Liabilities are operations that form banking resources. For every commercial institution they are very important. Firstly, the reliability factors of a bank are the stability of resources, their structure and size. Secondly, the price of resources also affects the amount of profit. Thirdly, the cash base determines the volume of active operations that bring income to the bank.
The concept of liabilities of a financial institution
What it is? Passive operations play a very important social and national economic role: they collect temporarily free funds of the population and enterprises, which allows satisfying the needs of the economy in working capital and fixed capital, investing money (savings) in investments, and providing loans to the population. Income from deposits and debt securities may partially cover population losses from inflation.
Bank liabilities are: share premium, profit, funds, authorized capital. Other groups are also included here. These are additional and reserve capital, investor assets, retained earnings, household deposits.
Liability structure
Now we turn to a more detailed consideration of the classification of funds of financial institutions. Bank liabilities are divided into two groups.
The first is the obligations of a financial organization to creditor banks and depositors (the so-called passive credit operations). Everything is clear here. According to these
operations, the bank acts as a borrower, and customers act as lenders.
The second group includes operations that form their own resources that do not require a return. Everything is just as simple here. In other words, these are own and borrowed funds.
Analysis of the liability of a financial institution
What is its purpose? They analyze the liabilities of banks to determine their place in the structure of state and non-state institutions. Financial liabilities include a comparison of projected indicators with their estimated characteristics. When analyzing, one distinguishes between the bank’s own funds and attracted “non-bank” money. Their ratio should be more than one. If this indicator is lower, then there will be a risk of not returning invested capital to this bank.
The department of financial organization, audit and internal statistics, as well as accredited state bodies constantly monitor and analyze the liabilities of banking institutions. The funds raised and their amount determines what percentage a particular financial institution will occupy in the country's banking system. In order for it to function normally, this share should not exceed 10-11%.
Equity analysis
What is it and why is it carried out? The analysis of equity may be complicated by the fact that the banking market is unstable. Using a regular analysis of the bank's liabilities, some risks can be foreseen. And develop a further program to minimize them.
When analyzing equity, the following indicators are evaluated: dynamics, structure, composition of liabilities, comparison of equity using gross and net indicators, change in additional and registered capital. Such an analysis of the liability gives an idea of the types, specificity and structure of the formation of sources of funds. And for this you need to analyze equity and borrowed capital. This is a study on the qualitative and quantitative characteristics. On the basis of such data, conclusions are drawn about changes in the structure of liabilities, determine what their indicators are for a month, a year, several years. Due to this, you can make a forecast about possible future investments and make sure the stability of the enterprise.
Demand deposits in current liabilities of the bank
Current liabilities represent cash balances at the end of the trading day on customer accounts. These residues can be different and vary from zero to maximum values, since the material situation of the population is different and continuously changing. If we assume that all accounts will be reset to zero, then the bank’s current assets will also go negative. In fact, the risk of this situation is minimal, since opening and closing customer deposits is chaotic. Thus, current liabilities are a combination of random and independent values in the total mass of accounts.
Convert “short” funds to “long”
This is done by supporting the total mass of “short” funds by replenishing retirement resources.
As a result, an incompressible balance or the volume of current liabilities is created, which the bank needs to maintain throughout its activities. Indeed, only in this case can it be placed in fixed assets with a regular resource (net capital). That is why continuous replenishment of current accounts and their constant increase is so important.
Attraction of current liabilities
If there is an increase in the amount of funds in customer accounts, it means that the level of trust in banks is increasing, and therefore, there is reason to expand the types of services provided to citizens. A significant role here is played by the “unbalanced” branches of financial and credit institutions. The introduction of plastic cards and various payment systems into the masses creates good conditions for increasing the level of current liabilities.
Banks pay special attention to increasing demand deposits for absolutely all categories of customers (individuals, legal entities). In addition to "card" projects, various "salary", "pension" and others are being introduced. They, in total, form a significant part of current liabilities. One of the features of such capital is the following: it is an integral and cheap part of resources that allows the bank to form a significant interest margin. The main “cheap” resources of the institution are precisely the current liabilities, as they contribute to lower interest rates on lending services.
Varieties of liabilities
Since liabilities are also obligations of enterprises (financial), they are formed at the expense of loans. In this regard, distinguish between short-term and long-term liabilities, depending on the lending period. How do they differ from each other?
Short-term liabilities provide for repayment of loan debt up to one year (for example, bank overdraft, various trade loans).
Long-term loans can be repaid within a few years (leasing arrears and various types of loans).
Liabilities in the balance sheet
Liabilities are an integral part of the balance sheet. They reflect all the proceeds of the bank. Current or short-term liabilities in the balance sheet are shown above. They can exist within the same production cycle. Everything is simple here. Accordingly, long-term obligations are fulfilled in more than one production cycle. Assets and liabilities in the balance sheet should always be in equilibrium, and the difference between their amount is the capital (own) of the owner of the company. This is a very important indicator. The mentioned value may reflect the balance of the owner’s capital if all assets are sold and the proceeds go to pay off the debts. In other words, if assets are a kind of property of a company, then financial liabilities are capital, due to which this property was formed.
All assets and liabilities are reflected in the balance sheet of the company. It is compiled for each given (defined) reporting period.