bank has also increased its investment into the Federal Funds which may indicate that the bank’s overall policy may be to invest into risk free investments. Net interest income has shown consistent trends for three years however, non-interest income has declined too in year 1992.
The overall risk profile of the bank therefore may be assessed through the mix of investment as well as lending made by the firm. Lending to high risk areas such as lending to companies etc. further investment into more secured avenues such as investing into government securities.
The discussion on the interest rates by Mr. Jamison may not be entirely indicate the true assessment of the facts given the fact that it is relatively not known whether the lending made by the Bank is short term or long term in nature. Further the comment on the lack of high quality loans really need to be viewed from the perspective of the overall risk and return appetite of the bank. If the focus is on achieving the consistent returns, Bank may afford to have high quality loans however if the bank is willing to earn higher profitability its portfolio risk may need to be increased. Further, the overall rate sensitivity of the deposits also need to be discussed in much broader concept as it is not only limited to the interest rates but rather its impact on the lending shall also be taken into consideration which has not been discussed at length by various members of the ALCO.
The present yield curve indicate the steep increase in the rates and as such there is an indication of increase in short term interest rates what is however, critical to note that the Bank shall focus on acquiring long term deposits rather than making investments into the long term securities. Since short term interest rates are anticipated to change therefore bank shall also focus on making short term loans. This therefore would further require the bank to look for more of working capital and consumer loans rather than increasing its