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Issues for understanding a Bank-Robin Trehan

There are multitudes of issues to work on while analyzing a bank. They can be broken down to Asset Quality, Liquidity, Earnings, Capital, Sensitivity to Market Risk, Management.

Asset Quality-

Distribution and Severity of Classified Assets. Substandard, Doubtful, or Loss. Asset Quality of adversely classified assets, nonaccruals, and concentration of risk inherent in the loan portfolio.

1-      Level of nonaccrual loans to total loans

2-      ALLL ( Allowances for loan and Lease losses)

3-      Volume and Nature of special mention classification

4-      Past Due and Nonaccrual loans to total loans

5-      Lending policies and credit administration procedures

6-      Asset Class and its concentration within an industry or segment


1-      Volatility of deposits

2-      Frequency and level of borrowing

3-      Technical competence relative to structure of liabilities

4-      Availability of assets readily convertible to cash.

5-      Access to money markets or other ready source of funds

6-      Overall effectiveness of asset liability management strategies

7-      Net loans and leases to deposits and net non core dependence ratios


1-      Ability o cover losses and provide adequate capital

2-      Earning trends, and the quality and composition of net income

3-      Reliance on interest sensitive funds

4-      Adequacy of provisions to the ALLL

5-      Net Income to Average Assets

6-      Net Interest income to Average Assets. Net Interest Income can be adversely affected by increasing level non-accrual loans, loan modifications, declining yields on loans and higher cost of funds

7-      Overhead Expense to Average Assets

8-      Provisions to Average Assets


1-      Class of Assets and its concentration within a business or segment

2-      Exposure to market conditions and its concentration.

3-      Volume of Severity of risk assets

4-      Growth Experience and plans

5-      Earning retention

6-      Tier 1 Leverage capital  to Average Total Assets

7-      Tier 1 risk based capital

8-      Total risk based capital

Sensitivity to Market Risk

1-      Changes in social, economic and political condition

2-      Sensitivity of earnings or the economic value of its capital to the adverse changes in interest rates

3-      Ability of management to identify, measure, monitors, and control exposure to market risks

4-      Nature and complexity of interest rate risk exposure arising from non trading positions


1-      Education and experience

2-      Technical competence.

3-      Leadership and administrative ability

4-      Compliance with banking regulation and statutes

5-      Adequacy and compliance with internal policies

6-      Depth and succession

7-      Ability to plan and respond to changing circumstances

8-      Quality of internal controls and operating procedures


Robin Trehan

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