Financial Statement of Bank

8/11/2019 Financial Statement of Bank

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Mohammed Sohail Mustafa 1

Chapter:04

Financial Statement of Bank


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The Income Statement of Bank

Financial Outputs(revenues from making use ofbank funds & other services )

Financial Inputs(the cost of acquiring funds &other resources)

Loan Income Deposit Costs

Security Income Costs of Nondeposit Borrowings.

Income from Deposits in otherInstitutions

Employee Costs

Income from miscellaneousservices.

Overhead Expenses.

Taxes


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The Balance Sheet of Bank (Report ofConditions)

Financial Outputs ( use of bankfunds )

Financial Inputs(sources of bank funds or

liabilities)

Cash Assets [C] Deposits from the Public [D]

Investment in Securities [S] Nondeposit Borrowings [NDB]

Loans & Leases [L] Equity Capital [EC]

Miscellaneous Assets [MA]


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Bank Assets

1. The Cash Account (Cash held in banks vault +

Correspondent Deposits).2. Investment Securities (Money Market Securities: The

Liquid portion)3. Investment Securities (Capital Market Securities: The

Income Generating Portion )4. Loans ##5. Securities Purchased under Resale Agreement.(Repo)6. Customers Liability on Acceptance. 7. Miscellaneous Assets (Bank Buildings & Equipment,

Investments in Subsidiary firms, Prepaid insurance, etc.)


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## Loans

1) Commercial & Industrial Loans.2) Consumer or Households Loans.3) Real Estate Loans.4) Financial Institutions loans. (loans to other

depository institutions.)5) Foreign Loans (to foreign governments,

agencies)6) Agricultural Production Loans (to farmers &

ranchers)7) Security loans (to investors & security brokers)8) Leases (operating & financial leases)


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Bank Liabilities1. Deposits:

a. Noninterest-bearing demand deposits (permits unlimitedcheck writing) b. Savings Deposits (lower rate of interest with minimum size

requirement of deposits)c. NOW Accounts (held only by individuals & nonprofit

institutions, bear interest & permit the customer to withdrawat will)

d. Money Market Deposit Accounts (MMDAs pay competitiveinterest rate with limited checking privileges)

e. Time Deposits (fixed maturity term & stipulated interest

rate)2. Nondeposits Borrowings3. Capital Accounts


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Off-balance-Sheet Items

Banks have converted many of their customers in recent

years into fee-generating transactions that are not recordedon their balance sheet. Standby Credit Agreements (bank pledges to guarantee

repayment of a customers loan received from a third party) Interest Rate Swaps (bank promises to exchange interest payment

on debt securities with another party) Financial Futures & option Interest-rate Contracts (bank

agrees to deliver or to take delivery of securities from another party at a guaranteed price)

Loan Commitments (bank pledges to lend up to a certain amountof funds until the commitment matures.

Foreign exchange Rate Contracts (bank agrees to deliver oraccept delivery of foreign currencies)


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Major Components of Income Statement

Interest Income:

Interest & Fees on Loans Interest on Investment Securities

Interest Expenses: Deposit Interest Costs Interest on Short-term debt Interest on Long-term debt

Noninterest Income: Service charges on customer deposits Trust department income

Noninterest Expenses: Wages, Salaries & other personnel expenses Net occupancy & Equipment expenses

Loan-Loss Expenses


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Features & Consequences of Bank Financial Statements Key Features of BankFinancial Statements

Consequences for BankManagers

Heavy dependence on borrowedfunds supplied by others increasedthe use of financial leverage.

The banks earnings & existencewill be at risk if bank cannot repaythose borrowings in due time.

Growing use of nondeposit borrowings ; little owners capital isinvested in most banks.

The bank must hold a significant proportion of high-quality & readilymarketable assets to meet its most

pressing debt obligation.

Most revenues stem from interest onloans & securities. The largestexpense item is the interest cost of

borrowed funds.

Bank management must chooseloans & investments carefully toavoid a high proportion of earningsassets that fail to pay out as planned.


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Features & Consequences of Bank Financial Statements--Contd

Key Features of Bank

Financial Statements

Consequences for Bank

ManagersThe greatest proportion of a banksassets are financial assets. Arelatively small proportion of assetsis devoted to plant & equipment;thus banks make very limited use ofoperating leverage in most case.

With only limited resources devotedto fixed assets & therefore few fixedcosts stemming from plant &equipment, banks earnings are lesssensitive to fluctuations in salesvolume than those of many other

business.

Financial Statement of Bank

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