Volume: 19 Issue-01 (January-June) 2024

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ANALYSING RETURN ON EQUITY (ROE) IN THE BANKING SECTOR

ABSTRACT

Return on Equity (ROE) is a fundamental financial metric used to evaluate the performance and profitability of banks. In the banking sector, ROE serves as a key indicator of how effectively a bank is utilizing shareholders' equity to generate profits. This article provides a comprehensive analysis of ROE in the banking sector, offering insights into its definition, calculation, significance, and influencing factors. The article begins by defining ROE and explaining its importance as a financial metric in the banking industry. It explores the ROE formula and how this metric is utilized by investors, regulators, and bank management to assess a bank's financial health and performance. Furthermore, the article delves into the various factors that influence ROE in the banking sector. It examines how asset management efficiency, profit margins, and leverage ratios impact a bank's ROE, providing insights into strategies banks can employ to improve their ROE. Through case studies of banks with both high and low ROE, this article illustrates the importance of ROE analysis in evaluating bank performance. It identifies key factors contributing to high and low ROE and provides actionable insights for banks aiming to enhance their ROE. Additionally, the article discusses the significance of ROE for investors and the benchmarks used to evaluate bank performance. It highlights the role of ROE in investment decision-making and how investors can use this metric to gauge a bank's profitability and growth potential. Furthermore, the article explores regulatory considerations related to ROE in the banking sector. It discusses regulatory requirements and how they influence banks' approach to managing and improving their ROE. In conclusion, this article underscores the importance of ROE as a critical financial metric in the banking sector. It summarizes key points discussed throughout the article and offers insights into the future outlook for ROE in the banking industry.

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