How to read a bank’s income statement (I)

How to read a bank’s income statement (I)

Listed companies present their quarterly results for a few weeks a flurry of little comparable data for all occurs. Therefore, we have prepared a few items to help shed light on how to interpret the income statement of a bank   with the aim of you know what each of the sections that compose means and understand how starting a game ends reaching consolidated profit entity.

This report shows the composition and amount of income earned by an entity in a specific time period, in this case, one year. They reflected positive revenue and earnings and negative, expenses and losses. Let’s get the income statement of Bankinter 2016 and go desgranándola. 

Interest and similar income: It represents the income from interest accrued in the year on financial assets that generate a yield. For example, interest on loans granted by the bank, Treasury bills and bonds in which it has invested … The interests are targeted by the gross amount, regardless of tax deductions made. To this starting the call A.

Interest and similar charges: They are the interest earned on all financial liabilities with performance. Thus, under this heading the financial costs that the bank must pay to remunerate current accounts are collected, deposits … the interest cost attributable to pension funds constituted also included. This item is called B.

Both A and B include those rectifications as a result of hedge accounting, for example, cash flow and fair value of the products. 

Net interest income: It is the result of the following operation: AB

Performance of equity instruments: The balances of this account dividends from shares and equity instruments other than those coming from holdings in entities accounted for using the equity method. For example dividends from financial assets available for sale or trading.

Result of entities accounted for using the equity method: Here the results (profits or losses) of investee entities considered (where the entity owns a percentage of capital) are targeted.

Net fees: results from the difference between the commissions generated for the entity unless the entity commissions have to pay to third parties. Fees received by advisory services receipts and payments, commissions availability, foreign exchange, for the marketing of non – banking products, management of investment funds … In the second, include those in the first part of the bank has to satisfy brokerage operations, assigned to third parties for credit cards and debit cards and money transfers, securities trading, commissions to agents who sell bank products commissions …

Income from financial operations and exchange differences: This item includes gains or losses to be recognized both purchases and sales of portfolio assets having the bank for trading (fixed income, equities, options, futures, …) as well as valuation adjustments thereof. It does not include amounts attributable to interest accrued by applying the effective interest rate and the corresponding stakes in group companies, joint ventures and associated method results.

That is, are recorded here the gains of the trading (trading) held by the Bank: for fixed, variable, options, futures … Whatever the outcome of the management of the assets that the entity is intended to speculative trading.

Exchange differences (net) reflect the results obtained in forex trading and differences arising on translating monetary items in foreign currency to the functional currency at impute in the profit and loss those from non-monetary assets foreign currency at the time of their sale and that the sale of assets of entities with functional currency other than the euro.

Gross margin: is a ratio that measures a relationship between incomes and costs. Includes net interest income, items from dividends received by holdings in other companies, the fees charged entity, differences in currency exchange and the result of financial operations (ROF). It also includes net sales of non – financial services, the contribution to the deposit guarantee funds and other items that were included in the profit and loss line. And finally, does not include capital gains from the sale of shares that are considered strategic

ROF means the difference between total profit from financial transactions and losses from such operations.

 

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