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BFF2401 - Commercial banking and finance - S2 2025
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Glenville Bank is currently faced with high demand for additional new loans: $50m in household loans, and $30m in business loans. The bank has decided to finance this new pool of loans using the following funding mix:
- Household loans to be funded by savings deposits (35%), fixed deposits (55%), and equity (10%);
- Business loans to be funded by fixed deposits (25%), certificates of deposit (60%), and equity (15%).
Calculate the pooled marginal cost of funds for the household loan funding mix in percentage terms, given the following information for Glenville Bank:
Funding Source | Marginal Cost of Funds (per annum) |
Savings deposits | 5.5% |
Fixed deposits | 7.5% |
Certificates of deposit | 9% |
Equity | 12% |
NOTE: By default, the unit of the answer is %. Enter your answer with TWO (2) decimal places. For example, if your answer is 9%, enter 9.00.
The balance sheet of XYZ Bank appears below. All figures in millions of US Dollars.
| Assets | Mil$ | Liabilities & Equity | Mil$ |
|---|---|---|---|
Short-term consumer loans (one-year maturity) | 150 | Overnight interbank funds | 160 |
Two-year fixed-rate consumer loans | 125 | Three-month CDs | 130 |
Three-month treasury bills | 130 | Three-month bankers' acceptances | 140 |
Six-month treasury notes | 135 | Six-month commercial papers | 120 |
Three-year fixed-rate treasury bonds | 170 | One-year term deposits | 160 |
| Two-year fixed-rate business loans | 120 | Two-year fixed-rate term deposits | 140 |
30-year floating-rate mortgages (rate adjusted every nine months) | 140 | Equity capital | 120 |
| TOTAL ASSETS | 970 | TOTAL LIABILITIES & EQUITY | 970 |
Suppose that interest rates fall by 1% on both Rate-Sensitive Assets and Rate-Sensitive Liabilities in one-year time. The expected annual change in net interest income of the bank is:
The pooled marginal cost of funds includes:
Kansas Bank has a policy of limiting their loans to any single customer so that the maximum loss as a percent of capital will not exceed 20 percent for both secured and unsecured loans. The limit has been adopted under the assumption that if the unsecured loan is defaulted, there will be no recovery of interest or principal payments. For loans that are secured (collateralized), it is expected that 40 percent of interest and principal will be recovered in the event of default.
What is the concentration limit (as a percent of capital) for unsecured loans made by Kansas Bank? (NOTE: Recovery rate + Loss rate = 100%)
Normanby Bank has the following information.
Assets | Amount ($million) | Rate earned per annum | Liabilities and Equity | Amount ($million) | Rate paid per annum |
3-month Treasury notes | 250 | 5.5% | 6-month certificates of deposit | 550 | 5% |
6-month personal loans (fixed rate) | 300 | 6.5% | 2-year term deposits (fixed rate) | 320 | 6% |
2-year corporate term loans (fixed rate) | 150 | 8.5% | 30-year subordinated debts (variable rate adjusted quarterly) | 180 | 7.5% |
30-year mortgage loans (variable rate adjusted monthly) | 550 | 7% | Equity | 250 |
|
Premises (non-earning) | 50 |
|
|
|
|
Total | 1,300 |
| Total | 1,300 |
|
The bank anticipates that in the next 12 months, interest rates on Rate-Sensitive Assets will increase by 50 basis points, and interest rates on Rate-Sensitive Liabilities will increase by 100 basis points. What will be the expected change in the bank's annual Net Interest Income (NII)?
Following the 2008 global financial crisis, banks strengthened their funding and liquidity profiles by:
How can discriminant analysis be used to make credit decisions?
Which of the following refers to restrictions in loan and bond agreements that encourage or forbid certain actions by the borrower?
Debt instruments that are backed by a segregated pool of high-quality assets which remain on the issuing bank’s balance sheet are: