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Banks Financial Statement Analysis - Advanced

Build a structured approach to the analysis of banks’ financial statements

Banks Financial Statement Analysis – Advanced Training Course

A one-day course

  • Practical workshop by an experienced trainer, an ex-FIG M&A banker with years of experience in bank analysis and valuation
  • Comprehensive material covering all advanced aspects of bank financial statement analysis including the latest IFRS 9 analysis
  • Step-by-step, easy to follow Excel models illustrating key concepts
  • Delegates encouraged to bring their own bank financial statements challenges to ‘solve’ during the session

This training allows participants to build a structured approach to the analysis of banks’ financial statements. Specifically, through a mix of lecture, case studies and Excel modelling, the workshop will equip participants to:
  • Review the accounting and valuation of banks’ financial statements;
  • Understand the banking book and the new IFRS 9 treatment for loan loss impairment using the expected loss methodology;
  • Analyse the accounting treatment of financial instruments including amortised costs, FVTPL (Fair Value through Profit & Loss) and FVTOCI (Fair Value through Other Comprehensive Income);
  • Review trading and hedging of derivatives under the new IFRS 9 rules;
  • Analyse financial liabilities at amortised cost and FVTPL including fair value for own credit;
  • Understand IFRS shareholders’ equity and the reconciliation to CET 1 (Common Equity Tier I), Tier I and Total Capital.

Session 1: Introduction to Financial Statement Analysis for Banks                             

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

Case Study: participants will review Barclays’ financial statements

Session 2: The Banking Book

  • Types of banking books
    • Mortgages
    • Credit cards
    • Personal loans
    • SME loans
    • Corporate loans
    • Syndicated loans
  • On 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  • Incurred losses (IAS 39) has been replaced by expected losses (IFRS 9)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 stages process to determine impairments
    • Stage 1: “12-month expected credit losses” with effective interest rate on gross carrying amount
    • Stage 2: “life-time expected credit losses” with effective interest rate on gross carrying amount
    • Stage 3: “life-time expected credit losses” with effective interest rate on gross on amortised costs

Case Study: participants will 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 determined by (i) business model (ii) nature of cash flows
  • Decision tree to decide on the classification of financial instruments

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

  • Balance sheet and P&L calculation of a bond at amortized 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 at a current yield of future cash flows
  • Fair value assessment
    • Level 1 based on 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 on Excel the impact on the balance sheet and P&L of a bond under amortised costs and FVTPL

Session 5: Derivatives

  • 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 to risk management policy
    • Removal of hedge effectiveness criteria (80% to 125%)
    • Extends eligibility of 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
  • Accounting treatment for foreign currency forward points in OCI

Case Study: participants will 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 to be 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

The trainer has more than 20 years of experience in accounting and investment banking. He is an experienced financial trainer who 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, Valuation (Industrials and Banks), Financial Modelling, M&A, LBO, 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, where he conducted credit analyses for short and long-term credits and participation in loan syndications. He then worked as a Senior Auditor for Deloitte & Touche in Luxembourg companies, 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 where he worked on a variety of M&A, LBO and debt offerings, mainly for financial services clients. He was involved in the EUR 20 billion public offer of Crédit Lyonnais by Crédit Agricole, one of the largest European banking transactions.

He then worked as a Vice-President in the internal M&A department of Barclays Bank in London where his experience included the acquisition of ABSA for US$ 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 has successfully completed several transactions including two sell-side M&A deals, one follow-on equity offering and a delisting. He worked extensively with leading sovereign wealth funds, private equity firms and prominent families in the UAE, Qatar, Kuwait and Saudi Arabia.

The trainer is currently a senior advisor to an M&A practice based in Paris and focuses on buy-side and sell-side transactions, mainly in the technology sector.

The 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 licenses.

This course is a practical workshop by an experienced FIG trainer, 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 and hedge accounting.

  • The instructor was flexible by allowing extra time to focus on the areas that were of most interest to me.

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