Lect 2-Financial Statement

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Lecture 2

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Balance Sheet41. Financial statements to be submitted to Bank.

LiabilitiesDeposits 

25. Receiving, taking or acceptance ofdeposits prohibited except under and inaccordance with a valid licence granted

under section 6 (4).34. Deposits to be subject to specified

minimum or maximum period, minimumor maximum amount, and otherspecified terms and conditions.

Equity

37. Maintenance of capital funds.

AssetCash 

38. Maintenance of liquid assets

36. Maintenance of reserve fund.

Loans 

60. Grant of secured and unsecuredcredit facilities.

61. Restriction of credit to singlecustomer.

62. Prohibition of credit facilities todirector and officer.

63. Restriction on giving of creditfacilities.

Investment 

66. Restrictions on investments.

Other Assets 

39. Maintenance of assets in Malaysia

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Why have a Balance Sheet?

To extract information for

Crisis prevention

Identify risk faced

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Economic Contraction

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1997 = 1200

1997 = 1200July 1998 = 250+

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Financial Crisis

Expectations at the time were that thegrowth rate would continue, propellingMalaysia to a Developed Country statusby 2020, a government policy articulated

in Wawasan 2020.

At the start of 1997:

the KLSE Composite index was above 1,200,

the ringgitRinggit 2.50 to the dollar,

Overnight rate was below 7%.

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(b) Crisis Identification

Types of risk

Maturity mismatch risk

Maturity mismatch risk arises typically when

assets are long term and liabilities are shortterm.

Maturity mismatches create rollover risk :

maturing debts will not be refinanced,

debtor will have to pay the obligation in cash.

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Credit Risk

Non Performing Loans

3 months vs 6 months

interest and principle

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Commercial Bank

Finance Company

Merchant Bank

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ExampleNon-Performing Loans

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Examples of Bank’s Financial

Statement

Refer to Hong Public Bank

BerhadBalance Sheet

Income Statement

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Balance SheetBalance Sheet

Refer to Public Bank BhdObserve the asset composition(uses of fund)

Observe the liabilities ( sources offund)

Observe the capital structures

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Assingment

Based on the example of PBB AnnualReport, state the purpose of the balancesheet and the income statement

Identify the key features of the financialstatements of banks.

Identify the differences between itemsreported in the financial statement of

Hong Leong Islamic Bank and PBB(conventional bank)

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Takeaways

o

Importance of abank’s financial

statement

oBank vs non-bankfinancial statement

o Items reported in the

financial statement

oReasons for bank

regulation

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Thank You