What financial ratios do banks use?
Banking institutions rely on a comprehensive suite of specialized financial ratios to evaluate credit risk, monitor liquidity health, assess capital adequacy, and measure overall operational profitability. Core metrics include the Net Interest Margin, which gauges the profitability of lending activities; the Return on Assets and Return on Equity, which measure overall corporate earnings efficiency; and the Efficiency Ratio, which tracks non-interest expenses relative to revenues. Additionally, regulatory ratios such as the Common Equity Tier 1 capital ratio, the Liquidity Coverage Ratio, and the Non-Performing Loan ratio are strictly monitored to ensure regulatory compliance and institutional financial stability.
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