VI

• The components of the balance sheet and income statement of banks are discussed in this session.
• Population-to-banking offices ratio (customer ratio) refers to the ratio of the total population to the total number of domestic banking offices.
• Density ratio refers to the ratio of total number of domestic banking offices to the total number of cities/municipalities in the Philippines.
• The financial and non-financial performance of banks is assessed in this session.
• The major services provided by banks to the public include acceptance of deposits, lending of funds, trust services, and financial services related to international trade.
• Banks and deposit-taking institutions are unlike most other businesses in that they deal in fairly liquid assets and liabilities, have a very high degree of financial leverage (liabilities > capital), and are highly regulated.
• To protect the public’s interest, banks are regulated by the BSP.
• Net Interest Margin is the ratio of Net Interest Income to Earning Assets.
• The ADA/NPL ratio of 0.902 for BPI in 2018 means that 90.2% of the NPLs have already been provided for in terms of allowance, implying that 9.8% have no provision and could impair the bank’s income and the stockholders’ equity should these NPLs become uncollectible and assuming further that there are no adequate collaterals for these loans.
• Operating Expenses (OE) is the ratio of Net Interest Income to Average Total Assets.
• The NPL/Fair Value of Collateral ratio of 2.01 for BPI in 2018 means that the fair value of the collateral held by BPI cannot cover the NPLs in the case of total default.
• Return on Equity (ROE) is the ratio of Net Income to Average Stockholders' Equity.
• Return on Total Assets (ROA) is the ratio of Net Income to Average Total Assets.
• The BSP’s regulations are manifested in the prescribed format of financial statements and in accounting rules or methods in the recording of transactions.
• Liquidity Ratios measure the ability of a bank to meet its debt requirements as they come due; “short-run solvency”.
• Loans-Deposits Ratio (LDR) indicates the ratio of loans over deposits.
• Another coverage ratio compares the fair value of collateral held for NPL and the amount of NPL.
• Coverage Ratios measure the adequacy of provisioning (allowance for doubtful accounts or ADA) for non-performing loans (NPL) and the extent of these NPL in the total loan portfolio of a bank.
• A bank must have adequate liquid assets to meet the withdrawals of its depositors.
• A high LDR represents liquidity risk as a bank may not have enough cash when depositors withdraw their money.
• This measures the extent of a potential loss a bank may incur with respect to these NPLs.
• A low LDR indicates excess liquidity but may also result in lower profits for a bank since loans generate interest income.
• Quasi-liquid Assets Ratio indicates that a substantial amount of BPI’s resources are in other forms of earning assets, less risky as compared to loans.
• Average total assets are the average of the total assets balances in the beginning and end of the year.
• Operating expenses include provision for impairment and credit losses, compensation and fringe benefits, occupancy and other equipment-related costs, taxes and licenses, depreciation and amortization, insurance, and other OPEX.
• The higher the ROA, the greater is bank profitability.
• Return on Equity (ROE) measures the return on the investment of the bank’s stockholders.
• Average total assets measure also the operating efficiency after paying interest or financing costs.
• The lower the expense/cost ratio, the greater is bank profitability.
• The higher the ROE, the greater is bank profitability.
• Operating expenses measure the operating efficiency after paying interest or financing costs.
• Profitability ratios measure the ability of a bank to generate income on its investments in excess of costs incurred.
• Return on Total Assets (ROA) measures the rate of return based on total investments prior to consideration of the bank’s financing costs.
• Paid-in capital stock represents the amount of cash or other assets given by shareholders to the firm in exchange of stocks/shares.
• Other liabilities to BSP include Bills and Acceptance Payable, which are availment of rediscounting facilities and other borrowings from BSP.
• Common stock is an ownership share that allows its holders voting rights and an opportunity to receive dividends.
• Interbank Loans Payable are funds borrowed from other banks, usually on an overnight or very short-term basis to meet reserve and liquidity needs.
• Money market borrowings are liabilities to local banks, non-bank financial intermediaries, private firms, and private individuals.
• Due to BSP refers to the estimated liability for the bank’s share in the cost of maintaining the appropriate supervision and examination department of the BSP, which shall be set up monthly against current operations.
• Paid-in capital stock is one of the key components of shareholders’ equity.