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COMMERCIAL BANKS
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ANNUAL REPORT
OF
BANKS
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ANNUAL REPORT
1. AUDITORS REPORT (AR) 2. FINANCIAL STATEMENTS (F/S) 3. NOTES TO F/S
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AUDITORS REPORT
INDEPENDENT
AUDITORS REPORT
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WHAT IS AUDITED ?
We have audited : 1. The Balance Sheet as of Dec31 1998 and 2. Statement of Income 3. Statement of Shareholders 4. Statement of Cash Flows for the year then ended
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AUDITORS OPINION
In our opinion, the F/S referred to above present fairly, in all material respects, the financial position of A Bank & the results of its operations, changes in its cash flows for the year then ended, in accordance with International Accounting Standards. Arthur Andersen & Co
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FINANCIAL STATEMENTS
OF COMMERCIAL BANKS
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FINANCIAL STATEMENTS
1. BALANCE SHEET 2. STATEMENT OF INCOME 3. STATEMENT OF SHAREHOLDERS EQUITY 4. SOURCES & USES OF FUNDS STATEMENT
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ASSETS
= Equals
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SHAREHOLDERS EQUITY
Share Capital Legal Reserves Retained Earnings Revaluation Surplus Share Premiums Net Income Total S/H Equity
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100 30 50 20 10 40 250
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ASSET VALUATION
GAAP & IAAP Generally Accepted & Internationally Accepted Accounting Principles LOWER OF COST OR MARKET
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ASSET CLASSIFICATION
T O T A L A S S E T S
N O N IN T E R E A S S E T S S T I N E T A E R R N E I S TG E N A S S E T S A
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LIABILITY CLASSIFICATION
T O T A L L IA B IL IT IE
IN T E R E S T L IA B IL IT B IE N E S A O
RN I NI N G T E R E S T L IA B IL IT IE S
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NET PROFIT
N E T P R O F I
T O T A TL O T A L I N C O EM X E P E N S
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TOTAL INCOME
T O T A L I N C O M E
N E T
N E T I N T E R EN S O T N - I N T I N C O M E I N C O M E
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I N T E R I NE TS E T R E S T I N C O EM X E P E N S E ( + ) ( - )
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I N T E R EN S T TE R E S T I I N C O M E EX P E N S E P / L P / L
IN T E A A S B E R E R N IN S E T / S
IS N T T E R E S T BG E A R I N G LS I A B I L I T I E S B / S
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N N O N I N T E R I NE TS ET R E S T I N C O EM X E P E N C E ( + ) ( - )
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STATEMENT OF INCOME
Interest Income Interest Expense Net I.Income Non Interest Income Operating Expenses Pre-Tax Profit Tax Provision Net Income
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ANALYSIS OF PROFIT
N P
B ( N
E R
( N P
T O
) T F R O M R I T Y S A C T I O )
F I T
P R O F I T F R O M P R O F I T F R O M P R O F I A N K I N G O P E R E A X T T I OR N S R D I N A R S Y E C U A O E T O P E R A T I N G T RI N A C N O S M A EC ) T I O NT S A N N R ( N O I ) ( P E X T ) ( P S T
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BANKING RISKS
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BANKING RISKS
C AMEL
A M E L
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CAMEL
Capital
Adequacy
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AMEL
Asset
Quality
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CA
MEL
Management Quality
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CAM
EL
Earnings
Efficiency
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CAME
Liquidity
Risk
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CAMEL RISKS
Capital Adequacy Asset Quality Management Earnings Liquidity
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BANKING RISKS
1.2.3.4.5.CAMEL 6. Credit Risk 7. Interest Rate Risk 8. Interest Rate Sensitivity Risk 9. Foreign Exchange Availability Risk 10. F/X Position Risk
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BANKING RISKS
11. Accounting & Reporting Risk 12. Computer Risk 13. Capital Market Operations Risk 14. Money Market Operations Risk 15. Country (Sovereign) Risk 16. Pricing Risk
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BANKING RISKS
17. Theft Risk 18. Fraud & Defalcations Risk 19. Natural Disasters 20. Strategic Risk 21. Reputation Risk 22. Market Risk 23. Fiduciary Risk 24. Transaction Risk 25. Regulatory / Compliance Risk 26. Large Loans / Deposits Risk 27. Concentration Risk
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RATIO ANALYSIS
Numerator ______________________ Denominator
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RATIO ANALYSIS
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RATIO ANALYSIS
What is the
What is the
LEVEL ?
TREND ?
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RATIO ANALYSIS
1. Capital Adequacy 2. Asset Quality 3. Management 4. Earnings & Efficiency 5. Liquidity
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The ability of the present Capital to support the further growth of Assets
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------------------------------------------------- Average Shareholders Equity RNI = Net Income - Dividends to be paid The internal growth of Equity Capital
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Non Performing Loans = a) Loans past due more than 90 days b) Loans not accruing interest c) Loans with low interest rates d) Loans on which repayment terms have been renegotiated.
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Total Expenses - Non Interest Income --------------------------------------------------- Total Average Interest Earning Assets
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Indicates the extend to which earning assets are funded by those deposits considered stable and not subject to interest rate disintermediation.
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Measures the extent to which a bank is funding assets with high-priced and volatile brokered deposits.
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MATURITY ANALISIS
Days Cash Loans 0-10 100 200 300 Deposit 400 Borrow 150 550 10-30 200 500 700 300 200 500 30-60 300 200 500 800 200 1000 60-90 50 100 150 20 30 50
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MATURITY ANALYSIS
Days Asset Liab 0-10 100 300 10-30 500 200 30-60 1000 1500 -500 +300
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1300
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BANK ANALYSIS
CHECKLIST
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BA CHECKLIST EARNINGS
IF POOR, ASCRIBABLE TO : 1. Low asset yield 2. High cost of funds 3. Inadequate non interest income 4. High loan charge off s 5. High loan loss provisions 6. Mismanaging taxes 7. High overhead costs
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BA CHECKLIST EARNINGS
IF STRONG, ASCRIBABLE TO : 1. Strong asset yield 2. Low cost of funds 3. Adequate non - interest income 4. High loan charge off s 5. High loan loss provisions 6. Adequate taxes 7. Low overhead costs
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INTEREST MARGIN
INCREASING THE
INTEREST MARGIN %
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I N C R I N T E R I N S C I Z R E E A S CE H A I N T E S P R
E E N R E
A S
S T
E M
T A
H R
E G I N
G E A L T E R E AS ST S E T / L A D M I X
I A
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Increase Size
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EXPAND ASSETS
REPERCUSSION 1.Increase operating Expenses 2.Need for Capital 3.F/A Regulations 4.Decrease Capital Ratio 5.Reduce ROA
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IMPLEMENTATION 1.Offer new Products and Services 2.New Loans/Deposits 3.Open new Branches 4.Expand Promotion Budget 5.Reduce Interest Spread
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IMPLEMENTATION 1.Reduce Dividend pay out 2.Offer Dividend reinvestment 3.Sell Stock 4.Establish Employee Stock Ownership PL
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REPRICE PORTFOLIO
REPERCUSSIONS 1.Lose business Loan quality decrease 2.Increase operations Client dissatisfaction 3.Lose business Liquidity problem 4.Increase operations Client dissatisfaction
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IMPLEMENTATION 1.Increase rates on Loans 2.Compound return more frequently 3.Reduce rates on Deposits 4.Compound cost less frequently
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REDUCE LIQUIDITY
REPERCUSSION 1.Liquidity Risk 2.Lose correspondent 3.Incur book losses 4.Increase volatility of deposits
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IMPLEMENTATION 1.Minimize cash 2.Minimize due from 3.Sell Securities & Bonds 4.Increase short term Deposits
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INCREASE AGGRESSIVENESS
REPERCUSSION 1.Increase need for capital 2.Increase loan losses 3.Increase security losses IMPLEMENTATION 1.Increase loan/deposit ratio 2.Increase highest yielding loans 3.Increase highest yielding securities
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A A
R N
Y A
E K
C
N
n
S
e
I D E AQ T U E I T
i p B O t w w
O C U O N S T TI N B G A
O 0 % < w 2 n e r s h 0 % i p
IS
r s h %
5 0
n e r s h i p 5 0 % - 2
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