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Fitch Learning

Certificate in Bank Analysis

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Next dates

May 6—10
5 days
Chicago, IL, USA
USD 4995
USD 999 per day
May 6—10
5 days
Singapore, Singapore
USD 4995
USD 999 per day
May 13—17
5 days
London, UK
GBP 3995 ≈USD 5191
GBP 799 per day
+5 more options

Description

This certification is comprised of two courses: Fundamentals of Bank Financial Statement Analysis and Intensive Bank Analysis.

The overall goal of this 5 day certificate programme is to give participants with limited exposure to financial statements of banks and enable them to make an independent assessment of the strengths and weaknesses of a bank. The programme provides participants with frameworks and tools required to make an independent credit analysis of a bank.

Key Learning Outcomes:

  • Distinguish the risks in the different business lines and products offered by financial institutions and recognize how they are reflected in the financial statements
  • Understand the components of bank financial statements and key ratios
  • Recognize the impact of differing accounting standards and policies (e.g. provisioning, asset valuation, securitization etc.) on the financial statements
  • Use the CAMELS framework (capital, asset quality, management, earnings, liquidity and sensitivity to market risk) and key ratios to make an assessment of the performance and financial health of a bank within the wider context of the operating environment
  • Identify strong and weak performers using a detailed analysis of financial statements within the context of local and international accounting and business norms
  • Identify financial, qualitative and market early warning signals of credit migration
  • Stress test bank capital and ability to withstand credit, market and liquidity risk
  • Evaluate strategy and risk management capabilities within the context of the current and future economic climate and changing competitive, political and regulatory conditions, including Basel III capital and liquidity requirements

Analytic Overview Part 1

Structured approach to analysis

  • Defining CAMELS within the context of overall bank analysis

Types of financial institution

  • Key activities and products of financial institutions: credit products, trading and investing, services and funding
  • Business models and key drivers of performance
  • Relating the business to the balance sheet and income statement: differences between balance sheets of different types of bank and non-bank financial institution
  • Major balance sheet and income statement components
  • Exercise: building a balance sheet for banks and non-bank financial institutions

Business Risk

Asset quality

  • Statement logic and accounting: types of credit risk, on and off balance sheet, accounting for problem impaired loans
  • Loan quality: portfolio analysis, impaired/problem loans (past due, non accrual and restructured loans)
  • Reserve adequacy: provisioning levels, allowance, charge offs and recoveries
  • Trading and investments: securities and derivatives portfolios
  • Local and international benchmarks for key ratios and performance indicators
  • Exercises:
    • problem loan definitions
    • matching asset quality ratios

Sensitivity to market risk

  • Statement logic and accounting: valuation techniques for investments and derivatives - fair value through income statement, available for sale, held to maturity; SFAS 157 disclosures
  • Risk in the securities and derivatives portfolios
  • Value at risk and other measures of market risk: advantages and disadvantages

Earnings

  • Statement logic and accounting: types of income and expense, impact of earnings accrual and asset impairment policies, core and non-core earnings
  • Key drivers of earnings: net interest margin, fees and commissions, trading
  • Ratios to measure quality and diversity of income, cost control, provision burden
  • Local and international benchmarks for key performance indicators
  • Exercise: matching earnings ratios

Financial Risk

Liquidity and funding

  • Statement logic and accounting: funding sources, on and off balance sheet treatment for securitization
  • Funding stability and different sources: deposits, commercial paper, repos, inter-bank lines, senior and subordinated bonds, common and preferred stock
  • Key drivers of liquidity: volatility of liabilities, quality and liquidity of assets, contingency funding needs
  • Local and international benchmarks for key liquidity and performance indicators
  • Exercise: matching liquidity ratios

Capital adequacy

  • Statement logic and accounting: types of capital, reported book equity, adjusted common equity and hybrid capital
  • Key drivers of capital: earnings, asset valuation, capital raising
  • International and local capital regulation: Basel I and II; Basel III changes
  • Risk weighted assets: Basel I vs. Basel II approach
  • Key ratios: tier one and total capital ratios, leverage, core capital and other measures
  • Local and international benchmarks for key performance indicators
  • Exercise: financial statement analysis

Analytic Overview Part 2

This section provides a structured framework of analysis including the use of market indicators.

Overview of the framework and tools of bank analysis: operating environment, financial fundamentals, management, support

  • Purpose and payback model: a structured approach to credit analysis
  • Key issues in exposures to banks: exposure profile, seniority, safeguards, pricing
  • Rating agency approaches: issuer ratings, individual / financial strength and support ratings
  • CAMELS (capital, assets, management, earnings, liquidity, sensitivity to market risk)
  • Market perspective on credit: equity indicators, credit default swap and bond market indicators
  • Exercise: understanding and applying the purpose payback model and demonstrate the typical borrowing needs and repayment capacity of a commercial bank

Operating Environment

This section focuses on the impact of external factors on the banking systems, including the economic environment, competitive environment and regulatory and supervisory pressures

Macro - economic and systemic issues

  • Impact of macro - economic variables on performance
  • Bank systemic risk: macro prudential indicators
  • Sub-prime and other drivers of credit crunch
  • Macro prudential indicators of risk; credit growth, equity and property prices and FX
  • Competitive and structural issues of the banking system

Regulation and supervision

  • Changing roles of the regulator and supervisor
  • Key regulations: purpose and implementation
  • Liquidity: quantitative and qualitative measures, Basel III liquidity guidelines
  • Capital: size, quality and adequacy of capital base under Basel I, II and III
  • Types of capital; core (common equity) vs. hybrid
  • Standardized and advanced approaches for credit, market and operational risk
  • Economic capital and internal capital adequacy assessment process (ICAAP)
  • Exercises:
    • Considering the impact on bank profitability of the operating environment in various countries
    • Consider and quantify the impact on bank capital adequacy ratios of the implementation of Basel III

Financial Fundamentals

This section covers how to measure and evaluate bank performance, distinguish strong and weak performance and appreciate the limitations of the figures.

Statement logic

  • Relating business mix to financial statements
  • Accounting policies and disclosure: IFRS and local GAAP; fair valuation - securities, derivatives, own debt
  • Exercise: understanding how the business model of a financial institution impacts its financial statements

Business risk

  • Loan portfolio analysis: uncovering the risk profile; key differences between types of bank
  • Loan quality: impaired loans and reserve adequacy
  • Off balance sheet exposures: lending commitments, SIVs, conduits and other special purpose vehicles
  • Trading risk: assessing securities and derivatives portfolios, use of value at risk (VaR) models and stress testing
  • Investment risk: valuation and accounting policies, hidden reserve or black hole
  • Exercises:
    • The capital base and profitability of a bank may be influenced by their provisioning policies
    • Identify the risks prevalent in the trading operations of a commercial or investment bank

Illustration case study: Assessing business risk, incorporating loan portfolio quality, trading portfolio and other credit and market risks.

Performance risk - earnings

  • Balancing the risk/return profile: strategy and risk appetite
  • Income stability and diversity: earnings at risk
  • Control of expenses: targets and peer comparisons

Illustration case study: Assessing performance of a bank, incorporating overall returns, income diversity and stability and cost control.

Financial risk - liquidity

  • Funding risk: stability and variety of funding sources, contingency funding
  • Liquidity of assets: identifying truly liquid assets, stable funding of illiquid assets
  • Liquidity of liabilities: stability of deposit base, dependence on short - term wholesale funding, inter - bank market, key challenges of repo and CP funding
  • Basel III liquidity standards
  • Cash capital, stress testing and other tools to control liquidity risk
  • Gap management: using the tenor and interest rate mismatch tables to better understand refinancing risk
  • Securitization vehicles: accounting and credit implications
  • Exercise: demonstrate how a bank's funding structure can impact its liquidity position and interest rate exposure

Financial risk - solvency

  • Leverage ratios: benchmarks and challenges
  • Capital adequacy: measuring size, quality and adequacy of capital base; regulatory capital ratios and assessing regulatory capital for non-deposit takers
  • Stress-testing capital for market and credit write-downs

Illustration case study: Assessing financial risk including solvency, funding strategy and liquidity in the light of the risk profile of the business model.

Early warning signals

  • Financial and non-financial indicators of distress
  • Market indicators: equity, CDS and bond indicators
  • Lessons learned from failed banks
  • Exercise: distinguishing strong and weak players

Management, Franchise and Ownership

This section focuses on the key risk areas of strategy, franchise and risk management.

  • Management: strategy, systems, skills, structure
  • Risk management
  • Franchise - strength of banking business model

Support

This section considers which institutions may receive government or shareholder support and in what form that support may be received.

  • Reliance on support: rating floors, which creditors are supported, loss absorbing capability of hybrid capital
  • Solvency vs. liquidity problems
  • Regulatory responses to banking crisis: recapitalization, guarantees, bad banks, insurance
  • Exercise: recognize the main approaches to support employed by governments and their pros and cons

Group Case study: The goal of this closing case study is for participants to apply the analytic framework to identify the strengths and weaknesses in a developed market commercial bank.

Who should attend

This certificate programme is suitable for those people with little or no exposure to financial statements from large institutions or bank analysis. It is ideal for people pursuing a career in credit risk management, fixed income, origination and regulatory professionals.

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