Performance Evaluation Of Banks And Financial Crisis Essay

PERFORMANCE EVALUATION OF BANKS AND IMPACT OF 2007/2008 FINANCIAL CRISIS INTRODUCTION Banking and financial institutions are central to the survival of any economy and are highly regulated due to their intermediation and asset transformation roles. Banks strive to remain profitable and in the process are exposed to risk. Various profitability and risk metrics have been in use to evaluate the performance of banks but the 2007/2008 financial crisis has changed the way stakeholders in the financial industry assess profitability and risk performance of banks. The purpose of this paper is to enumerate the various metrics for evaluating the profit and risk management performance of a bank and to look deeply into how the financial crisis has influenced the performance evaluation methods. PERFORMANCE EVALUATION In bank’s performance evaluation two models are used which are: 1. The accounting model: which is the traditional Financial Ratio Analysis based on historical data 2. The economic model: which comprises risk adjusted performance measures that reflects Shareholder Wealth maximization The two models are being used to complement each other. The information for performance evaluation is the financial ratio derived from the analysis of bank’s published financial statements, principally the balance sheet and the income statement. 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