Yahoo Finance Risk Factors To Consider Before Investing In Zions Bancorporation (NASDAQ:ZION)
Large banks such as Zions Bancorporation (NASDAQ:ZION), with a market capitalisation of US$10.07b, 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 Zions Bancorporation 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. The level of risky assets a bank holds on its accounts affects the attractiveness of the company as an investment. So today we will focus on three important metrics that are insightful proxies for risk.
See our latest analysis for Zions Bancorporation
How Much Risk Is Too Much?
Zions Bancorporation is engaging in risking lending practices if it is over-exposed to bad debt. Total loans should generally be made up of less than 3% of loans that are considered unrecoverable, also known as bad debt. Loans are written off as expenses when they are not repaid, which comes directly out of Zions Bancorporation’s profit. A ratio of 0.76% indicates the bank faces relatively low chance of default and exhibits strong bad debt management.
How Good Is Zions Bancorporation At Forecasting Its Risks?
Zions Bancorporation’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. With a bad loan to bad debt ratio of 143.27%, the bank has cautiously over-provisioned by 43.27%, which illustrates 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?
Zions Bancorporation operates by lending out its various forms of borrowings. Customers’ deposits tend to carry the smallest risk given the relatively stable interest rate and amount available. Generally, the higher level of deposits a bank retains, the less risky it is deemed to be. Zions Bancorporation’s total deposit level of 91.1% of its total liabilities is very high and is well-above the sensible level of 50% for financial institutions. This may mean the bank is too cautious with its level of its safer form of borrowing and has plenty of headroom to take on risker forms of liability.
Next Steps:
The recent acquisition is expected to bring more opportunities for ZION, which in turn should lead to stronger growth. I would stay up-to-date on how this decision will affect the future of the business in terms of earnings growth and financial health. The list below is my go-to checks for ZION. 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 ZION’s future growth? Take a look at our free research report of analyst consensus for ZION’s outlook.
Valuation: What is ZION 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 ZION 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.
