HSBC Holdings Plc Annual Report and Accounts Order Instructions: Analyze net interest margin ratio
cost/capital to income ratio
Bad debt ratio
capital adequacy ratio
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HSBC Holdings Plc Annual Report and Accounts Sample Answer
HSBC RATIO ANALYSIS
Net interest margin (NIM) ratio
The NIM ratio is important in determining the difference between the interest revenue generated by financial organizations and the interest expense paid out to lenders relative to the interest acquired from assets. In 2015, an average NIM of 3.03% was recorded by United States’ banks in the first quarter (HSBC.com, 2016). The NIM for US banks in the first quarter of 2005 was 3.5%.
Net Interest Margin= $689m -9.59bn/93.3bn
HSBC Net Interest Margin 2015-2016 = 9.5%
In the first quarter of 2010, a peak of 3.84% was reached. This implies that in the 21st century, a typical NIM ratio for US banks has an average of between 3 to 4%. HSBC NIM of 9.5% shows the strength of the bank and suitable for investment. HSBC Net Interest Margin is favorable at 9.5%. The industry is performing poorly but it stands out to provide the best returns to its shareholders.
HSBC Holdings Plc Annual Report and Accounts on Cost/capital to income ratio
The cost of capital to income ratio is obtained by dividing the operating costs (fixed costs and administrative costs, such as property expenses and salaries however it does not include bad debts written off in the financial period) by operating income for the season. The ratio provides investors with a good perspective of how efficiently the firm is managed by those assigned with responsibilities. The lower the cost to income ratio, the more profitable the firm or bank is supposed to be.
Operating cost= $7950m
Operating income=$14938m
HSBC Cost to Income ratio 2015-2016=53.21%
HSBC capital to income ratio is average at around 53.21%. The managers are effectively utilizing the capital but almost spending more than necessary to generate income for the business. The ratio can be adjusted by ensuring more assets with less expenditure or costs are utilized and not expensive assets that bring minimal income (HSBC.com, 2016).
HSBC Holdings Plc Annual Report and Accounts and Bad debt ratio
The formula involves taking bad debts ratio for the period added to accruals for doubtful debts in the period. Then less any recovery made on old and doubtful debts for the period divided by the turnover for the season (HSBC.com, 2016).
Bad debt ratio for HSBC 2015-2016= 91.80%
The ratio for bad debts for HSBC is extremely high at 91% for all the regions in which it holds its operations. This is not appropriate as most of their revenues are written off hence minimal profits. Measures need to be taken to ensure proper debt collection procedures are in place and in return, it will boost 2016 annual profits.
HSBC Holdings Plc Annual Report and Accounts for Capital adequacy ratio
Two forms of capita are measured, these are, the tier one capital which can stand losses without a financial institution being asked to stop trading and the tier two capital that generates losses in the case of closing down operations (HSBC.com, 2016). Therefore, tier two capital offers a smaller extent pr protection to the depositors. Tier 1 (Core capital) consists of retained earnings, minority interest, qualifying non-cumulative perpetual stock and intangible assets, and common stock and surplus. Tier 2 capitals constitutes related non-controlling interests, allowable collective impairment allowance, qualifying subordinated loan capital and unrealized gains from fair valuation of equity instruments put as available for sale.
=155688/1115.2
=139.6%
HSBC Capital adequacy ratio 2015-2016 is 139.6% which is favorable for the operations of the business. The higher capital adequacy ratio help HSBC in competing in strong economies hence the bank can provide huge lending to both private individuals and governments. HSBC capital adequacy ratio proves its strength and does provides its investors the certainty of its continued operations in the foreseeable future.
HSBC Holdings Plc Annual Report and Accounts Reference List
HSBC.com. (2016). HSBC Holdings plc Annual Report and Accounts 2015. [online] Available at: http://www.hsbc.com/investor-relations/events-and-presentations/quick-read [Accessed 4 Oct. 2016].
