Page 79 - FINAL CFA II SLIDES JUNE 2019 DAY 5.2
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Credit Risk Analysis READING 17: ANALYSIS OF FINANCIAL INSTITUTIONS
Present in debt securities that the bank invests in, loans the bank
makes, as well as in the bank’s off-balance-sheet liabilities (e.g.,
unused lines of credit, or letters of credit). Analyzing the credit MODULE 17.2: CAPITAL ADEQUACY AND ASSET QUALITY
quality of a bank’s assets can provide an analyst key insights into
the bank’s solvency and future profitability.
1. A It appears that proportion of better quality loans (at least
satisfactory credit quality) has declined while that of poor credit
quality (past due, impaired and seriously impaired) has
increased.
2. B The total of loans that were either past due or impaired
(including seriously impaired) at the end of 20X8 = 5% + 8% +
3% = 16%. Though not asked for in this question, the total for
20X7 was 4% + 6% + 2% = 12%.
