Financial statements at a bank

Financial statements at a bank are the same in the form and method of preparing as at any other business or organization, but they differ a little.

The Balance Sheet of a bank gives us a view of its financial situation at one point of time, usually at any day of a particular year. But we do not know what has happened between two balance sheets. This information is provided by the Income Statement (Profit and Loss Account) for the period in question. Neither statement is exactly uniform from bank to bank, but both contain certain essential features.

The largest asset of a bank is normally its total portfolio of loans. Deposits usually constitute the largest liability. Balance sheets usually include the following items listed as assets:

1. Cash on hand and due from banks – money in vaults, balances with other banks, checks in process of collection;

2. Investments – bonds, shares, etc;

3. Loans – to companies, the general public, etc;

4. Fixed assets – buildings, equipment, etc.

Items listed in the balance sheet as liabilities are:

1. Deposits – all money owed to depositors;

2. Taxes payable – national and local;

3. Dividends payable – decided on, but not yet paid.

The Income Statement records the income of a bank: interest on loans, return on investments, fees, commissions, service charges. The granting of credit provides the largest source of bank income. Typically, two thirds of a bank's yearly earnings result from interest on loans. Nine out of every ten money units they lend come from depositors' funds.

The following items normally constitute the main expenses in a bank's Income Statement: interest paid; salaries and other benefits; taxes.

A bank's accounting systems are designed to record and present many transactions that take place every day. Substantial reserves over and above statutory requirements are an indication to customers of the bank's strength, that it has run its business well and has retained profits in the business for future operations.

Bank organization

Banks are among the most important financial institutions. The way in which a bank is organized and operates is determined by its objectives.

A central bank accepts responsibility for advising the government to make the country's financial policy, issues national currency and regulates money supply. The aim of commercial bank is to earn profits.

Over the years banks have developed organizational forms, or structures to perform their various roles and to supply services to their customers demand.

Many banks offer the combination of wholesale and retail banking. Wholesale banking provides services to companies and other banks; the retail ones mainly provide services to public (individuals).

Typically a bank consists of some divisions. At the head of it there are Chief Administrative Officers including the Board Chairman and the President, who are elected by the shareholders and are responsible for the efficient management of the bank.

Then come different divisions:

Lending division which deals with commercial and consumer loans;

Accounting and Operations division which consists of Accounting and Audit departments and Operations subdivision dealing with check clearing, posting, account verification, and customer complaints;

Fund-Raising and Marketing division dealing with tellers, new accounts, advertising and planning;

Trust division consisting of Personal Trusts and Business Trust subdivisions.

There is often close contact between top management and the management and staff of each line division. Such banks present a relatively low-risk working environment and place the banker close to the customer and give the bank employees the opportunity to see the results of their work.