Publication Details

This article was originally published as Collier, HW, Harjito, DA and McGowan, CB, Using accounting information for financial institution analysis in an evolving environment, Proceedings of the American Accounting Association Southwest Region Conference, Oklahoma City, 1-4 March 2006.


Return on equity analysis provides a system for planning as well as analyzing financial institution performance. In the case of Malaysia, Bank Negara Malaysia has successfully implemented a merger program for Malaysian banks in order to compete in the face of financial deregulation brought about by globalization. The purpose of this paper is to provide additional insights into the improvement of a bank’s financial situation, i.e. commercial banks, due to the recent series of bank mergers in Malaysia. This paper presents an application of the model for the financial analysis of a bank based on the DuPont system of financial analysis presented in Saunders (2000). Bank return on equity is decomposed into net profit margin, total asset turnover and the equity multiplier. This model is applied to Maybank in Malaysia which is one of the ten anchor banks in Malaysia that must satisfy the requirement of having a minimum RM2 billion shareholders fund and a minimum total assets of RM25 billion. Over the period of study from 1998 to 2003, during which substantial financial difficulties existed, Maybank’s assets rose gradually. Both income and expenses dropped during the study period with unusually large decreases in expenses in 2000 because decreases in both interest expense and loan loss and provision. This combination leads to an increase in net profit margin and a subsequent increase in return on equity leading to an increase in the stock price. Maybank appears to have benefited from the financial crisis in Malaysia and the subsequent restructuring of the banking industry.