LESSON 6 : BANK

REPORTS
BANK REPORTS

• include information on enterprises that are

majority owned or controlled by the bank
• prepared for manifold purposes
• a condensed financial statement of a bank
together with that of its subsidiaries and affiliate,
is usuall published quarterly in newspapers of
wide circulation
• must also be made available to the customers
and stockholders
• will be used to direct the course of action in
order to improve the bank's business and its
attendant functions and services.
• multiple purposes
• rendeded to meet with the requirements of
the supervisort and regulatory agencies.
WHO NEED BANK REPORTS?

1. Bank Directors and Officers

* basis for wise and judicious action
2. Stockholders
*eager to find their bank in shipshape
condition.
3. Potential Investors
*seeking outlets for their excess funds may
be enticed to augment the bank's capital if
convinced of banking functions through bank
reports.
4. General Public
*aware of banking functions
*could be a source of potential borrowers,
depositos and stockholders.
“The lending capacity of banks as
well as its loan policies may be
reflected in the statement and
therefore, borrower will be on the
lookout for such reports.”
Pertinent Provisions of
Chapter IV of the New
General Banking Act
Sec. 58. Independent Auditor
The Monetary Board may require a bank, quasi-bank, or trust entity to engage the
services of an independent auditor to be chosen by the bank, quasi- bank, or trust entity
concerned from a list of certified public accountants acceptable to the Monetary Board.
The term of the engagements shall be as prescribed by the Monetary Board which may
either be on a continuing basis of where the auditor shall act as resident examiner, or on
the basis of special engagements; but in any case, the independent auditor shall be
responsible to the bank's, quasi-bank's, c trust entity's board of directors. A copy of the
report shall be furnished to the Monetary bank, trust entity, and/or the individual
members thereof, to conduct, either personally Board. The Monetary Board may also
direct the board of directors of a bank, or by a committee created by the board, an annual
balance sheet audit of the bank quasi-bank, or trust entity to review the internal audit and
control system of the bank, quasi-bank, or trust entity and to submit a report of such
audit.
Sec. 59. Authority to Regulate
Electronic Transactions
The Bangko Sentral shall have full authority to
regulate the use of electronic devices, such as
computers, and processes of recording, storing and
transmitting information or data in connection with
the operations of a bank, quasi-bank, or trust
entity, including the delivery of services and
products to customers of such entity.
Sec. 60. Financial Statements
Every bank, quasi-bank, or trust entity shall submit to the
appropriate supervising and examining department of the Bangko
Sentral financial statements in such form and frequency as may be
prescribed by the Bangko Sentral Such statements, which shall be
as of a specific date designated by the Bangko Sentral, shall show
the actual financial condition of the institution submitting the
statement, and of its branches, offices, subsidiaries and affiliates,
including the results of its operations, and shall contain such
information as may be required in Bangko Sentral regulations.
Sec. 61. Publication of Financial
Statements
Every bank, quasi-bank, or trust entity shall publish a statement
of its financial condition, including those of its subsidiaries and
affiliates, in such terms understandable to the layman and in such
frequency as may be prescribed by the Bangko Sentral, in English or
Filipino, at least once every quarter in a newspaper of general
circulation in the city or province where the principal office, in the
case of a domestic institution, or the principal branch or office in the
case of a foreign bank, is located, but if no newspaper is published in
the same province, then in a newspaper published in Metro Manila
or in the nearest city or province.
Sec. 62. Publication of Capital Stock
A bank, quasi-bank, or trust entity
incorporated under the laws of the
Philippines shall not publish the
amount of its authorized or subscribed
capital stock without indicating at the
same time with equal prominence, the
amount of its capital actually paid up.
Types of Bank Reports
1. Condensed bank statement
*The accounts would appear condensed or abbreviated
form.
*usually issued for publication or sent to depositors and
stockholders as a means of serving them an opportunity to
look into their particular bank's financial position.
*The frequency of publication will be dependent on the
requirement of the supervisory and regulatory agencies.
*Stockholders are furnished reports annually, either in
writing or orally.
2. Real bank statement.
*usually in more detailed form -prepared
for the regulatory and supervisory agencies
*also the basis for the preparation of other
reports.
*Furthermore, bank management is
properly guided and will, therefore, act
accordingly when it knows the details resulting
from the bank's operations.
3. Annual Reports
*"progress report" which contains the resumé of its yearly
operations.
*usually in brochure form.
*made available to the general public as means of
advertising
*"focal points" in the bank's progress
*The addition of a new building, the setting up of branches,
and the like may be stressed in the brochure through "write-ups"
pictorial reporting.
*An income statement, as well as the reconciliation of the
bank's capital position may also be featured.
The Bank Statement
The most common bank assets or resources are:

1. Cash on Hand
*This account represents notes and coins held
by the bank to meet depositor's withdrawals and
other normal cash needs.
*may be in the bank vaults and/or in the hands
of the tellers.
2. Other Cash Resources
*These accounts comprise of (a) exchanges for the clearing
house, (b) collections in transit, and (c) other cash items. Such
detailed classification is necessary as it reflects different aspects
of liquidity in relation to the bank's immediate cash needs.
(a) Exchanges for the clearing house
-This consists of checks deposited at or cashed by the bank
preparing the statement during the course of the day and which
are drawn on banks within the city that are members of the
clearing house. Hence, such items are subject to clearing at the
designated clearing period. (In the Philippines, all commercial
banks are members of the clearing house.)
(b) Collections in transit
*consists of "out-of-town" checks or drafts drawn on banks
outside the city.
*The bank receiving them for deposits and/ or collection usually
credits the account of the depositor or customer pending receipt of the
proceeds. In either case, the entry in the bank's books are on a deferred
basis, subject to final payment or receipt of the proceeds.
(c) Other cash items
*may include other miscellaneous items such as bond coupons
for which the depositors have been credited pending collection of the
coupon. Or, in the case where not all banks are members of the clearing
house, the checks or drafts may represent claims against non- member
banks.
3. Due from Banks
*represents deposits carried with other banks.
*usually in the form of demand deposits.
*however, the bank depositing them may
keep them in reserve as time deposits in order to
earn interest.
*In the Philippines, the bulk of these deposits are,
in the form of legal reserves kept with the Bangko
Sentral by private banks.
4. Balances with Foreign Banks
*consists of deposits or funds held abroad
mainly to fill foreign exchange needs.
5. Loans and Discounts
*a major item on the bank's asset side.
*consists of all promissory notes and bills of
exchange held by the bank evidencing the existence
of a debt or securing a debt.
*The promissory notes may either be secured or
unsecured.
6. Government Securities
*serve to buffer any probable loss of the depositor
*consists of the evidences of indebtedness fully
guaranteed by the Republic of the Philippines in the
form of bonds and other instruments of similar nature.
7. Other Securities
*represent the stocks and bonds or short-term
investments not fully guaranteed by the Philippine
government.
*may belong to private corporations.
8. Bank Building, Furniture, and Fixture
*represents the monetary value of the properties
owned by the bank to carry on its functions.
9. Other Real Estate Owned
*arises out of the fact that banks foreclose real
estate mortgages and carry the monetary value of the
asset in their books until the real estate is disposed of.
*This transaction happens when banks are to
accept real estate as security for loans which turn out
to be unpaid
10. Customers Liability uder Letters of
Credit
*the use of letters of credit in financing
foreign and domestic trade has become quite
popular these days. Hence, bank statements
carry in their books an account representing the
customers' obligation to reimburse the bank by
virtue of the banks' commitment to substitute its
credit for the borrowers by honoring drafts
drawn against it.
11. Customers Liability Under
Acceptances.
*This is similar to the customers'
liability under letters of credit except that
the bank's obligation in this regard is of a
greater magnitude. When the bank accepts
a draft, it in effect promises to pay the draft
upon presentation
12. Income accrued but not yet collected.
*When a bank grants loans with interest collected
at maturity, the bank in effect has future earnings which
as yet have not been collected. The interest runs during
the entire period. In the case of bonds, interest payments
accrue but may not as yet be collectible. Hence, such
accruals are considered as bank resources, since
eventually they will be realized.
13. Other Assets.
*This item serves to "round-up" any or all other
assets not otherwise described in detail.
 BANK
LIABILITIES
TESLBIAIILI
- SOMETHING THAT IS BORROWED
FROM, OWED TO, OR OBLIGATED TO
SOMEONE ELSE. EXAMPLE: BANK DEBT,
MORTGAGE DEBT, WAGES OWED,
TAXES OWED, ETC.
RSESVREE
- THE CASH MINIMUMS THAT
FINANCIAL INSTITUTION MUST HAVE
ON HAND IN ORDER TO MEET CENTRAL
BANK REQUIREMENTS.
STHCLSODEKRO
QIYUET
- AMOUNT THAT THE OWNERS OF A
COMPANY OR INSTITUTION HAVE
INVESTED IN THEIR BUSINESS.
RQTEMNUERIES
- SOMETHING THAT IS MANDATORY OR
NECESSARY - IT IS SOMETHING THAT
YOU NEED TO HAVE OR NEED TO DO.
 On the liability side of the
bank’s statement are found
three main classifications,
namely: the liabilities, the
reserve accounts, and the
stockholders’ equity.
A. LIABILITIES
1. DEMAND DEPOSITS. This account represents claims
of depositors who withdraw their deposits by means of
checks.
2. TIME DEPOSITS. This represents the claims of
depositors who keep their money in the bank for a specified
period of time and for which the bank must likewise be
ready to pay at maturity.
3. GOVERNMENT DEPOSITS. This represents deposits,
either time or demand, which belongs to the government or
its instrumentalities and political subdivisions.
4. CASHIER'S CHECK OUTSTANDING. The
bank’s cashier, in his official capacity as such,
issues checks to either pay the bank’s obligations,
to accommodate customers, or to remit funds.
5. CERTIFIED CHECKS OUTSTANDING.
When the depositor requests the bank to certify his
check, the bank immediately sets aside the amount
of check by debiting the depositor’s account
before stamping certification on the face of the
check.
6. DUE TO BANKS. This account
represents deposits or balances of other
banks with the bank preparing the
statement.
7. LETTERS OF CREDIT
OUTSTANDING. This account arises out
of the issuance of letters of credit for which
the bank obligates itself to pay or guarantee
payment.
8. ACCEPTANCE OUTSTANDING.
This is similar to the account letters of
credit outstanding except that it makes
the bank’s obligation more real than
contingent.
9. BILLS PAYABLE. This represents the
claims of creditors of the bank for funds
borrowed by it.
10. REDISCOUNTED NOTES. This account
arises out of the use of endorsed commercial papers
for the purpose of procuring funds.
11. DISCOUNTS COLLECTED BUT NOT YET
EARNED. When the bank gives out a loan and
collects interest in advance, the amount deducted is
not as yet really earned in full.
12. OTHER LIABILITIES. This account serves as
the counterpart of the “other asset” and includes all
other liabilities not otherwise designated in detail.
B. RESERVES
1. RESERVE FOR ACCRUED TAXES. A
bank, as in the case of any corporation, is
levied numerous taxes. While such are paid at
different tax periods, the total and exact
amounts cannot be known ahead of time.
2. RESERVE FOR ACCRUED INTEREST. This
represents the interest accruals on time deposits as
well as interest payments on money borrowed by
the bank.
3. RESERVE FOR ACCRUED
EXPENSES. This constitutes the salaries,
supplies, and other expenses estimated
on the bank’s budget for the year.
4. RESERVE FOR DEPRECIATION ON
BANK PROPERTIES. This item represents
the wear and tear on the bank’s building,
furniture, and fixtures.
5. RESERVE FOR DEPRECIATION ON
SECURITIES. A portion of the bank’s assets
are composed of securities. This account will
represent the cushion for the fall in the value
of the securities held by the bank.
6. RESERVE FOR CONTINGENCIES.
This will represent losses incurred by the bank
either through bad loans or investments.
C. STOCKHOLDER'S EQUITY
1. CAPITAL STOCK. This account is
carried as per the par or face value of the
total number of stocks appearing in the
bank's charter.
2. SURPLUS. This account may consist of
earnings derived from the sale of stock above
par or earnings retained by the management
from operations.
3. UNDIVIDED PROFIT. This
account is gaining more adherents
in bank financial management for
the reason that it is of transitory
nature. This represents earnings
from current operations not yet
paid out as dividends.
MINIMUM CAPITAL REQUIREMENT
In reading the statement of condition, a
significant ratio must at all times be met with the
banks. For it is so provided by law in accordance
to Section 34 of the New General Banking Act:
The Monetary Board shall prescribe the
minimum ratio which the net worth of a bank
must bear to its total risk assets which include
contingent accounts.
 In case a bank does not comply with the
prescribed minimum ratio, the Monetary Board
may limit or prohibit the distribution of net
profits by such bank and may require that part
or all of the net profits be used to increase the
capital accounts of the bank until the minimum
requirement has been met. The Monetary Board
may, furthermore, restrict or prohibit the
acquisition of major assets and the making of
new investments by the bank.
 In case of a bank merger or
consolidation, or when a bank is under
a rehabilitation program approved by
the Bangko Sentral, the Monetary
Board may temporarily relieve the
surviving bank, consolidated bank, or
constituent bank or corporations under
such conditions as it may prescribe.
BANK EARNINGS
AND EXPENSES
 A bank must earn enough to meet its
expenses, to cover losses, as well as to
provide a return on the stockholders’
investments. A bank’ profit and loss
statement (or income statement) is singular
in the sense that it deals mainly on
financial transactions and the accounts are
confined to the soirces of income and the
disposition of the same.
 The current operating expenses of a
bank are practically the same as that of
other business except for the interest paid
on time of deposits. The banks also use
stationery and supplies, furniture and
fixtures which depreciate; pay salaries of
employees; use telephone service; and such
other expenses common to other business.
 If the income statements shows a profit, it is
indicative of efficient bank management and will
further enhance the bank’s position in the
community.
It is perhaps for this reason that banks desist
from publishing much too often their statement
of earnings and expenses, although they use the
same to a large extent for internal management
purposes and to meet the requirement of the
supervisory and regulatory agencies.
CRITICISM ON
PUBLISHED
STATEMENTS
 While some reports do stir a
“hornet’s nest,” sometimes they are so
commonplace nowadays as to arouse the
interest of the ordinary laymen because
of a number of reasons:
1. Published statements are too
abbreviated as to give any significant
detail in banking operations.
2. The ordinary layman is not conversant with
banking functions, or perhaps even with the
banks, so he cannot understand the significance
of the accounts apppearing in the statement.
3. The assets and liabilities are so combined as
to make it impossible to “look through” or
discover the real picture of the bank unless one
is an expert in financial statement analysis.
4. The real picture of the bank’s
financial position as reflected in the
financial reports will depend largely
on how the accountant estimates the
valuation of assets and how
completely he enumerates the
Lisabilities. Some accountants, for
instance, resort to secret reserves.
 Nevertheless, it is of common
assent that such statements
and/or reports would serve to
reinforce the existing trust and
confidence of the publice in
banks and the banking system.
ANALYTICS OF
TRANSACTION
 Assuming that the bank
charter represent issue of 50,000
shares at as par value of P100.00
each and that the stockholders
have fully paid their shares, the
resulting figured will be;
ASSETS LIABILITIES

Cash P5,000,000.00

STOCKHOLDERS’ P5,000,000.00
EQUITY

______________ Total Liabilities ______________

and
Total Assets P5,000,000.00 Shareholders’ P5,000,000.00
Equity
 Then out of cash receive, the
management buys a building
worth of P1,000,000.00 and
furniture and equipment worth
of P 500,000.00. Hence, the
balance sheet will not be:
ASSETS LIABILITY

Cash P3,500,000.00

Bank Building 1,000,000.00

Furniture and 500,000.00 STOCKHOLDERS’ P5,000,000.00

Fixture EQUITY

_______________ Total Liabilities _______________

and
Total Assets P5,000,000.00 Stockholders’ P5,000,000.00
Equity
 The above transaction has led
to decrease in cash (a current
assets) but transferred to fixed
asset ( bank building, furnitures
and fixtures). Capital remains the
same but now reflects current
and fixed capital.
BANK REPORTS
The bank receives demand
deposits to the tune of
P1,000,000.00 in cash. The
position will now shift a little
and will appear as follows;
ASSETS) LIABILITY

Cash P4,500,000.00 Demand P1,000,000.00

Deposits
Bank Buildings 1,000,000.00
Furnitures & 500,00.00 STOCKHODLERS P5,000,000.00
Fixtures ’ EQUITY

____________ Total Liabilities ____________

and
Total Asssets P6,000,000.00 Stockholders’ P6,000,000.00
Equity
 There is an apparent increase in
cash, but the bank now has a liability
commensurate to the increase in cash.
However, because of the imposition
of the legal reserve requirements, the
statement will be adjusted as follows
(assuming that the legal requirement
is 10%).
ASSETS LIABILITY

Cash P4,400,000.00 Demand Deposits P1,000,000.00

Due from Bank 100,000.00

Bank Building 1,000,000.00 STOCKHOLDERS’ 500,000.00

EQUITY

Furniture & Fixture 500,000.00

_______________ Total Assets and _______________

_

Total Assets P6,000,000.00 Shareholders’ P6,000,000.00

Equity
 In the preceding balance
sheet, there is a slight
change to reflect the 10%
legal reserve requirments.
Hence the cash is decrease
by P100,000.00.
 The bank receives loan
application and after due
processing approves the
loans for P200,000.00 in
cash. The statement will
then be:
ASSETSO LIABILITIES

Cash P4,200,000.00 Demand Deposit P1,000,000.00

Due from Bank 100,000.00

Loan & Discounts 200,000.00

Bank Building 1,000,000.00 STOCKHOLDERS’ 5,000,000.00

EQUITY

Furniture & 500,000.00

Fixture
_______________ Total Liabilities ______________
and
Total Assets P6,000,000.00 Stockholders’ P6,000,000.00
Equity
 The transaction shows a
change in cash which is made up
by the creation of the assets,
loans and discounts. Hence, the
total on the asset side does no
change. The liabilities and net
worth also remain the same.
A borrower requests for an
overdraft line P40,000.00. It
would mean that the borrower will
retain the money in a current
account which he may utilize
later. Hence the balance sheet will
appear as follows:
ASSETS LIABILITIES

Cash P4,196,000.00 Demand Deposits P1,040,000.00

Due from Bank 104,000.00

Loan and Discounts 200,000.00

Overdraft 40,000.00

Bank Building 1,000,000.00

Furniture & Fixture 500,000.00

STOCKHOLDERS’ 5,000,000.00
EQUITY
__________________ Total Liabilities and __________________

Total Assets P6,040,000.00 Stockholders’ Equity P6,040,000.00

 It will be noted the overdraft is
also an assets because it represent a
loan on the part of the person
requestinf the same
At the same time, however the
bank stands as debtor because the
proceeds were turned into a deposit.
CLASSIFICATION OF BANK ACCOUNTS
It must have been noted in the shift on
balance sheet affected by the transactions that
there is also a change in the bank accounts.
Assets are generally of a current or fixed
nature. However, some are more liquid than
the others, and therefor, in analyzing bank
statements, it might be noticed that there
sequence reflects the classification.
 The same is true with the liabilities.
Liabilities represent claims of stock holders,
depositors, outside creditors (which maybe
other banks or general public.
Banks have the contigent accounts
which are kept separate as reflected balance
sheet . The letter of credit or dealings in
foreign exchange may comprise there
contigent accounts.
THANK YOU !!!