Bank segment economics: where should growth go?
A fictional bank has two segments with different cost structures. The CFO asks whether the next growth initiative belongs in A or B. Keep the historical performance analysis separate from the incremental investment decision.
Illustrative Finance Circle segment model. Names A and B, figures and proposed initiatives are fictional; Scotiabank reporting provides context only.
Independent Finance Circle learning material. The source organisation does not sponsor, author or endorse this exercise.
Clarify. Structure. Calculate. Defend.
Take 2 minutes to clarify the decision and definitions, 3 minutes to structure the analysis, then work the exhibits. Finish with a concise recommendation and answer a follow-up. The time is a suggested practice format, not an employer requirement.
Clarify before solving
What are the data basis and reporting boundary?
Illustrative Finance Circle segment model. Names A and B, figures and proposed initiatives are fictional; Scotiabank reporting provides context only.
Which assumptions can I use without requesting more data?
CAD millions. Pretax profit = revenue − operating expenses − credit-loss provision. For the proposed incremental revenue, hold each segment’s base expense-to-revenue and provision-to-revenue ratios constant.
What decision am I expected to support?
Deduct the initiative’s 12 one-off operating cost. Calculate each first-year incremental pretax profit and A’s advantage over B.
Build your structure
- Comparable segment revenue, costs and provisions
- Base versus incremental contribution ratios
- First-year initiative cost and profit
- Capital, risk and longer-term decision gates
Use the branches that matter to this decision. A memorised framework is less useful than explaining why each analysis could change your recommendation.
Everything you need to work the case.
Assumptions & boundaries
- CAD millions. Pretax profit = revenue − operating expenses − credit-loss provision.
- For the proposed incremental revenue, hold each segment’s base expense-to-revenue and provision-to-revenue ratios constant.
- The initiative adds 50 revenue and a separate one-off operating cost of 12 in its first year. No tax, capital charge or cross-segment cannibalisation.
Illustrative base results
| Metric | Segment A | Segment B |
|---|---|---|
| Revenue | 1,200 | 900 |
| Operating expenses | 720 | 630 |
| Credit-loss provision | 120 | 90 |
Choose the responsibility. Solve the decision.
Each level uses the exhibits above and asks a different question. Your entries stay in this open page only; copy your work before leaving.
Compare the base results.
Calculate pretax profit for A and B and the cost-to-income ratio for B.
Should credit losses be included in this cost-to-income ratio?
Numerical checks compare your arithmetic with the case model. Written recommendations are self-practice and are not automatically graded.
03 · Reveal worked solution & decision guide
Expected numerical answers
- A pretax profit
- 360 CAD million
- B pretax profit
- 180 CAD million
- B cost-to-income
- 70 %
Work through the calculation
- A = 1,200 − 720 − 120 = 360. B = 900 − 630 − 90 = 180.
- B cost-to-income = 630 / 900 × 100 = 70%; provision is excluded from this defined expense ratio.
A strong concise response
My calculation shows that a pretax profit is 360 CAD million; b pretax profit is 180 CAD million; b cost-to-income is 70 %. The ratio definition matters. A lower cost ratio alone does not establish higher risk-adjusted economic value.
Answer the interviewer follow-up
Should credit losses be included in this cost-to-income ratio?
No, the exercise defines it as operating expenses divided by revenue. Use the stated definition consistently and separately show provisions in pretax profit.
Assessment rubric · 20 points
For self-review or mentor discussion. This rubric is not an automated written-answer grade or an employer scoring system.
Correctly derives all 3 numerical results for this level, keeps signs and units consistent, and explains the method.
Explains the objective: Compare the base results. States the supplied scope, timing and metric definitions before calculating.
The ratio definition matters. A lower cost ratio alone does not establish higher risk-adjusted economic value. Addresses the interviewer follow-up without contradicting the facts.
Leads with a clear conclusion, distinguishes facts from assumptions, and identifies the next evidence needed. Does not claim the source company asked or endorsed this question.
Use full precision until the final rounding. Alternative written recommendations may be reasonable if they respect the facts and explain assumptions. This is Finance Circle’s guide, not an official source-company answer.
Source & attribution
The references below identify the public reporting, hiring guidance, research or mock-interview material used for context. Finance Circle wrote the exercise and its answers. Illustrative figures are explicitly identified; they are not company results or findings.
Public context; Finance Circle’s scenario inputs are illustrative.
Source reviewed 30 October 2026. No external page is needed to answer this exercise. Company names and logos identify sources only. All trademarks belong to their respective owners.