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    Lecture Notes Assets and Liabilities of Commercial Banks

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    Hamza khan
    Lecture Notes Assets and Liabilities of Commercial Banks

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    Lecture Notes Assets and Liabilities of Commercial Banks

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    Hamza khan
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    Lecture Notes Assets and Liabilities of Commercial Banks

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    Lecture Notes Assets and Liabilities of Commercial Banks

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    30 views2 pages

    Lecture Notes Assets and Liabilities of Commercial Banks

    Uploaded by

    Hamza khan
    Lecture Notes Assets and Liabilities of Commercial Banks

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    Lecture Notes: Assets and Liabilities of Commercial Banks

    1. Introduction to Commercial Banks


    ● Definition: A commercial bank is a financial institution that accepts deposits from the
    public and provides loans for the purpose of consumption, investment, and other needs.
    2. Balance Sheet Overview
    ● Balance Sheet: A financial statement showing a bank's assets and liabilities at a specific
    point in time.
    ● Assets: Resources owned by the bank.
    ● Liabilities: Obligations the bank owes to others.
    3. Assets of Commercial Banks
    ● Loans and Advances: The largest category of assets. This includes various types of loans
    provided to individuals and businesses.
    ○ Personal Loans: Loans to individuals for personal use, such as mortgages or car
    loans.
    ○ Commercial Loans: Loans to businesses for operational and capital needs.
    ○ Overdrafts: Short-term credit facility allowing customers to withdraw more money
    than they have in their account.
    ● Investments: Securities and bonds purchased by the bank, usually government or
    corporate bonds, which earn interest over time.
    ○ Government Securities: Considered very safe; include treasury bills and bonds.
    ○ Corporate Bonds: Issued by companies; higher risk than government securities but
    also offer higher returns.
    ● Cash and Cash Equivalents: Highly liquid assets including physical cash, deposits with
    other banks, and short-term money market instruments.
    ○ Reserve Requirements: The cash reserves that banks are required to hold by
    regulatory authorities.
    ● Fixed Assets: Physical assets like bank buildings, equipment, and technology
    infrastructure.
    ○ Premises and Equipment: Real estate owned by the bank and the physical
    infrastructure within.
    ● Interbank Loans: Short-term loans made to other banks, often to manage liquidity.
    ● Other Assets: Miscellaneous assets such as receivables, intangible assets (like patents),
    and prepaid expenses.
    4. Liabilities of Commercial Banks
    ● Deposits: The largest category of liabilities. Money deposited by customers in various
    types of accounts.
    ○ Demand Deposits: Deposits that can be withdrawn at any time without notice, such
    as checking accounts.
    ○ Time Deposits: Deposits that cannot be withdrawn before a specific date or without
    giving notice, such as fixed deposits.
    ○ Savings Deposits: Accounts that earn interest and can be withdrawn with some
    limitations.
    ● Borrowings: Funds borrowed from other banks or financial institutions.
    ○ Interbank Borrowings: Short-term loans from other banks.
    ○ Central Bank Borrowings: Loans from the central bank, often used to manage
    liquidity.
    ● Other Liabilities: Includes various obligations such as expenses payable, dividends
    payable, and deferred tax liabilities.
    ○ Accrued Expenses: Costs that the bank has incurred but not yet paid, like salaries
    and utilities.
    ○ Provisions: Funds set aside to cover potential losses, like loan loss provisions.
    ● Capital and Reserves: The bank’s own funds contributed by shareholders and retained
    earnings.
    ○ Share Capital: Money raised from issuing shares.
    ○ Retained Earnings: Profits that are reinvested in the bank rather than paid out as
    dividends.
    5. Key Ratios and Indicators
    ● Loan-to-Deposit Ratio (LDR): Measures the bank's liquidity by comparing its total loans
    to its total deposits.
    ○ Formula:

    ● Net Interest Margin (NIM): Shows the difference between the interest income generated
    and the interest paid out to lenders.
    ○ Formula:

    ● Capital Adequacy Ratio (CAR): Measures the bank's capital in relation to its risk-weighted
    assets, ensuring the bank can absorb a reasonable amount of loss.
    ○ Formula:

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