The Financial Statement of a Bank

7/31/2019 The Financial Statement of a Bank

1/29

Prepared By

Lecturer

Muna Aryal

TQ. No 1

Primary Reserve / Secondary Res

Primary reserve = Vault Cash (Bu

in the process of collection + Depo

= Rs 1.4 million + Rs 20.1 Million

= Rs 38.5 million

Secondary Reserve = Short term g

= Rs 12.4 million + Rs 5.2 million

=Rs 17.6 million

The amount in the secondary rese

Q.No 2

Given,

Beginning allowances for loan lo

Current income = Rs 250,000 = 2

charges of worthless loans = Rs 1

Recoveries on loans previously ch

Parti

Beginning Allowances for loan los

1

e Financial Statement of a Bank

rve

siness Customer Cash) + Deposits placed at c

it Placed with other banks

Rs 16.4 million + Rs 0.6 million

overnment securities + privately issued mon

ve is Rs 17.6 million

ses = Rs 1.25 million

50000/1000000 = Rs 0.25 million

50,000 = 150000/1000000 = Rs 0.15 million

rged off = Rs 0.05 million

culars Amo

(RS

Rs 1

milli

entral bank + Cash ite

y market instrument

nt

)

25

on


2/29

Prepared By

Lecturer

Muna Aryal

Add : Annual provision for loan l

Recoveries on loans previously ch

Minus :- Charge offs worthless loa

Balance in the bank's allowance fo

Q.No 3

Beginning capital accounts balanc

Net income during the year = Rs 3

Stockholders dividends = Rs 2 mil

Pays out stockholders dividends o

Issues new stock Rs 1 million

Balance in t

Beginning Capital accounts bal

2

sses 0.2

rged off 0.0

ns - 0.1

r loan losses at the year end Rs 1milli

= Rs 26 million

million

ion

Rs 2 million

he capital account at the end

ance Rs 26 million

5

40on


3/29

Prepared By

Lecturer

Muna Aryal

Add Net income during the y

New shares of stock issues

Less Stockholders dividend

Ending balance at the end

Q.No 4

Expected Dividend (D1) = Rs 4

Growth rate on Dividend (g) = 5

Required rate of return on equity

Current price of stock (P0)=

Answer

Value of stock (P0) = D1/r-G

The Present Value of Stock(P0) =

Q.No 5 Given

Net income after taxes or net inco

Total Assets = Rs 1,444 million

Total Liabilities = Rs 926 million

Return on Equity ( ROE ) = ?

3

ar Rs 3 million

Rs 1 million

s (Rs 2 million)

Rs 28 million

( r )= 10% = 0.10

= Rs 4 / 0.10 -0.05

= Rs 80

Rs 80 Ans

e = Rs 51 million


4/29

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Muna Aryal

Working Notes

Total Assets = Total Liabilities

Rs 1444 = Rs 926 + Equity Capita

Equity Capital =Rs 1444 - Rs 926

Equity Capital = Rs 518 million

Return on Equity ( ROE ) = Net

The return one equity capital is 9.

Interpretation

In order to evaluate the perform

the major competetitors

Q.No 6 Return on Assets

Total Revenues = Rs 155 million

Total Expenses ( including taxes )

Total Liabilities = Rs 4960 million

Equity Capital = Rs 52 million

Return on Assets ( ROA ) = ?

Working Notes

Net Income = Total Revenues T

= Rs 155

= Rs 48 mi

4

+ Equity Capital

l

ncome / Equity

= Rs 51 million / Rs 518 Million

=0.0984

=9.84 %

4 %

nce of the bank, you have to compare the R

= Rs 107 million

tal Expenses

illion Rs 107 million

lion

OE to ROE of some o


5/29

Prepared By

Lecturer

Muna Aryal

According to formula

Return on Assets ( ROA ) = Net In

The bank Return on Assets

Q. No 7

Given,

Total Interest Expenses = Rs 1

NON Interest Expenses = Rs 5

Interest Income =Rs 1

Noninterest Revenues = Rs

Total Assets = Rs

Earnings Assets = 85

= Rs 4

Interest Bearing Liabilities = 75%

= 0.75

= Rs 3

Net Interest Margin = ?

Net Noninterest Margin = ?

Earnings Spread = ?

Earning Base = ?

Calculation of Net Interest Margi

5

come / Total Assets

= Rs 48 million / Rs 5012

=0.00958

=0.958 %

( ROA ) is 0.958%.

2 million

million

million

million

80 million

of total Assets = 0.85 X Rs 480 million

08

of Total Assets

X 480

0 million


6/29

Prepared By

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According to Formula ,

Net Interest Margin

= Net Interest Income /Tota

Or

Net Interest Margin

= Net Interest Income / Ear

Given Interest Income = Rs 16

Interest Expenses

Net Interest Income = Rs 16 millio

Net Interest Margin

= Net Interest Income / Total Asse

= Rs 4 million / Rs 480 million

= 0.00833

= 0.833%

Calculation of Net Noninterest Ma

Net Non Interest Income = Total

= Rs 2 million - Rs 5 Millio

= -Rs 3 million


Net noninterest Margin = Net Non

= -Rs 3 million/ Rs 480 million

6

l Assets

ing Assets

illion

= Rs 12 million

n Rs 12 Million

= Rs 4 Million

ts

rgin

oninterest Income Total Noninterest Expe

n

interest Income / Total Assets

nses


7/29

Prepared By

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=-0.00625 or 0.0625 %

Earning Spread = 16/408 12/360

= 0.0932 -0.0333

= 0.59%

Earning Base

= Total Assets Non earning Ass

Total Assets

= Rs 480- Rs 72

Rs 480

= 0.85 or 85%.

Q.No 8

Here Given

ROA = 0.80% equity Multiplier =

ROE = ROA X EM

= 0.890 X12

= 9.60 %

If ROA Falls to 0.60

ROE = ROA X EM

9.60= 0.60 x EM

= 16 times

Q.No 9

Given

7

ts

(EM) = 12 times


8/29

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Muna Aryal

Net Income after taxes = Rs 12

Pre-Tax net Income = Rs 15

Operating Revenues = Rs 100

Equity Capital = Rs 50

1. Tax Management efficienc

2. Expense control efficiency i

3. Assets Management efficie

4. Funds Management efficie

Problem No 10

Net Interest Margin= 2.5

Net Noninterest Margin = -

Ratio of provision for loan

= Net interest Margin+ Net

taxes and security gains

= 2.5+(-1.85)- (-0.47)

= 1.12

Q.No 11

Risk Measure

1. Net loans and leases to total ass

=RS 936 million/Rs 1324

8

Indicator = Net Income / Pretax net Income

= Rs 12/ Rs 15 = 0.80 or 80%

ndicator = pretax net income / Operating Re

= Rs15 /Rs 100

= 0.15 or 15%

cy indicator = Operating revenues / Total A

= Rs 100/ Rs 600

= 0.1667 or 16.67

cy Indicator = Total Assets / Total Equity

600/Rs

= 12 tim

1.85%

osses, taxes, security gains and extraordinar

noninterest Margin- Ratio or provision for l

ts=Net loans and leases / total assets

venue

sets

Capital = Rs

50

s

items = -0.47 %

an losses ,


9/29

Prepared By

Lecturer

Muna Aryal

= 0.7069

= 70.96%

2. Uninsured deposits to total dep

= Rs243/Rs 1150

= 0.2113 or 21.13 %

3. Equity capital to total assets= e

= Rs 130 million/Rs 1443

= 0.0901

=9.01 %

4.Stock price to earning per share

= RS60/ Rs 2.5

= 24 times

5. Nonperforming assets to total lo

= RS243/ R 1443

= 45.9 %

6.Charge offs loans to total loans

= Rs 21 million /Rs936 million

=0.0224

= 2.24%

7. Purchased funds to total liabiliti

9

sits= Uninsured deposits/ total deposits

uity capital/ total assets

= stock price / earning per share

ans and leases= Nonperforming assets / total

nd leases == charge offs loans/ total loans a

es = purchased funds / total liabilities

= Rs 375/Rs 1214

=0.3089

loans and leases

d leases


10/29

Prepared By

Lecturer

Muna Aryal

Purchased funds = uninsured dep

= Rs243 + Rs132

=Rs 375

Total liabilities= Total assets equ

= Rs 1324-Rs 110

= Rs 1214

8. Book Value of Assets to Marke

= Rs 1324/Rs1443

=0.9175

=91.75%

12.

1. Calculation of Gross Loan

= Rs 3

= Rs 3

2. Calculation of Cash and deposit

Total Assets = Cash and deposits

acceptances +

Miscellaneous Asse

Rs 550 = Cash and Deposit

43.

Cash and deposits due from Bank

10

= 30.89%

sits + money market borrowings

ity capital

Value of Asset= Book Value of Assets / Mar

= Net Loan + Allowance for loan loss + Une

48 + Rs 19 + Rs 6

73

s due from banks

ue from banks+ Investment Securities + Tr

ts

due from banks + Rs 87 + Rs 6 + Rs 11 + Rs

= Rs 550 Rs 523

Rs 27

et Value of Assets

rned discount on Loan

ding Securities

348+ Rs 10 +Rs 18+ R


11/29

Prepared By

Lecturer

Muna Aryal

3. Calculation of saving deposits a

Total Deposits = Noninterest beari

market deposit accounts + Time d

Rs 440 = Rs 107+ Savings deposits

RS 440 = Rs 404 + Savings deposit

Savings deposits and NOW accou

Savings Deposits and NOW accou

4.

Calculation of Shareholders equit

Total Assets = Total liabilities +

=

Where

Total Liablities and Capital =

Total Deposi

Capital

Rs 550 = Rs 440 + Rs 41 + Rs 19 +

Shareholder Equity Capital = Rs 5

Calculation of Interest and Fees o

Total Interest Income = Interest a

Income

Rs 180 = Interest and fees on loan

Rs 180 = Interest and Fees on Loa

Rs 180 = Interest and fees on Loan

11

d NOW accounts ( Negotiable Order withdr

ng demand deposits + savings deposits and n

posits + Deposits at foreign branches

and NOW accounts + RS 49+ Rs 227 + Rs 2

s and NOW accounts

ts = Rs 440-Rs 404

ts = Rs36

Capital

quity Capital

ts + Non Deposits borrowing + Other Liablit

Stockholders Equity Capital

0

Loans

d fees on loans + Interest on investment sec

+ Rs 7 + Rs 5

s + Rs 7 + Rs 5

s + Rs 12

awal accounts )

ow accounts + Monery

ies + Stockholders Equ

rities + Other interest


12/29

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Interest and Fees on Loans = Rs 1

Calculation of Net Interest Incom

Net Interest Income = Total

= Rs 18

= Rs 21

Calculation of Services Charges on

We Have

Total Noninterest income = Servic

Operating Income

Rs 39 = Services charges on custo

Or Rs 39 = Services charges on de

Services Charges on deposits = Rs

Service Charges on Deposits = Rs

Calculation of wages , salaries and

Total noninterest expenses = Wag

Other expenses

Rs 54= Wages , Salaries and empl

Wages , Salaries and employment

Calculation of noninterest income

Net noninterest income = Tot

= Rs 3

= - Rs

12

8

Interest Income Total Interest Expenses

Rs 159

Customer Deposit

es charges on customer deposits + trust depa

er deposits + Rs8 + Rs 20

osits + Rs 28

39 Rs 28

11

employee benefit

s , salaries and employment + Net occupanc

yment + Rs 5 + Rs 7

= Rs 54 Rs 12

= Rs 42

l noninterest income total noninterest expe

9 Rs 54

15

tment income + Other

equipment expenses +

nses


13/29

Prepared By

Lecturer

Muna Aryal

13


14/29

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Calculation of Net income after tax

Net before tax= Net interest incom

= Rs 21 + ( -Rs 15)

= Rs 2

Net Income after tax = Net income

= Rs 2 Rs 2

= 0

Problem No 13

Net Interest Income (NNI) = Tot

= Rs 2

= Rs 6

Net Noninterest Income = Tot

= Rs 2

= - Rs

Total Operating Expenses = Tot

= Rs 2

= Rs 3

Net Income before taxes = Tot

= Rs 2

= Rs 3

14

es

e or loss + Ne non interest income or loss P

Rs 4

before tax Tax provision

l Interest income Total Interest expenses

71 - Rs 205

6

l noninterest income Total noninterest exp

3 Rs 40

17

l Operating Revenues Total Operating Ex

94 Rs 258

6

l Operating income Total Operating expen

94 Rs 258

6

rovision for loan losses

nses

enses

ses


15/29

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Muna Aryal

Net Income after Taxes = Net Inco

= Rs 36 Rs

Increase in Banks undivided profi

Problem No 14

Solution

Total assets = Total Liablities +

= Rs 380+ Rs 49

= Rs 429

Net Loans = Gross Loans - (All

= Rs 294 - (13+5)

= Rs 276

Undivided Profits = Total Equity

= Rs 49 (Rs 1

= Rs 15

Demand Deposits = Nond

= Rs 10

= Rs 22

Depreciation = Bank

De

= Rs 34

15

me before taxes Income Taxes

5 = Rs 31

s = Net income after taxes Common divide

= Rs 31 Rs 11

= Rs 20

otal equity capital

owances for loan losses + Unearned Income

Capital (Perpetual Preferred Stock + Com

3 + Rs 12 + Rs 19)

eposit borrowings + Savings deposits

+ Rs 12

Premises and equipment, gross Bank Prem

reciation

Rs 29

nds

n Loans)

mon Stock + Surplus)

ses and Equipment, Ne


16/29

Prepared By

Lecturer

Muna Aryal

= Rs 5

Investment Securities =

Total Assets - ( cash and due fro

Securities + bank Premises and ot

intangibles + Miscellaneous assets

= Rs 429 (9+26+276+2+29+4+3+

= RS 42

Q. No 15 Balance Sheet of Bank

Bal

Assets

Cash

Deposits due from other banks

Treasury Bills

Municipal Bonds

Federal Funds sold and security

Loans to commercial and industri

firms

16

banks + Federal funds Sold + Net Loans +

her equipment, net + Other Real estate own

8)

nce sheet of Rivers Edge National Bank

Amt ( Rs ) Liabilities

13 Demand Deposits

25 Savings Deposits

10 Time Deposits

12 Money market deposit

Ps 5 Deposits due to other b

al 64 Federal funds purchase

Trading Account

ed + goodwill and oth

Amt (Rs )

55

15

25

31

nks 5

34


17/29

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Lecturer

Muna Aryal

Automobile loans

Credit Card loans

Real Estate Loans

Leases of assets to business custo

Bank building and equipment

Total Assets

Working Notes

Total Assets = Liabilities +Equity

Rs 224 = Rs 215 + Equity Capital

Equity Capital = Rs 224-Rs 215

Q. No 16 Income Statement o

Inc

Particulars

17

21 Securities sold underrepurchase agreements

22 Mortgages against ban

building

42 Subordinated notes and

debentures

ers 3 Equity Capital

7

224 Total Liabilities and Eq

Capital

Capital

Rs 9

Rosebush State Bank

me Statement of Rosebush State Bank

4

26

20

? 9

uity 224

In Millions

In Millions


18/29

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Lecturer

Muna Aryal

Interest Income

1. Interest and fees on

2. Interest and divide

notes

Total Interest Income

Interest Expenses

1) Interest Paid on Fe

2) Interest paid to cus

savings deposits

Total Interest Expens

Net Interest Income (

Non Interest Income

1. Services Charges P

2. Trust Department

Total Non Interest In

Non Interest Expense

1) Employee wages ,

18

loans

ds on government bonds and

( A)

funds purchases

tomers holding time and

es (B)

NNI) ( A B)

id by depositors

ees

ome( C)

alaries and benefits

2

8

1

6

2

8

3

4

1

5

13


19/29

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Lecturer

Muna Aryal

2) Overhead Expense

Total Non Interest Ex

(II) Net Interest Inco

Net income before pr

income taxes ( I + II

Provision for loan los

Net income before tax

Less Taxes (25%) (25

Net Income

Add : Securities gains

Met omcp,e after taxe

Less Dividend Paid (

Addition to retain ear

Q.No 17

Calculation of Total Interest Inco

Lets Assume total Interest Incom


19

penses (D)

e ( C D) (

ovision for loan losses and

)

es and depreciation

es

100 X 12 )

or losses

s and securities gain

o common Stockholders )

nings

e and Total Interest Expenses

= x

3

16

11)

2

10

12

3

9

1

10

2

8


20/29

Prepared By

Lecturer

Muna Aryal

Net Interest Income = Total Intere

Expenses

According to question,

Total Interest income is twice as l

Net Interest income = 2x-x

X= Rs 750

The total interest expenses = x =

Total Interest Income = 2 * 750 =

Again ,

Noninterest income = X 1200 =

Rs 900

Noninterest expenses = 1200

We Have,

Provision for loan losses = 1% of

Calculation of income taxes

Given,

Income before taxes = Rs 45

Taxes = Income before taxes X tax

= Rs 45 X 0.25

= Rs 11.25 Ans

Calculation of Dividends paid to s

Dividend Paid = Net Income after

= 20 X 0.5

20

st Income Total Interest

rge as its total interest expenses

s 750

Rs 1500

otal Interest income = 0.0.1 x Rs 1500 = R

rate

ockholders

taxes X dividend payout ratio

s 15


21/29

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Lecturer

Muna Aryal

= Rs 10 m

A Total Interest Income

B Total Interest Expense

C Total noninterest income

D Total noninterest expense

E Provision for loan Losses

F Income Taxes

G Dividends paid to stockho

Q. No 18 Constant Growth Model

Given

Expected Dividend (d1) = Rs 12

Growth Rate on Dividend (g ) = 8

Cost of Capital ( r) = 15 % = 0.15

Current price of Stock ( P0) = ?

According to formula

Current Price of Stock (P0) = D1/

= Rs 1

21

llion

anks Income and Expense Statement

Rs 150

Rs 750

Rs 900

Rs 120

Rs 15

Rs 11.2

lders Rs 10

%

r g

2 / 0.15 0.08

5


22/29

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Lecturer

Muna Aryal

=Rs 1

The present value of stock = Rs 17

Q. No 19

Given

Expected Divided at the end of the

Expected Dividend at the end of t

Expected Dividend at the end of 3

Price of stock at the end of 3rd

yea

Cost of capital ( r ) = 12 % = 0.1

Value of Stock (P0)= D1/(1+r )1 +

= The present value of Banks sto

Problem No 20

Given

Ratio of equity capital to Total As

Ratio of Equity Capital to asset o

Equity Multiplier of each bank =

Return on Assets = 0.85 %

Return on Equity for each bank =

Depositors and Merchants Bank

Equity Multiplier = 1/ Ratio of eq

= 1/0.

22

1.42

1.42

year ( D1 ) =- Rs 3

e 2

nd

year ( D2) = Rs 4.50d

Year (D3) = Rs 6

= Rs 60

D2/(1+r) 2 + D3 /(1+r)3 + P3(1+r)3

k is Rs 53.2449

ets = 7.5 % = 7.5/100 =0.075

Newton National Bank = 6% = 0.06

?

ity capital to asset

75


23/29

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Muna Aryal

=13.3

EM ( Equity Multiplier ) = 13.33

Calculation of Return on Equity

ROE = Return on Assets ( ROA )

= 0.85 X 13.33

= 11.3305 %

Newton National bank

(EM) Equity Multiplier = 1/ Ratio

= 1/ 0.

=16.6

Calculation of Return on Equity

ROE = Return on Assets (ROA) X

= 0.85 X 16.67

= 14.169%

Given

Return on Assets (ROA)= 1.25

Ratio of total Assets to equity mul

Target ROE= 12%

Fall in ROA = 0.75 %

Assets to capital ratio or equity m

ROE = 12%

According to question if

23

X EM

of equity capital to asset

06

EM

iplier =?

ltiplier = ?


24/29

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Lecturer

Muna Aryal

IF ROE falls to 1 % What is the E

ROE = ROA X EM

Return on equity (ROE) = 0.75 X

OR 12% = 0.75 X EM

EM = 16 times

T.U Problems and Solution

T.U Question 7.5 Marks

Consider the following extracted i

Year

2005

Cash and Due from

Depository Institutions

360

Treasury Securities 180

Other Securities 350

Pledged Securities 230

Government Funds

Sold

140

Loans and Leases Net 5000

Total Assets

24

uity Multiplier

M

formation for Himalayan Bank Limited

Year

2004

Liablities Year

2005

380 Demand Deposits 460

130 Savings Deposits 720

360 Time Deposits 560

210 Transaction

accounts

650

140 Non-

Transactions

accounts

1350

4800 Brokered

Deposits

40

Government

fund Purchased

20

Other Money

Market

20

Year

2004

510

720

750

630

1330

20

90

90


25/29

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Using the above information, Calc

a) Cash and deposits due frob) Treasury Securities / Totalc) Brokered Deposits / Totald)

Demand Deposits / Time d

e) Transaction accounts / NoCalculation of Liquidity Indic

Total deposits = Demand Depo

For 2004

Total Deposits = Demand D

= Rs 460 + R

= Rs 2,040

For 2005

Total Deposits = 720+750+5

= Rs 1,980

Year

a) Cash and deposits due frodepository Institutions / ToAssets

= Cash Deposit due from deposito

institution/ Total Assets

25

borrowings

ulate the following Liquidity indicators

depository Institutions / Total Assets

Assets

eposits

posits

transaction accounts

tors by using corresponding formula

sits + Saving Deposits + Time Deposits

posits + Savings Deposits + Time Deposits

720 + Rs 860

10

Year 2005 Yea

tal

ry

= Rs 360/ Rs 5000

7.2 %

= Rs 38

7

2004

/ Rs 4800

.92


26/29

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b) Treasury Securities / TotalAssets

= Treasury Securities / Tot

Assets

C) Brokered Deposits / TotalDeposits

= Brokered Deposits / Tota

Deposits

d ) Demand Deposits / Time

deposits= Demand Deposit / Ti

Deposit

E ) Transaction accounts / No

transaction accounts

= Transaction accounts / Non

transaction a/c

Theory Question

Explain the Types of Non-Interest

Non-interest income is any type of

interest that is applied to the outstan

with financial institutions, partic

interest income is associated with re

times, the fees are one-time charges

provided by the account issuer. Wit

the fees associated with the manage

deposits from savers and flow thisexcept on current deposit to the dep

earning source of the bank. Besides

providing multiservice to its custom

1. Commissions

26

l

= Rs 180/Rs 5000

= 3.6 %

Rs 130

=0.027

= Rs 40 / Rs 2040

=0.0196 = 1.96 %

Rs 20

= 0.0101

me

= Rs 460/ Rs 860

= 0.5349 or 53.49

Rs 51

=

Or

= Rs 650 / Rs 1350

=0.4815

Or 48.15 %

= Rs 63

=0

=4

Income received by the Banks T.U 2067

income that is generated from the application

ding balance of a financial account. Income of

ularly banks and credit card companies. I

curring fees that are assessed on customer acc

that are applied in return for some type of sp

h banks and similar institutions, a major sourc

ment of customer accounts. Bank is a financi

collected amount to the deficit groups. In thesit holder where as it earns interest on advanci

this, nowadays bank earns through various typ

rs

/Rs 4800

r 2.71 %

Rs 1980

or 1.01 %

/Rs 750

0.68

68%

0/Rs 1330

4737

.37%

of fees, rather than fr

his type is often associa

some cases, the n

unts each month. At ot

cific task or service tha

e of non-interest income

l institution which colle

deposit bank pays interg loan. Interest is the ba

s of noninterest income


27/29

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Bank gets commissions on

guarantees and charges com

charges on it

2. Remittance

Nowadays, bank provides r

The bank provides outward

commission on it.

3. Agency Commission

Bank acts as an agent of the

corporations who transact thr

4. Agency Commission

Bank acts as an agent of the

corporations who transact thr

5. Merchant Banking and Inv

Bank acts as merchant bank

acts as Investment Company

6. Bills Purchase and Discoun

The bank purchases local an

7. Others

Besides these services, to

service, Credit card service

generate noninterest income

27

roviding various services to its customers. It i

mission on it. The bank collects bills as call

mittance service to transfer customers fund f

remittance service as draft, telegraphic transf

various corporations and generates income on i

ough aboard

various corporations and generates income on i

ough aboard.

estment Companies

helps various companies on issue of their sh

to facilitate its service

t

foreign currency bills and generates income

arn income, the bank provides safe deposit

etc. Nowadays, Banks are also providing util

ssues letter of credit, Ba

d bill collection and ta

rom one place to anoth

er , fax transfer and ea

. Normally, it occurs in

. Normally, it occurs in

res, debentures etc. It a

locker service, ATM c

ity bill payment service


28/29

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28


29/29

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29

Documents

The Financial Statement of a Bank