Lahore University of Management Sciences. FINN 402 Commercial Banking Spring Semester 2018 (Tentative Under review)

Transcription

1 FINN 402 Commercial Banking Spring Semester 2018 (Tentative Under review) Instructor Muhammad Basharullah Room No. 315 SDSB Building Office Hours Monday to Thursday Hours TBA Telephone Ext: 8080 and Secretary/TA Muhammad Rahman Ext 5310 TA Office Hours Sec: Muhammad Rehman/ TA: TBA Course URL (if any) suraj.lums.edu.pk/~ro/ COURSE BASICS Credit Hours 3 Lecture(s) Nbr of Lec(s) Per Week Twice weekly Duration 90 Minutes Recitation/Lab (per week) Nbr of Lec(s) Per Week Once/every 2 weeks Duration 90 Minutes Tutorial (per week) Nbr of Lec(s) Per Week Once/every 2 weeks Duration 90 Minutes COURSE DISTRIBUTION Core Elective Open for Student Category Close for Student Category No Yes All priority to seniors and juniors. Select sophomore may also apply. Freshman COURSE DESCRIPTION The course is designed to equip students with knowledge of a Commercial Banking, the emerging global regulatory architecture and environments in a free market based economy. The course would also cover the commercial banking and regulatory framework in Pakistan. This course is designed primarily for students who wish to understand the different issues involved in Commercial Banking its relation and place in financial services industry. Course shall cover the various financial structures the commercial banking industry is following. The course shall cover the financial statements and their analysis. The course shall include all the essential concepts such as Asset and Liability Management Deposit and Loan Pricing. Topics such as Liquidity Management, Capital Adequacy and Risk management shall also be covered. Students are assigned a group project, wherein each group shall be asked to thoroughly analyze a commercial bank in Pakistan. Such analysis shall include stress testing, identifying possible threat to its financial stability. COURSE CONDUCT: Primarily Lecture method based on assigned readings. Class discussions and presentations on assigned topics, various course relevant reports, articles and news on current developments affecting Financial Markets and Institutions Services of outside specialist speakers shall be arranged as well. Course pack shall be made available through photocopier 1

2 COURSE PREREQUISITE(S)/CONDUCT FINN 100 Principles of Finance Lahore University of Management Sciences COURSE LEARNING OUTCOME (CLO) On completion of the course the students shall be able to 1. Understand the various function, activities, issues and roles of commercial banking in an economy. 2. Understand the nature of different functions of commercial banking, 3. Know the regulatory framework within Pakistan; understand the challenges posed by Global Regulatory Architecture shaping up, and its implications for the global financial environments. 4. Critically evaluate the strength and weaknesses of some of the regulations. 5. Identify ethical issues and how they are addressed to improve the overall conduct of banking service Industry. 6. Demonstrate effective writing and oral communication skills. Students shall working a group environment and shall write and present the report according to the standard report writing and presenting methods. able to apply effective, written and verbal communication skills 7. Manage their group dynamics and team work. 8. Interpret the financial press releases and various financial situation analyses. 9. Engage in financial discourse on banking Industry. They shall be able to critically examine the various issues such as TBTF ( too big to fail), Shadow banking, Microcredit, Islamic banking etc 10. Show a holistic understanding of systemic challenges and risks faced by banking industry in the global financial environments. UNDERGRADUATE PROGRAM LEARNING GOALS & OBJECTIVES General Learning Goals & Objectives Goal 1 Effective Written and Oral Communication Objective: Students will demonstrate effective writing and oral communication skills. Students shall working a group environment and shall write and present the report according to the standard report writing and presenting methods. The students shall besides group dynamics, learn effective, written and verbal communication. Goal 2 Ethical Understanding and Reasoning Objective: Students will demonstrate that they are able to identify and address ethical issues in an organizational context. Goal 3 Analytical Thinking and Problem Solving Skills Objective: Students will demonstrate that they are able to identify key problems and generate viable solutions. Goal 4 Application of Information Technology Objective: Students will demonstrate that they are able to use current technologies in business and management context. Goal 5 Teamwork in Diverse and Multicultural Environments Objective: Students will demonstrate that they are able to work effectively in diverse environments. Goal 6 Understanding Organizational Ecosystems Objective: Students will demonstrate that they have an understanding of Economic, Political, Regulatory, Legal, Technological, and Social environment of organizations. Major Specific Learning Goals & Objectives Goal 7 (a) Discipline Specific Knowledge and Understanding Objective: Students will demonstrate knowledge of key business disciplines and how they interact including application to real world situations (Including subject knowledge). 2

3 Indicate below how the course learning objectives specifically relate to any program learning goals and objectives. PROGRAM LEARNING GOALS AND OBJECTIVES COURSE LEARNING COURSE ASSESSMENT ITEM OBJECTIVES Goal 1 Effective Written and Oral Communication CLO # 6 Final Project Report, Article Presentation and Class Participation. Goal 2 Ethical Understanding and Reasoning CLO # 3,4,5 Class Participations, Quizzes and Final Examination. Goal 3 Analytical Thinking and Problem Solving Skills CLO # 1,2,3,4,5,6 Final Project Report, Article Presentations and class participation Goal 4 Application of Information Technology CLO # 6,7 Final Project Report and Article Presentation Goal 5 Teamwork in Diverse and Multicultural Environments CLO # 6,7 Final Project Report and Article Presentation Goal 6 Understanding Organizational Ecosystems CLO # 1,2,3,4,5,,8,9,10 Final Exam, Quizzes and Class Participation Goal 7 (a) Program Specific Knowledge and Understanding CLO # 5,6,7,8,9,10 Final Examinations, Quizzes, Final Project Report and Article Presentations, GRADING BREAKUP AND POLICY POLICY REGARDING EXAMINAIONS QUIZZES AND OTHER GRADING INSTRUMENTS. There is a zero tolerance policy (ZTP) for any undesirable behavior or undeserving attempt to improve grades during the quizzes and examinations. Such action can result in cancellation of examination paper. It may also result in disciplinary actions by Disciplinary Committee. Students are strongly advised to please carefully weigh in their action s costs and benefits. All students are also advised to show an ethical and moral deportment and behavior at all times. Attendance and Class Participation 15 % Each absence in sessions from (From 5 th 28 th ) shall lose 1 session marks for each day of absence. Failing to actively participate intelligently shall cost 5 session marks. (To get full 15 marks, a student shall attend all (From 5 th 28 th ) sessions and participate in at least 5). ( 25 (5 participations))/25*15 Missing final presentation sessions shall cost 2 session marks per session, from marks earned till 25 th sessions. An overall absence of 10 minutes or more, in a session shall be deemed as an absence for the full session. Policy regarding class participation The course is intended to be highly interactive. All the students are expected to participate in the class discussions. In order to ensure a positive learning climate, only intelligent and contributory observation and discussions shall be rewarded All ethical norms shall be observed in the class and examinations. Any attempt to disturb a classmate, engage in talking or whispering during the class or to vitiate the overall class atmosphere may result in negative marks in class participation. Turn off your cell phones or put them on Silent mode. Use of smartphone, internet, on line chatting or use of technology related gadgetry of any kind is not allowed to be used for any other purpose except to seek current financial information with the permission of the instructor. Quizzes 15 % There shall be total of 4 quizzes from the assigned and the last reading, Best 3 will be counted. No Makeup quizzes shall be allowed whatsoever. repeat whatsoever 3

4 Group Projects ( Reports & Presentation) 30 % Lahore University of Management Sciences Group projects ( Group size of 4 5 persons, depending on class size) Each group shall select a Commercial Bank or a topic of interest for the detailed analysis. Group members shall be asked to remain abreast with the developments taking place in the marketplace, through financial press. The impact of current developments taking place, which are pertinent to their selection of study, shall be monitored and compiled by the group. The group is expected to apprise the class with their observations through class participation. Project 1 ( 15 Marks) A report on comprehensive and critical analysis of a selected Commercial Bank incorporated in Pakistan or a related topic shall be prepared and presented by each group. The groups shall be finalized in the 5th session. The outline of the report shall be presented by 8th session for approval. The report must be submitted by 10th session. The report shall not exceed 10 pages 1½ space 12 Times New Roman excluding title index and bibliography etc. late submission shall be penalized. Project 2 ( 15 Marks) A report on comprehensive and critical analysis of a selected Foreign Commercial Bank or a related topic shall be prepared and presented by each group. The groups shall be finalized in the 12th session. The outline of the report shall be presented by 20th session for approval. The report must be submitted by 26th session. The report shall not exceed 15 pages 1½ space 12 Times New Roman excluding title index and bibliography etc. late submission will be penalized. Final Comprehensive Examination 40% The examination could be mix of MCQ short exercise and short explanations. Students may also expect a question or two from the assigned report or a case or a situation analysis. There is a zero tolerance for any undesirable behavior to undeserving attempt to improve your grades during the quizzes and examinations EXAMINATION DETAIL Midterm Exam NO Final Exam Yes: Combined Duration: 120 minutes Exam Specifications: only calculator is allowed, closed book, closed notes 4

5 COURSE OVERVIEW LECTURE SESSION Day 1 Day 2, MODULE Chapter 1 An Overview of Banks and the Financial Services Chapter 1 The Financial System and Competing Financial Service Institutions Lahore University of Management Sciences TOPICS READINGS FROM ASSIGNED MATERIAL An Overview, Powerful Forces Are Reshaping Banking and Financial Services Today. Global and Pakistan s perspective. What Is a Bank? Services Banks Have Offered throughout History; Services Banks and Many of Their Financial Service Competitors Have Offered More Recently; Dealing in Securities: Offering Security Brokerage and Investment Banking Services Convenience: The Sum Total of All Banking and Financial Services. Roles of the Financial System; The Competitive Challenge for Banks; Leading Competitors with Banks. Services Banks and Many of Their Closest; Competitors Offer the Public. Key Trends Affecting All Financial Servic OBJECTIVES/ APPLICATION To introduce the students to the environments as exists in a Global Market Place and in Pakistan To introduce the students to the environments as exists in a Global Market Place and in Pakistan ( continues) Day 3, Chapter 2 The Impact Of Government Policy and Regulation on Banking and the Financial Services Industry to Banking Regulation Pros and Cons of Strict Rules; the Impact of Regulation the Arguments for Strict Rules versus Lenient Rules Major Banking Laws Where and When the Rules Originated Meet the "Parents": The Legislation That Created Today's Bank Regulators; Instilling Social Graces and Morals Social Responsibility Major historical developments in area of regulations and some banking laws in Pakistan Role of State bank of Pakistan and important Prudential Regulation in Pakistan for various sectors. Day 4 Chapter 2 The Impact Of Government Policy and Regulation on Banking and the Financial Services Industry Glass Stiegel Act and Undoing GSA. The Gramm Leach Bliley Act (1999): What Are Acceptable Activities for Playtime? ; The USA Patriot and Bank Secrecy Acts: Fighting Terrorism and Money Laundering. The Sarbanes' Oxley Accounting Standards Act (2002). The 21st Century Ushers In an Array of New Laws, Regulations, and Regulatory Strategies Prudential Regulation for Commercial Banks Prudential Regulation on AML in Pakistan To introduce and discuss the major regulations and new developments on international scene 5

6 Lecture Session Module Topics Readings from Assigned Material Objectives /Application Day 5 Chapter 3 Organization and Structure of Banking and the financial Service Industry The Organization and Structure of the banks, Commercial Banking Industry Advancing Size and Concentration of Assets; Is a Concentration Now under Way? Internal Organization of the Banking Firm; Larger Banks Money Center, Wholesale and Retail Banks Trends in Organization; the Array of Organizational Structures. Organization and Structure of Banking in Pakistan banking industry To learn about different organizational structures in Banking Industry Day6 Chapter 4 Establishing New Banks, Branches, ATMs, Telephone Services, and "Web Sites Establishing Full Service Branch Offices; Choosing Locations and Designing New Branches; Desirable Sites for New Branches Branch Regulation The Changing Role of Financial Service Branch Offices In Store Branching; Establishing and Monitoring To learn about guidelines of establishing a bank and opening of new branches in Pakistan Day7 Chapter 4 Automated Limited Service Facilities Point' of 'Sale terminals ; Automated Teller Machines (ATMs); Home and Office Banking; Telephone Banking; Call Centers and Internet Banking. Financial Service Facilities of the Future Branchless Banking Mobicash; Easy paisa; Timespay and Banking 2.0 To have an insight about trends in technology used in commercial banking Day 8 Chapter 5 The Financial Statements of Banks and Their Principal Competitors An Overview of Balance Sheets and Income Statements The Balance Sheet (Report of Condition). The Principal Types of Accounts. Recent Expansion of Off Balance Sheet Items in Banking The Problem of Book Value Accounting; Auditing: Assuring Reliability of Financial Statements To get familiar with the Financial statements of commercial banks in Pakistan. Brief analysis of various analytical framework 6

7 Lecture Session Module Topics Readings from Assigned Material Objectives /Application Day 9 Day 10 Chapter 5 The Financial Statements of Leading Nonbank Financial Firms: Chapter 6 Measuring and Evaluating the Performance of Banks and Their Principal Competitors A Comparison to Bank Statements An Overview of Key Features of Financial Statements and Their Consequences Article Presentation. Evaluating Performance; Determining Long Range Objectives; Maximizing the Value of the Firm: A Key Objective for Nearly All Financial Service Institutions; Profitability Ratios: A Surrogate for Stock Values; Using Profitability Formulas for Banks and Other Financial Service Companies ; Breaking Down Equity Returns for Closer Analysis Breakdown Analysis of the Return on Assets, What is Breakdown of Profitability Measure. Measuring Risk in Banking and Financial Services; To compare the Financial statements it with other financial institutions To establish the basics analytical framework for the project reports. To establish the goals objective and the strategic market positioning by a bank. Day11 Chapter 6 Performance Indicators among Key Competitors in banking The Impact of Size on Performance. Size, Location, and Regulatory Bias in Analyzing the Performance of Banks and Competing Financial Institutions Using Financial Ratios and Other Analytical Tools to Track Bank Performance The UBPR Evaluating the Banks and prepare a comparative analysis. Day 12, Chapter 7 Asset Liability Management: Determining and Measuring Interest Rates.. Asset Liability Management Strategies. Asset Management Strategy; Liability Management Strategy; Funds Management Strategy; Interest Rate Risk: One of the Greatest Asset Liability Management Challenges. Forces Determining Interest Rates; The Measurement of Interest Rates; The Components of Interest Rates, Responses to Interest Rate Risk; To understand the objectives of an asset and liability management committees. Understand the Interest sensitive assets and interest sensitive liability. 7

8 Lecture Session Module Topics Readings from Assigned Material Objectives /Application Day 13, Chapter 7 Controlling Interest Sensitive and Duration Gaps One of the Goals of Interest Rate Hedging. Interest Sensitive Gap Management, Duration Gap Management. The Concept of Duration. Using Duration to Hedge against Interest Rate Risk and The Limitations of Duration Gap Management To understand the interest sensitive GAP and various tools of management. Day14 The Demand for and Supply of Liquidity Chapter 11 Liquidity and Reserve Management: Why Financial Firms Often Face Significant Liquidity Problems Asset Liquidity Management (or Asset Conversion) Strategies and Policies Strategies Borrowed Liquidity (Liability) Management Strategies ; Balanced Liquidity Management Strategies; Guidelines for Liquidity Managers To get acquainted with the Liquidly risk Management. Day 15, Day 16 Chapter 11 Strategies for Liquidity Managers Chapter 12 Managing and Pricing Deposit Services Estimating Liquidity Needs. The Sources and Uses of Funds Approach; The Structure of Funds Approach and Liquidity Indicator Approach. The Ultimate Standard for Assessing Liquidity Needs: Signals from the Marketplace. Legal Reserves and Money Position Management. Regulations on Calculating Legal Reserve Requirements; Factors Influencing the Money Position. Factors in Choosing among the Different Sources of Reserves Central Bank Reserve Requirements around the Globe Types of Deposits Offered by Banks and Other Depository Institutions Transaction :Demand Deposits; Non transaction (Savings or PLS deposits) Interest Rates Offered on Different Types of Deposits The Composition of Deposits; The Ownership of Deposits; The Cost of Different Deposit Accounts ; Pricing Deposit Related Services To examine various liquidity management strategies.. To examine different types of deposits offered by different banks 8

9 Lecture Session Module Topics Readings from Assigned Material Objectives /Application Day 17 Day 18 Chapter 12 Managing and Pricing Deposit Services Chapter 15 The Management of Capital Pricing Deposits at Cost Plus Profit Margin Estimating Deposit Service Costs ; An Example of Pooled Funds Costing Using Marginal Cost to Set Interest Rates on Deposits Conditional Pricing Pricing Based on the Total Customer Relationship and Choosing a Depository The Role That Pricing and Other Factors Play When Customers Choose a Depository Institution to Hold Their Accounts The Many Tasks Capital Performs Capital and Risk Key Risks in Banking and Financial Institutions Management; Defenses against Risk. Types of Capital in Use :Relative Importance of Different Sources of Capital One of die Great Issues in the History of Banking: How Much Capital Is Really Needed? Regulatory Approach to Evaluating Capital Needs; To examine the different methods of calculating different deposit rates in Pakistan To examine all aspects of the capital employed in Commercial banking. Day 19 Presentation Groups 1&2 Group Presentations Day 20 Presentation Group 3,4&5 Group Presentations 9

10 Lecture Session Module Topics Readings from Assigned Material Objectives /Application Day 21 Chapter 15 The Management of Capital Basel Agreement on International Capital Standards: The A Historic Contract among Leading Nations Basel I, Basel II and Basel III: A New Capital Accord Unfolding Changing Capital Standards Inside the United States; Planning to Meet Capital Needs: Raising Capital Chapter 15 Internally Raising Capital Externally Road Map to Basel II,III in Pakistan To understand the regulatory framework of Basel Accords Day 22 Chapter 16 Lending Policies and Procedures Types of Loans: Factors Determining the Growth and Mix of Loans. Regulation of Lending: Establishing a Written Loan Policy. Steps in the Lending Process Credit Analysis: What Makes a Good Loan? Is the Borrower Creditworthy? Can the Loan Agreement Be Properly Structured and Documented! Can the Lender Perfect Its Claim against the Borrower's Earnings & Assets That May Be Pledged as collateral? Sources of Information about Loan Customers; Parts of a Typical Loan Agreement; Loan Review; Problem Loan Situations To understand various types of loans being offered in Pakistan. How the loan application is processed in Pakistan. Examine the Islamic modes of Financing 10

11 Day 23 Chapter 17 Lending to Business Firms and Pricing Business Loans Lahore University of Management Sciences Brief History of Business Lending Types of Business Loans Short Term Loans to Business Firms Self Liquidating Inventory Loans; Working Capital Loans; Interim Construction Financing ; Security Dealer Financing; Retailer and Equipment Financing; Asset Based Financing ;Syndicated Loans (SNCs) Long Term Loans to Business Firms; Analyzing Business Loan Applications : Analysis of a Business Borrower's Financial Statements Financial Ratio Analysis of a Customer's Financial Statements; Different types of Loans an international perspective To ascertain some of the important tools of analyzing a loan applicant s financial statements (Continues) Day 24 Chapter 17 Lending to Business Firms and Pricing Business Loans Continues & Chapter 18 Consumer Loans, Credit Cards, and Real Estate Lending Comparing a Business Customer's Performance to the Performance of Its Industry Contingent Liabilities Preparing Statements of Cash Flows from Business Financial Statements. Pro Forma Statements of Cash Flows and Balance Sheets; The Loan Officer's Responsibility to the Lending Institution and to the Customer. Pricing Business Loans The Cost Plus Loan Pricing Method ;The Price Leadership Model; Below Prime Market Pricing; Customer Profitability Analysis (CPA). Types of Loans Granted to Individuals and Families Characteristics of Consumer Loans. Evaluating a Consumer Loan Application. Example of a Consumer Loan Application. Credit Scoring Consumer Loan Applications The FICO Scoring System To ascertain some of the important tools of analyzing a loan applicant s financial statements. 11

12 Lecture Session Module Topics Readings from Assigned Material Objectives /Application Day 25, Chapter 19 Acquisitions and Mergers in Financial-Services Management Mergers on the Rise The Motives behind the Rapid Growth of Financial Service Mergers Selecting a Suitable Merger Partner The Merger and Acquisition Route to Growth Methods of Consummating Merger Transactions Regulatory Rules for Bank Mergers in the United States Justice Department Guidelines ; The Merger Decision Making Process by U.S. Federal Regulator Merger Rules in Europe. ; Making a Success of a Merger. Research Findings on the Impact of Financial Service Mergers. To have an idea about the factors which are considered in reorganization of various banks To ascertain the key factors considered in mergers and Acquisition. Examine the synergies and failures in various mergers Day 26 Chapter 20 International Banking and the Future of Banking and Financial Services Challenges for International Banks in Foreign Markets Types of International Banking Organizations Regulation of International Banking; Goals of International Banking Regulation; U.S. Banks' Activities Abroad; Expansion and Regulation of Foreign Bank Activity in the United States; New Capital Regulations for Major Banks Worldwide. Companies Services Supplied by Banks in International Markets. Making Foreign Currencies Available to Customers; Hedging against Foreign Currency Risk Exposure; Underwriting Customer Note and Bond Issues; in the Eurobond Market; Protecting Customers against Interest Rate Risk; Growing Customer Use of Securities Markets; to Raise Funds; Developing Better Methods for Assessing Risk in International Lending; Adjusting to New Market Opportunities Created by Deregulation and New International Agreements The Future of Banking and Financial Services To get acquainted with the various global organizational structure. 12