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Banks Financial Statement Analysis - Advanced

Learn to build an advanced structured approach for the analysis of a bank's financial statements.

A stunning view of a city from above with a sense of scale and perspective

A one-day advanced financial statement analysis course

pdf Download:   Course Outline

Session 1: Introduction to Financial Statement Analysis of Banks

  • Balance sheet
  • Bank income statement
  • Cash flow statement
  • Statement of change in shareholders' equity/comprehensive income

Case Study: participants will review Barclays’ bank financial statements

Session 2: The Banking Book

  • Types of banking book:
    • Mortgages
    • Credit cards
    • Personal loans
    • SME (small-to-medium enterprise) loans
    • Corporate loans
    • Syndicated loans
  • On a balance sheet or securitised
  • Amortised cost methodology
  • Credit issues and collateral
  • Non-performing loans

Session 3: Loan Loss Impairment

  • Incurred losses (IAS 39) has been replaced by expected losses (IFRS 9)
  • Three-stage process to determine loan loss impairments:
    • Stage 1: “12-month expected credit losses” with an effective interest rate on the gross carrying amount
    • Stage 2: “lifetime expected credit losses” with an effective interest rate on the gross carrying amount
    • Stage 3: “lifetime expected credit losses” with effective interest rate on gross on amortised costs

Case Study: Assess the credit deterioration of a loan

Session 4: Financial Instruments

  • Amortised Costs
  • Fair value through Profit & Loss (FVTPL)
  • Fair value through Other Comprehensive Income (FVTOCI)
  • Accounting treatment is determined by (i) the business model, (ii) the nature of cash flows
  • A decision tree to decide on the classification of bank financial instruments

Case Study: participants will be presented with a few classifications of financial instruments and will classify them into their relevant categories

  • Balance sheet and P&L (Profit and Loss) calculation of a bond at amortised cost:
    • Based on the Internal Rate of Return (IRR) of future cash flows
    • Treatment of fees in the IRR calculation
  • Balance sheet and P&L calculation of a bond at FVTPL and FVTOCI:
    • Effective interest rate method for interests (same as amortised costs)
    • Unrealised gain based on NPV (net present value) at a current yield of future cash flows
  • Fair value assessment:
    • Level 1 based on the unadjusted quoted price
    • Level 2 based on quoted price in inactive markets or observable model input
    • Level 3 based on unobservable but significant inputs to the overall value

Case Study: participants will compute in Excel the impact on the balance sheet and P&L of a bond under amortised costs and FVTPL

 

Session 5: Bank Derivatives

This session of advanced financial statement analysis training explores:
  • Trading and hedging
  • Hedge accounting: fair value, cash flow and net investment
  • Netting derivative assets and liabilities
  • Qualification for hedge accounting:
    • Cash flow hedge
    • Fair value hedge
    • Net investment hedge for foreign subsidiaries

Case Study: participants will classify a few hedging transactions in their relevant categories

Case Study: participants will value an interest rate swap accounted for as a cash flow hedge

  • IFRS 9 hedge accounting more closely aligned with bank risk management policy:
    • Removal of hedge effectiveness criteria (80% to 125%)
    • Extends the eligibility of the risk component to include non-financial items
    • Permits aggregate exposure that includes a derivative to be an eligible hedged item
    • Group of items and a net position (e.g. assets & liabilities or forecast sales & purchases) hedged collectively as a group
  • Accounting treatment for the time value of money for options: a two-step process through OCI (Other Comprehensive Income)
  • Accounting treatment for foreign currency forward points in OCI

Case Study: Review and assess different hedge scenarios, including risk component hedging, aggregate exposures and net position

Session 6: Financing (Debt and Equity)

  • Financial liabilities at amortised cost or FVTPL:
    • Own credit deterioration reduces institutions’ liabilities
    • Liability reduction due to rating downgrade is now classified in OCI
  • IFRS shareholders’ equity and treasury shares
  • Common Equity Tier 1 (CET1), Tier 1, Tier 2 and Total capital:
    • Key reconciliation items from IFRS Book Equity to CET1: minority interests, deferred tax, changes to an investment portfolio, etc.
  • Overview of calculating risk-weighted assets (RWAs): credit risk RWA, counterparty risk, market risk and operating risk

Case study: Review Barclays’ Shareholders' Equity to Tier I reconciliation

Redcliffe's bank analysis training specialist has over 20 years of experience in accounting and investment banking and is an experienced financial trainer. He has delivered courses for leading financial institutions and central banks in the City of London, Wall Street and around the world in the areas of Corporate Finance Analysis, Valuation (Industrials and Banks), Advanced Financial Modelling, M&A (Mergers and Acquisitions), LBO (Leveraged Buyout), Financial Accounting, Capital Markets, Bank Regulatory Capital and Financial Risks, both in English and French.

He began his career as a Credit Analyst at Banque Continentale in Luxembourg. He conducted credit analyses for short and long-term credits and participated in loan syndications. He then worked as a Senior Auditor for Deloitte & Touche in Luxembourg companies. Here he was auditing and preparing financial statements for a variety of banks, insurance, investment funds, venture capital and commercial companies.

He continued his career in Investment Banking at Citigroup (ex-Salomon Smith Barney) in London and New York. He worked on M&A, LBO and debt offerings for financial services clients. His involvement in the EUR 20 billion public offer of Crédit Lyonnais by Crédit Agricole was one of the largest European banking transactions.

This bank financial statement analysis trainer then worked as a Vice-President in the internal M&A department of Barclays Bank in London. His experience included the acquisition of ABSA for $5 billion, one of the leading South African banks, the purchase of ING Private Banking in France and the failed acquisition of Banco Atlantico in Spain.

Recently, he was a Director in the Investment Banking department of Commercial International Bank (CIB), the largest non-government bank in Egypt, where he completed several transactions. This included two sell-side M&A deals, one follow-on equity offering and a delisting.

He has worked with leading sovereign wealth funds, private equity firms and prominent families in the UAE, Qatar, Kuwait and Saudi Arabia. He is currently a senior advisor to an M&A practice based in Paris. They focus on buy-side and sell-side transactions, predominantly in the technology sector.

Our trainer has an MBA in Finance from the Kellogg School of Management in Chicago and a Bachelor of Science in Finance from Groupe INSEEC (“International Management Institute of Paris”). He also holds « Series 7 » and « Series 63 » US licences.

Bank analysis training at Redcliffe will help you build a structured approach to analysing a bank's financial statements. Through a mix of specific lectures, case studies and Excel modelling, the workshop will equip participants to:
  • Review the accounting and valuation of the bank's financial statements.
  • Understand the banking book and the new IFRS 9 treatment for loan loss impairment using financial statement analysis of the expected loss methodology.
  • Analyse the accounting treatment of bank financial instruments, including:
    • Amortised costs
    • FVTPL (Fair Value through Profit & Loss
    • FVTOCI (Fair Value through Other Comprehensive Income).
  • Review trading and hedging of bank derivatives under the new IFRS 9 rules.
  • Analysis of bank financial statement liabilities at amortised cost and FVTPL, including fair value for own credit.
  • Understand IFRS (International Financial Reporting Standards) shareholders’ equity and the reconciliation to CET 1 (Common Equity Tier I), Tier I and Total Capital.

  • This advanced financial statement analysis course expert is an experienced trainer. He is an ex-FIG M&A banker with years of experience in bank analysis and valuation.
  • Comprehensive material covers all advanced aspects of a bank's financial statement analysis, including the latest IFRS 9 analysis.
  • Step-by-step, easy-to-follow Excel models illustrating key concepts.
  • We encourage you to bring your bank's financial statement analysis challenges to ‘solve’ during the session.

This training is suitable for:
  • Investment bank FIG analysts and junior associates
  • M&A advisory boutiques specialised in FIG
  • Corporate Development professionals in banks
  • Junior equity research for banks
  • Risk analysts in banks
  • Finance professionals in banking institutions

Redcliffe's advanced financial statement analysis training is a practical workshop, which will give you an in-depth understanding of advanced topics for the financial statements of banks, including:
  • Expected loss methodology under IFRS 9
  • Level 1 to 3 fair value
  • Hedge accounting
  • Bank income statements

  • The instructor was flexible by allowing extra time to focus on the areas that were of most interest to me.
  • The Excel case studies with the explanation were very useful in everyday work activities.
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