Calculate interest expenses hi ka chó

Exercise 1. A commercial bank announces the deposit rates as

following:

1. Current account (0.75% annually)

2. Savings account (2.75 % annually)
3. CDs (3.7% annually)

a/ A customer would like to deposit $15,000 to this bank for 12

months. Calculate the interest payments this customer would
receive the three types of deposits. Give a short comment on the
results.

Current account: 0.75% x 15,000 x 12/12 = $112.5

Savings account: 2.75% x 15,000 x 12/12 = $412.5
CDs: 3.7% x 15,000 x 12/12 = $555

b/ The client decides to open a savings account for 9 months, but

after 6 months, he withdraws the money to spend on a decent
vacation. How much money would he receive at the withdrawal?
Comment on the results.

Because the client withdraw before maturity ⇒ interest rate =

0.75%
The money would he receive at the withdrawal:
(15,000 x 0.75% x 6/12) + 15,000 = 15,056.25

c/ Suppose that the client would like to buy a car that’s worth
$25,000 in 3 years time. He decides to save for the purchase using
a 3-year CD. How much would the CD he have to buy to have
enough money at withdrawal to buy the car?

The CD that the client have to buy a car after save for 3 years:
(A x 3.7% x 3) + A = 25,000
A x (3.7% x 3 + 1) = 25,000
A x 1.111 = 25,000
⇒ A = 22,502.250

FV = PV x ( 1 + t x R)
25,000 = PV x ( 1 + 3 x 3.7%) ⇒ PV = 22,502.250
The client would have $22,502.250 deposits to have enough
money at the withdrawal to buy the car

Exercise 2. A commercial bank announces the annual returns on

its three types of deposits as following:
1. Current account (0.75% annually)
2. Savings account (3.75 % annually, plus 0.5% via online
savings accounts)
3. CDs (4.7% annual return)

a/ A customer would like to deposit $15,000 to this bank for 12

months. Calculate the interest payments this customer would
receive the three types of deposits. Give a short comment on the
results.

Current account: 15,000 x 0.75% x 12/12 = $112.5

Savings account: 15,000 x 3.75% x 12/12 = $562.5
Savings account via online: 15,000 x 4.25% x 12/12 = $637.5
CDs: 15,000 x 4.7% x 12/12 = $705

b/The client decides to open an online savings account for 9

months. How much money would he get in terms of interests?
Comment on the results

The money that the client will get in terms of interest:

15,000 x 4.25% x 9/12 = $478.125

c/ Propose that the client would like to save for 3 year and then use
the money to buy a car. The expected price of that car is $25,000,
how much does he need to have today in order to buy a 3-year CD
with 3.7% annual returns (he prefers paying all in one)?

The money that he need to have today in order to buy a

$25,000 car:
FV = PV x (1 + t x R)
25,000 = PV x (1 + 3 x 3.7%) ⇒ PV = 22,502.250

Exercise 3: The X joint-stock commercial bank is currently

offering the following deposit rates to their customers:
- Interest rate for demand deposit: 0.2 % per year.
- Interest rate for term deposit: 6-month term (unit: % per year)
 Monthly At Pre-paid
maturity interest

At the 6.5% 6.6% 6.4%

counter

Online 6.5% 6.65% 6.42%

A customer has a deposit at the X joint-stock commercial bank with

following information:
- Deposit amount: 100 million dong.
- Deposit maturity: from 10/3/2021 to 10/9/2021 ⇒ 184 days

1. Calculate the interest payment to the customer in two cases,

making deposit at the counter and via an online channel:
a. Interest paid at the end of the period (at the maturity)
b. Interest paid monthly
c. Pre-paid interest

Interest payment = principal value x r% x number of days stay

in bank/365

At the Monthly Pre-paid

maturity interest

At the 100 x 6.6% x 100 x 6.5% 100 x 6.4%

counter 184/365 = x 184/365 = x 184/365 =
3.327m 3.277m 3.223m

Online 100 x 6.65% 100 x 6.5% 100 x

x 184/365 = x 184/365 = 6.42% x
3.352m 3.277m 184/365 =
3.236m

d. The customer withdraws all her deposit on 20/5/2020 to buy a

car

Interest payment = 100 x 0.2% x 71/365 = 0.039m

2. Comment on the amount of interest customer receives in the
different cases. Explain the difference?

 online channel has higher interest rate than the counter

channel because at the counter the cost of providing
services is higher than the online channel, such as cost for
bank teller, operation cost,...

 the interest rate pay before is lower than the interest rate
later because one dollar to day is worth more than
tomorrow so the cost of the day before is higher than the
day later
(tiền hôm qua giá trị hơn hôm nay, nên chi phí trả sau sẽ rẻ
hơn chi phí trả trước ⇒ lãi trả sau cao nhằm khích lệ customer
gửi tiền lâu hơn → NH sẽ phải trả lãi sau rẻ hơn so với trả lãi
trước)

Evaluate bank performance

Exercise 1. The following table presents a simplified balance sheet
of the ABC bank:
Bank ABC BALANCE SHEET (Unit: mil VND)

ASSET
LIABILITIES
Cash 27,500
Deposits and borrowings from other
Securities 86,000
credit institutions 100,100
Loans
Customer's deposits 250,500
Loan loss provision (1,500)
Issuance of valuable papers
Fixed assets and other properties
34,200
19,100
Equity 19,300
 Total Asset 404,100 Total Liabilities
404,100

1. Calculate the total loan volume to customers of this bank.

Comment on the proportion of loans over total assets of the
bank.

The total loan volume to customers:

404,100 - (27,500 + 86,000 - 1,500 + 19,100) = 273,000

The proportion: 273,000/404,100 = 67,56% ⇒ highest

proportion

2. Calculate ROE, ROA and bank leverage ratio, given the

following assumptions: Interest revenue: VND 3,850mil, interest
expense: VND 1,725mil, non-interest revenue: VND1,500mil,
non-interest expense: VND 607.5mil, allowance for loan loss is
VND 336mil; tax rate: 10%

Profit before tax

= Interest revenue + Non interest revenue - Interest expense -
Non interest expense - Allowance for loan loss
= (3,850 + 1,500) - (1,725 + 607.5) - 336 = 2,681.5

Tax = 2,681.5 x 10% = 268.15

Profit after tax = 2,413.35

ROA = Net income/ Total asset = 2,413.35/404,100 = 0.5972%

ROE = Net income / Total equity = 2,413.35/19,300 = 12.5%

Leverage ratio = ROE/ROA = 12.5%/0.5972% = 20.931

3. Given that last year, the bank’s ROA is 0.55%, the bank leverage
ratio is 21.5. What was the bank’s ROE last year? Comment on the
bank performance.

The bank’s ROE is: 0.55% x 21.5 = 11.825%

 Comment:
 Improve in the bank profitability: ROE increase; ROA
increase
 Improve in the bank profitability because better in utilization
in the bank assets (increase in the bank ROA), lower leverage
ratio → lower the risk, better solvency

Exercise 2. The following tables present a balance sheet

and an income statement (which have been simplified) of
an example bank:
Bank ABC BALANCE SHEET (Unit: mil VND)

ASSET
Cash 27,500
Securities 86,000
Loans
Loan loss provision (9,500) Fixed assets and other
properties 19,100
LIABILITIES
Deposits and borrowings from other credit institutions
25,100 Customer's deposits 411,640 Issuance of valuable papers
30,100 Equity 35,160

Total Asset 502,000 Total Liabilities

502,000

1. Calculate the total loan volume to customers of this bank.

Comment on the proportion of loans over total assets of the
bank.

The total loan loan volume to customers:

502,000 - (27,500 + 86,000 - 9,500 + 19,100) = 378,900

The proportion of loans over total assets of the bank:

378,900/502,000 = 75,48% ⇒ the highest proportion

2. Calculate net income margin (NIM) and cost income ratio (C/I)
given the following assumptions: Interest revenue: VND 3,850bn,
 interest expense: VND 1,725bn, non-interest revenue:
VND1,500bn, non interest expense: VND 607.5bn, other things in
the income statement are not material. Present your comments
NIM and C/I of this bank if these two figures in the previous
period were 0.4% and 17%, respectively.

Previous year:
C/I = 17%
NIM = 0.4%

This year:
C/I = non interest expense/(net interest income + non interest
income)
= 607.5/((3,850 - 1,725) + 1,500) = 16.76%

NIM = (interest income - interest expense)/total assets

= (3,850 - 1,725)/502,000 = 0.42%

 CI decrease shows that bank profit efficiency is improving

with non-interest expense has a smaller proportion in bank
income

Exercise 3. The following tables present a balance sheet

and an income statement (which have been simplified) of
an example bank:
Bank ABC BALANCE SHEET (Unit: mil VND)

ASSET
LIABILITIES
Cash 27,500
Deposits and borrowings from other
Securities 86,000
credit institutions 25,100
Loans 378,900
Customer's deposits 411,640
Loan loss provision (9,500)
Issuance of valuable papers 30,100
Fixed assets and other properties
Equity 35,160
19,100
 Total Asset 502,000 Total Liabilities
502,000

a) Briefly comment on the structure of the bank balance sheet.

 In the balance sheet of the bank, we can clearly see how the
bank raises the sources of money in the liabilities side and
how the bank uses the money which it raise in the asset side

 In the asset side, the asset follow the liquidity - which is

important to the bank

 When you see in the balance sheet of the bank, you can see the
products and services that the bank provide

b) Calculate ROE, ROA and bank leverage ratio, given the

following assumptions: Interest revenue: VND 3,850mil, interest
expense: VND 1,725mil, non-interest revenue: VND1,500mil,
non-interest expense: VND 607.5mil, allowance for loan loss is
VND 336mil; tax rate: 10%

Profit before tax

= Interest revenue + Non interest revenue - Interest expense -
Non interest expense - Allowance for loan loss
= (3,850 + 1,500) - (1,725 + 607.5) - 336 = 2,681.5

Tax = 2,681.5 x 10% = 268.15

Profit after tax = 2,413.35

ROA = Net income/ Total asset = 2,413.35/502,000 = 0.48%

ROE = Net income / Total equity = 2,413.35/35,160 = 6.86%

Leverage ratio = ROE/ROA = 6.86%/0.48% = 14.3

 c) Given that last year, the bank’s ROA was 0.55%, the bank
leverage ratio was 21.5. What was the bank’s ROE last year?
Comment on the bank performance.

The bank’s ROE is: 0.55% x 21.5 = 11.825%

Comment:
 Decrease in the bank profitability: ROE decrease; ROA
decrease
 Improve in the bank profitability because lower leverage ratio
→ lower the risk, better solvency

Consumer loan repayment

Exercise 1.
Customer Minh Tung applies for a bank loan to buy a car that’s worth
2 billion dong. The bank agrees to finance 75% of the value of the
car, with the following terms:
- Loan maturity: 3 years
- Lending rate: 16%/year
- Repayment schedule: semi-annually.
- The customer will have to pay back the principal loan amount in
equal installments and interest payment for each repayment is
calculated based on the actual outstanding balance at the beginning
of the repayment period.

Require:
1. Make a spreadsheet of the principal and interest repayments for
the loan.

The amount of loan is: 75% x 2,000 = 1,500 million

Period Beginning Principal Interest Ending

balance payment payment balance
1 1,500 250 1,500 x 16% 1,250
x 6/12
= 120

2 1,250 250 100 1,000

3 1,000 250 80 750
 4 750 250 60 500

5 500 250 40 250

6 250 250 20 0

The total interest payment the bank will get is: 120 + 100 + 80 +
60 + 40 + 20 = 420mVNĐ

2. In order to finance the above loan, how much deposit must the
bank has to raise, given that the required reserve ratio and the
solvency reserve ratio are 5% and 3% respectively for a deposit of
3-year term. Interest expense is 3.5%/year and non-interest
expense is 1%/year. How much is the total profit the bank earned
when making the above loan.

The deposit need to raise:

1,500/(1-8%) = 1,630.434mVNĐ
Interest expense and non - interest expense for 3 years:
1,630.434 x (3.5% + 1%) x 3 = 220.11mVNĐ
Total profit:
420 - 220.11 = 199.89mVNĐ

Exercise 2:
Commercial Bank A provides a loan to a customer to buy a car with
the following terms:
- Loan amount: 1000 million VND
- Loan maturity: 2 years
- Lending rate: 12%/year
- Repayment period: Quarterly
- Repayment: Equal installments for the principal amount and
interest payment is calculated based on the loan balance at the
beginning of the repayment period.
Require:
1, Make a spreadsheet of the principal and interest repayments for
the loan. How much is the total interest income of the bank from
the loan.

Period Beginning Principal Interest Ending

balance payment payment balance
1 1,000 125 1,000 x 12% 875
x 3/12
= 30
2 875 125 26.25 750

3 750 125 22.5 625

4 625 125 18.75 500

5 500 125 15 375

6 375 125 11.25 250

7 250 125 7.5 125

8 125 125 3.75 0

The total interest income is: 30 + 26.25 + 22.5 + 18.75 + 15 +

11.25 + 7.5 + 3.75 = 135m VNĐ

2, Suppose that the customer requests to repay the loan early at the
end of the first year. Given that the prepayment fee is 2% of the
prepayment amount, how much does the customer have to pay to
terminate the loan upon his request.

The prepayment amount is: 500mVNĐ ⇒ Prepayment fee is: 2%

x 500 = 10mVNĐ
The customer have to pay: 500 + 10 = 510mVNĐ

Calculate fee income

Exercise 1
The ABC Bank makes a loan commitment to company Y, which
specializes in importing electronic components, with a credit line of
USD 20,000 for 6 months with the following fees:
- Commitment fee: expressed as a percentage of the total
commitment: 2%
- Usage fee: levied on the unused portion of the credit line: 2.5%. -
Servicing fee: as a percentage of the on the borrowed amount:
0.75% - The borrower must opens a current account and the
deposit balance at
the bank equal 10% of credit line during the commitment period.
During the commitment period, the firm withdrew 5,000 USD with
a term of 6 months, the interest rate is 8%/year. Calculate the net
profit of the commercial bank knowing that the average business
interest rate of the bank is 5% and the deposit rate on current account
is 0.5% and the average cost related to loan commitment is 3% of
the credit line.

Exercise 2
ABC Bank signs an irrevocable L/C contract with customer Y with
the following terms:
- L/C value is 100,000 USD
- Customer deposits 80% of L/C value on the current account at the
time of signing:
100,000 x 80% = 80,000 USD
- Foreign currency swap fee 0.05% of the total value of L/C
(income) 100,000 x 0.05% = 50 USD
- L/C issuance fee is 2% of the total value of L/C:
(income) 100,000 x 2% = 2,000 USD

At the time the Bank makes the payment to the counterparty,

customer Y commits to allow the Bank to automatically debits
the checking account and takes a loan with the residual amount
at the interest rate specified by the Bank. 1 month after the L/C
was signed, the counterparty of Y presented the
required documents and the bank processes with the payment

Bank's current interest rate on demand-deposit is 0.06%/year.

(fee) 80,000 x 0.06% x 1/12 = 4

Calculate the income for the bank for the L/C in the following 2
cases:
a. Customer Y pays immediately to the bank when their
counterparty presented the shipping documents
The income for the bank = 50 + 20,000 - 4 = 20,046
b. Customer Y pays after 2 months from the date the Bank made
the payment. Knowing that the lending rate for the deferred
payment is 6%/year

(income) The interest of loan is: 20,000 x 6% x 2/12 = 200

The income for the bank: 50 + 2,000 + 200 - 4 = 2,246