify reserves for improving the efficiency of the bank. This allows you to group balance sheet items by the level of profitability of operations in the asset and the cost of resources in liabilities. It is advisable to place balance sheet liabilities in the direction of increasing the cost of resources, and asset items - in the direction of reducing the profitability of ongoing operations. Thus, it will be seen what constitutes a given level of profitability, the unprofitability of which assets is covered by the cheapness of resources.
The bank's own resources, which are to a certain extent free for it, should be invested in assets that do not generate income. The use of own funds for lending reduces the cost of resources and thereby increases the level of profitability of bank operations. Therefore, banks with significant equity capital can be highly profitable even if they have low profit margins.
It is important to remember about the feedback between the level of profitability and the liquidity indicator of the bank's balance sheet. A high share of low-paying resources in liabilities contributes to an increase in profitability, but reduces the level of liquidity of the balance sheet, and, conversely, a significant amount of assets that do not generate income reduces profitability, but increases liquidity.
The considered method of profitability analysis can be used for forecasting, which is relevant for domestic practice.
GRADUATE WORK
"Profitability of banking business: assessment and management"
St. Petersburg 2008
Introduction
Profitability is the most important indicator of the activity of any business entity.
Throughout the stage of market transformation of the financial and credit system of Russia, the high level of this indicator of the activity of commercial banks was ensured, first of all, by the favorable situation for them in the financial markets.
The availability of concessional loans from the Central Bank, the stable depreciation of the ruble on the interbank currency exchange, and the increased yield of government short-term securities guaranteed banks a uniquely high level of profitability.
Relative stabilization of the general economic situation in the period 1996–1997. affected primarily the state of financial markets, sharply reducing their potential profitability. At the same time, the degree of competitiveness of these markets increased, and the requirements for their participants became tougher. Under these conditions, banking institutions were forced to pay attention to previously ignored reserves to increase the profitability of their own activities. One of them is the profitability of the commercial departments of the bank, i.e. the main category of its structural divisions responsible for the production and sale of services to banking customers.
A certain experience in the use of financial methods of profitability management at the on-farm level was accumulated in our country during the period of the planned economy. In the mid-80s, in connection with the transition of most enterprises to the self-financing regime, they became widespread in construction, industry and transport. However, their introduction practically did not affect the banking system, which continued to operate under conditions of strict centralization of management, based solely on administrative methods. It is indicative that a similar situation has been preserved in commercial banks, most of which were originally created as non-state structures.
At the moment, a commercial bank is able to offer a client several hundred types of various banking products and services. Broad diversification of operations allows banks to retain customers and remain profitable even under very unfavorable market conditions. But not all banking operations are used daily in the practice of a commercial banking institution.
The main task in the process of organizing the activities of the bank and its structural divisions is to achieve at least the three most significant goals - to achieve high profitability, sufficient liquidity and security of the bank.
The purpose of this work is to analyze the profitability of a commercial bank and manage the profitability of the banking business on the example of UniCredit Bank CJSC.
To achieve this goal, it is necessary to solve the following range of tasks:
- define the concept of profitability, reveal its meaning and characterize the main areas of its application;
– consider the system of indicators of profitability of a commercial bank;
– to analyze the profitability of the banking business on the example of UniCredit Bank CJSC.
1. Profitability of the bank
Profitability is a very important indicator of the overall performance of a bank.
The entire analysis of the profitability of banking activities is based on a close relationship between profitability and return on assets, capital adequacy, and the share of profit in income. In other words, banks with equal opportunities may achieve different results, and, conversely, banks with significant differences in return on assets and capital adequacy may achieve the same profitability.
The profitability (yield) of a commercial bank is one of the main cost indicators of effective banking.
There is an inter-level division of profitability management of a commercial bank, which includes:
1) managing the profitability of a commercial bank as a whole;
2) management of the profitability of certain areas of the bank's activities;
3) management of the profitability of the banking product.
Profitability management of certain areas of the bank's activities is based on the allocation of responsibility centers - the functional divisions of the bank responsible for certain areas of the bank's activities, that is, for a group of homogeneous banking products, and the financial result obtained from them.
Examples of such responsibility centers are: loan operations management, securities management, dealing operations management, foreign exchange management, operational management, deposit operations management.
Evaluation of the financial result of the work of units responsible for certain areas of activity includes several stages.
The first stage is the main one and involves determining the budget of the unit, that is, the cost estimate for the corresponding period and the amount of income received during this period from the creation and sale of products for which this unit is responsible.
At the second stage, the centers of profitability and cost centers are identified by comparing the expenses and incomes of departments.
At the third stage, the amount of income transferred by the unit responsible for this area of the bank's activity to other functional units in connection with the use of the resources attracted by them is carried out.
Finally, at the fourth stage of evaluating the effectiveness of each area of the bank's activities, the net financial result of the centers of profitability is determined.
The profit management of a commercial bank at the micro level includes the management of the profitability of specific banking products. Profit from the sale of any banking product is determined on the basis of its market price and cost. The specifics of calculating the effect of the creation and sale of certain types of products by the bank is determined by their nature, the structure of costs for the creation of banking products and the price form.
According to these features, banking products can be divided into two groups:
The first group should include products that bring the bank interest or equivalent income, the creation of which is associated with the investment in active operations of banking resources. These can be, for example, loan operations, operations with securities;
The second will include products that generate commission income for the bank and are not related to the use of resources, such as settlement services, the provision of guarantees, cash services.
1.1 Bank income analysis
To analyze income, first of all, it is necessary to group them and, in relation to it, develop common methodological approaches to the analysis of the main factors in the formation of income and their main components.
The tasks of analyzing the bank's income are to assess their objectivity and structure, the dynamics of income components, the level of income per unit of assets, to determine the degree of influence of factors on the total amount of income and to analyze the income received from certain types of operations.
The main source of income for banks is interest from credit, foreign exchange transactions, from the provision of services and work on the securities market. The structure of the bank's income is determined by the specifics of its activities.
In the analysis, revenues can be grouped by:
– types of banking activities;
- areas of income generation.
The first grouping of income is shown in table 1.
profitability indicator commercial bank
Tab. 1. Analysis of the composition of commercial bank income
| Number | Types of income by main activities |
| 1. | I. Income from operating activities: |
| 2 | accrued and received interest |
| 3. | commission received for services on correspondent accounts |
| 4. | customer reimbursement |
| 5. | income from foreign exchange transactions |
| 6. | II. Income from "non-banking" operations: |
| 7. | income from participation in the activities of banks, enterprises, organizations |
| 8. | payment for services rendered |
| 9. | Other income |
| 10. | fines received |
| 11. | |
| 12. | profit of self-supporting operations of the bank |
| 13. | Other income |
When analyzing bank income, the share of income received from banking and "near-bank" operations, the share of each type of income in their total amount is determined. In conditions of inflation, the possibility of increasing the bank's income due to loans is reduced, so the bank must more actively find other sources of income through the provision of a range of paid services and other non-traditional operations.
The second approach to the analysis of the structure of income is the study of their division into interest and non-interest. Such a grouping of income is shown in table 2.
Tab. 2. Analysis of the composition and structure of income of a commercial bank
The most important for the bank are interest income. Banks receive interest income from:
Placement of funds in the form of loans and deposits on accounts in other banks;
Loans granted to other clients;
Lease of fixed assets by clients with the right of subsequent redemption;
other sources.
Interest income depends on the volume and structure of income-producing assets. In the process of analysis, it is necessary to compare the growth rates of these assets with the growth rates of income received from their use.
The growth of interest income is due to the influence of two factors: the growth of the average balances on loans issued and the growth of the average level of the interest rate charged for a loan.
At the stage of qualitative analysis, it is necessary to find out the reasons causing changes in these factors.
The next step in the analysis of interest income is to study their structure. All accrued and received interest is broken down by the terms of loans provided, interbank loans are allocated. Next, the share of each group in the total is calculated, a comparison is made with similar indicators of the previous period, and the growth rates of these values are calculated. Conclusions are drawn from the analysis.
The growth of interest income on short-term loans compared to long-term loans in the context of inflation should be regarded positively, since only short-term and ultra-short-term investments can be effective and outpace the rate of ruble depreciation.
From an economic development perspective, banks cannot completely abandon long-term loans, which are the most prone to inflation. The bank's participation in long-term projects may bring significant income in the future, which will make up for today's losses.
The share of proceeds from overdue loans in the total volume of interest income should not exceed 2-3%. Otherwise, this is a signal of the unsatisfactory state of the bank's loan portfolio and a possible threat to its liquidity.
The growth in income from interbank loans indicates the bank's specialization in interbank operations. Interbank loans are a stable source of interest, but less profitable.
The above sequence of analysis of interest income can be represented in the diagram (Fig. 1).
Rice. 1. Sequence of analysis of interest income
Banks receive non-interest income along with interest income.
Analyzing non-interest income, one should first of all determine their volume and structure, identify the most profitable types of services provided by the bank.
At the end of the consideration of methods for analyzing the income of a commercial bank, we note that banks have an appropriate information base for its implementation, however, such an analysis, as practice shows, is not carried out systematically, and therefore the results of income analysis are not used enough.
Thus, it is advisable to analyze the bank's income in the following sequence.
1. The analysis of income should precede the analysis of profits, since they are the main factor in the formation of profits. Analytical assessment of income is carried out in terms of volume and structure. The analysis uses two income groupings.
2. The analysis of interest income is carried out in general and necessarily by the factors of their change and the reasons for the change in factors.
3. It is expedient to carry out the analysis from the point of view of their structure.
4. Analysis of non-interest income should be carried out by determining their volume, structure, identifying the most profitable services.
1.2 Analysis of bank expenses
The expenses of a commercial bank, along with income, are the second component of profit formation, therefore they are the object of careful analysis. All expenses are divided into interest and non-interest expenses - table 3.
Tab. 3. Grouping bank expenses
| Number | expenditures |
| 1 | Expenses - total |
| 2 | Operating expenses: |
| 3 | interest paid |
| 4 | commission paid |
| 5 | foreign exchange expenses |
| 6 | postage, telegraph expenses of customers |
| 7 | Expenses for ensuring the functional activities of the bank: |
| 8 | wages and other staff expenses |
| 9 | net operating expenses |
| 10 | depreciation deductions |
| 11 | payment for services |
| 12 | Other expenses of the bank: |
| 13 | fines paid |
| 14 | interest and commission of previous years |
| 15 | other expenses |
Interest expenses include the costs of attracting funds from banks in deposits, funds from other customers in loans and deposits; for the issuance of debt securities, rent, as well as other expenses of a similar nature.
Non-interest expenses in banks include commission expenses; labor costs; operating costs; expenses on transactions with foreign currency and other currency values; exchange rate differences, other current expenses.
Non-interest (operating) expenses are relatively fixed and manageable. They are easier to analyze and control than other bank expenses.
The analysis of expenditure items is carried out similarly to the methodology for the analysis of income items.
Interest expenses occupy a significant share in the total expenses of the bank. Some of the reasons causing the growth of interest expenses are of an objective nature and do not depend on the bank. However, there are factors that the bank can eliminate and thereby reduce interest costs, which will immediately affect the growth of the bank's profit. Interest expenses depend on two factors: the average balances on paid deposits and the average interest rate on deposits.
After identifying which of the two factors had the greatest impact on the change in total interest expenses, it is necessary to analyze the influence of the factors.
Methodological approaches to the analysis of the costs of banking operations are as follows:
1. Expenses are analyzed by their total volume and composition. Particular attention is paid to the factor analysis of interest expenses, as well as to the analysis of the reasons for the change in factors.
2. The costs of servicing settlement accounts in banks are the lowest. This is the cheapest resource for a bank. An increase in the specified component in the resource base reduces the bank's interest costs.
3. Interbank credit is the most expensive resource. The increase in its share in the structure of borrowed funds causes a strong appreciation of the bank's credit resources as a whole.
4. Analysis of the bank's expenses is carried out in the context of the main items.
5. Analysis of the bank's expenses should include a separate study of the costs associated with the formation of its liabilities and assets.
All the considered approaches to the analysis of expenses pursue one goal - to substantiate the correctness of their actual calculation, which will make it possible to reliably determine bank profit.
1.3 Bank Profit Analysis
One of the main objectives of the functioning of a commercial bank is to make a profit. The increase in own capital, the creation and replenishment of reserve funds, the financing of capital investments, the amount of dividend payments and the coverage of other costs depend on its value.
Profit analysis is carried out in the following sequence:
a business plan is being studied in relation to the volume and composition of profits;
the overall level of profit achieved by the bank for the reporting period and in dynamics is assessed;
analyzes the balance sheet profit, net profit, profit in the context of banking activities and operations performed, profit in the context of structural divisions;
analyzes the use of profits.
Profit analysis begins with the study of a business plan, which is part of the management in commercial banks. When drawing up a business plan, an analysis of the achieved level of profit is carried out in terms of its volume and composition.
The plan provides for the calculation of the amount of the bank's planned income, taking into account the resources available to it. At the same time, profit from banking activities is determined both for the whole bank and for its divisions, including branches. The plan provides for the bank to receive additional income (from the sale of shares, the sale of assets, the lease of fixed assets, the provision of paid services, etc.).
In the process of profit planning, the impact on its value of the state of the loan portfolio, the correspondence of the terms of attracting deposit funds to the terms of granting loans are studied. The main attention is paid to assessing the planned level of profit sufficient to form the assets and liabilities of the bank and maintain its competitiveness in the financial market.
The decrease in the share of net profit in the balance sheet profit indicates that the bank's balance sheet profit is growing at a slower rate compared to the growth rate of expenses incurred at the expense of profit. This trend cannot be considered positive.
The amount of profit received is influenced by internal and external factors. Internal associated with the receipt of income and the production of costs for the implementation of banking operations. External factors are related to the state of the market situation, adopted in the reporting period, new regulations governing banking activities and other factors.
The influence of the impact on profits of internal and external factors in the analysis should be separated.
To conduct a factor analysis of net profit, return on equity is calculated.
Profitability
equity Net profit after tax (1)
capital share capital
The increase in share capital is regarded positively if it occurred due to the reinvestment of profits, and not due to an increase in the contributions of the founders' funds.
Of great importance for assessing the profit of the bank is the trend
analysis in dynamics by years, quarters and months.
By analyzing profit in dynamics, it is possible to determine
the average value of profit for the period under study and the value
the influence of factors that determine the size of the deviation from this
average value. It is through these deviations that one can
see the formation of the result in further activities
jar.
Note that in order to conduct a trend analysis, it is necessary to comply with the requirements for comparability of the analyzed data, which is difficult to ensure in the absence of official values of the level and inflation indices. Therefore, the analysis of banks' profit is limited mainly by comparing its actual values with last year's data.
There is a distinction between operations in banks, although rather conditional. First of all, these are currency, credit, investment, deposit operations and operations with securities.
For lending services, yield is defined as the difference between interest income on loans and interest expense on deposits. In the same way, the amount of profit received from certain types of loans issued is calculated. For analysis, it is necessary to use analytical data on the state of the loan portfolio.
The quality of the profit received from lending services depends on the structure and quality of loans issued. In the process of analysis, it is necessary to determine the amount of profit received from issuing doubtful loans, loans with increased risk, and the amount of losses from outstanding loans. Such analysis should be carried out separately for short-term and long-term loans.
One of the objectives of the analysis is to check the balance of the loan portfolio by types of loans, terms of loans, the nature of their security.
Deposit operations of banks are active and passive mi. Active operations of banks are associated with the creation of reserves in the Bank of Russia. Such active deposit operations (keeping funds in correspondent accounts with banks, investing in securities, etc.) can bring profit. In the process of analysis, it is necessary to identify the amount of profit received from keeping funds in correspondent accounts and from investments in securities.
The bank's investment operations are associated with long-term investment in production, securities or joint venture rights. Such operations can be profitable. The costs associated with investment operations, as practice shows, are not high for joint activities. Such operations can be profitable. The costs associated with investment operations, as practice shows, are small.
Bank failure results in financial losses. They are related to the delay in payments by the borrower for loans, the delay in accrued interest on them, the payment of fines and penalties, the sale of fixed assets at a price below the residual value.
The main thing when conducting an analysis is to correctly determine the actual amount of losses, their specific structure, as well as the impact on the decrease in the total profit of the bank.
Based on the results of the analysis, it is advisable to determine possible actions to reduce these losses.
In the process of profit analysis, an assessment is made not only of the effectiveness of profit formation, but also of its use.
At the end of the review of the analysis of the formation and distribution of profits, we note that it should be supplemented by an assessment of lost profits. To do this, it is necessary to find out whether, in the reporting period, the bank made decisions to attract new, promising customers with significant balances in their accounts; whether opportunities are being used to reduce the cost and increase the resource base; whether measures are being taken to reduce the value of non-performing assets, to invest funds in order to generate income in the activities of other efficiently functioning banks and commercial structures.
From the consideration of methodological approaches to profit analysis, the following conclusions can be drawn.
1. Profit analysis within the business plan acts as part of financial management. The main thing in the analysis is to assess the planned level of profit in terms of sufficiency for the formation of assets and liabilities of the bank, maintaining its competitiveness in the financial market.
2. An important component of the analysis is a factor analysis of net profit using various characteristics of return on equity indicators. The change in net income compared to the plan or the previous period is influenced by factors characterizing the size of share capital, the effectiveness of tax management, the effectiveness of cost control, the effectiveness of asset management and the effectiveness of resource management.
3. Dynamic or trend analysis of profit must be carried out by methods that allow determining the average value of profit for the analyzed period and the impact of factors that determine the deviation of actual profit values from the average value.
4. Analysis of the profit structure allows, first of all, to determine the share of interest income as the main component of profit, as well as the impact on it of the value of income-generating assets, margin and spread.
5. The depth of analysis of profitability of operations and methodological approaches are different.
6. Analysis of profit in the context of the structural divisions of the bank requires the widespread use of analytical accounting data. It is more expedient to evaluate and analyze profits not by structural divisions, but by profit centers, since not all structural divisions make a profit.
1.4 Analysis and evaluation of the profitability of a commercial bank
Profitability analysis is carried out using reporting based on the current system of accounts, which is, to a certain extent, aligned with international reporting standards.
The bank's profitability should be considered in conjunction with liquidity indicators and the structure of the asset and liability balance. The bank must ensure the optimal ratio of profitability and liquidity, correlated with the risks of banking activities and the quality of the loan portfolio.
Analysis of profitability indicators should be carried out in the following sequence:
· Calculation of the actual value of profitability ratios based on the forms of annual and quarterly reporting;
· comparative assessment of the calculated profitability ratios in dynamics;
Identification of the degree of influence of factors on the trend in the change of coefficients;
· evaluation of factors in relation to the liquidity of the balance sheet and banking risks.
Ratio analysis of profit is carried out on the basis of the income statement.
Consider the methods of coefficient analysis of bank profitability. For decomposition analysis of profit, such financial parameters are used as:
net profit;
net income;
average value of assets;
average value of own capital.
Using these indicators, the profitability analysis is carried out in five stages.
At the second stage of the analysis, the following profitability indicators are calculated.
1. Return on assets (K1) is determined by the ratio of balance sheet profit to assets. This indicator characterizes the overall level of profitability of all assets.
2. Profitability of operating assets (K 2) is determined by the ratio of balance sheet profit to the amount of operating assets. The indicator (K 2) is derived from (K).
3. The net worth multiplier (K 3) is calculated by the ratio of the average value of assets to the average value of equity capital.
4. Return on capital (K 4) is determined by the ratio of net income to the average value of equity capital. This indicator characterizes capital adequacy, it is one of the most important indicators of profitability. It should be the focus of the analysis. It measures profitability from the point of view of shareholders.
The return on the authorized capital (K 5) is calculated in the development of the return on capital as the ratio of net income to the average value of the authorized capital.
Indicators (K 1 and K 2) are calculated on the basis of all assets and operating assets, respectively, they only indirectly characterize the efficiency of the bank.
Indicators (K 4 and K 5) measure profitability from the point of view of the owner of the capital. The disadvantage of these indicators is that they can be very high even with insufficient equity or authorized capital. Therefore, it is advisable, when calculating these coefficients, to take into account when determining equity not only their paid, but also unpaid parts. The amount of the bank's unpaid authorized capital is reflected in off-balance sheet accounting.
At the third stage, the indicator is subjected to a detailed analysis. It is divided into two dimensions - profit margin (M) and use of assets (A).
where M is the ratio of profit after tax to the total amount of interest and non-interest income;
A is the ratio of the total amount of income to the average value of the total amount of assets.
At this stage of the analysis, the components of the profitability of assets M and A are subjected to detailed study. When determining M, net profit is used, when determining A - total income. In the process of analysis, it is necessary to express net profit through the total amount of income according to the formula
PE \u003d D-R-3-N, (3)
where PE is net profit;
D is the total amount of income;
P is the total amount of expenses;
3 – reserve change;
N - taxes unpaid by the bank.
The total amount of the bank's income (D) includes interest income, commission income, income received from the revaluation of foreign currency accounts, from operations for the purchase and sale of securities and precious metals, from positive revaluation of securities and precious metals, from REPO operations, etc. .
The total amount of the bank's expenses (P) includes interest expenses, commission expenses, expenses for the maintenance of the apparatus and social, household, operational, from the revaluation of accounts in foreign currency, from operations for the purchase and sale of securities and precious metals, from the negative results of the revaluation of securities and precious metals, from REPO transactions, etc.
The value of 3 means the total change in the provision for possible losses on loans, for depreciation of securities and other provisions.
The value of H is the amount of income tax and other taxes paid by the bank.
At the fourth stage of the analysis, the individual components of profitability (K 1) are studied in relation to total income or total assets. For each component of the formula, their specific weight and dynamics are revealed. The identified deviations and the reasons for their assumption allow us to evaluate and qualitatively change the financial activities of the bank.
In order to deepen the analysis at this stage, it is advisable to calculate separately the values of the net interest margin on loans, securities, foreign exchange values and other transactions. When determining these values, a common denominator is used - assets that generate income.
Net interest margin (M1) is determined by the ratio of net interest income from placement and attraction of funds to the average value of income-producing assets. Net interest income is the difference between interest income and expenses. This indicator, in essence, evaluates the profitability of the bank's loan portfolio. If, when determining the interest margin, as the denominator of the formula, instead of income-producing assets, we use total assets, then the indicator of the total interest margin will be determined. The dynamics of this indicator gives the bank's management information about the need to change the interest rate, volume and structure of earning assets and liabilities.
Net margin on securities (M2) is determined by the ratio of net income on securities, debt obligations and promissory notes to income-generating assets. This indicator is designed to determine the profitability of the bank's stock portfolio and is calculated as the ratio of the difference between income and expenses on operations with securities to the average value of income-generating assets.
The net margin on currency values (M3) is determined by the ratio of net income from operations in the foreign exchange market and from the revaluation of foreign currency accounts to income-generating assets. This indicator is designed to calculate the profitability of the bank's foreign exchange operations, which is defined as the ratio of the difference between income and expenses on operations in the foreign exchange market to the average value of income-generating assets.
The net margin on other operations (M4) is determined by the ratio of net income on other operations to income-producing assets. This indicator is used to calculate the profitability of other bank operations and represents the ratio of the difference between income and expenses on other operations to the average value of income-producing assets.
The composition of other income and expenses is significant. Other income includes dividends received (except for shares), fines, penalties, forfeits received and other income. Other expenses include expenses for the maintenance of the apparatus, social and household expenses, fines, penalties, forfeits paid and other expenses.
Above, we examined the sequence diagram of a detailed analysis of the profitability indicators of a commercial bank at stages I–V. Evaluation of profitability indicators with varying degrees of detail is determined by the specific goals of the analysis.
At the same time, we note that not all indicators of profitability were considered within the framework of all stages of the analysis. In the international practice of banking analysis, the indicator of profitability of operating profitability, the margin of intermediary income, the profitability of all assets and assets that generate income, adjusted for the prevailing interest rate, etc. are also calculated. To calculate them, extensive use of accounting data is required.
From the consideration of the methodological approach to the analysis of profitability, we draw the following conclusions.
1. The bank's profitability should not be considered in isolation, but in conjunction with liquidity indicators, the structure of the asset and liabilities of the balance sheet. The bank must achieve the optimal ratio of profitability, liquidity, quality of the loan portfolio and risks.
2. Ratio analysis of profitability (return on equity) is carried out using indicators of net income, net profit, assets and equity. Note that the indicators (K 4 and K 5) can be high even with insufficient equity or authorized capital. It is advisable when calculating these indicators in the calculations when determining equity capital to take not only their paid, but also the unpaid part, reflected in off-balance sheet accounting.
3. The analysis is carried out in five stages. At the first stage, the indicators used in calculating the profitability indicators are calculated; on the second - five main indicators of profitability, four of which are determined by the ratio to the average value of equity capital, and one - to the total amount of assets. At the third stage, the profitability of assets is determined, at the fourth - the profit margin, and at the fifth, further detailing of the profitability indicators is carried out.
4. Profitability analysis is carried out using reporting based on the current system of accounts, which does not yet fully meet international standards. In international practice, the indicator of operating profitability is also calculated, the profitability of all assets and assets that generate income, adjusted for the prevailing interest rate; the profitability of various financial instruments (interbank loans, bills of exchange, leasing, factoring, etc.) is calculated and analyzed on the basis of accounting data. Such an analysis makes it possible, of course, to obtain a more complete assessment of the bank's activities.
2. Overview of the current state of profitability of a commercial bank
Until recently, there was practically no analysis of banking activity in Russian banks; this was not necessary, since strict regulation predetermined the results of the functioning of any bank. Now that the issue of the independence of commercial banks from the dictates of the executive and administrative bodies of power and administration, which actively influenced the operational activities of banks, has been radically resolved, it is absolutely necessary to conduct an independent analysis of the activities of each bank. An analysis of banking activity in terms of its profitability allows management to form an appropriate credit policy, identify bottlenecks, and develop measures to eliminate them.
Foreign commercial banks pay great attention to this issue. Not so long ago, the concept of highly profitable banking has become widespread in American banks. The concept contains three components.
1. Maximization of income: from the provision of loans; for tax-exempt securities: maintaining a sufficiently flexible asset structure to accommodate changes in interest rates.
2. Cost minimization: maintaining the optimal structure of liabilities; minimizing losses from bad loans; control over current expenses, including funds allocated for staff salaries. Here the principle was developed: it is better to achieve an effect by reducing the number of employees than to reduce the individual earnings of a bank specialist.
3. Competent management. It covers the implementation of the first two components.
To maximize profits, bank management relies on a well-defined analytical framework. In foreign commercial banks, the analysis of banking activity covers four major stages.
1) The usual comparison of the activities of the bank for a certain period with the base period.
2) Evaluation of the specific weights of each active and passive balance sheet item in the total volume of the bank's assets and liabilities, respectively, as well as analysis of the share of income received from each type of activity in the total amount of income.
3) Analysis of changes in the main bank accounts using the index method.
4) Analysis of activities using ratios, including liquidity ratios.
The analysis of banking activity goes beyond the scope of one bank: the results obtained are compared with data from other similar institutions. Only after that final conclusions are made.
2.1 Profitability analysis of the largest Russian banks
After analyzing the return on assets data, we obtained an average value of assets equal to 3.08% for 100 banks.
| Name of the bank | ROA, % | ROE, % |
| SBERBANK | 3,7 | 28,5 |
| VTB | 2,4 | 10 |
| GAZPROMBANK | 2,5 | 20,8 |
| BANK OF MOSCOW | 2,6 | 28,9 |
| URALSIB | 1,5 | 13,6 |
| MDM BANK | 4 | 30,8 |
| RUSSIAN STANDARD | 5,2 | 40 |
| URSA BANK | 2,4 | 8,3 |
| BANK "REVIVAL | 2,9 | 26,4 |
| BANK "SAINT-PETERSBURG | 3,6 | 30 |
According to the table, Uralsib Bank has the lowest ROA. This suggests that the bank is inefficiently using its assets.
Analyzing the return on equity (ROE), you can see that Ursa Bank is in last place, and MDM Bank is in first place.
The higher this ratio, the higher the earnings per share and the larger the potential dividend.
2.2 Analysis of the profitability of a foreign bank on the example of the Bank of Austria "Kreditanstalt"
Bank Austria Creditanstalt is a shareholder of UniCredit Bank. Analyzing the activities of the Bank Austria Creditanstalt (BA-CA), it can be said that in the first half of 2007 the Bank continued to show strong growth rates. All departments of the bank contributed to these results. Significantly improved business performance in Austria.
In the first half of 2007, BA-CA's net profit after tax increased by 76.1 percent to €1,208 million (H1 2006: €686 million (pro forma)). The ROE after tax was 18.7 percent. The cost-to-income ratio, at 48.9 percent, dropped below the 50 percent mark for the first time (H1 2006: 57.7 percent).
Data from the income statement show that BA-CA's net interest income in the first half of 2007 increased by 16.2 percent to EUR 1,838 million (2006: EUR 1,582 million). Net fee and commission income also showed an increase of 17.6 percent to 1,054 million euros (2006: 897 million euros). Net trading income was 224 million euros, down 28.7 percent from the same period last year (2006: 314 million euros).
Operating costs decreased by 3.7 percent to €1,584 million (2006: €1,645 million). Thus, BA-CA's operating profit amounted to 1,657 million euros, an increase of 37.5 percent compared to the previous year (2006: 1,205 million euros). Net loan impairment and provisioning for guarantees and commitments amounted to €208 million, comparable to the previous year (2006: €205 million).
Profit before tax amounted to 1528 million euros, which is 53.2 percent higher than the same indicator of the previous year (2006: 997 million euros). Consolidated profit after tax increased in the first half of 2007 by 76.1 percent to 1,208 million euros (2006: 686 million euros).
Based on these results, the following financial indicators were calculated:
Return on equity (ROE) before tax was 22.6 percent
Return on equity (ROE) after tax was 18.7 percent
· Cost-to-income ratio improved to 48.9 percent (2006: 57.7 percent)
· The risk-to-reward ratio improved from 13 percent to 11.3 percent
· Tier I capital adequacy ratio was 10.4 percent; overall capital adequacy was 13.5 percent.
BA-CA maintains performance records for five Divisions: Retail Services, Private Banking and Asset Management, Corporate Services, Markets and Investment Banking, and Central and Eastern Europe (CEE). The Bank also takes into account the performance of its Corporate Center.
Considering the results of the activities of the Bank of Austria "Kreditanstalt" in these areas, we can obtain the following data:
In the first half of 2007, the profit before tax of the Retail Services Authority was 72 million euros (2006: loss before tax of 7 million euros), thus continuing the positive trend in this segment. These results were achieved as part of a two-year program that allowed the bank to significantly strengthen its position in client relations, as well as, for example, to focus on products such as guarantees in its securities business. The pre-tax ROE reached 14 percent and the cost-to-income ratio was 73.5 percent (2006: 83.9 percent).
Profit before tax for Private Banking and Asset Management in the first half of 2007 was EUR 44 million, up 27.3 percent from the same period last year (2006: EUR 34 million). The pre-tax ROE was 43.6 percent (2006: 44.2 percent), and the cost-to-income ratio was 52.5 percent (2006: 58.6 percent).
The increase in profit before tax of the Corporate Services Department in the first half of 2007 was 9.1 percent to 323 million euros (2006: 296 million euros). The pre-tax ROE was 27.7 percent (2006: 24.6 percent) and the cost-to-income ratio was 37.0 percent (2006: 40.5 percent). The Corporate Services Division – along with the Markets and Investment Banking Division – enjoys significant benefits from active cooperation within the UniCredit Group, primarily, but not limited to, multinational operations. In 2006, CA IB Corporate Finance Beratungs GmbH was part of the Corporate Services Department. In 2007, she was transferred to Markets and Investment Banking.
Profit before tax of the Office of Markets and Investment Banking reached 187 million euros, an increase of 21.1 percent (2006: 155 million euros). The pre-tax ROE was 87.5 percent (2006: 100.1 percent) and the cost-to-income ratio was 37.5 percent (2006: 33.7 percent).
The CEE Authority posted a 77.6 percent increase in profit before tax to 679 million euros (2006: 383 million euros), one of the reasons for which was the expansion of business boundaries. The pre-tax ROE was 20.1 percent (2006: 19.4 percent) and the cost-to-income ratio was 50.2 percent (2006: 51.7 percent).
The merger of the CEE banks belonging to the UniCredit Group (excluding the Polish markets) into the CEE Directorate significantly expanded the boundaries of BA-CA activities in the region. Prior to integration into the UniCredit Group, BA-CA controlled a banking network in 10 countries, including Poland, whose business volume reached 40 billion euros. Today the network covers 15 countries and its total assets amount to about 80 billion euros. Today it is the largest banking network in Central and Eastern Europe.
In addition, BA-CA completed the acquisition of the institutional business of the Russian brokerage house Aton and the remaining share capital of UniCredit Bank. The total purchase price of Aton was US$424 million (about €307 million at current exchange rates). This transaction allowed the UniCredit Group to become one of the five largest investment banks in Russia and take significant positions in such a segment as trading in shares and securities with fixed income, as well as in the provision of corporate finance consulting services.
Analyzing the balance sheet of the bank, we can see that total assets increased by 31.6 percent to 203.0 billion euros compared to the figure at the end of 2006 (31 December 2006: 154.3 billion euros). Adjusted (pro forma) growth was 6.1 percent (2006: €191.4 billion).
Assets: financial (trading) assets increased by 3.6 percent to 17.3 billion euros (2006: 16.7 billion euros). Loans and amounts due from credit institutions amounted to 46.6 billion euros, an increase of 43.4 percent (2006: 32.5 billion euros). Loans to customers increased by 30.6 percent to 104.6 billion euros (2006: 80.1 billion euros).
Liabilities: due to credit institutions increased by 25.4 percent to 60.6 billion euros (2006: 48.3 billion euros). Customer funds increased by 54.1 percent to €84.7 billion (2006: €55.0 billion). IOUs, including bonds, rose 1.9 percent to €25.8 billion (2006: €25.3 billion). Equity increased by 41.1 percent to 14.3 billion euros (2006: 10.1 billion euros).
As at 30 June 2007, WA-SA had 49,192 employees, an increase of 28,105 from the previous year (31 December 2006: 21,087 employees). During this period, the number of branches increased by 1,214 to 2,284 (2006: 1070). This growth is the result of the transfer of the banking activities of the UniCredit and HVB divisions in CEE to the management of the BA-CA.
Analyzing the activities of BA-CA in 4 areas, we get the following diagram, which can be used to trace the dynamics of changes in the ROE coefficient before tax for two years.
The higher this ratio, the higher the earnings per share, and the greater the potential dividend.
In our case, the highest value of this indicator is achieved in 2006 in the sphere of the market and investment banking services.
In the second chapter, such important issues as a review of the current state of profitability of a commercial bank were considered, an example of a foreign bank was also considered, some of its coefficients were calculated and analyzed.
3. Analysis of the activities of a commercial bank on the example of UniCredit Bank
3.1 History and main stages of development of UniCredit Bank
International Moscow Bank was founded in Moscow on October 19, 1989. The first of the Russian (then Soviet) banks, he attracted funds from foreign banking institutions to form his capital. Its founders included three domestic banks (Vnesheconombank - 20%, Sberbank - 10%, Promstroybank - 10%) and five international banks (Bayerische Vereinsbank AG, Creditanstalt-Bankverein, Banka Commerciale Italiana, Credit Lyonnais and Kansalis-Osaki-Pankki) , each of which owned 12%. In June 1994, Vnesheconombank withdrew from the shareholders of IMB. Its shares were distributed in equal shares between two new shareholders - Vneshtorgbank and Eurobank (France). Since its inception, the International Moscow Bank has set itself the task of complying with the business practices of the best banks in the world, using modern banking technologies and financial instruments, as well as the experience of its shareholders.
In 1990, the bank became a member of the international organization SWIFT (Society for Worldwide Interbank Financial Telecommunication) and began to carry out international settlement and other operations.
In 1991, IMB was the first among Russian commercial banks to receive the General License of the Central Bank for foreign exchange operations, which allowed the bank to take a leading position in servicing foreign trade operations and in other areas of banking. In subsequent years, the successful development of the bank continued: new products and services appeared, the client base grew, technologies improved, the correspondent network expanded, the staff grew, and the organizational structure was optimized. IMB has become one of the largest banks in Russia in terms of total assets, a recognized authority in the field of international settlements, an attractive partner for Russian commercial banks and corporate clients, having gained a reputation as a serious and reliable bank.
The traditionally conservative and prudent policy in the domestic financial market enabled IMB to successfully overcome the 1998 financial crisis. Even during the most critical period, the bank did not delay a single payment order from customers, continuing to fulfill its agreements with Russian and foreign partners. The fundamental principles of IMB's policy - maintaining high liquidity and a conservative approach to risk taking - were the key conditions that allowed the bank to fulfill all its obligations and continue to serve customers.
In September 2000, Thomson Financial BankWatch upgraded IMB's credit rating to the highest possible value, limited only by Russia's sovereign rating: from CCC to B-. At that time, it was the highest score given to a foreign or domestic bank operating in Russia. IMB was among the first three Russian banks whose ratings were upgraded after the 1998 crisis. At the end of 2000, Central European magazine awarded IMB the honorary title of "Best Russian Bank of the Decade" (1989–1999).
On October 1, 2001, International Moscow Bank (IMB) successfully merged with Bank Austria Creditanstalt (Russia), a subsidiary of Bank Austria. IMB became the legal successor of Austria Creditanshtalt Bank (Russia) and fully assumed all its obligations to clients regarding the safety of funds on accounts, their payment at the first request of the client and timely settlements.
The merger strengthened the position of the new bank and increased its competitiveness. Prior to integration, IMB's strong point was serving corporate clients, and Bank Austria Creditanstalt (Russia) was providing retail banking services. The merger resulted in a bank capable of providing a wide range of high quality services using modern technologies. The reorganized bank retained the name "International Moscow Bank". At the time of the merger, its capital amounted to more than 100 million US dollars, and the total value of assets reached 2.8 billion US dollars.
The united bank has inherited such traditional features for IMB and Bank Austria Creditanstalt (Russia) as reliability, respectability and quality of service. As a result of the merger, the customers of the merged bank gained a number of advantages. Along with traditional operations (payments, deposits), a number of new loan products and asset management services were offered to private clients. The Bank expanded the range of services for operations with plastic cards and strengthened its position in the card business. The corporate clientele received a wider service network, both in Moscow and St. Petersburg, and in the regions of Russia.
In early 2002, the international rating agency Standard&Poor's assigned the International Moscow Bank a long-term credit rating of B-, a short-term credit rating and a certificate of deposit rating of C, with a Stable outlook. In September 2002, the bank's long-term credit rating was upgraded to "B". This rating was confirmed on March 28, 2003. On September 2, 2003, Standard&Poor's again upgraded IMB's credit ratings: long-term to 'B+', short-term to 'B'.
On December 21, 2004, IMB's long-term credit rating was upgraded by Standard & Poor's to 'BB-'. At the same time, the short-term counterparty credit rating and certificate of deposit rating were affirmed at 'B'. Forecast - "Stable". Thus, IMB occupies the highest position among Standard&Poor's ratings assigned to Russian commercial banks.
In September 2004, an extraordinary meeting of shareholders of the International Moscow Bank decided to increase the authorized capital by almost 3 billion rubles. As a result of this decision, the total amount of core capital exceeded 9.5 billion rubles, which is equivalent to 320 million US dollars (in accordance with IFRS). It was also decided to transfer a controlling stake (52.88%) to one of IMB's shareholders, HVB Group.
On June 12, 2005, the Chairman of the Board of the HVB Group, Dieter Rampl, and the Head of the UniCredit Group, Alessandro Profumo, issued a statement about the merger of the banking groups they lead. The Italian banking group UniCredit is one of the European banks with high profitability and efficiency. The group represents over 28 million clients throughout Europe. More than 7 thousand branches are engaged in customer service. The merger of HVB and UniCredit was a milestone in the formation of the first pan-European bank (The First Truly European Bank) with a strong focus on the countries of Central and Eastern Europe, of which Russia and the International Moscow Bank are now a part.
On June 20, 2006, Bayerische Hypo – und Vereinsbank AG entered into an agreement with Nordea Bank Finland Plc to acquire an additional 26.44% stake in the voting shares of CJSC IMB.
In December 2006, Bank Austria Creditanstalt (BA-CA) completed the acquisition of a stake (19.77%) in MMB owned by VTB Bank France SA (formerly Commercial Bank for Northern Europe BCEN-Eurobank). On January 11, 2007, BA-CA completed the acquisition of a controlling stake in IMB, formerly owned by Bayerische Hypound Fairinsbank AG (HVB). This transaction was the next step in the reorganization of the UniCredit Group, within which BA-CA is responsible for business in Central and Eastern Europe.
In April 2007, IMB was renamed UniCredit Bank.
UniCredit Bank strives to constantly improve the quality of its services and develop new products that are in demand by customers. Along with this, the bank is continuously working to improve risk management procedures and tighten cost control. The main objective of the bank is to provide first-class financial services for the benefit of the Russian economy, its clients and shareholders.
3.2 Analysis of the financial condition of the bank
UniCredit Bank is a Russian universal commercial bank, one of the ten largest banking institutions in the country. The bank's shareholders are world famous foreign banks. At present, the bank's capital is 796138000 US dollars, and the total value of assets exceeds 9376738 thousand US dollars.
The bank serves over 260,000 individuals and 8,000 corporate clients, as well as over 9,200 small and medium-sized businesses. More than 85 of the 200 largest Russian companies consider UniCredit Bank as one of their main banking partners. In mid-2006, the bank's loan portfolio amounted to over 4.1 billion US dollars. The bank's correspondent network is one of the largest in Russia and covers more than 1,700 banks. Over 300 banks have opened Loro accounts with UniCredit Bank. The Bank makes all types of payments in all major currencies.
Relying on the powerful potential of its shareholders, the bank occupies one of the leading positions in the Russian banking system. In its activities, the bank is guided by international commercial rules and standards, as well as a conservative approach to risk assessment. Analysis of the bank's activities by authoritative rating agencies shows that the bank's liquidity exceeds the average level of Russian banks. This reflects the good reputation of the bank, reliable sources of financing and significant investments in liquid assets.
In October 2006, the international rating agency Fitch Ratings upgraded its foreign and national currency Issuer Default Rating (IDR) from BBB+ to A-, the highest rating among Russian banks (at the time the rating was awarded).
The upgrade follows the announcement on October 10, 2006 of the successful completion of this transaction, which increases UniCredito's total equity stake from 53% to 79%, and thus increases the expected support from UniCredito. An additional positive factor was the planned additional issue in the amount of about 100 million US dollars.
As factors that also positively influence the ratings, S&P identified the Bank's strong commercial position in the Russian corporate finance market, the presence of a highly developed risk management system, high liquidity and a good level of profitability.
Today, UniCredit Bank's management sees its main task in the constant expansion of services provided to customers and their high quality. The Bank opens and maintains accounts in Russian and foreign currencies, provides payment and settlement services. On behalf of its clients, the bank manages their funds, conducts currency and securities transactions on the Russian and international markets, and provides various types of loans. UniCredit provides specialized services such as leasing and financial consulting, loan syndication, and custody services. UniCredit Bank operates "Bank - Client" (IMB-Link) and "Internet - Bank - Client" (Enter.IMB) systems that allow clients to manage their funds in the bank without leaving their office or home. Actively developing services for individuals, the bank offers private customers the entire range of VISA International and MasterCard International bank cards.
Customer services are provided by 25 Moscow branches, six branches and a branch of UniCredit in St. Petersburg, branches in Voronezh, Yekaterinburg, Krasnodar, Perm, Rostov-on-Don, Samara and a branch and branch in Chelyabinsk, an additional office in Magnitogorsk, as well as regional representative offices in Arkhangelsk, Belgorod, Volgograd, Kazan, Krasnoyarsk, Nizhny Novgorod, Novosibirsk, Omsk, Saratov, Stavropol and Ufa.
In the next five years, UniCredit Bank's main priorities will be to increase the client base of small and medium-sized businesses not only in Moscow and St. Petersburg, but also in the regions, develop the retail business, and improve the quality of service. As before, the bank plans to actively work with large corporate clients.
3.3 Profitability analysis of UniCredit Bank »
UniCredit Bank is a Russian universal commercial bank, one of the ten largest banking institutions in the country. The bank's shareholders are world famous foreign banks. At present, the capital of the bank is 796,138,000 US dollars, and the total value of assets exceeds 9,376,738 thousand US dollars.
Considering the main financial indicators of UniCredit Bank under IFRS, we can observe the development trend of such indicators as return on equity (ROE) and return on assets (ROA) over a certain period of time.
Tab. 4. Main financial indicators of UniCredit Bank under IFRS
| Indicator, thousand dollars | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 |
| Return on equity - by average annual value (ROE) | 26% | 52,5% | 16,9% | 33,8% | 38,4% | 28% | 37,1% |
| Annual average return on equity, net of goodwill (ROE) 3 | - | 64,5% | 18,4% | 34,9% | 39,9% | 28% | 37,1% |
| Return on assets by average annual value (ROA) | 1,1% | 2,1% | 1% | 2,2% | 2,8% | 2,4% | 3,2% |
| Tier 1 capital adequacy according to the BIS methodology (BIS) | 6,2% | 10,4% | 9,5% | 8,7% | 9% | 8,9% | 9,1% |
| Total capital adequacy according to the BIS methodology (BIS) | 8,2% | 14,3% | 12,6% | 11% | 13,5% | 11,9% | 12,5% |
| Cost per unit income ratio | 64,3% | 44,6% | 62,5% | 42,3% | 39,2% | 44,9% | 37,9% |
These two indicators are an integral part of the analysis and evaluation of the profitability of a commercial bank.
Profitability ratio by assets (ROA) - characterizes the profitability of the operations of the counterparty bank as a whole.
The bank's return on capital ratio (ROE) - shows the performance of the counterparty bank from the point of view of its shareholders.
Analyzing these indicators, we can build their graphs based on the data in Table 4:
The graph shows that the highest value of the indicator reaches in 2001, and the lowest in 2002. After 2002, the value of the indicator is more stable.
The return on equity shows the amount of net profit that was generated by the bank's own capital, characterizes the degree of attractiveness of the object for investing shareholders' funds. The higher this ratio, the higher the earnings per share and the larger the potential dividend.
Analyzing the schedule of return on assets, we conclude that the highest value of this indicator in 2006, and the lowest in 2000.
The graph shows that starting from 2005, the value of the indicator begins to grow. This suggests that the bank effectively manages its assets, therefore, the operations performed by the bank bring him profit.
Here is an analysis of the main performance indicators of the bank:
In accordance with IFRS, net profit after tax in 2006 amounted to USD 219.6 million. - Summer history.
Net interest income in 2006 amounted to $217.6 million and exceeded the 2005 figure by 46% or $68.1 million.
Non-interest income amounted to $222.6 million in 2006 (against $100.7 million in 2005). The unexpectedly high income from operating capital, caused by the fall in the official dollar exchange rate from 28.79 to 26.33 rubles, significantly affected the profit from trading operations in foreign currency, which exceeded the previous year by $104.2 million.
Let's calculate some coefficients and analyze the activities of UniCredit Bank according to the methodology proposed in the first chapter (Appendix 4-7).
Tab. 5. Analysis of UniCredit Bank's ratios for 2004-2006
According to table 5, we can observe a steady decline in the return on assets and return on equity.
The rate of return on assets characterizes the overall level of profitability of all assets. This indicator only indirectly characterizes the effectiveness of the bank.
The return on equity ratio measures profitability from the point of view of the owner of the capital. The disadvantage of this indicator is that it can be very high even if equity capital is insufficient.
Conclusion
The indicator of profitability is especially important in today's market conditions, when management needs to constantly make a number of extraordinary decisions to ensure profitability, and, consequently, financial stability.
Factors that affect profitability are many and varied. Some of them depend on the activities of specific teams, others are related to the technology and organization of production, the efficiency of the use of production resources, the introduction of the achievements of scientific and technological progress.
Profitability indicators are important characteristics of the factor environment for the formation of bank profits. Therefore, they are mandatory when conducting a comparative analysis and assessing the financial condition.
The completed thesis consists of an introduction, three main chapters, a conclusion, a list of references and applications.
In the first chapter, such issues as the analysis of income, expenses and profits of the bank were considered.
The Russian methodology for analyzing and evaluating the profitability of commercial banks was outlined, which is carried out in five stages:
At the first stage, the indicators used in calculating the profitability indicators are calculated; on the second - five main indicators of profitability, four of which are determined by the ratio to the average value of equity capital, and one - to the total amount of assets. At the third stage, the profitability of assets is determined, at the fourth - the profit margin, and at the fifth, further detailing of the profitability indicators is carried out.
From the consideration of the methodological approach to the analysis of profitability, the following conclusions can be drawn.
1. The bank's profitability should not be considered in isolation, but in conjunction with liquidity indicators, the structure of the asset and liabilities of the balance sheet.
2. Ratio analysis of profitability is carried out using indicators of net income, net profit, assets and equity.
3. Profitability analysis is carried out using reporting based on the current system of accounts, which does not yet fully meet international standards.
In the second chapter, such important issues as a review of the current state of profitability of a commercial bank were considered. The ratings of banks in terms of equity capital and assets were considered, and the ROA and ROE ratios were calculated.
Sberbank does not lose its positions and holds the first place, at the level of 3.7%. This indicates the normal well-established work of the bank, the efficient use of its assets and profit from operations.
An example of a foreign bank was also considered, some of its coefficients were calculated and analyzed.
The activities of the Bank of Austria were analyzed in 4 areas, on the basis of which a diagram was constructed that traces the dynamics of changes in the ROE coefficient before tax for 2006–2007.
The highest value of this indicator is achieved in 2006 in the sphere of the market and investment banking services (100.1%). By 2007, the value of this indicator decreased by 12.4% and became 87.7%.
The third chapter was devoted to the analysis and evaluation of profitability indicators of UniCredit Bank.
Such financial indicators as net profit, net interest income, non-interest income were analyzed; their diagrams are constructed.
According to the charts, we can observe a steady upward trend in these indicators.
We also calculated and analyzed the ROA and ROE ratios of UniCredit Bank for 2004-2006.
According to the analysis, we can observe a steady decline in return on assets (ROA) and return on equity (ROE).
Thus, compared to 2004, the return on assets decreased by 0.7% and amounted to 2.3% in 2006, while the return on equity decreased by 12.3% and amounted to 27.4% in 2006.
This decrease in UniCredit Bank's margins may be due to the fact that the growth rate of assets and capital is growing faster than the growth rate of earnings.
Consequently, the Bank needs to review its activities in the field of use and distribution of its assets and capital in such a way as to make the most efficient use of its resources in the future and receive profit from operations. Efforts should also be made to increase the profitability of UniCredit Bank.
Bibliography
1. Federal Law of December 2, 1990 No. 395-I “On Banks and Banking Activities”
2. Federal Law No. 40-FZ of February 25, 1999 “On the Insolvency (Bankruptcy) of Credit Institutions”
3. Ordinance of the Central Bank of the Russian Federation dated January 16, 2004 No. 1379-U “On assessing the financial stability of a bank in order to recognize it as sufficient for participation in the deposit insurance system”
4. Instruction of the Central Bank of the Russian Federation dated January 16, 2004 No. 110-I “On mandatory bank ratios”
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Profitability is one of the key indicators in financial analysis, because it actually shows what kind of return the company receives from what it has invested in. This indicator can be calculated both as a whole and for individual types of assets, which is especially convenient for identifying problem areas that require refinement and improvement.
Return on assets: essence and calculation
The simplest definition of return on assets suggests that this ratio shows the return on the organization's property - in aggregate or by individual types. In this case, we are talking not only about the properties and characteristics of objects that allow them to generate a certain income, but also about the quality of their management.
The ratio is calculated by dividing net income by assets. The balance formula looks like this:
ROA = line 2400 (OFR) / line 1600 (BB),
Where OFR is a statement of financial results, BB is a balance sheet.
To improve the accuracy of calculations, it is recommended to take the average annual value of assets, that is, sum up the value at the beginning of the year, at the end of the year and divide in half. This is done in order to more or less correctly take into account the outflow and inflow of objects during the year.
If we take the value at the beginning of the year, then the profitability may turn out to be overestimated due to those facilities that were put into operation during the year. If we take the value at the end of the year, the indicator may be underestimated, because. some objects did not generate profit for the entire billing period, but only for several months.
It is difficult to determine the normative value of this coefficient, since it is necessary to take into account the industry in which the analyzed enterprise operates. If this is a service sector, where assets are present at a minimum, then the profitability should be quite high. And in capital-intensive industries, where there are extensive investments in fixed and working capital, the normative value will be many times lower. For the purposes of analysis, you can rely on the average value of the return on assets in the industry.
If necessary, the return on total assets is calculated. The calculation method is the same, but instead of net profit, profit before tax is taken.
ROTA = p. 2300 (OFR) / p. 1600 (BB)
Unlike ROA, this ratio will not show the profitability of assets and their use, but profitability. Any of these indicators can also be calculated as a percentage by simply multiplying the resulting value by 100.
Profitability of current and non-current assets
These indicators come to the rescue when the company's management has already assessed the overall level of profitability and plans to work on its increase. However, it is difficult to judge anything by the overall coefficient, it does not show the root of the problem, it only demonstrates the current state of affairs. But the analysis of the effectiveness of the use of individual groups of objects allows you to understand what area you need to work on.
Return on non-current assets = line 2400 (OFR) / line 1100 (BB)
Return on current assets = line 2400 (OFR) / line 1200 (BB)
The result of the calculations will show how many rubles of net profit will fall on 1 ruble of funds invested in current or non-current assets, respectively.
Return on net assets
The formula of this indicator is similar to the previous ones, only net assets are taken as the basis as the difference between the property and liabilities of the organization.
RONA = PE / CA,
Where NP is net profit, NA is net assets.
This indicator takes into account two aspects of the effective management of the organization at once - the excess of assets over liabilities and their profitability. The normative value of the coefficient is strictly above zero, regardless of the industry. A negative value will indicate that the company is operating at a loss.
This is explained by the very composition of the formula. The value can be negative only if there is a negative number in the denominator or numerator - that is, either the company does not make a profit (but receives a net loss), or it has more liabilities than its own property, and in fact it is completely dependent on creditors.
Dynamics of profitability indicators and how to improve it
In terms of profitability, financial analysis is quite simple. It is enough to approach the indicator from a mathematical point of view. Then we get three statements.
- Negative profitability is only possible if the firm is making a loss. Assets cannot be negative - they are either positive or they don't exist at all. The exception is net assets.
- The growth of the coefficient is possible either by increasing the numerator of the fraction (net profit), or by decreasing the denominator (type of assets).
- Reducing the coefficient is possible either by reducing the numerator (net profit), or by increasing the denominator (type of assets).
Thus, we come to the simplest way to increase profitability - increasing profits, for example, by raising prices for products and services. However, in practice, most often you have to work with the internal organization of the production process and management, i.e. with assets.
How to work with them depends on the type of assets. If we are talking about working capital, we need to increase the turnover ratio, that is, the speed of use in the production process. For example, the elementary adjustment of the optimal conveyor in the shop can significantly speed up the work.
When it comes to non-current assets, the emphasis is on their need. If the workshop building is idle, it must be sold, leased or expanded production, including this area. If, in fact, only five trucks are needed for the needs of the organization, and there are eight on the balance sheet, then the remaining three must also be either sold, or involved in the process, or leased.
In the case of net assets, the situation is a little more complicated. On the one hand, an increase in one's own property also increases the NA. On the other hand, it may be appropriate not to buy new property, but to allocate funds to pay off obligations, which will also ultimately increase the financial stability of the enterprise.
Return on bank assets
At first glance, the return on banking assets is no different from that of enterprises. Indeed, it is calculated according to the same formula:
ROA = Profit / Assets.
However, in practice, the assets of enterprises and banks have a significant difference. The enterprise invests in what it actually has available - buildings, equipment, materials, raw materials. The bank creates assets by placing funds - issuing loans, investments, etc. Therefore, the profitability indicator has a slightly different meaning.
The ROA ratio still speaks of return and efficiency, but if its sharp increase for the enterprise means a significant increase in the return and profitability of objects, then for the bank this may signal an increase in the riskiness of investments, which in the long run may turn into a collapse. Moreover, profitability well above the industry average may indicate speculative transactions.
A downgrade can mean not only a decrease in efficiency and returns, but also a simple lack of a client base, poor customer acquisition, and overly conservative policies regarding investment and client selection.
Bank profitability(Return; Profitability) is a relative indicator of economic efficiency. comprehensively reflects the level of efficiency in the use of resources and capital of the bank. The profitability ratio is calculated as the ratio of operating profit to the assets, resources or flows that form it. The bank's profitability can be expressed in terms of profit per unit of invested funds or in terms of profit, which is contained in each received monetary unit. The main indicators characterizing profitability are ROA, ROE.
ROA (Return on Assets)- an indicator of the profitability of the use of the bank's assets. It is calculated as the ratio of the bank's profit after tax on the reporting date to the average value of the assets used by the bank for the corresponding period and is expressed as a percentage.
ROE (Return on Equity)- an indicator of profitability of the use of the authorized capital of the bank. It is calculated as the ratio of the bank's profit after tax on the reporting date to the average value of the balance sheet capital for the corresponding period and is expressed as a percentage.
In addition to ROA and ROE, other profitability indicators can be calculated, for example, ROC, RAROC, CIR, etc.
ROC (Return on Capital)— an indicator of the profitability of using the bank's equity capital. It is calculated as the ratio of the bank's net profit for the reporting period to the average annual amount of the bank's share capital and is expressed as a percentage.
RAROC (Risk-Adjusted Return on Capital)— an indicator of the return on the use of the bank's capital, adjusted for risks. It is calculated as the ratio of expected return to the bank's economic capital (in some cases, to regulatory capital) and is expressed as a percentage. One of the options for determining RAROC is the ratio of expected income to . The RAROC indicator is used when the company's activities are associated with risk, which makes it difficult to interpret profitability indicators obtained by conventional accounting methods. This applies to banking, insurance, evaluating the results of trading in securities, comparing the levels of expected profitability of investment projects with different risk characteristics, and the like.
CIR (Cost/Income Ratio)- an indicator that reflects the efficiency of doing business. It is calculated as the ratio of expenses (operating expenses) of the bank for the reporting period to operating profit (operating income) and is expressed as a percentage. If the CIR indicator exceeds 100%, then this means that the bank is operating at a loss. Acceptable for banking practice is the value of CIR in the range of up to 50%.
In domestic practice, profit, assets and capital are calculated in accordance with the Procedure for compiling articles of the quarterly report "Balance" of Ukrainian banks, set out in Appendix No. 2 to the Instruction on the procedure for compiling and publishing financial statements of Ukrainian banks, approved by the Resolution of the Board of the National Bank of Ukraine dated 07.12.2004 No. 598. Profitability indicators are designed to assess the efficiency of the use of bank resources, the efficiency of doing business and compare the positions of individual banks in the market.