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[Music] Salam alaikum wa rahmatullahu car - and a very good day my name is not imam hasan bin masseur and i will be conducting in this session with you now what i'm going to do is that we're going to discuss a topic on measuring the Pens performance now we want to continue what we have discussed in the class which is first of all let us discuss the bank condition they are actually several condition which we can use the name camels so number one is capital adequacy number two is asset quality number three is management quality number four is earnings or profitability number five is activity and number six is sensitivity to market risk now all of these conditions are very important to highlight how banks can perform now let us look into the next slide basically capital adequacy represent reduce risk which is very important to have a capital adequacy so if a pen condition of capital adequacy is not enough then it will make the bank not performing well so that is why the reason you have capital adequacy is to reduce risk to absorb losses to support the financing and operation of a bank the function next is to provide protection to depositors and other predators and also capital adequacy can be used as a public confidence now next condition in the bank is asset quality now it is about determining the current and future profitability of the bank so it is an indicator of how the quality of the asset that the bank had so basically usually loans as if it the highest default rate and leave NPL or non-performing loans increase the s equality of a bank will deteriorate so that is the direct in fact to accept polity next is about management quality that is the third condition so management quality is about the management has an overview of a bank's operation manages the quality of loans and has insure has to ensure that the bank is profitable now the next condition is profitability so profitability collision is very important to tell the bank's performance it is the most important to be catered towards banks performance and usually one facility can be measured as return on a circle or a written on it Hill Rd and net interest margin now the next Bank condition is liquidity so how does the committee looks at to tell about the bank's performance so basically the use of the pendulum live is to meet deposit rolls and satisfy customer low demand liquidity here refers to how fast and how easy an essay can be converted into cash if a bank suffers uninsured stress on the lives of any reason except liquidity can be reserved that the bank can be draw on in and the event it assess the purchase fun if we gives us so very important to have the crediting in order for the banks to be able to meet the scarring situation 41 quickly so that is the reason to add infinity now the next is sensitivity to the maquette minutes so in this condition is that what we need to know about Mikhail is basically the tanks are always exposed to market risk for example in movement of interest rate because why because most of the banks product emotion most of the investment that they have in the asset or the sources of income basically they put that in the money McHenry mr. is interest and that is why they are exposed to market risk because the matter business about the changes in the interest rate that will affect the market value of security such as bonds manager and Treasury bills now next is external performance as what we learn before we have to wait due to performance internal and external so they're external performers especially the marquetry is admati share regulatory Valiants and public confidence now basically market share is the shareholder value of the bank but as the regulatory compliance relate to how much the Reserve Bank bank after it work and also looking at the banks lending policy so that is what external performance is about and we are looking at what is the public confidence the worst rank based on the current situation of the death public image for example and also looking at the situation in the country policy on deposit insurance reserves because this time 1 external this is beauty because this is something where the performance of a bank cannot be controlled by the bank that is why it is all external performance because for instance market share the bank does it control the movement of the vices of the share because the prices of the share is determined by the supply and demand of the prices in the market the investors buy or the investors selling fashion so that is why how movement of the prices is not controlled by them and also that it will compile various providers is being determined by the central bank and public confidence is what is the co pinyin of the public so banks cannot have the control of it so that is why it is known as external performance so the very important for banks to make sure that we are able to perform in history areas so that we can give a myth the bank the chief Lea profitability in terms of performance if so we have here the positive issues surrogate for stop them so we want to see that firm performance basically being represented by the stock prices where when the bank issuing shares to administer but they create strong and the stocks is being invested in the capital market for example in Malaysia it means being traded in the booster valuation so some of the banks in Malaysia make collect money funding from the investor when the issue shares and investor buy the shares and the by Excel of the shares is being done in the stock market and english' in his van Hooser malaysia but for this condition of shaped Isis this is basically not a reliable indicator or performance on the banking industry now the reason is dead and banks not only the banking industry have issue check stops or share so because some of the bank right they like to control the issuance of equity so usually not all banks will have share prices and therefore what it is going to be use as a limited performance is that we are going to use profitability which shows in indicating surrogates which is pre exchange assessment to market value indicators so let us look at what are the key of utility ratios in thanking these are the several ratios that can be used for determining the profitability of banks so number one is the our own leaning or return on duty upon L which is return on asset a Nike press machine Anette known in the smokey net operating margin and ami per share of stock let us split little bit of the some of the issues here so this dream in return on equity or relief is measuring the rate of return moving to the bank's shareholder with approximate the net benefit to those stockholders have we seized warm investing via capital in the bank for example the stock holder give their money to the company to the bank and your fan is as actually decreased and there are the stockholders are hoping to get some profit the is comments written live here capital that they give to the bank so in order to see this portion it is measured by return on equity next is about victory on a set a little SF is finally an indicator of managerial efficiency he indicates how compatible whole the management of the bank has been coming converting the institution's asset into net earnest so basically the appeal tells how the strategy that the bank meant by the management team usually is led by the CEO for the tip as additive officer of the bank are able to utilize the accept better than air and the SS are able to generate money of profitability and this is why it is immeasurable return on asset look at how well the assets are generating income example of a said that bank can to be generate income is for example in terms of the money that we kept with other banks so that is what is similarly income like their savings with another Bank the cash that the bank have kept in another banks box today the harder some of the examples of asset that is generating returns so basically we have others like network of a Comanche and interest margin and mean on interest margin are considered efficiency measures as well as perfectly the images to is very specific the measures indicate how well nourishment ad style F able to keep the from the group of revenue which are primarily from the bank loans investment and service fee the hip of rising costs principally the interest on deposit and man market moving em employee salaries and benefits and we have others ratios but I would like to go into the next slide which I want to discuss here as our final clue on the ratios now in ocean to me the performance of the time they are also other things that is mentioned the explicitly the bank's performance which is risk the risk is also an area where I think you see whether or not it may impact the bank performance or we would like to learn about some of the risks that infancy and some of them are mr. King is this for example credit risk military materials science means interest rate release volition skills we opt very serious operation of is illegal and appearances reputational risk self judge research degrees and categories now we here for today we only need to do a two very important risk that is going to impact the bank's performance which is the credit risk and liquidity risk so what are they Felicity here I believe is about the profitability that some of the banks are said especially is loose with decline in value and perhaps become worthless so that is what credit is we have a course it before basically as we leap into non-performing asset divided by the total use of in sirs they are also net charge of invited by the total gnomes and answers or another formula is any pollution or low losses invited by the governor's and it sells so that is the measure of credit ease so readiness basically tells about little to the bank lending activity to customers so you have your other person oh okay now excuse ratio co-host the regulate regulator me I become more concerned means that behind the credit risk increase after the cognition this with concern for the regulators but the number is increasing me that the higher your credit risk is exposed in the bank to investment not very good simply sure there is working to the last performance which is liquidity risk now what is all about liquidity risk is about the venture of not having sufficient cash and burning capacity to meet customer the trommel's low demand and other attachments so basically in lorries with about low activity we first bank to borrow emergency funds at excessive cost to cover in depth X Games and this may reduce easterly so is not good for when the bank is having low liquidity yeah final statement some huge useful ratios to measure liquidity risks are as stated here we have what is this amount right this is our the team that can be much ability and also cash and you compare let's have a cutter depository institution invited by total rooms so these are among the ratios before we end this below but I like to see this now why banks feel is that most leases that we have identified a few factors that most failing Bank seem to have in common number one we have a problem area your portfolio which changed as stated below okay and number two is economic condition right so this is some of the features that will look into in our next lecture so thank you very much for listening to this video explanatory narration so Salam alaykum Salam estatua [Music]