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AAE 130 > UNIT VI: Evaluation of Bank Performance > Flashcards

UNIT VI: Evaluation of Bank Performance Flashcards

1
Q

major services provided by banks to the public

A

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

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2
Q

how different are banks from most other businesses?

A

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

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3
Q

banks are regulated by the ______?

A

Bangko Sentral ng Pilipinas (BSP)

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4
Q

FINANCIAL STATEMENTS OF BANKS

includes assets, liabilities and equity oof the bank

A

BALANCE SHEET

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5
Q

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)

A

CASH ON HAND

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6
Q

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

A

CHECKS AND OTHER CASH ITEMS (COCI)

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7
Q

BALANCE SHEET - ASSETS

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

A

DUE FROM BSP

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8
Q

BALANCE SHEET - ASSETS

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

A

DUE FROM BSP

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9
Q

BALANCE SHEET - ASSETS

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

A

DUE FROM OTHER BANKS

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10
Q

BALANCE SHEET - ASSETS

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

A

INTERBANK LOANS RECEIVABLE

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11
Q

BALANCE SHEET - ASSETS

short term investments

A

MARKETABLE INVESTMENTS

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12
Q

BALANCE SHEET - ASSET

INVESTMENTS IN MARKETABLE SECURITIES

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

A

MARKETABLE SECURITIES

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13
Q

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

A

HELD-TO-MATURITY (HTM)

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14
Q

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

A

AVAILABLE-FOR-SALE SECURITIES

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15
Q

BALANCE SHEET - ASSETS

amounts due from customers or bank borrowers

A

LOANS OR RECEIVABLES FROM CUSTOMERS

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16
Q

BALANCE SHEET - ASSET

LOANS OR RECEIVABLES FROM CUSTOMERS

A

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

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17
Q

BALANCE SHEET - ASSET

LOANS OR RECEIVABLES FROM CUSTOMERS

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

A

demand loans

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18
Q

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

A

time loans

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19
Q

BALANCE SHEET - ASSET

LOANS OR RECEIVABLES FROM CUSTOMERS

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

A

bills discounted

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20
Q

BALANCE SHEET - ASSETS

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

A

assets held for sale

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21
Q

BALANCE SHEET - ASSETS

physical capital owned by banks such as buildings and equipments

A

other assets

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22
Q

BALANCE SHEET - LIABILITIES

funds deposited by the public

A

deposit liabilities

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23
Q

BALANCE SHEET - LIABILITIES

DEPOSIT LIABILITIES

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

A

demand deposits

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24
Q

BALANCE SHEET - LIABILITIES

DEPOSIT LIABILITIES

withdrawable deposits

A

savings deposit

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25
Q

BALANCE SHEET - LIABILITIES

DEPOSIT LIABILITIES

interest-bearing deposits with specific maturity dates

A

time deposits

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26
Q

BALANCE SHEET - LIABILITIES

funds borrowed from other banks to meet reserve and liquidity needs

A

interbank loans payable

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27
Q

BALANCE SHEET - LIABILITIES

liab for the bank’s share in the cost of maintaining the appropriate supervision and examination dept of BSP

A

due to BSP or supervision fee

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28
Q

BALANCE SHEET - LIABILITIES

availments of rediscounting facilities and other borrowings from BSP

A

bills and acceptance payable

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29
Q

BALANCE SHEET - LIABILITIES

liabs to local banks, private firms, and private individuals

A

bills and acceptance payable

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30
Q

BALANCE SHEET - LIABILITIES

money market borrowings

A

bills and acceptance payable

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31
Q

BALANCE SHEET - LIABILITIES

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

A

manager’s and treasurer’s check

32
Q

BALANCE SHEET - LIABILITIES

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

A

paid-in capital stock

33
Q

BALANCE SHEET - LIABILITIES

PAID-IN CAPITAL STOCK

ownership share that allows its holders voting rights and to receive dividends

A

common stock

34
Q

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

A

preferred stock

35
Q

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

A

trust business

36
Q

BALANCE SHEET - EQUITY

RESERVES

accumulated amount set aside to cover losses due to fire, defalcation by and other unlawful acts ng staff

A

self-insurance

37
Q

BALANCE SHEET - EQUITY

RESERVES

set aside for possible or unforeseen losses, decrease in assets’ book value, undeterminable liabs not recorded

A

contingencies

38
Q

FINANCIAL STATEMENTS OF BANKS

includes revenues and expenses incurred by banks for a given period

A

INCOME STATEMENT

39
Q

INCOME STATEMENT

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

A

interest income

40
Q

INCOME STATEMENT

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

A

interest expense

41
Q

INCOME STATEMENT

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

A

provision for credit and impairment losses

42
Q

RATIO ANALYSIS

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

A

leverage ratios

43
Q

RATIO ANALYSIS

LEVERAGE RATIOS

measures the contribution of stockholders and indicates the cushion against the risks of using debt and leverage.

A

equity to total assets ratio

44
Q

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.

A

capital adequacy ratio

45
Q

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

A

TIER ONE CAPITAL

46
Q

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.

A

TIER TWO CAPITAL

47
Q

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.

A

risk-weighted assets

48
Q

RATIO ANALYSIS

LEVERAGE RATIOS

CAPITAL ADEQUACY RATIO

arises from the possibility that borrowers, bond issuers, and counterparties in derivatives transactions may default.

A

credit risk

49
Q

RATIO ANALYSIS

LEVERAGE RATIOS

CAPITAL ADEQUACY RATIO

risk relating to movements in market variables (interest rate, exchange rates, equity prices, commodity prices)

A

market risk

50
Q

RATIO ANALYSIS

LEVERAGE RATIOS

CAPITAL ADEQUACY RATIO

risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events

A

operational risk

51
Q

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.

A

losses; less

52
Q

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.

A

TRUE

53
Q

RATIO ANALYSIS

LEVERAGE RATIOS

CAPITAL ADEQUACY RATIO

the minimum CAR required by the BSP is ______%.

A

10%

54
Q

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)

A

equity/customer loans ratio

55
Q

RATIO ANALYSIS

LEVERAGE RATIOS

riskiest assets of a bank, but may also be the biggest asset

A

customer loans

56
Q

RATIO ANALYSIS

LEVERAGE RATIOS

Equity/Customer Loans Ratio

cushion against a drop in the value of its
assets

A

bank’s capital (equity)

57
Q

RATIO ANALYSIS

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

A

liquidity ratios

58
Q

RATIO ANALYSIS

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

A

withdrawals

59
Q

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

A

quasi-liquid assets ratio

60
Q

RATIO ANALYSIS

LIQUIDITY RATIOS

considers loans and advances as less liquid than other financial assets of the banks

A

loans-deposit ratio

61
Q

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.

A

excess; lower

62
Q

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

A

enough cash

63
Q

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

A

coverage ratios

64
Q

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.

A

coverage ratio

65
Q

RATIO ANALYSIS

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

A

profitability ratios

66
Q

RATIO ANALYSIS

the five profitability ratios

A
  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

67
Q

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

A

earning assets

68
Q

RATIO ANALYSIS

PROFITABILITY RATIOS

Net Interest Margin

interest income – interest expenses on deposits and other debt issued

A

net interest income

69
Q

RATIO ANALYSIS

PROFITABILITY RATIOS

measures the operating efficiency after paying interest or financing costs

A

OE/net interest income + other income

70
Q

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

A

OE/net interest income + other income

71
Q

RATIO ANALYSIS

PROFITABILITY RATIOS

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

A

return on total assets (ROA)

72
Q

RATIO ANALYSIS

PROFITABILITY RATIOS

measures the return on the investment of the bank’s stockholders.

A

return on equity (ROE)

73
Q

RATIO ANALYSIS

PROFITABILITY RATIOS - ROA

the _________ (lower or higher) the ROA, the greater is bank profitability.

A

higher

74
Q

RATIO ANALYSIS

PROFITABILITY RATIOS - ROE

the _________ (lower or higher) the ROE, the greater is bank profitability.

A

higher

75
Q

TWO NON-FINANCIAL MEASURES

A

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

76
Q

TWO NON-FINANCIAL MEASURES

refers to the ratio of the total population to the total number of domestic banking offices.

A

population-to-banking offices ratio (customer ratio)

77
Q

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.

A

density ratio

AAE 130 (9 decks)

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