Bank financial statement analysis is a measure used to determine the financial condition of a bank as seen from the financial statements and presented by the bank periodically. Processing financial statements are made in accordance with established standards. The analysis used in this case uses financial ratios in accordance with applicable standards.
Types of Bank Financial Statements
Commercial banks, both commercial banks or rural banks (BPR) are required to provide financial reports every certain period. There are three types of bank financial statements, namely:
Monthly financial reports
Quarterly financial statements,
Annual finance report.
Benefits of Bank Financial Statement Analysis
Some of the benefits that can be felt from the analysis of financial statements at a bank are as follows:
Estimates of the results and financial condition of the bank.
Diagnosis of managerial, operational, and other problems.
Reducing uncertainties that are difficult to avoid and are often encountered in the decision making process.
Initial considerations in investment selection.
Measuring the success rate of bank management.
Ratios in Analysis of Bank Financial Statements
The types of financial ratios required in each company are certainly different, depending on their activities including those of the bank. In general, the ratio needed by bank companies is divided into five. What are there?
Liquidity ratio (liquidity ratio) is the ratio used to determine the ability of banks to meet short-term obligations or obligations that are due. One type of liquidity ratio is LDR (Loan to Deposit Ratio). LDR is the ratio between credit and third party funds. The higher this ratio, the lower the liquidity capacity of the bank concerned will be indicated. This is due to the greater amount of funds needed to finance credit. Bank Indonesia regulations regarding a maximum LDR of 110%.
Profitability ratios are useful for measuring the level of business efficiency and profitability achieved by banks. This ratio can be used to measure one aspect of bank health. One type of profitability ratio is ROA (Return On Asset). ROA is a ratio used to determine the bank’s ability to generate profits relative to the total value of its assets. This ratio is very important, considering that adequate profits are needed to maintain the sources of bank capital.
Capital ratios can be calculated using the Capital Adequacy Ratio (CAR). This ratio is used as an indicator of the ability of banks to cover the decline in assets due to losses on bank assets using their own capital. CAR is a comparison between own capital and Risk Weighted Assets (RWA). RWA is a sum, both balance sheet assets and administrative assets that have been multiplied by their respective weights.
Fund Cost Ratio
The bank works by using a large portion of public funds for resale in the form of credit or other profitable assets. The bank must know exactly what the price of the funds raised is to make it easier to determine the selling price, take policy, and arrange the placement of assets as optimal as possible. One type of cost of funds ratio is the Cost Of Loanable Fund (COLF). This ratio is to find out the price of funds that can be sold. In accordance with BI regulations, each bank must set aside Reserve Requirement (RR) funds by 5%, so that public funds that can be sold are a maximum of 95%.
Financial performance in terms of assets is measured by the quality of productive assets. One of the ratios used is Return On Risked Asset (RORA). RORA is a ratio that compares the gross profit with the amount of risked assets owned. Gross profit is the result of a reduction in income from expenses while risked assets consist of securities and loans distributed. A high RORA value indicates that the income received is large so that the profits obtained are also optimal and affect the stock price increase.