Analyse a bank using its financial statements and other considerations

Analysing a bank means working through its statements with the CAMELS lens and then asking what the numbers imply together. The net interest margin equals net interest income divided by average interest-earning assets; a falling margin with rising loan growth may mean the bank is buying volume with price. A rising allowance coverage and falling non-performing loan ratio suggest improving credit, while a falling allowance while bad loans rise flatters earnings. Capital ratios that barely clear the minimum leave little room for losses, and heavy reliance on wholesale funding weakens liquidity. Each ratio should be compared over time and with peers. The trap is reading a strong return on equity as strength when it reflects thin capital.