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EVALUATING THE IMPACT OF A RAPIDLY CHANGING ECONOMIC ENVIRONMENT ON BANK FINANCIAL PERFORMANCE USING THE DUPONT SYSTEM OF FINANCIAL ANALYSIS

Henry W. Collier

University of Wollongong, Australia.

 

Carl B. McGowan, Jr.

Norfolk State University, USA.

 

Junaina Muhammad

Universiti Putra, Malaysia.

 

ABSTRACT

This paper presents a model for the financial analysis of a bank in a rapidly changing environment based on the DuPont system of financial analysis. The DuPont system of financial analysis is based on analysis of return on equity which is disaggregated into net profit margin, total asset turnover and the equity multiplier. AFFIN Bank Malaysia is one of the largest banks in Malaysia and is one of the core banks from the consolidation process of the banking industry in response to the Southeast Asian economic crisis in 1997-98. The analysis covers begins in 1999 which is the year that AFFIN Bank was formed until 2006. The DuPont system of financial analysis shows the impact of the Asian financial crisis and the restructuring of the banking industry in Malaysia on the financial performance of AFFIN Bank and the gradual recovery of AFFIN Bank to return to steady performance over the past eight years.

Key words: DuPont, banking, Asian financial crisis, ROE, ROA

JEL codes: G3, G30, M41