This lesson examines the unique financial statements of commercial banks, focusing on their structure and the insights they provide into bank performance .

2.1 The Bank Balance Sheet

The balance sheet of a commercial bank differs significantly from that of a non-financial company. The structure and components of the balance sheet are a core component of the H.L. College of Commerce Commercial Banking syllabus . Key elements include:

• Assets: The bank’s uses of funds, primarily consisting of loans and advances, investment securities, and cash and due from banks .

• Liabilities: The bank’s sources of funds, primarily consisting of customer deposits (demand, savings, and time deposits), borrowings, and other liabilities .

• Equity: The residual interest of shareholders, serving as a buffer against losses.

2.2 The Bank Income Statement

The income statement shows a bank’s profitability over a period . Key components include:

• Interest Income: Earned from loans and securities.

• Interest Expense: Paid on deposits and borrowings.

• Net Interest Income (NII): The difference between interest income and expense, a primary driver of profitability.

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

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

• Provision for Loan Losses: Funds set aside to cover expected loan defaults.

The University of Ha’il course focuses on “commercial bank financial statements and performance as well as noninterest activities” .

2.3 Analysing Bank Performance

Key metrics used to assess bank performance include :

• Return on Assets (ROA): Measures how efficiently the bank uses its assets to generate profit.

• Return on Equity (ROE): Measures shareholder return on their investment.

• Net Interest Margin (NIM): The difference between interest earned and interest paid, relative to earning assets.

• Efficiency Ratio: A measure of cost management.