How would you evaluate the performance of a bank using published Essay

How would you evaluate the performance of a bank using published accounting data. What other data would you use in this evaluation - Essay Example And according to many industry experts, a new era of global banking is emerging (Kubris-Labiak, 2005). It is important to have a method of analysing banks’ performance, in order that problems could be threshed out early on and government intervention could protect the public’s savings and preserve the public trust in the safety of the banking system in general (Mishkin & Eakins, 2003). The basic function of a bank is to source funds from savers, and to deploy the funds into productive undertakings by producers. (Madura, 1992). The degree to which banks are capable of discharging this function is the measure of its performance. (Fraser & Ormiston, 2001) The fundamental source of data for measuring bank performance is the income statement. This is the financial report that describes the source of income and expenses that affect the bank’s profitability (Saunders & Millon Cornett, 2008). This paper will walk through a hypothetical bank’s financial statement, which is given here as ABC Bank, a typical commercial bank. A cursory inspection of the income statement above shows several important items. Operating income is the income that comes from a bank’s ongoing operations. It is comprised of the interest income and non-interest income. Most of a bank’s income is interest income, because the banking function is basically that of converting deposits to loans that earn income. In the above table, interest income is shown to account for 73.5% of ABC Bank’s operating income. Interest income fluctuates with the level of interest rates. Non-interest income, on the other hand, makes up about 26.5% of total income in the above example, and is generated partly by service charges on deposit accounts. Typically, however, the bulk of non-interest income comes from off-balance sheet activities, such as trading in financial instruments and generating income from fees and loan sales. The importance of these activities