Answer – Matching Asset Quality Ratios of Banks
This is the answer for Quiz – Matching Asset Quality Ratios of Banks.
| Loan Loss Reserve/Impaired Loans | Impaired Loans/Gross Loans | Loans/Assets | Unreserved Impaired Loans/Equity | Bank (1, 2, 3, 4) | |
| A | 73% | 4.6% | 58% | 9.8% | Banco Santander |
| B | 56% | 0.4% | 33% | 0.9% | UBS |
| C | 32% | 15% | 75% | 85.9% | Unione di Banche Italiane |
| D | 112% | 1.4% | 36% | -0.7% | JP Morgan Chase |
A Spanish banking group
- Sound reserve levels due to conservative policies and Bank of Spain regulations
- Sizeable impaired loans due to Spanish real estate and consumer sectors
B Global investment bank with substantial commercial banking activities
- A relatively low level of reserve coverage is explained by management as relating to their broad definition of impaired loans many of which are well collateralised
- Relatively high quality loan book but very small and as % of assets due to focus on investment banking
C Unione di Banche Italiane seventh largest commercial bank in Italy
- Very high levels of non-performing loans
- Very low reserve coverage (possibly due to impact on equity of further increases in reserves), but even so huge unreserved impaired loans to equity
- Continuing poor economic environment and difficult banking conditions have led to this position
D Global financial services company
- Strong levels of loan loss coverage as US banks tend to charge off problem loans quickly and provision conservatively
- Relatively low loan book as % of assets due to investment banking operations but strong retail banking business
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