Yanuar Dananjaya, Bsc.

, MM

Analyzing Bank Performance

Different Characteristics of Balance Sheet and
Income Statement due to nature of banking
Small operating asset compared to total asset relatively small
operating leverage

Small equity compared to total asset volatile ROE

Main income and expense are interest related
Balance Sheet

Asset = Liability + Equity

Chapter 2

Asset

Can be differentiate into:

Loans
Securities investment
Non interest earning cash
Other asset

Yanuar Dananjaya, Bsc., MM

Analyzing Bank Performance

Loans

The largest majority of bank asset

Generate interest income, largest income source for bank
Highest risk, in the form of default
Liquidity level differs among various loans

Chapter 2

Securities investment

Securities, repurchase agreement (reppo)

Choose low risk, liquid securities
Compared to cash, still earn interest
In Indonesia high percentage of capital put in SBI due to just slightly
lower interest than loan, but extremely secure and no need additional
cost causing high credit interest rate compared to BI rate

Yanuar Dananjaya, Bsc., MM

Analyzing Bank Performance

Non interest earning cash

Consist of Cash and Reserve Requirement in Central Bank (very

low interest 2.5% / year)

Also Cash Items in the Process of Collection (CIPC) check

against other bank that not yet processed
Other Asset

Building, equipment, vehicle, etc

Chapter 2

Liability

Can be differentiate into:

Deposit Saving deposit and time deposit
Other Borrowing From central bank, from other bank,
repurchase agreement

Yanuar Dananjaya, Bsc., MM

Analyzing Bank Performance

Income Statement

Start with Interest Income

Add Tax benefit if any ==> tax reduction due to loan in industry
supported by government

Then subtract with Interest Expense

Get Net Interest Income (NII)
Add Non Interest Income Getting more and more important
Subtract Non Interest Expense large majority is salary cost
Subtract Provision for Loan Losses (PLL) similar to provision

Chapter 2

for bad debt in other company

Get Operating Income Before Securities Transaction and Tax

Add or subtract Realized Gain or Loss from Sale of Securities
Subtract Tax and Tax Equivalent Adjustment
Add or Subtract Extra Ordinary Items sale of fix asset, sale of
branch, etc

Yanuar Dananjaya, Bsc., MM

Analyzing Bank Performance

Income Statement

Total Operating Income: Interest Income + Non Interest Income.

Why sale of securities and extraordinary item not included?

Total Operating expense: Interest expense, non interest expense,

provision for loan loss

NII = Interest Income Interest Expense

Burden = Non interest expense Non interest income generally
Non Interest Expense is bigger

Earning Base = Earning Asset/Total Asset. Shows how efficient TA

in supporting Earning Asset

Chapter 2

Spread = (Interest Income/Interest earning asset) (Interest

expense/Interest bearing liability). Shows difference between
borrowing rate and lending rate.

Net Interest Margin (NIM) = Net Interest Income/Earning Asset