Chapter A1 - Banking

Question 1

What should I think about in a banking Question?

Answer 1

• Roles of Banks
• Types of Banks
• Key Features of Income Statement and Balance Sheet
• Key Risks Faced by Banks

Question 2

What are the key features of Banks in SA?

Answer 2

• Retail, Commercial, Central and Development Banks
• Sophistication
• Reputation (Trusted, Highly Regulated)
• Opportunities for growth

Question 3

What roles do Banks play?

Answer 3

• Provide liquidity
  
  • Deposit-taker
  • Financier
• Financial intermediary
  
  • Bring together providers borrowers of capital
  • Develops facilities and instruments to make this possible
• Global networks
  
  • Access to capital markets globally
• Barometer of financial health, activity & trends

Question 4

What types of Banks are there?

Answer 4

• Traditional deposit taking banks
• Development Banks
• Reserve or Central Banks
• Investment Banks
• Community Banks

Question 5

What are the characteristics of Banks?

Answer 5

• Loans
  
  • Borrow at repo, lend and prime (plus or minus risk/profit margin)
  • Secured vs Unsecured lending impacts rate
• Positive account balances
  
  • May pay interest
  • Less than interest charged on loans to cover expenses and profits
• Need to report in line with IFRS 9
• Reserving (Solvency) require by regulation
  
  • BASEL III in SA

Question 6

What components are in a Bank’s IS and BS?

Answer 6

• Revenue:
  
  • Fees
  • Net-Interest Income
  • Trading Income
• Cost:
  
  • Operational costs (Staff, premises, systems, marketing)
  • Credit Costs (Bad Loans)
• Assets/Liabilities:
  
  • Opposite than for individuals

Question 7

What are the key risks faced by Banks?

Answer 7

• Credit Risk
• Market Risk (Systemic Risk)
• Operational Risk
• Liquidity Risk
• Other (model, strategic, confidence)

Question 8

How are banks Regulated?

Answer 8

• Tightly regulated environment
• Banking Act + Other regulation
  
  • Prudential (SARB)
  • Market Conduct (FSCA)
  • IFRS (Reporting Standards)