Average working funds (awf) The AWF at the beginning and at the close of an accounting year or at times worked out as fortnight or monthly average.
Working funds These are total resources (total liabilities or total assets) of a bank as on a particular date. Total resources include capital, reserves and surplus, deposits, borrowings, other liabilities and provision. There is a school of theory which maintains that working funds are equal to aggregate deposits plus borrowing. However, more pragmatic view in consonance with capital adequacy calculations is, to include all resources and not just deposits and borrowings.
Interest spread This is the excess of total interest earned over total interest expended. The ratio of interest spread to AWF shows the efficiency of bank in managing and matching interest expenditure and interest income effectively. Interest spread is critical to a bank’s success as it exerts a strong influence on its bottom line.
Equity multiplier measures financial leverage and represents both a profit and risk measurement. It compares assets with equity and large values indicate a large amount of debt financing in comparison to equity. It has impact on return on assets. A critical scrutiny of EM helps to evaluate whether capital support is proportionate to the risks assumed in the balance sheet.
Risk weighted assets The cumulative risk weighted value of assets plus risk weighted credit converted contingent liabilities, which is used as the denominator for computing the capital adequacy ratio of bank.
Capital adequacy ratio This ratio relates a bank’s core net worth to its risk-weighted assets. The ratio is internationally accepted risk-driven measure of a bank’s degree of capitalization. A higher ratio indicates that a bank is well capitalized vis-a-vis its perceived risks. It is an excellent indicator of a bank’s long term solvency.
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