ECONOMIC VALUE ADDED (EVA) Economic Value Added (EVA) or Economic Profit is after-tax net operating profit (NOPAT) minus a capital charge. This measure is based on the Residual Income technique that serves as an indicator of the real profitability of business. The real profitability occurs when additional wealth is created for share shareholders and the…
The assets of the bank, classified under NPA cease to generate income to the bank. In addition to stoppage of income generation to the banks, banks are required to make provision for NPA. Therefore NPA is a double edged razor; damaging the profit, weakening the capital structure and reducing the rating of the bank. Measures…
In economics, profit maximization is a term which denotes the maximum profit to be earned by a company in given period of time. The concept of profit maximization focuses generally on short term projects. Its target is efficient allocation of resources, Optimum utilization that lead to maximum profit. In the concept of profit maximization, the…
Easy money is known as cheap money, easy monetary policy and expansionary monetary policy. An easy money policy is a monetary policy that increases the money supply usually by lowering interest rates. The main purpose of Easy Money policy is to facilitate increase in investment thereby raising gross domestic product. Easy Money occurs when a…
The contingency planning is a regular part of risk management for exceptional risk though unlikely, may have disastrous consequences when an unexpected event or situation occurs. In the other words, contingency planning is a process that includes risk assessment and a mitigation strategy for those risks. It generally refers to a negative situation like direct…
The International Monetary Fund (IMF) defines funding liquidity as “the ability of a solvent institution to make agreed-upon payments in a timely fashion”. According to the IMF, funding liquidity is the ability lending agency agrees payment with immediacy. Funding liquidity is the availability of credit to finance the purchase of financial assets for a business…
A bankruptcy remote entity is a special-purpose vehicle (“SPV”) that is formed to hold a defined group of assets and to protect them from being administered as property of a bankruptcy estate. The corporate documents of bankruptcy remote like memorandum association and article association may also attempt to create disablements to a bankruptcy filing. For…
Stress test is a process or simulation technique that evaluates an institutions reaction to different crisis situations. Stress testing and capital planning are increasingly linked to many risk management processes that require coordination across risk, treasury, and financial planning and analysis functions. Banks have been using stress tests to evaluate their potential vulnerability to certain…
In banking jargon the word ‘spread’ is used in issuance of corporate bonds,interest levied on loans and in foreign exchange transactions. In foreign exchange transactions the difference between the buying rate and selling rate is referred as spread or margin. The term ‘credit spread’ is used in the fixed income corporate bonds and bank loans.…
Risk management and capital Management are two sides of the same coin. Both of these indicate that the sufficient capital contribution in the business provides stable resources to help the owner to absorb any losses arising from the risks in a business. The objective of Capital management as well as its risk appetite is to…