Financial Statements of

Banks
Objective
Understand a hypothetical balance sheet of a bank
Demonstrate how risk based performance can be computed
Link that to traditional balance sheet analysis
Accounting earnings simulations
Risk management reports
For better understanding we begin back in time at the year 2005 ( pre
GFC)
 Asset classes Amount in crores
Assets Mortgaged backed securities and residential loans 3500
Government bonds 700
LIBOR linked loans 2000
Consumer loans 800
Commercial real estate loans 900
Corporate Bonds 2000
Municipal bonds 100
10000
 Classes Amount in crores
Liabilities Certificate of deposits 500
Retail deposits 4600
Wholesale deposits 3700
Total liabilities 8800
Shareholder’s equity 1200
Total 10000
 Accounting earnings
Rs. %
Total asset income 5500 5.50%
Total liability expense -2314 -2.31%
Net interest margin 3186 3.19%
Non interest income 1500 1.50%
Non interest expense -2200 -2.20%
Loan loss provision -165 -0.17%
Income (pretax) 2321 2.32%
Taxes 812 0.81%
ROA 1508 1.51%
ROE 1508 12.57%
Analysis
• NIM is the difference between accounting returns on assets and cost
of liability
• Loan loss provision is heuristic adjustment for expected losses
• Income is NIM- burden- loan loss provisions
• ROA is after tax income presented as percentage of assets
• ROE is after tax income presented as percentage of equity