Financial Statements of Banks – Reviewed financial statement- Financial statement analysis of banks

Financial Statements of Banks

There are three financial statements of commercial banks that are discussed here; Balance sheet, Income Statement, and cash flow statement. These statements of commercial banks are briefly discussed and easily understandable ;

Balance Sheet

The balance sheet of any business or company tells the current position of that business or company. The balance sheet of commercial Banks is described as

Assets = Liabilities + Owner’s Equity

Then assets equation is written as below;

Assets = Cash + Investment Securities + Loans + Miscellaneous Assets

Assets = C + S + L + M.A

Cash or liquidity is very important to maintain. There is always a vault branch of the bank from where the cash inflow and outflows daily or when needed. The bank can manage the cash through its treasury department.

Investment securities are all those Treasury Bonds, Shares, and other investment instruments. That bank has purchased by investment to get profit on it after when they gain more value.

Loans are considered assets of the commercial banks. When a bank provides loans to the customers. It charges interest on it. It becomes its income and increases its liquidity.

Miscellaneous Assets are all those assets that help in Banking operations. It includes generators, Air Conditioners, Cars or Van, Stationery, Tables, chairs, etc…

Because all these things considered as assets of the Banks.

Now come on Liabilities of Bank;

All deposits of the customers are liabilities of the Bank. As it has to be returned to the customer. All Non-deposits Borrowings means Banks borrow money from other banks to manage their operations. Owner Equity is always a liability as a profit or dividend given to shareholders and stockholders of that Bank.

The liabilities and owner’s equity equation is as follows;

Deposits + Non-Deposits Borrowing + Owner Equity

D + NDB + O.E

Therefore overall Equation of Balance sheet written as;

                 Assets  = Liabilities + Owner’s Equity

C + S + L + M.A = D + NDB + O.E

Income Statement

In general business income statement in accounting will be as

Net Income = Revenues – Expenses

Most importantly, In Commercial Bank’s main Revenue is Interest Income and Non-Interest Income. Interest income includes all those income which banks get from interest on loans that banks gave to their customers. Non-interest income includes commission, charges, and fees from the services that the bank provided.

Expenses of banks include interest expense and non-interest expense. Interest expense is the interest that the bank gives on deposit of the customers according to the deposit amount and time period. Non=Interest expense includes all other expenses like depreciation, salaries, maintenance, generator petrol cost, utility bills, etc… These are non-interest expense or operating expenses.

The income statement of Commercial Bank summarizes as;

EBT = (Interest Income + Non-Interest Income ) – ( Interest Expense + Operating Expenses)

Net Income = Earning Before Tax – Tax

Cash Flow Statement

The cash flow statement shows the inflow and outflow of cash in the following activities

Operating Activities

In daily operations of banks, deposits and withdraws are real inflow and outflow of money.

Financing Activities

Financing activities are loans and bonds sales and purchase activities that banks perform.  

Investing Activities

Investing activities are the investment of banks’ insecurities. And share purchasing and investments in different companies and sectors.  

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