bank financial statements
TRANSCRIPT
Bank Financial Statements
An Introduction
2
Course Outline
Basic accounting Basic reports Basic ratios
3
Special Topics
How retail and wholesale banks differ Why some growth is good and some is bad How assets and liabilities affect earnings How inflation affects a bank How loan loss accounting works Why budgets and forecasts are difficult
4
Course Perspective
Bank financial statements as used in US– Teacher: Does not know VN practices– Students: Compare US practices to VN– Students: Apply concepts to VN– Students: Ask questions
5
Basic Reports
Balance sheet Income statement Notes Ratios Cash flow statement Average balance sheet
6
Basic Accounting
Balance Sheet = “Stock” items– Things of value measured at a point in time
Income Statement = “Flow” items– Financial events measured during a period of time
7
Basic Accounting – Balance Sheet
Debits Credits
Assets Liabilities & Equity
8
Basic Accounting – Balance Sheet
Whatis
owned
Whoowns
it
Assets Liabilities & Equity
9
Basic Accounting – Balance Sheet
Worthof
things
Who theworth is owed to
Assets Liabilities & Equity
10
Basic Accounting – Balance Sheet
Worthof
things
Owed to outsiders
Assets Liabilities & Equity
Owed to insiders
Liabilities
Equity
11
Basic Accounting – Balance Sheet
Asset category flow:– Most liquid → least liquid– Most tangible → least tangible (intangible)– Most specific → least specific (miscellaneous)
12
Basic Accounting – Balance Sheet
Liabilities and Equity category flow:– Owed to outsiders → owed to insiders– Owed soonest → owed latest– Most specific → least specific (miscellaneous)
13
Basic Accounting – Balance Sheet
Assets Liabilities & Equity
Deposits
Equity
Cash
Securities
Loans
Other Assets
Other Borrowings
Other Liabilities
14
Point of View: Bank vs. Customer
Customers hear bankers say, “The bank will credit your deposit account.”
Customers view their deposits as assets. Therefore, customers think credits = assets.
15
Basic Accounting – Off Balance Sheet
What does “off balance sheet” mean? Why do off balance sheet items exist? Why aren’t they on the balance sheet?
16
Basic Accounting – Off Balance Sheet
Off balance sheet items:– Things that a business has possession of (or
responsibility for) but does not actually own– Commitments that a business has made but is not
yet scheduled to fulfill– Obligations a business has committed to depending
on the outcome of contingent events
17
Basic Accounting – Balance Sheet
Debits Credits
Assets Liabilities & Equity
At any point in time,balance sheet debits
=balance sheet credits
18
Basic Accounting – Income Statement
Debits Credits
Financial Events
Over any period of time,all debits
=all credits
19
Basic Accounting – Income Statement
Debits Credits
Financial Events
Flow Items
Stock Items
20
Basic Accounting – Income Statement
Debits Credits
Financial Events
Income Statement
Balance Sheet
21
Basic Accounting – Income Statement
CostItems
RevenueItems
Expense Income
22
Basic Accounting – Income Statement
CostItems
RevenueItems
Expense Income
Profit
Increase in equity
23
Basic Accounting – Income Statement
CostItems
RevenueItems
Expense Income
To balance sheet
24
Basic Accounting – Income Statement
CostItems
RevenueItems
Expense Income
Increase in asset value
Increase in equity
25
Basic Accounting – Income Statement
CostItems
RevenueItems
Expense Income
26
Basic Accounting – Income Statement
CostItems
RevenueItems
Expense Income
Loss
27
Basic Accounting – Income Statement
CostItems
RevenueItems
Expense Income
Decrease in asset value
Decrease in equity
28
Basic Accounting – Income Statement
Income statement category flow:– Income (revenues)
→ expenses (costs) → net income (profit)
– Core activities → non-core activities– Ongoing operations → discontinued operations– Major items → minor items
29
Basic Accounting – Accrual
Accrual accounting versus cash accounting– Personal versus business– Accrual accounting: Better matching of timing of
revenues and costs than cash accounting– Accrual accounting: More complicated than cash
accounting
30
Basic Reports – Balance Sheet
Where is risk to value … among assets? Cash
– Credit quality of banks holding deposits Investment securities
– Exposure to rising interest rates– Credit quality of debt obligors– Market liquidity
Loans– Credit quality of borrowers– Exposure to prepayment
Other assets– ???
31
Basic Reports – Balance Sheet
Where is risk to value … among liabilities? Noninterest-bearing deposits
– Deterioration in bank’s reputation Interest-bearing deposits
– Exposure to rising interest rates Borrowings
– Exposure to rising interest rates– Deterioration in bank’s credit quality
Other liabilities– ???
32
Cash Flow — Sources and Uses
Typical sources of cash:– Sales– Decreases in assets– Increases in liabilities– Increases in capital accounts– Non-cash expenses
33
Cash Flow — Sources and Uses
Typical uses of cash:– Expenses– Increases in assets– Decreases in liabilities– Decreases in capital accounts
34
Cash Flow Calculation
in Balance Sheet Accountsand Effect on Cash FlowAccount Cash Flow
Assets:+ –– +
Liabilities:+ +
– –
35
Wholesale versus Retail