Which of the following ratios can be used to measure a bank's credit risk?
A)Net loans' duration/Total assets
B)Interest sensitive assets/Interest sensitive liabilities
C)Total assets/Number of full time employees
D)Nonperforming assets/Total loans and leases
E)Cash and equivalents/Total loans and leases

Question

Quizplus · Accepted Answer

Nonperforming assets (which are loans and leases that are not generating income for the bank) divided by total loans and leases provides a measure of the bank's credit risk. A higher ratio indicates a higher credit risk.

Option A is a measure of interest rate risk, not credit risk.
Option B is a measure of the bank's interest rate sensitivity, not credit risk.
Option C is a measure of efficiency, not credit risk.
Option E is not a relevant measure of credit risk.

Which of the Following Ratios Can Be Used to Measure