Complete Syllabus of Commercial Bank Management: Theory and Practice | FIN 691 | MBS 4th semester

Credits: 3

Lecture Hours: 48

Course Objective:

The course aims to impart students the knowledge and skills required to manage commercial bank efficiently at operating level. Upon completion of this course, the students will have necessary theoretical foundation and be able to analyze financial performance, manage noninterest income, manage interest rate risk, investment, liquidity and reserve, bank capital, and loan of commercial bank. The course also aims to familiarize students with different aspects of operating level management of commercial banks in Nepal.

Course Description:

This course provides an overview of the financial statements and bank performance evaluation tools, risk management for ever changing interest rates, bank funding and liquidity management, the management of bank capital, lending operation and management and investment management.

Course Details:

Unit 1: Analyzing Bank Performance LH 7

Overview of commercial bank financial statements: balance sheet, income statement, off-

balance sheet items; the Return on the equity model; Interpretation of financial ratios and the use of average balance sheet data; Managing risk and return; and

CAMELS composite rating system.

Unit 2: Managing Noninterest Income and Noninterest Expenses LH 4

Structure of noninterest income and noninterest expenses; Key ratios: net interest margin,

efficiency ratio, operating risk ratio, productivity ratio; Line-of-business and customer

profitability analysis; Strategy for increasing noninterest income; Strategy for managing

noninterest expenses; and Cost management strategy.

Unit 3: Managing Interest Rate Risks: GAP and Earnings Sensitivity LH 7

Measuring interest rate risk with GAP: traditional static GAP analysis, determinants of rate

sensitivity, factors affecting net interest income, rate volume and mix analysis, rate sensitivity

report-- periodic GAP versus Cumulative GAP and GAP ratio, and earnings sensitivity

analysis, income statement GAP; and Managing the GAP and earnings sensitivity risk.

Unit 4: Managing Interest Rate Risk: Economic Value of Equity LH 5

Concept and calculation of economic value of equity (EVE); Measuring interest rate risk with

duration GAP: duration, modified duration and effective duration, duration gap model, a

duration application for banks; Economic value of equity sensitivity analysis; and Earnings

sensitivity analysis versus EVE sensitivity analysis.

Unit 5: Bank Funding and Liquidity Management LH 7

Bank funding: funding structure and funding sources and banking risks; Meeting liquidity

needs; Reserve accounting and calculation of reserve requirement; Short-term liquidity

planning; Traditional aggregate measures of liquidity risk; and Long-term liquidity planning.

Unit 6: Effective Use of Capital of Commercial Bank LH 5

Objective of maintaining bank capital; Risked-based capital standards (Basel II and III),

Functions of bank capital; Measurement and adequacy of bank capital; the Effects of bank

capital requirements on bank operating policies; and NRB directives regarding the capital of

commercial banks.

Unit 7: Lending Operation and Management LH 8

The credit process; Characteristics of different types of loan: real estate loans, commercial

loans, agriculture loans, consumer loans, venture capital; Evaluating commercial loan requests and managing credit risk: fundamentals of credit issues, evaluating credit requests; and Consumer loans: types of consumer loans (installment and Non-installment loans), subprime loans and credit analysis of consumer loans.

Unit 8: Managing Investment Portfolio LH 5

Objectives of investment portfolio, composition of investment portfolio, characteristics of

taxable securities, characteristics of municipal securities, policy guidelines of investment in

Nepalese context.

BASIC READINGS

1. Koch, T. W. and Macdonald, S. S. (2015). Bank management. New York: South-Western

Cengage Learning.

2. Rose, P. S. and Hudgins, S. C. (2013) Bank management and financial services. New York:

McGraw-Hill Irwin.

REFERENCES

1. Gup, B. E. & Kolari, J. W. Commercial banking: The management of risk. Singapore: John

Wiley & Sons (Asia) Pte. Ltd.

2. Saunders, A. & Cornett, M. M. (2013). Financial institutions management: A risk management

approach. New Delhi: McGraw-Hill Education (India) Private Limited.