Profitability is a management concept with the objective of assessment bank's results from efficiency point of view both for entirely activity and for differently management compounds.From conceptual point of view, profitability represents the modality to achieve the major goal of bank's activity, respectively the maximization of profit in minimization risk conditions. The approach from a quality perspective of activity results conducts to assessment of application modalities of different compunds of management, in comparison to the strategy elements, thus must to result the concrete degree to achieve the politic and banking strategy compunds.profitability, assets, balance, rentability

Caruntu, Genu Alexandru

Romanescu, Marcel Laurentiu

English

Research Papers in Economics

THE ASSESSMENT OF BANKING PERFORMANCES- 
INDICATORS OF PERFORMANCE IN BANK AREA 
 
Căruntu Genu Alexandru – Lect. Univ. dr. 
Universitatea Constantin Brâncuşi Tg-Jiu 
Romanescu Marcel Laurenţiu – Lect. Univ. dr.  
Universitatea Constantin Brâncuşi Tg-Jiu 
 
Abstract 
 
Profitability is a management concept with the objective of assessment bank's 
results from efficiency point of view both for entirely activity and for differently 
management compounds.From conceptual point of view, profitability represents the 
modality to achieve the major goal of bank's activity, respectively the maximization of 
profit in minimization risk conditions. The approach from a quality perspective of 
activity results  conducts to assessment of application modalities of different compunds 
of management, in comparison to the strategy elements, thus must to result the concrete 
degree to achieve the politic and banking strategy compunds. 
 
Keywords: profitability, assets, balance, rentability 
 
The profitability analysis are achieved on a set of  indicators to measure the 
banking performances. The indicators result/arise from the accounting dates, which 
illustrate the reference periods in the most synthetic   expressions  of balance sheet and 
the profit and loss account. 
Must be said that, during the incomes situation, the interests cashed which 
represent  incomes, also the paid interests which represent expenses are determined as 
yearly medium account balances, by application to every one the usually interest 
percentage.The taxes are settled by application the topic tax quotations. 
On the basis of balance sheet for the analysed period and the profit and loss 
account, are determined the necessary elements in order to express the profit indicators, 
and afterwards is proceeding to their's determinations.  The main performance indicators 
computed for banks are: 
1.  Return on Equity or profit to equity, is the most signficant indicator for profit, 
which measures the banking management in all its dimensions, and offers an 
image over the way to use the capitals brought by  shareholders, the effect of their 
retainer in bank's activity.   The indicator are determined thus :  100 ⋅ =
Capital
profit Net
ROE  
It is  considered the net profit after deduction of all expenses and taxes  and the 
capital is a sum of nominal capital, of unshared profit and the reserve funds. The 
speciality literature allots important studies to this indicator, considered one of the 
most characteristic barometer of some commercial enterprise performances. In the 
banks situation, a normal margin of this indicator is appreciate to be located /situated 
between the significant thresholds of  10% and respectively 30% .  
2.Return on Assets. This indicator is an expression of rentability for the entirely 
activity of a banking society. This  indicator known also as   profit to assets or in a 
consecrete definition accepted  already in banking literature from our country, the 
assets rentability, measures the effect of management capacity to use the financial and 
real resources of bank society in order to generate profit. It is appreciate that the 
return of assets indicator is the most exact measure of banking activity  due the fact 
that expressed directly the result, accordingly to the specific management of banking 
intermediate, of active operations optimization, related to a volume of resources 
considered. The computation formula of the indicator is: 
 
100
Pr
⋅ =
Assets
ofit Net
ROA  
 
The limits of indicator's variations is generally between 0,5-1,6%. Specifically to the 
big banks is the small value (< 1%), while to the small and medium banks is 
characteristic an extraunit dimension of indicator. 
 3. Leverage Multiplier. This  indicator is very characteristic for the bank, known 
also under the title of leverage effect, measures also the degree in which the attraction 
and using of new resources conduct to an increase of capital rentability.The indicator 
illustrates how many time a bank successed  to multiply the invested capital by resources 
atraction.The leverage multiplier surpass normally the value 100 and illustrates the fact 
that involving of new resources is efficient for the bank, respectively when the resources 
cost is lower then the return costs.   
The indicator is computed thus: 
                                                                                                                               
                                           100 ⋅ =
Capital
Assets
MC     
                            
The indicator changes in proportion with the capital's share in total banking 
assets. As much as the capital share is higher, the bank risk is lower and the leverage effect is lower, too. In the contrary case, when the share is smaller, the banking risk and 
the leverage effect are higher. 
         As a value, the big banks recording levels of over 20%, while to the small banks is 
characteristic the level of 10-20% for leverage. Must be marked the correspondence 
between these three indicators presented until now.When the indicator compounds are 
identically, could determine directly the leverage multiplier from the underneath  relation: 
  Mc = ROE/ROA 
 
4. The profit rate. In the banking area are computed the profit rate, on which the 
dimension depends first by the ratio between bank income and expenses, and second by 
the structure of incomes and the costs of banking activity. As much as the banking 
services tariff are made in an explicit/outspoken manner, meaning that every service is 
differential by peculiar prices, the indicator could be computed on various compounds of 
bank's activity, after the following formula:    
 
100
Pr
⋅ =
es TotalIncom
ofit Net
Rp  
 
The indicator represents the main instrument/tool of analysis when is 
following/chasing the costs decreasing with  banking activity. 
5.The margin of assets utilization. The dimension of this indicator depends 
by the active interest measured on market and the banking assets structure. The indicator 
is  defined as a ratio between the total operational income and the assets total, illustrating 
the total incomes obtained from assets utilization (incomes from interests, commissions, 
taxes): 
 
         100 ⋅ =
s TotalAsset
es TotalIncom
RAC        
            6.Margin Profit, indicator which illustrates the profit percentage from profit ( or 
net income) achieved from total operational incomes: 
100
Pr
⋅ =
es Totalincom
net ofit
Rm  
Must be marked that these two indicators could determine directly the assets 
rentability  : 
 
ROA = Pm*Au 
 
 and indirect the capital leverage: Mc = ROE/( Pm*Au) 
 The connections/links between the indicators presented above illustrate the 
existence of one bank performances assessment pattern, named by the experts after the 
indicator considered the most important in assets rentability issues. That's why, 
commercial bank analysis are made on the basis to accentuate/illustrate the indicators 
from ROA model (or ROE model in other expert's conception) or theirs derivations.Thus 
, the above indicator could be "split" on the compounded elements of discussed variable, 
illustrating the impact which as an example, each active, capital, income or expense   
element detains over the level and quality of profit.  
        The  profitability  concept  can be  defined both to vertical coordinates, in local 
version(which takes into account the financial  efficiency of the branch on short term and 
the strategies to increase the efficiency on various terms), and to horizontal coordinates 
through analysis of one certain part of bank's activity, all this conceptual elements beeing 
included in general version of bank's strategy.  
In order to determine one bank activity efficiency (considered in assembly or to 
the branch level) the simple  elaboration of indicators is not enough. This  indicators 
must be  compared with the similar indicators in order to determine the real bank's 
position from profitability point of view.  Are practise, in general, three comparison 
types  : 
1.  comparison with same bank indicators during years flowing; 
2.  comparison with the medium indicators of other banks inside same 
period frame; 
3.  comparison with the planned indicators, when the bank elaborates 
strategies on various structural terms in plans which aim to obtain 
certain profit levels . 
It could be deduced  the necessity to ensure a single conception to banking 
system level related to performance indicators, and same time, the  ensuring of 
informational system necessary to comparison achievements.  
 
BIBLIOGRAPHY 
 
1. Dănilă N., Berea A. O.  – „Banking Management , bases and theories”,  
Economic P.H, Bucharest, 2003; 
2 Niţu I.  – „Banking financial management ”, Expert P.H, 
Bucharest 2000; 
3  Todorache D., Rusu L., 
Târdea P. P., Ivan M. V. 
– „Banking  financial management ”,  University 
Chart P.H, Bucharest, 2004; 
 
4 Stoica  M.  – „The banking management”,  Economic P.H, 
Bucharest, 1999; 
5 Roxin  L.        – „Administration of  banking risks ”,Didactic 
and  Pedagocic P.H, Bucharest, 1997; 
6  Paxino D., Moşteanu N. 
R.   
      – „Management of foreign currencies risks and 
applications in international transactions”, Sylvi 
P.H , Bucharest, 2002;      
 

The Assessment of Banking Performances- Indicators of Performance in Bank Area

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics