Chapter 01: - Financial Statements: An Overview

Financial statements are formal records of the financial activities and position of a business,
person, or other entity. They provide a structured representation of financial performance and
financial position over a specific period. These documents are essential for decision-making
by various stakeholders, including investors, creditors, management, and regulatory
authorities.

Definition of Financial Statements

Financial statements are written reports that quantify the financial strength, performance, and
liquidity of a company. They reflect the financial effects of business transactions and events
on the entity. The primary purpose of financial statements is to provide information about the
financial health of an organization to assist users in making informed economic decisions.
Parts of Financial Statements
There are five main parts of financial statements, each serving a unique purpose:

1. Balance Sheet (Statement of Financial Position)

The balance sheet provides a snapshot of a company's financial position at a specific point
in time. It consists of three main components: assets, liabilities, and equity. The equation
governing the balance sheet is: (Assets = Liabilities + Equity). It helps stakeholders assess the
company's liquidity, solvency, and capital structure.

2. Income Statement (Profit and Loss Statement)

The income statement reports a company's financial performance over a specific period,
typically a quarter or a year. It includes revenues, expenses, gains, and losses, culminating in
net income or net loss. It is crucial for evaluating profitability and operational efficiency.

3. Cash Flow Statement

The cash flow statement provides information about cash inflows and outflows during a
specific period. It is divided into three sections: operating activities, investing activities, and
financing activities. This statement helps users understand how a company generates and
uses cash, which is critical for assessing liquidity.

4. Statement of Changes in Equity

This statement shows changes in the ownership interest in the company over a reporting
period. It includes details about share capital, retained earnings, and other reserves. It helps
users understand how equity has been affected by net income, dividends, and other
transactions.

5. Notes
Notes to the Financial Statements (also called footnotes) are additional details and disclosures
that accompany the main financial statements (Balance Sheet, Income Statement, Cash Flow
Statement, and Statement of Changes in Equity). They provide essential context,
explanations, and breakdowns that help users understand the numbers presented.
Users of financial statements:

Financial statements are essential tools for communicating the financial health and
performance of an organization. Mainly there are two types (Internal and External) of users.
Below is an overview of the external and internal users of financial statements:

Users of
Financial
Statement
External
Internal Users Users

Managemen Board of Internal

t Employees Directors Auditors

Creditors Government and

Investors and Suppliers Customers Regulatory
Lenders Authorities

Internal Users of Financial Statements

Internal users are individuals within the organization who use financial statements to make
operational and strategic decisions. They have access to more detailed financial data than
external users. Key internal users include:

1. Management:
Managers and executives use financial statements to monitor performance, allocate
resources, and make strategic decisions. They analyze profitability, cost structures, and cash
flows to improve efficiency and achieve organizational goals.

2. Employees:
Employees may use financial statements to assess the company's financial stability, which
can impact job security, salary negotiations, and benefits. In some cases, employees may also
be shareholders and have a vested interest in the company's performance.
3. Board of Directors:
The board reviews financial statements to oversee management's performance and ensure the
company is meeting its financial objectives. They use this information to guide long-term
strategy and policy decisions.

4. Internal Auditors:
Internal auditors use financial statements to ensure accuracy, compliance with internal
controls, and adherence to accounting standards.

External Users of Financial Statements

External users are individuals or entities outside the organization who rely on financial
statements to make decisions. They do not have direct access to the organization's internal
financial records and depend on published financial statements for information. Key external
users include:

1. Investors (Shareholders and Potential Investors):

Investors use financial statements to assess the profitability, stability, and growth potential of
a company. They analyses metrics like earnings per share (EPS), return on equity (ROE), and
dividend payouts to decide whether to buy, hold, or sell shares.

2. Creditors and Lenders:

Banks, financial institutions, and other creditors use financial statements to evaluate the
creditworthiness of a business. They assess liquidity ratios, debt-to-equity ratios, and cash
flow statements to determine the risk of lending money.

3. Suppliers:
Suppliers may review financial statements to decide whether to extend credit to a company
for goods or services. They focus on the company's ability to pay its short-term obligations.

4. Customers:
Large customers or those with long-term contracts may review financial statements to
ensure the company is financially stable and capable of fulfilling future orders.
5. Government and Regulatory Authorities:
Tax authorities use financial statements to verify tax compliance and calculate tax liabilities.
Regulatory bodies ensure that companies adhere to accounting standards and legal
requirements.

Importance of Financial Statements

Financial statements play a critical role in the functioning of businesses and the economy.
Their importance includes:

1. Decision-Making Tool
Financial statements provide essential information for stakeholders to make informed
decisions about investing, lending, and managing.

2. Transparency and Accountability

They ensure transparency by disclosing financial information to stakeholders, promoting
accountability and trust.

3. Performance Evaluation
Financial statements help evaluate a company's financial performance over time, identifying
trends and areas for improvement.

4. Compliance and Reporting

They ensure compliance with legal and regulatory requirements, such as tax reporting and
adherence to accounting standards.

5. Facilitating Comparisons
Financial statements allow stakeholders to compare the performance of different companies
or industries, aiding in benchmarking and analysis.
6. Attracting Investment
Well-prepared financial statements can attract investors and creditors by demonstrating
financial stability and growth potential. Let’s analyse conventional banks financial
statements for better understanding and knowledge about the importance and uses of it.

Importance of Financial Statements in Banking

1. Regulatory Compliance: Banks are required to maintain transparency and adhere to
regulatory standards, such as Basel III, which mandates minimum capital and liquidity
requirements.
2. Investor Confidence: Accurate and transparent financial statements build trust among
investors and shareholders.
3. Risk Management: Financial statements help banks identify and mitigate risks, such as
credit risk and liquidity risk.
4. Strategic Decision-Making: Management uses financial statements to make informed
decisions about lending, investments, and expansion.

In conclusion, financial statements are indispensable for understanding the financial health
and performance of banks. They provide a clear picture of a bank's operations, risks, and
profitability, enabling stakeholders to make well-informed decisions. Given the critical role
banks play in the economy, the accuracy and transparency of their financial statements are
paramount.
Chapter 2: Conventional bank
Bank is a financial institution that provides various financial services, primarily accepting
deposits and granting loans. It acts as an intermediary between individuals and businesses
that have excess funds and those who need financial assistance. And A conventional bank is a
traditional financial institution that operates under standard banking regulations, offering
services such as accepting deposits, providing loans, and facilitating transactions for
individuals and businesses. Unlike Islamic banks, conventional banks operate on an interest-
based system, charging interest on loans and paying interest on deposits.

Functions of Banks (Conventional Banks): -

Conventional banks provide various financial services for their customer to help them make
their life easier and for earning money as profit. Below given a short explanation about the
function of conventional bank:

A. Primary Functions
Primary banking functions of banks include:
1. Acceptance of deposits
2. Advancing loans
3. Creation of credit
4. Clearing of cheques
5. Financing foreign trade
6. Remittance of funds
 1. Acceptance of Deposits: Accepting deposits is the primary function of a bank mobilise
savings of the household sector. Banks generally accept three types of deposits viz., (a)
Current Deposits (b) Savings Deposits, and (c) Fixed Deposits (d) Recurring Deposits.

2. Advancing Loans: The second primary function of a bank is to make loans and
advances to all types of persons, particularly to businessmen and entrepreneurs. Loans are
made against personal security, gold and silver, stocks of goods and other assets. The most
common way of lending is by banks are: (a) Overdraft Facilities (b) Cash Credit (c)
Discounting Bills of Exchange (d) Money at Call (e) Term Loans (f) Consumer Credit (g)
Miscellaneous Advances etc.

3. Creation of Credit: A unique function of the bank is to create credit. Banks supply
money to traders and manufacturers. They also create or manufacture money. Bank deposits
are regarded as money. They are as good as cash. The reason is they can be used for the
purchase of goods and services and also in payment of debts. When a bank grants a loan to its
customer, it does not pay cash. It simply credits the account of the borrower. He can
withdraw the amount whenever he wants by a cheque. In this case, bank has created a deposit
without receiving cash. That is, banks are said to have created credit. Sayers says “banks are
not merely purveyors of money, but also in an important sense, manufacturers of money.”

4. Promote the Use of Cheques: The banks render an important service by providing to
their customers a cheap medium of exchange like cheques. It is found much more convenient
to settle debts through cheques rather than through the use of cash. The cheque is the most
developed type of credit instrument in the money market.

5. Financing Internal and Foreign Trade: The bank finances internal and foreign trade
through discounting of exchange bills. Sometimes, the bank gives short-term loans to traders
on the security of commercial papers. This discounting business greatly facilitates the
movement of internal and external trade.

6. Remittance of Funds: Banks, on account of their network of branches throughout the

country, also provide facilities to remit funds from one place to another for their customers by
issuing bank drafts, mail transfers or telegraphic transfers on nominal commission charges.
As compared to the postal money orders or other instruments, a bank draft has proved to be a
much cheaper mode of transferring money and has helped the business community
considerably.

B. Secondary Functions of a Bank

These are extra services that banks provide, apart from accepting deposits and giving loans.
 Agency
Secondary Services
Functions
of a Bank General
Utility
Services

1. Agency Services: Banks work as agents for their customers. Some examples:
Collecting money: Banks collect cheques, dividends, or rents for you.
Paying bills: Banks can pay your electricity, water, or phone bills.
Buying or selling: Banks help you buy or sell shares or bonds.
In short: Banks do many tasks on your behalf, like a helper or assistant.

2. General Utility Services: These are useful services for everyone. Some examples:
Locker facility: Banks keep your jewellery or documents safe.
ATM and Debit/Credit cards: Help you withdraw money or pay easily.
Foreign exchange: Banks help you exchange money when you travel to another country.
Providing information: Banks give financial advice and help you make smart money
decisions.

List of Top Ten Conventional Bank:

1. Sonali Bank
2. Janata Bank
3. Agrani Bank
4. Rupali Bank
5. Pubali Bank
6. National Bank Limited (NBL)
7. Standard Chartered Bank Bangladesh
8. Eastern Bank Limited (EBL)
9. Dutch-Bangla Bank Limited (DBBL)
10. BRAC Bank
Chapter 03: Financial Statement of Dutch Bangla Bank PLC.
(DBBL)
Dutch Bangla Bank is one of the most famous conventional banks in
Bangladesh. They are providing all banking services like other banks
to earn profit. Also, like others bank the main source of income is
interest that gain from customers agents the lone they take. Generally,
the profit of banks is the deference between the interest they give to
customers and the interest they get form customers. For better
understanding and knowing their income sources and expenses assets
liabilities and the elements that affect and change in shareholders
equity we have prepared the reports stated below:
 Income statement
End of the year 31 December 2022 (Illustration no.1)
End of the year 31 December 2023 (Illustration no.2)

 Balance Sheet
On the date 31 December 2022 (Illustration no.3)
On the date 31 December 2022 (Illustration no.4)

 Statement of Shareholders' Equity

End of the year 31 December 2022 (Illustration no.5)
End of the year 31 December 2023 (Illustration no.6)
 Dutch Bangla Bank
Profit and Loss Account
For the year ended 31 December 2022

Details Notes Taka Taka Taka

Interest income 24,640,667,324
Less: Interest paid on deposits and borrowings etc. 7,743,357,385
Net interest income= 16,897,309,939
Investment income 7,329,985,743
Commission, exchange and brokerage 3,772,788,865
Other operating income 3,947,729,900
Total operating income= 31,947,814,447
Less: Operating Expenses:
Salary and allowances 6,605,727,874
Rent, taxes, insurance, electricity, etc. 2,316,270,778
Legal expenses 3,248,845
Postage, stamp, telecommunications, etc. 371,786,198
Stationery, printings, advertisements, etc. 335,261,524
Managing Director & CEO's salary and allowances 17,900,000
Directors' fees 362,995
Auditors' fees 2,026,500
Depreciation and repair of bank's assets 3,144,845,533
Other expenses 6,787,581,785
Total operating expenses= 19,585,012,032
Profit before provision 12,362,802,415
Less: Provision:
Provision for loans and off balance exposures:
Specific provision for loans 2,446,048,573
General provision for loans 312,829,349
Less:Special general provision - Covid 19 for loans 236,658,789
Less: General provision for off balance exposures: -7,230,464
Total provision for loans and off balance
exposures= 2,988,306,247
Less: Other provision 507,892,430
Total Provision= 3,496,198,677
Profit before taxes 8,866,603,738
Less: Provision for taxation:
Current tax 4,428,800,730
Less: Deferred tax -1,223,886,665
Total Provision for taxation= 3,204,914,065
Net profit after taxation 5,661,689,673

Illustration no.1
 Dutch Bangla Bank
Profit and Loss Account
For the year ended 31 December 2023

Details Notes Taka Taka Taka

Interest income 30,955,636,303
Less: Interest paid on deposits and borrowings etc. 8,693,419,304
Net interest income= 22,262,216,999
Investment income 7,425,178,037
Commission, exchange and brokerage 1,342,678,947
Other operating income 4,851,567,063
Total operating income= 35,881,641,046
Less: Operating Expenses:
Salary and allowances 7,130,705,629
Rent, taxes, insurance, electricity, etc. 2,357,209,496
Legal expenses 3,326,724
Postage, stamp, telecommunications, etc. 409,210,953
Stationery, printings, advertisements, etc. 519,123,744
Managing Director & CEO's salary and allowances 22,200,000
Directors' fees 324,500
Auditors' fees 1,035,000
Depreciation and repair of bank's assets 3,252,184,804
Other expenses 7,650,278,369
Total operating expenses= 21,345,599,219
Profit before provision 14,536,041,827
Less: Provision:
Provision for loans and off balance exposures:
Specific provision for loans 3,415,954,952
General provision for loans 536,512,444
Less:Special general provision - Covid 19 for loans -433,918,617
Less: General provision for off balance exposures: -259,860,902
Total provision for loans and off balance
exposures= 3,258,687,877
Less: Other provision -172,700,000
Total Provision= 3,085,987,877
Profit before taxes 11,450,053,950
Less: Provision for taxation:
Current tax 5,024,977,474
Less: Deferred tax -1,592,322,672
Total Provision for taxation= 3,432,654,802
Net profit after taxation 8,017,399,148

Illustration no.2
 Dutch Bangla Bank PCL
Balance Sheet
As at 31 December 2022
Details Notes Taka Taka Taka
PROPERTY AND ASSETS:
Cash:
In hand (including foreign currencies) 26,488,896,328
Balance with Bangladesh Bank and its agent
bank's(including foreign currencies) 21,691,895,625
Total Cash= 48,180,791,953
Balance with other banks and financial institutions:
In Bangladesh 6,823,427,791
Outside Bangladesh 3,365,138,624
Total Balance with other banks and financial
institutions= 10,188,566,415
Money at call on short notice: 0
Investments:
Government 92,427,177,159
Others 9,246,283,434
Total Investment= 101,673,460,593
Loans and advances:
Loans, cash credits, overdrafts, etc. 344,867,385,158
Bills purchased and discounted 19,133,457,511
Total Loans and advances= 364,000,842,669
Fixed assets including land, building, furniture and
fixtures 9,413,196,077
Other assets 22,016,776,739
Non-banking assets 0 -
TOTAL ASSETS 555,473,634,446
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Borrowings from other banks, financial institutions
and agents 28,283,480,657
Deposits and other accounts:
Current deposits and other accounts 124,906,569,030
Bills payable 5,995,156,148
Savings bank deposits 205,224,044,867
Term deposits 102,005,545,643
Total Deposits and other accounts= 438,131,315,688
Other liabilities 37,420,082,873
Subordinated debt 10,000,000,000
TOTAL LIABILITIES 513,834,879,218
SHAREHOLDERS' EQUITY:
Paid up share capital 6,957,500,000
Share premium 11,067,500
Statutory reserve 9,193,048,174
Other reserve 0
Dividend equalization account 1,766,827,195
Assets revaluation reserve 850,413,777
Revaluation reserve of HTM securities 355,330,921
Retained earnings 22,504,567,661
TOTAL SHAREHOLDERS' EQUITY 41,638,755,228
TOTAL LIABILITIES AND SHAREHOLDERS'
555,473,634,446
EQUITY

Illustration no.3
 Dutch Bangla Bank PCL
Balance Sheet
As at 31 December 2023
Details Notes Taka Taka Taka
PROPERTY AND ASSETS:
Cash:
In hand (including foreign currencies) 23,338,037,183
Balance with Bangladesh Bank and its agent
bank's(including foreign currencies) 25,296,736,845
Total Cash= 48,634,774,028
Balance with other banks and financial institutions:
In Bangladesh 8,753,999,533
Outside Bangladesh 1,954,334,237
Total Balance with other banks and financial
institutions= 10,708,333,770
Money at call on short notice: 0
Investments:
Government 75,503,736,598
Others 13,701,283,434
Total Investment= 89,205,020,032
Loans and advances:
Loans, cash credits, overdrafts, etc. 387,232,701,604
Bills purchased and discounted 24,840,272,278
Total Loans and advances= 412,072,973,882
Fixed assets including land, building, furniture and
fixtures 10,803,033,345
Other assets 22,458,988,043
Non-banking assets 0
TOTAL ASSETS 593,883,123,100
LIABILITIES AND Shareholders' equity:
Liabilities:
Borrowings from other banks, financial institutions
and agents 23,233,692,948
Deposits and other accounts:
Current deposits and other accounts 135,326,748,597
Bills payable 4,603,004,138
Savings bank deposits 222,693,834,395
Term deposits 109,966,480,475
Total Deposits and other accounts= 472,590,067,605
Other liabilities 37,886,597,996
Subordinated debt 12,000,000,000
TOTAL LIABILITIES 545,710,358,549
Shareholders' equity:
Paid up share capital 7,479,312,500
Share premium 11,067,500
Statutory reserve 9,193,048,174
Other reserve -
Dividend equalization account 1,766,827,195
Assets revaluation reserve 850,413,777
Revaluation reserve of HTM securities 155,020,556
Retained earnings 28,717,074,849
TOTAL SHAREHOLDERS' EQUITY 48,172,764,551
TOTAL LIABILITIES AND SHAREHOLDERS'
593,883,123,100
EQUITY

Illustration no.4
 Dutch Bangla Bank PCL
Statement of Changes in Equity (Shareholders' Equity Statment)
For the year ended 31 December 2023

Details Notes Taka Taka Taka

Paid up share capital (1 January 2023) 6,957,500,000
Add: Transfer for dividend for the year 2022 521,812,500
Paid up share capital (31 December 2023) 7,479,312,500
Share premium 11,067,500
Statutory reserve 9,193,048,174
Dividend equalization account 1,766,827,195
Assets revaluation reserve 850,413,777
Revaluation reserve of HTM securities (1 January 2023) 355,330,921
Less: Surplus/deficit on account of revaluation of investments 200,310,365
Revaluation reserve of HTM securities (31 December 2023) 155,020,556
Retained earnings (1 January 2023) 22,504,567,661
Less:Payment of dividend for the year2022 1,217,562,500
21,287,005,161
Less:Transfer for dividend for the year 2022 521,812,500
20,765,192,661
Add: Net profit for the year 2023 8,017,399,148
28,782,591,809
Less: Transfer to Start up Fund for the previous year's net profit after
80,173,991
taxation
28,702,417,818
Add: Re-measurements gain/(loss) ofdefined benefits liability/assets 14,657,031

Retained earnings (31 December 2023) 28,717,074,849

TOTAL SHAREHOLDERS' EQUITY 48,172,764,551

Illustration no.6
Chapter 4: Emphasis on Our Analysis Report
After analysing the parts of financial statement, we get that
information given below:
Income statement analysis
1. 31 December, 2022 end of the year: -
Net interest income is 16,897,309,939, Total operating income is
31,947,814,447, Total operating expense is 19,585,012,032 by deducting
total operating expense from Total operating income we get profit before
provision is 12,362,802,415. And then after deducting total provision
(3,496,198,677) from profit before provision we attain the number the of
Profit before taxation and that is 8,866,603,738. Further after all of this
we deduct Total tax from profit before tax and attain 5,661,689,673 as
Net profit after tax.

2. 31 December, 2023 end of the year: - Net interest income is

22,262,216,999 Total operating income is 35,881,641,046 Total operating
expense is 21345599219 by deducting total operating expense from Total
operating income we get profit before provision is 14,536,041,827. And
then after deducting total provision ( 3,085,987,877) from profit before
provision we attain the number the of Profit before taxation and that is
11,450,053,950. Further after all of this we deduct Total tax from profit
before tax and attain 8,017,399,148 as Net profit after tax.

Income statement analysis report for different users

As an Investor:
 Positive growth: Net profit after tax increased from 5.66 billion in 2022 to 8.02
billion in 2023. That’s a strong sign of profitability.
 Better returns: The profit before tax also improved significantly, showing better
control over costs and stronger core operations.
 Confidence in future returns: Higher profits may lead to increased dividends or
higher share prices.
Conclusion: As an investor, this is a good sign. The company is becoming more profitable
and appears to be growing steadily.
As a manager:
 Improved efficiency: Operating income went up, and even though operating
expenses also rose, profit before provision increased from 12.36 billion to 14.54
billion.
 Cost control needed: Operating expenses rose significantly (from 19.58 billion to
21.35 billion), which should be monitored.
 Strong revenue generation: Net interest income and total operating income both
showed solid growth.
Conclusion: Managers should be pleased with the performance but must watch the rising
costs to protect margins further.

As a Shareholder:
 Higher earnings: Net profit after tax rose by over 2.35 billion taka. This improves
the possibility of better dividends.
 Healthy business growth: Consistent improvement in profit shows that the company
is expanding or managing its core operations well.
 Good return on investment: Earnings are increasing, and the company seems
financially healthy.
Conclusion: Shareholders can expect better value from their investment and potentially
increased dividends or capital gains.

As Other Users (Lenders, Regulators, Analysts):

 Lenders: Improved profit and income suggest that the company has a strong
repayment capacity.
 Regulators: Tax payment increased, which reflects proper financial discipline and
contribution to the economy.
 Analysts: Strong fundamentals, rising profits, and improved operating income
indicate good financial health and sustainability.
Conclusion: The financial statements show solid and improving performance, which gives
confidence to all external users about the stability and future of the company.

Key Financial Highlights (2022 vs 2023):

Metric 2022 (BDT) 2023 (BDT) Change

Net Interest Income 16.90 billion 22.26 billion ▲ +31.7%

Total Operating Income 31.95 billion 35.88 billion ▲ +12.3%

Operating Expense 19.58 billion 21.35 billion ▲ +9.0%

Profit Before Provision 12.36 billion 14.54 billion ▲ +17.7%

Profit Before Tax 8.87 billion 11.45 billion ▲ +29.2%

Net Profit After Tax 5.66 billion 8.02 billion ▲ +41.6%

Balance Sheet Analysis

1. Date on 31 December 2022:

After analysing the Dutch Bangla Banks balance sheet date on 31 December 2022, we
found that total asset was 555,473,634,446, total liabilities was 513,834,879,218 and total
shareholders’ equity was 41,638,755,228.

2. Date on 31 December 2023:

After one year on the same date total asset was 593,883,123,100, total liabilities were
545,710,358,549 and total shareholders’ equity was 48,172,764,551.

Balance Sheet Analysis Report for Different Users

As an Investor:
 Asset growth: Total assets increased from 555.47 billion to 593.88 billion – that’s a
positive sign the bank is expanding.
 Equity growth: Shareholders’ equity increased by over 6.5 billion taka, which
indicates stronger financial stability.
Conclusion: Investors will see this growth as a good sign of long-term potential and lower
risk.

As a Manager:
 Efficient management: The increase in both assets and equity suggests good
performance and healthy operations.
 Liabilities managed well: Although liabilities also increased, the proportion of equity
grew, showing better financial structure.
Conclusion: Management can feel confident in their performance but should continue to
manage liabilities carefully.

As a Shareholder:
 Increased value: Equity rose from 41.64 billion to 48.17 billion, meaning the overall
value of shareholders’ stake in the bank improved.
 Business expansion: Growth in assets and equity indicates that the bank is growing
and creating more value.
Conclusion: Shareholders should be happy with the growing value of their investment.

As Other Users (Lenders, Regulators, Analysts):

 Stronger financial position: The rise in total assets and equity shows that the bank is
stable and growing.
 Low risk: With higher equity, the bank has more cushion against future risks.
Conclusion: The bank appears financially sound, which is good for credit ratings and
regulatory compliance.

Key Balance Sheet Highlights (2022 vs 2023):

Metric 2022 (BDT) 2023 (BDT) Change

Total Assets 555.47 billion 593.88 billion ▲ +6.9%

Total Liabilities 513.83 billion 545.71 billion ▲ +6.2%

Metric 2022 (BDT) 2023 (BDT) Change

Shareholders’ Equity 41.64 billion 48.17 billion ▲ +15.7%

Conclusion
Analyzing the financial statements of a conventional bank is a critical
process that provides deep insights into the bank's financial health,
operational performance, risk exposure, and long-term stability. These
statements—primarily the balance sheet, income statement, cash flow
statement, and notes to the accounts—serve as essential tools for a wide
range of stakeholders including investors, bank managers, regulators,
depositors, and financial analysts.
Key Insights Gained from Financial Statement Analysis:
1. Assessing Financial Health
Financial statements reveal the bank’s assets, liabilities, and equity,
allowing analysts to evaluate solvency and liquidity positions. For
example, a higher capital adequacy ratio (CAR) indicates a stronger
buffer against financial stress or loan losses.
2. Understanding Profitability
The income statement outlines the bank’s revenue streams (like interest
income, fees, and commissions) and expenses (such as interest paid on
deposits and operating costs). Key profitability indicators like net
interest margin (NIM), return on assets (ROA), and return on equity
(ROE) can be calculated to measure how efficiently the bank is being
run.
3. Evaluating Risk Exposure
Analysis can reveal the bank’s exposure to credit risk, market risk, and
liquidity risk. For example, a high percentage of non-performing loans
(NPLs) relative to total loans can indicate potential trouble in asset
quality.

4. Liquidity Position
The cash flow statement helps determine whether the bank has sufficient
cash or cash equivalents to meet its short-term obligations. Ratios such as
the liquidity coverage ratio (LCR) and net stable funding ratio
(NSFR) are also used to assess short-term and long-term liquidity,
respectively.
5. Compliance and Regulatory Standing
Financial statements can help verify whether the bank is complying with
regulatory requirements set by central banks or financial authorities, such
as maintaining minimum capital and reserve requirements.
6. Trend Analysis and Forecasting
By comparing current statements with previous periods, analysts can
identify trends, seasonality, or cyclical performance. This can be useful in
forecasting future earnings, loan growth, or capital needs.
Implications for Stakeholders:
 Investors use financial statement analysis to determine whether the bank
is a profitable and safe investment. They look for strong earnings, stable
dividends, and low-risk exposure.
 Managers rely on these insights to make strategic decisions regarding
asset allocation, cost management, expansion, or restructuring.
Performance indicators help them adjust lending policies, optimize
portfolios, and improve efficiency.
 Regulators monitor financial statements to ensure the bank’s operations
are sound and in compliance with banking laws. They may intervene if
the bank shows signs of distress.
 Depositors and Creditors assess whether their funds are safe and
whether the bank has the ability to meet its obligations.
In conclusion, analyzing the financial statements of a conventional bank
goes far beyond mere number-crunching. It provides a comprehensive view
of the bank’s operations and performance, enabling informed decision-
making for all stakeholders involved. By understanding these financial
indicators, one can assess the resilience of the banking institution in a
dynamic economic environment.