ROE decomposition analysis

2) Discuss each ratio’s trend, over time, measured relative to the peer group banks. Interpret the meaning of
each ratio in your discussion. You may wish to refer to the graphs in Part I, as part of your discussion. How do
the ratios and/or trends for your bank differ from those of the peers?
3) Perform a complete ROE decomposition analysis for the most recent year’s performance ratio data only
using the five ratios you obtained above. Then, analyze the component ratios of either the AU, ER, or both –
selecting the component ratios associated with the measure(s) driving the difference between your bank’s ROA
and that of the peer banks. In using your decomposition roadmap to identify the factor(s) driving the
performance difference(s) – after you examine the component ratios of AU and/or ER, speculate (without
obtaining actual data) on specific factors that could be driving the differences in the components of the AU
and/or ER that differ most for your bank, relative to the peers. (Example of this speculation: Assume that you
determine interest income is lower for your bank than that of the peers, and interest income/aTA is driving the
lower AU for your bank. You might speculate that your bank’s loans might be less risky than those of the
peers…or that your bank has fewer loans relative to government securities as assets, compared to the peers,
since loans tend to be higher earning than government securities.)
4) Based solely on the performance ratio analysis above, would you recommend any major changes for your
bank? If the bank follows your advice, what other ratios could be negatively affected? Explain. If your team
does not recommend any major changes, discuss what your feel your bank is doing better than their peers and
what types of profitability or lines of business need to be preserved in the future to maintain the bank’s
competitive advantage over their peers.