Financial Markets and Bank Management - Essay Example

The banks are faced with credit risk that involves change in net asset value due to changes in the ability of the counter-party to meet the contractual agreements (Thomas 2005). Performance risk includes the possible loses that may emanate from dishonest employees while operational risk include costs such as inability to meet regulatory requirements or settlement failures (Rao 1999). The bank’s net profit margin for 2012 was negative due to lack of growth of the non-customer interest income.

The net profit margin was positive in 2013, but the current low interest environment prevailing in the market will continue maintaining the net interest income growth rate low. This means that the bank should divest the low-yielding non-core assets like investment securities portfolios in order to scale up the bank’s net interest margin. The operating margin was too low to generate substantial increase in net profits in 2013. The return on invested capital growth rate stagnated thus demonstrating imprudent investing strategy due to low returns from the non-core business segments.

The improvements in return on assets and return on equity were low while the leverage position declined slightly due to injection of additional capital through rights issue. The stringent regulatory environment forced the bank to improve on its capitalisation and implement measures of lowering its leverage. Some of the measures implemented include the rights issue and reduction in the risk-weighted assets (RWAs) (Gregory 2011). Barclay’s loan to deposit ratio stood at 110 percent in 2012, but the ratio declined to 101 percent in 2013.

The deposits were almost equal to the customer loans thus demonstrating increased prudence in retail lending. The investment banking business segment is funded by a high proportion of liabilities. The bank should have sufficient liquid assets to withstand any market and internal stresses (Mehta and Fung