‘Return on Assets’ Ratio Gauges Banks’ Productivity

Measuring bank performance is complicated, but one of the most reliable yardsticks is an institution’s return on assets, or ROA. The figure, expressed as a percentage, represents the ratio of a bank’s net profit to its total assets.

While one-time occurrences can skew the figure, analysts use ROA to gauge productivity, or how well a bank is using its assets compared to its expenses. Essentially, the lower the figure, the less productive the bank.

The average bank in California, analysts generally say, has an ROA of 0.75% to 0.77%.

Seven of the nine Japanese-owned banks in California fell below that average in 1987 and have been consistently below it.

The exceptions were Mitsubishi Bank of California, which had an ROA of 0.84%, and tiny Kyowa Bank of California, which had an ROA of 1.10%. Both banks are headquartered in Los Angeles.

Mitsubishi’s ROA has risen steadily from 0.39% in 1984 to the 1987 figure, largely as a result of cost-cutting efforts. The bank’s earnings remain fairly small, only $12.7 million last year.

Kyowa, with assets of $91.6 million, is the smallest of the Japanese-owned banks operating in California, and it deals almost solely with Japanese companies doing business here.

California First Bank, which is 77% owned by Bank of Tokyo, is the largest Japanese-controlled bank in the state. (Bank of Tokyo’s purchase of the larger Union Bank has not been completed.) California First’s ROA has improved gradually, reflecting the bank’s planned slow growth, but it has not yet reached the average level.

In 1984, the San Francisco-based bank’s ROA was 0.46. It was 0.51% in 1985, 0.57% in 1986 and 0.68 last year. Bank assets rose from $5 billion in 1984 to $6.1 billion last year and earnings went from $21.4 million to $40.1 million.

Sumitomo Bank of California, based in Los Angeles, has shown similar improvement but also remains below average. Its 1984 ROA was 0.41%; by last year, it had risen to 0.62%. During that period, assets rose from $2.7 billion to $3.6 billion, and earnings went from $10.6 million to $20.4 million.

Los Angeles-based Tokai Bank of California’s performance has been substantially below average, with an ROA last year of 0.26% on assets of $1.8 billion and earnings of $3.6 million. The 1984 figure was unavailable, but the ROAs were 0.32% in 1985 and 0.45% in 1986.

Bank of California, headquartered in San Francisco, also has not fared well. The bank lost $24 million in 1984, earned $5 million in 1985 and earned $18 million in 1986. The ROA for 1984 was not available, but the figures for the next two years were 0.16% and 0.47% respectively. The 1987 figures are not available. During the 1984-87 period, the bank’s assets have grown from $3.4 billion to $4.7 billion.