TSB Bank Performance: Asset, Liability, and Banking Sector Impact

This report provides a comprehensive analysis of TSB Bank's financial performance, examining its assets, liabilities, and income structure changes from 2018 to 2019. It includes a brief overview of TSB Bank's business activities and critically analyzes the bank's balance sheet, highlighting fluctuations in cash, debt securities, property, and loans. The report evaluates the bank's performance using profitability, efficiency, and liquidity ratios, such as operating margin, net profit margin, and current ratio, providing interpretations of each. Furthermore, it assesses the impact of banking sector changes, including digital transformation and Brexit, on TSB's performance, concluding with an evaluation of the bank's expected future performance and overall financial health. The analysis reveals insights into TSB Bank's operational efficiency and strategic positioning within the evolving banking landscape.

Modern Banking
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INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Brief overview of TSB bank in terms of nature or its business activities...................................3
Critically analyse the bank’s assets & liability or income structure changes over the time........3
Critically evaluate bank’s performance over the period by using ratio analysis.........................4
Critically evaluated that how banking sector changes impact the particular bank’s performance
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Assessment of an expected future performance of TSB bank.....................................................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11
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INTRODUCTION
Modern Banking Systems is a largest supplier for community banks with key banking tech
solutions. The main banking delivery system in real time allows everyone the
mobility, protection to pick and integrate apps that customers require such as internet, mobile
applications banking (Begenau and Landvoigt, 2018). For the better understanding of modern
banking systems, this assignment select TBS bank which is UK based and offer all the services
which is provided by any common bank. This report includes the several discussions such as
changes in bank’s assets, liability and income structure. Evaluate banks performance with the
help of ratio analysis. In addition, it also included that critically evaluated that how changes in
banks affect overall bank’s performance.
MAIN BODY
Brief overview of TSB bank in terms of nature or its business activities
TSB Bank plc is based UK retail and commercial bank which is Banco Sabadell affiliate. It
operated a network of 536 branches in England, Scotland and Wales but has had no presence in
Northern Ireland since 1991. TSB introduced in its original form on 9 September 2013. Its
headquarters are based in Edinburgh which has more than 5.2 million customers, with loans and
consumer deposits of over £20 billion (Bianco and Sardoni, 2018). The bank offers a wide range
of corporate and individual financial and banking services including deposit accounts, loans,
credit cards, investments, and savings. TSB Bank is approved by the Prudential Regulation
Authority and is governed by both the Financial Conduct Authority and Prudential Regulation
Authority.
Critically analyse the bank’s assets & liability or income structure changes over the time
Balance sheet is a representation of a Bank's financial position which outlines the assets,
liabilities and equity of the holder at a specific point in time. In certain words, the balance sheet
shows the net worth of your company. It might also include data from previous years, so that
they can make two years in a row back-to-back contrast. These data will help us monitor overall
success and find ways to improve the finances and see where they need to get better. In context
of TSB bank, overall assets or liability of the company for the period of 2018 was £ 41,138
million and in 2019, it was £ 39,535 million. It is observed that overall assets or liabilities value
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decreases. Through analysing annual report of the bank, it is also identifying that items of
balance sheet has fluctuation from the period of 2018 to 2019.
In the assets side of balance sheet, cash and other demand deposits reduce that is £ 7,135
million in 2018 and £ 4,592 in 2019 (Annual Report of TSB Bank, 2019). Debt security increases
from 2018 to 2019 because previously it was £ 96.2 million and latest year it was £ 548.6 million
that is huge change in the numbers. Property and equipment increases, £ 163.1 million in 2018
and £ 293.2 million in 2019 that means company spend their money buy properties for its
operational expansion. An intangible asset also increases where it was £ 18.4 million in 2018 and
in 2019 it was £ 20.3 million. In 2018, loan and advances to customers is £ 30,008 million and in
2019 it was £ 31,075 million. Other assets of TBS bank are £ 197.1 million in 2018 and it was
reduces and remain at £ 146.5 million in 2019. Basically, an overall asset of value of bank from
2018 to 2019 decreases and it has several reasons. Further discussion is all about the changes in
liabilities side from the period of 2018 to 2019.
In the liability side of balance sheet, borrowings from central banks reduce from £ 6,482
million to £ 4,483 million for the period of 2018 to 2019. Customer deposits increase from 2018
to 2019 where the value was £ 29,094 million to £ 30,182 million. In 2018, debt securities in
issues were £ 1,122 million and £ 1,676 million in 2019. Portfolio hedged risk heavily increases
such as in 2018 it was £ 9.4 million and on 2019 it was £ 52.2 million (Carruthers, 2018)
(Danyali, 2018). Provisions of the banks are 51.8 million in 2019 and 63.6 million in 2018. In
the TSB bank, share capital is same for both years that are 79.4 million. Share premium for the
period was 195.6 million and merger reserves are 412.8 million for the duration of 2018 to 2019.
Overall shareholder’s equity increases from the period of 2018 it was 1,878 million and in 2019
it was 1,900 million.
According to income statement of TSB bank for the period of 2018 to 2019, it was
critically evaluated that interest income from 2018 to 2019 duration decreases with £ 22 million.
So, net interest income for the period of 2018 was £ 884.8 million and in 2019 it was £ 841.1
which shows the decline around £ 43.7 million. In result, total income also reduces from
£1,295.3 million to £ 987.2 million. It was also found that, operating expenses in 2019 of TSB
bank decreases in comparison to previous year that was £ 881.3 million. At the end,
comprehensive income for the duration of 2018 was £ (60.1) million which was a loss and in
2019 bank generate profit of £ 21.9 million.
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Critically evaluate bank’s performance over the period by using ratio analysis
Profitability ratio: It is a indicator of profitability and it is a way of calculating the
efficiency of a business. Profitability is basically the ability to create a profit and a profit is what
is leaving over from the money received after you deducted all the tax-related costs and
expenses. This ratio includes several types of ratio which indicate profitability of different stages
such as operating margin, gross margin and net margin ratio. By using TSB bank’s financial
performance, calculations are as follow:
Operating margin ratio: Operating margins is the proportion of operating profit to market
sales. This demonstrates the company 'operating profits as a percentage of sales. Operating
margin ratio put it simply, says the commitment of the activities of the business to profitability.
Its formula and calculation mentioned below:
Formula:
Operating margin = Operating profit / Net revenue * 100
Ratio 2018 (£ ‘ Million) 2019 (£ ‘ Million)
Net revenue 1,295 987
Operating Profit (27.7) 105.9
Operating Margin -2.13 % 10.72%
Interpretation: From the above calculation ratio, it is observed that profit margin of the
bank increases which is beneficial for the organization and it maximise the profitability for its
users. Operating margin ratio of 2018 was -2.13 % and 2019 was 10.72%, it shows the growth of
TSB bank.
Net profit margin ratio: It is the proportional of how much net revenue or benefit as a
percentage of sales is generated. Net profit margin for a firm or business segment is the ratio of
net income to sales (Harmening, 2018). The net profit margin shows how much and what dollar a
business receives turns into profit. This ratio used by the TSB bank to measure net profit of the
bank and further utilized this information for the measurement of performance. Its formula and
calculation are as follow:
Formula:
Net profit margin = Net profit / Net revenue *100
Ratio 2018 (£ ‘ Million) 2019 (£ ‘ Million)
Net revenue 1,295 987
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Net profit (59.1) 26.2
Net margin -4.56 % 2.65 %
Interpretation: Above calculation shows that net margin of 2018 was negative that is -
4.56% and it will increases in 2019 and provide 2.56% net margin. It also shows the growth
within a year and it further help the potential investors to make their decisions in respect of the
bank.
Efficiency ratio: The efficiency ratio shall be established by multiplying the non-interest
expenditures of the bank by its net income. That measure is nothing more than the operating
costs of a bank, related to as "non-interest expenditures" on a bank's income statement, separated
by its net income. Formula or calculation of this ratio mentioned below which is based on TSB
Bank’s financial performance.
Formula:
Efficiency ratio = Expenses /Revenue
Ratio 2018 (£ ‘ Million) 2019 (£ ‘ Million)
Revenue 1,295 987
Expenses 905.7 881.3
Efficiency ratio 0.69 0.89
Interpretation: From the above ratio, it has been analysed that efficiency ratio of 2018 is
0.69 and in 2019 it was 0.89 which shows the growth in the company’s efficiency.
Liquidity ratio: It is also the ratios which evaluate a firm's ability to fulfil its short-term
liabilities. Current ratio, quick ratio (also known as acid test ratio), cash ratio and working capital
ratio are the most obvious examples of leverage ratios. This ratio analysis, TSB bank able to
evaluate their operational liquidity that is essential to required.
Current ratio: This is a liquidity ratio, which tests how well a firm has sufficient
resources to fulfil its short-term responsibilities (Korzeb and Samaniego-Medina, 2019). This
contrasts the existing assets of a company with their current liabilities and is described as
follows: the current ratio is a measure of the liquidity of a company.
Formula:
Current ratio = Current assets / current liability
Ratio 2018 (£ ‘ Million) 2019 (£ ‘ Million)
Current assets 7,135.9 4,592.8
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Current liability 6,482.2 4,483.5
Current ratio 1.10 10.24
Interpretation: Above calculated current ratio shows the liquidity of the bank which
drastically change from the duration of 2018 to 2019. Current ratio of 2018 was 1.10 which is
lower than the ideal ratio and it means bank have almost equal amount of assets to pay off their
liabilities. On the other side, in 2019 current ratio was 10.24 which are very high and it indicates
that TSB bank has more than enough assets in comparison to their short term liabilities. Bank
need to balance this ratio to maintain enough liquidity in the organization.
Critically evaluated that how banking sector changes impact the particular bank’s performance
Changes in bank regulation:
Financial regulation regarding securities requires a limit on banks' capital, accumulation
(shareholder right and citizenship) and entrances and exits from the banking system. Although
monetary regulation includes restricting the interest rate (loaning and deposit), debt and portfolio
or credit flows. this restriction contains the requirement to keep government security such as 27
percent of T-bill loan in Ethiopia, credit lending to preferred institution, manufacturing sector in
the case of Ethiopia and control of the total Credit extended and reserve requirement Monetary
regulation was found to have a major adverse impact on the performance of the banks.
There are several changes in banking regulations which affect the performance of banks
such as digital transformation, Brexit, etc. Change in digital technology is a key force of change
for the banking sector (Majid, 2020). The unremitting push toward digital media dominates the
industry-wide agenda for reform. There is a need to contend with FinTech rivals, although rising
costs and satisfying growing consumer needs means that there are no indicators of slowing down
in the continuing push to digital platforms and technology in banking. Brexit is UK banking
industry's most important focus field. Bishopsgate Financial CEO Mike Hampson clarified that
Brexit is the main area of transition expected in the year. The problem is obviously troubling the
industry at 87 per cent of respondents, with reform leaders still finding guidance from
policymakers the better part of three decades since the cycle began. These changes affect the
banking sector of UK, TSB bank need to focus on digital transformation because it is the current
trend which provides various benefits to the customers. These changes help in maximising
banks’ productivity as well as performance.
Increase impact of FinTech developments on banking business:
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Fintech rivals are disrupting the conventional banking market, given the fact that
institutions adapt to the digital world. New entrants may use hard (codifiable) data to erode the
conventional banking-customer relationship on the basis of soft information. Banks have
historically concentrated on goods, although there are more than 55 new entrants. Fintech rivals
put competition to bear on banks' conventional business model. Fintech outlets benefit from the
circumstance but depend on government assurances that are both explicit and implied. This fact
indicates that the entry into the traditional banking market with new technology would depend
greatly on how regulations and government guarantees are implemented.
Fintech can be interpreted as using advanced information and mechanized farming in
financial services. New digital technology automates a diverse range of business activities and
can offer fresh and more price-effective solutions in parts of the financial sector. From lending to
wealth management and from investment, it was advised for payment system (Pilnik, Radionov
and Yazykov, 2018). Throughout these sectors, the influence of fintech rivals is starting to be
noticed in the banking and capital markets. Furthermore, in comparison with the scale of
financial intermediated assets and markets, the fintech field is low and lagging behind in Europe,
both in terms of level and development rate, relative to the US or China.
Consolidation in the banking sector of the particular country:
Small and medium-sized banks throughout the UK are preparing themselves for a
massive wave of consolidation as price increases, competitive pressures and a shrinking
economy are generating new obstacles for groups seeking to take on big five lenders. Senior
managers at many small lenders and existing high streets banks said they were anticipating a
pick-up in M&A activity. After Shawbrook's £850m acquisition last year and Aldermore's
£1.1bn purchase of FirstRand placed the market on alert for a switch to deal making.
After the financial crisis, legislation designed to encourage competition in the banking
sector have facilitated a proliferation of different "challenger" banks and professional lenders.
But Paul Lynam, board member responsible for competitors at the UK Finance industry lobby
group and chief executive of Safe Trust Bank, said it's "nearly unavoidable" that many of them
will be merging.
Consolidation may help reduce cost incompetence if the management of the purchasing
company becomes more effective at reducing costs than the leadership of the goal, and is willing
to remove excessive costs after the combination occurs. In the future, the restructuring process
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will vary by country and from segment to segment, based on the various reference points about
the number of companies and the variety of operations carried out within the organization
concerned. In Europe, the speed of restructuring could increase, provided that the euro's
stimulating effect is not yet running its course, although impediments can be reduced as
integration advances in areas such as taxation and regulation.
Issues relevant to the changes observed in the global banking markets or particular
country’s banking markets:
In all over the banking sector, there are several issues faced by the banks in the global
market. These challenges affect the performance as well as profitability of the banks. Some of
them are as follow:
Customer retention: Customers of financial services expect customized and meaningful
interactions via simple and straightforward interfaces on any computer, anywhere and at any
point. While consumer experience can be difficult to measure, customer satisfaction is
measurable and customer loyalty is increasingly becoming a term in trouble. Customer loyalty is
a result of a wealth of customer relationships that begin with understanding the customer and
their needs and adopting a continuous customer-cantered approach.
Outdated mobile application: Banking or financial group has its own customized mobile
application but because an company has an internet banking plan doesn't mean it's diversified as
best as possible (Popova and Butakova, 2019). To keep customers happy, a bank's mobile
experience requires being smooth, easy to use, feature packed, safe, and updated regularly. Many
banks have also started to re-imagine what a banking app might be by adding mobile payment
technology that enables consumers to view their cell phones as protected digital wallets and send
money to other countries and friends instantly.
Assessment of an expected future performance of TSB bank
From the above financial analysis of TSB bank, it has been analysed that bank need to
improve their performance there is growth between two consecutive years but not according to
the entire industry growth. Profitability ratio was is favourable condition but they need to
improve liquidity that is 10.24 in 2019 that is not according to ideal ratio. Ideal ratio should be
2:1 which means company have sufficient assets to meet their obligations. But in 2019, this ratio
indicates that banks have more than required current assets that are not beneficial at all.
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TSB bank should focus on changes in the banking sector such as digital transformation to
eliminate the issues which they currently face. TSB Bank introduces three latest strategies for
future growth and it should be achieved by 2022. They focus on three aspects to enhance their
performance and all are discussed below:
Customer focus: Because of its target section the "Aspiring Middle" made up of working
people, money converters and variable income customer groups. TSB will provide wonderful
banking basics and convincing differences. Such clients have a variety of unmet needs and
clearly pose resources where TSB can really make a big difference.
Simplification and efficiency: Becoming a company that is more tech-enabled and creative
means turning it to be easier and more efficient (Smolyansky, 2019). With dual-cloud and data
technologies, TSB's latest IT framework has a solid foundation to build on for the future,
leveraging data-driven knowledge and analytics to optimize user experiences because of its
target market.
Operational excellence: TSB seeks to build a robust and profitable organization that
provides operational excellence. Clear governance structure and monitoring are behind the plan,
supported by an accomplished management team.
CONCLUSION
From the above discussion, it has been observed that banking sector need to update their
operational activities according to business environment otherwise it affects the overall
performance. Ratio analysis is the most suitable method of analysing performance which further
beneficial for management to make decisions.
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REFERENCES
Books & Journals
Begenau, J., & Landvoigt, T. (2018). Financial regulation in a quantitative model of the modern
banking system. Available at SSRN 2748206.
Bianco, A., & Sardoni, C. (2018). Banking theories and macroeconomics. Journal of Post
Keynesian Economics. 41(2). 165-184.
Carruthers, B. G. (2018). What Is Sociological About Banks and Banking?. In The sociology of
economic life (pp. 242-263). Routledge.
Danyali, A. A. (2018). Factors influencing customers’ change of behaviors from online banking
to mobile banking in Tejarat Bank, Iran. Journal of Organizational Change Management.
Harmening, D. M. (2018). Modern blood banking & transfusion practices. FA Davis.
Korzeb, Z., & Samaniego-Medina, R. (2019). Sustainability Performance. A Comparative
Analysis in the Polish Banking Sector. Sustainability. 11(3). 653.
Majid, M. A. (2020). The Input Requirements of Conventional and Shariahcompliant
Banking. International Journal of Banking and Finance. 7(1). 51-78.
Pilnik, N., Radionov, S., & Yazykov, A. (2018). The Optimal Behavior Model of the Modern
Russian Banking System. HSE Economic Journal. 22(3). 418-447.
Popova, N. A., & Butakova, N. G. (2019, January). Research of a possibility of using blockchain
technology without tokens to protect banking transactions. In 2019 IEEE Conference of
Russian Young Researchers in Electrical and Electronic Engineering (EIConRus) (pp.
1764-1768). IEEE.
Smolyansky, M. (2019). Policy externalities and banking integration. Journal of Financial
Economics. 132(3). 118-139.
Online
Annual Report of TSB Bank. 2019. [Online]. Available Through:
< https://www.tsb.co.uk/tsb-bank-ara-2019.pdf >
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