Bank A has a higher ROA than Bank B. Both banks have similar interest income to asset ratios and noninterest income to asset ratios. We know that
I. Bank A has a higher profit margin than Bank B.
II. Bank A has a higher AU ratio than Bank B.
III. Bank A must have a higher PLL/OI ratio.

Question

Quizplus · Accepted Answer

ROA (Return on Assets) is a measure of how efficiently a bank is able to generate profit from its assets. If Bank A has a higher ROA than Bank B, but both have similar interest income to asset ratios and noninterest income to asset ratios, it implies that Bank A is more efficient in generating profit from its assets. This efficiency is typically reflected in a higher profit margin, as it indicates Bank A is managing its expenses or risks (like credit losses) better than Bank B, leading to higher net income relative to its assets. The other options (II and III) are not directly related to the efficiency of generating profits from assets, hence are not necessarily true based on the given information.

Bank a Has a Higher ROA Than Bank B