The Bank Credit Analysis Handbook: A Guide for Analysts, Bankers, and Investors -- Copyright -- Contents -- Preface to the New Edition -- Dramatic Changes -- Structure of the Book -- Notes -- Chapter 1: The Credit Decision -- Definition of Credit -- Creditworthy or Not -- Credit Risk -- Credit Analysis -- Components of Credit Risk -- Credit Risk Mitigation -- Willingness to Pay -- Indicators of Willingness -- Creditors' Rights and the Legal System -- Evaluating the Capacity to Repay: Science or Art? -- The Limitations of Quantitative Methods -- Quantitative and Qualitative Elements -- Credit Analysis versus Credit Risk Modeling -- Categories of Credit Analysis -- Individual Credit Analysis -- Evaluating the Financial Condition of Nonfinancial Companies -- Evaluating Financial Companies -- A Quantitative Measurement of Credit Risk -- Major Bank Failure Is Relatively Rare -- Bank Insolvency Is Not Bank Failure -- Why Bother Performing a Credit Evaluation? -- Banks Are Different -- Notes -- Chapter 2: The Credit Analyst -- The Universe of Credit Analysts -- Job Description 1: Credit Analyst -- Job Description 2: Credit Analyst -- Job Description 3: Credit Analyst -- Job Description 4: Credit Analyst -- Classification by Functional Objective -- By Type of Entity Analyzed -- Classification by Employer -- Organization of the Credit Risk Function within Banks -- Role of the Bank Credit Analyst: Scope and Responsibilities -- The Counterparty Credit Analyst -- The Fixed-Income Analyst -- A Final Note: Credit Analysis versus Equity Analysis -- Credit Analysis: Tools and Methods -- Qualitative and Quantitative Aspects -- Macro and Micro Analysis -- Resources and Trade-Offs -- Requisite Data for the Bank Credit Analysis -- The Annual Report -- The Auditor's Report or Statement -- The Financial Statements: Annual and Interim.

Timeliness of Financial Reporting -- Spreading the Financials -- Making Financial Statements Comparable -- DIY or External Provider -- One Approach to Spreading -- Additional Resources -- The Bank Website -- News, the Internet, and Securities Pricing Data -- Prospectuses and Regulatory Filings -- Secondary Analysis: Reports by Rating Agencies, Regulators, and Investment Banks -- Camel in a Nutshell -- Notes -- Chapter 3: The Business of Banking -- Banks as Lenders -- Categories of Lending -- Loans and the Lending Process -- Syndicated Lending -- Securitization -- Credit Cards -- Banks as Financial Service Providers -- Overview: The Impact of Disintermediation -- Treasury -- Trade Finance and the Letter of Credit -- Foreign Exchange Dealing and an Introduction to Derivatives -- Investment Banking and Securities Brokerage -- Securities Custody and Clearing -- Asset Management and Trust Banking -- Cash Management -- Insurance and Bancassurance -- Notes -- Chapter 4: Deconstructing the Bank Income Statement -- Anatomy of a Bank Income Statement: An Overview -- The Cash Flow Statement -- Income versus Cash Flow -- Accrual Accounting -- Why the Cash Flow Statement Is Not Especially Useful for Bank Analysis -- Differences in Terminology and Income Statement Structure -- A Further Dissection -- Deriving Net Interest Income -- Deriving Preprovision Income (Net Operating Income) -- Deriving Net Income -- Net Operating Profit after Provisions -- Income Statements under IAS -- Notes -- Chapter 5: Deconstructing a Bank's Balance Sheet -- Key Differences Between the Balance Sheets of Banks and Nonfinancial Companies -- Composition of Assets and Liabilities -- Gearing -- Bank Balance Sheet as Mirror Image of Corporate Balance Sheet -- The Essential Line Items of the Bank Balance Sheet: Asset Side -- Asset Classification.

Most-Liquid Assets: Cash and Cash Equivalent -- Moderately Liquid Assets: The Securities Portfolio -- Less-Liquid Assets: Loans and Advances -- Fixed Assets and Other Assets -- The Essential Line Items of the Bank Balance Sheet: Liability Side -- Liability Classification -- Customer Deposits -- Purchased Funds and Interbank Borrowing -- Short-Term Debt -- Long-Term Liabilities -- Other Liabilities -- Shareholders' Equity -- Off-Balance-Sheet Items and Derivatives -- Overview -- Use of Derivatives -- Analysis of Off-Balance-Sheet Items -- The Statement of Changes in Capital Funds -- Notes -- Chapter 6: Earnings and Profitability -- The Importance of Earnings -- Profits versus Profitability -- Impact of the Bank's Business Model on Earnings -- Performance Terminology -- Evaluating Earnings and Profitability: An Overview -- Recognizing Trade-Offs -- Sustainable Earnings and Profitability -- Earnings Analysis -- Interest versus Noninterest Income -- A Deeper Analysis of Earnings -- Evaluating Earnings Growth -- Examining Changes in Earnings and Other Income Statement Items -- Profitability Ratio Analysis -- Overview of Fundamental Profitability Ratios -- ROE -- ROA -- Core Profitability Indicators -- Margins and Spreads to Measure the Profitability of Specific Activities -- Cost-Efficiency Ratios: Measuring Profit Destroyers -- Profitability: An Illustration of a Peer Analysis -- Comparing Earnings Growth -- Comparing Profitability -- Empirical Relationship among Profitability Ratios -- Macro-Level Influences on Bank Profitability -- Micro-Level Influences on Bank Profitability -- Peer Comparison of Operating Costs -- Peer Comparison of Provisioning Costs -- Peer Comparison of Funding Costs -- Peer Comparison of Yields -- Peer Comparison of Income -- Quality of Earnings -- Financial Reporting and Earnings Quality -- How Banks Cook Their Books.

Boosting Revenue -- Notes -- Chapter 7: Asset Quality -- Asset Quality and NPLs: An Introduction -- The Importance of Asset Quality -- Nonperforming Loans (NPLs) -- Why Is an Excessive Level of NPLs Dangerous? -- Resolution of NPLs -- Write-Off -- Foreclosure -- Workout -- Bad Bank -- Accounting for NPLs -- The Impact of Accrual Accounting -- Loan-Loss Provisions, Charge-Offs, and Loan-Loss Reserves -- What Causes Excessive NPLs -- Macroeconomic Influences on Asset Quality-Economic, Business, and Credit Cycles -- Credit Cycles -- Credit Mismanagement -- Data and Ratio Analysis -- Key Data and Indicators -- Loan Growth and Related Ratios -- NPL Ratio -- NPA Ratio, Coverage, and Related Indicators -- Credit Cost Ratios -- Credit Costs and Profitability: The Capacity to Absorb Bad Loans -- Loan Book Composition, Credit Culture, and Other Soft Factors -- Review of Loan Portfolio Composition -- Appraisal of the Bank's Credit Culture, Policies, and Procedures -- Review of Credit Policies and Procedures -- Notes -- Chapter 8: Management and Corporate Governance -- An Overview of Management Appraisal -- The Function and Importance of Management -- Difficulties in the Evaluation of Management -- Lines of Inquiry -- The Bank Visit -- Corporate Governance -- Stakeholders -- Corporate Governance Defined -- Evaluating Corporate Governance: An Overview -- Bank Corporate Governance -- Evaluating Corporate Governance: How to Quantify the Qualitative -- Notes -- Chapter 9: Capital -- The Function and Importance of Capital -- Why Capital Is Important -- Why Are Banks So Highly Leveraged? -- What Is Capital? -- Financial Capital: Capital as Total Finance -- Equity Capital: Capital as the Owners' Investment (Accounting Capital) -- Regulatory Capital: Capital as Defined by Regulators -- Analytical Capital: Capital as Defined by the Analyst.

Measuring Capital Strength: Traditional Ratios -- Non-Risk-Weighted Measures -- Rudimentary Risk-Adjusted Capital Ratios -- Internal Growth Rate of Capital: A Measure of the Link between Profitability and Capital -- Holding Company Structure and Double Leverage -- Regulatory Capital and the First Basel Accord -- Background to the 1988 Capital Accord -- Regulatory Capital and the 1988 Accord -- Definitions of Capital under the Basel Accord -- Risk-Weighted Assets -- Basel-Related Risk Ratios and Supplementary Capital Indicators -- Evaluating Capital Strength: When Is Capital Important and How to Measure It? -- The Basel II and Basel III Accords and the Concept of Economic Capital -- Problems with the Old (1988) Capital Accord -- Basel II -- Basel III -- Notes -- Chapter 10: Liquidity -- What Is Liquidity and Why Is it Important? -- The Importance of Liquidity -- Uses and Sources of Liquid Funds -- Liquidity Management -- The Cost of Liquidity and the Trade-Off with Bank Profitability -- Elements of Bank Liquidity Analysis -- Asset Liquidity -- Funding Liquidity -- The External Evaluation of Liquidity -- Other Issues in Evaluating Bank Liquidity -- Notes -- Chapter 11: Country and Sovereign Risk -- Overview -- The Operating Environment -- The Political Environment and Political Risk Analysis -- An Introduction to Macroeconomic Analysis -- Fiscal, Monetary, and Trade Policies -- Fiscal Policy: The Condition of Public Finances -- Monetary Policy: Price Stability and Market Indicators -- Trade Policy: Exports, Imports, and the External Debt Position -- Notes -- Chapter 12: Risk Management, Basel Accords, and Ratings -- Risk and the Importance of Risk Management -- Purposes of Risk Management -- Integrating Risk Management -- Changes in the Organization of Risk Management -- The Process of Risk Management -- Categories of Bank Risk -- Risk Classification.

Risk Map.