Kingmaker’s Banking Report 2016 – How They Ranked

The overall Banking Report ranking from Kingmakers shows how each of the 15 banks ranked in 6 indicators. Only money deposit banks (MDBs) who’s audited 2016 annual financial reports that were publicly available as of the time of generating this report were ranked.

In calculating the rankings, each of the six indicators were assigned equal weightings:

Note: Weights don’t add to 100 due to rounding.

Kingmakers created an index score for each metric for each bank. In each metric, the top bank based on the raw data was given 1 point and the bottom ranking bank was given 15 points. Banks between these were indexed proportionally. For the overall rankings, Kingmakers used the sum of the six category rankings, and then ranked the outcome. The banks with the lower outcomes were ranked higher than those with higher outcome for the overall ranking. We chose this method for the overall ranking so that it would not be skewed by large differences in scores at a metric level.

The Data

In order to select metrics for the project, we used the same indices as those used for ranking African banks by The Banker, a global economic and financial intelligence service provider that is owned by the Financial Times. These are the criteria we used in choosing metrics:

Metrics that measure performance outcomes in a bank were favoured over inputs or outputs. For example, we selected the rate of change in pre-tax profits rather than the actual amount of pre-tax profits.
Standardized data needed to be available across all banks.

The data behind the rankings were sourced from the audited annual financial reports of each of the different banks which is freely available from thier websites. The values in naira extracted from the financial reports were then converted into corresponding US dollar value using the exchange rate obtainable at November of the year of the financial report.

Kingmakers.com Calculations

Assets Growth Rate

Asset Growth Rate is a key performance indicator (KPI) used to evaluate a bank growth over time. It specifically measures the rate at which the value of a financial institution’s assets is increasing. The Asset Growth Rate of each financial institution was calculated by getting the Total Assets from the current year is subtracted from the Total Assets figure from the previous year. That value is then divided by that Total Assets amount from the previous year.

The formula we used to calculate the Asset Growth Rate is shown below:

Asset Growth Rate = (\frac{Total Assets}{Total Assets y-1}) - 1

The value derived is expressed as a percentage.

Cost to Income Ratio

Cost-to-Income Ratio (CIR) is similar to the Operating Profit Margin or in simple terms the ratio of your operating profit to the revenue that a company makes. It is used to determine how efficiently a company is being run and how it earns its own organic income. Cost-to-Income ratio is calculated by dividing the operating expenses by the operating income generated i.e.net interest income plus the other income, while operating expenses is the sum of employee cost plus other operating expenses.

Cost-to-Income Ratio = (\frac{Operating Expenses}{Operating Income})

The value derived is expressed as a percentage.

Equity Growth Rate

Equity, or book value, gives an indication how much a company is worth if it were no longer a company. This is also known as liquidation value. The Equity Growth Rate of each financial institution was calculated by getting the Total Equity from the current year is subtracted from the Total Equity figure from the previous year. That value is then divided by that Total Equity amount from the previous year.

The formula we used to calculate the Equity Growth Rate is shown below:

Equity Growth Rate = (\frac{Total Equity}{Total Equity y-1}) - 1

The value derived is expressed as a percentage.

Pre-Tax Profit Growth Rate

Pre-tax profit is a bank's earnings before tax as a percentage of total sales or revenues. The higher the pre-tax profit, the more profitable the bank is. The growth trend of the pre-tax profit is as important as the figure itself, since it provides an indication of which way the company's profitability is headed. The Pre-Tax Profit Growth Rate of each financial institution was calculated by getting the Pre-Tax Profit from the current year is subtracted from the Pre-Tax Profit figure from the previous year. That value is then divided by that Pre-Tax Profit amount from the previous year.

The formula we used to calculate the Pre-Tax Profit Growth Rate is shown below:

Pre-Tax Profit Growth Rate = (\frac{Pre-Tax Profit}{Pre-Tax Profit y-1}) - 1

The value derived is expressed as a percentage.

Return on Assets

Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Return on Assets is calculated using the formula below:

Return on Assets = (\frac{Net Income}{Average Total Assets})

The Average Total Assests is the average of the toal assets from the current year and the previous year. The Return on Assets value derived is expressed as a percentage.

Return on Equity

Return on equity (ROE), also known as "return on net worth" (RONW), is a measure of the profitability of a business in relation to the book value of shareholder equity. Return on Equity is calculated using the formula below:

Return on Equity = (\frac{Net Income}{Total Equity})

The Return on Equity value derived is expressed as a percentage.

Dr. Obi Igbokwe
Co-Founder
Datalogical