Question

1 Balance Sheet 2 Assets 3 Cash 4 Short term securities with interest purchased 5 Investment securities with interests 6 Loans 7 Allowance for loans and lease losses 8 Net loans 9 Premises and Equipment 10 Trading account securities 11 Time deposits placed 12 Intangible assets 13 other assets 14 Total Assets 15 17 Liabilities 18. Non-interest deposits 19 Interest bearing deposits 20 Short term debt 21 Other liabilities without interest 22 Short term securities with interest sold 23 Long term debt 24 Total Liabilities 88888 27 Total Equity 30 Income Statement 31 Total interest income 32 Total interest expense 33 Total non-interest income 34 Total non-interest expense 35 Provision for loan losses 36 Income Taxes 37 Special items Net income from continuing operations 40. Net income from total operations Income what data is used to calculate bank spread
interest earning assets includes securities and Loan,is it right?row 4,5,6?

When calculate Interest paying asset,row 19,20,22,23?

To calculate bank spread, what data is needed

Answer 1

As per the question, my understanding is that the balance sheet shown by you is that of a banking company.

Taking this understanding forward you need guidance in terms of what all are the steps to calculate bank spread.

Bank spread is the net interest in terms of basis points earned by loaning out the funds and paying the depositors.

Your direction is right in terms of considering the interest earned on the assets in rows 4,5,6 and 11. You need to include time deposits as well as those are also interest earning instruments.

In terms of liabilities, you shall include rows 19,20,22,23 as rightly mentioned by you.

Now in order to calculate the bank spread you need to have the interest rates for each of the interest bearing instruments both assets and liabilities. This will further help you calculate the spread by arriving at the net interest earned.

If the above information is not given you can ideally calculate the spread by using the interest income and interest expense from the income statement. (Interest income/principal amount of interest bearing assets) will give you interest earned on assets while (Interest expense/principal amount of interest bearing liabilities) will give you interest expense on the liabilities.

The bank spread can then be calculated using the difference of the two.