NAB's Financial Position and Business Risks

Essay by 21088888University, Master'sB, September 2008

download word file, 11 pages 4.5

Part 1:(a) Analysis of NAB’s Financial Position and Business RisksSimple ComparisonsAt a first glance, NAB’s financial reports have shown a sound performance during the year 2007 with a “steady and sustainable” improvement. The figures show NAB’s cash earning increased by 17.7% at $4,386 mil compared to that in 2006 of $3,728 mil; net interest income increased by 11.3% due to the strong growth in lending and customer deposits, while other operation income has decreased 1.0% because, as NAB’s report argued, higher card revenue as well as increases from lending and account fees driven by volume growth across all regions have been offset by a shift to lower fee products and the impact of one-off items in 2006; wealth management net operating income increased $163 million or 14.5%, as the report says, driven by strong sales momentum with improved advisor productivity, particularly through the bank, along with strong funds flow; operating expenses increased $68 million or 0.9%,

again quoted from the report, higher costs associated with increased business volumes have been offset by the success of the Group’s transformation and efficiency initiatives.

To its balance sheet aspect, total assets increased 16.5% to $564,634 million, mainly from strong lending growth across the Group, whilst total liabilities increased 17.1% to $534,749 million, mainly from growth in deposits and other borrowings and bonds, notes and subordinated debt. The higher increase in volume of liabilities shows a higher gearing rate. The above figures indicate a significant improvement and a strong position as analyzed in its own report, however higher the risk of misstatement.

Ratio Analysis1. Asset QualityLoan/deposit ratio. NAB’s loan/deposit ratio in 2007 is 1.5368, while the figure in 2006 was 1.6183. . This ratio measures the relative risk of a bank's asset portfolio, that is, loans are generally more risky than other assets, so...