INCOME STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 (K' Million) Bank X Bank Y Interest Income Interest income from loans and advances 3,234 2,795 Interest income from investments in securities 2,663 1,683 Interest income from banks and financial institutions 33 50 Total Interest Income 5,930 4,527 Interest Expense Interest expense paid on deposits 1,214 680 Interest expense paid to banks and financial institutions 446 395 Interest expense paid on other borrowed funds 44 43 Total Interest Expense 1,704 1,119 Operating Income (Total Revenue) Interest Income 5,930 4,527 Non-interest income 2,338 2,023 Total Operating Income 8,268 6,549 Operating Expense Interest expenses Provision for loan losses Non-interest expenses Total Operating Expense 1,704 1,119 360 273 3,616 2,453 5,680 3,845 Profit before taxes (or Pre-tax Net Operating Income) 2,588 2,705 Taxes 1,024 947 Profit after taxes (or Net Income) 1,564 1,757 ANNEX 1 BALANCE SHEETS AS AT 31 DECEMBER: (K' Million) Primary Assets BANK X BANK Y 2022 2023 2022 2023 Balances with banks 3,182 1,299 16,164 13,714 Investment in securities 9,725 18,025 8,361 8,280 Total loans and advances Allowance for Loan losses 12,440 19,365 12,147 14,015 (539) (694) (969) (815) Total earning assets 24,808 37,995 35,703 35,194 Notes and coins 1,090 1,327 3,209 3,133 Balances with BoZ 2,539 5,520 4,198 6,991 Other assets 2,579 5,521 2,050 2,413 Total assets 31,016 50,362 45,159 47,730 Liabilities and Shareholders' equity Demand deposits 16,061 23,330 27,214 24,958 Savings deposits 2,728 4,483 1,714 1,910 A Time deposits Total deposits Balances due to banks Other borrowed funds Total interest bearing liabilities Non-interest bearing liabilities Shareholders' equity 5,819 24,608 112 2,104 3,114 26,824 39,731 2,346 6,637 1,846 3,994 8,705 36,519 98 7,977 7,738 36,906 34,605 766 1,124 609 433 Total liabilities and shareholders' equity 31,016 50,362 38,280 36,162 2,925 6,004 3,954 45,159 47,730 5,563 bject matt ubject ma bject matt tter exper overty, die hts and... ndustry is isk Manac promoti

Bank X and Bank Y are two of the top 5 banks operating in Zambia. As of 31 December 2023,
Bank X held 14% of the total assets and deposits in the Zambian banking sector, while Bank Y
held 16%, respectively. The two banks have a comparable number of branches and ATMs spread
out over the country and are typical commercial banks engaged in both retail and wholesale
business.
REQUIRED:
To answer the questions, refer to the summary financial statements of Bank X and Bank Y in
Annex 1 (and the associated Excel worksheets).

For all balance sheet items, you must use average amounts when performing the ratio
analysis (e.g., average assets for (2023) = [Total assets (2023) + Total assets (2022)]
divided by 2).
▪ You must present all the numerical answers to two decimal places.

1. Return on Assets (ROA)
A. Calculate the ROA ratios for Bank X and Bank Y and what can you conclude from the
results obtained.
B. By decomposing the ratio into its major components, clearly show the sources of the
difference in the two banks’ ROA ratios. Please summarise the results in a table format.
C. What is(are) the major contributor(s) for the difference in the performance of the two banks
as revealed by the results in (B) above?
2. Return on Equity (ROE)
A. Calculate the ROE ratios for Bank X and Bank Y and what can you conclude from the
results obtained.
B. Clearly demonstrate how the Equity Multiplier (EM) and Return on Assets (ROA) are
related to Return on Equity (ROE). Please summarise the results in a table format.
C. What is(are) the major contributor(s) for the difference in the performance of the two banks
as revealed by the results in (B) above?

3. Net Interest Margin (NIM)
A. Calculate the NIM ratios for Bank X and Bank Y and what can you conclude from the
results obtained.
B. By decomposing the ratio into its major components, clearly show the sources of the
difference in the two banks’ NIM ratios. Please summarise the results in a table format.
D. What is(are) the major contributor(s) for the difference in the performance of the two banks
as revealed by the results in (B) above?
4. Burden ratio
A. Calculate the burden ratios for Bank X and Bank Y and what can you conclude from the
results obtained.
B. By decomposing the ratio into its major components, clearly show the sources of the
difference in the two banks’ burden ratios. Please summarise the results in a table format.
C. What is(are) the major contributor(s) for the difference in the performance of the two banks
as revealed by the results in (B) above?