Question

Explain the commonly used risk adjusted performance evaluation metrics.

20 Apr 2018
Answer :
Word Count : 507

Risk-adjusted performance evaluation metrics are crucial for assessing the effectiveness of risk management strategies in banks. These metrics help in evaluating a bank's performance by considering the level of risk it undertakes. Here are some commonly used risk-adjusted performance evaluation metrics in the context of banks:

1. Return on Risk-Weighted Assets (RoRWA):
   - Explanation: RoRWA measures how efficiently a bank utilizes its capital to generate profits while considering the risk associated with its assets. It is calculated by dividing the net income by the average risk-weighted assets.
   - Formula: RoRWA = (Net Income / Average Risk-Weighted Assets)

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