Impact of Different Elements on ROE of Banks

Abstract

This report focus on the analysis of financial reports of several banks to evaluate Return on Equity (ROE) and other ratios like the Tax ratio, Asset turnover, Asset/Equity ratio and also to find out the impact of different elements on the Return on Equity (ROE). We had chosen this topic named ‘Impact of different factors on ROE of banks’ to get the proper understanding that how ROE is related to other factors of financial statements. We have collected relevant secondary data, theoretical literature and also some other valuable information before developing this research paper on ‘Impact of different factors on ROE of banks’. The core objective of this paper is to find out the effects of different elements of financial statements of a bank on the Return on Equity (ROE). There are some elements to evaluate a bank’s performance, but all of these the Return on Equity is the most essential elements to evaluate a bank’s performance properly. The Return on equity (ROE) reveals that how much profit a bank can earn in comparison to the shareholder’s total amount of equity found on the balance sheet. High return on equity reveals that A bank is more capable of generating more cash internally, when it has a high Return on Equity. In most cases, a bank’s with the higher return on equity which is compared to the industry average, is the better. For that reason, a bank puts more emphasis on the Return on Equity (ROE). Besides, management works hard to show the better ROE on the financial statements since it is very crucial to the potential investors. Other elements/indicators of the financial statement/performance might have some effect on ROE. Increasing in some elements might lead to increase in ROE and vice-versa. Some elements might not have any effect on ROE. In this research, we have evaluated the effects of those elements on ROE and how much they affect. The core objective of this paper is to examine the different factors (assets, PAT/PBT, Interest Margin etc.) impact on a bank’s Return on Equity (ROE).