Banking Basic, 2014 1

Lahore School of Economics

Banking MBA-1
Basic Course: Spring Semester (part II) 2014

Part I: Banks Structure, Role and Functions Basic
Banks - Role and Functions (Rose, Chapter 1)
Financial Intermediation, Banking Services

Classification of Banks
Money center banks, Commercial banks,
Deposit Money banks, Merchant / Investment banks,
Specialized banks vs Universal banks, Islamic banks
Banks Organisation and Structure (Rose, Chapter 3)


Basic Concepts
Money, theoretical, applied
Money supply components, Pakistan
I nterest Rate; in theoretical realm, in applied realm
Interest Rate Structure Pakistan,
KIBOR, lending and deposit rates
Impact on Banking Assets
Pricing and Value, PV, FV, Yield, Return


Part II: Banks Financial Statements, Basic (Rose, Chapter 4)
Basic Concepts, Ratios follow check List and clarify
Generic Bank Balance Sheet and I ncome Statement
Types of Accounts, Book Value Accounting,
Pakistan Financial Statements of Selected Bank

Balance Sheet, Report of Condition Assets
Loans /advances, gross; Provisions; Net Loans
Investments, govt securities; Cash Due, Others
Balance Sheet Liabilities and Stockholders Equity
Deposits; Time, Savings, Money Market A/C
Acceptances, Other Liabilities
Surplus /Owners Capital, Common / Preferred Stocks
Retained Earnings
I ncome Statement, Report of Income




Banking Basic, 2014 2
Interest Income on Loans, Securities
Interest Expense on Deposits, Borrowings
Non-interest Income / Expense
Provisions for: Taxes, Net Income after Taxes, Loan Losses


Part III: Banks Performance Evaluation; Objectives, Techniques
Objectives: I ntroductory
Maximizing Corporate Value Stock Prices
Ensuring Profitability Earnings and Dividends

Techniques; Benchmarks, Ratios (Rose, Chapter 5, pp 150-163)
(Do the Drill, thoroughly)
Earnings and Profitability Analysis, Ratios / ROA, ROE
Efficiency Analysis, Ratios
Overlaps with profitability indicators
Costs of (banking) intermediation; Overheads, Operating costs
Banking Spreads, Margins
Interest rate spreads, Net interest margin - Revisited
Liquidity and Reserves Ratios in practice or prudential ratios
Current ratio, quick ratio acid test ratio, working capital ratio
Capital Adequacy (Leverage) Ratios (Rose, p 488)


Part IV: Banking Business Funding a Bank, Basics

Deposits
Banks and Deposit Mobilization
Deposit structure - generic, Pakistani banks
Classification, instrument types, maturity (SBP, SaF write-up)
Deposit Pricing theory vs practice (Rose, Chapter 13)
Criteria of Pricing cost-plus, average / marginal costs
Deposit Rate Structure: generic, Pakistan
Bank Borrowings (Rose, Chapter 15)
Strategic Purposes, Practices, Trade-offs
Short-term, Liquidity; Log-term, Business expansion
Access to funds markets, debt markets
Instruments, Maturities, Risks
Borrowing Costs, Exposure, Risks; choices and alternatives
Overall Costs of Bank Funds (Rose, pp 468)

Part V: Banking Business Lending, Basic / Advanced




Banking Basic, 2014 3
Loan types, classification
by origin and source, by terms and conditions, maturity,
by type of borrower, by sector, by type of use
Main line lending business
System of Overdrafts vs Term lending, trade financing
I nternal Rules and Procedures, (Rose, Chapter 17)
Documentation, Verification, Due Diligence
Loan Agreement, Terms, Repayments, Recourse
Creditworthiness; the Cs, Credit Analysis (Rose, pp 528-532)
Borrower Information, Analysis, Evaluation
Borrower Analysis, (Rose, Chapter 18, pp 558-579)
Financial Ratio Analysis of the Borrower
Secured Lending: Collateralized types of Collateral, Evaluation
Unsecured lending personal loans, credit cards
Bank Lending Policies, Practices A primer
Lending Policies Articulation, Implementation
Borrower ClassificationClient Categories, Targets
Lending Limits and authority levels
Exposure limits, Borrowers, Sectors
Loan Approval processes, Pricing standards
Banking Risks I ntroductory (Rose, Chap5 , pp165-171)
Banking Risks Revisited (Rose, Chap16, pp477-478)
Banking Credit Pakistani banks, a primer

Part V: Bank Business - Lending Basic / Advanced
Lending to Corporations, Businesses, (Rose, Chap 15)
Types of Business Loans
Stand alone credit facility vs line of credit
Short- term Loans: working capital, trade financing
Long-term Loans:
Revolving Credit, Project Credit,
Term Lending, Acquisitions
Pricing Business Loans (Rose Chapter 19)
Real Estate Lending, Personal / Consumer Lending

Part VI: Banking Business: Investment, I ntroductory
Banking I nvestment Portfolios (Rose, Chapter 11)
Banks as Investors: Strategies, Objectives
Banks Investment Portfolio: Investment Risks (Rose, pp 319-331)
Investment Portfolio: Risk/Return and Maturity Profiles
Money Market: T-bills, Bankers Acceptances, other securities
Capital Market Instruments Bonds, Stocks, Securitized Instruments