Executive Summary 3 1. Company Overview 4 Commonwealth Bank of Australia 4 Bendigo Bank/Bendigo and Adelaide Bank 5 2. Current Measures of Absolute Size 6 2.1 Total Assets 6 2.2 Total Revenue 6 2.3 Number of Full-time Equivalent Employees 6 2.4 Market Capitalization 6 3. Composition of financial statements 7 3.1 Mix of Assets 7 3.2 Mix of Liabilities 7 3.3 Mix of Equity 7 3.4 Changes in the income statements 7 4. Selected ratios and trends 8 4.1 Return on Asset (ROA) 8 4.2 Return on Earnings (ROE) 8 4.3 Asset Utilisation (AU) 9 4.4 Leverage Multiplier (LM) 10 4.5 Profit Margin (PM) 10 4.6 Net Interest Margin (NIM) 11 4.7 Liquidity Risk Measure 11 4.8 Interest Rate Risk Measure 12 4.9 Credit risk Measure 13 4.10 Capital Risk Measurement 14 5. Size and types of off-balance sheet activities 14 5.1 Net Non-Interest Income 15 5.2 Financial guarantees 15 6. Selected market ratios and other information 17 6.1 Price Earnings (P/E) Ratio 17 6.2 Market to Book Value 17 6.3 Growth in Share Price vs. Growth in Banking Index 18 Appendices 20 Appendix 4.1 Return on Asset 20 Appendix 4.2 Return on Equity 20 Appendix 4.3 Asset Utilisation 20 Appendix 4.4 Leverage Multiplier 20 Appendix 4.5 Profit Margin 20 Appendix 4.6 Net Interest Margin 20 Appendix 4.7 Liquidity Risk Measure 20 Appendix 4.8 Interest Rate Risk Measure 20 Appendix 4.9 Credit Risk Measure 21 Appendix 4.10 Capital Risk Measurement 21 Appendix 5.1 Net Non-Interest Income 21 Appendix 5.2 Financial Guarantees 21 Appendix 5.3 Other Commitments 21 Bibliography/References 22
Executive Summary
This report is on the comparison between the National Australia Bank and Suncorp-Metway for the past five years which begin in 2005-06 and ends 2009-10.
The Report begins with a brief overview of the two banks and some background information to both National Australia Bank and Suncorp-Metway. With recent turmoil in the financial industry, this report examines the financial strength and growth capacity of these two companies.
For the strength evaluation of both the banks we have considered several key balance sheet ratios: Return on Asset (ROA), Return on Equity (ROE), Asset Utilisation (AU), Profit Margins, and Net Interest Margins (NIM). Other measures were also examined: Liquidity Risk, Interest Rate Risk, Credit Risk and Capital Risk Management. These ratios assist in displaying the real trends of the banks and allows for an assessment of the underlying risk factors. As one of ‘Big Four’ Australian banks, National Australia Bank has a stronger financial performance and position than Suncorp-Metway after examining those ratios.
An examination of off-balance sheet activities is also conducted. Off-balance sheet items such as derivatives and financial guarantees are gaining prevalence and the scope of these non-interest earning income are expanding in the market. Information such as net non-interest earning income, derivatives and guarantees income were examined. A comparison of the two suggests that Commonwealth Bank, although dealing with revenues much larger in size, is actually experiencing slower growth in this area when compared with Bendigo Bank.
Finally, market ratios and other information are examined. A number of ratios were examined for further comparison between Commonwealth Bank and Bendigo Bank. A comparison on the wellbeing of these two firms can be observed when their share prices are charted against the growth in the banking index on the share market. The growth in share price of Commonwealth Bank is higher than the banking index as investors hold Commonwealth Bank stock due to the good reputation and solid performances produced over the years. In contrast, the growth in Bendigo
