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Briefly discuss ROAs in commercial banks. What is a typical range for this metric and why...

Briefly discuss ROAs in commercial banks. What is a typical range for this metric and why would investors accept an ROA is that range? Also, briefly describe why a bank's ROE may be very different from its ROA.

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Answer #1

Return on assets in the commercial bank is related to the return which has been generated by the commercial bank for discharging the debt and other payments also before paying out to the equity shareholders so that typical return on asset in the banking industries is about 15% to 20%

investors will be accepting the return on asset in that range because they know that the bank will be having to pay a lot of interest to the depositors so the return on equity is different from Return on Asset because the the deposit holders are also going to be repaid with the lot of interest and has the overall return on equity will be decreasing because return an equity is just representing the ownership stake in the bank.

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