Bank Management and Credit Analysis ( Assignment # 01 )
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Bank Management and Credit Analysis Master’s in Business Administration Department German University in Cairo Assignment # 01 Balance Sheet of Egyptian Banks Submitted by: Nazmy Nabil Nazmy Fahmy Student ID: W2117981 Ahmed Abd El-Tawab Student ID: W2120582 Ahmed Mohamed Abdelazim Student ID: M2100407 Course Code: FINC 706 Supervised by: Prof. Mona El Bannan March 2023 1 Assignment # 01 Balance Sheet of Egyptian Banks The main activities for banks are accepting deposits (collecting funds) and granting loans to borrowers. The balance sheet of any commercial bank includes the same financial accounts under main categories, although names of accounts may slightly differ, however, every bank will be defining the accounts in their published financial statements. In this assignment you have to identify the main accounts in the CIB Balance sheet and compare it to the Balance sheet prepared for the whole Egyptian Banking Industry and the Top 5 banks in the industry (i.e. Industry average benchmark). Please find the following files posted on CMS in WEEK 2: 1. PDF file “Balance sheet and Income St. – ALL Banking Sector 2022 (1)” 2. PDF file “Balance sheet and Income St. – Top 5_2022 (2)” 3. PDF file “CIB Separate financial statements Dec 2022” Depending on lecture 2 (discussing the accounts of the bank balance sheet), prepare a brief balance sheet for the CIB bank, Whole Banking sector, and the Top 5 Banks. Prepare the following requirements (your comments on each point will be highly appreciated): 1- Identify the accounts in the CIB balance sheet under the main accounts in assets and liabilities sides. As shown in the table below and as done in Lectures): 2 2- Relate each Account in CIB balance sheet to total assets and total liabilities, that is, calculate ratios: Cash/Total Assets, Investment security/ Total Assets, Gross Loans/ Total Assets, and Others/ Total Assets. For liability side, calculate: Deposits/ Total Liabilities. & Equity, non-deposits borrowings/ Total Liabilities & Equity and Equity Capital/ Total Liabilities & Equity. 3- Comment on the CIB ratios while considering the bank profitability versus liquidity aspects. Also comment on the CIB deposits and Equity capital ratios and how they may reflect the ability of the bank to collect deposits from individual depositors versus depending on non-deposit borrowings. Finally, comment on Bank capital percentage and if the bank adheres to the CBE capital adequacy ratio (mandatory minimum ratio of 12.5% (as published in CBE Annual report December 2020 – last one posted on CBE website). 4- Repeat numbers 1, 2 & 3 on the balance sheet of the whole banking sector. 5- Repeat numbers 1, 2 & 3 on the balance sheet of the Top 5 Banks. 6- Compare and contrast the ratios obtained for the CIB, whole banking sector, and the top 5 banks. 3 Balance Sheet of Commercial International Bank (CIB) Assets Million EGP Liabilities and Equity Capital Primary Reserves Million EGP Deposits Borrowings Cash and Balances at the central Bank 47,384.574 Due to Customers Due from Banks 133,766.196 Non-Deposits Borrowings 530,124.905 Secondary Reserves Due to Banks 3,475.848 Liquid Portion Derivative Financial Instruments 219.752 Securities & investments in Treasury Bills Current Income Tax Liabilities 3,051.583 Income Generating Portion Other Liabilities 11,549.472 Financial Assets at Fair Value through OCI 202,916.225 Issued Debt Instruments 2,456.607 Financial Assets at Amortized Cost 34,178.753 Other Loans 7,978.975 Investments in Associates and Subsidiaries 1,074.250 Other Provisions 7,065.292 Trading Portion Derivative Financial Instruments Equity Capital 1939.961 Loans Issued and paid-up Capital 29,825.134 Reserves 19,502.716 Loans and Advances to Banks, net 2,978.197 Reserve for Employee Stock Ownership Plan (ESOP) 1,895.435 Loans and Advances to Customers, net 192,621.288 Retained Earnings 16,497.346 Deferred tax assets (Liabilities) 24.240 Total Liabilities & Equity 633,643.065 Miscellaneous Accounts Other Assets 14,454.868 Property and Equipment 2,304.513 Total Assets 633,643.065 4 Ratios of the Commercial International Bank (CIB) Assets Side No. 1 2 3 Formula πΆππ β πππ‘ππ π΄π π ππ‘π πΌππ£ππ π‘ππππ‘ ππππ’πππ‘πππ πππ‘ππ π΄π π ππ‘π πΊπππ π πΏππππ Ratio 0.286 28.6 % of the total assets represents the liquidity that assess the abilities of CIB to pay off short-term obligations with cash and cash equivalents. 0.379 37.9 % of the total assets represents the securities that were purchased with the intention of holding them for investment. 0.309 30.9 % of the total assets represents the loans that were lend to banks and customers. 0.026 2.6 % of the total assets represents the bank premises and fixed assets owned by the banks. πππ‘ππ π΄π π ππ‘π 4 πππ πππππππππ’π π΄ππππ’ππ‘π πππ‘ππ π΄π π ππ‘π Comments Liabilities & Equity Side 1 2 3 π·ππππ ππ‘π π΅πππππ€ππππ πππ‘ππ πΏπππππππ‘πππ & πΈππ’ππ‘π¦ πππ − π·ππππ ππ‘π π΅πππππ€ππππ πππ‘ππ πΏπππππππ‘πππ & πΈππ’ππ‘π¦ πΈππ’ππ‘π¦ πΆππππ‘ππ πππ‘ππ πΏπππππππ‘πππ & πΈππ’ππ‘π¦ 0.837 83.7 % of the total liabilities and equity represents the deposits that were borrowed from customers. 0.056 5.6 % of the total liabilities and equity represents the bonds, long term loans, provisions, and obligations that were borrowed from other banks. 0.107 10.7 % of the total liabilities represents the capital and reserves for the CIB. 5 Commercial International Bank (CIB) Profitability versus Liquidity Aspects No. 1 2 Formula π ππ‘π’ππ ππ πΈππ’ππ‘π¦ πΆππππ‘ππ (π ππΈ) = Ratio πππ‘ πΌπππππ πππ‘ππ πΈππ’ππ‘π¦ πΆππππ‘ππ π ππ‘π’ππ ππ π΄π π ππ‘π (π ππ΄) = πππ‘ πΌπππππ πππ‘ππ π΄π π ππ‘π πππ‘ πΌππ‘ππππ π‘ πΌπππππ 3 πππ‘ πΌππ‘ππππ π‘ ππππππ = 4 πππ‘ πππ πΌππ‘ππππ π‘ ππππππ = 5 πππ‘ ππππππ‘πππ ππππππ = 6 πππ‘ ππππππ‘ ππππππ (πππ) = 7 π΅πππ πΏπππ’ππππ‘π¦ = πππ‘ππ π΄π π ππ‘π πππ‘ πππ πΌππ‘ππππ π‘ πΌπππππ πππ‘ππ π΄π π ππ‘π πππ‘ ππππππ‘πππ πΌπππππ πππ‘ππ π΄π π ππ‘π πππ‘ πΌπππππ πππ‘ππ ππππππ‘πππ πΌπππππ πππππππ¦ π ππ πππ£ππ + πππππππππ¦ π ππ πππ£ππ πππ‘ππ πΏπππππππ‘πππ πππ‘ππ πΏππππ 8 π΅πππ πΏππππππ = 9 πΏπππ ππππππ‘ππππππ‘π¦ = 10 πΆππππ‘ππ π΄ππππ’πππ¦ = 11 πΈππ’ππ‘π¦ ππ’ππ‘ππππππ (πΈπ) = πππ‘ππ π·ππππ ππ‘π πππ‘ πΌππ‘ππππ π‘ πΌπππππ πππ‘ππ πΏππππ πππ‘ππ πΈππ’ππ‘π¦ πΆππππ‘ππ πππ‘ππ πΏππππ πππ‘ππ π΄π π ππ‘π πππ‘ππ πΈππ’ππ‘π¦ πΆππππ‘ππ Comments 0.2382 23.82 % is the rate of return yielded to shareholders after investing their capitals in the CIB bank. 0.0255 2.55 % is the rate of return reflected to powerful management of the CIB bank in converting assets into net earnings. 4.87 % is the rate which measures how large a spread between interest revenues and interest costs management has been able to achieve. 0.48 % is the rate which measures the amount of non-interest revenues stemming from service fees the financial firm has been able to collect relative to the amount of non-interest costs incurred. 5.4 % is the percentage which reflects the high operational efficiency of the CIB bank. 47.6 % is the amount of profit that banks generate from their revenues. 74.4 % of the total liabilities represents the liquidity that assess the abilities of CIB to pay off debt obligations. 36.9 % of the total deposits represents the banks competitiveness of lending activities and practices. 15.8 % is the rate of the profit that the banks gains after the lending activities and practices. 34.6 % of the total loans represents the capital level to cover potential losses from assets that most likely to decline in value. 9.357 % is the percentage of capital adequacy for the CIB which is less than mandatory minimum ratio of the CBE capital adequacy ratio 12.5%. 0.0487 0.0048 0.054 0.476 0.744 0.369 0.158 0.346 9.357 6 Balance Sheet of the Top 5 Banks Assets Million EGP Primary Reserves Cash Liabilities and Equity Capital Million EGP Deposits Borrowings 45,912 Balances with Banks in Egypt 1,109,506 Balances with Banks abroad 116,426 Total Deposits 5,372,435 Non-Deposits Borrowings Obligations to Banks in Egypt 321,325 Secondary Reserves Obligations to Banks abroad 308,691 Liquid Portion Bonds and Long-term loans 168,015 Provisions 143,203 Income Generating Portion Other Liabilities 775,078 Trading Portion Cheques payable 4,939 Loans Equity Capital Securities & investments in Treasury Bills 2,914,163 Loans & Discounts (Balances with Banks in Egypt) 3,860 Capital 140,375 Loans & Discounts (Balances with Banks abroad) 1,414 Reserves 289,924 Loans and Discounts for Customers 2,626,181 Miscellaneous Accounts Other Assets 706,523 Total Assets 7,523,985 7 Total Liabilities & Equity 7,523,985 Ratios of the Top 5 Banks Assets Side No. Formula Ratio πΆππ β 1 2 3 4 πππ‘ππ π΄π π ππ‘π πΌππ£ππ π‘ππππ‘ ππππ’πππ‘πππ πππ‘ππ π΄π π ππ‘π πΊπππ π πΏππππ πππ‘ππ π΄π π ππ‘π πππ πππππππππ’π π΄ππππ’ππ‘π πππ‘ππ π΄π π ππ‘π Comments 0.169 16.9 % of the total assets represents the liquidity that assess their abilities to pay off short-term obligations with cash and cash equivalents. 0.387 38.7 % of the total assets represents the securities that were purchased with the intention of holding them for investment. 0.350 35.0 % of the total assets represents the loans that were lend to banks and customers. 0.094 9.4 % of the total assets represents the bank premises and fixed assets owned by the banks. Liabilities & Equity Side 1 2 3 π·ππππ ππ‘π π΅πππππ€ππππ πππ‘ππ πΏπππππππ‘πππ & πΈππ’ππ‘π¦ πππ − π·ππππ ππ‘π π΅πππππ€ππππ πππ‘ππ πΏπππππππ‘πππ & πΈππ’ππ‘π¦ πΈππ’ππ‘π¦ πΆππππ‘ππ πππ‘ππ πΏπππππππ‘πππ & πΈππ’ππ‘π¦ 0.714 71.4 % of the total liabilities and equity represents the deposits that were borrowed from customers. 0.229 22.9 % of the total liabilities and equity represents the bonds, long term loans, provisions, and obligations that were borrowed from other banks. 0.057 5.7 % of the total liabilities represents the capital and reserves of the banks. 8 The Top 5 banks Profitability versus Liquidity Aspects No. 1 2 3 4 5 6 7 Formula Ratio π ππ‘π’ππ ππ πΈππ’ππ‘π¦ πΆππππ‘ππ (π ππΈ) = πππ‘ πΌπππππ πππ‘ππ πΈππ’ππ‘π¦ πΆππππ‘ππ π ππ‘π’ππ ππ π΄π π ππ‘π (π ππ΄) = πππ‘ πΌπππππ πππ‘ππ π΄π π ππ‘π Comments 14.15 % is the rate of return yielded to shareholders after 0.1415 investing their capitals in the banks. 0.0081 0.81 % is the rate of return reflected to powerful management of the banks in converting assets into net earnings. 1.92 % is the rate which measures how large a spread between 0.0192 interest revenues and interest costs management has been πππ‘ππ π΄π π ππ‘π able to achieve. 0.41 % is the rate which measures the amount of non-interest πππ‘ πππ πΌππ‘ππππ π‘ πΌπππππ revenues stemming from service fees the financial firm has πππ‘ πππ πΌππ‘ππππ π‘ ππππππ = 0.0041 πππ‘ππ π΄π π ππ‘π been able to collect relative to the amount of non-interest costs incurred. πππ‘ ππππππ‘πππ πΌπππππ 2.33 % is the percentage which reflects the high operational 0.023 πππ‘ ππππππ‘πππ ππππππ = efficiency of the banks. πππ‘ππ π΄π π ππ‘π πππ‘ πΌπππππ 34.8 % is the amount of profit that banks generate from their 0.348 πππ‘ ππππππ‘ ππππππ (πππ) = revenues. πππ‘ππ ππππππ‘πππ πΌπππππ πππππππ¦ π ππ πππ£ππ + πππππππππ¦ π ππ πππ£ππ 59 % of the total liabilities represents the liquidity that assess π΅πππ πΏπππ’ππππ‘π¦ = 0.590 their abilities to pay off debt obligations. πππ‘ππ πΏπππππππ‘πππ πππ‘ πΌππ‘ππππ π‘ πΌπππππ πππ‘ πΌππ‘ππππ π‘ ππππππ = 8 π΅πππ πΏππππππ = 9 πΏπππ ππππππ‘ππππππ‘π¦ = πππ‘ππ πΏππππ πππ‘ππ π·ππππ ππ‘π 10 πΆππππ‘ππ π΄ππππ’πππ¦ = πππ‘ πΌππ‘ππππ π‘ πΌπππππ πππ‘ππ πΏππππ πππ‘ππ πΈππ’ππ‘π¦ πΆππππ‘ππ πΈππ’ππ‘π¦ ππ’ππ‘ππππππ (πΈπ) = 49 % of the total deposits represents the banks competitiveness of lending activities and practices. 0.490 5.5 % is the rate of the profit that the banks gains after the lending activities and practices. 16.4 % of the total loans represents the capital level to cover potential losses from assets that most likely to decline in value. 0.055 0.164 πππ‘ππ πΏππππ πππ‘ππ π΄π π ππ‘π πππ‘ππ πΈππ’ππ‘π¦ πΆππππ‘ππ 9 17.485 % is the percentage of capital adequacy for the 5 Top 17.485 Banks capital which is higher than mandatory minimum ratio of the CBE capital adequacy ratio 12.5%. 11 Balance Sheet of the Whole Banking Sector Assets Million EGP Primary Reserves Liabilities and Equity Capital Million EGP Deposits Borrowings Cash 75,523 Total Deposits Balances with Banks in Egypt 1,748,058 Non-Deposits Borrowings Balances with Banks abroad 211,019 Obligations to Banks in Egypt 334,444 Secondary Reserves Obligations to Banks abroad 255,861 Liquid Portion Bonds and Long-term loans 368,591 Provisions 226,338 Income Generating Portion Other Liabilities 1,102,515 Trading Portion Cheques payable 10,205 Loans Equity Capital Securities & investments in Treasury Bills 4,058,315 7,819,028 Loans & Discounts (Balances with Banks in Egypt) 9,284 Capital 288,804 Loans & Discounts (Balances with Banks abroad) 5,413 Reserves 417,970 Loans and Discounts for Customers 3,695,351 Total Liabilities & Equity 10,823,756 Miscellaneous Accounts Other Assets 1,020,793 Total Assets 10,823,756 10 11 Ratios of the Whole Banking Sector Assets Side No. Formula Ratio πΆππ β 1 2 3 4 πππ‘ππ π΄π π ππ‘π πΌππ£ππ π‘ππππ‘ ππππ’πππ‘πππ πππ‘ππ π΄π π ππ‘π πΊπππ π πΏππππ πππ‘ππ π΄π π ππ‘π πππ πππππππππ’π π΄ππππ’ππ‘π πππ‘ππ π΄π π ππ‘π Comments 0.188 18.8 % of the total assets represents the liquidity that assess their abilities to pay off short-term obligations with cash and cash equivalents. 0.375 37.5 % of the total assets represents the securities that were purchased with the intention of holding them for investment. 0.343 34.3 % of the total assets represents the loans that were lend to banks and customers. 0.094 9.4 % of the total assets represents the bank premises and fixed assets owned by the banks. Liabilities & Equity Side 1 2 3 π·ππππ ππ‘π π΅πππππ€ππππ πππ‘ππ πΏπππππππ‘πππ & πΈππ’ππ‘π¦ πππ − π·ππππ ππ‘π π΅πππππ€ππππ πππ‘ππ πΏπππππππ‘πππ & πΈππ’ππ‘π¦ πΈππ’ππ‘π¦ πΆππππ‘ππ πππ‘ππ πΏπππππππ‘πππ & πΈππ’ππ‘π¦ 0.722 72.2 % of the total liabilities and equity represents the deposits that were borrowed from customers. 0.212 21.2 % of the total liabilities and equity represents the bonds, long term loans, provisions, and obligations that were borrowed from other banks. 0.065 6.5 % of the total liabilities represents the capital and reserves of the whole banking sector. 12 The Whole Banking Sector Profitability versus Liquidity Aspects No. 1 2 3 4 5 6 7 8 9 Formula π ππ‘π’ππ ππ πΈππ’ππ‘π¦ πΆππππ‘ππ (π ππΈ) = πππ‘ πΌπππππ πππ‘ππ πΈππ’ππ‘π¦ πΆππππ‘ππ π ππ‘π’ππ ππ π΄π π ππ‘π (π ππ΄) = πππ‘ πΌπππππ πππ‘ππ π΄π π ππ‘π Ratio Comments 0.1321 13.21 % is the rate of return yielded to shareholders after investing their capitals in the banks. 0.0086 0.86 % is the rate of return reflected to powerful management of the banks in converting assets into net earnings. 0.0209 2.09 % is the rate which measures how large a spread between interest revenues and interest costs management has been πππ‘ππ π΄π π ππ‘π able to achieve. 0.0043 0.43 % is the rate which measures the amount of non-interest πππ‘ πππ πΌππ‘ππππ π‘ πΌπππππ revenues stemming from service fees the financial firm has πππ‘ πππ πΌππ‘ππππ π‘ ππππππ = πππ‘ππ π΄π π ππ‘π been able to collect relative to the amount of non-interest costs incurred. 0.025 2.52 % is the percentage which reflects the high operational πππ‘ ππππππ‘πππ πΌπππππ πππ‘ ππππππ‘πππ ππππππ = efficiency of the banks. πππ‘ππ π΄π π ππ‘π 0.343 34.3 % is the amount of profit that banks generate from their πππ‘ πΌπππππ πππ‘ ππππππ‘ ππππππ (πππ) = revenues. πππ‘ππ ππππππ‘πππ πΌπππππ πππππππ¦ π ππ πππ£ππ + πππππππππ¦ π ππ πππ£ππ 0.602 60.2 % of the total liabilities represents the liquidity that π΅πππ πΏπππ’ππππ‘π¦ = assess their abilities to pay off debt obligations. πππ‘ππ πΏπππππππ‘πππ 0.474 47.4 % of the total deposits represents the banks πππ‘ππ πΏππππ π΅πππ πΏππππππ = competitiveness of lending activities and practices. πππ‘ππ π·ππππ ππ‘π πππ‘ πΌππ‘ππππ π‘ ππππππ = πΏπππ ππππππ‘ππππππ‘π¦ = πππ‘ πΌππ‘ππππ π‘ πΌπππππ πππ‘ πΌππ‘ππππ π‘ πΌπππππ 0.061 πππ‘ππ πΏππππ 0.191 10 πΆππππ‘ππ π΄ππππ’πππ¦ = πππ‘ππ πΈππ’ππ‘π¦ πΆππππ‘ππ πΈππ’ππ‘π¦ ππ’ππ‘ππππππ (πΈπ) = πππ‘ππ πΏππππ πππ‘ππ π΄π π ππ‘π πππ‘ππ πΈππ’ππ‘π¦ πΆππππ‘ππ 13 6.1 % is the rate of the profit that the banks gains after the lending activities and practices. 19.1 % of the total loans represents the capital level to cover potential losses from assets that most likely to decline in value. 15.314 15.314 % is the percentage of capital adequacy for the whole Banking sector which is higher than mandatory minimum ratio of the CBE capital adequacy ratio 12.5%. 11 Comparison between the Ratios obtained for the CIB, Whole Banking Sector, and the Top 5 Banks No. Formula CIB Ratio Top 5 Banks Ratio Whole Banking Sector Ratio 1 Cash / Total Assets 0.286 0.169 0.188 2 Investment Securities / Total Assets 0.379 0.387 0.375 3 Gross Loans / Total Assets 0.309 0.350 0.343 4 Miscellaneous Accounts / Total Assets 0.026 0.094 0.094 5 Deposits Borrowings / Total Liabilities & Equity 0.837 0.714 0.722 6 Non-Deposits Borrowings / Total Liabilities & Equity 0.056 0.229 0.212 7 Equity Capital / Total Liabilities & Equity 0.107 0.057 0.065 0.2382 0.1415 0.1321 0.0255 0.0081 0.0086 0.0487 0.0192 0.0209 0.0048 0.0041 0.0043 0.054 0.023 0.025 0.476 0.348 0.343 CIB has the highest percentage of profit that banks generate from their revenues. 0.744 0.590 0.602 CIB has the highest percentage of liquidity that assess their abilities to pay off debt obligations. 0.369 0.490 0.474 0.158 0.055 0.061 8 9 10 11 12 13 14 15 16 Return on Equity Capital (ROE) = Net Income / Total Equity Capital Return on Assets (ROA) = Net Income / Total Assets Net Interest Margin = Net Interest Income / Total Assets Net non-Interest Margin = Net non-Interest Income / Total Assets Net Operating Margin = Net Operating Income / Total Assets Net Profit Margin (NPM) = Net Income / Net Operating Income Bank Liquidity = (Primary Reserves + Secondary Reserves) / Total Liabilities Bank Lending = Total Loans / Total Deposits Loan Profitability = Net Interest Income / Total Loans Comments CIB has the highest percentage of liquidity that assess their abilities to pay off short-term obligations with cash and cash equivalents. The combination of the top 5 banks has the highest percentage of securities that were purchased with the intention of holding them for investment. The combination of the top 5 banks has the highest percentage of loans that were lend to banks and customers. CIB has the lowest percentage of bank premises and fixed assets owned by the banks compared to both the whole banking sector and the top 5 banks. CIB has the highest percentage of deposits that were borrowed from customers. The combination of the top 5 banks has the highest percentage of bonds, long term loans, provisions, and obligations that were borrowed from other banks. CIB has the highest percentage of capital and reserves compared to both the whole banking sector and the top 5 banks. CIB has the highest percentage of rate of return yielded to shareholders after investing their capitals in the banks. CIB has the highest percentage of rate of return reflected to powerful management of the bank in converting assets into net earnings. CIB has the highest percentage of rate which measures how large a spread between interest revenues and interest costs management has been able to achieve. CIB has the highest percentage of rate which measures the amount of non-interest revenues stemming from service fees the financial firm has been able to collect relative to the amount of non-interest costs incurred. CIB has the highest percentage of the high operational efficiency compared to both the whole banking sector and the top 5 banks. The combination of the top 5 banks has the highest percentage of banks competitiveness of lending activities and practices. CIB has the highest percentage of profit that the banks gains after the lending activities and practices. 14 17 Capital Adequacy = Total Equity Capital / Total Loans 0.346 0.164 0.191 18 Equity Multiplier (EM) = Total Assets / Total Equity Capital 9.357 17.485 15.314 15 CIB has the highest percentage of capital level to cover potential losses from assets that most likely to decline in value. Both the whole banking sector and the top 5 banks have the highest percentage of capital adequacy which is higher than mandatory minimum ratio of the CBE capital adequacy ratio 12.5%.
