FM103 (Banking and Financial Institutions)

CHAPTER 6
BANK REPORTS

Bank reports - are rendered to meet with requirements of the supervisory and regulatory
agencies.

Who needs bank reports?

a. Bank Directors and officers - for wise and judicious action
b. Stockholders – who invest money and assures the safekeeping and eager to find
their shipshape condition.
c. Potential investors- seeking outlets for their excess funds may be enticed if
convinced of the financial strength of the bank.
d. General public- should be made aware of banking functions through the bank
reports.

Chapter IV of the New General Banking Act:

Sec.58. Independent Authority- the Monetary Board (MB) may require a bank, quasi-bank,
or trust entity to engage the services of an independent auditor to be chosen by the bank,
quasi-bank, or trust entity concerned from a list of certified public accountants acceptable
to the Monetary Board. The engagement shall be prescribed either be on a continuing basis
of where the auditor shall act as resident examiner, or on special engagement.

Sec.59. Authority to Regulate Electronic Transactions – the Bangko Sentral shall have full
authority to regulate the use of electronic devices, such as computers, and processes of
recording, storing and transmitting information or data in connection with the operations
of a bank, quasi-bank, or trust entity, including the delivery of services and products to
customers of such entity.

Sec.60 Financial Statements – every bank, quasi-bank, or trust entity shall submit to the
appropriate supervising and examining department of the Bangko Sentral financial
statements in such form and frequency as may be prescribed by the BSP. Such statements
shall show the actual financial condition of the institution.

Sec.61 Publication of Financial Statements – Every bank, quasi-bank, or trust entity shall
publish a statement of its financial condition, in English or Filipino, at least once every
quarter in a newspaper of general circulation in the city or province where the principal in
the case of domestic institution, or the principal branch or office in the case of a foreign
bank.
The Monetary Board may allow the posting of the financial statements of a bank,
quasi-bank, or trust entity in public places it may determine in lieu of the publication,
required in the preceding paragraph, when warranted by the circumstances. The Monetary
board, by a vote of at least five (5) of its members, in special case and upon application of
the bank, quasi-bank or trust entity allow such quasi-bank or trust company to defer for
stated period of time the publication of the statement of financial condition required
herein.
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Sec.62 Publication of Capital Stock – A bank, quasi-bank or trust entity incorporated under
the laws of the Philippines shall not publish the amount of its authorized or subscribed
capital stock without indicating at the same time with equal prominence, the amount of its
capital actually paid up.

Types of Bank Reports:

1. Condensed bank statement – the accounts in a statement should appear in condensed

or abbreviated form. This is usually issued for publication or sent to depositor and
stockholders as a means of serving them an opportunity to look into their particular
bank’s financial position. The frequency of publication will be dependent on the
requirement of the supervisory and regulatory agencies.

2. Real bank statement – usually in more detailed form and is prepared for the
regulatory and supervisory agencies. It is also the basis for the preparation of other
reports.

3. Annual reports- some banks offers a “progress report” which contains the resume of
its yearly operation usually in brochure form. Such reports are made available to the
general public as means of advertising. Such report contains the “focal points” in the
bank’s progress. The addition of a new building, the setting up of branches and the
like may be stressed in the brochure through “write-ups’’ or pictorial reporting.

The Bank Statement – serves to underscore the bank’s position at certain periods of time.

Most common bank assets or resources are:

1. Cash on Hand - this account represents notes and coins held by the bank to meet
depositor’s withdrawals and other normal cash needs. Such cash may be in the bank
values and/or in the hands of the tellers.

2. Other Cash Resources – comprises of (a) exchanges for the clearing house, (b)
collections in transit, and (c) other cash items. Such detailed classification is
necessary as it reflects different aspects of liquidity in relation to the bank’s
immediate cash needs.

a. Exchanges for the clearing house-consist of checks deposited at or cashed by the

bank preparing the statement during the course of the day which are drawn on
banks within the city that are members of the clearing house.
b. Collections in transit – this account consists of “out-of-town” checks or drafts
drawn on banks outside the city. The bank receiving them for deposits and
collection usually credits the account of the depositor or customer pending

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 receipt of the proceeds. The entry in the bank’s books is on a deferred basis,
subject to final payment or receipt of the proceeds.

c. Other Cash items – this account may include other miscellaneous items such as
bond coupons for which the depositors have been credited pending collection of
the coupon. Or, in the case where not all banks are members of the clearing
house, the checks or drafts where not all banks are members of the clearing
house, the checks, or drafts may represent claims against non-member banks.

3. Due from Bank- this represents deposits carried with other banks, usually in the
form of demand deposit.

4. Balances with Foreign Banks – this consists of deposits or funds held abroad mainly
to fill foreign exchange needs.

5. Loans and Discounts – this account is a major item on the banks asset side. It consists
of all promissory notes and bills of exchange held by the bank evidencing the
existence of a debt or securing a debt. Promissory notes mat either be secured or
unsecured.

6. Government Securities – another major item which will serve to buffer any probable
loss of the depositor. It consists of the evidences of indebtedness fully guaranteed by
the Republic of the Philippines in the form of bonds and other instruments of similar
nature.

7. Other securities-This will represent the stocks and bonds or short-term investments
not fully guaranteed by the Philippine government. The securities may belong to
private corporations.

8. Bank Building, Furniture and Fixture- this item represents the monetary value of the
properties owned by the bank to carry on its functions.

9. Other Real Estate Owned- this account arises out of the fact that banks foreclose real
estate mortgages and carry the monetary value of the asset in their books until the
real estate is disposed of. This transaction happens when banks are to accept real
estate as security for loans which turn out to be unpaid.

10. Customer’s Liability under Letters of Credit–bank statements carry in their books an
account representing the customer’s obligation to reimburse the bank by virtue of
the bank’s commitment to substitute its credit for the borrowers by honoring drafts
drawn against it.

11. Customer’s liability Under Acceptances – this is similar to the customer’s liability
under letters of credit except that the banks obligation in this regard is of greater
magnitude. When the bank accepts a draft, it in effect promises to pay the draft upon
presentation.

12. Income accrued but not yet collected – when a bank grant loans with interest
collected at maturity, the bank in effect has future earnings which as yet haven’t

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 been collected. The interest runs during the entire period. In the case of bond
interest payment accrue but may not as yet be collectible. Hence, such accrue are
considered as bank resources, since eventually they will be realized.

13. Other Assets – This item serves to round-up any or all other assets not otherwise
described in detail.

Bank Liabilities

A. Liabilities
1. Demand Deposits – represent claims of depositors who withdraw their deposits
by means of checks.

2. Time Deposits- represent claims of depositors who keep their money in the bank
for a specified period of time and for which the bank must likewise be ready to
pay at maturity.

3. Government Deposits – represents deposits, either time or demand, which

belongs to the government of its instrumentalities and political subdivisions.

4. Cashier’s check outstanding – the bank’s cashier, in his official capacity as such
issues checks to either pay the bank’s obligations, to accommodate customer, or
to remit funds.

5. Certified checks outstanding – when the depositors request the bank to certify
his checks, the bank then sets aside the amount of checks by debiting the
depositors account before stamping certification on the face of the check. Upon
certification, the bank assumes the obligation of honoring the check. Therefore
makes the instrument more acceptable.

6. Due to banks-This account represents deposits or balances of other banks with

the bank preparing the statement. Collection items paid for but not yet remitted
by the bank requesting collection may likewise be included in this item.

7. Letters of credit outstanding – This account arises out of the issuance of letters of
credit for which the bank obligates itself to pay or guarantee payment. The bank
has a right of recourse against the customer whose credit it substitute.

8. Acceptance outstanding – similar to the account letters of credit outstanding

except that it makes the banks obligation more real than contingent. The bank
will then honor the drafts presented to it and will also have the right of recourse
against the customer.

9. Bills payable – This represents the claims of creditors of the bank for funds
borrowed by it.

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 10. Rediscounted notes – arises out of the used of the endorsed commercial papers
for the purpose of procuring funds. Commercial papers serve as security and the
banks endorsed thereon establishes its obligation in case the primary debtors
fail to pay. Commercial banks discount their notes with the BSP when they run
out of loanable funds or for some other need.

11. Discounts collected but not yet earned – when the bank gives out a loan and
collects interest in advance, the amount deducted is not yet really earned in full.

12. Other liabilities – this account serves as the counterpart of the “other assets” and
includes all other liabilities not otherwise designated in detail.

B. Reserves
1. Reserve for accrued taxes – tax payment cannot be ascertained thus bank set
aside amounts based on past payments.

2. Reserve for accrued interest – this represents the interest accruals on time
deposits as well as interest payments on money borrowed by the bank. Interest
on deposits is usually computed on the daily balances of depositor’s accounts or
in some other stipulated manner.

3. Reserve for accrued expenses - this constitute the salaries, supplies, and other
expenses estimated on the bank’s budget for the year. The bank builds up this
reserve by distributing the total amount on a monthly basis.

4. Reserve for depreciation on bank properties - this item represents the wear and
tear on the bank’s building, furniture, and fixture.

5. Reserve for depreciation on securities – A portion of the bank’s assets are

composed of securities. This account will represent the cushion or the fall in the
value of the securities held by the bank.

6. Reserve for contingencies – This will represents losses incurred by the bank
either through bad loans or investments. It may also cover the estimated
payment of pending lawsuits.

C. Stockholder’s Equity
-the accounts representing the stockholder’s equity sometimes termed as the
bank’s capital accounts. It is usually a “thin equity” compared to deposit liabilities. It has
been stated that a bank “trades on the equity”. Therefore the Banks net worth represents
how much the depositors could possibly recover in case of loss, not to mention the claim of
stockholders themselves.
1. Capital Stock – This account is carried as per face value of the total number of
stocks appearing in the bank’s Charter.
2. Surplus – may consist of earnings derived from the sale of stock above par or
earnings retained by the management from operations. The surplus account usually
acts as the “shock-absorber” for losses incurred.

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 3. Undivided profits – this account is gaining more adherents in bank financial
management for the reason that it is transitory nature. This represents earnings
from current operations not yet paid out as dividends.

Minimum Capital Requirement

The Monetary Board shall prescribe the minimum ratio which the net worth
of a bank must bear to its total risk asset which includes contingent accounts.
Monetary Board may require such ratio as the basis of the net worth and risk assets
of a bank and its subsidiaries, financial or otherwise.

Bank Earnings and Expenses

A bank must earn enough to meet its expenses, to cover losses, as well as to
provide a return on the stockholders investments. A bank’s profit and loss
statement (or income statement) is singular in the sense that it deals mainly on
financial transactions and the accounts are confined to the sources of income and
the disposition of the same.

Criticism on Published Statements

1. Published statements are too abbreviated as to give any significant detail in banking
operations.

2. The ordinary layman is not conversant with banking functions, or perhaps even
with the banks, so he cannot understand the significance of the accounts appearing
in the statement.

3. The asset and liabilities are so combined as to make it possible to “look through” or
discover the real picture of the bank unless one is an expert in financial statement
analysis.

4. The real picture of the banks financial position as reflected in the financial reports
will depend largely on how the accountant estimates the valuation of assets and
how completely he enumerates the liabilities.

“Live in such a way that those who will know you but don’t know GOD will come to
know GOD because they know you”

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