This document discusses several key financial ratios used to evaluate banks and other financial institutions. It provides definitions and formulas for ratios related to capital adequacy, asset quality, profitability, and liquidity. Specifically, it covers ratios such as the capital adequacy ratio, tier 1 capital ratio, loan loss reserves to gross loans average, net loans to total deposits, return on equity, return on assets, and others. Formulas and components of each ratio like equity reserves, risk-weighted assets, and pre-tax profits are also defined.

1. Total equity by net loans
This ratio forms part of the Capital and Funding ratios of a bank, and measures a company's financial
leverage by calculating the proportion of equity and debt the company is using to finance its assets.
Formula = Total Equity / Net Loans
Total equity covers total equity reserves, total share capital and treasury stock.
Net loans include loans to Banks or Credit Institutions, Customer net Loans and loans to group companies.
Loan loss by gross loan average
This ratio is part of 'Asset Quality' ratios of the bank and determines the quality of loans of a bank. The
higher the ratio, the more problematic the loans are and vice versa.
Formula = Loan Loss Reserves / Gross Loans average
Gross loans average comes from the average of the gross loans of prior year and the gross loans of the current
year.
Net loans / total deposits
Forming part of the Liquidity ratios of a bank, this ratio is often used by policy makers to determine the
lending practices of financial institutions.
The higher the Loan-to-deposit ratio, the more the bank is relying on borrowed funds.
Formula = Net Loans / Total Deposits
Net loans include: loans to banks or credit institutions; customer net loans; HP, lease or other loans; mortgages;
loans to group companies and associates and trust account lending.
Total deposits cover customer deposits, central bank deposits, banks and other credit institution deposits and
other deposits.
Loan loss by gross loan average
This ratio is part of 'Asset Quality' ratios of the bank and determines the quality of loans of a bank. The
higher the ratio, the more problematic the loans are and vice versa.
Formula = Loan Loss Reserves / Gross Loans average
Gross loans average comes from the average of the gross loans of prior year and the gross loans of the current
year.
Net loans / total deposits
Forming part of the Liquidity ratios of a bank, this ratio is often used by policy makers to determine the
lending practices of financial institutions.
The higher the Loan-to-deposit ratio, the more the bank is relying on borrowed funds.
Formula = Net Loans / Total Deposits

2. Net loans include: loans to banks or credit institutions; customer net loans; HP, lease or other loans; mortgages;
loans to group companies and associates and trust account lending.
Total deposits cover customer deposits, central bank deposits, banks and other credit institution deposits and
other deposits.
Capital adequacy ratio
Capital Adequacy Ratio (CAR) or Total Capital Ratio measures a bank's capital position and is expressed
as a ratio of its capital to its assets.
It determines the capacity of the bank in terms of meeting the time liabilities and other risks such as credit risk,
operational risk, etc. CAR below the minimum statutory level indicates that the bank is not adequately capitalized
to expand its operations. The ratio ensures that the banks do not expand their business without having adequate
capital.
Formula = (Tier 1 Capital + Tier 2 Capital) / Risk Based Assets
Total Capital Ratio is part of 'Capital Adequacy' ratios of the bank. Where,
1. Tier 1 Capital = Total Equity - Revaluation Reserves
2. Tier 2 Capital = Revaluation Reserves + Subordinated Debt + Hybrid Capital + Provisions including Deferred
Tax+ Total Loan Loss & Other Reserves
3. Total equity = Equity Reserves + Total Share Capital
Tier 1 capital ratio
Tier 1 capital is the core measure of a bank's financial strength from a regulator's point of view. It
absorbs losses without a bank being required to cease trading.
Formula = (Total Equity - Revaluation Reserves) / Risk Based Assets
Tier 1 Capital Ratio is part of 'Capital Adequacy' ratios of the bank, where:
1 Total equity = Equity Reserves + Total Share Capital
Equity Reserves includes retained earnings, current year earnings, other equity reserves, revaluation reserves
and minority interests in reserves.
Total share capital is sum of common shares/stock, preferred stock/shares, minority interest less treasury stock.
2 Risk Based Assets = Total Asset - Cash and Equivalents - Fixed Assets
OR
Risk Based Assets = Other Earning Assets excluding Loans + Net Loans
3 Total Assets = Cash and Equivalents + Other Earning Assets excluding Loans + Net Loans + Fixed Assets
Return on equity
Return on equity (ROE) measures a corporation's profitability by revealing how much profit a company
generates with the money shareholders have invested.

3. Formula = Pre-tax profit / Total Equity average
The ratio is part of ‘Profitability’ ratios of the bank, where:
Pre-tax profits = Total income - Total expenses (before taxes)
Total equity = Equity Reserves + Total Share Capital
Equity Reserves includes retained earnings, current year earnings, other equity reserves, revaluation reserves
and minority interests in reserves.
Total share capital is sum of common shares/stock, preferred stock/shares, minority interest less treasury stock.
Pre-tax profits by total assets average
The return on assets (ROA) percentage shows how profitable a company's assets are in generating
revenue. The ratio is considered an indicator of how effectively a company is using its assets to generate
earnings before payment of taxes and dividends.
Formula = Pre-tax profits / Total Assets average
The ratio is part of ‘Profitability’ ratios of the bank, where:
Pre-tax profits = Total income - Total expenses (before taxes)
Total income includes interest income, commission, fees, other operating income, non operating income,
exceptional and extraordinary income.
Total Expenses includes interest expense, commission, fees, other operating expenses, non operating expenses,
exceptional and extraordinary expenses.
Post-tax profits
Post-tax profit is a measure of profitability and represents net income for the group as a whole. This is
calculated before deducting minority interests and preference dividends.
Formula = Pre-Tax Profit (PBT) – Taxes
A measurement of financial profitability, pre-tax profit combines all profits before tax, including
operating, non-operating, continuing operations and non-continuing operations.
Formula = Total income - Total expenses (before taxes)
Pre-tax profits
A measurement of financial profitability, pre-tax profit combines all profits before tax, including
operating, non-operating, continuing operations and non-continuing operations.
Formula = Total income - Total expenses (before taxes)
Total equity
Stockholders' equity represents the equity stake currently held on the books by a firm's equity investors
or shareholders.
Formula = Equity Reserves + Total Share Capital

4. Total equity is used to calculate various ‘Capital Adequacy’, ‘Profitability’ and ‘Asset Quality’ ratios of the bank.
Total assets
Total assets represent resources with economic value that a corporation owns or controls with the
expectation that it will provide future benefit.
Total assets are calculated from year end figures gained from bank balance sheets.
Formula = Cash and Equivalents + Other Earning Assets excluding Loans + Net Loans + Fixed Assets
Shareholders Ratios
Shareholders Ratios
There are five main ratios that can be used by shareholders in order to assess the worth of a
particular company and their shares:
1. Earnings per share (E.P.S).
2. Price/ Earnings (P/E) ratio.
3. Dividend per share.
4. Dividend yield.
5. Dividend cover.
Earnings per share (E.P.S)
This measures the company's potential dividends that it could pay to shareholders. It is calculated using the
following formula:
Clearly the shareholders would want as much of the profit after tax as possible to be payable to themselves.
Price Earnings (P/E) ratio
This measures the market price of the share as a proportion of the earnings per share calculated above. It is
calculated using the following formula:
In general, the higher the P/E ratio, then the better the expectations of the company's future profitability.
However, the share price of the company is likely to fluctuate frequently, and therefore the P/E ratio of the share
will not be the same for very long - this can make it difficult to compare the P/E ratio with other companies.

5. Dividends per share
This measures the size of the dividends that the company actually pays to its shareholders. It is calculated using
the following formula:
.
Dividend Yield
This shows the dividend per share expressed as a percentage of the market price of the share. It is calculated
using the following formula:
This is not a very high return for the risk involved in investing money in shares. This figure would need to be
compared to other investments (e.g. other companies, banks, etc) to see if it is providing a competitive return.
Dividend cover
This measures how many more times the dividends could have been paid out of the profit after tax. It is
calculated using the following formula: