Commercial Commercial BankingBanking

Balance SheetBalance Sheet

Of Of

A bankA bank

What is Balance SheetWhat is Balance Sheet A snap Shot.A snap Shot. A photograph of financial worth A photograph of financial worth

of the concern at certain time.of the concern at certain time. Result Sheet of a concern base onResult Sheet of a concern base on

CharacterCharacter

CapacityCapacity

Capital Capital

ConditionsConditions

DefinitionDefinition

A Statement showing the A Statement showing the financial position of a bank financial position of a bank

on a particular date by means on a particular date by means of debit and credit balance of debit and credit balance outstanding after all the outstanding after all the

revenue and expenses terms revenue and expenses terms have been transferred to the have been transferred to the

trading account and the profit trading account and the profit and loss accountand loss account

How to PrepareHow to Prepare

It is prepared in two It is prepared in two separate section.separate section.

One section is the One section is the liabilities of the concern liabilities of the concern are recorded are recorded

Second section is for Second section is for assets of the bankassets of the bank

ImportanceImportance

It shows its net worth as on a It shows its net worth as on a particular date.particular date.

Profitability of a bank is known Profitability of a bank is known by studying the trends of profits by studying the trends of profits over a period of years.over a period of years.

It shows the policy of the bank of It shows the policy of the bank of extending of credit to the extending of credit to the customers,customers,

The profit retained by the bank are The profit retained by the bank are also shown in the balance sheet.also shown in the balance sheet.

The balance sheet indicates the total The balance sheet indicates the total long term loans and debentures long term loans and debentures liabilities and the assets charges as liabilities and the assets charges as securities for such borrowing. securities for such borrowing.

In short the study of the balance In short the study of the balance sheet reveals whether the business sheet reveals whether the business of the bank is healthy and g rowing of the bank is healthy and g rowing and has a promising future or notand has a promising future or not

Balance sheet of the Balance sheet of the BankBank

It reveals it financial It reveals it financial positionpositionOn On

The Shareholders, The Lenders and The Shareholders, The Lenders and The Depositors analyses the bankThe Depositors analyses the bank

Character-CapacityCharacter-Capacity

Capital-ConditionsCapital-Conditions

A Good BankA Good Bank

That tries to give maximum profit to That tries to give maximum profit to the shareholders.the shareholders.

That tries to reach the maximum That tries to reach the maximum level of profit sharing for their level of profit sharing for their depositors.depositors.

That lend rationally and efficiently That lend rationally and efficiently keeping the economic viability and keeping the economic viability and importance.importance.

That give security to their That give security to their depositorsdepositors. .

Assets & Liabilities in Assets & Liabilities in Bank’s Balance sheet Bank’s Balance sheet

ASSETSASSETSCash included cash in hand and with Cash included cash in hand and with

the central bank of the country the central bank of the country including foreign currencies and including foreign currencies and

balances with other banks., Cash is balances with other banks., Cash is kept in hand by the banks to meet the kept in hand by the banks to meet the

demand and obligation of the demand and obligation of the customercustomer

Cash is the primary reserve or fist line Cash is the primary reserve or fist line of defense against depositors of defense against depositors

Money at call & at short Money at call & at short noticenotice..

The banks advance short term loans to The banks advance short term loans to their customers.their customers.

These loans are advanced on a normal These loans are advanced on a normal interest with the promise that these will interest with the promise that these will be returned to the bank on short noticebe returned to the bank on short notice

The amount advanced for short period is The amount advanced for short period is called money at call and at short notice called money at call and at short notice and is regarded and is regarded

The second line of defense The second line of defense against the depositsagainst the deposits

InvestmentInvestment The bank invest funds in the securities of The bank invest funds in the securities of

the federal and Provincial Government.the federal and Provincial Government. The bank purchase fully paid up ordinary The bank purchase fully paid up ordinary

shares.shares. Participation term certificate or bonds, Participation term certificate or bonds,

gold or other profitable commodities or gold or other profitable commodities or instrument for short and long term instrument for short and long term investmentinvestment

The investment in these itemsThe investment in these items

are quite liquid and profit yielding are quite liquid and profit yielding

Advances Advances

The advances includes loans cash The advances includes loans cash credits, overdrafts, bills discounted credits, overdrafts, bills discounted within country or cross border.within country or cross border.

Advances are the larges items on Advances are the larges items on the assets side of the commercial the assets side of the commercial bank.bank.

These advances have high yield but These advances have high yield but low liquidity low liquidity

Bills Receivables Being the Bills Receivables Being the bills for Collection as per bills for Collection as per

contractcontract Bills for collection are those bills which Bills for collection are those bills which

are sent by the people to the banks for are sent by the people to the banks for collection.collection.

These bills are shown on the assets side These bills are shown on the assets side as well as liabilities sectionas well as liabilities section

These are assets of the bank because the These are assets of the bank because the amount has to be receive from the people amount has to be receive from the people concerned at the maturity of the billsconcerned at the maturity of the bills

They are liabilities because the collection They are liabilities because the collection is to be paid to the customeris to be paid to the customer

Basic Liabilities for acceptance Basic Liabilities for acceptance endorsement and other obligation as per endorsement and other obligation as per contractscontracts

Premises less depreciationPremises less depreciation

Furniture fixture including vehiclesFurniture fixture including vehiclesOther assets which includes stamps on Other assets which includes stamps on hand receivables form head office.hand receivables form head office.

Non banking assets acquired in Non banking assets acquired in

satisfaction of claims,satisfaction of claims,

Liabilities of a BankLiabilities of a Bank

CapitalCapital The bank raises capital from its The bank raises capital from its

shareholder and the sale of ordinary shareholder and the sale of ordinary shares.shares.

The amount of authorized capital The amount of authorized capital issued capital and subscribed capital issued capital and subscribed capital

from the capital of the bank from the capital of the bank

Reserve funds and their Reserve funds and their reservesreserves

This is the amount which is This is the amount which is accumulated over the years out of accumulated over the years out of net undistributed profit.net undistributed profit.

In Pakistan the banks are required In Pakistan the banks are required to transfer 20% of their net profit to to transfer 20% of their net profit to Reserve Funds until it is equal; to Reserve Funds until it is equal; to the paid up capitalthe paid up capital

This fund strengthens the financial This fund strengthens the financial soundness of the bank soundness of the bank

Borrowing from other BankBorrowing from other Bank

This is the amount which the bank This is the amount which the bank borrows from the central bank of the borrows from the central bank of the country and from outside the country.country and from outside the country.

Loans may be obtained against securities Loans may be obtained against securities or merely on person security.or merely on person security.

Amount channelize to customer on Amount channelize to customer on Parking facility.Parking facility.

Under Syndicate financing with other Under Syndicate financing with other banks. banks.

Bill PayableBill Payable

It is the amount which the bank It is the amount which the bank recover on the basis of bills of recover on the basis of bills of exchange from other branches exchange from other branches or from the head office.or from the head office.

So long as these are not paid So long as these are not paid they are shown on the liability they are shown on the liability sided of the balance sheetsided of the balance sheet. .

Bills on Collection & Bills on Collection & Bill ReceivableBill Receivable

Bills sent for collection are to Bills sent for collection are to be paid on maturity to the be paid on maturity to the customer. The amount thus customer. The amount thus taken as liabilities of the bank.taken as liabilities of the bank.

Cheques under collection Cheques under collection locally or foreign fall under locally or foreign fall under same categories of liability. same categories of liability.

Other LiabilitiesOther Liabilities Under this heading branch adjustment Under this heading branch adjustment staff welfare funds and other liabilities staff welfare funds and other liabilities

are shown are shown

Acceptance Endorsement & Other Acceptance Endorsement & Other obligationsobligations..

Profit & Loss AccountProfit & Loss Account This item shows the amount of outstanding This item shows the amount of outstanding

balance of profit which is also taken as balance of profit which is also taken as inappropriate profit inappropriate profit

Contingent LiabilitiesContingent Liabilities (Conditional) (Conditional)

This item shows the amount of This item shows the amount of claims against the bank not claims against the bank not

acknowledge as Debts, acknowledge as Debts, guarantees given on behalf of guarantees given on behalf of

directors, officers and customerdirectors, officers and customer

TheseThese are costs which the Bank have to are costs which the Bank have to pay if a particular event take place. pay if a particular event take place.

These are obligations generated by a These are obligations generated by a separate but uncertain event. separate but uncertain event.

TheseThese are not recognized as direct are not recognized as direct liabilities liabilities

A common example of a A common example of a contingentcontingent liability is a bank guaranteed loan.liability is a bank guaranteed loan.

At the time a guarantee is executed there At the time a guarantee is executed there is no liability for the Bank, but since it is is no liability for the Bank, but since it is

subjectsubject upon the borrower failing to upon the borrower failing to repay the loan the guarantor shall adjust repay the loan the guarantor shall adjust

at first call.at first call.

Balance sheet structureBalance sheet structure

Balance sheet structure that is Balance sheet structure that is presented for just an example. It presented for just an example. It does not show all possible kinds of does not show all possible kinds of assets, equity and liabilities, but it assets, equity and liabilities, but it shows the most usual ones. shows the most usual ones.

Because it shows goodwill it could be Because it shows goodwill it could be a consolidated balance sheet. a consolidated balance sheet.

Monetary values are not shown and Monetary values are not shown and summary rows are missing as well summary rows are missing as well

Balance Sheet Balance Sheet XYZ Bank Ltd.XYZ Bank Ltd.

Year ended 31 December 2006Year ended 31 December 2006 ASSETSASSETS Investments held for trading Investments held for trading Other current assetsOther current assets

Current AssetsCurrent Assets Cash and cash equivalents Cash and cash equivalents Marketable Securities Marketable Securities Accounts receivable Accounts receivable InventoriesInventories Prepaid Expenses Prepaid Expenses

Fixed Assets (Fixed Assets (Non-Current Assets)Non-Current Assets) Property, plant and equipment Less : Property, plant and equipment Less : Less Less Accumulated DepreciationAccumulated Depreciation Goodwill Goodwill Other intangible fixed assets Other intangible fixed assets Investments in associates Investments in associates Deferred tax assetsDeferred tax assets

LIABILITIES and EQUITYLIABILITIES and EQUITY Current liabilitiesCurrent liabilities Accounts payableAccounts payable Current income tax liabilitiesCurrent income tax liabilities Current portion of bank loans payableCurrent portion of bank loans payable Short-term Short-term provisionsprovisions Other current liabilitiesOther current liabilities

Long term Liabilities (Fixed Long term Liabilities (Fixed Liabilities)Liabilities)

Bank loansBank loans Issued debt securitiesIssued debt securities Deferred tax liabilityDeferred tax liability Provisions Provisions

Minority interestMinority interest

EquityEquity Share capitalShare capital Capital reservesCapital reserves Revaluation reserveRevaluation reserve Translation reserveTranslation reserve Retained earningsRetained earnings