CHƯƠNG 1: The organisation and Structure of Commercial Banking

Industry

New trend in banking sector:

Smaller banks continue to disappear and the biggest banks are up greater
industry shares each year.

Internal Organization of the Banking firm

Community Banks or Retail Banks
Money Center or Wholesale Banks

Bank’s classification

Unit banks

Branch Banks

Electronic branch (chi nhanh NH dien tu)

Virtual Banks (NH ảo)

Bank Holding Company : One bank holding companies / Multibank holding

companies

Financial Holding companies

Bank subsidiaries
CHƯƠNG 2: Bank Financial Statements

1.2. Report of Condition – Balance Sheet

Lists the assets, liabilities, equity capital (net worth) held by the bank on a
given date.

May be viewed as a list of financial inputs (sources of funds) and outputs (uses
of funds)

Cash Assets / Cash and Deposits Due from Bank ( Tiền)

▫ Vault Cash (tien tai quy)
▫ Deposits with Other Banks (Correspondent Deposits)
▫ Cash Items in Process of Collection (Uncollected check)
▫ Reserve Account with the Federal Reserve

=> Primary Reserves

Securities: The Liquid Portion
▫ Short Term Government Securities
▫ Privately Issued Money Market Securities
 Interest Bearing Time Deposits
 Commercial Paper

=> Secondary Reserves

Types of Loans
• Commercial and Industrial Loans
• Consumer Loans (Loans to Individuals)
• Real Estate Loans
• Financial Institution Loans
• Foreign Loans
• Agriculture Production Loans
• Security Loans
• Leases

Loan Accounts

• Is the Major Asset

• Allowance for Possible Loan Losses (ALL)

▫ Contra-Asset Account (khoản giảm trừ tài sản)
▫ Reserve For Potential Future Loan Losses

• Net Loans= Gross loans - ALL

• Nonperforming Loans (Nợ xấu –NPL)

* Allowance for Loan Losses

Beginning ALL + Provision for Loan Loss (Income Statement) -Actual

Charge-Offs + Recoveries from Previous Charge-Offs = Ending ALL

Miscellaneous Assets
• Bank Premises and Fixed Assets
• Other Real Estate Owned (OREO): include directs and indirect
investments in real estate.
• Goodwill and Other Intangibles: Goodwil occurs when a firm acquires
another firm and pay more than the market value.
Deposit Accounts (In the case of bankruptcy, first pay off.)
• Non interest-Bearing Demand Deposits
• Savings Deposits
• Now Accounts
• Money Market Deposit Accounts (MMDA)
• Time Deposits

Non-deposit Borrowings

Equity Capital
• Authorized capital (vốn điều lệ)
• Capital Surplus (thặng dư vốn)
• Preferred Stock
• Retained Earnings (Undivided Profits)
• Treasury Stock (cổ phiếu quỹ)
• Contingency Reserve (các quỹ của NH)
Off-Balance-Sheet Items
• Unused Commitments: receives a fee to lend
up to a certain amount.
• LC&Standby Credit Agreements: receives a
fee to guarantee repayment of a loan.
• Derivative Contracts: potential to make a
profit a loss.
The Statement of Revenues, Expenses and Profits for a Bank Over a Period of
Time.

Net Interest Income = Interest Income – Interest Expenses

Net Noninterest Income = Noninterest Income – Noninterest Expenses

Net Income Before Taxes (EBT) = Net Interest Income - Provision for Loan
Loss + Net Noninterest Income - Other expense (if any)

Net income = Net Income Before Taxes - Taxes

Net income = Dividends + Undivided Profits (Retained Earnings)

CHƯƠNG 3: Risk Management for Changing Interest Rates

Asset Management

Refers to a banking strategy where management has control over the allocation
of bank assets but believes the bank's sources of funds (principally deposits) are
outside its control.

Liabilities management
Is a strategy of control over bank liabilities by varying interest rates and terms
offered on borrowed funds

Fund management
Combines both asset and liability management approaches into a balanced
liquidity management strategy.
+ Control over the volume, mix and return or cost of both assets and
liabilities.
+ Maximize the spread between revenues and cost and control risk
exposure.
+ Revenues and costs arise from both sides of the balance sheets
Interest rate risk: is the risk that incurred when the interest rates change in the
financial marketplace
-Change the income and the expense
- Change the market value of assets and liabilities
- Change the banks’net worth (giá trị ròng của NH)

=> Impact both the balance sheet and income statement.

Bank Discount Rate (DR)

The Components of Interest rates

Nominal market interest rate = Risk-free real interest rate + Risk premiums to
lender

Maturity Gap
Between the average maturity of their assets and the average maturity of their
liabilities.
=> Mostly positive

INTEREST RATE HEDGING

Goals:
One important goal of interest rate hedging is to insulate the bank from the
damaging effects of fluctuating interest rates on profits

Net Interest Margin (Tỷ lệ thu nhập biên lãi ròng)

NIM Influenced By:
• Changes in Interest Rates Up or Down
• Changes in the Spread Between Assets and Liabilities
• Changes in the Volume of Interest-Sensitive Assets and Liabilities
• Changes in the Mix of Assets and Liabilities

Repriceable assets: are loans that are about to mature or are coming up for
renewal.
Repriceable liabilities: CDs about to mature or be renewed / Floating-rate
deposit / Money-market borrowing.

Positive gap <=> Asset sensitive

Negative gap <=> Liabilities sensitive
DURATION IN HEDGING INTEREST RATE RISKs/
CHƯƠNG 4: Liquidity and Reserves Management
CHƯƠNG 5: The Management of Capital