Commercial Banking & Finance: Analyzing Bank Performance BEO2001

This report analyzes the financial performance of Commonwealth Bank and Westpac Bank, focusing on trends in interest income, interest expenses, net interest income, and provisions for loan losses. The analysis reveals that while interest income and expenses are generally decreasing, net interest income is increasing for both banks. Provisions for loan losses increased significantly in 2016 but improved in 2017, indicating better risk management. Operating expenses show differing trends, with Commonwealth Bank's increasing and Westpac's decreasing. The net interest margin (NIM) analysis indicates stable performance, though Commonwealth Bank's NIM slightly decreased. The report concludes by considering risk factors, noting that increased loan loss provisions and operating expenses can indicate heightened financial risks. Desklib offers a variety of resources, including solved assignments and past papers, to aid students in their studies.

Running head: COMMERCIAL BANKING AND FINANCE
Commercial banking and finance
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1COMMERCIAL BANKING AND FINANCE
Table of Contents
Part 2 – Measuring performance of banks.................................................................................2
Presentation of data................................................................................................................2
Analysis of bank’s performance.............................................................................................2
Reference....................................................................................................................................5

2COMMERCIAL BANKING AND FINANCE
Part 2 – Measuring performance of banks
Presentation of data
Analysis of bank’s performance
From the above table it can be identified that the interest income of Commonwealth
bank is in reducing trend and in the same way the interest expenses are also in reducing trend.
As the interest expenses are in reducing trend, net interest income of the bank is in increasing
trend (Commbank.com.au 2018). On the other hand, interest income as well as interest
expenses both for Westpac bank are in reducing trend. However, as the interest expenses are
in reducing trend, net interest income of the bank is in increasing trend (Westpac.com.au
2018). Loan provision loss is the amount kept aside as the allowance for the purpose of loan
payments and uncollected loans. This provision is used for covering various factors related to
potential loan losses that include customer defaults, bad loans and renegotiated loan terms
that carry lower payments as compared to previous estimates. However, from the perspective
of balance sheet the loan loss will be considered as a loss for an asset. Conversely, fro
operating perspective, owing to the provision for loan loss cash flow is available. It ensures

3COMMERCIAL BANKING AND FINANCE
that the bank have sufficient amount for providing services to the depositors (Fazzini 2018).
Looking into the above table it can be identified that for both the banks provisions for loan
loss significantly increased in 2016 as compared to the amount of 2015. However, the amount
has been reduced in 2017 and therefore it can be stated that both the banks improved its
position in 2017 as compared to the position of 2016.
If the operating expenses and income tax expenses are considered it can be identified
that the for commonwealth bank both the expenses are in increasing trend
(Commbank.com.au 2018). However, in case of Westpac bank the operating expenses
reduced over the years whereas the income tax expenses have been increased in 2017 as
compared to 2015 (Westpac.com.au 2018). Net income of commonwealth bank has been
increased over the 3 years period whereas the same for Westpac bank has been reduced in
2016 as compared to 2015. However, the bank was able to improve its position during 2017.
Net interest margin is the ratio used for measuring the success of bank with regard to
the investment of funds as compared to the expenses on same investments. This is computed
through dividing the net interest income by average interest earning assets. Positive net
interest margin indicates that the bank has invested the funds in efficient manner (Busch and
Memmel 2017). Looking into the computation for both the banks it can be stated that for both
the banks there is no big change in case of NIM and it increased from 1.90% to 1.92% over
the years. On the other hand the same for Commonwealth bank has been reduced to 1.92% in
2017 from 1.99% in 2015.
If the risk factor is considered taking into consideration the above mentioned data it
can be stated that increase in provisions for loans losses indicates that the banks risk for loss
on the asses is increasing. On the other hand, increase in operating expenses for both banks is

4COMMERCIAL BANKING AND FINANCE
indicating that the company’s control on expenses has been deteriorated which in turn will
increase the profitability risk.

5COMMERCIAL BANKING AND FINANCE
Reference
Busch, R. and Memmel, C., 2017. Banks' net interest margin and the level of interest
rates. Credit and Capital Markets–Kredit und Kapital, 50(3), pp.363-392.
Commbank.com.au., 2018. [online] Available at:
https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/annual-
reports/annual_report_2017_14_aug_2017.pdf [Accessed 11 Oct. 2018].
Fazzini, M., 2018. Financial Statement Analysis. In Business Valuation (pp. 39-76). Palgrave
Macmillan, Cham.
Westpac.com.au., 2018. [online] Available at:
https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/ic/
2017_Westpac_Annual_Report_Web_ready_&_Bookmarked.pdf [Accessed 11 Oct. 2018].