Bank Management

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Author:
Benjimenji
ID:
123033
Filename:
Bank Management
Updated:
2011-12-12 11:29:29
Tags:
Bank Management
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Description:
Bank Management
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  1. Long-Term
    Business Loans
    • -
    • Term
    • Business Loans: >1 year, long term
    • assets (secured), Regular installments to repay loan

    • -
    • Revolving
    • Credit Lines: Very flexible bisness loan, Often grantet without collateral

    • -
    • Project
    • Financing: Power plants, high risk exposure

    • -
    • Loans
    • to Support M&As
  2. Short Term Loans
    • -
    • Working
    • Capital Loans: Seasonal, often renewed, credit limit

    • -
    • Intermin
    • Construction loans: Construction period of a house, long term mortgage loan

    • -
    • Security
    • Financing: loan to buy securities, max 50% of value

    • -
    • Retailer
    • Financing: Finance merchandising Inventory

    • -
    • Asset
    • Based Short Term Financing: Secured by short-Term Assets

    • -
    • Syndicated
    • Loans
  3. Sources of
    Repayment for Loans
    • -
    • Borrower’s
    • profit and cash flow

    • -
    • Business
    • assets pldged as collateral

    • -
    • Equity
    • and assets

    • -
    • guarantees
  4. Areas of a
    Financial Ratio Analysis
    • -
    • Control
    • Expenses

    • -
    • Operating
    • Efficiency

    • -
    • Marketability


    • -
    • Coverage
    • over financing Cost

    • -
    • Liquidity

    • -
    • Profitability

    • -
    • Financial
    • Leverage
  5. Key Ratios
    Control Expenses:
    • -
    • Cost
    • of Goods sold / net Sales

    • -
    • Selling
    • and administrative expenses / Net Sales

    • -
    • Depreciation
    • Expenses / Net Sales

    • -
    • Interest
    • Expenses / Net Sales
  6. Key ratios
    Operating Efficiency:
    • -
    • Annual Costs of Goods Sold / Average Inventory

    • -
    • Net
    • Sales / Net Fixed Assets

    • -
    • Net
    • Sales / Total Assets

    • -
    • Net
    • Sales 7 Accounts receivable

    • -
    • Average
    • Collection Period = Accounts Receivable / Annual Credit Sales / 360 days
  7. Key Ratios
    Marketability:
    • -
    • Total
    • Sales

    • -
    • Gross
    • Profit Margin = Net Sales ./. Cost of Goods Sold / Net Sales

    • -
    • Net
    • Profit Margin = Net Income after taxes /
    • Net sales
  8. Coverage
    Key Ratios:
    • -
    • Interest
    • Coverage = Income before interest and Taxes / Interest Payments
  9. Capital
    Structure Key Ratio:
    • -
    • Levarage
    • Ratio: Total Liabilities / Total assets
  10. Liquidity
    Key Ratios:
    • -
    • Cash
    • Ratio = Cash + Short Term Securities / Current Liabilities

    • -
    • Quick
    • Ratio = Cash + Short-Term Securities + Receivables / current Liabilities

    • -
    • Current
    • Ratio = Current Assets / Current Liabilities
  11. Profitability
    Measures Key Ratios:
    • -
    • RoE:
    • Net Income after Taxes / Net Worth (Equity)

    • -
    • RoI:
    • (Interest + Income a.T.)/ Total Assets

    • -
    • Return
    • on Sales: Net Income / Total Sales
  12. Assessing
    Customer’s Financial Performance:
    • -
    • Risk
    • Management Associates RMA and Dun& Bradstreet collect Data
  13. Statement
    of Cashflows:
    • -
    • Statement
    • of Cashflows are needed to evaluate if the customer is able to support his
    • business activity and repay the loan

    • -
    • Show
    • how Cash Inflows and Outflows are generated through Operating, Investing
    • activities and financing activities.

    • -
    • Give
    • Forecast of future cashflows
  14. Types of
    Contingent Liabilities:
    • -
    • Warrantees
    • behind products

    • -
    • Litigation
    • or pending lawsuits

    • -
    • Unfunded
    • pension liabilities

    • -
    • Taxes
    • owed but unpaid (Tax liabilities)

    • -
    • Guarantees
    • geven to other institutions

    • -
    • Environmental
    • damage liabilities
  15. Refusal of
    Loan Requests:
    • -
    • Loss
    • of customer

    • -
    • Lose
    • the customer’s employee’s Accounts

    • -
    • Bad
    • reputation

    • -
    • Therefore
    • it’s better to give advice how a loan can be given (lower principal etc.)
  16. Circumstances
    that play importing role in pricing the role:
    • -
    • Relationship
    • to customer

    • -
    • Size
    • of loan

    • -
    • Length
    • of loan’s term
  17. Methods
    used to price Business Loans
    • -
    • Cost-plus
    • loan pricing method: Interest = Cost of raising funds + Operating Cost +
    • Compensation of default Risk + Profit Margin

    • -
    • Price
    • Leadership Model: Interest = Base or Prime Rate + Default Risk Premium + Term
    • Risk Premium for longer Terms

    • -
    • Customer
    • Profitability Analysis: Net before tax rate of return out of the whole customer
    • Relationship = Revenues from loans and Services to customer ./. Expenses from
    • providing loans and services / Net amount of loanable funds supplied. If
    • Possitive good if negative bad

    • -
    • Below-Prime
    • Market Pricing: Interest Rate = Interest Cost of Money Market Borrowings +
    • Markup for Risk and Profit
  18. Circumstances
    that play importing role in pricing the role:
    • -
    • Relationship
    • to customer

    • -
    • Size
    • of loan

    • -
    • Length
    • of loan’s term
  19. Asset
    Liability Management (funds Management Strategy):
    • -
    • Control
    • the Banks sensitivity to changes in market interest rates

    • -
    • Limit
    • loss in its net income and equity
  20. Historic:
    • -
    • Asset Management Strategy

    • -
    • Liability
    • Management Strategy
  21. Interest
    Rates: Main Challenge
    • -
    • Risk
    • of Changing net interest margin (spread)

    • o
    • Interest
    • income and expenses

    • o
    • Bank
    • trying to maximize spread

    • -
    • Risk
    • of changing Market Values

    • o
    • When
    • interest rates rise, the market value of Bonds or Assets fall

    • -
    • Changing
    • interest rates impact both the income statement and the balance sheet
  22. Forces
    determining interest Rates:
    • -
    • Financial
    • Marketplace

    • -
    • Most
    • Banks are price takers not price makers
  23. Measurment
    of Interest Rates Yield to Maturity and Discount Rate:
    • -
    • Marketprice
    • = Sums of Cashflow / 1+YTM

    • -
    • Discount
    • Rate = (Future Value – Present Price)/Future Value * 360/days to maturity
  24. Components
    of interest rates:
    • -
    • Risk
    • Free Real (Inflation adjusted) Rate of Interest + Various Risk Premiums
    • (Default Risk, Inflation Risk, Liquidity Risk, Call Risk, Maturity Risk)
  25. Net
    Interest Margin:
    • -
    • NIM
    • = Interest Income ./. Interest Expenses 7 total Earnings Assets
  26. IS GAP
    Management
    • -
    • Interest
    • Sensitive Management

    • -
    • Analysis
    • of Maturities and Repricing Opportunities

    • -
    • Hedging:
    • Amount of repricable (interest-Sensitive) Assets = Amount of repricable
    • (interest-Sensitive) Liabilities
  27. Repricable
    Assets:
    • -
    • Short
    • term sec.

    • -
    • Short
    • term Loans

    • -
    • Variable
    • rate loans and secs
  28. Repricable
    Liabilities:
    • -
    • Money
    • Market Borrowings

    • -
    • Short
    • term Savings accounts
  29. Dollar
    Interest-Sensitive GAP:
    • -
    • Interest sens. Assets - Interest-Sensitive Liabilities
  30. What
    happens when market interest rates rise to the asset sensitive Bank:
    • -
    • IS
    • Assets fall, IS Liabilities rise

    • -
    • Net
    • interest Margin Rises

    • -
    • Vice
    • Versa also for Liabilities sensitive Banks
  31. Zero
    interest-Sensitive Gap
    • -
    • Dollar
    • interest-Sensitive GAP is Zero

    • -
    • Relative
    • Interest-Sensitive GAP is Zero

    • -
    • Interest
    • Sensitivity Ration is one

    • -
    • Leads
    • to NIM is protected and will not change when interest rates change in either
    • direction

    • -
    • It
    • is impossible to get that done, just try to minimize it
  32. Important
    Decisions Regarding IS GAP
    • -
    • What
    • Time Period will management choose to manage the NIM

    • -
    • Choose
    • target NIM

    • -
    • To
    • Increase NIM develop correct forecasting method

    • -
    • Reallocate
    • Assets and liabilities to increase spread

    • -
    • Management
    • must choose Volume of interest sensitive assets and liabilities
  33. Net
    Interest Margin is influenced:
    • -
    • Changes
    • in interest rates

    • -
    • Changes
    • in Volumes of assets or liabilities

    • -
    • Changes
    • in the spread
  34. Problems:
    • -
    • Interest
    • paid on liabilities tend to move faster

    • -
    • Interest
    • rates attached to bank assets to not move at te same speed as market interest rates

    • -
    • Assets
    • and liabilities are not subject of reprising at the same time

    • -
    • Interest
    • sensitive gap does not consider the impact of changing interest rates on equity
    • capital

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