ANALYSING PERFORMANCE OF FINANCIAL INSTITUTIONS

CLEMENT MUMBO(Bsc Banking &Finance)

Key topics

Financial statements Income statements Balance sheet Financial statement

Manipulation key measurements and

ratios

WHO ARE THE USERS OF FINANCIAL STATEMENTS

Employees

Managers

Suppliers

The government

Customers

Investors

Why financial statements

Employees will need financial statements for the purpose of bargaining/negotiations.

Managers use financial statements to make important business decisions.

Investors use it to assess the risk and return of their investment.

The government for the purpose of tax and regulating

Balance Sheet

Notes and coins 84 937 Deposits 2 589 683

Balances w ith Central Bank 499 725 Balances due to Bank of Zambia 5 388

Balances w ith Local Banks 66 869 Balances due to Local Banks

Balances w ith Banks Abroad 602 894 Balances due to Banks Abroad 240 932

Investments in securities 298 088 Bills of Exchange

Other Investments in Zambia Inter Branch

Loans and Advances 1 670 031 Other Liabilities 381 301

Bills of Exchange Other Borrow ed Funds (inc. Sub Debt) 51 865

Inter Branch 187 Shareholders Funds 189 106

Fixed Assets 76 247 Total Liabilities 3 458 275

Other Assets 159 297

Total Assets 3 458 275

Income statements

Net Interest Income 48 378 Non Interest Expenses (68 578)

Interest Income 56 361 Depreciation (4 836)

Loans & Advances 38 806 Other Expenses (63 742)

Banks & Financial Institutions 3 913 Income before Tax & Extraordinary Items 27 959

Securities 6 562 Taxation (12 531)

Others 7 080 Income After Tax 15 428

Interest Expense (7 983) Exceptional/Extraordinary Items

Deposits (7 083) Net Income 15 428

Subordinated Debt ( 457)

Paid Banks & Financial Institutions ( 338)

Others ( 105)

Credit Impairments ( 827)

Net Interest Income after Credit Impairments 47 551

Non Interest Revenue 48 986

Commission, Fees & Service Chrgs 21 543

Foreign Exchange 27 314

Fees (FX Transaction) 1 574

Realised Trading Gains 25 740

Unrealised trading Gains

Others 129

Total Income 96 537

Interpreting Profitability RatiosEach of the foregoing ratios looks at a

slightly different aspect of profitability. Thus, returnon assets (ROA) is primarily an indicator of managerial efficiency; it indicates how capablemanagement has been in converting

assets into net earnings. Return on equity (ROE), onthe other hand, is a measure of the rate of return flowing to shareholders. It approximates the net benefit that the stockholders have received from investing their capital in the financial industry

Areas of Focus

non interest expense is defined as a non expense not associated with attracting and keeping depositors funds

1.Personal expense

-wages

-salaries

2.Occupancy expense

-rent

-depreciation on buildings and equipment

3.Other operating expenses

-general overhead

-Data processing

-

Financial statement Manipulation

The usefulness of financial statements depends on the quality and consistency of data.

Nonrecurring extraordinary transactions:

Discretionary interpretation reporting requirement

Off balance sheet items

Special purpose vehicles (SPV)

Window dressing: increasing period ending assets or liabilities

Sources

Bank Management ,5th edition Timothy W and S. scott

I'.Kimball, Ralph, "Innovations in Performance Measurement in Banking,"Nen'

England Economic Review,, Federal Reserve Bank of Boston, May June 1997 .

Il)tC Study of Bank Overdraft Programs, November 2008, rmwv.fdic.gov.

Gatti, Stenfano Project Finance in Theory and Practice, Elsevier Inc. 2008.