cbs final assign

ABMF 3023 COMMERCIAL BANKING SERVICES

DIPLOMA IN BANKING & FINANCE

YEAR 2 – SEMESTER 1 (2015/2016)

COURSEWORK (GROUP ASSIGNMENT)

CHONG SHIUO MUN 13WBD02114

CHONG KAH YAN 13WBD00976

CHOU KAH MEI 13WBD03066

TUTORIAL GROUP : DBF G9

NAME OF TUTOR : MR. KOH CHIN WEI

DAY : TUESDAY

DATE OF SUBMISSION : 21.07.2014

TABLE OF CONTENT

NO. TITLE PAGE

1. Cover 1

2. Table of content 2

3. Assessment Criteria For Coursework 3

4. Group Member Appraisal Form 4-6

5. Plagiarism Statement 7

6. 1. Discuss whether banks generated more non-interest based income than interest based income from the bank activities from 2000 to 2015.

8-17

7. 2. Discuss whether the impact of macro and regional economic effects on bank’s non-interest based activities such as BASEL rules and regulation.

18

8. 3. Discuss whether the impact of the bank’s non-interest activities by firms in different countries.

19-20

9. 4. Discuss whether the non-interest activities and the bank performance and bank risk.

21-22

10. Appendix 23-24

11. Reference 25

ABMF3023 Commercial Banking ServicesAssessment Criteria for Course Work (20%)Names of Students:

1. CHONG SHIUO MUN2. CHONG KAH YAN3. CHOU KAH MEI

Criteria Maximum Marks

MarksAllocated

Remarks

Discuss whether banks generated more non-interest based income than interest based income from the bank activities from 2000 to 2015.

Prepare the calculation table for accessing the workout.

20

5

Discuss whether the impact of macro and regional economic effects on bank’s non-interest based activities such as BASEL rules and regulation.

20

Discuss whether the impact of the bank’s non-interest activities by firms in different countries.

20

Discuss whether the non-interest activities and the bank performance and bank risk.

20

Proper referencing to source of information.

5

Extent of originality of work and ability to collate information in an organized manner.

5

Group appraisal on involvement in assignment.

5

Group Member Appraisal Form

The basis of this evaluation is your group member’s commitment to completing the assignment and to their regard for other members of the group. It should be based on the contribution given by each member and his or her involvement in this assignment.

Group members should be appraised using the following basis:

100% Group member attended all group meetings or if unable to attend, contacted the group in advance and came to an alternative arrangement that the majority of group members were happy with.

Group member contributed to group discussion. Group member always offered to help or volunteered for tasks. Group member had assigned tasks completed on time.

50% Group member missed group meetings without making alternative arrangements with other group members.

Group member assigned tasks were only partly completed or poorly completed. Group member did not contribute to the group effort or volunteer for tasks.

0% Group member attended few meetings and made no contribution to the assignment.

Name of student: CHONG SHIUO MUN

Instructions:

Place the name of each of the members in your group in the space provided below. Appraise each of the members in your group by circling one of the totals shown below (i.e. 100%, 50% or 0%)

Group Member100% 50% 0%100% 50% 0%100% 50% 0%100% 50% 0%100% 50% 0%

Note:

Failure to submit a Group member appraisal Form will result in a zero appraisal being recorded against your name.









Name of student: CHONG KAH YAN

Instructions:


Group Member100% 50% 0%100% 50% 0%100% 50% 0%100% 50% 0%100% 50% 0%

Note:










Name of student: CHOU KAH MEI

Instructions:


Group Member100% 50% 0%100% 50% 0%100% 50% 0%100% 50% 0%100% 50% 0%

Note:


School of Business Studies

Plagiarism Statement

Read, complete and sign this statement to be submitted with your written work.

We confirm that the submitted work are all our own work and are in our own words.

Name (Block Capitals) Registration. No. Signature

1. CHONG SHIUO MUN 13WBD02114 ……...……………

2. CHONG KAH YAN 13WBD00976 ……...……………

3. CHOU KAH MEI ……...……………

Programme Diploma in Banking and Finance

Tutorial Group Group 9

Date 21 July 2014

YEAR INTEREST BASED INCOME NON-INTEREST BASED INCOME2000 914,731 2057352001 1078,532 5579942002 1141,043 2523972003 1,201,133 7890322004 1,309,683 5368762005 2,080,936 11744272006 2,411,860 4500592007 2,882,081 4391002008 3,064,785 5010672009 2,937,002 5115372010 2,592,586 5069792011 2,952,529 6894682012 5,493,832 8821992013 5,609,243 12224572014 5,667,175 1070304

RM ('000)

Discuss whether banks generated more non-interest based income than interest based income from the bank activities from 2000 to 2015.

Standard Chartered (Malaysia)

YEAR

RM(‘000)

ANALYSIS AND INTERPRETATION OF GRAPH

From the Standard Chartered bank analysis, the interest based income is increasing steadily between year 2000 and 2008.However it slightly drops from year 2008 to 2010, RM3,064,785000 to RM2,592,586000, because affects by its competitive asset yields. In 2011, there is a sharp increase from RM2, 952,529000 to RM5, 493,832000 and reached a peak in year 2014, which the interest income are RM5,667,175000. This was partially due to higher volumes of deposits and loans granted by Standard Chartered bank.

Besides that, for non-interest income, it increases in year2000 from RM205735000 to RM557994000 in 2001, and then it drops to RM252397000 in year 2002. Non-interest income increases because of fixed income and interest rate derivatives income are contributed in favorable rates movements. It also drops from RM1174427000 in 2005 to RM450059000 in 2006, due to lower gain from sales of securities as well as a one-off reclassification of credit card related fees. After that for the following year, the bank experienced the increasing and decreasing of non-interest income more constantly and more stable between year 2006 and 2014.

So, we found that the interest based income is higher than non-interest based

income during year 2000 to 2014

Singapore UOB

YEAR INTEREST BASED INCOME NON-INTEREST BASED INCOME2000 1198 7042001 1429 7952002 2128 9062003 2071 10892004 2155 11042005 2348 14142006 2710 21272007 2980 18922008 3576 16752009 3674 17322010 3532 8112011 3678 7032012 3917 10702013 4120 8702014 4558 11512015 -

RM ('000)

YEAR

RM (‘000)


From the UOB Bank’s analysis, the interest based income is increasing gradually from year 2000 to 2014, because of the growth of loan and improved loan pricing in an increasing interest rate environment of UOB Bank.

Besides that, for the non-interest income, it increases from year 2000 with RM1704000 and reached the highest level of RM2127000 in 2006 but then start to have a decline in year 2006 to year 2008, which are RM1675000. After that it drops a lot from year 2009 to 2010, RM1732000 to RM811000 due to decline in fee income. And later in the following years, the flow of non-interest income is more stable and steady, mainly contributed by steady fee income and higher trading and investment gains. This also represents a relatively faster recovery for UOB Bank.

So, we found that the bank generated more interest based income than non-interest based income for UOB Bank.

Commonwealth Bank of Australia

YEAR INTEREST BASED INCOME NON-INTEREST BASED INCOME2000 10402 61392001 11900 88242002 10455 90682003 11528 93662004 13287 100922005 16781 108652006 19758 118352007 23862 130482008 29234 143582009 31519 168182010 32215 190592011 37477 196592012 38258 201502013 34739 214992014 33645 224012015

$ (Million)

20002002

20042006

20082010

20122014

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

INTEREST BASED INCOMENON-INTEREST BASED INCOME


From the Commonwealth Bank’s analysis, the interest based income is increasing slightly

from year 2000 till year 2012; $10402(Millions) to $38258(Millions).This reflects growth

in average interest earning assets and a one basis point increase in net profit margin for

Commonwealth Bank. However, this bank seems to experienced falling of interest

income from year 2012 till 2014, which at$33645 (Millions)

Besides that, for the non-interest income also rise from 2000 to 2014 every year.

The highest of non- interest income arrived at $22401(Millions) at year 2014.

From the analysis, we found that this bank generates more interest income than

the non-interest income.

Siam Commercial Bank(Thailand)

Baht (Million)YEAR INTEREST BASED INCOME NON-INTEREST BASED INCOME2000 36667 119782001 33328 82122002 30550 106002003 27999 114372004 27278 218222005 32073 174122006 52703 196952007 60446 228022008 63331 251412009 42005 270822010 52704 293722011 77947 405092012 103399 408802013 120691 5052320142015

20002001

20022003

20042005

20062007

20082009

20102011

20122013

0

20000

40000

60000

80000

100000

120000

140000



From Siam Commercial Bank’s analysis, the interest based income is slightly decreasing

from year 2000, 36667000000 Baht until year 2004, 27278000000 Baht, probably due to

increase in interest expenses. Afterward; it increased significantly until year 2013,

120691000000 Baht, with only a sharp decrease of interest income between year 2008 and

2009 (63331000000 Baht to 42005000000 Baht).This probably affects by the change in interest

rates.

Besides that, for the non-interest income, it increases steadily from 2001 to 2013, due to

increase in fee & service income, income from subsidiaries and gains on investment.

So, we found that Siam Commercial Bank’s interest income is more than the non-interest

income.

Hana Bank (Korea)

YEARINTEREST BASED INCOME NON-INTEREST BASED INCOME

2005 1,688.40 24.82006 1,973.10 561.32007 2,524.20 686.52008 2,419.90 573.302009 1,936.50 679.32010 2,603.40 403.402011 2,800.30 297.902012 2,674.90 740.702013 2,489.40 246.602014 2,531.60 368.70

KRW (in Billions)

20052006200720082009201020112012201320140.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00


KRW (in Billions)


From Hana Bank’s analysis, the interest based income increased steadily from year2005

to year 2014, which is KRW 1688.4 (in billions) to KRW 2531.6 (in billions), due to

increase in volume of interest earning assets. However, it drops a lot between year 2008

and 2009, KRW 2419.9(in billions) to KRW 1936.5 (in billions), this was due to drop in

net interest margin that is affected by sudden decline in market interest rates. Then it

gradually increases back until year 2011, KRW 2800.3 (in billions).

Besides that, for the non-interest income, it increased a lot from year 2000, KRW 24.8

(billions) to year 2001, KRW 563.1 (billions) because of solid rise in gain on disposition

and valuation and fees related to loans. After that the stable increase of non-interest

income from the graph indicates the moderate gains from credit card fees and other fees.

The highest of non- interest income arrived at KRW 740.7 (in Billions) at year 2012,

however it decrease to KRW 246.6 (billions), this is because of non-banking fees and

gains on disposition & valuation are both declined for the year.

Also, we found that Hana Bank’s interest income is more than the non-interest income.

CONCLUSION

In conclusion, five banks in different country are generated more interest based income

than non-interest based income. The interest income is roughly twice the rate of non-

interest income. The main received of interest income is from earning on deposits at

banks and credit unions, on money market funds, on bonds, and on loans.

However, from the analysis we can found that most of the banks (Malaysia, Thailand,

and Australia) were well into millions of dollars from non-interest income in recent years,

which indicates the non-interest income is growing. Nowadays, non-interest income is

very important for bank to move from old traditional interest income into a major

contributor of bank revenue. These sources of income have a great growth and significant

in non-interest income.

Discuss whether the impact of macro and regional economic effects on bank’s non-interest based activities such as BASEL rules and regulation.

Non-interest incomes (also referred as ’fee income’) for a bank are mainly income

from service charges on account they hold and interest charged for the loan they granted.

Unlike the interest income, this income is basically unaffected by regional economic and

financial market cycles and is usually not controlled by rules and regulation. Non-interest

income is less likely to move in synch with economic variables such as interest rates or

gross domestic product (GDP). The regional economic effects might only have the

impact on non-interest based activity due to the level for financing in the country and also

the bank’s specifications. The interest rates may be different between the countries,

where the risk for finance also different in number. The competitors also considered the

impact for non-interest finance, the commercial bank, the finance firm or others.

Discuss whether the impact of the bank’s non-interest activities by firms in different

countries.

The bank’s non-interest activities by firm will be affected while in different country. As

the research that we have done, the five countries are Malaysia, Singapore, Australia,

Thailand and Korea, based on the result of the non-interest activities from the Bank’s

Annual Report, shown the figure differently.

Standard Chartered Bank ( Malaysia )

Based on the graph of Standard Chartered Bank ,the non-interest activities illustrate a up

and down between the year 2000 to 2006. Then continue raise from the year 2007 until

the latest year 2014.

UOB ( Singapore )

Based on the result of research for UOB in Singapore, from year 2000 to 2006 keep

increases but slightly drop from year 2006 to 2008. However a huge decline appears from

the year 2009 to 2010. Then keep stabile from the year 2011 until the latest year of 2014.

Commonwealth Bank ( Australia )

In Australia, the non-interest activities increase continuously from the year 2000 until

2014 the latest.

Siam Commercial Bank ( Thailand )

For Siam Commercial Bank of Thailand, the figure for non-interest activities also keeps

raising from year 2000 to 2014 the latest.

Hana Bank ( Korea )

For Hana Bank, our research was started from the year 2005, from 2005 to 2008

increases whereas drop slightly from the year 2009 to 2011, then the highest number was

the year 2012.

Therefore, upon the result shows, the non-interest activities may be affected due to

different countries. For example, the Commonwealth Bank and Siam Commercial Bank

present a nice figure for non-interest activities without drop. Whereas Malaysia,

Singapore and Korea, the results are fluctuated but still increasing in last few years. Non-

interest income and bank performance differs due to differences in country income levels

and bank specifications. Non-interest income increases risk for banks in high income

countries, but reduces risk for middle and low income countries.

Discuss whether the non-interest activities and the bank performance and bank risk.

Non-interest activities

Any type of income that is generated from the application of fees, rather than from

interest that is applied to the outstanding balance of a financial account. Income of this

type is often associated with financial institutions, particularly banks and credit card

companies. In some cases, the non-interest income is associated with recurring fees that

are assessed on customer accounts each month. At other times, the fees are one-time

charges that are applied in return for some type of specific task or service that is provided

by the account issuer.

Bank performance

Bank performance is refers to the bank earning and the financial performance for the

year. While every condition remains, the increase of non-interest income will improve

bank earning but will also change the financing structure. Bank efficiency is measured by

each bank’s relative financial performance, calculated as the bank return on assets minus

the average return on assets of the other banks. Non-interest income doesn’t used to effect

on the performance and risk of bank.

Bank risk

There were few risks which will affect the bank if it depends solely on the interest based

income. Credit risk will be one of the risk because interest based income is mostly from

loan, and if a bank only based on this loan services, they may face uncertainty that their

customer default and will not be able to pay back the loan due to many reasons like

bankruptcy. Besides that, liquidity risk is another risk which the bank may face.

Furthermore, interest rate risk is another main risk that a bank will face if they depend

solely on interest based income. When the interest rate drops, the interest based income

services of a bank will generate lower income. Market risk is another risk which will

affect a bank, because market risk can’t be eliminated. If market faces recession, all the

industry will be affected including banking services. When the market is in bear market, a

bank which depends solely on interest based income will be seriously affected because

investors or customers will not willing to borrow money or loan from bank to invest.

Therefore, these are the risk to a bank if it solely depends on interest based income only.

APPENDIX

STANDARD CHARTERED (MALAYSIA) Income Statement for the year ended 31 MARCH 2015

https://www.sc.com/my/assets/pws/pdf/GP-8-Mar-15.pdf

UOB BANK (SINGAPORE) MANAGEMENT DISCUSSION AND ANALYSIS

http://www.uobgroup.com/assets/pdfs/investor/annual/UOB_Annual_Report_2014.pdf

http://www.uobgroup.com/assets/pdfs/investor/annual/UOB_Annual_Report_2014.pdf

https://www.sc.com/my/assets/pws/pdf/GP-8-Mar-15.pdf

COMMONWEALTH BANK (AUSTRALIA) Consolidated Income Statement for the year ended

December 31, 2013

http://www.scb.co.th/en/getfile/15/annual

Hana Bank (Korea) Comprehensive Income Statement by Subsidiaries

file:///C:/Users/Dell/Downloads/Hana_Financial_Group_AR_2014_7.pdf

http://www.scb.co.th/en/getfile/15/annual

REFERENCE

1. Investopedia, 2015, Non-Interest Income, viewed 18 July 2015. Available from

http://www.investopedia.com/terms/n/noninterest-income.asp

1. William Perez, 2015, Interest Income, viewed 19 July 2015. Available from

http://taxes.about.com/od/income/qt/interest_income.htm

3. wiseGEEK, 2015, What is a Non-Interest Income, viewed 19 July 2015. Available

from http://www.wisegeek.com/what-is-a-non-interest-income.htm

4. Wintersteen, 2007, Developed vs. Developing Countries, viewed 19 July 2014.

Available from http://www.slideshare.net/wintersteen/developed-vs-developing-countries

5. The Wall Street Journal, 2015, Malaysia: Standard Chartered Annual Income

Statement, viewed 19 July 2015. Available from http://quotes.wsj.com/UK/XLON/STAN

6. MarketWatch, 2015, HSBC Annual Income Statement, viewed 19 July 2015. Available

from http://www.marketwatch.com/investing/stock/uovef/financials/cash-flow 11

7. Hana Bank (Korea), 2015, Financial Information, viewed 19 July 2015. Available

from http://www.hanafn.com/eng/ir/financial/statements/balanceDetail.do

8. Non-interest income and financial performance at commercial banks in Barbados, viewed 19

July 2015. Available from file:///C:/Users/user/Downloads/Craigwell-R.-Maxwell-C.-

2006%20(1).pdf

9. Bank-Based or Market-Based Financial Systems: Which is better? Available from

file:///C:/Users/user/Downloads/Levine-R.-2002.-Working-Paper.pdf

C:\\Users\\user\\Downloads\\Craigwell-R.-Maxwell-C.-2006 (1).pdf

C:\\Users\\user\\Downloads\\Craigwell-R.-Maxwell-C.-2006 (1).pdf

http://www.hanafn.com/eng/ir/financial/statements/balanceDetail.do

http://www.marketwatch.com/investing/stock/uovef/financials/cash-flow11

http://quotes.wsj.com/UK/XLON/STAN%20

http://www.slideshare.net/wintersteen/developed-vs-developing-countries

http://www.wisegeek.com/what-is-a-non-interest-income.htm

http://taxes.about.com/od/income/qt/interest_income.htm

http://www.investopedia.com/terms/n/noninterest-income.asp

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