What are the components of net interest income? What must a bank consider in managing each...

What are the components of net interest income? What must a bank consider in managing each part?

Expert Solution

Net Interest Income:

Banks carry interest bearing loan portfolio on asset side such as personal loan, auto loan, mortgage, commercial loan etc. Similarly, banks service interest on their liabilities such as customers deposit. Net interest Income (NII) is difference between interest earned on asset and interest paid on liabilities.
For example, if a bank has loan portfolio of $ 100 million and earns interest rate of 6%. Bank has customer deposit of $ 120 million with interest rate of 4%. Then NII would be ($ 100 * 6%) – ($ 120 *4%) = $ 1.2 millions.

Managing NII:

NII is exposed to interest rate risk and loan portfolio quality.
With change in interest rate by Federal bank, interest applicable on loan portfolio changes as well interest expense on customer’s deposit changes. Banks use to have proportion of fixed interest rate loan and variable interest rate loan, such as to maintain NII. At the same time, loan portfolio composition is spread across various types such as personal loan , mortgage to maintain volatility in NII.
Loan portfolio quality is also an important factor of NII. As default on portfolio increase then , NII can not be realised and portfolio turns into non-performing assets.

jeff jeffy answered 1 year ago

Calculate the Interest Income, Interest Expense, Net Interest Income, and Net Interest Margin for the bank...

Calculate the Interest Income, Interest Expense, Net Interest Income, and Net Interest Margin for the bank listed below. Use Total Assets for ratios (rather than earning assets). "%" denotes the interest rate earned or paid on the designated asset or liability category. Please show your work in order to receive credit. Assets Amount % Liabilities and Equity Amount % Cash 80 0.0% Non-interest deposits 100 0.0% Securities 270 5.5% NOW checking 170 2.0% Loans, net 600 7.5% MMDA 330 4.0% Fed...

6.2 EF A. Calculation of Net Interest Income for each bank :- For US Bank Asset...

6.2 EF A. Calculation of Net Interest Income for each bank :- For US Bank Asset = 120*1.5= $180 million Interest on asset= 180*6.5%= $11.7 million Interest on Liability = 180*4.75%= $8.55 million => Net Interest Income= 11.7-8.55 = $3.15million ROA= (3.15/180)*100= 1.75% For UK Bank :- Asset = 180/1.5= £120 million => Net Interest Income= 120(6.5-4.75)= £2.10 million ROA= (2.10/120)*100= 1.75% B. Calculations when spot rate is $1.6820/£ For us Bank :- Asset= 120*1.6820= $201.84 million Interest on above=...

what are the 3 components of bank deregulation? Give examples of each.

The community bank survey asked about net income and reported the percent change in net income...

The community bank survey asked about net income and reported the percent change in net income between the first half of last year and the first half of this year. The mean change for the 120 banks in the sample is 7.6%. Because the sample size is large, we are willing to use the sample standard deviation s = 20.5% as if it were the population standard deviation σ. Does the 7.6% mean increase provide evidence that the net income...

If a bank is characterized by a positive income gap and interest rates rise, what will...

If a bank is characterized by a positive income gap and interest rates rise, what will happen? What will happen if the bank is characterized by a negative income gap and interest rates rise? How would your answer to these questions change if we assumed that interest rates were falling? How can banks insulate themselves from the threat posed by volatile interest rates on bank income?

Discuss the two key issues bank management must deal with, in managing the public’s deposits, and...

Discuss the two key issues bank management must deal with, in managing the public’s deposits, and what are these banks doing about it.

) Boston Bank has the following interest rates and sensitivity position. What is the current net...

) Boston Bank has the following interest rates and sensitivity position. What is the current net interest margin (NIM)? What is the 90-day interest sensitivity gap? If rates increase by 200 basis points in 365 days, does the NIM likely increase, decrease, or stay the same during that 365-day period? 0-90 days 91-365 days 1 year+ Earning Assets $mm rate(%) $mm rate(%) $mm rate(%) weighted avg. rates(%) Loans 170 6.70 140 6.40 90 6.00 6.44 Investments 50 ...

If a bank has a _ gap, its net interest margin will be affected by...

If a bank has a ___________ gap, its net interest margin will be __________ affected by an increase in interest rates -negative, positive -negative, adversely -positive, adversely -zero positive the duration of a zero-coupon bond will be _______ the duration of a couple bond with the same yield, maturity and other characteristics. - lower than - higher than -equal to -more information is needed

"Noncontrolling interest": is a component of the parent company's net income and reported on the income...

"Noncontrolling interest": is a component of the parent company's net income and reported on the income statement. is a component of stockholders' equity attributable to the parent company and reported on the balance sheet. is the portion of equity in a subsidiary not attributable, directly or indirectly, to the parent company, and reported on the balance sheet within equity, but separate from the parent company's equity. is not reported within the parent company's consolidated financial statements, but instead reported within...

Equity in Net Income and Noncontrolling Interest in Net Income Palm Resorts acquired its 70 percent...

Equity in Net Income and Noncontrolling Interest in Net Income Palm Resorts acquired its 70 percent interest in Sun City on January 1, 2017, for $41,750,000. The fair value of the 30 percent noncontrolling interest at the date of acquisition was $14,750,000. Sun City’s date-of-acquisition reported net assets of $5,000,000 were carried at amounts approximating fair value, but it had unrecorded identifiable intangibles, capitalizable per ASC Topic 805, valued at $7,500,000. These intangibles are determined to have limited lives, amortized...

Question