Recent Question/Assignment

COLLEGE OF BUSINESS
VICTORIA UNIVERSITY
BEO3447 COMMERCIAL BANKING AND FINANCE
SEMESTER 1, 2016
City Flinders Campus
Assessment 3 : Group Assignment Weighting : 25 Marks
Due date/week : In Week 12 of the semester
This assignment is a group-based simulated banking project that contains two parts (I) Briefing to the Bank CEO (18 Marks) and (II) Measuring bank performances based on ratio analysis (7 marks). Each group as a “risk management team” is required to submit a written report. Please read carefully your requirements to complete the assignment in each part below. In addition to the information given in this document, your requirements will be explained in detail during Week 8 lecture.
The learning outcomes for the group assignment are LO 1, 2, 3, 4, 5, and 6.
1. Analyse and critically review the major types of risks faced by banks and sources of such risks.
2. Assess the impact of risk on bank balance sheets and the role of regulation.
3. Appraise qualitative and quantitative data in assessing bank performance
4. Contrast various portfolio strategies including non-market related and derivative contracts used by banks in managing various risks.
5. Demonstrate clear, coherent and independent exposition of knowledge in commercial banking and finance in presenting well-structured written reports.
6. Exhibit individual responsibility and accountability for contributions to team work.
General Instructions:
1. All students by now must be assigned to a banking group with a hypothetical bank name and handed to your instructor. Each group may contain 4 students from a same tutorial class.
2. The missing data will be given to each group in tutorials.
3. Your assignment must include the name of your bank and the names of each group member, including student IDs.
4. You are also required to submit an activity log using the template given in page 4 of this document to determine your contribution in the assignment
5. No single-authored submission will be accepted.
Part One: Briefing to the Bank CEO
The Accounts Department of a major bank forecasts an increase in interest rates (?R) of xxx bps and the Senior Management of the bank is concerned about the impact of this possible interest rate increase on the performances of the bank. Your group has been appointed as a risk management team and are requested to provide a risk analysis of your bank. To this effect, submit a report to the CEO of the bank on assessment of the risk that the bank would face as a result of the change in interest rate.
The Accounts Department has provided you with the following balance sheet information. Please use this information in your analysis.
Balance Sheet
Assets ($million) Market yields
% Duration
Cash
Interbank lending
3-month T-notes
2-year T-bonds 5-year T-bonds
10-year T-bonds
Consumer loans
Business loans
Fixed-rate mortgages
Variable-rate mortgages
Premises & equipment 160 550
450
400 600
900
800
450
1,300
700 190 -
5.05
4.50
5.00
6.00
7.00
6.00
5.80
7.85
6.30
- -
0.02
0.25
2.00
*
*
2.50
6.58
19.50 0.50
-
Total assets 6,500
Liability & Equity
Demand deposits
Savings accounts
3-month CDs
6-month CDs
1-year CDs
5-year CDs
Interbank borrowings
Commercial paper
Subordinated debt: fixed rate 400 450
275
300
590
1,700
885
600 500 -
4.50
4.00
4.30
4.50
6.00
5.00
5.05
7.25 -
0.50
0.25
0.50
*
*
0.02
0.45
6.65
Total liabilities 5,700
Equity 800
Total liabilities and equity 6,500
Notes: Please use the following notes in conjunction with the balance sheet data.
1. The coupon rate paid on 5-year T-bonds is 5.00% (per annum). The coupon payment is received bi-annually.
2. The coupon rate paid on 10-year T-bonds is 6.00% (per annum) and the coupon payment is received annually.
3. Variable rate mortgages are repriced at every six months.
4. 1-year CDs have been issued with a coupon rate of 4.00% (per annum, biannual payments)
5. 5 year CDs has been issued with a coupon rate of 5.00% (per annum, annual payments).
6. The current price on IRFs is $98.50 per $100 FV with a contract size of $500,000.The duration of the deliverable security is xxx yrs. The sensitivity of the futures and spot rates (b ratio) is assumed to be expressed in the regression ?Sp = -2.5 + 1.05?Fp.
7. We further note that the 12-month cumulative Lgap is forecast to rise and that our loan base is expanding at a rate faster than our deposits.
8. xxx denotes missing data that will be provided in tute classes.
In your written report analysing the risk of the bank, you are expected include the following:
(i) A discussion (no more than one page) that outlines various sources/types of risks a bank would face in general;
(ii) Given that the Accounts Department has forecast an increase in rates, analyse the extent to which our bank is exposed to interest rate risk/s, if any. In this case, using your understanding about the interest rate risk as discussed during the semester, you are required to measure interest rate risk using major models introduced in this unit. Hint: you may analyse the impact of rate change on net worth and net interest income over 30 days and one year horizons;
(iii) Following the analysis in part II above, formulate a strategy to cover any decline in net worth using futures, if applicable and;
(iv) Provide a brief assessment as to whether the bank is facing any other risks in its current operations and if so, outline an strategy with recommendations to address/manage such risks. In this strategy you may include recommendations that can be implemented in the medium to long run in managing the risk as well as improving the bank’s profitability.
Part Two: Measuring Bank Performances
Data for Ratio Analysis S1 2016 CF.xlsx file contains the following information of a major bank operating in Australia. 1. Financial summary 2008-2010
2. Income statement 2008-2010
3. Balance sheet 2008-2010
Using the data contained in these reports conduct a ratio analysis to measure the performances of this bank for the period 2008-2010. You are required to:
i. Calculate bank performance ratios (Part IV Core reading includes a discussion on Bank Performance ratios)
ii. Provide an analysis based on ratios calculated for the period 2008-2010.
iii. Highlight any specific aspects arising from analysis in terms of the risk this bank is facing.
Please note the following presentation guidelines:
1. You are required to provide a written report including (I) Briefing to the CEO and (II) Ratio analysis of the given bank. This report should be presented following the standard presentation guidelines. Written submission may not exceed more than 5 pages. However you are advised to include all your calculations in an appendix.
2. You are required to submit an activity log using the following template to determine your contribution in the assignment.
Activity log
Date/Time Activity description Reflective learning notes Name/Names of students who completed activity
We hereby declare that we have completed the above activities and each member of our group has equally contributed to complete the group task.
Student Names:
Signatures:

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