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 Yheld 16%, respectively. The two banks have a comparable number of branches and ATMs spreadout over the country and are typical commercial banks engaged in both retail and wholesalebusiness.REQUIRED:To answer the questions, refer to the summary financial statements of Bank X and Bank Y inAnnex 1 (and the associated Excel worksheets).For all balance sheet items, you must use average amounts when performing the ratioanalysis (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.3. Net Interest Margin (NIM)A. Calculate the NIM ratios for Bank X and Bank Y and what can you conclude from theresults obtained.B. By decomposing the ratio into its major components, clearly show the sources of thedifference in the two banks’ NIM ratios. Please summarise the results in a table format.D. What is(are) the major contributor(s) for the difference in the performance of the two banksas revealed by the results in (B) above?4. Burden ratioA. Calculate the burden ratios for Bank X and Bank Y and what can you conclude from theresults obtained.B. By decomposing the ratio into its major components, clearly show the sources of thedifference in the two banks’ burden 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 banksas revealed by the results in (B) above? ANNEX 1BALANCE SHEETS AS AT 31 DECEMBER:(K' Million)PrimaryAssetsBANK XBANK Y2022202320222023Balances with banks3,1821,29916,164 13,714Investment in securities9,725 18,0258,3618,280Total loans and advancesAllowance for Loan losses12,44019,36512,14714,015(539)(694)(969)(815)Total earning assets24,80837,99535,70335,194Notes and coins1,0901,3273,2093,133Balances with BoZ2,5395,5204,1986,991Other assets2,579 5,5212,0502,413Total assets31,016 50,36245,159 47,730Liabilities and Shareholders' equityDemand deposits16,061 23,33027,214 24,958Savings deposits2,728 4,4831,714 1,910ATime depositsTotal depositsBalances due to banksOther borrowed fundsTotal interest bearing liabilitiesNon-interest bearing liabilitiesShareholders' equity5,81924,6081122,104 3,11426,824 39,7312,346 6,6371,846 3,9948,70536,519987,9777,73836,90634,6057661,124609433Total liabilities and shareholders' equity 31,016 50,36238,280 36,1622,925 6,0043,95445,159 47,7305,563bject mattubject mabject matttter experoverty, diehts and...ndustry isisk Manacpromoti INCOME STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023(K' Million)Bank XBank YInterest IncomeInterest income from loans and advances3,2342,795Interest income from investments in securities2,6631,683Interest income from banks and financial institutions3350Total Interest Income5,9304,527Interest ExpenseInterest expense paid on deposits1,214680Interest expense paid to banks and financial institutions446395Interest expense paid on other borrowed funds4443Total Interest Expense1,7041,119Operating Income (Total Revenue)Interest Income5,9304,527Non-interest income2,3382,023Total Operating Income8,2686,549Operating ExpenseInterest expensesProvision for loan lossesNon-interest expensesTotal Operating Expense1,7041,1193602733,6162,4535,6803,845Profit before taxes (or Pre-tax Net Operating Income)2,5882,705Taxes1,024947Profit after taxes (or Net Income)1,5641,757

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Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

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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.

3. Net Interest Margin (NIM)
A. Calculate the NIM 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’ NIM ratios. Please summarise the results in a table format.
D. 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?
4. Burden ratio
A. Calculate the burden 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’ burden 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?

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

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.

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