Bank Financial Statement Analysis

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2.3.5 Average cost of funds – The average cost of funds for the bank can be worked out as under : Total interest/dividend paid (as per P L A/c.) Average cost of funds (k)= ------------------------------- X 100 4 Average working funds1 The weighted average cost of funds can also be calculated as illustrated hereunder: Source funds of Owned funds2 Deposits Borrowings Other liabilities Average o/s amount (Rs.lakhs) 75.00 200.00 50.00 75.00 400.00 Relative share Cost ( ) ( ) 18.76 50.00 12.50 18.75 100.00 Weighted average cost ( )(3X4/100) 10.000 7.113 9.025 - 1.875 3.557 1.128 6,560 The weighted average and the average will not be identical, as in case of average we have taken average working funds in the denominator, while in the weighted average we have used the average outstanding balances under each item.. The weighted average yield on advances of 100 is worked out as follows : Interest received on advances (as per P L A/c.) Average yield on advances = ---------------------------------- X 100 Average advances (including NPAs) The component wise weighted average yield on advances carrying different rates of interest is worked out as under: Category of advance Upto Rs.25000/Rs.25001-Rs.2 lakhs Above Rs.2 lakhs Average o/s amount (Rs.lakhs) 90.00 130.00 80.00 300.00 share in total Interest rate( ) 30.00 43.33 26.67 100.00 Weighted average interest rate ( )(3X4/300) 13 14 16 3.9 6.066 4.267 14.233 2.4.5 Other assets – The bank should limit its investments in land and buildings, furniture and fixtures, etc.. It is calculated as follows: BEL = (Transaction costs + Risk costs) -Non-interest income ------------------------------------- X 100 Net Margin In case the present level of working funds is more than BEL, the bank would be in profit and the actual profit can be arrived at as follows: Profit = (Actual working funds – BEL working funds) X Net margin The amount of dividend taken to calculate the average cost of funds, has to be added to the above figure to arrive at

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