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Have You Considered These Key Risks For Zions Bancorporation National Association (NASDAQ:ZION)?

Improving credit quality as a result of post-GFC recovery has led to a strong environment for growth in the banking sector. As a small-cap bank with a market capitalisation of US$9.1b, Zions Bancorporation National Association’s (NASDAQ:ZION) profit and value are directly affected by economic growth. This is because borrowers’ demand for, and ability to repay, their loans depend on the stability of their salaries and interest rates. Risk associated with repayment is measured by bad debt which is written off as an expense, impacting Zions Bancorporation National Association’s bottom line. Today we will analyse Zions Bancorporation National Association’s level of bad debt and liabilities in order to understand the risk involved with investing in the bank.

See our latest analysis for Zions Bancorporation National Association

NasdaqGS:ZION Historical Debt October 23rd 18

Does Zions Bancorporation National Association Understand Its Own Risks?

Zions Bancorporation National Association’s forecasting and provisioning accuracy for its bad loans indicates it has a strong understanding of its own risk levels. If the level of provisioning covers 100% or more of the actual bad debt expense the bank writes off, then it is relatively accurate and prudent in its bad debt provisioning. 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.

How Much Risk Is Too Much?

Zions Bancorporation National Association’s operations expose it to risky assets by lending to borrowers who may not be able to repay their loans. Loans that cannot be recuperated by the bank, also known as bad loans, should typically form less than 3% of its total loans. When these loans are not repaid, they are written off as expenses which comes directly out of the bank’s profit. Since bad loans make up a relatively small 0.76% of total assets, the bank exhibits strict bad debt management and faces low risk of default.

Is There Enough Safe Form Of Borrowing?

Handing Money Transparent

Zions Bancorporation National Association 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. As a rule, a bank is considered less risky if it holds a higher level of deposits. Zions Bancorporation National Association’s total deposit level of 91% 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:

ZION’s acquisition will impact the business moving forward. Keep an eye on how this decision plays out in the future, especially on its financial health and earnings growth. Below, I’ve listed three fundamental areas on Simply Wall St’s dashboard for a quick visualization on current trends for ZION. I’ve also used this site as a source of data for my article.

  1. 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.
  2. 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.
  3. 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.