UNIT VI: Evaluation of Bank Performance Flashcards by Patrick Louis Roque

major services provided by banks to the public

-Acceptance of deposits
-Lending of funds
-Trust services
-Financial services related to international trade

How well did you know this?

Not at all

Perfectly

how different are banks from most other businesses?

-have fairly liquid assets and liabs
-high degree of financial leverage (liabilities>capital)
-highly-regulated

How well did you know this?

Not at all

Perfectly

banks are regulated by the ______?

Bangko Sentral ng Pilipinas (BSP)

How well did you know this?

Not at all

Perfectly

FINANCIAL STATEMENTS OF BANKS

includes assets, liabilities and equity oof the bank

BALANCE SHEET

How well did you know this?

Not at all

Perfectly

FINANCIAL STATEMENTS OF BANKS

total amount of cash in the bank’s vault in the form of notes and coins under the custody of the cashier/cash custodian or treasurer, including notes in the possession of tellers and those kept in automated teller machines (ATM)

CASH ON HAND

How well did you know this?

Not at all

Perfectly

BALANCE SHEET - ASSETS

total amount of checks and other cash items received after the selected clearing cut-off time until the close of the regular banking hours

CHECKS AND OTHER CASH ITEMS (COCI)

How well did you know this?

Not at all

Perfectly

BALANCE SHEET - ASSETS

interest-bearing deposits with BSP to meet reserve requirements and to serve as clearing account for interbank claims

DUE FROM BSP

How well did you know this?

Not at all

Perfectly

BALANCE SHEET - ASSETS

deposits to secure forward exchange commitments or to pay matured foreign currency obligations

DUE FROM BSP

How well did you know this?

Not at all

Perfectly

BALANCE SHEET - ASSETS

deposits maintained with other banks to facilitate services between banks (EX: check payments, fund transfers)

DUE FROM OTHER BANKS

How well did you know this?

Not at all

Perfectly

BALANCE SHEET - ASSETS

accounts extended to other banks overnight or on very short terms to meet legal reserve or other liquidity requirements

INTERBANK LOANS RECEIVABLE

How well did you know this?

Not at all

Perfectly

BALANCE SHEET - ASSETS

short term investments

MARKETABLE INVESTMENTS

How well did you know this?

Not at all

Perfectly

BALANCE SHEET - ASSET

INVESTMENTS IN MARKETABLE SECURITIES

highly liquid investments in debt and equity securities that can be readily converted into cash

MARKETABLE SECURITIES

How well did you know this?

Not at all

Perfectly

BALANCE SHEET - ASSET

INVESTMENTS IN MARKETABLE SECURITIES

debt securities with fixed or determinable payments and fixed maturity dates that a bank intends to keep until the maturity dates of the asset

HELD-TO-MATURITY (HTM)

How well did you know this?

Not at all

Perfectly

BALANCE SHEET - ASSET

INVESTMENTS IN MARKETABLE SECURITIES

debt and equity securities that are not classified as loans and receivables, HTM investments, or investments at fair value through profit and loss

AVAILABLE-FOR-SALE SECURITIES

How well did you know this?

Not at all

Perfectly

BALANCE SHEET - ASSETS

amounts due from customers or bank borrowers

LOANS OR RECEIVABLES FROM CUSTOMERS

How well did you know this?

Not at all

Perfectly

BALANCE SHEET - ASSET

LOANS OR RECEIVABLES FROM CUSTOMERS

-demand loans
-time loans
-bill discounted
-real estate mortgage loans
-credit cards, auto loans
-agri loans
-customers’ liabs under letters of credit

How well did you know this?

Not at all

Perfectly

BALANCE SHEET - ASSET

LOANS OR RECEIVABLES FROM CUSTOMERS

loans that a lender can require to be repaid in full at any time

demand loans

How well did you know this?

Not at all

Perfectly

BALANCE SHEET - ASSET

LOANS OR RECEIVABLES FROM CUSTOMERS

short-term, 1-6 months, asset-based loans for business payable in one installment on date of maturity

time loans

How well did you know this?

Not at all

Perfectly

BALANCE SHEET - ASSET

LOANS OR RECEIVABLES FROM CUSTOMERS

debt instruments sold for an amount less than the face value of the instrument

bills discounted

How well did you know this?

Not at all

Perfectly

BALANCE SHEET - ASSETS

real and other properties other than those used for banking purposes or held in the investment portfolio

assets held for sale

How well did you know this?

Not at all

Perfectly

BALANCE SHEET - ASSETS

physical capital owned by banks such as buildings and equipments

other assets

How well did you know this?

Not at all

Perfectly

BALANCE SHEET - LIABILITIES

funds deposited by the public

deposit liabilities

How well did you know this?

Not at all

Perfectly

BALANCE SHEET - LIABILITIES

DEPOSIT LIABILITIES

refers to deposits, subject to withdrawal otherwise known as current or checking accounts

demand deposits

How well did you know this?

Not at all

Perfectly

BALANCE SHEET - LIABILITIES

DEPOSIT LIABILITIES

withdrawable deposits

savings deposit

How well did you know this?

Not at all

Perfectly

BALANCE SHEET - LIABILITIES DEPOSIT LIABILITIES interest-bearing deposits with specific maturity dates

time deposits

BALANCE SHEET - LIABILITIES funds borrowed from other banks to meet reserve and liquidity needs

interbank loans payable

BALANCE SHEET - LIABILITIES liab for the bank's share in the cost of maintaining the appropriate supervision and examination dept of BSP

due to BSP or supervision fee

BALANCE SHEET - LIABILITIES availments of rediscounting facilities and other borrowings from BSP

bills and acceptance payable

BALANCE SHEET - LIABILITIES liabs to local banks, private firms, and private individuals

bills and acceptance payable

BALANCE SHEET - LIABILITIES money market borrowings

bills and acceptance payable

BALANCE SHEET - LIABILITIES total amount of checks drawn by the bank upon itself payable to the payees named in check

manager's and treasurer's check

BALANCE SHEET - LIABILITIES amount of cash or other assets given by shareholders in the firm in exchange of stocks/shares

paid-in capital stock

BALANCE SHEET - LIABILITIES PAID-IN CAPITAL STOCK ownership share that allows its holders voting rights and to receive dividends

common stock

BALANCE SHEET - LIABILITIES PAID-IN CAPITAL STOCK holders are given priority over common shareholders in terms of dividends, but have no voting rights and carry fixed annual dividend payments per share

preferred stock

BALANCE SHEET - EQUITY RESERVES accumulated amount required from banks to carry to retained earnings 20% of its net profits accruing from trust business since the last preceding dividend declaration until the retained earnings shall amount to 20% of its authorized capital stock

trust business

BALANCE SHEET - EQUITY RESERVES accumulated amount set aside to cover losses due to fire, defalcation by and other unlawful acts ng staff

self-insurance

BALANCE SHEET - EQUITY RESERVES set aside for possible or unforeseen losses, decrease in assets' book value, undeterminable liabs not recorded

contingencies

FINANCIAL STATEMENTS OF BANKS includes revenues and expenses incurred by banks for a given period

INCOME STATEMENT

INCOME STATEMENT refers to interest earned and/or collected from fin assets of banks

interest income

INCOME STATEMENT payments and/or monthly accruals of interest on fin liabs of banks

interest expense

INCOME STATEMENT provide for losses which may arise from non-collection of loans and receivables

provision for credit and impairment losses

RATIO ANALYSIS measure how much of a bank’s resources are financed by debt and equity

leverage ratios

RATIO ANALYSIS LEVERAGE RATIOS measures the contribution of stockholders and indicates the cushion against the risks of using debt and leverage.

equity to total assets ratio

RATIO ANALYSIS LEVERAGE RATIOS more popular ratio; measurement of a bank’s available capital expressed as a percentage of a bank’s risk-weighted credit exposures.

capital adequacy ratio

RATIO ANALYSIS LEVERAGE RATIOS CAPITAL ADEQUACY RATIO core capital; permanently and easily available to cushion losses suffered by a bank without it being required to stop operating

TIER ONE CAPITAL

RATIO ANALYSIS LEVERAGE RATIOS CAPITAL ADEQUACY RATIO capital that cushions losses in case the bank is winding up, so it provides a lesser degree of protection to depositors and creditors; used to absorb losses if a bank loses all its Tier-1 capital.

TIER TWO CAPITAL

RATIO ANALYSIS LEVERAGE RATIOS CAPITAL ADEQUACY RATIO calculated by looking at a bank’s loans, evaluating the risk, and then assigning a weight; all the loans the bank has issued are weighted based on their degree of risks.

risk-weighted assets

RATIO ANALYSIS LEVERAGE RATIOS CAPITAL ADEQUACY RATIO arises from the possibility that borrowers, bond issuers, and counterparties in derivatives transactions may default.

credit risk

RATIO ANALYSIS LEVERAGE RATIOS CAPITAL ADEQUACY RATIO risk relating to movements in market variables (interest rate, exchange rates, equity prices, commodity prices)

market risk

RATIO ANALYSIS LEVERAGE RATIOS CAPITAL ADEQUACY RATIO risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events

operational risk

RATIO ANALYSIS LEVERAGE RATIOS CAPITAL ADEQUACY RATIO a bank that has a good CAR has enough capital to absorb potential ______ (gains or losses). thus, it has _____ (less or more) risk of becoming insolvent and losing depositors’ money.

losses; less

RATIO ANALYSIS LEVERAGE RATIOS CAPITAL ADEQUACY RATIO TRUE OR FALSE the higher the bank’s CAR, the higher the degree of protection of depositor's assets.

TRUE

RATIO ANALYSIS LEVERAGE RATIOS CAPITAL ADEQUACY RATIO the minimum CAR required by the BSP is ______%.

10%

RATIO ANALYSIS LEVERAGE RATIOS how much of the customer loans are financed by equity (how much buffer a bank has should the loans become uncollectible)

equity/customer loans ratio

RATIO ANALYSIS LEVERAGE RATIOS riskiest assets of a bank, but may also be the biggest asset

customer loans

RATIO ANALYSIS LEVERAGE RATIOS Equity/Customer Loans Ratio cushion against a drop in the value of its assets

bank's capital (equity)

RATIO ANALYSIS measure the ability of a bank to meet its debt requirements as they come due;

liquidity ratios

RATIO ANALYSIS a bank must have adequate liquid assets to meet the _________ of its depositors

withdrawals

RATIO ANALYSIS LIQUIDITY RATIOS cash and other cash items + due from BSP + due from other banks + interbank loans receivables and securities purchased under agreements to resell + trading securities + investment securities

quasi-liquid assets ratio

RATIO ANALYSIS LIQUIDITY RATIOS considers loans and advances as less liquid than other financial assets of the banks

loans-deposit ratio

RATIO ANALYSIS LIQUIDITY RATIOS - LDR a low LDR (higher deposits relative to loans) indicates _______ (excess or lacking) liquidity and may also result in ______ (higher or lower) profits for a bank since loans generate interest income.

excess; lower

RATIO ANALYSIS LIQUIDITY RATIOS - LDR high LDR (lower deposits relative to loans) represents liquidity risk as a bank may not have _____________ when depositors withdraw their money

enough cash

RATIO ANALYSIS LIQUIDITY RATIOS measure the adequacy of provisioning (allowance for doubtful accounts or ADA) for non-performing loans (NPL) and the extent of these NPL in the total loan portfolio of a bank

coverage ratios

RATIO ANALYSIS LIQUIDITY RATIOS compares the fair value of collateral held for NPL and the amount of NPL. this measures the extent of a potential loss a bank may incur with respect to these NPLs.

coverage ratio

RATIO ANALYSIS measure the ability of a bank to generate income on its investments in excess of costs incurred

profitability ratios

RATIO ANALYSIS the five profitability ratios

1. net interest margin 2. OE/net interest income + other income 3. OE/ ave. total assets 4. return on total assets (ROA) 5. return on equity (ROE) note: OE = operating expenses

RATIO ANALYSIS PROFITABILITY RATIOS Net Interest Margin due from BSP + due from other banks + inter-bank loans receivables and securities purchased under agreements to resell + trading securities + investment securities + loans and advances

earning assets

RATIO ANALYSIS PROFITABILITY RATIOS Net Interest Margin interest income – interest expenses on deposits and other debt issued

net interest income

RATIO ANALYSIS PROFITABILITY RATIOS measures the operating efficiency after paying interest or financing costs

OE/net interest income + other income

RATIO ANALYSIS PROFITABILITY RATIOS provision for impairment and credit losses + compensation and fringe benefits + occupancy and other equipment-related costs + taxes and licenses + depreciation and amortization + insurance + other OPEX

OE/net interest income + other income

RATIO ANALYSIS PROFITABILITY RATIOS measures the rate of return based on total investments prior to consideration of the bank’s financing costs.

return on total assets (ROA)

RATIO ANALYSIS PROFITABILITY RATIOS measures the return on the investment of the bank’s stockholders.

return on equity (ROE)

RATIO ANALYSIS PROFITABILITY RATIOS - ROA the _________ (lower or higher) the ROA, the greater is bank profitability.

higher

RATIO ANALYSIS PROFITABILITY RATIOS - ROE the _________ (lower or higher) the ROE, the greater is bank profitability.

higher

TWO NON-FINANCIAL MEASURES

-density ratio -population-to-banking offices ratio (customer ratio)

TWO NON-FINANCIAL MEASURES refers to the ratio of the total population to the total number of domestic banking offices.

population-to-banking offices ratio (customer ratio)

TWO NON-FINANCIAL MEASURES refers to the ratio of total number of domestic banking offices to the total number of cities/municipalities in the Philippines.

density ratio