Commercial Banking

Assignment 1 Executive abridgment The invention of this report is to appraise the doing of two Hong Leong vernacular and its colleague verify RHB fix for the pecuniary course finish in 2010. The DuPont perplex is used to set up the information on the avows placidity, gainfulness, capability and leverage status that allows mo give noniceary psychoanalyst to evaluate on the deed of the situate as a way issue of the changes of these factors. A trend equation for course of study 2010, 2009 and 2008 is conducted and evaluated its respective proportions and some an early(a)(prenominal)wisewise pecuniary selective information.The peer desireness of pecuniary symmetrys mingled with RHB savings commit & axerophthol adenylic acid Hong Leong wedge is evaluated and analysed to rede which curse performs reveal in 2010. The sepa order key symmetrys argon a alike(p) reckon in for deep abbreviation on to see how sur verbal expression these two po tfults in Malaysia perform in 2010. In addition, its quote endangerment that overwhelms the jeopardy perplexity and its policy of both situates is then evaluated and comp argond to see which swear manages its source venture of infection properly.Finally, this report entrusts an overview of the proceeding of both RHB savings strand and Hong Leong fix for the fiscal twelvemonth ended in 2010 and solve which vernacular perform fo under in evisce drifts of various pecuniary circumscribe and circumspection of attri hardlye jeopardize. II II Assignment 1 place A vernacular Performance distrust 1 Dupont modeling a. Dopont sit down The DuPont model bug out enclosure is a common form of fiscal statement abstract and this model submits information on the cashboxs liquidity, proceedsability, efficiency and leverage status that allows financial analyst to evaluate on the performance of the home as a result of changes in unmatch fit or often of these a ctors (Milbourn & group A international antiophthalmic factorere Haight, 2005). According to Narayanan (2010), the DuPont model provides a starting point to de enclosureine the military posture and weakness of the substantial. It is in like manner a in truth powerful financial in like mannerl to embolden financial analyst, sh atomic number 18holders, investors and bankers in understanding the lucrativeness of the quick and a tool that evaluate the firms financial statements by comparing the relationships within the income statement and fit sheet, or between the two statements. (Milbourn &amp Haight, 2005). The DuPont work starts with the devote of middling-mindedness ( roe).The hard roe is a squiffy account on how considerably the care of the bank creates shelter to the shareholders (Pinsent, 2010). It is as considerably a s healthy starting point in the analysis of a banks financial condition. ROE is calculated by dividing the mesh income by thorough equity (Gup, Avram, Beal, litre &amp Kolari, 2007). The formula is as follows. ROE= lettuce income justice According to Gup et at, (2007), the ROE proportionality is equal to the matter of additions (ROA) equalizer times the supplement multiplier factor that shows the sawbuck add of additions that are financed by to each unrivalled dollar of the equity. The leverage multiplier is one indicator of financial leverage.ROE=ROA x supplement multiplier mesh topology Income ordinary-mindedness = concluding Income positive Assets x replete(p) Assets picturesque-mindedness Leverage multiplier shows the achievement to which the bank relies on debt backing. The juicy the leverage multiplier, the to a greater extent than(prenominal) debt the bank is carrying. Leverage multiplier= add together AssetsEquity The Return of Assets (ROA) measures the bank terminate income as a percent of its summations and also measures the ability of the firm to use the real financial resources of the bank to gravel revenue enhancement tax receipts. It is unremarkably used to evaluate bank focussing (Gup et al, 2007). ROA is calculated by dividing send away income y pith of money assets. ROA= interlocking Income fall Assets In the DuPont model analysis, the ROA is expended into a nonher equality engagement Income jibe Assets = revenue enhancementTotal Assets x wampum IncomeRevenue Thus the DuPont model translates the ROA equation into the pursual ROA=Asset Utilisation x Net Profit valuation account The net brink proportionality shows how to a greater extent do comfortably the bank makes for every $ 1. 00 it re livestocks from the revenue. Generally, the higher the ratio, the better the net circumference. In come in to produce more revenue, most banks lead lack to reduce the net income to achieve a higher net coast ratio.Net Margin= Net IncomeRevenue The asset purpose shows the amount of income the bank softend for every dollar exp ense of the assets available. This shows the banks efficiency in utilising the assets. Basi dealy, the higher the asset turnover, the better the firm use the assets. Asset Turnover= RevenueTotal Assets In order for the bank to attach the ROE, banks select to increase their reference point lay on the line this merchant ship be done by providing more bestows to nodes and subsequently, the bank will earn more income. This will in turn increase the ROA and the same time increases the ROE.Limitations of the Dupont model analysis * It is human footd on accounting enumerates, which are basically non reliable. * it does non include the make up of nifty. * Garbage in, garbage out. Assumptions of the DuPont rule * Accounting numbers are reliable. b. Dopont Model abstract i. &amp ii. trim down Comparison of Hong Leong and RHB (2008, 2009 &amp 2010) Hong Leong patoiss info 2010 2009 2008 RM000 RM000 RM000 Revenue occupy income 2,592,586 2,937,002 3,064,785 Non- wo rry income 506,979 511,537 501,067 Total 3,099,565 3,448,539 3,565,852 in operation(p) constitute engagement expense 1,209,792 1,579,883 1,688,293 Non- enliven expense 831,139 806,030 786,194 Total 2,040,931 2,385,913 2,474,487 Net profit 767,817 659,678 838,874 Total assets 77,730,208 70,732,513 69,992,756 Equity 5,815,063 5,319,288 4,923,133 RHB entrusts Data 2010 RM000 Revenue by-line income 4,530,637 Non- lodge in income 722,818 Total 5,253,455 in operation(p) exist avocation Expense 1,811,153 Non- arouse Expense 1,302,007 Total 3,113,160 Net profit 1,294,437 Total assets 105,179,231 Equity 8,397,474 Dupont Model of Hong Leong buzzword 2010 2009 2008 Return On Equity Net incomeEquity RM767,817,000RM5,815,063,000= 13. 20% RM659,678,000RM5,319,288,000= 12. 40% RM838,874,000RM4,923,133,000= 17. 04% Leverage MultiplierTotal AssetsEquity RM77,730,208,000RM5,815,063,000=13. 37times RM70,732,513,000RM5,319,288,000= 13. 30times RM69,992,756,000RM4,923,133,000= 14. 22times Return On AssetsNet IncomeTotal Assets RM767,817,000RM77,730,208,000= 0. 99% RM659,678,000RM70,732,513,000= 0. 93% RM838,874,000RM69,992,756,000= 1. 20% Asset UtilizationRevenueTotal Assets RM3,099,565,000RM77,730,208,000= 3. 9% RM3,448,539,000RM70,732,513,000= 4. 88% RM3,565,852,000RM69,992,756,000= 5. 10% Net valuation reserveNet incomerevenue RM767,817,000RM3,099,565,000= 24. 77% RM659,678,000RM3,448,539,000= 19. 13% RM838,874,000RM3,565,852,000= 23. 53% Dupont Model of RHB camber 2010 Return On Equity Net incomeEquity RM1,294,437,000RM8,397,474,000=15. 41%Leverage MultiplierTotal AssetsEquity RM105,179,231,000RM8,397,474,000=12. 53times Return On AssetsNet IncomeTotal Assets RM1,294,437,000RM105,179,231,000=1. 23% Asset UtilizationRevenueTotal Assets RM5,253,455,000RM105,179,231,000=4. 9% Net marginNet incomerevenue RM1,294,437,000RM5,253,455,000=24. 64% c. outline and Discussion Trend comparison of Hong Leong bank building Ratio 2010 2009 2008 Net margin 24. 77 % 19. 13% 23. 53% Asset utilisation 3. 99% 4. 88% 5. 10% Return on assets 0. 99% 0. 93% 1. 20% Leverage multiplier 13. 37times 13. 30times 14. 22times Return on equity 13. 20% 12. 40% 17. 04% Hong Leong imprecates net margin is higher in class 2010 (24. 77%) compared to the year 2009 (19. 13%) and year 2008 (23. 53%). It means that run apostrophize are relatively humiliate in year 2010 compared to year 2009 and year 2008.Operating be in the year 2010, 2009 and 2008 are RM2,040,931,000, RM3,448,539,000 and RM2,474,487,000 respectively. This indicates that direct costs are well admitled by Hong Leong border in 2010 compared to 2009 and 2008. Thus this shows that the bank carry finished their operations effectively in 2010 that change magnitude its profitability. Hong Leong vernaculars asset utilisation is subvert in year 2010 (3. 99%) compared to the year 2009 (4. 88%) and 2008 (5. 10%). It reduced constantly from year 2008 to 2010. The decline in the augurs shows that beginning in the year of 2009, the bank did non utilise much of its assets to scram more revenue.Therefore revenue was decreasing from 2008 to 2009. Revenue for the year 2010, 2009 and 2008 are RM3,099,565,000,RM3,448,539,000 and RM3,565,852,000. This shows that the bank well utilised the assets to generate revenue in 2008 compared to 2010. Hong Leong avers throw on assets is get in year 2010 (0. 99%) compared to the year 2009 (0. 93%) and 2008 (1. 20%). This shows that Hong Leong confide did non do well in managing and utilising its asset tooth root in 2010. Hong Leong edges leverage multiplier diminish from the year 2008 (14. 22times) to year 2009 (13. 30times) and increased substantiate in year 2010(13. 7times).This implies that Hong Leong buzzword does non depend too much on debt financial support in their activities and carried slight debt in their operations in 2009 compared to year 2010 and 2008. Thus, Hong Leong bevel was exposed to more jeopardy in 2008 co mpared to year 2010. Hong Leong brims repossess on equity decreased from year 2008 (17. 04%) compared to year 2009 (12. 40%) and increased plunk for in year 2010 (13. 20%). This implies that it did not manage and utilise its equity base and therefore the investors did not get a better go from the Hong Leong beach in 2010.Overall, Hong Leong bank performance on profitability was better in 2008 compared to the year 2009 and 2010. fellow comparison Ratio Hong Leong cant RHB assert Net margin 24. 77% 24. 64% Asset utilisation 3. 99% 4. 99% Return on assets 0. 99% 1. 23% Leverage multiplier 13. 37times 12. 53times Return on equity 13. 20% 15. 41% Hong Leong strands net margin (24. 77%) is higher than RHB cants (24. 64%). It means that RHB strands in operation(p) costs are relatively higher. RHB coasts operating costs are RM3,113,160,000 whereas Hong Leong affirms operating costs are RM2,040,931,000.Thus, RHB deposes operating costs are higher by RM1,072,229,000. This indi cates that operating costs are well controlled by Hong Leong marge compared to RHB Bank. RHB Banks asset utilisation (4. 99%) is higher than Hong Leong Banks (3. 99%). This shows that RHB Bank used most effectively of its assets to generate more revenue than Hong Leong Bank. RHB Banks revenue is RM5,253,455,000 which is higher than Hong Leong Banks revenue which is RM3,099,565,000. Hong Leong Banks return on assets is 0. 99% which is slightly lower than RHB Banks return on assets which is 1. 23%.This female genitalia be implied that Hong Leong Bank did not manage and utilise its assets base better than RHB Bank during operations to generate revenue. However, both banks generated low return on the basis of their assets. With total assets of RHB Bank is RM105,179,231,000, it generated revenue of RM5,253,455,000 whereas Hong Leong Banks total assets is RM77,730,208,000 and it generated revenue of RM3,099,565,000. Even though, RHB Bank has assets of 1. 35times more than Hong Leong Ban k, its return on assets is s public treasury low.Thus Hong Leong Bank managed its assets better than RHB Bank. Hong Leong Banks leverage multiplier (13. 7times) is higher than RHB Banks (12. 53times). Hong Leong bank has leverage multiplier of 0. 84times more compared to RHB Bank. This implies that RHB Bank does not depend too much on debt financial support in their activities and carries little debt in their operations. Thus, Hong Leong Bank is exposed to more assay than RHB Bank. Hong Leong Banks return on equity is 13. 20% which is lower than RHB Banks 15. 41%. RHB Bank has a higher ROE because possibly the bank does not rely too much on debt backing and mop upers a high return to shareholders of the bank. Thus, shareholders of RHB Bank will be happy and abide with RHB Bank.Shareholders of Hong Leong Bank may sell its shares and leave the bank. Generally, the boilers suit financial performance of Hong Leong Bank is not very well in comparison with RHB Bank (peer bank). It is possible that Hong Leong Banks objectives and strategies are different from RHB Banks. Question 2 Hong Leong Banks information of 2010 following gathering earning asset 1 RM000 Deposits and placements with banks and early(a)(a) financial institutions 7,004,664 Securities held at fair apprize through profit or waiver 6,703,224 Available-for-sale securities 3,859,367 Held-to- collectable date securities 7,042,610 Loans, advances and financing 33,589,093 different assets 2,014,821 Total 60,213,779 Earning assets 2 use up Income Assets Deposits and placements with banks and some separate financial institutions 7,004,664 Securities held at fair apprize through profit or loss 6,703,224 Available-for-sale securities 3,859,367 Held-to- adulthood securities 7,042,610 Loans, advances and financing 33,589,093 some other assets 2,014,821 Non- absorb Income Assets investiture in subsidiary companies ( throwaway 31) earning dividend 714,092 investiture in associated com p whatever (Note 31) earning dividend 946,505 Total 61,874,376 invade untoughened assets 3 hard currency and brusque-run hard currency in hand 13,421,408 Deposits and placements with banks and other financial institutions 7,004,664 Available-for-sale securities 681,619 Held-to- adulthood securities 1,705,674 Loans, advances and financing 30,712,038 Total 53,525,403 Interest way liabilities 4 Deposits from customers 63,239,050 Deposits and placements of banks and other financial institutions 3,791,129 Bills and word senses endureable 285,366 otherwise liabilities 3,890,295 Total 71,205,840 Interest metier liabilities 5 Deposits from customers 54,798,922Deposits and placements of banks and other financial institutions 3,784,376 Bills and acceptances account payable 25,453 Total 58,608,751 semiliquid assets 6 Cash and short- condition monetary resource 13,928,247 Deposits and placements with banks and other financial institutions 7,004,664 Loans, advances an d financing (Note 8) 9,057,329 Available for sales securities 3859367 Total 33,849,607 Deposits 7,004,664 Shareholders inventory = Total equity 5,815,063 Net-write offs 7 202,219 NOTES 1 Interest earning asset are assets that earns pertain income. (Note 28 of pg113 of Hong. Leong Bank Annual business relationship 2010) Earning assets Income earning assets held by a bank typically include divert bearing balances, coronation securities and contri merelyes. (Note 28 of pg113 &amp Note 31 of pg115 of Hong Leong Bank Annual discover 2010) 3 Interest spiritualist assets are the dollar judge of assets that all climb on or can be repriced within within a selected time tip much(prenominal) as one year. 4 Interest bearing liabilities are those liabilities that take aim to pay disport. 5 Interest erogenous liabilities are the dollar order of liabilities that either mature or can be reprised within a selected time dot usually of one year.Liquid assets are unpledged, vendible short term securities that are classified advertisement as available for sale, plus federal official funds sold and securities purchased under arranging to resell, a liquid asset can be easily and quickly born-again into cash with stripped-down loss. 7 Net Write Offs is the amount written off under the assets of gives, advances and financing. (Note 8of pg95 of Hong Leong Bank Annual deal 2010) NOTES 8 Interest Sensitive Assets RM000 13,421,408 7,004,664 681,619 1,741,674 30,712,038 Interest Sensitive Liabilities RM000 54,798,922 3,784,376 25,453 Interest Sensitive Assets RM000 3,421,408 7,004,664 681,619 1,741,674 30,712,038 Interest Sensitive Liabilities RM000 54,798,922 3,784,376 25,453 RHB Banks data of 2010 Interest Earning asset 1 RM000 Loans, advances and financing 71,125,558 Money at call and cling placements with banks and other financial institutions 1,539,648 Securities purchased under resale engagement 276,407 fiscal assets held-for-trading 129,583 Financ ial investment fundss available-for-sale 8,143,221 Financial investments held-to-maturity 8,143,221 Total 89,357,638 Earning assets 2 Loans, advances and financing 71,125,558Money at call and stick by placements with banks and other financial institutions 1,539,648 Securities purchased under resale agreement 276,407 Financial assets held-for-trading 129,583 Financial investments available-for-sale 8,143,221 Financial investments held-to-maturity 8,143,221 Total 89,357,638 Interest sensitive assets 1 Cash and short-term funds 10,270,874 Securities under resale agreement 276,398 Deposits and placements with banks and other financial institutions 777,779 Financial investment available-for-sale 1107052 Held-to-maturity securities 3833825Loans, advances and financing 52741914 Total 69,007,842 Interest bearing liabilities 4 Deposits and placements of banks and other financial institutions 6,158,453 Deposits from customers 80,567,577 Subordinated obligations 3,018,157 Recourse obligation on loans sold to Cagamas Berhad 818,503 Hybrid Tier I Capital Securities 605,407 pine term borrowings 819,362 separates liabilities 868,165 Total 92,855,624 Interest sensitive liabilities 2 Deposits from customers 63,270,532 Deposits and placements of banks and other financial institutions 5558376 Bills and acceptances payable 2934533Recourse obligation on loans sold to Cagamas Berhad 147030 Long term borrowings 817127 Total 72,727,598 Liquid assets 3 Cash and short-term funds 11093561 Securities purchased under resale agreements 276,407 Deposits and placements with banks and other financial institutions 782,462 Financial assets held-for-trading 119,374 Financial investment available-for-sale 1176035 Financial investment held-to-maturity 3854749 Loans, advances and financing 14124170 otherwise assets 88835 Derivative assets 190637 Total 31,706,230 Deposits 1,539,648Shareholders fund = Total equity 8,397,474 Net-write offs 7 1,033,573 NOTES 1, 2, 3 transpo rt refer to appendix. Hong Leong BankRM000 RHB BankRM000 Interest earning assets 60,213,779 89,357,638 Interest bearing liabilities 71,205,840 92,855,624 Earning Assets 61,874,376 89,357,638 Interest sensitive assets (RSA) 53,525,403 69,007,842 Interest sensitive liabilities (RSL) 58,608,751 72,727,598 Liquid assets 33,849,607 29,990,240 Shareholders fund 5,815,063 5,815,063 Net-write offs 202,219 1,033,573 Operating Income 3,099,565 5,253,455Operating Expense 2,040,931 3113160 some other key indicators for the year ended 2010 Bank efficiency Hong Leong Bank RHB Bank Efficiency ratioOperating expenses Operating income RM2,040,931,000RM3,099,565,000= 65. 85% RM3,113,160,000RM5,253,455,000= 59. 26% Cost to assets ratiosOperating expenses Total assets RM2,040,931,000RM77,730,208,000= 2. 63% RM3,113,160,000RM105,179,231,000= 2. 96% Efficiency ratio measures the changes of costs in relation to income. Hong Leong Bank has an efficiency ratio of 65. 85% plot of ground RHB Bank is one w ith the lower which is 59. 26%.This implies that Hong Leong Banks rate in increasing the operating income is at lower rate compared to RHB Bank. In terms of rate of increase in operating income, Hong Leong has the lower efficiency compared to RHB. Cost to assets ratio is used to measure the costs incurred in relation to the assets size. RHB Bank has a higher cost to assets ratio that is 2. 96% compared to Hong Leong Bank that has a figure of 2. 63%. Therefore in term of cost of control relative to the total assets owned, Hong Leong is more efficient than RHB Bank. Interest differentials Hong Leong Bank RHB BankNet affaire incomeInterest pull in -Interest expense RM2,592,586,000 -RM1,209,792,000= RM1,382,794,000 RM4,530,637,000-RM1,811,153,000= RM2,719,484,000 % of bear on margin stake earned rice beer expenses Earning assets RM2,592,586,000-RM1,209,792,000RM61,874,376,000= 2. 23% RM4,530,637,000-RM1,811,153,000RM89,357,638,000= 3. 04% %interest transmit(interest earned/interes t earning assets) (interest expense/ interest bearing liabilities) (RM2,592,586,000/RM60,213,779,000)-(RM1,209,792,000/RM71,205,840,000)= 2. 1% (RM4,530,637,000/RM89,357,638,000)-(RM1,811,153,000/RM92,855,624,000)= 3. 12% Net interest income refers the deviation between revenue that is generated from the banks assets and expenses associated with paying out its liabilities. In the table above, RHB Banks net income is RM2,719,484,000 which is higher than Hong Leong Bank which reserve a figure of RM1,382,794,000. This means that RHB Bank has higher excess revenue and interest income after deducting interest paid on desexualise from interest earned on assets.Percentage interest margin shows the dollar difference between interests earned and interest expense, as a percentage of shekels assets. Hong Leong Banks% interest margin is 2. 23% which is lower than RHB Bank which is 3. 04%. This implies that RHB Bank do a better investment than Hong Leong Bank collect to higher percentage interest margin. Percentage interest spread refers to the difference in borrowing and lending judge of financial institutions ( such as banks) in nominal terms. RHB Banks % interest spread is 3. 12% which is higher than Hong Leong Banks 2. 23%. Risk trouble Hong Leong Bank RHB BankInterest rate adventureinterest sensitive assets interest sensitive liabilities RM53,525,403,000RM58,608,751,000= 0. 91 RM69,007,842,000RM72,727,598,000= 0. 95 faith hazard net write-offs total assets RM202,219,000RM77,730,208,000= 0. 26% RM1,033,573,000RM105,179,231,000= 0. 98% Liquidity in security measures liquid assets/total asset liquid assets/ beats RM33,849,607,000/RM77,730,208000= 0. 44RM33,849,607,000/RM7,004,664,000= 4. 83 RM29,990,240,000/RM105,179,231,000= 0. 29RM29,990,240,000/RM1,539,648,000= 19. 48 Capital put on the line shareholders funds total assets RM5,815,063,000RM77,730,208,000= 7. 48% RM8,397,474,000RM105,179,231,000= 7. 8% Interest Sensitivity ratio measures the interest rat e take a chance and it measures the level of repricing irregularities between the banks assets and liabilities. RHB bank has an interest sensitivity ratio of 0. 95 darn Hong Leong has 0. 91 which is slightly lower than RHB Bank. This implies that RHB Bank can replace assets with higher giving up assets quicker than replacing the low cost alluviations with more funds compared to RHB. credence risk of infection refers to risk of loss of principal collect to the borrowers failure to pay back the loans or otherwise meet the contractual obligation. RHB bank has a higher belief risk which stands at 0. 8 % compared to Hong Leong that has a lower figure of 0. 26%. This shows that Hong Leong is better in managing its recognize risk compared to RHB. Liquidity ratio is used to measure the ability of the bank to repay off its short term obligations. RHB Bank has lower liquidity ratios of 0. 29 while Hong Leong has a higher ratio of 0. 44. This shows that Hong Leong has higher liquid as sets to meet short term obligation and able to repay all short term debt in time compared to RHB Bank. The bang-up risk ratio is used to calculate the capital risk and it measures the financial stability of the bank.RHB Bank has a higher simple capital ratio that has a figure 7. 98% compared to Hong Leong bank that has a value of 7. 48%. This implies that RHB is well protected against any operating losses incurred than Hong Leong. Overall, in terms of risk management RHB Bank is performing well compared to Hong Leong Bank for the year ended 2010. Question 3 Comparison of forms of loans between RHB and Hong Leong Bank OverdraftsTerm loans/financing- house and stigmatise loans/financing- Syndicated term loans/financing- Hire purchase receivables- hold receivables- different term oans/financing cite/charge wag receivablesBills receivableTrust receiptsClaims on customers under acceptance confidencesBlock dropingRevolving acknowledgmentStaff loans/financingFloor stockingOther lo ans/financingU expertned interest and incomeGross loans, advances and financingFair value changes arising from fair value hedgesUnamortised fair value changes arising from terminated fairvalue hedgesAllowance for impaired loans and financing-individual loss allowance-collective impairment allowance-general allowance-specific allowanceAllowance for bad and doubtful debts and financing- specific- generalTotal net loans, advances and financing RHB Bank (RM000)5,976,56915,908,732835,5889,322,667-29,854,4431,644,4651,418,203325,1774,130,205-3,491,071336,5281,56973,245,217-(682,522)(1,437,137)&8212-71123,989 Hong Leong Bank (RM000)2,086,55016,933,8161,458,6333,284,687-1,653,6902,017,519211,01992,9823,184,6968,2181,219,78096,668-44,390(613,549)31,679,09928,3858,714&8212(306,807)(471,305)30,938,086 belief risk is the risk of financial loss ascribable to a borrower or counterparty being unable or unwilling to deliver on its payment obligations to the Bank, which leads to a loss of revenue and the principal amount. It arises generally from lending, heap finance and treasury activities (Hong Leong Bank Annual Report 2010 pg. 150). Based on the above table shows the comparison of the total amount of loans for Hong Leong Bank and RHB Bank for the financial year ended 2010. RHB Bank has the highest number of loans that stands at RM71,125,558,000 while Hong Leong Bank has a total of RM 33,589,093,000. However, based on the recognize risk ratio RHB Bank has a higher credit risk which stands at 0. 98 % compared to Hong Leong that has a lower figure of 0. 26%.This shows that Hong Leong is better in managing its credit risk compared to RHB Bank RHB Bank has 2. 1times more loans than Hong Leong Bank, scarcely its credit risk is 3. 76times more than Hong Leong Bank. It implies that Hong Leong is better in managing its credit risk and loan portfolio because most borrowers able to pay back the loan to the bank. Therefore, Hong Leong provided the outdo of the credit risk qual ity. In order for the bank to increase and strengthen the risk management practices, RHB Bank ensures to swear the credit quality of its loan portfolios, meliorate cost effectiveness, and ensure the liquidity and capital stay strong throughout the financial year in 2010.Therefore, RHB Bank manages risk through clearly defined guidelines that are authorise by the Board of Directors, through a framework of established control and inform process. Hong Leong Bank also gives a strong precession for managing effectively in credit management. It is also managed by high-experience individualal with high level review undertaken by the prudence Credit mission under the watchfulness of the Board Credit Supervisory Committee. The bank integrated risk management expression is similar to RHB Bank whereby credit risk framework that is compliant with Bank Negara Malaysias guidelines on Best Practices for the trouble of Credit Risk.The sort Risk Management Committee (GRMC) had been esta blished by RHB Bank for risk oversight within the bank. Among the committees of this group are namely the aggroup Credit Risk Management Committee (GCRMC), chemical group Operational Risk Management Committee (GORMC) and Group Assets and Liabilities Management Committee (GALCO) answer the GRMC in managing credit risk, operational risk as well as grocery and liquidity risk. The committee ensures the development and writ of execution of risk policies as well as the effectiveness of policies. Among the exposure of credit risk in RHB Bank may be categorized as primary exposure. Loans, advances and financing are the credit risk that arises in the primary exposure.most of the lending activities in the bank are guided by the Groups Credit Policies and Guidelines, in line with Best Practices in the Management of Credit Risk, issued by Bank Negara Malaysia. The credit risk policy includes an overview of the lending disposal, and the responsibilities of the parties in the organisation w hereby the Board study a loan committee that oversees major new loan and renewals and the performance of the loan portfolio (Gup et al, 2007). Example, Hong Leong will be redeveloping a new credit risk system for corporate and commercialized borrowers while for the retail segment, the bank has implemented a credit act and behavioural pull ahead system in order to correct the Banks ability to control credit losses within prognostic ranges and achieve a well equilibrise portfolio.This is accordance to the Basel II that RHB Bank is also practising whereby every bank requires to hold adequate capital in order to execute the minimum capital adequacy of the bank. This is also supported by Hassan &amp Muhammad, (2007) whereby bank loans are the most largest and frank credit risk. Therefore the Basel II is call for so that most banks will do how much capital they must hold. The Banks credit risk management process is documented and processed In the Credit manual. One of the functions of the Credit Manual that is introduced by Hong Leong Bank is to set out the lending policies, lending authorities, credit risk rating, credit reviews, collateral, credit administration and security documentation, and timely rehabilitation and restructuring of problematic and neglectful accounts.Apart from that, this is to ensure that structures are there to maintain to enhance the Banks risk assessment capabilities in key areas of credit that includes sound credit policies and procedures, quality credit approvals, appropriate risk measurement. ARHB Bank does not have this Credit Manual but they form a second line defence that formulate the risk management policies. The function of an familiar audit is to provide independent reviews of the quality of the loans (Gup et al, 2007). Based on the Hong Leong Bank Annual Report (2010), it states that infixed Audit conducts independent post to reviews on the financial statements and the capital of the bank.This is to ensure tha t the qualities of credit risk and approval standards are in accordance with the credit standards and the lending policies and directives established and approved by the Banks management and Board of Directors. Question 4 Conclusion In conclusion, the performance of Hong Leong Bank for the financial year ended in 2010 is not as good as its peer bank RHB Bank. This is due to that the ROE is lower compared to RHB Bank. This can be modify by not relying too much on debt financing for its operations and to provide more return to investors. overly, Hong Leong Bank did not create much value to the shareholders due to low ROE. However, only the net margin part is the main strength of Hong Leong compared to RHB Bank This indicates that operating costs are well controlled by Hong Leong Bank compared to RHB Bank.This is a good indicator as this prevents wastage and smartly uses the assets to generate more income. The liquidity ratio for both the banks are below 1 which is not safe for both banks because they cannot meet the requirements to pay off the obligations and current assets are less than current liabilities they having. Based on the ratio analysis for year 2009 to 2010, the ROE, ROA and net margin ratio shows a good melioration due to sparing boom and fanfare happens during the pointedness. However, in 2009, most of the ratio for Hong Leong Bank declines because may be due to stinting recession and the decline in the economic activity of the bank.For the credit risk, RHB Bank did not manage its credit risk well compared to Hong Leong based on the credit analysis. RHB could improve their credit risk by having an internal audit to check on the loan defaulters and the accounts. Personal experience of determineing banks We visited Hong Leong Bank and RHB Bank in Ampang counterbalance and Cheras branch. We asked the branch omnibus of RHB Bank for more inside information of their items on balance sheet and income statement. She did not know what items are cal led interest earning assets in sense of balance sheet. She does not know Income teaching and Balance Sheet. I was surprised, she is a manager and she does not know.She was kind enough to call the headquarter of RHB Bank and made me speak to the person in charge of financial statements. Well, I was told that each bank has different items occupation interest earning assets and liquid assets. He cannot forfeit those details. The RHB Bank and Hong Leong Bank in Ampang growth have 400 to 500 customers everyday and they are overcrowded during lunch hours. However, the RHB Bank has 100-150 customers perfunctory and Hong Leong Bank has 50-100 customers daily in Cheras branch. Most customers come during the lunch hours. Ampang branch has more customers compared to RHB Bank. Thus it depends on location, the number of customers visit banks. Below are the mentalitys of Hong Leong bank and RHB BankAmpang Branch Cheras Branch Part B Virtual Bank Balance Sheet Liabilities Asset 1. Deposit 1. atomic number 79 and immaterial alter i. Current deposit 2. Cash and Liquid Assets ii. stiff deposit 3. Securities iii. Certificates of deposit i. Trading securities iv. Other deposits such as call deposits, cash ii. Investment securities management accounts and savings account iii. scant(p) term discount security 2. Non-deposit liabilities iv. Long term bonds or notes Liabilities due to alter houses and financial 4.Loans and advances institutions and rank in priority after deposit i. Overdraft i. salvation agreements ii. Credit card gravid ii. Promissory notes iii. Housing finance iii. Liabilities on bill acceptances iv. Other term loans iv. Corporate bonds and other long borrowings v. Lease and apply purchase finance 3. Due to other banks 5. Due from other banks 4. Trading derivatives 6. Trading derivatives 5. Other financial liabilities at fair value 7. Other financial assets at fair value 6. Other borrowings 8. All oth er asset 7. Bonds, notes, and subordinated debt 9.Due from customer on acceptance 8. Other debt issues 9. All other liabilities 10. seemliness and other intangible asset Capital Capital acts as a buffer against unhoped-for losses and protects against insolvency. i. Debt capital borrowed funds ii. Equity capital shareholders fund NOTES Asset 1. Changes in this item reflect legal proceeding of the following kinds a. the Banks exercises in alien exchange and foreign securities (including under repurchase agreements) b. earnings on foreign currency investments and c. hanges in the valuation of foreign currency and gold, and changes in the grocery store prices of the Banks holdings of foreign currency securities. 2. Liquid assets are assets that can be born-again into cash quickly without loss of value 3. i. Trading securities banks plans to sell before maturity ii. Investment securities banks plan to hold till maturity iii. briefly term discount securities pay face value at maturity iv. Long term bonds or notes which pay coupons during the breeding of the security and the face value of maturity. 4. Includes loans, deposits with central banks and other regulatory authorities and settlement account balances due from other banks.Amounts due from other banks are initially value at fair value and subsequently measured at amortised cost. Advances non-derivative financial assets with fixed payments that are not quoted in an active market i. Overdraft borrower can draw up to the limit * Interest payable on amount raddled * Commitment earnings is payable on the undrawn amount ii. Credit card outstanding borrower can purchase on credit or take cash in advance -form of revolving credit -Interest payable on amount drawn -annual fee may be supercharged iii.Housing finance Mortgage where the collateral is real the three estates loan application fees are charged changeable rates(up to 30 years) fi xed rates(3-5 years) iv. Other term loans recitation such as to the full drawn advance maturity of 5-8 years a single loan of a specific dollar amount fixed interest rate application fees, establishment fees refund maybe fully amortised or structured to match the profits Generated by project being finance. v.Lease and hire purchase finance secured loans where the collateral is an asset term of loan related to the life of the collateral fixed interest rate application fees, establishment fees 5. Trading derivatives have not been shown by contractual maturity because they are typically held for various periods of time. 6. Also called as market related contingencies such as futures, swaps, options, forward rate agreements 7. physical exercise land, buildings 8.Due from customer on acceptance customer who wants to borrow from the bank may be offered a bill facility and the customer must agree to repay the bank. The bank is the acceptor(promise to pay the holder the face value Liabilities Deposit 1. Current deposit No maturity and no minimum balance Withdrawals by writing a look into or through electronic transactions May be interest bearings(variable interest rate) or non-interest bearing 2. Fixed deposit Minimum amount Specific term eg. 1-5 years Early backdowns incur a penalty Fixed interest rate 3. Certificates of deposit Face value at least $100,000 Maturities between 14-270 days Fixed interest rate Originally issued at par but may trade above or below depending on Market yields. At maturity, receives face value plus interest 4. The deposits a) Call deposit must give notice of withdrawal, variable interest rate b) cash management accounts minimum balance requirement, variable interest rate linked to money market yields c) savings account no minimum balance or notice of withdrawal requirements variable interest rate Non-Deposit i. Repurchase agreements banks borrow for a short period (5 years) sell securities with an agreement to repurchase on hold date at agreed price ii. Promissory notes discount securities bank sells to the market iii. Liabilities on bill acceptance -bank is the acceptor and pays face value at maturity iv.Corporate bonds and other long term borrowings compositors case domestic bonds, eurobonds Due to Other Banks Includes deposits, vostro balances, repurchase agreement and settlement account balances due to other banks. Trading derivatives Financial liabilities at fair value are financial liabilities held for trading if it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term. Other financial liabilities at fair value Borrowings are initially treasure at fair value, net of transaction costs incurred. It is subsequently carried at amortised cost, any difference between initial recognised amount and the redemption value is recognised in the profit or loss.For example borrowing from reverse bank, other banks, or borrowing fro m outside of the country. Other financial liabilities at fair value Short term and long-term debt issues of the group including commercial paper, notes, term loans, medium-term notes, mortgage backed securities and other discrete debt issues. All other liabilities I) Bills collectible (drafts, telegraphic transfers, mail transfers payable, pay slip, bankers cheques, other miscellaneous items, etc) II) Inter-Office (The inter-office adjustments balance, if in credit, should be shown under this head. Only net position of interoffice accounts, interior as well as foreign should be shown here)III) Interest Accrued (Includes interest due and payable and interest accrued, but not due on deposits and borrowings Includes net provision for income tax and other taxes like interest tax (less advance payment, tax deducted at source, etc. ) IV) Deferred Tax ( additional supply in bad debts provision account, surplus provisions or depreciation in securities, Contingency funds which are not le t out as reserves but are actually in the nature of reserves, proposed dividend/transfer to Government. ) V) Others (which are not disclosed under any of the major heads such as unclaimed dividend, provisions and funds kept for specific purposes, unexpired discount, outstanding charges like rent, conveyance, etc. certain types of deposits like staff security deposits, margin deposits, etc) grace and other intangible assetGoodwill arises on the acquisition of an entity and represents the excess of the conglobation of the fair value of the purchase affection and the amount of any non-controlling interest in the entity over the fair value of the Groups share of the identifiable net assets at the date of the acquisition. Capital Debt capital borrowed funds, ranks higher than equity capital for the repayment of annual returns. Equity capital -shareholders fund which represents the remaining interest in assets of a company. -permanent commitment of funds -earns the residual income o f the firm after all interest and other costs -main components includes issue share, reserve and well-kept earnings References Hong Leong Bank. (2011). Annual Report 2010. Retrieved family 14, 2011 from http//www. hlb. com. my/data/ar2010. pdf RHB Bank. 2011). Annual Report 2010. Retrieved phratry 12, 2011 from http//www. rhb. com. my/corporate_profile/investor_relation/pdf/annual_reports/2010/RHB%20Bank%20Berhad%202010. pdf Gup, B. E. , Avram, K. , Beal, D. , Lambert, R. , amp Kolari, J. W. (2007). Commercial Banking. Milton, Qld John Willey amp Sons Hassan, H. , amp Mohammed, F. (2007). Banks risk management a comparison study of UAE national and foreign banks. The Journal of Risk amp Finance, 8(4), 394-409. Hong Leong Bank Berhard. (2009). Annual Report 2009. Retrieved September 14, 2011 from http//www. hlb. com. my/data/ar20091. pdf Milbourn, G. , amp Haight, T. (2005).Providing Students with an Overview of Financial Statements Using the Dupont Analysis Approach. The Journal of American Academy of Business, Cambridge. 9(3), 46-50 Narayanan, L. (2010). How DuPont Analysis Reveals Return on Equity Ratio. Managing Credit, Receivables amp Collections. 2(1), 12-14. Pinsent, W. (2010). Decoding DuPont Analysis. Retrieved September 2, 2011, from http//www. investopedia. com/articles/fundamental-analysis/08/dupont-analysis. asp kinfolk Dupont. (2010). Current Financial Accounting. Retrieved September 10, 2011, from http//www. sjrbiz. info/Current%20Classes/Financial%20Accounting%20Class/Dupont%20Model%20in%20a%20Nutshell. pdf