Unit 3 Chartered Institute of Bankers in Nigeria PDF

UNIT 3 CHARTERED INSTITUTE OF BANKERS IN NIGERIA CONTENTS 1.0 Introduction 2.0 Objectives 3.0 Main Content 3.1 The Evolution Of Banking System 3.2 The Beginning Of Banking In Nigeria- An Overview 3.3 The Regulation, Management, Control And Act Of The Banking Professi...

UNIT 3 CHARTERED INSTITUTE OF BANKERS IN NIGERIA CONTENTS 1.0 Introduction 2.0 Objectives 3.0 Main Content 3.1 The Evolution Of Banking System 3.2 The Beginning Of Banking In Nigeria- An Overview 3.3 The Regulation, Management, Control And Act Of The Banking Profession In Nigeria 3.4 The Regulation And Control Of Banking Profession In Nigeria. 3.5 The Bankers Committee 3.6 The Clearing House Committee 3.7 The Institution Of Bankers 3.8 Membership 3.9 Vision Statement 3.10 Executive Management 3.11 Membership Services 4.0 Summary 5.0 Conclusion 6.0 Tutor-marked Assignment 7.0 References/ further Reading 1.0 INTRODUCTION This is a legal institution that is created through the instrumentality of law to regulate the ethical conduct of those in the profession of Banking,even through the Organisation of examination and other knowledge improving Programs, as well as the setting of standards and codes for professionalism to thrive in the banking sector. 2.0 Objectives At the end of the this unit the student should amongst other things be able to:  The importance of the Institute of Bankers in Nigeria  Know the types of committees in the institute  Understand the workings of the management of the Institute and how members are drawn 3.0 MAIN CONTENT 3.1 The evolution of banking system The beginning system and banks in the world- overview It can be traced to extent accurately that banking in the world started from the area of paper money which is the fourth stage of the evolution of gold and silver coins from one place to another by traders alike became risky and inconvenient. Those that lived in big town and can afford vaults and safeguard their metallic coins in them while those that coundn’t look around for someone that have and ask for help or keep risking it being stolen. Far back the thirteen century a group of Italian goldsmith migrated from an Italian province, lambardy and settled in a part of London, today called lambard street. At first, these Italian goldsmith only came out the traditional services of their craft. But as time went on, their business expanded and they found it necessary to acquire vaults and safes for the safe custody of all gold and precious metals they received from clients. About the seventeen century these goldsmiths took the gold (both in form of gold coins and billions) from these people for safe keeping and issued a receipt which acknowledge the deposit to return it on demand. As time went on, more and more people came to hold these receipts and more people came to hold these receipts and the began to circulate for value among traders. The goldsmiths started what we know today as banking function which gradually increase from I.O.U or promissory note functions through receipts to various banking functions we see today like lending, interest for deposit as an incentive. the developments in the goldsmiths activities led to small groups of goldsmiths, pulling their resources together and setting up business as merchant and private bankers. And this is how rudimentary banking started in the world. Not too long after the establishment of the merchant and private bankers, in an attempt to check this abuses the bank of England was found as private joint stock company in 1694 in he reign of William III, parliamentary sanction was obtain for the issue of a charter cleared corporation styled “the governor and the company of the bank of England” with a capital of £1.2million. 3.2 The beginning of banking in Nigeria- an overview: The banking system in Nigeria started during the colonial era with establishment of the colonial banks with the primary aim of meeting the commercial needs of the colonial government and the banking system in Nigeria is regulated thyough the central bank of Nigeria. This apex bank started operation in july 1, 1969 and back by the act of parliament 1958 as amended in 1991, 1993,1997, 1998, 1999, 2007. in 1892, African banking corporation and british west Africa, now first bank on Nigeria were established in Nigeria as the first bank in Nigeria then in 1925, anglo- egyptian bank and national abnk of south Africa gave birth to barcleys bank in Nigeria in 1948, british and French for commercial and industrial started operation in Nigeria, which metamorphose into the united bank for Africa. The first domestic bank in Nigeria was established in 1929 and called industrial and commercial bank. The bank liquated in 1930 and was replaced by mercantilea bank in 1931. the African continental bank was created in 1949 as the only sustainable indigenous bank after the liquidation of the industrial and commercial bank. The year 1947 shows the emergency of the agricultural bank called the Nigeria bank of farmers and commercial bank. Subsequently, banking system expanded and grew in Nigeria to what we have today with so many enactment, reforms, acts and regulations guiding and controlling the banking system in Nigeria. 3.3 The regulation, management, control and act of the banking profession in Nigeria There is no standard definition for the word “banking” but a quick a the relevant legislation on the subject will throw sufficient light on the functional meaning and those engage in the profession and the place where such profession is practiced. People involved in the profession are called bankers and according to bill of exchange Act 1882 a statute of general application of adeniji (1988 reprinted) a “banker” is defined to include a body of persons, whether incorporate or not who carry on the business of banking. The business of banking according to some book “the law and practice of banking in Nigeria” by adeniji (1988 reprinted) from the act, generally most include, as the major part of business apart from lending, the acceptance of deposit and collection of cheques and other payment. The Nigeria bank act 1969 describes a bank as “any person who carries on banking business and includes the commercial bank an acceptance house, discount house, and financial institution. The banking amendment act No 31970 further defines banking business as “the business of receiving monies from outside sources as deposits, irrespective of the payment of invest and the granting of money, loans and acceptance of credit or purchase and sale of securities for account of other or the incurring of the obligations to acquire claims in respect of loan prior to the maturing of the assumption of guarantees and other warrantees for other or the affecting transfers and clearings and such other transactions as the minister may on the recommendation of the central bank order published in federal gazette, designated as banking business. The banking legislation which has repeal all other existing banking legislation in Nigeria known as “Banks and other financial institution decree No25, 1991 has redefined a bank(under section 61) to mean a company duly incorporated in Nigeria and holds a valid banking license issued under this decree to “banking business” as interpreted by the decree. The decree No25 of 1991 went ahead to redefine ‘banking business” to mean the business offering deposits on current account, savings account or other similar account paying in or collecting cheques, drawn by or paid in by customers, provision of finance or such other business as the governor of the central bank may, by other published in the gazette, designated as banking business. 3.4 The regulation and control of banking profession in Nigeria. The banking profession in Nigeria is controlled by three major bodies, namely; the bankers committee, the clearing house committee and the Nigeria institution of bankers which is now chartered and called the chartered institute of bankers in Nigeria. (CIBN). 3.5 The bankers committee This committee consist of: (i) The governor of central bank, who act as the chairman of the committee and precise over all its meetings; and (ii) The chief executive of all the banks except development banks in Nigeria. This body which is at the apex of the profession is the supreme body on banking matters. It is charged with the responsibility of formulating policies and finding solution to common banking problems arising in Nigeria. 3.6 The clearing house committee: The clearing house committee is compose of (i) a representative of the central bank of Nigeria, as chairman (ii) five other member drawn from among member banks services this body is charge with the responsibility of controlling the clearing house, making amendments to the clearing house rules, subject to subsequent agreement by the bankers committee. The committee may also introduce changes int the regulations affecting the day to day running of the clearing house and approve applications for membership in the scheme. There are clearing house in all town where central bank ha branches. The obligations handed in clearing houses include cheque, draft, bankers payments, debit notes and warrants. The clearing houses have proved convenient for the distribution of correspondence and bank statement. It is envisage that the increasing bank transaction and their wide spread braches required by the rural banking police of the central bank would in future led to the establishment of clearing houses in all the state capital in the country. 3.7 The institution of Bankers: The institution of bankers is an offspring of the century old institute of bankers, it was founded as a local branch in November 1963 by the bankers committee. The institution us ran by a council compose of elected members, five of which are chief executives of banking nominated by the bankers committee. Main objective of the institute are to- (i) promote banking education in the country with a view of helping staff employed in the banking techniques and prepared them for higher responsibilities in their various institutions. (ii) Maintain discipline in the banking profession through a discipline committee. (iii) Hold and help to secure the observance professional ethics and tradition in the banking system. (iv) Give advice to the government whenever such is requested an collaborate with in formulating policies in banking sectors of the nations economy (v) Facilitate the consideration and discussion of matters of interest to bankers and public. (vi) Conduct examination for the award of associate membership of the institution. Since its inception, the Nigeria institution of bankers has withstood the challenges posed by the storage of manpower in the banking industry in Nigeria. The institute has concentrated its effort on helping members of staff employed in the banking industrial to acquire modern banking techniques and prepare for higher responsibilities in various institution. In pursuance of this objectives, the institute has a planned educational program covering the conduct of revision course for its examination and various seminars are held to further educate its members on the law and practice of banking and improve their professional skills. A young entrants into the banking industry, with a minimum qualification of the west African school certificate of G.C.E ordinary level, with pass in English language and mathematics can prepare himself for the associate membership of the institution of bankers examination (AIB) open only to those who are employed in banks or students of full time course in colleges or universities in the country. Candidates can become full time member on passing the part I and II of the examinations respectively. Candidates for the institute examinations are required to pass all the subject of each sections of the part I and II at sitting. Reference maybe allowed incase of marginal failure in a subject, but he candidate must pass that subject within the following twelve minth otherwise he will be required to resit on the subjects in the section in subsequent examinations candidate cannot proceed to part II examination until he has passed all the section in part I The completion of all sections of part II will qualify a candidate for the award of AIB, provided the candidate had at least five years banking experience and has been a member of the institute. There is still a further post graduate examination for any member who is keen to widen his banking knowledge; this is the part III examination, candidate for this are required to satisfy the examiners in all subjects of each section at the same sitting, but candidates who fail to in one of the subjects maybe referred. The completion of part III will qualify a candidate for the award of AIB(M) provided he has had at least five years banking experience and has registered as a member of the institute. Most of the colleges of technology and polytechnique have the syllabus of the institute and some of them have started offering courses for students covering the part I and II examinations. The committee set up to examine the Nigeria financial system and make recommendations reiterated the acute storage of trained manpower in the banking business and thought that the present avenue of training are not adequate for the need of the industry. It recommended that the central bank of Nigeria should take the role to initiate, develop and finance a scheme for massive training of staff for the industry as a whole. Incompliance with this recommendation, the central bank has started discussion with the banks, the Nigeria institute of bankers, universities offering course related to banking, and college of technology and polytechnics with a view to consolidate the affairs of all concerned towards maximum production of trained staff for the banks. In addition, most of the commercial banks have trained schools of their own where various levels of their personnel are trained to acquire better skills. The central bank also has its own trained schools designed to carter for its staff and has been admitted a few members of staff of other financial institutions into the school. 3.0. The Nigeria institute of banker was chartered in 1990 (now ACT 5o of 2007) the name is now chartered institute of bankers of Nigeria (CIBN). 3.1 The principle responsibilities of CIBN includes the determination of the standards of knowledge and skills to be attained by person seeking to become a member of banking profession, conducting professional examinations leading to the award of certificates and ensuring the furtherance, maintenance and observation of ethical standards and and professionalism among practitioners. the banking profession in Nigeria. 3.8 Membership: The institute has corporate and individual members. Corporate members are: the bank of Nigeria, the Nigeria deposit insurance corporation, all deposit money bank, development bank, mortgage banks, micro finance bank and discount houses. 3.9 Vision statement: To be a world class institute in banking and finance education, ethics and professionalism Mission to consolidate and sustain it a position as a self regulatory professional body in Nigeria promoting banking and finance education, ethics and professionalism consistence with global practice Core values *professionalism *integrity *excellence *transparence *ethics *commitment 3.10 Executive management Name Designation Oju m. ogubunka; Ph.D; Registrar/chief executive FCIB Mr, olutale faclare, FCIB Deput Registrar Mr. segun shunubi Assistant director, members services Mrs. Rukayat Ysuf Assistance director national secretariat annex, Abuja. Mr. Oluseye awejobi, Assistant director ethics and professionalism FCIB Mr. akin morakinyo Assistant direction, capacity building and certification Mr. Festus Anyanwu, Principle manager, finance and corporate ACIB services Mrs.Sena Ayodeji, ACIB Principle manager, learning and development 3.4.1 Office holder Name Description  Mr. Segun Aina OFR, FCIB President/chairman of council Otunba(mrs) Debola Osibogun, FCIB First vise president Deacon Segun Ajibola Ph.D, FCIB Second vise president Mr. uche Messiah Olowu, FCIB National treasurer Uju M Ogubunka, Ph.D, FCIB Registrar/chief executive CIBN past presidents Lagos local of the institute of London [the forerunner of the chartered institute of banker of Nigeria] Period Name 1963-1965 Mr. D.A Macleod 1965-1967 Mr. C.K.N Obih FCIB 1967-1976 Sir (chief) F.A Ijewere, FCIB) (deaced) Nigeria institution of bankers Period Name 1976 Sir (chief) F.A Ijewere, FCIB  (deased) 1976-1981 Alh (chief) A.O.G Otiti, OON, FCIB 1982-1985 H.R.H (alh) S.A.O sule OON, FCIB 1985-1987 HRH (prof) Green O. Nwankwo, OON, FCIB 1987-1989 Chief Samuel I. Adegbite, OFR,FCIB 1989-1990 Dr. F.A Adekanye FCIB (deceased) The chartered institute of Banker in Nigeria Period Name 1990-1992 Dr.F.A Adekanye, FCIB (deceased) 1992-1994 Mr. R.K Oluwole osayemeh, FCIB 1994-1996 Mr. femi ekundayo FCIB 1996-1998 Prof. wole Adewunmi FCIB 1998-2000 Chief luke Okafor, FCIB 2000-2002 Prince Kola Odubanjo, FCIB (deased) 2002-2004 Mazi O.C.K unegbu, FCIB 2004-2006 Mr. Samuel Kolawole, FCIB (deceased) 2006-2008 Mrs. Juliet A. Madubueze, OON, FCIB 2008-2010 Dr. Erastus Bankole Akingbola, OON, FCIB 2010-2012 Mr. Joseph Laoye jaiyeola FCIB Past Registrary of CIBN (i) Alhaji G.G Olorun-rinu: first administrative secretary of institute 1973-1980 (ii) Mr. A.A Adenuli, mni, FCIB: executive secretary of institute 1980-1988 (iii) Mr. A.A Adenuli, mni, FCIB: first registrar/chief executive 1988-1996 (iv) Chief S.O Dada, FCIB: registrar/chief executive 1996-1999 (v) Mr. Esan Ogunleye FCIB: registar/chief executive 2000-2005 3.11 Membership services : They include: *registration *exemption *completion of subscription and development levy *liason with branches and CIBN chapter *franchising license *disciplining of erring members *fellowship investiture *annual general meeting *ACIB induction/price awards *honorary senior members induction There is a department in charge of membership services and they are responsible for the organization of the fellow and associate forum, the ACIB graduates induction/prize award day and bankers conference. The department is also responsible for coordinatin the board of fellows, membership and branch development committee investigation panel and the sub committee and ethics and professionalism. 3.11.1.1 The membership Registration The institution membership is open to: *persons employed in banks and other financial institution or engage in anon-banking and/or a non-finance related organization *self employed and unemployed persons: It should also be noted that the registration of members is an online based one with the use of ATM cards 3.11.2 Current membership fees (1) completion of forms by prospective members is required for full registration as members of the institute. (2) On completion and submission, the institute would forward the applicant’s unique membership number after consideration and approved has been made. 3.11.3 Membership dues Particular dues must be paid in bank draft or certified cheque draw in the institute’s name before the process of the submitted applicant form i. ordinary members # Application form 500.00 Registration fee 2,000.00 Annual subscription 1,000.00 Development levy − Exemption fees Exemption application form 2,000.00 Fee per subject 2,000.00 ii. student members. # application form 500.00 Registration fee 2,000.00 Annual subscription 2,000.00 Development levy (once) 2,500.00 Syllabus fee 500.00 Exemption fees Exemption form 3,000.00 Foundation (per subject) 4,500.00 Intermediate/professional (per subject) 6,000.00 iii. Honorary senior members # application form 2,000.00 Registration form 10,000.00 Annual subscription 12,000.00 Development levy (once) 100,000.00 Life membership (option) 180,000.00 iv. Associate members # annual subscription 5,000.00 Development levy (once) 7,500.00 Life membership (option) 75,000.00 v. Honorary fellows # Application form 2,000.00 Registration fee 12,000.00 Annual subscription 12,500.00 Development levy (once) 300,000.00 Life membership (optional) 187,000.00 vi. Fellows # Application form 2,000.00 Registration fee 12,500.00 Annual subscription 12,500.00  Development levy (once) 60,000.00 Life membership (optional) 187,500.00 Vii conversion fees for association of other banking institute # Application form 2,000.00 Registration fee 5,000.00 Annual subscription 5,000.00 Development levy (once) 19,000.00 Life membership (optional) 75,000.00 3.11.4 Member strength: The implement of know CIBN ACT NO5 of 2005 has made membership of institute compulsory for staff of banks in the country and management’s intensified effort at membership drive, the membership strength has increased grade by grade as shown in the table below: Category Fellows 636 Honorary senior members 574 Associates 4,556 Student members 83,812  Ordinary members 3,591 Total 93,169 3.11.5 Membership programmes ACIB GRADUATE INDUCTION/PRIZE AWARD DAY The institute organizes ACIB induction/prize award ceremony for those members who completed the profession examinations of the institute and are inducted associates. Prize and awards are given to those who excelled at the institutes examination at various levels in the previous year during the program (a) Objective of the program 1. to acquaint graduands with the opportunities associate with their chosen career and to equip the graduands to cope with life after acquisition of ACIB profession qualification. 2. to foster a life-long relationship between the graduands and the institute. 3. to inform the graduands of the conduct expected of them as profession bankers 4. to bring the attention of the public the contribution of the institute and the graduands to the economy 5. certificate presentation to graduands 6. prize awarding to students who excel in the ACIB examinations. (b) Fellows and associate forum An annual exclusive forum is organized for its professionally qualified members (fellows and associates) Annually to reflect on issues that after banking and bankers by the institute. Members of the diplomatic corps and distinguish banker who have experience in the subject being received present papers which participants considerate syndicated and plenary sessions with a view to improving banking practices and ethical standard in the banking and finance sector. (c) Second Annual banking and financial conference The banking conference is held with the aim of bringing together all stake holders in the banking and finance industry to brainstorm on topical issues. It also provide competitive environment where branch reports are received and evaluated. Conference objectives 1. Serves as a platform for a yearly assembly of all stake-holders in the banking and finance industry to address current topical issues. 2. To share experiences on national and international economic and developments. 3. To discuss recent developments affecting banking and financial institutions (d) Annual general meeting The annual general meeting of the institute is held on the first standard of may of every year at the national secretariat. Election of offices is however held bi-annually during the meeting. Exemption policy code for members and professionalism The code of ethics and professionalism is produced by the sub-committee on ethics and professionalism of the bankers committee. The code contains a list of acts, conducts and a mission classified as un-ethic as well as the frame work for addressing this in business of banking and finance in Nigeria. The code thus provides the procedure for dealing will complaints un-ethical practice and the sanctions for in fractures of the provision Un-ethical practices/unprofessional conduct in banks include but are not limited to the following: 1. conflict of interest 2. abuse of trust/office 3. misuse of information 4. inside abuse 5. office and acceptance of gratification 6. non-conformation withstands and guide lines 7. associating with people of doubtful character. 8. aiding and abetting. Sanction The such committee should apply the following sanctions 1. the fundamental principal of restoration, retribution deterrent and equity will by given in the application of sanction on all cases decided. 2. where offences are clear and contradict existing regulation guidelines e.g CBN guidelines-CBN sanction would apply 3. for offences with no precedent, the subcommittee would use its best judgment based on the principles enunciated above. In such cases, the subcommittee would recommend specific sanctions to the appropriate regulatory body 4. individual maybe warned or advised by the subcommittee where necessary 5. in all cases of sanction, specific time frame shall be for compliance Chartered institute of bankers of Nigeria ACT, 2007. ACT No5 An act to repeal the chartered institute of bankers in Nigeria act 1990 and to re-enact the institution to provide for the control of membership and practice of the banking profession in Nigeria and related matters. Enacted by the national assembly of the federal republic of Nigeria PART1- establishment, ETC of the chartered institute of bankers of Nigeria 1.1 there is established body to be known as chartered institute of Nigeria (in this act referred to as the institute) 2. the institute a. shall be a body corporate with perpetual succession and a common seal. b. may sue and be sued in its corporate name; and may acquire hold and dispose of any property, movable and immovable 2.1 subject to the provision of this act, membership of the institute shall be in two categories viz corporation and individual 2.2 all persons employed in the banking institution in nigeria are enable to be in two registered by the institute in any of the following categories a. Ordinary member b. student member c. graduate member d. associate member e. honorary member f. honorary fellow and g fellow provided they meet the criteria set by the council of registration in the category from time to time 3. pursuant to subsection (1) of this section, all corporate members shall cause their staff to register with the institute to ethical standard professionalism and self regulation in the banking and financial services industry 4. A person registered under this act shall be enrolled to a higher membership status in any of the following categories. a) as an ordinary member if he – (i) satisfies the council that he is eligible to be so registered; (ii) works in a bank or other financial institutes; and (iii) does not fall within any of the other categories specified in paragraphs (b)-(g) of this subsection. (iv) has passed associate-ship examination but has not met other conditions specified in paragraph (d) of this subsection. c. as an associate members if he- (i) satisfies the council that he is eligible to be so registered and has passed the associate-ship examination and; (ii) has to acquired on the practical banking or related experience for such number of years that any be specified by the council; d. as an honorary senior member if he- (i) satisfies the council that he is eligible to be so registered, (ii) has obtain such academic such profession or other qualification(s) as maybe prescribed by the council from time to time (iii) has held any senior management positions in a bank or other financial institutions and (iv) is neither a fellow or an associate. E. as an honorary fellow- (i) if he satisfies that he is eligible to the awarded the honorary fellowship of the institute. F. as fellow if he- (i) satisfies the council that he is eligible to be so registered and has for a number of years (to be specified by the council) been an associate member of a holder of approved academic qualifications and (ii)satisfy all other criteria as may be specified by the council from time to time G. As a corporate member if it- (i) satisfies the council that he is eligible to be so registered (ii) satisfy all other criteria as maybe specified by the council from time to time 5 as a member or a corporate member of the institution entitled to receive from the council, a letter of registration of membership for the category of membership. 6. a fellow, honorary fellow, honorary senior member or an associate shall be entitled to the use of such letter after his name as maybe authorized by the council from time to time as follows: (i) A member registered into the category of member of fellow shall be entitled to use the initial “FCIB’, (ii) A member registered into any of the category of honorary senior member shall be entitled to use the initials “HCIB”, and (iii) A member registered into the category of membership of associate shall be entitled to be to use the initials “ACIB” 7. No person shall be entitled to be employed or appointed or engage to be head of the technical departments of a bank unless he dully registered as a member of the institute. PART II-Responsibility of the institute 3. the institute shall have responsibility to a. determine the standard of knowledge and skills to be attained by the person seeking to become members of the banking profession, b. secured in accordance the provision of this act, the establishment and maintenance of a register of member of banking profession in the categories of ordinary members, student members, honorary fellow and fellows of the institute and a register of corporate members c. conduct professional examination leading to awards of the banking profession in Nigeria PART III-election of the president and the vice president of the institute 4(i) there shall be a president and a vise president of the institute who shall be fellows of the institute There are other contains in these part III and the act runs part IV PART IV-membership of governing council of the institute etc PART V-power of the governing council PART VI-appoint of a registrar PART VII-Registration of members. 4.0 Summary : Since its inception, the Nigeria institution of bankers has withstood the challenges posed by the storage of manpower in the banking industrial in Nigeria. The institute has concentrated its effort on helping members of staff employed in the banking industry to acquire modern banking techniques and prepare for higher responsibilities in various institution. In pursuance of this objectives, the institute has a planned educational program covering the conduct of revision course for its examination and various seminars are held to further educate its members on the law and practice of banking and improve their professional skills. Furthermore, the Institute core values has been promotion of professionalism, excellence, transparency, ethics and putting honesty and integrity at the fore, etc 5.0 Conclusion: The CIBN,being somewhat a regulatory institution has been performing creditably and has succeeded in enshrining current educational curriculum details in the educational system of our country and the continuous impartation of Banking methodology and practice knowledge to those in the banking profession. 6.0. Revision questions 1. what is the full meaning of CIBN and in what year was the Nigerian institute of bankers chartered and according to what act. The act repeal which other act. 2. what is the principal responsibilities, mission, core values and vision of CIBN and who are the member of CIBN 3. the banking profession in Nigeria is controlled and regulated by what bodies. Mention and briefly explain 4. mention the membership strength of CIBN and the membership programme 5. mention the executive management and office holders in CIBN 7.0. References: Omolaja, A. A. ( 1998). The Law and Practice of Banking in Nigeria. Ife: University of Ife presss (ii) Ekezie, E. S. (1997). Elements of Banking: Money, Finance Institutions and Markets. Onitsha: Africana-Fep publishers (iii) www.cibn.org MODULE 6 FINANCIAL STATEMENTS Unit 1 Income Statement Unit 2 Statement of Financial Statement Unit 3 Other Useful Bank Financial Statement UNIT 1 INCOME STATEMENT CONTENTS 1.0 Introduction 2.0 Objectives 3.0 Main Content 3.1 Bank Financial Statement 3.2 Income Statement 3.2.1 Interest Income 3.2.2 Interest Expense 3.2.3 Non-Interest Income 3.2.4 Loan-Loss Expense 3.2.5 Non-Interest Income 3.2.6 Non-Interest Expense 3.2.7 Net Income 3.2.8 Current Earnings 4.0 Summary 5.0 Conclusion 6.0 Tutor-marked Assignment 7.0 References/ further Reading 1.0 INTRODUCTION It is of utmost importance to a business, that it's financial health be measured from time to time, hence the need for financial statements to be prepared. The income statement is one of such financial statements, it helps decision makers to ascertain the performance of a business for specified period of time. The Income statement provides user of financial information with information relating to the revenue generated by a business and the expenses incurred in generating those revenues. 2.0. OBJECTIVES This unit aims at familiarizing the reader with the concept of financial statements, particularly the workings of the income statement. At the end of this unit, the reader should amongst other things be able to  Discuss the concept of financial Statement  Define an income statement  List and explain the components of an income statement 3.0 MAIN CONTENT 3.1 BANK FINANCIAL STATEMENT A Financial Statement is the record of all financial activities that have taken place in a firm within a given time frame, usually one year. This statement comprises, the income statement (statement of comprehensive income), the balance sheet (statement of receipt position) and the cash flow statement and where necessary by the time of International Financial Reporting Standard (IFRS) we schedule statement of change in equity position of the firm. The income statement and the balance sheet, together ascertain the profitability level of the firm and the value of the firm, because considering the Assets of the firm and how these Assets will actually funded. However, the bank business due to its has a peculiarity has a slightly different format, with respect to its financial statement. The bank financial statement or income budget (loss of financial inputs and outputs), and bank balance sheet (value of the firm report) or report of condition. Title: Bank financial statement basic component Income statement (report of income) for the period event December, 2016 Revenue: (delivered the bank’s services-output) loans income Deposit service fees (non-interest services of income) investment income Expenses: (cost of inputs of released resources) interest paid on deposit Employee compensation (salaries and wages) provision for loan assets Other expenses Income before taxes and securities personnel taxes Games/losses for operation Net income offer debts and securities Bank’s report of income should be revenue and expenditure pattern of the bank, only a given time drawn, usually one (current) year, Evidence suggest that there is a relationship between the level of the principal items and a bank balance sheet and its income report, because balance sheet assets deposits majority of the operating revenues, while liabilities creates the bulk of the bank’s operating expenses The interesting source from loans (L), securities (S) other interesting bearing deposits the cash assets (C) with other banks as well as other miscellaneous assets (M) institute the major source of bank revenue whereas, expenses incurred in the cause of generalizing the revenue include interest paid in deposit (D), interest owing on non-deposit borrowings (NOB), cash of ordinary shaves (COS), salaries, wages and benefit paid to the expenses (SWB) andOverhead expenses relative to physical plants(s), possibly when losses funds, taxes and (TO) and miscellaneous expenses (ME). Though the difference between total revenue and total expenses becomes net income. i.e Net income = Total revenue items (TRI)- total expenses item(TEI) where revenue expenses = (cash*average cash + investment securely * average yields on investment security + loan outstanding * average yield on loan outstanding + miscellaneous assets + average yield on miscellaneous assets) minus expense items = (Total deposit * average invest cash on deposit + non deposit borrowings * average invest cash on non-deposit borrowings + owners capital * average cash of owner capital + employees salaries, wages and benefits expenses + overhead expenses + provision for possible loss + miscellaneous expenses + taxes owed) using r to represent average yields on assets and i to represent the interest cost on deposit, non- deposit borrowings, and owners capital, the bank’s net income as reported must be the following – Net Income = (C*rcash+S*rsec+L*rloans+M*rin)- (D*id+woB*inds+EC*iec+SWB+o+PLL+ME+T) (Robe, 1999:135) it shows that banks that wants to increase their net income have several possible options: (1) increase the average yield on each assets held; (2) redistribute their average assets towards those assets with a higher average yield; (3) reduce their interest or non-interest expenses on deposit, non-deposit borrowings and owners capital, (4) slight their funding sources toward less-costly deposits and other borrowings. (5) find ways to reduce their employee (SWB), overhead(s), loan-debts 3.2 INCOME STATEMENT INCOME STATEMENT FOR AKPAKURURU BANK LTD N’ M Interest Income Interest and fees on loans (Loan income) 880 Interest on investment securities (security Income) Taxable securities Revenue 86 Tax-exempt securities Revenue 50 Other interest income 47 Total interest income 1063 Interest Expense Deposit interest cost 698 Interest on short term debt 116 Interest on long term debt 60 Total interest expenses 874 8. Net-interest income (Interest margin) Total interest income – Total interest expenses 189 Provision for possible loan losses 120 Net income after provision for possible loan losses 69 Non interest income: Service charges on customer deposit 35 Trust department income 31 Other operating income 90 Total non-interest income 156 Non-interest expenses : Wages and salaries and other personal expense 116 Net occupancy and equipment expenses 40 Other operating expenses 111 Total non-interest expenses 267 Net Non-interest income 111 Non-interest income-non-interest expenses Income (or loss) before income taxes 42 Provision for income taxes 8 Net income (loss) after taxes 34 3.2.1 INTEREST INCOME Most bank revenues (6th of total) are actually accounted for by interest and fees from loans account. In the case of Akpakururubank N880M in loan revenues represent about 72 percent of total interest and non-interest of the bank. Next is investment earnings from taxable and tax exempt securities, and interest from loans and repurchase agreements, and interest received on the deposit in other banks. The important however, the facts from time to time until change in interest rates and loan demand, even though loan income most often dominate the revenue base. In recent time though, it is become clear that fee income is grows faster than interest income on loans. 3.2.2 INTEREST EXPENSE The fundamental bank expense item is interest on its deposit and as stated above, it amounted to 61 percent of the bank’s total expenses. The interest on short-term borrowing in money market especially borrowing of resources from other banks institute the most rapidly growing interest expense item in record time. 3.2.3 NON-INTEREST INCOME This is also referred to as the net-interest margin, which is the subtraction of total interest expense from total interest income. It is basically a key determinant of bank profitability. When this margin rises, bank shareholders usually expenses strengthening of the banks bottom line (its after tax earnings and also in the dividend they received on share of stock held) 7.1.1 LOAN-LOSS EXPENSE Another expense item that bank’s debit from current income is the provision of possible loan loss. It is a non-cash expense of a book keeping entry. It does keep a portion of the bank’s current earning from taxes in order to help prepare for bad debts. Since it is tax deductible, banks are often tempted to inflate the provision for loan losses so as more of their current earnings from taxes. Normally a bank calculates for the year its provision for loan losses and adds the calculated amount to its allowance for loans on the balance sheet. It must also add to its allowance for loan losses any funds revered (litigation or liquidation of borrow assets, disposable of assets etc) on loans previously changed as losses. Eg. Suppose Akpekururu bank had an allowance for loan-loss of N1,500,000 cash year and received N250,000 as loan expense (provision) for the current year. However, the cash recovers N100,000 from loans previously written off against the allowance for loan-loss account. It should actually be added back to the loan-loss account to recover a part of what was deducted when the initial trouble was were written off furthermore, suppose the bank management declares N150,000 in current loans as uncollectable and worthless this year, its allowance for loan loss account for this year will appear thus: RECONCILIATION OF LOAN-LOSS RESOURCE N Balance in allowance for loan losses as at end of previous year 1,500,000 Recoveries on loans previously charged off 100,000 Change offs of loans declared uncollectable this year 150,000 Current provision for loan loss 250,000 Balance in allowance for loan losses, end of current year 1700,000 Amount of loss is deducted from total gross loans on the balance sheet and also from the loan- loss reserve, when loans are deemed worthless. E.g suppose a banks gross (total0 loans is N7M and it expense worthless loans of N200,000 this year. Its current loan-loss reserve (allowance) is n1,700,000, without loans, the balance sheet will appear thus: Assets Gross Loans N7,000,000 Allowance for Loan-Loss Resources 1,700,000 Net Loans 5,300,000 Suppose management determines that N200,000 in current loans are actually worthless and should be written off. The bank balance sheet will appear Assets Gross Loans N6,800,000 Allowance for Loan-Loss Resources 1,500,000 Net Loans 5,300,000 Current interest income accrued, but not received from a worthless non-payment loan is deducted from a bank’s current income. 3.2.5 NON-INTEREST INCOME: These are income from other sources than loans and securities. They include fees earned from offering trust services, service charges on deposit accounts, and miscellaneous fees and charges for other bank services (security brokers , insurance and trust0. It is indeed a key source of potential revenue, it pursued more aggressively and it will equally insulate banks from the effect of interest rates fluctuation from our bank statement the N156Mnon interest income was 13% of total income for the deposit period. 3.2.6 NON-INTEREST EXPENSE: salaries, wages and other defund expenses, happens to be the key non-interest expense item and it has persistently bean rising over the years, partly due to the increase in the search for graduate employees and experienced managers in an attempt to outwit competition. Addition to this is the cost of hiring and monitoring bank properties, rental fees an office equipment and Many other small expenses items lacking legal fees, paper and office supplies and repair cost. 3.2.7 NET INCOME The deduction of the non-interest and interest expenses from the sum of the interest and minor interest income, to yield income (LOSS) before state gives the net after tax income often the application of Federal state income takes home been deducted as well. The trailing in security (Purchase, sell or redeem) during the year might result in gain or loss and this is recorded as ordinary operation income/loss by law. It therefore means that security gains are subject to full corporate tax income. However, most reports securities gains or loss as a compound of non-interest as separation item or as miscellaneous/ income, and they can be used to smooth out its net income from year to year that is if earnings from loans decline, securities gains may offset all or part and the decline. Another dimension to the issue of stability earnings consists of non-recurring sales of assets. There extraordinary (One Time) income or loss transaction often concern financial assets or real property pledge les collateral on a loan already foreclosed by the bank, which usually carries minimal market value in the books. However, it is sold eventually the price may be substantially higher and by implication a higher effect. 3.2.8 ON CURRENT EARNINGS Net income after taxes is the major item in the income statement, because it is what is divided into two, a part to shareholders as divided and the regained for future benefits and growth of the firm. This other one is also called undiluted Project in the bank’s capital account. From our Analysis, we note that the bank recorded income loss within the period, due to losses from its foreclosure or delinquent real estate and energy loans, which seriously increased the provision for loans-losses and by extension earnings. 4.0 SUMMARY The Income statement of a business helps decision makers to ascertain the performance and profitability of a the business, it records the various revenue sources of a business for a specified period of time and matches it against the expenses incurred within the same period. The Income statement provides decision makers with relevant information relating to the gross profit, operational profit and the net profit of the business. 5.0 CONCLUSION Decision makers rely heavily on information generated from the income statement to take crucial decisions, hence information contained in the income statement must be reliable, faithfully represented and conform to set standard so as not to misguide users who rely on them. 6.0 TUTORED MARKED ASSIGNMENT What do you understand by the term income statement? List and Explain the Components of a bank's Income Statement Why do bank prepare income statements? 7.0 References: Jombo, O.C. (2003). Elements of Banking. Owerri: Barloz Publishers Nzotta, S.M. (2004). Money, Banking and Finance: Theory and Practice. Owerri: Hudson- Jude Publishers Oleka, C.D. (2006). Fundamentals of Money Banking and Financial Markets. Enugu:Academic publishing Company. Otu, P.A. (2001). ; in Mbat, D. O. (ED). Topical Issues in Finance.Uyo: Domes Associates Publishers. Rose, P. S. (1999). Commercial Bank Management. Boston: Irwin/ McGraw-Hill  UNIT 1 BANK BALANCE SHEET CONTENTS 1.0 Introduction 8.0 Objectives 9.0 Main Content 3.1 The Bank’s Balance Sheet (Report Of Condition) 7.2 Bank Assets 3.2.1 Loans (L): 3.2.2 Deposit (D): 3.2.3 Equity Capital (Ec) 3.2.4 Cash Account: 3.2.5 Marketable Security 3.2.6 Investment Security 3.2.7 Loans 3.2.8 Unearned Discounts 3.2.9 Non-Performing Loans 3.2.10 Federal Funds Sold (Popo) 3.2.11 With The Central Bank 3.2.12 Miscellaneous Assets 7.3 Bank Liabilities 3.3.1 Deposits: 3.3.2 Non Deposit Sources Of Funds 3.4 Capital Accounts 3.5 Retained Earnings 4.0 Summary 5.0 Conclusion 6.0 Tutor-marked Assignment 7.0 References/ further Reading 1.0 INTRODUCTION A balance sheet is a financial statement that provides a snap shot of the financial position of a business at a particular at point in time, usually the of a businesses financial year. The balance sheet is another effective financial statement utilized by both internal and external users to financial state of a business. The balance sheet identifies the Assets of a business and the various forms of funding (equity and liabilities) employed in acquiring the assets. 3.0 OBJECTIVES Given the fact that the student is now familiar with the Income statement, this units introduces another effective financial statement known as the statement of Financial position or the balance sheet. This unit aims at acquainting the reader with the concept of balance sheet, the reader should after perusing this unit be able to:  Discuss the Term Balance sheet  Identify the components of a balance sheet  Differentiate the balance sheet and and income statement  List the components of the liability section of a bank's balance sheet  List the components of the assets section of a bank's balance sheet 3.0 MAIN CONTENT 3.1 THE BANK’S BALANCE SHEET (REPORT OF CONDITION) A Bank’s Balance Sheet shows the level of Assets acquired by a firm and the level of funding used in acquiring the Assets, in the form of liabilities and equity inherited on the Bank at a given point in time. The two key elements therefore, are the financial inputs and output. THE REPORT OF CONDITION Financial Output Financial Input (Uses of Bank Funds Assets) (Sources of Bank Fund L+B) Loans and Leases securities Deposits from the public Cash and deposits in other securities Non-deposit borrowing Equity capital  from owners Total Assets most equal Total liabilities + Equity since Bank are engaged in business, selling a special kind of product (funds), the bank balance sheet identity Assets (A) = Capital (C), or Assets (A) = Liabilities (L) + Equity (E) 3.2 BANK ASSETS For the banking form, assets the balance sheet comprises the following – Cash (in vault and deposits in other banks (C), interest bearing securities (government and Private) purchase in the open market (S), loans and lease financing to customers (L) and Miscellaneous Assets to various customers (D) and Non-deposit borrowings of funds in the financial markets (Money and Capital). Then equity capital, which reports to long term fund as per owners contribution to the bank (EC). The bank’s balance sheet identify therefore becomes: C+S+L+MA=ND+EC Cash Assets (C) enables the bank to meet liquidity needs, in order to consider deposit withdrawals, deemed for loans and other agencies. Security handlings (S), is a source of back-up to cash with respect to solving liquidity issues, as they can be easily transformed to cash. 3.2.1 LOANS (L): This one is to basically supply funds (income) to the deficit economic units in need, white miscellaneous assets (MA) are a function of the fixed assets (Property, Plant and equipment) owned by the bank and investments in its subsidiaries. 3.2.2 DEPOSIT (D): These are the main source of bank funds, with non-deposit borrowings (NDB) coming to supplement it, by providing additional liquidity that cash and securities can not provide. 3.2.3 EQUITY CAPITAL (EC): This supplies relatively stable long term funding of financial support for the bank, the bank’s growth or courage for extra-ordinary losses, banks liabilities and equity, actually connotes accumulated sources of funds, while a bank assets on the other hand are its accumulated uses if funds; for the purpose of generating income, pay interest to its depositors and compensate the bank employees for their labour and skills. That is: Accumulated Uses Accumulated Sources Of Bank Funds Of bank funds (Assets) = (Liabilities + Equity) Indicating these each use of funds must be supported by a clear sources of funds, so that both earnings must be equal. However, the principal component of a Bank balance sheet can be deposited thus:  ASSEST LIABILITY AND EQUITY Cash (Primary Resources) Deposits: Liquid Security holdings (Secondary NOW (Negotiating Order of Withstanding) Resources) Money Market Marketable security Sevings Loans Time Commercial Non-deposit borrowings Agriculture Stock Real Estate Surplus (excess of par retained earnings Financial institution Resources (capital) Miscellaneous assets (Buildings, Plan, Equity) Table: Balance Sheet (Figures) Bank Assets: 3.2.4 Cash Account: This is the Non liquid of assets and it is often the first item normally listed in a bank’s balance sheet, as well as deposits due from other banks. This is the primary resources because it encompassed cash in bank vault, deposits the bank with other banks (corresponding deposit) cash items in the process of allocation (uncollected cheques) and resources held with the Central Bank. It is like bank first lose of defence in terms of deposit withdrawal and like first issuer for unexpected loans request. In all, because this account earns little or no income, bank tries as much as possible to allow this account to be kept low. Cash and deposit from banks 760 1,200 Marketable securities 2,100 2,300 Service (Trading) securities 50 120 Report (repurchase agreement of Rental Bank Funds Sold and Securities purchase) 370 540 Loans Gross) 12648 12,100 Allowance for possible loan-losses (324) (156) Unearned document on loans (89) (109) Loan (Net) 12,235 11,835 Lease financing receivable 151 100 Bank premises equipment (Net) 243 240 Customer’s liability of acceptance 50 90 Miscellaneous Assets 794 950 Total Assets 16,753 17,375 LIABILITIES AND STOCKHOLDER’S EQUITY (ACCUMULATED SOURCES OF FUNDS) DEPOSITS Non-interest bearing demand (chequeing) deposit 2367 2621 Savings deposit as non account 703 726 Money market deposit account 1,700 1,750 Time deposit 7,545 7,780 Deposit at service branches 574 620 Total deposit 12,889 13,497 Non-deposit borrowing Federal funds purchased and securities Sold under agreement to repurchase 1,710 1,421 Other short term debt 700 520 Mortgage debt 210 240 Notes and debenture (subordinated) 100 100 Other liabilities Outstanding acceptance 45 55 Miscellaneous liabilities 170 250 Total liabilities 15,824 16,113 Shareholders’ equity Common stock 300 300 Preferred stock 5 5 Excess par value (supply) 402 400 Retained earnings 329 557 Total stockholders equity 1,036 1,262 Total liabilities and equity 16,860 17,375 3.2.5 MARKETABLE SECURITY: This is the bank security liquid holdings as a second line of defence against demand for cash. It is the secondary resources. They include holdings of very short term government (Federal State and Local) securities and money market instruments, including interest bearing time deposits with other banks and. They earn some income, but are held mainly because of the ability to be connected to cash at the shortest possible time. 3.2.6 INVESTMENT SECURITY: The income generating system. Instruments (Notes, Bonds and other securities) held basically for their expected rate of return or yields are the ones known as investment securities, and are often divided into taxable (Federal Government Boards as interest)and corporate bonds and notes and non-taxable securities make up primarily of state and local government bonds, as they are exempted from Federal income tax. Investment securities are recovered in banks books mainly at their original cost, however, it may also be recovered at market value, or at the lower of cost or market value. Furthermore, banks that record their securities on their balance sheet at cost often add parenthetical note given the securities current market value as a result of interest rate vagaries. In recent time the banks prefer the use of current market value. Also, trading (Federal, State and Local Government ) accounts represents securities the bank interest to sell before they reach maturity and also valued at market. 3.2.7 LOANS: This basically is the largest asset item in the bank’s balance sheet. Gross loans is the sum of all the outstanding IOU’s (debts) owned to the bank in the form of consumer, business mortgage loans and other credits extended by this banks to other financial institutions security dealers. Loans-losses (Present and projected) are deducted from the gross figure. However, based on loan-loss experience, banks are allowed to build a resource for future loan- losses, known as Allowance For Possible Loan Losses (ALL). The ALL, which is a contra-asset account, represents an accumulated resource. Against which uncollectable loans can be charged off. The idea is to make sure that bad loans ordinarily should not affect bank’s current income unless the loans defaults unexpected and no resources had been set aside) in that vein, when a loan is deemed incollectible the bank will charge it off the books by reducing the ALL account by the amount of the uncollectible loan while simultaneously reducing the asset account for gross loans. The Allowance for possible loan loss is built up annually via deductions from current income. These deductions appear on the bank’s income statement as a non-cash expense item called provision for loan losses (PLL) 3.2.8 UNEARNED DISCOUNTS: This is another item deducted from gross loans. They consist of interest income from loan that have been received from customers, but not entered due to the accrued method adopted by banks. 3.2.9 NON-PERFORMING LOANS: Is another loan category on the books of banks , and they are credits that no longer accrue interest income for the bank. This is so, especially when banks restructure loans to accommodate borrowers changed situations. 3.2.10 FEDERAL FUNDS SOLD (POPO): This is federal funds sold and securities purchased under agreement to resale. They include overight bills (Borrowed funds extended overight returned the following day) made to other banks such funds often comes from bank resources. 3.2.11 WITH THE CENTRAL BANK Customer’s liabilities on acceptances. This is a dual pair account, as it is listed as an item when bank liabilities, as well as asset account known as customers’ liabilities acceptances outstanding. This bank account increases as a bank decides to stand behind a customer’s credit, most to help pay for imported goods. The bank agrees to sign a letter credit which allow a third party to draw a draft against the issuing bank for a specific amount on a determinable future date. However, on or before specified date, the customer that requested the acceptance must pay the bank in full. The issue bank will in turn know the acceptance on its due date, paying in full the amount shown on the face of the draft to the current holder of the draft. Therefore banker’s acceptances give rise to an asset item (consumer liability to the bank) and a liability item (the bank’s promise to honour the acceptance draft on the date specified). They are extensively used for ,shipment, storage goods, purchase of foreign currencies and agricultural products are in the domestic economy 3.2.12 MISCELLANEOUS ASSETS: This includes the net (adjusted and depreciated) value of the bank buildings and equipments, interest in subsidiary gives, prepared insurance etc. fixed assets generally generates fixed operating cost by way of depreciation expense, property taxes, which operating leverage Which will enables the banks to boost its operating earnings if sales volume increases more. Therefore with few fixed assets relative to other assets, banks can not rely heavily on operating leverage o increase earnings; they must rely mainly upon financial leverage to boost earnings performance and remain competitive. 3.3 BANK LIABILITIES 3.3.1 DEPOSITS: This is the basic or principle liability of any banks, which ofcourse represents financial claims of consumers (household), businesses and government agents the banks. The following types of deposit exist.  A. NON INTEREST BEARING DEMAND DEPOSITS (Cheque Account): Here the account holder is permitted to withdraws at will and to the time of his access and do not receive any explicit interest, though there might be room for some implicit interest depending on arrangement. B. Negotiable order of withdrawal (NOW). This is an interest bearing account operated by individuals and many profit organizations, that permit draft to be written against the account for the payment of third party. C. MONET MARKET DEPOSIT ACCOUNT (MMDA): Allows the payment of competitive interest on the account and have limited chque writing opportunity. A seven days notice is required before any withdrawal is made, even though there is no maximum elimination or maturity requirement. D. TIME FIXED DEPOSIT: This is basically a certificate of deposit (CD), carrying e fixed term and a stipulated interest rate of any denominations, maturity and yield determined by the bank and depositor. Banks hereby depends on depositors for their services. In the case of the bank we have been analyzing, total deposit (N13,497,000) funded 78 percent of its asset. The average bank has high exposure to failure rise due to the volatile nature of depositors claims. Which is extremely large compared to Other Equity in the bank. In order to contain the twin presence of risk and liquidity, bank must always be confines in their choices of loans and other assets, else they collapse under the weight of depositors claims. 3.3.2NON DEPOSIT SOURCES OF FUNDS: The larger the bank, the larger the potential to get funds from other sources and so a large extend the non-deposit sources becomes imminent. Borrowing in the money market can be of over right circumstance and can be arranged on moments and there are actually no reserve requirement on most of these funds. The interest rates on these sources are somewhat highly volatile. The most important non-deposit funds source is the central bank funds purchased and securities sold under agreement to repurchase other short term borrowings include those from resources from the discount windows of the CBN (OMD) and Eurodollar borrowings from Multi-national banks showed at form the borrowing banks overseas branches. Long term debt are also issues is like form of mortgage loans for the purpose of constructing new office facilities re-arraying plant and equipment. There are also other liabilities accounts, which covers miscellaneous amounts owned by the bank, like duly to pay off investors who hold bankers acceptance and deferred tax liability. 3.4 CAPITAL ACCOUNTS: This represent owners (Equity) contributions to the business. No bank or individual firm starts a business with 100% debt, because there must be the involvement of the real risk takers Equity new bank must begin with a minimum amount of owners contributions and there go ahead to borrow funds public to support its operations. Banks capital account most often represents cash than 10.1% of the total assets because they are the most levered of all businesses. Inn our own cash the stockholders equity of N1.267 million constituted only 7 percent of the total Assets. Like other firms, bank capital account covers a. Common stock outstanding (Per) face value, and when it’s sold above per value, the excess market value is stated is the capital surplus (excess) account. Preferred stock is not very common among banks, because it is expensive to issue as it is not tax deductible and therefore a drain on income that would have been accruable to shareholders. Although some banks issue is another source of fund in the long run. 3.5 RETAINED EARNINGS: This is actually the largest clean in the equity account, as it represents accumulated net income year after year and after payments of shareholders have been effected. There may also be a contingency reserve held as protection against unforeseen losses and freedom stock that has been retrieved. Furthermore, one item is the capital account of small and medium size banks it subordinated notes and debentures that are long term in nature and carry a claim on the bank’s assets and income that come after (subordinate) the claims of depositors. It is viewed as a part of capital base, because the claim of the holders on bank and bank resources has a very low priority than all others and the claim can be based to reinforce the claims of depositors. 4.0 SUMMARY The balance sheet equation is given by A =C + L were A=Assets, C=Capital and L=Liabilities. The Asset section of the balance sheet comprises both Current and Non-Current Asset, while the Liability section consists of long and short term liabilities the capital section of the balance sheet usually comprise equities and retained earnings. 5.0 CONCLUSION Like the Income Statement the balance sheet is an effective financial statement used by decision makers in making sound business decisions, it shows a snap shot of a firm's assets, liabilities and capital of a business. Shareholders, investors, lender(creditors) require the information contained within the balance sheet alongside the information contained in the income statement to make sound and balanced economic decisions. 6.0 TUTORED MARKED ASSIGNMENT 1. What do understand by the term balance sheet and how is it different from an income statement? 2. List and explain the items that make up the assets section of a bank's balance sheet 3. List and explain the items that make up liability section of a bank's balance sheet 4. Briefly discuss the concept of bank capital account and retained earnings 7.0 References: Jombo, O.C. (2003). Elements of Banking. Owerri: Barloz Publishers Nzotta, S.M. (2004). Money, Banking and Finance: Theory and Practice. Owerri: Hudson- Jude Publishers Oleka, C.D. (2006). Fundamentals of Money Banking and Financial Markets. Enugu:Academic publishing Company. Otu, P.A. (2001). ; in Mbat, D. O. (ED). Topical Issues in Finance.Uyo: Domes Associates Publishers. Rose, P. S. (1999). Commercial Bank Management. Boston: Irwin/ McGraw-Hill UNIT 3. OTHER USEFUL BANK FINANCIAL STATEMENT CONTENTS 1.0 Introduction 2.0 Objectives 3.0 Main Content 3.1 Cash Flow (Sources and Uses of Funds) Statement 3.2 The Statement of Stockholders’ Equity (Capital Account) 4.0 Summary 5.0 Conclusion 6.0 Tutor-marked Assignment 7.0 References/ further Reading 1.0 INTRODUCTION Beyond the two statements (income and Balance Sheet), bankers and bank forced analyst reclaim which the cash position of the firm at a given point in time after consideration or operating, financial and activities. Additionally the capital account (statement of change in equity) which sources give changes that banks taken place in all important capital account is made known for proper decision making. 2.0 OBJECTIVES The objectives of this unit amongst other things includes  To familiarize the reader with the concept Cashflow statement and its uses  To acquaint the reader with The Statement of Stockholders’ Equity (Capital Account) 3.0 MAIN CONTENT 3.1 CASH FLOW: (SOURCES AND USES OF FUNDS) STATEMENT: This statement considers and answer two questions – 1. Where is the funds utilized come from? 2. How were the funds actually utilized? The relationship is a very simple as it is based on five fact that: Funds provided to the bank are a Funds provided from operation a specific time period decrease in bank Assets + increase in bank liabilities Funds used by banks during a Dividends paid out to stock specific time period holders in bank assets + increase in bank assets + decrease in bank holder Funds provided to the bank over a Funds used by the bank during the specific period same period of time From our analysis, we note that debentures grow our income statement for non-cash expense- depreciation resources (N 6M) and so the loans-loss reserve account (N 12M) mean than off set a loss on net income (-N34M). when these non-cash expense are above bank to Net income to arrive at the amount of cash actually generated from this bank’s operation, the total fund from operations become + N42M Service revenues were covered up in by other sources of bank funds- 1. Heavy drawing down of the cash account (N440M), 2. Sales of investment and trading account securities (N270M) 3. Borrowing through short term debt (N327M) 4. Recapturing funds earlier loaned to other banks and security debtors (N170M). Showing that the funds raised want to make loans (N548M) and to cover for deposit withdrawals (N658) and for most banks, they constitute the two basic uses of funds. BANK CASH FLOW STATEMENT N’ M Bank operation Net income (Loss) 34 Non cash expense Depreciation and non-mobilization expense 6 Provision for possible loan-losses 120 Other items, net 50 Funds provided from operation 42 Decreases on assets on the balance sheet Cash and deposit due from banks 440 Investment securities 200 Trading account securities 70 Federal funds sold at securities purchase 170 Non agreement to resell 180 Other assets Increase on liabilities on the balance sheet Short-term debt 327 Long term debt (Subordinate notes) 0 Other funds sources 1 Total sources of funds 1406 USES OF FUNDS Divided fund to stockholders 15 Increase in assets on the balance sheet Investment security Gross loans 548 Other Assets (Gross) Decreases on liability item on the balance sheet  Deposit 658 Long term debt (mortgage indebtedness) 30 Other liabilities 120 Other funds uses 35 Total uses of fund 1406 3.2 THE STATEMENT OF STOCKHOLDERS’ EQUITY (CAPITAL ACCOUNT) This is the second of the other financial statement, which reveals changes in the capital account. It indicates the balance in the bank’s capital account at the beginning of the period and the end of the period balance. All the factors that cause that to differ are listed in this statement. The basic factors for most bank are net income (loss) for the period and the amount of any dividends paid out to bank stockholders. For the bank analyst, a net loss resulted in a decline in the bank’s overall equity capitalization. However, management still paid out dividend to shareholders ( ), possibly to forestall a fall in the bank stock price. The decline of capital account created room for concern, especially to see of the capital remaining can actually cater for expected losses. Balance On Capital Account at beginning of period 1262 Net income/loss for the period 35 Dividend paid to stockholders Preferred stock 5 Common stock 10 New shores of stock issues 2 Purchase of treasury stock 1 Balance in capital account at end of period 1214 OUTFLOW 1. What constitute Bank Financial Statement 2. Suppose a bank has N26m as net income and outstanding shares of 2.6m, and pays out N5m as dividend. What is the Earnings per share and dividend yield of the bank; assuming the P/E return is 15. 3. What does the statement of capital account reveal 4.0 SUMMARY There are other aspects of a businesses financial health that are not covered by the income statement and the balance sheet such as the sources and uses of funds and the changes in stockholder equity, hence the need for other financial statements like Cashflow statement and the statement of stockholder equity. 5.0 CONCLUSION The analysis of Financial statements is quite indispensable to both internal and external users of accounting information. External users like lenders (creditors) require information about the assets, liabilities and profitability of a business in order to determine the ability of a business to meet up debt obligation. Investors require Information from the Statement of stockholders equity to determine whether or not to invest their resources in a business. Managers are also very much interested in a businesses cash flow statement as it enables them optimize resource allocation and minimize wastage. 6.0 TUTORED MARKED ASSIGNMENT 1. Briefly discuss the concept of cash flow statement 2. Differentiate between a cash flow statement and an income statement 3. What is a statement of stockholder equity 4. Draw up the format of the following I．Cash flow statement II．Statement of Stockholders equity 7.0 References: Jombo, O.C. (2003). Elements of Banking. Owerri: Barloz Publishers Nzotta, S.M. (2004). Money, Banking and Finance: Theory and Practice. Owerri: Hudson- Jude Publishers Oleka, C.D. (2006). Fundamentals of Money Banking and Financial Markets. Enugu:Academic publishing Company. Otu, P.A. (2001). ; in Mbat, D. O. (ED). Topical Issues in Finance.Uyo: Domes Associates Publishers. Rose, P. S. (1999). Commercial Bank Management. Boston: Irwin/ McGraw-Hill