1. Total Assets
We evaluate banks based on their cumulative asset portfolio. While asset volume is a key factor, it’s not a comprehensive measure of performance, as asset quality is crucial. This criterion primarily rewards size, acknowledging the complexity of managing larger institutions.
2. Profit Before Tax
Profitability is a critical measure of a bank’s success. Higher profits relative to peers indicate effective resource utilization and suggest stability. PBT justifies a bank’s continued operation and is a key performance indicator.
3. Returns on Average Assets (ROAA)
This ratio compares profits before tax to average total assets, calculated using the mean of year-start and year-end figures. It’s a key metric for shareholders, with a higher ratio being more desirable.
4. Return on Average Core Capital (ROACC)
This improved metric measures profitability against average core capital invested throughout the year. It provides a fairer assessment, especially for banks receiving late-year capital injections. A higher ratio is preferred.
5. Average Cost of Funds
This criterion assesses a bank’s ability to acquire external funding economically. It considers both customer deposits and borrowed funds, with a lower rate being more favorable.
6. Efficiency Ratio (Cost Income Ratio)
This ratio measures efficiency by comparing total operating expenses to total operating income. A lower ratio indicates better operational efficiency.
7. Total Non-Performing Loans to Total Advances
This ratio reflects lending practices and credit management quality. A high ratio suggests imprudent lending and poses risks to customer deposits. A lower ratio is desirable.
8. Non-Performing Loans Provision to Operating Income
This metric evaluates how well a bank’s operating income covers provisions for non-performing loans. A ratio approaching or exceeding 100% indicates potential financial distress.
9. Core Capital to Total Deposit Liabilities
This ratio assesses depositor protection in case of bank failure. A higher ratio indicates greater protection as it reflects the bank’s ability to absorb unexpected losses.
10. Quick Assets to Total Liability
This liquidity measure evaluates a bank’s ability to meet short-term obligations. A higher ratio is preferred, indicating better preparedness for unforeseen deposit withdrawals.
11. Total Insider Loans to Core Capital
This capital adequacy measure focuses on loans to insiders such as directors, shareholders, and employees. A lower ratio is advisable, aligning with regulatory guidelines limiting insider lending.
