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Table of Contents
1 2 2.1 2.1.1 2.1.2 2.2 2.3 2.4 2.4.1 2.4.2 2.5 3 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 4 5 5.1 5.2 6 6.1 6.2 7 8 8.1 8.2 8.3 9 10 11 12 13 14 15 Overview 1 2 3 3 3 4 4 4 4 4 5 7 7 8 8 8 8 9 9 10 10 10 11 12 13 13 14 14 15 16 18 19 19 19 20 21 22 23 24 25 26
Balance Sheet Customer Business Receivables from Customers Liabilities due to customers Proprietary Trading Holdings Financial Management Bridging Loan Interbank Business Miscellaneous / Others Profit and Loss Account Income from interest business Income from commission and service provision business Income from trading business Income from holdings Business Expenses Gross Profit Depreciation on fixed assets Valuation adjustments, provisions, and losses Extraordinary Expenses / Extraordinary Profits Taxes Starting key figures Cash Flow Statement Bridging Credit I Surplus / Deficit of Cash Flow Reference Rate System Interest Rate Contribution Structural Contribution Calculation of the necessary equity capital Liquidity Statement Liquidity Statement I: Cash Liquidity Liquidity Statement II Liquidity Statement Executive Summary Securities Trading Business Foreign Exchange / Bond Issue / Holdings General Overview Asset Management Market Data Human Resources / Operation Service Market and Competition Report
Overview
After each simulated period of TOPSIM Universal Banking, each participant receives the following reports (based on the activated modules). These reports contain the results of the previous period. 1. Balance Sheet 2. Profit and Loss Account 3. Cash Flow Statement 4. Reference Rate System 5. Calculation of Regulatory Necessary Equity Capital 6. Liquidity Statement 7. Executive Summary 8. Securities Trading Business 9. Foreign exchange transactions / Issues / Holdings 10. General Overview Asset Management 11. Market Data 12. Human Resources/ Operating 13. Market and Competition Report Each report will be discussed in more detail throughout this handbook.
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Balance Sheet
This is the balance sheet at the start of the standard-scenario. The balance sheet provides information about the source of funds (liabilities) and use of funds (assets). It gives you an overview of the financial situation in each period. The balance sheet of your bank takes into account the decisions that have been made in the following areas: Customer business: Dues from / to customers Proprietary trading (Nostro business): Securities trading portfolio Holdings (not part of the standard-scenario) Financial Management: Bridging credit, interbank business, long-term bonds Other: Cash holdings, physical assets, other physical assets, other assets, valuation adjustments and provisions, share capital, legal reserves and other reserves.
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2.1
2.1.1
2.1.2
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2.2
Securities Portfolio
Securities and precious metal portfolios from the banks funds, invested in accordance with your investment decisions listed on Decision Form II. Its valuation is listed on the portfolio overview Stock / Bonds.
2.3
Holdings
Stocks from other firms, which the bank has bought for holding purposes, For holdings, stricter regulations than for your own shares apply. (See report: regulatory necessary capital resources). Holdings are not part of the standard-scenario.
2.4
2.4.1
2.4.2
Interbank Business
Receivables to your bank On Demand: Credit balance (Nostro-Accounts) in other banks, which are available immediately. With a fixed term: Credits from other banks with a fixed term. Your banks volume solely depends on your interest rate decision. Interbank transactions are very interest rate sensitive. The investments of cash holdings in other banks can significantly increase your profitability. Liabilities toward banks On demand: Foreign bank credits in CHF, usually used to process payment transactions. Should your banks liquidity be too low, it will automatically receive a bridge loan at a higher interest rate from the SNB. With a fixed term: Credits from other banks with a fixed term. Your banks volume solely depends on your interest rate decision. Interbank transactions are very interest rate sensitive. On Demand: Asset from other banks, which usually are used for settlements of monetary transfers or short term assets. With a fixed term: Credits from other banks with a fixed term. The position On demand and with a fixed term are newly distributed in each period (maturity and expected market growth: see Business News). The volume that your bank can acquire via this method is dependent on the interest rates offered by other banks. The interbank business is very interest sensitive.
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Bond Loans Bonds are long-term funds used to finance the lending business. New bonds can be issued if the financial management module has been made available. (Area Long-term foreign financing). Of which, subordinate bonds: Subordinate means that if the bank were to declare bankruptcy, all other bond owners would have priority towards receiving any money. Subordinate bonds can be included in the owners capital up to a certain amount, to fulfill the regulatory liquidity laws (see explanation in Financial Management Module). The rate of interest for subordinate bonds is 0.5% higher than for normal bonds. Information regarding the maturity date can be found on the balance sheet attachments.
2.5
Liquidity
This balance sheet item illustrates the banks currently available cash. Sight deposits are the credits from clearing banks and the central bank. The Federal Labour Court determines, via liquidity regulation, a minimum liquidity balance of several hundred million Euros to be on hand at all times (see Liquidity Statement Cash liquidity. The cash manager, which can be used, always tries to invest the cash shortterm. With this, you can at least receive a minimum liquidity interest payment.
Fixed Assets
Property used by the bank itself or property leased to third parties. The book value of the fixed assets (bank building and ATMs) decreases with every reporting period by the amount of depreciation. The depreciation rate for TOPSIM Universal Banking will be 10% per reporting period and refers to the residual book value. Real estate, i.e. property which the bank uses, can be rented to third parties. The physical assets (bank office and ATMs) decrease in value each period in the amount of depreciation. Depreciation per period is 10% and is taken from the current value of the asset each period.
Other Assets
The line item Other Assets refers to coupon portfolios, foreign currencies, and the account balances of internal banking transactions. This line item remains unchanged.
Share Capital
The share capital of the bank is 40,000,000 at the beginning of the simulation. It is made up of bearer shares with a nominal value of 20 EUR. Capital can be increased / decrease if the module financial management has been turned on.
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3.1
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3.2
3.3
3.4
3.5
Business Expenses
Employment Costs of which salaries of regular employees: Includes the salaries for employees. of which additional personnel costs: The additional costs are 10% of the salaries of regular employees and include required benefits as well as voluntary benefits. of other personnel costs: cover the costs for hirings, dismissals, overtime, temporary personnel and further training.
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Operating Expenditure Of which lease: This sections includes rent interest if the buildings are leases as well as the logistic units. Rent interest and leasing costs only occur if the complex module, Human Resource & Logistic, has been turned on. In the standard-scenario, no values appear in this section. Of which costs for advertising: This includes all advertising expenditures for segment and customer advertising, as well as costs for market research reports (3 mEUR). Of which property, equipment and administrative costs: Operating costs and business expenses for the branches and logistics of your bank. Maintenance cost for setting up the office, supplies, travel expenses, insurance costs, etc are booked here. Expenses here are 0.25% of the balance sheet total from the previous period. Of which costs for bond issuing business: If the bank takes part in bond issuance, fixed costs of 10 mEUR are calculated here. If the bank receives the bond, variable costs of 1% of the bond are also included here. Due to it not being possible to take part at a bond issue as a consortium bank in the standard-scenario, no costs appear in this section. Of which costs for planning calculation and cash management: The costs per run-through of the planning calculation and the cash management can be found in the Business News from the specific period.
3.6
Gross Profit
The gross profit is calculated from the following: + + + = Income from Interest business Income from commission and service provision business Income from trading business Other ordinary profit Business Expenses GROSS PROFITS
3.7
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3.8
Rating --
Verlustquoten Loss Ratio Loans secured by mortgage Otherwise secured loans Unsecured loans Mortgage claims 35 % 10 % 80 % 35 %
3.9
3.10
Taxes
Tax rate on profits is 25 %.
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Interest Margin (%): The interest margin is a bank's interest surplus in relation to the balance sheet total. The interest margin is calculated as follows: Interest income x 100 / balance sheet total
Return on Equity (%): Profits as a percentage of the equity from the previous year.
Direct earnings per share (%)(after tax): (Paid out (Gross)Dividends ./. Income tax) x 100 / Stock price
p/e-Ratio: The p/e-Ratio shows the relationship between the share price and the profit per share. A p/e-Ratio of 10 says that the price per share is 10 times higher than the profit per share.
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The cash flow statement shows the changes in cash (= additions and losses of liquid assets) from the previous period. Each line has: outward payments (loss of liquid assets) inward (additions in liquid assets) Balance I (Difference between inward and outward paymens) Balance II (Total Value)
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5.1
Bridging Credit I
If during the course of the simulation not enough deposits are going into the bank and therefore your bank becomes illiquid in accordance with the legal liquidity laws, then the system will automatically provide you with a bridging credit. The bridging credit has a higher interest rate.
5.2
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6.1
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In the deposit business, the following is the case: If your banks deposit interest rate is lower than the markets, then this is also considered a (positive) interest rate contribution. Therefore, even deposit interest rates can lead to interest rate earnings. The Interest Rate Contribution can help management see in what financial position the most earnings are made and recognize the amount of margin is available to change the pricing (specification of the conditions).
6.2
Structural Contribution
With the help of the parameters of the Structural Contribution, it is easy to make decisions from the contribution which provides the deposit / credit structure of the bank. To understand the deposit and credit structure of a bank, the composition of both balance sheet totals has to be separated to each side of the balance sheet in short and long term money. The contribution total is determined through the return on interest from different funds. In the normal case, the short term funds have a lower rate of interest than long term fund. Therefore, if a bank refinances long-term credits with short term deposits, and then a positive structural contribution occurs. For calculation purposes of the the market interest rates are taken (like above). It must be noted that with short-term financing, significant risks are taken. One on hand, liquidity problems could arise. The golden rule is: deposit money should only be used to refinance short term credits. This rule is broken by the previously described situation. On the other hand, the bank enters the risk of a sudden interest rate change as the market could suddenly have an inverse interest structure. The parameters structural contribution assists the management in recognizing the potential risks in the business policy, with an outlook on the future deposit / credit structure. It also introduces the participant to the countermeasures in terms of risk management.
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Rating
Riskweighted factor %
Credit Customer Credit Customer Credit Customer Credit Customer Credit Customer
+++ ++ + --
35 % 35 % 35 % 35 % 35 %
Total risk-weighted position Required Equity Capital (mEUR): 8 % von Total risk-weighted position: 220 mEUR
For the calculation of the risk-weighted-factor, each credit position (except for private customers) the following four components are determined: 1. 2. 3. 4. Probability of Failure Loss Quote Outstanding claims in case of default Remaining economic term
Probability of default is the likelihood that the customer is unable to meet his obligations within one year. The loss quote is the loss in percentage terms of the credit in case of default. It depends on the respective credit security. To the regulatory liquid assets, the following components are included: Share capital Reserves Legal Reserves Hidden Reserves Retained Earnings Supplement and subordinated capital
The regulatory equity capital grows by raising capital, through raising the reserves (not paying out profits or premiums when raising capital) and through the bonds from subordinated liabilities.
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Liquidity Statement
Note: The liquidity statement is formatted to fit with Swiss regulations.
Liquidity is the basic component for long-term payment ability of a bank. The liquidity laws of the Federal Labour Department require a so-called cash liquidity and a overall liquidity.
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8.1
-2.5 % of
8.2
Liquidity Statement II
Liquidity Cash, endorsements, and cheques Short-term Liquidity - Surplus short-term liabilities - 50% of other amounts due to customers on demand - 15% of due to customers, savings and personal accounts
-33.3 % of
+
Easily Marketable Assets - Surplus easily marketable assets - Money market instruments - Central Bank pledgeable securities - 20% due from customers secured by other collateral
8.3
Liquidity Statement
When looking at the overall liquidity, the liquid assets have to cover the short-term liabilities to a certain percent. The approaches are placed into a tier of short term liabilities from all liabilities. The higher the percentage of short-term liabilities, the higher the on-hand liquid assets must be. In TOPSIM Universal Banking, you can see on the liquidity statement the combination of easily obtained assets and short term liabilities. If a shortage occurs, the model automatically take on a bridging credit, of which the amount is a negative liquidity. A shortage of liquid assets also as a negative impact on the stock price of your bank. The balance sheet item, bridging credit, is a combination of the following two values: 1. 2. Bridging Credit I (for a shortage of cash flow, see the cash flow statement) Bridging Credit II due to a negative liquidity in the liquidity statement.
If your liquidity statement has a shortage, then you must try to cover the shortage with a surplus in the following period. Otherwise, the seminar instructor can start to edit your decisions as a governing body.
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Executive Summary
In the executive summary, the most important figures from the previous period are summarized. Among other things, the balance sheet total from the current period and the changes in comparison to the previous period are illustrated. Furthermore, information regarding the gross profit and its growth or loss compared to last year is shown. General warnings and hints can also be taken from the executive summary.
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10
The general overview summarizes all foreign exchange and currency profits, losses, and hedging costs in the middle section. In case the risk for the hedging was insured and a loss occurs, then a profit of the same amount will be booked under the sale of puts. The last line summarizes all interest, dividend, and coupon earnings together. When considering the development of the bond business, the past period have to be observed from the perspective of the current period.
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11
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12
Total Yield in the Wealth Management Business The total yield is determined from the Depot performance index (DPI). More information can be found in participants manual 1.
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13
Market Data
This report is especially interesting for the evaluation of the decisions that have been made in the marketing business.
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