BFF2401 Commercial Banking and Finance

Individual Assignment

Semester 1, 2025

Due date: Monday 5th May 2025, 23:55

This individual assessment task is designed to test a student’s achievement of learning objectives 1–6. The total mark is 50 marks (weight: 32% of total assessment).

Word limit: 2,000 words (±10%), excluding tables, graphs and references.

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TOPIC: Essay on banks’ funding and credit risk management

Question 1 (6 marks, ~300 words):

“Banks face an important trade-off between risk and return in their decision to use stable sources of liability funding.”

Evaluate the above statement in the  context of commercial banks’  liability management. Your answer must be supported with specific real-world examples of one (1) stable liability instrument and one (1) non-stable liability instrument.

Question 2 (18 marks, ~500 words):

2A.   Choose one (1) type of banks’ stable liability funding and one (1) type of banks’ non-

stable liability funding, and find annual (yearly) data to calculate the percentages of each liability source for each of the top four Australian banks for the 2018-2024 period. Generate two  (2)  line  graphs  for  the  calculated  liability  percentages  (one  for  each liability source). (8 marks)

2B.   Conduct peer and trend analyses based on each of your graphs. Your analyses must be

supported with specific real-life evidence related to these banks’ liability management approaches. (10 marks)

NOTE: All tables of original dollar figures, formulas/workings and calculated percentages/ratios, as well as two (2) line graphs, must be presented in Part 2A. Your graphs must be fully labelled and professionally formatted and displayed.

Question 3 (10 marks, ~300 words):

3A.   Choose   one  (1)  measure   of  credit   (default)  risk   associated  with  banks’   lending activities, and find annual (yearly) data to calculate this credit risk ratio for each of the top four Australian banks for the 2018-2024 period. Generate one (1) line graph for the calculated credit risk ratio. (4 marks)

3B.   Conduct peer and trend analyses  based  on  your  graph.  Your  analyses  must  be

supported   with   specific   real-life   evidence   related   to   these   banks’   credit   risk management strategies. (6 marks)

NOTE: All tables of original dollar figures, formulas/workings and calculated percentages/ratios, as well as one (1) line graph, must be presented in Part 3A. Your graph must be fully labelled and professionally formatted and displayed.

Question 4 (12 marks, ~600 words):

4A.   Detail two (2) government or regulatory responses to assist Australian banks in their access to funding over the past five years. Assess whether these responses have been effective. (6 marks)

4B.   Detail two (2) regulatory or government support initiatives in response to potentially

rising loan defaults due to the COVID-19 financial challenges and recent inflationary pressure. Evaluate whether these policies have had any effect on Australian banks’ credit risk exposure. (6 marks)

Introduction and Conclusion (4 marks): Approximately 300 words are recommended for

introduction and conclusion together.

•  Suggested data source for Questions 2 and 3: Banks’ annual reports and Basel III Pillar 3 regulatory disclosure reports published on their websites.

•  Required  format:   1.5-line   spacing   and   12-point   font.   Detailed   and   informative subheadings must be used to separate the four questions and different sections.

•  Total marks: Question 1 (6 marks) + Question 2 (18 marks) + Question 3 (10 marks) + Question 4 (12 marks) + Introduction and Conclusion (4 marks) = 50 marks.

• Possible deductions: Referencing  and/or  formatting  issues  (deduction  of  up  to  4 marks); Late penalty (deduction of 5% per calendar day late); Penalty for Turnitin percentage above 20% (depending on nature of similarity).

Useful suggestions:

1.    Your  tutor  will  facilitate  discussion  on  the  assignment  topic  in Week 7 tutorials. However, you should get started much earlier by reading the relevant materials, planning your  essay,  extracting  the  required  data  from  banks’  annual  reports  and/or  Pillar  3 reports, etc. All questions related to the assignment should be sent to your tutor as the first point of contact (via e-mail or during consultation). Note that your queries will be responded to during business hours.

2.    The  focus of the assignment is on the following topics:  Topic 4 (Liquidity), Topic 5 (Liabilities) and Topic 7 (Credit Risk) (and relevant textbook chapters). Students should also expand their research outside the classroom materials to cover contemporary issues such as the current economic and financial landscape, interest rate changes, and recent regulatory developments.

3.    For the  credit risk ratio  in Question 3, you are required to choose ONE ratio that is directly associated with banks’ lending activities and the quality of bank loans. You can find many examples of credit risk measures on slide 21 of Topic 7 Credit Risk seminar. These measures are typically in dollar terms, so you will need to convert them to a ratio (percentage terms), for example, you may divide a specific measure by the total amount of loans.

4.    The banks’ annual reports and their Pillar 3 reports contain the required data for Parts 2A and 3A. Several specific examples needed to support the peer and trend analyses in Parts 2B and 3B can be found within relevant sections of the annual reports.

Please see below examples of National Australia Bank’s 2023 annual report and Pillar 3 report   (both   can   be   accessed   from: https://www.nab.com.au/about-us/shareholder- centre).

• https://www.nab.com.au/content/dam/nab/documents/reports/corporate/2023- annual-report.pdf

• https://www.nab.com.au/content/dam/nab/documents/reports/corporate/2023-full- year-pillar-3-report.pdf

5.    Ensure to use Group (Consolidated) data to reflect the overall entity’s performance. All dollar figures, relevant formulas/workings,  and calculated  percentages/ratios must be tabulated and displayed in Parts 2A and 3A of your essay (an appendix is NOT required).

6.    Note that the questions require you to find annual data and calculate the three (3) percentages/ratios (for each bank, each ratio must be calculated annually for the 2018- 2024 period). That means you must show the original dollar figures (for the numerator and denominator), all formulas/workings and the calculated percentages or ratios in your tables. If you simply use pre-calculated ratios copied from a source, you will earn lower marks.

7.    You should use Excel to construct the three (3) line graphs, then copy and paste these graphs and display them professionally in Parts 2A and 3A respectively (underneath your data tables). An example ofa line graph can be found on slide 32 of Week 2 seminar.

8.    For this assignment, you might want to have around 5-7 references. These are in addition to the banks' annual reports and Pillar 3 reports which you may use to obtain figures and insights into your analysis.

9.    You should utilise the pre-submission checklist and marking criteria (detailed on pages 7-10 of this document) to ensure all the requirements of the task have been met.

Other suggested readings:

https://www.rba.gov.au/publications/fsr/2024/sep/

https://www.rba.gov.au/publications/bulletin/2024/apr/bank-funding-and-the-recent- tightening-of-monetary-policy.html

https://www.rba.gov.au/publications/fsr/2023/oct/australian-financial-system.html

Instructions to students

You are required to retain a copy of the assignment until results are finalised. Any query by email must be sent from your Monash student email address. Any other email addresses will not be accepted.

Faculty style guide

Work submitted for this assessment must follow the ESSAY style as outlined here. Submission date and time

The due date of the assignment is Monday 5th May 2025, before 23:55 (Week 9).

All assignments must be submitted online via Turnitin. The submission link can be accessed from Week 9’s Own Time section or from the Assessments tab.

Submissions via e-mail will NOT be accepted.

Online Turnitin submission:

•   Please submit ONE .docx file (other file formats may not be compatible for Turnitin). The name of your .docx file should conform. to the following format: S12025 – Your First name and Last name and Student ID – Tutorial day and time – Your tutor’s First name and Last name. For example: S12025 – Jane Smith 1234567 – Tuesday 2PM – Xing Yan

•   You must also include these details (your full name, student ID, tutorial time, and your tutor’s name) on the first page of your assignment file.

•   Please  DO NOT  include  any  assignment  cover-sheet  as  it  may  bias  the  Turnitin similarity percentage.

•   Ensure to click on the  SUBMIT ASSIGNMENT  button and  accept  the  student statement to finalise your submission before the due date. Ensure the task status is recorded as “Submitted for Grading”. Assignments left in draft mode will not be graded.

TURNITIN: A Turnitin similarity report of 20% or below is acceptable, anything above 20% will be investigated, penalised, or failed depending on the nature of similarity. Note that you can replace (re-upload) your file only when it is in draft mode. Once your file has been formally submitted, the system will not allow any further changes.

Students who use Apple MacBook to prepare their assignment must convert their final .pages file to .docx before submission. Otherwise, pages. files cannot be read by Turnitin and will not be accepted for grading.

Conditions for the use of generative artificial intelligence (AI)

AI & Generative AI tools may be used SELECTIVELY within this assessment.

In this task, AI can be used as specified for one or more parts of the assessment task as described below.

In this assessment, you can use generative AI in order to help guide your thinking, refine ideas, and check and proofread your work for clarity, structure and grammar. You may also use AI to do the review of the relevant literature or previous research. AI and Gen AI must not be used to generate a written response to the assessment task or any part of it and you must not copy paste from Gen AI. A full declaration of AI use must be provided as per the instructions in the assessment task.

Where   used,   AI   must   be   used   responsibly,   clearly   documented   and   appropriately acknowledged (see Learn HQ).

Any work submitted for a mark must:

•   represent a sincere demonstration of your human efforts, skills and subject knowledge that you will be accountable for.

•   adhere to the guidelines for AI use set for the assessment task.

•   reflect the University’s commitment to academic integrity and ethical behaviour.

Inappropriate AI use and/or AI use without acknowledgement will be considered a breach of academic integrity.

IMPORTANT: It is a student’s responsibility to fact-check and critically evaluate AI tools’ trustworthiness. These tools can compromise your privacy, security, creativity, intellectual  abilities, and should be used carefully.