A bank balance sheet shows all financial operations carried out by a bank during a certain period of time. It reveals the funds loaned by them, their own funds, their sources, their credit investments and other transactions.
It is registered in two ways. On the left side (assets) all assets are reflected and on the right (liabilities) the bank’s liabilities and capital are placed. An asset is anything that can be old, while a liability is an obligation of the financial institution that must eventually be repaid. The owner’s equity in a bank is often called bank capital, which is the amount remaining when all assets have been sold and all liabilities have been paid. The relationship of all the components of the balance sheet can be described simply by the following equation.
Bank assets = Bank liabilities + Bank capital
Assets generate income and include:
-Cash;
-Funds in corresponding accounts;
-Funds in reserve funds of the bank;
-Loans granted to legal entities and individuals; (customer loan portfolio)
-Interbank loans granted;
-Government bonds;
-Commercial securities;
Depending on the nature of the sources of funds, all liabilities differ in terms of duration and cost. The main sources of funds, as a general rule, are deposits from natural and legal persons and, in addition, funds from (national) central banks and loans obtained from other commercial banks.
Passive:
-Funds from banks and other credit institutions;
-Customer accounts, including domestic deposits;
– The promissory notes issued by the bank;
Through the use of liabilities, bank owners can leverage their capital to earn much more value than would otherwise be possible using only the bank’s capital.
In addition, central banks regulate bank liabilities by establishing mandatory reserve requirements for attracted deposits or by imposing administrative restrictions or incentives.
Assets and liabilities are further distinguished as current or long-term. Current assets are assets that are expected to be sold or converted into cash within 1 year; otherwise, the assets are long-term. Current liabilities are expected to be paid within one year; otherwise, the liabilities are long-term. Current assets and liabilities are important in assessing the bank’s liquidity. The deduction of Current Assets from Current Liabilities gives us a working capital. It is a measure of liquidity. An excess in working capital that a bank can meet its short-term liabilities
Working capital = Current assets – Current liabilities
Banks can also get more funds from bank owners, and these sources are called bank capital. Bank capital (= total assets – total liabilities) is the bank’s net worth. However, recent accounting changes have made it difficult to determine a bank’s true net worth.