Quiz – Matching Earnings Ratios of Banks


Understanding the key drivers of profitability is critical to analysing a bank. In addition, it is important to understand the competitive environment within which the bank is operating and the margins which banks can change. The nature of a highly paid staff or a very large branch network will also affect the cost base. Also relevant is the amount of interest earned from lending versus fees and trading income. Also, higher net interest margins are usually achieved where there are higher risk loans such as emerging markets and credit cards. This exercise is designed to demonstrate the differences, which can be observed between different banks, which operate in different countries.

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The table below shows three earnings ratios. Below the table is a list of specific banking institutions.

Please match the institution with the ratio and give an explanation as to your results.

Cost/IncomeNet Interest MarginNet Interest Income / Total RevenueBank (1, 2, 3, 4)
  1. Nationwide: Large UK building society with national branch network, lending conservatively on secured residential mortgaged properties.
  2. Banco Santander (Brazil): Large Brazilian commercial bank with significant retail business much of which is unsecured.
  3. Bank of America: Large financial services company with strong US credit card franchise, global corporate and investment banking business.
  4. Societe Generate: Global investment bank with European commercial banking activities and fee generative business.

Here is the answer of this quiz.

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