Chrome Consultants

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

VenuesDublinLondonDubaiEdmonton (CAN)Lagos/Abuja
DatesTBDTBDTBDTBDTBD
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