Peoples Bank Ltd. Balance sheet As at 31/03/2021 Assets $(000) Liab. & Equity $(000) Cash 50,000 Payables 50,000 Short term Invest 50,000 short term deposits 500,000 Long term Invest. 180,000 long term deposits. 180,000 Loans 550,000 Long-term bonds 50,000 Other 50,000 Equity 100,000 Total 880,000 880,000 The long-term investment portfolio comprises shares in an associate company (25%), a zero-coupon bond (25%), government fixed rate bonds (40) and shares in publicly traded companies (10%). The loan portfolio is composed as follows: 10% residential mortgages, 50% consumer and 40% commercial. The loan portfolio has a 5% delinquency, and the average return is 8%. Fixed rate loans are 60% and floating rate 40%. Deposits are primarily short term. The renewal rate is declining and expected to continue into the medium term. The average deposit rate is 4%. Interest rates are expected to rise in the short term for both, loans and deposits. A. Based on the balance sheet and the information above, identify three risks facing the bank? Explain.
Peoples Bank Ltd.
As at 31/03/2021
Assets $(000) Liab. & Equity $(000)
Cash 50,000 Payables 50,000
Short term Invest 50,000 short term deposits 500,000
Long term Invest. 180,000 long term deposits. 180,000
Loans 550,000 Long-term bonds 50,000
Other 50,000 Equity 100,000
Total 880,000 880,000
The long-term investment portfolio comprises shares in an associate company (25%), a
zero-coupon bond (25%), government fixed rate bonds (40) and shares in publicly traded
companies (10%).
The loan portfolio is composed as follows: 10% residential mortgages, 50% consumer
and 40% commercial. The loan portfolio has a 5% delinquency, and the average return is
8%. Fixed rate loans are 60% and floating rate 40%.
Deposits are primarily short term. The renewal rate is declining and expected to continue
into the medium term. The average deposit rate is 4%.
Interest rates are expected to rise in the short term for both, loans and deposits.
A. Based on the balance sheet and the information above, identify three risks facing the bank? Explain.
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