INCOME STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (K' Million) Bank X Bank Y Interest Income Interest income from loans and advances 3,234 2,795 Interest income from investments in securities 2,663 1,683 Interest income from banks and financial institutions 33 50 Total Interest Income 5,930 4,527 Interest Expense Interest expense paid on deposits 1,214 680 Interest expense paid to banks and financial institutions 446 395 Interest expense paid on other borrowed funds 44 43 Total Interest Expense 1,704 1,119 Operating Income (Total Revenue) Interest Income 5,930 4,527 Non-interest income 2,338 2,023 Total Operating Income 8,268 6,549 Operating Expense Interest expenses Provision for loan losses Non-interest expenses Total Operating Expense 1,704 1,119 360 273 3,616 2,453 5,680 3,845 Profit before taxes (or Pre-tax Net Operating Income) 2,588 2,705 Taxes 1,024 947 Profit after taxes (or Net Income) 1,564 1,757 ANNEX 1 BALANCE SHEETS AS AT 31 DECEMBER: (K' Million) Primary Assets BANK X BANK Y 2022 2023 2022 2023 Balances with banks 3,182 1,299 16,164 13,714 Investment in securities 9,725 18,025 8,361 8,280 Total loans and advances Allowance for Loan losses 12,440 19,365 12,147 14,015 (539) (694) (969) (815) Total earning assets 24,808 37,995 35,703 35,194 Notes and coins 1,090 1,327 3,209 3,133 Balances with BoZ 2,539 5,520 4,198 6,991 Other assets 2,579 5,521 2,050 2,413 Total assets 31,016 50,362 45,159 47,730 Liabilities and Shareholders' equity Demand deposits 16,061 23,330 27,214 24,958 Savings deposits 2,728 4,483 1,714 1,910 A Time deposits Total deposits Balances due to banks Other borrowed funds Total interest bearing liabilities Non-interest bearing liabilities Shareholders' equity 5,819 24,608 112 2,104 3,114 26,824 39,731 2,346 6,637 1,846 3,994 8,705 36,519 98 7,977 7,738 36,906 34,605 766 1,124 609 433 Total liabilities and shareholders' equity 31,016 50,362 38,280 36,162 2,925 6,004 3,954 45,159 47,730 5,563 bject matt ubject ma bject matt tter exper overty, die hts and... ndustry is isk Manac promoti

INCOME STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (K' Million) Bank X Bank Y Interest Income Interest income from loans and advances 3,234 2,795 Interest income from investments in securities 2,663 1,683 Interest income from banks and financial institutions 33 50 Total Interest Income 5,930 4,527 Interest Expense Interest expense paid on deposits 1,214 680 Interest expense paid to banks and financial institutions 446 395 Interest expense paid on other borrowed funds 44 43 Total Interest Expense 1,704 1,119 Operating Income (Total Revenue) Interest Income 5,930 4,527 Non-interest income 2,338 2,023 Total Operating Income 8,268 6,549 Operating Expense Interest expenses Provision for loan losses Non-interest expenses Total Operating Expense 1,704 1,119 360 273 3,616 2,453 5,680 3,845 Profit before taxes (or Pre-tax Net Operating Income) 2,588 2,705 Taxes 1,024 947 Profit after taxes (or Net Income) 1,564 1,757 ANNEX 1 BALANCE SHEETS AS AT 31 DECEMBER: (K' Million) Primary Assets BANK X BANK Y 2022 2023 2022 2023 Balances with banks 3,182 1,299 16,164 13,714 Investment in securities 9,725 18,025 8,361 8,280 Total loans and advances Allowance for Loan losses 12,440 19,365 12,147 14,015 (539) (694) (969) (815) Total earning assets 24,808 37,995 35,703 35,194 Notes and coins 1,090 1,327 3,209 3,133 Balances with BoZ 2,539 5,520 4,198 6,991 Other assets 2,579 5,521 2,050 2,413 Total assets 31,016 50,362 45,159 47,730 Liabilities and Shareholders' equity Demand deposits 16,061 23,330 27,214 24,958 Savings deposits 2,728 4,483 1,714 1,910 A Time deposits Total deposits Balances due to banks Other borrowed funds Total interest bearing liabilities Non-interest bearing liabilities Shareholders' equity 5,819 24,608 112 2,104 3,114 26,824 39,731 2,346 6,637 1,846 3,994 8,705 36,519 98 7,977 7,738 36,906 34,605 766 1,124 609 433 Total liabilities and shareholders' equity 31,016 50,362 38,280 36,162 2,925 6,004 3,954 45,159 47,730 5,563 bject matt ubject ma bject matt tter exper overty, die hts and... ndustry is isk Manac promoti

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

Bank X and Bank Y are two of the top 5 banks operating in Zambia. As of 31 December 2023,
Bank X held 14% of the total assets and deposits in the Zambian banking sector, while Bank Y
held 16%, respectively. The two banks have a comparable number of branches and ATMs spread
out over the country and are typical commercial banks engaged in both retail and wholesale
business.
REQUIRED:
To answer the questions, refer to the summary financial statements of Bank X and Bank Y in
Annex 1 (and the associated Excel worksheets).

For all balance sheet items, you must use average amounts when performing the ratio
analysis (e.g., average assets for (2023) = [Total assets (2023) + Total assets (2022)]
divided by 2).
▪ You must present all the numerical answers to two decimal places.

1. Return on Assets (ROA)
A. Calculate the ROA ratios for Bank X and Bank Y and what can you conclude from the
results obtained.
B. By decomposing the ratio into its major components, clearly show the sources of the
difference in the two banks’ ROA ratios. Please summarise the results in a table format.
C. What is(are) the major contributor(s) for the difference in the performance of the two banks
as revealed by the results in (B) above?
2. Return on Equity (ROE)
A. Calculate the ROE ratios for Bank X and Bank Y and what can you conclude from the
results obtained.
B. Clearly demonstrate how the Equity Multiplier (EM) and Return on Assets (ROA) are
related to Return on Equity (ROE). Please summarise the results in a table format.
C. What is(are) the major contributor(s) for the difference in the performance of the two banks
as revealed by the results in (B) above?

INCOME STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023
(K' Million)
Bank X
Bank Y
Interest Income
Interest income from loans and advances
3,234
2,795
Interest income from investments in securities
2,663
1,683
Interest income from banks and financial institutions
33
50
Total Interest Income
5,930
4,527
Interest Expense
Interest expense paid on deposits
1,214
680
Interest expense paid to banks and financial institutions
446
395
Interest expense paid on other borrowed funds
44
43
Total Interest Expense
1,704
1,119
Operating Income (Total Revenue)
Interest Income
5,930
4,527
Non-interest income
2,338
2,023
Total Operating Income
8,268
6,549
Operating Expense
Interest expenses
Provision for loan losses
Non-interest expenses
Total Operating Expense
1,704
1,119
360
273
3,616
2,453
5,680
3,845
Profit before taxes (or Pre-tax Net Operating Income)
2,588
2,705
Taxes
1,024
947
Profit after taxes (or Net Income)
1,564
1,757

ANNEX 1
BALANCE SHEETS AS AT 31 DECEMBER:
(K' Million)
Primary
Assets
BANK X
BANK Y
2022
2023
2022
2023
Balances with banks
3,182
1,299
16,164 13,714
Investment in securities
9,725 18,025
8,361
8,280
Total loans and advances
Allowance for Loan losses
12,440
19,365
12,147
14,015
(539)
(694)
(969)
(815)
Total earning assets
24,808
37,995
35,703
35,194
Notes and coins
1,090
1,327
3,209
3,133
Balances with BoZ
2,539
5,520
4,198
6,991
Other assets
2,579 5,521
2,050
2,413
Total assets
31,016 50,362
45,159 47,730
Liabilities and Shareholders' equity
Demand deposits
16,061 23,330
27,214 24,958
Savings deposits
2,728 4,483
1,714 1,910
A
Time deposits
Total deposits
Balances due to banks
Other borrowed funds
Total interest bearing liabilities
Non-interest bearing liabilities
Shareholders' equity
5,819
24,608
112
2,104 3,114
26,824 39,731
2,346 6,637
1,846 3,994
8,705
36,519
98
7,977
7,738
36,906
34,605
766
1,124
609
433
Total liabilities and shareholders' equity 31,016 50,362
38,280 36,162
2,925 6,004
3,954
45,159 47,730
5,563
bject matt
ubject ma
bject matt
tter exper
overty, die
hts and...
ndustry is
isk Manac
promoti

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Expert Solution

Step by step

Solved in 1 steps

SEE SOLUTION Check out a sample Q&A here