Financial Statements of a

Bank

An overview of bank balance

sheets and income statements
 FINANCIAL STATEMENT OF A BANK

An Overview of Bank Balance Sheets and Income

Statements

•Balance Sheet - Report on condition

•Income Statement - Report on Income

 Balance Sheet Shows
 The amount and composition of funds
sources (financial inputs) the bank has drawn
upon to finance its lending and investing
activities and how much has been allocated
to loans, securities and other funds uses
(financial outputs) at any given time.
 Report of Income shows
 How much it has cost the bank to acquire its
deposits and other funds sources and to
generate revenues from the uses the bank
has made of those funds.
 The Balance Sheet (Report of Condition)
Financial Outputs (uses of Financial Inputs (sources of
bank funds or assets) bank funds or liabilities plus
equity capital)

Loans and Leases Deposits from the public

Investment in securities Non-deposit borrowings
Cash and deposits in other Equity capital from
institutions stockholders

As with any firm’s balance sheet, total sources of bank funds

must equal total uses of bank funds

Total Assets = Total Liabilities + Equity Capital

 The Income Statement (Report of Income)

Financial Outputs (revenues from Financial Inputs (the cost of

making use of bank funds and other acquiring funds and other resources
resources to produce and sell the bank needs to produce services)
services)
Loan Income Deposit Costs

Security Income Costs of non-deposit borrowings

Income from deposits in other Employee costs

institutions

Income from miscellaneous services Overhead expenses

Taxes

As with any firm’s income statement, total revenues minus total costs must
equal net earnings (income) of the bank

Total Income = Total Revenues – Total Costs

 Major Equation
C + S + L + MA = D + NDB + EC
 C – Cash assets
 S – Security Holdings
 L – Loans
 MA – Miscellaneous Assets
 D – Deposits
 NDB – Non-deposit Borrowings
 EC – Equity Capital
 FINANCIAL STATEMENT OF A BANK

BALANCE SHEET
Assets = Liability + Equity Capital
A. Assets:
A.1. Cash Balance
• Balance with Banks
• Money at call and short notice
A.2. Investments
• National Savings Bonds
• Other Securities
FINANCIAL STATEMENT OF A BANK

A.3. Loan Advances and Bills Purchase

A.4. Fixed Assets
• Buildings
• Vehicles
• Machinery
• Office Equipment
• Land
FINANCIAL STATEMENT OF A BANK
A.5. Other Assets
• Stock of Stationeries
• Income Receivables on Investments
• Accrued Interest on Loan
• Commissions Receivables
• Staff Loans & Advances
• Sundry Debtors
• Non Banking Asset
• Cash in transit
 FINANCIAL STATEMENT OF A BANK

B. Capital & Liabilities

B.1 Share Capital
• Authorized Capital
• Issued Capital
• Paid-up Capital
B.2 Reserve Funds
• General Reserve Funds
• Other Reserve Funds: (Exchange Fluctuation Reserve)
(Proposed Bonus Share)
(Bank Development Fund)
• Accumulated Profit / Loss
FINANCIAL STATEMENT OF A BANK

C. Borrowings
C.1. Local
• Nepal Rastra Bank
• Re Finance
• Inter Bank
• Other Financial Institution
• Agency Accounts
• Bonds
C.2. Foreign
•Bank Overdraft
•Agency Account Overdrawn
FINANCIAL STATEMENT OF A BANK

D. Deposit Accounts
D.1. Non Interest Bearing Accounts
• Current Deposits
• Margin Deposits
• Foreign Currency
D.2. Interest Bearing Accounts
• Savings Account
• Fixed Deposits
• Call Deposits
• Local / Foreign Currency
FINANCIAL STATEMENT OF A BANK

E. Bills Payable
•Local Currency
•Foreign Currency
F. Other Liability
1.Gratuity Fund (Provision) 6.Interest payable on Deposits
2.Employee Provident Fund 7.Proposed Dividends
3.Employees Welfare Fund 8.Interest Suspense
4.Provision for Staff Bonus 9.Sundry Creditors
5.Provision for Income Tax(Less advance tax paid)
FINANCIAL STATEMENT OF A BANK

ASSETS = LIABILITIES & EQUITY CAPITAL

Accumulated uses of Bank Funds = Accumulated sources of Bank Funds

FINANCIAL STATEMENT OF A BANK

COMPONENTS OF PROFIT AND LOSS ACCOUNT

(INCOME STATEMENT / REPORT OF INCOME)

The amount of revenue received and expenses incurred over a specific

period of time.

Net Income = Total Revenue - Total Expenses items

FINANCIAL STATEMENT OF A BANK

REVENUE ITEMS
A. Interest Income
• On Loans & Advances
• Overdraft
• On Investment
• On Money at call & short notice
• On Agency Balance
• Inter Bank Loan / Others
B. Commission and Discounts
• Bills Purchase and Discounts
• Commission on L/C, Guarantee, Remittance, Credit Cards,etc.
• Others

C. Foreign Exchange Gain

• Revaluation Gain
• Trading Gain
FINANCIAL STATEMENT OF A BANK

D. Non-Operating Income
• Profit on sale of Investment
• Profit on sale of Assets
• Dividends
• Others / Subsidy
FINANCIAL STATEMENT OF A BANK

E. Other Income
• Rental on safe Deposit Lockers
• Issue & Renewals of Credit Cards
• ATM cards
• Service Charge
• Renewal Fees
• Loss provision written back
FINANCIAL STATEMENT OF A BANK

EXPENSES ITEMS

A. Interest Expenses
• On Deposit Liabilities
• On Borrowings
• Bonds / Others
FINANCIAL STATEMENT OF A BANK

B. Employees Expenses
• Salary, Allowances
• Contribution to Provident Fund
• Training Expenses
• Uniforms
• Medical
• Insurance
• Provision for Gratuity
• Others
FINANCIAL STATEMENT OF A BANK

C. Office Overhead Expenses

• House Rent
• Electricity & Water
• Repair & maintenance
• Insurance
• Postage, Telex, Telephone, Fax
• Repair of Office Equipment & Furniture
• Travelling Allowances & Expenses
• Stationery & Printing
FINANCIAL STATEMENT OF A BANK

• Books & Periodicals

• Advertisements
• Legal Expenses
• Donations
• Expenses related to Board of Directors
• AGM Expenses
• Commission on Remittances
• Depreciation on Fixed Assets
• Amortization on Preliminary Expenses
FINANCIAL STATEMENT OF A BANK

• Share Issue Expenses

• Technical Service Fee
• Entertainment
• Written Off Expenses
• Security Expenses
• Credit Guarantee Premium
• Registration Fee
• Other
FINANCIAL STATEMENT OF A BANK

D. Exchange Loss
• Devaluation Loss
• Trading Loss
E. Non-Operating Expenses
• Loss on Sale on Investment
• Loss on Sales on Assets
F. Provision For Loan Loss
G. Provision for Staff Bonus
H. Provision For Income Tax
FINANCIAL STATEMENT OF A BANK

NET PROFIT = INCOME - EXPENSES

PROFIT & LOSS APPROPRIATION ACCOUNT

Accumulated General Reserve Fund

profit upto last + Proposed Dividend
year + Issue of Bonus Share
+ Special Reserve Fund
+ = + Exchange Fluctuation Reserve
This year’s + Prior Period Tax
profit + Accumulated Profit
FINANCIAL STATEMENT OF A BANK

OFF BALANCE SHEET ITEMS (CONTINGENT LIABILITIES)

• Claims on Bank not acknowledged by the Bank
• Letters of Credit
• Bank Guarantees / Bond
• Forward Exchange Contract Liabilities
• Bills under Collection
• Counter Bank Guarantee
• Financial Guarantee
• Contingent Liability on Income Tax
• Others
FINANCIAL STATEMENT OF A BANK

Key Performance Indicators of the Bank

[A] Measurement of Profitability
i. Return On Assets (%) = Net Income After Tax
X 100
Average Total Assets

ii. Return On Equity (%) = Net Income After Tax X 100

Average Equity Capital
 FINANCIAL STATEMENT OF A BANK

Key Performance Indicators of the Bank

[B] Measurement of Operating Efficiency
i. Net Spread (%) = Total Interest Earned x 100 - Total Interest Paid x 100
Loan + Investments Interest Bearing
Deposit + Borrowing

Int.Income- Int. Expenses

ii. Net Interest Margin (%) = X 100
Average Total Assets
FINANCIAL STATEMENT OF A BANK

Key Performance Indicators of the Bank

[B] Measurement of Operating Efficiency
iii.. Other Operating Income to = Other Operating Income X 100
Total Assets (%) Average Total Assets

Net Oper. Income + Other

iv. Net Operating Income to = Oper. Income X 100
Total Assets (%) Average Total Assets
FINANCIAL STATEMENT OF A BANK

Key Performance Indicators of the Bank

[C] Measurement of Staffing Efficiency
i. Net Income Per Staff = Net Income After Tax
Total Staff Count

Net Income After Tax

ii. Net Income to Staff Expenses = Staff Expenses
FINANCIAL STATEMENT OF A BANK

Key Performance Indicators of the Bank

[D] Measurement of Credit Ratios
Total Loans & Advances
i. Credit To Deposit Ratio (CD Ratio) =
Total Deposits

Total Investment [LT +ST]

ii. Total Investments To Total Deposits =
Total Deposits
FINANCIAL STATEMENT OF A BANK

Key Performance Indicators of the Bank

[E] Measurement of Market Ratios
i. Earning Per Share (EPS) = Net Profit After Tax
Total No. Of Shares

ii. Market Value Per Share Stock Price As per NEPSE

Shareholders Equity
iii. Book Value Per Share = No. of Shares
Market Value Per Share
iv. Price Earning Ratio = Earning Per Share
FINANCIAL STATEMENT OF A BANK

Key Performance Indicators of the Bank

[F] Other Major Ratios

i. Capital Adequacy = Total Capital Fund x 100

Risk Weighted Asset
Total Liquid Assets
ii. Cash Reserve Ratio (CRR) = Total Deposits+ Borrowings

Total Liquid Assets

•Balance at NRB [LCY +FCY]
•Cash at Vault
•Investment on T.Bills, HMG and NRB Bonds
•Balance with other Banks.
•Others
 FINANCIAL STATEMENT OF A BANK

Key Performance Indicators of the Bank

Net Profit
iii. Net Profitability =
Total Income

Net Profit
iv. Net Profit To Loan & Advances =
Loan & Advances

Exchange Gain
v. Exchange Gain To Total Income=
Total Income

Sub Standard+ Doubtful +Bad Loans

vi. Non Performing Loan To Total Loan =
Total Loan and Advances
Interest Suspense
vii. Interest Suspense To Interest Income From Loan = Total Interest
Income From Loan