Learning Objectives:

  • Identify the key revenue and expense categories on a bank income statement.

  • Understand net interest income and its drivers.

  • Explain the significance of provisions for loan losses.

3.1 Key Income Statement Components

The GICP course covers “types of income and expense” and the “impact of earnings accrual and asset impairment policies” on the income statement .

Interest Income: Revenue from loans, securities, and other interest-earning assets.

Interest Expense: Costs of deposits and other borrowings.

Net Interest Income (NII): The difference between interest income and interest expense. As the GICP course notes, “net interest margin” is a key driver of earnings .

Non-Interest Income: Fee-based revenue from services such as advisory, trade finance, and account maintenance.

Non-Interest Expense: Operating costs, including salaries, technology, and overheads.

Provision for Loan Losses: Funds set aside to cover expected loan defaults. The HKU Business School course examines “how banks manage credit risk and report provision for loan losses” .

3.2 Key Drivers of Earnings

The GICP course identifies several key drivers :

  • Net Interest Margin (NIM): The spread between interest earned and interest paid.

  • Fees and Commissions: Non-interest income.

  • Trading: Income from trading activities.

  • Cost Control: Management of non-interest expenses.

3.3 Core vs. Non-Core Earnings

Analysts distinguish between core earnings (sustainable, recurring income) and non-core earnings (one-off or volatile income). The GICP course covers “core and non-core earnings” .

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