ANALYSING PERFORMANCE OF FINANCIAL INSTITUTIONS CLEMENT MUMBO (Bsc Banking &Finance)
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Transcript of ANALYSING PERFORMANCE OF FINANCIAL INSTITUTIONS CLEMENT MUMBO (Bsc Banking &Finance)
ANALYSING PERFORMANCE OF FINANCIAL INSTITUTIONS
CLEMENT MUMBO(Bsc Banking &Finance)
Key topics
Financial statements Income statements Balance sheet Financial statement
Manipulation key measurements and
ratios
WHO ARE THE USERS OF FINANCIAL STATEMENTS
Employees
Managers
Suppliers
The government
Customers
Investors
Why financial statements
Employees will need financial statements for the purpose of bargaining/negotiations.
Managers use financial statements to make important business decisions.
Investors use it to assess the risk and return of their investment.
The government for the purpose of tax and regulating
Balance Sheet
Notes and coins 84 937 Deposits 2 589 683
Balances w ith Central Bank 499 725 Balances due to Bank of Zambia 5 388
Balances w ith Local Banks 66 869 Balances due to Local Banks
Balances w ith Banks Abroad 602 894 Balances due to Banks Abroad 240 932
Investments in securities 298 088 Bills of Exchange
Other Investments in Zambia Inter Branch
Loans and Advances 1 670 031 Other Liabilities 381 301
Bills of Exchange Other Borrow ed Funds (inc. Sub Debt) 51 865
Inter Branch 187 Shareholders Funds 189 106
Fixed Assets 76 247 Total Liabilities 3 458 275
Other Assets 159 297
Total Assets 3 458 275
Income statements
Net Interest Income 48 378 Non Interest Expenses (68 578)
Interest Income 56 361 Depreciation (4 836)
Loans & Advances 38 806 Other Expenses (63 742)
Banks & Financial Institutions 3 913 Income before Tax & Extraordinary Items 27 959
Securities 6 562 Taxation (12 531)
Others 7 080 Income After Tax 15 428
Interest Expense (7 983) Exceptional/Extraordinary Items
Deposits (7 083) Net Income 15 428
Subordinated Debt ( 457)
Paid Banks & Financial Institutions ( 338)
Others ( 105)
Credit Impairments ( 827)
Net Interest Income after Credit Impairments 47 551
Non Interest Revenue 48 986
Commission, Fees & Service Chrgs 21 543
Foreign Exchange 27 314
Fees (FX Transaction) 1 574
Realised Trading Gains 25 740
Unrealised trading Gains
Others 129
Total Income 96 537
Interpreting Profitability RatiosEach of the foregoing ratios looks at a
slightly different aspect of profitability. Thus, returnon assets (ROA) is primarily an indicator of managerial efficiency; it indicates how capablemanagement has been in converting
assets into net earnings. Return on equity (ROE), onthe other hand, is a measure of the rate of return flowing to shareholders. It approximates the net benefit that the stockholders have received from investing their capital in the financial industry
Areas of Focus
non interest expense is defined as a non expense not associated with attracting and keeping depositors funds
1.Personal expense
-wages
-salaries
2.Occupancy expense
-rent
-depreciation on buildings and equipment
3.Other operating expenses
-general overhead
-Data processing
-
Financial statement Manipulation
The usefulness of financial statements depends on the quality and consistency of data.
Nonrecurring extraordinary transactions:
Discretionary interpretation reporting requirement
Off balance sheet items
Special purpose vehicles (SPV)
Window dressing: increasing period ending assets or liabilities
Sources
Bank Management ,5th edition Timothy W and S. scott
I'.Kimball, Ralph, "Innovations in Performance Measurement in Banking,"Nen'
England Economic Review,, Federal Reserve Bank of Boston, May June 1997 .
Il)tC Study of Bank Overdraft Programs, November 2008, rmwv.fdic.gov.
Gatti, Stenfano Project Finance in Theory and Practice, Elsevier Inc. 2008.