Certificate in Bank Analysis

Fitch Learning
Training overview
5 days
4,995 USD, 4,995 EUR, 3,995 GBP
English
Classroom / Public
Next start date: 12/2/2019 - New York City
Start dates
Amsterdam
12/2/2019   (English)
4,995 EUR
New York City
12/2/2019   (English)
4,995 USD
London
12/9/2019   (English)
3,995 GBP

Course description

Certificate in Bank Analysis

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

This course gives 40 CPD hours.

Who should attend?

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

Training Content

Day One

Analytic Overview Part 1

Structured approach to analysis

  • Defining CAMELS within the context of overall bank analysis
Types of financial institution
  • Key activities and products of financial institutions: Credit products, trading and investing, services and funding
  • Business models and key drivers of performance
  • Relating the business to the balance sheet and income statement: differences between balance sheets of different types of bank and non-bank financial institution
  • Major balance sheet and income statement components
  • Exercise: Building a balance sheet for banks and non-bank financial institutions

Business Risk

Asset quality

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

Sensitivity to market risk

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

Day Two

Earnings

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

Financial Risk

Liquidity and funding

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

Capital adequacy

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

Day Three

Analytic Overview Part 2

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

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

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

Operating Environment

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

Macroeconomic and systemic issues

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

Regulation and supervision

  • Changing roles of the regulator and supervisor
  • Key regulations: Purpose and implementation
  • Quality of regulation
  • Exercises:
    • Considering the impact on bank profitability of the operating environment in various countries
    • Consider and quantify the impact on bank capital adequacy ratios of the implementation of Basel III

Financial Fundamentals

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

Statement logic

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

Business Risk

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

Day Four Business Risk (continued)

  • Market risk for the banking book
  • Illustration case study: Assessing business risk, incorporating loan portfolio quality, trading portfolio and other credit and market risks

Performance Risk – Earnings

  • Balancing the risk/return profile: Strategy and risk appetite
  • Income stability and diversity: Earnings at risk
  • Control of expenses: Targets and peer comparisons
  • Illustration case study: Assessing performance of a bank, incorporating overall returns, income diversity and stability and cost control

Financial Risk – Liquidity

  • Funding risk: Stability and variety of funding sources, contingency funding
  • Liquidity of assets: Identifying truly liquid assets, stable funding of illiquid assets
  • Liquidity of liabilities: Stability of deposit base, dependence on short-term wholesale funding, inter-bank market, key challenges of repo and CP funding
  • Liquidity: Quantitative and qualitative measures, Basel III liquidity guidelines
  • Liquidity Coverage Ratio and Stable Funding Ratio
  • Gap management: Using the tenor and interest rate mismatch tables to better understand refinancing risk
  • Securitization vehicles: Accounting and credit implications
  • Exercise: Demonstrate how a bank's funding structure can impact its liquidity position and interest rate exposure
  • Gap management: Using the tenor and interest rate mismatch tables to better understand refinancing risk
  • Securitization vehicles: accounting and credit implications
  • Exercise: Demonstrate how a bank's funding structure can impact its liquidity position and interest rate exposure

Financial Risk - Solvency

  • Capital: Size, quality and adequacy of capital base under Basel I, II and III
  • Types of capital: Core (common equity) vs. Additional Tier 1 and Tier 2

Day Five Financial Risk – Solvency (continued)

  • Standardized and advanced approaches for credit, market and operational risk
  • Leverage ratios: Benchmarks and challenges
  • Capital adequacy: Measuring size, quality and adequacy of capital base; regulatory capital ratios and assessing regulatory capital for non-deposit takers
  • Economic capital and internal capital adequacy assessment process (ICAAP)
  • Stress-testing capital for market and credit write-downs
  • Illustration case study: Assessing financial risk including solvency, funding strategy and liquidity in the light of the risk profile of the business model

Early Warning Signals

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

Management, Franchise and Ownership

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

  • Management: Strategy, systems, skills, structure
  • Risk management
  • Franchise – strength of banking business model

Support

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

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

Group Case Study

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

About Fitch Learning

Fitch Learning - Financial Training in the Americas

Fitch Learning

Part of the Fitch Group, Fitch Learning partners with clients to enhance knowledge, skills and conduct. With centers in London, New York, Singapore, Dubai and Hong Kong, we are committed to questioning and understanding client needs across the globe and...


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