Intensive Bank Analysis

Programme description & objectives

Programme description & objectives The overall goal of this course is to provide participants with a structured approach to analyzing the credit risk of developed market, commercial and universal banks and the skills to make an independent assessment of the strengths and weaknesses of a bank. The key learning outcomes of the program include the following: - Use a structured approach to the analysis of banks, incorporating the CAMELS framework within the wider context of the operating environment and support - Identify strong and weak performers using a detailed analysis of financial statements within the context of local and international accounting and business norms - Identify financial, qualitative and market early warning signals of credit risk and migration - Stress test bank capital and ability to withstand credit, market and liquidity risk - Evaluate strategy and risk management capabilities within the context of the current and future economic climate and changing competitive, political and regulatory conditions, including Basel III capital and liquidity requirements

Venues, Dates & Cost

Venues	Dublin	London	Dubai	Edmonton (CAN)	Lagos/Abuja
Dates	TBD	TBD	TBD	TBD	TBD
Cost	$4,000 per participant (USD)				(=N=)

For Whom

Private financial sector strategists
Professionals in management, compliance, legal, governmental & international affairs
Legal practice specializing in the above mentioned activities
Relevant government and governmental agencies
Central banks (management, legal, regulation and oversight, international affairs, etc.)
International organizations & agencies (policy makers & strategists legal)
NGOs & Advocacy Groups active in the field of international financial markets

Snapshot of Course Content

Analytic Overview

Structured framework of analysis including market indicators
Overview of the framework and tools of bank analysis: operating environment, financial fundamentals, management and support
Purpose and payback model: a structured approach to credit analysis
Key issues in exposures to banks: exposure profile, seniority, safeguards, pricing
Rating agency approaches: Issuer ratings, individual / financial strength and support ratings
CAMELS (Capital, Assets, Management, Earnings, Liquidity, Sensitivity to market risk)
Market perspective on credit: equity indicators, credit default swap and bond market indicators
Exercise: understanding and applying the purpose payback model and demonstrate the typical borrowing needs and repayment capacity of a commercial bank

Operating Environment

Impact of macro – economic variables on performance
Bank systemic risk: macro prudential indicators
Macro prudential indicators of risk; credit growth, equity and property prices and FX
Competitive and structural issues of the banking system
Changing roles of the regulator and supervisor
Key regulations: purpose and implementation
Quality of regulation
Exercises: Considering the impact on bank profitability of the operating environment in various countries
Consider and quantify the impact on bank capital adequacy ratios of the implementation of Basel III

Financial Fundamentals

How to measure and evaluate bank performance, distinguish strong and weak performance and appreciate the limitations of the figures
Relating business mix to financial statements
Accounting policies & disclosure: IFRS & local GAAP; fair valuation – securities, derivatives, own debt
Exercise: Understanding how the business model of a financial institution impacts its financial statements

Business Risk

Loan portfolio analysis: uncovering the risk profile; key differences between types of bank
Loan quality: impaired loans and reserve adequacy
Off balance sheet exposures: Lending commitments, SIVs, Conduits, & other special SPVs
Trading risk: assessing securities and derivatives portfolios, use of value at risk (VaR) models and stress testing
Investment risk: valuation and accounting policies, hidden reserve or black hole
Exercises: The capital base and profitability of a bank may be influenced by their provisioning policies
Identify the risks prevalent in the trading operations of a commercial or investment bank
Illustration case study: Assessing business risk, incorporating loan portfolio quality, trading portfolio and other credit and market risks

Performance Risk – Earnings

Balancing the risk/return profile: strategy and risk appetite
Income stability and diversity: earnings at risk
Control of expenses: targets and peer comparisons
Illustration case study: Assessing performance of a bank, incorporating overall returns, income diversity and stability and cost control

Financial Risk – Liquidity

Funding risk: stability and variety of funding sources, contingency funding
Liquidity of assets: identifying truly liquid assets, stable funding of illiquid assets
Liquidity of liabilities: stability of deposit base, dependence on short – term wholesale funding, inter – bank market, key challenges of repo and CP funding
Liquidity: quantitative and qualitative measures, Basel III liquidity guidelines
Liquidity: coverage ratio and stable funding ratio
Gap management: using the tenor and interest rate mismatch tables to better understand refinancing risk
Securitization vehicles: accounting and credit implications
Exercise: Demonstrate how a bank’s funding structure can impact its liquidity position and interest rate exposure

Financial Risk – Solvency

Capital: size, quality and adequacy of capital base under Basel I, II and III
Types of capital: core (common equity) vs. additional Tier 1 and Tier2
Standardized and advanced approaches for credit, market and operational risk
Leverage ratios: benchmarks and challenges
Capital adequacy: measuring size, quality and adequacy of capital base; regulatory capital ratios and assessing regulatory capital for non-deposit takers
Economic capital and internal capital adequacy assessment process (ICAAP)
Stress-testing capital for market and credit write-downs
Illustration case study: Assessing financial risk including solvency, funding strategy and liquidity in the light of the risk profile of the business model

Early warning signals

Financial and non-financial indicators of distress
Market indicators: equity, CDS and bond indicators
Lessons learned from failed banks
Exercise: Distinguishing between strong and weak players

Management, Franchise and Ownership

Management: strategy, systems, skills, structure
Risk management
Franchise: strength of banking business model

Support

Bail-in vs. Bail-out; Living wills, BRRD and TLAC
Reliance on support: rating floors, which creditors are supported
Loss absorbing capability of various levels of capital including equity, preference shares, contingent convertibles, subordinated debt and senior medium term debt
Solvency vs. liquidity problems
Regulatory responses to banking crisis: recapitalization, guarantees, bad banks, insurance
Exercise: Recognize the main approaches & support strategies employed by governments and their pros and cons

Group Case study

Apply the analytic framework to identify the strengths and weaknesses in a developed market commercial bank
Explore the challenges of regulating global financial markets using the financial crisis of 2007-2010 as a starting point
International orientation: global regulatory committees (Financial Stability Board, Basel, etc.), European post-crisis regulation, American regulatory debate
Analyze main techniques of financial regulation and explore their rationales and dynamics
Seven policy areas reinforced after the financial crisis