Bank Risk Management: 14 indicators for consideration

To: Ferry
From: Dr John Vong

Thank you for reminding me of the key indicators that ought to be monitored by bank supervisors, as spoken at the BSMR Indonesia Conference 2010.

There are at least 15 indicators for bank supervisors to monitor pertaining to the level of risk management undertaken in banks.

Most of them are available but some bank supervision authorities might have overlook the importance of Indicators No. 6,7,8 and 13,14, 15 (and comparing them to see the whole picture of what is actually happening in the banks) as an approach to risk management.

  1. RORA (risk return on risk-weighted assets)
  2. ROE (return non equity)
  3. Interest margin%
  4. NPL%
  5. NPL% (exceeding 90 days)
  6. Growth rate of Loans % (compared to NPL% growth)
  7. Growth rate of NPLs %
  8. Growth rate of Deposits % (compared to Loan% growth)
  9. Loans to Deposits ratio %
  10. T1 ratio%
  11. T2 ratio%
  12. Fee Income over Operating Cost% (dependency of the banks on interest earnings to cover cost)
  13. Staff cost over Operating Cost% (cost control)
  14. Service delivery Cost (cost control) to "produce" the products


Dear Prof John,

Thank you for your excellent explanation regarding 14+1 indicators. What is your opinion regarding Indonesia 2011 banking prospects industry?

Thank you,

TO:Mr Ferry
FROM: Dr John vong

I do not have a direct response. Instead I hope to point the way where you can find what you are looking for.

Let us begin with the 3 "key groups of influencers" of an economy. The government of the day (what is their focus; do they think long term; do they invest for the long term, what are their priorities); multinational corporations (where region and sector they wish to invest); Bilateral and multilateral development aid efforts (where and what they wish to invest/support). If you know their spending and investment intentions, and you can combine their intentons, then you will know where the economy is heading.

To be continued............................

Dear Dr. John,

Could you please explain how to calculate RORA ratio in steps?

Thanks a lot.
Tuan Anh, MBA Student at ERC

This is the only time I've been to your site. Thnx for providing more details.