CHAPTER ONE
INTRODUCTION
1.1 INTRODUCTION
Nonperforming assets usually refers to non-performing assets and the lenders consider it as those assets that are not fetching benefits to them. It is regular but disguised loan asset. An asset becomes non-performing when it freeze to generate income for the bank. A non-performing asset was defined as a credit facility in respect of which the interest or instalment of principal has remained past due for a specified period of time which was four quarters.
The banks, have different kind of assets, such as cash in hand, balances with other banks, investment, loans and advances, fixed assets, and other assets. The nonperforming assets (NPA) concept is restricted to loans, advances and investments. As long
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Standard asset generate continuous income and repayment as and when they fall due. Such assets carry a normal risk and are not non performing asset in the real sense. So, no special provisions are required for Standard Assets.
Sub-Standard Assets: All the assets which are loan and advances be consider as non performing for a period of 12 months are called as Sub-Standard Assets.
Doubtful Assets: Those are assets which considered as non-performing for period of more than 12 months are called as Doubtful Assets.
Loss Assets: All the assets that cannot be recovered are name as Loss Assets.
Types of Non Performing Assets
There are two types of Non Performing Assets:
1. Gross NPA: Gross Nonperforming assets are the sum total of all loan assets that are classified as nonperforming assets. Gross nonperforming assets reflect the quality of the loans made by banks. It consists of all the nonstandard assets like as sub-standard, doubtful, and loss assets. It can be calculated with following ratio formula:
Gross NPAs Ratio = Gross NPAs / Gross Advances *
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Asha Singh (2013) Nonperforming assets had a impact towards the overall performance of the banks. A increase profitability of a large number of credit defaults due to a high level of nonperforming assets that affects the profitability and liquidity of banks. In her research of comparison of gross nonperforming assets of public and private sector banks. She analyse the public and private banks annual financial reports from 2001 to 2012 found that the extent of nonperforming assets has higher comparatively in public sector banks. From the method obtained based on standard Trans log specification, it is result that cost of the bank in the sample study are positively related to the price of capital and the price of funds.
The Tobit regression results indicate that higher nonperforming asset reduces percent of profitability. Lower cost of efficiency in causing increase the nonperforming assets as said by Mohd Zaini Abd Karim et al. (2010). Berger and De Young (1997) stated that poor management in the banking institutions result in bad quality loans, besides, increase the level of nonperforming assets. The nonperforming assets growth involves the necessity of provisions, which reduces the overall profits and shareholders’’ value said by Chandan Kumar Tiwari et al.
Net working capital represents organization’s operating liquidity. In order to compute the net working capital, total current assets are divided from total current liabilities. When there is sufficient excess of current assets over current liabilities, an organization might be considered sufficiently liquid. Another ratio that helps in assessing the operating liquidity of as company is a current ratio. The ratio is calculated by dividing the total current assets over total current liabilities. When the current ratio is high, the organization has enough of current assets to pay for the liabilities. Yet, another mean of calculating the organization’s debt-paying ability is the debt ratio. To calculate the ratio, total liabilities are divided by total assets. The computation gives information on what proportion of organization’s assets is financed by a debt, and what is the entity’s ability to pay for current and long term liabilities. Lower debt ratio is better, because the low liabilities require low debt payments. To be able to lend money, an organization’s current ratio has to fall above a certain level, also the debt ratio cannot rise above a certain threshold. Otherwise, the entity will not be able to lend money or will have to pay high penalties. The following steps can be undertaken by a company to keep the debt ratio within normal
All of the items that are allowed under the Streamline loan are allowed under the Standard loan
During the last eight quarter, debt to assets ratio increased from 62% to 68% and the reason for that is because the total assets have decreased from $12.3 billion to $9.7 billion. Total liabilities have decreased as well from $7.6 billion to $6.6 billion. Even though both assets and liabilities decreased, assets decreased by much high percentage than liabilities did. For the last six quarters, the times interest earned ratio was negative which means that the EBIT was negative. Along with that, the EBIT is decline more and more every quarter. During the third quarter in 2011, EBIT was -$171 million and during the fourth quarter in 2012, it was -$745 million. Overall, both liquid and leverage ratios indicate the financial health of the company is declining. Company is losing assets (mostly cash) and they are not as liquid as they used to be. The assumption is that the company will be out of cash by the end of 2013.
The Statement of financial position is a very useful tool full of information showing the position of an entity. However within this sheet of information lies a lot of limitations and problems. This essay will pinpoint some of the limitations and problems within the balance sheet. These limitations include how the balance sheet does not reflect the true financial position of a business, it does not reflect assets that can’t be measured monetarily and it also has a huge amount of estimated values and not actual verified values so this causes some controversy within the entity and its true position on the market. As well as the problems within the balance sheet there also lies a lot of problems with what’s left out of the balance sheet.
These comprise the portion of net assets that result from contributions or other types of inflow of assets whose use is limited by restrictions placed by the original
The increasing trend in the quick ratio from 4.7 to 7.7 during 2013 – 2014 shows that its quick assets are more as compared to its current liabilities. This shows that the firm is easily paying off its current liabilities. Similarly, the increasing trend in the current ratio reflects that the firm is easily paying off its current debts by using profits generated from its current operations. Likewise, the increasing trend in the asset turnover ratio means that the firm is using its assets productively.
...To check how successful it has been, we calculate debtor collection period ratio. (Dyson, 2004) Fixed Asset turnover: In this ratio, we seek the amount of sales that can be generated (or the amount of fixed assets necessary to achieve a level of sales) from a given level of fixed assets. (Klein, 1998) Total asset turnover: This ratio determines that how efficiently a firm is utilizing its assets. If the asset turnover ratio is high, the firm is using its assets effectively in generating sales. If this ratio is low, the firm may not be using its assets efficiently and shall either increase sales or eliminate some of the existing assets. (Argenti, 2002) Solvency Ratio Gearing: Gearing reflects the relationship between a company’s equity capital (ordinary shares and reserves) and its other form of long-term funding (preference share, debenture, etc.) (Black, 2000)
BDEV has disclosed the financial instruments under respective categories of financial assets and liabilities. The financial assets comprise of Derivative financial instruments, Cash and cash equivalent, Trade receivables and Available for sale investments. Financial liabilities includes Derivative financial instruments, Bank overdrafts, loans, and borrowings. The below graph indicates a huge increase in financial liabilities representing 91% an increase in land payable bearing an interest on contract secured by a legal charge (Barratt Development Plc, 2016).
...n. Based on the definition of asset/liability, the operating leases items meet it. Therefore the amount should show as asset/liability off balance sheet as well.
It was the conclusion of the author that financial ratios when combined with statistical analysis still remain a valuable tool. The theoretical conclusion was that ratios used within a multivariate framework take on a more influential role than when used in isolation. The discriminate model was very accurate in the initial sample of 66 firms, correctly predicting 94 percent of the original bankrupt firms. The potential suggested used of the model included: business credit evaluation, investment guidelines and internal control procedures. The MDA model also showed potential to ease some problems in the selection of securities of a portfolio but further investigation was recommended.
By its very nature of being difficult, or in some cases impossible to identify, non-purchased goodwill is unable to be included on the balance sheet.
... show that the company is growing and expanding, property and inventory, as a percentage of assets, should be increasing instead of decreasing. More property and inventory, if it is not owned by creditors, would also decrease their debt to total assets ratio.
Asset are the resources for running the business work. As a business, if get more assets it means that the business is powerful. Asset also be divided into two categories which is non-current assets and current assets. Non-current assets are long-term use for
At the same time, the amount of non-performing loan ratio has also increased from 1.9% in 2015 to 2.4% in 2016 that requires banking institutions to pay more attention and to raise caution on risky sectors in order to strengthen the effectiveness of assets quality management (Supervision Annual Report, 2016). This can be resulted from the lack of sufficient legal framework for the institution governance and its operation monitoring. Therefore, this has brought the central bank to pay more attention to the performance of the banking and financial institutions in order to avoid the bankruptcy. To deal with the doubt concerned, there are few questions the study is going to figure out what are the problems of the banking supervision at the National Bank of Cambodia and how the central bank do to manage this issues.
A variety of groups are concerned in bank profitability for various reasons. The bank shareholders would want to know if the value of their investments is high or low. The investors also use current and past performance to predict future price of the banks’ shares traded on the stock exchanged. The management of the bank as trustee of the shareholders is evaluated and compensated on the basis of how well their decisions and planning have contributed to growth in assets and profits of their banks. Employees of bank also are concerned with profits, since their salaries and promotions are frequently tied to the profitability performance of their banks. Depositors use bank performance and profitability as indicators of security for their deposits in the banks. Finally, business community and general public are concerned about their banks’ performance to the extent that their economic prosperity is linked to the success or failure of their banks.