Yahoo Movies Three Important Risks For The PNC Financial Services Group Inc (NYSE:PNC) You Should Know
Large banks such as The PNC Financial Services Group Inc (NYSE:PNC), with a market capitalisation of US$64.9b, have benefited from improving credit quality as a result of post-GFC recovery, leading to a strong growth environment. Economic growth fuels demand for loans and affects a borrower’s ability to repay which directly impacts the level of risk PNC Financial Services Group takes on. As a consequence of the GFC, tighter regulations have led to more conservative lending practices by banks, leading to more prudent levels of risky assets on their balance sheets. Since the level of risky assets held by a bank impacts its cash flow and therefore the attractiveness of its stock as an investment, I will take you through three metrics that are insightful proxies for risk.
Check out our latest analysis for PNC Financial Services Group
What Is An Appropriate Level Of Risk?
PNC Financial Services Group is engaging in risking lending practices if it is over-exposed to bad debt. Typically, loans that are “bad” and cannot be recuperated by the bank should comprise less than 3% of its total loans. Bad debt is written off as expenses when loans are not repaid which directly impacts PNC Financial Services Group’s bottom line. Since bad loans make up a relatively small 0.77% of total assets, the bank exhibits strict bad debt management and faces low risk of default.
How Good Is PNC Financial Services Group At Forecasting Its Risks?
PNC Financial Services Group’s forecasting and provisioning accuracy for its bad loans indicates it has a strong understanding of its own risk levels. If the bank provision covers more than 100% of what it actually writes off, then it is considered sensible and relatively accurate in its provisioning of bad debt. Given its high bad loan to bad debt ratio of 150.15% PNC Financial Services Group has cautiously over-provisioned 50.15% above the appropriate minimum, indicating a safe and prudent forecasting methodology, and its ability to anticipate the factors contributing to its bad loan levels.
Is There Enough Safe Form Of Borrowing?
PNC Financial Services Group makes money by lending out its various forms of borrowings. Deposits from customers tend to bear the lowest risk given the relatively stable amount available and interest rate. Generally, the higher level of deposits a bank retains, the less risky it is deemed to be. PNC Financial Services Group’s total deposit level of 79% of its total liabilities is within the sensible margin for for financial institutions which generally has a ratio of 50%. This indicates a prudent level of the bank’s safer form of borrowing and a prudent level of risk.
Next Steps:
How will PNC’s recent acquisition impact the business going forward? Should you be concerned about the future of PNC and the sustainability of its financial health? The list below is my go-to checks for PNC. I use Simply Wall St’s platform to keep informed about any changes in the company and market sentiment, and also use their data as the basis for my articles.
Future Outlook: What are well-informed industry analysts predicting for PNC’s future growth? Take a look at our free research report of analyst consensus for PNC’s outlook.
Valuation: What is PNC worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether PNC is currently mispriced by the market.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
