NRA Capital Pte Ltd

The A-Z of Banking Terminology

Beginners' guide to understanding technical charting reports :

Support

a level where there is sufficient demand/ buying, actual or potential to halt a decline.

Resistance

a level where there sufficient selling / supply, actual or potential to halt an advance.

Major support / resistance

Refers to a time period of three months to a year.

Immediate support / resistance

Time period of 3 to 5 days

Intermediate support / resistance

Time period of three weeks to three months.

Turned Down

a downtrend is a series of lower highs and lower lows so when prices have turned down, they've made lower highs and lower lows

Head and Shoulder Top

A top formation where prices move up or sideways and volume decreases; occurs after a protracted uptrend.

Sideways; part of base formation base formation

is when price move sideways and volume contracts; occurs at the end of a downtrend Retreat in force, support 1.73 support has been defined.

Breakout

A level where prices move above a resistance in the case of an upside break, or below a support in a downside break. Successful breakouts are usually accompanied by an expansion in volume, prices rising by 3% on break point (sometimes on expanded volume), and prices closing outside the break point for a period of three trading sessions.

Other definitions used throughout the site :

Asian Currency Units

These are separate accounting units (but not separate legal entities) within a bank which are established with the approval of MAS to conduct foreign currency denominated banking and merchant banking business.

Balance Sheet Risk

Defined as the potential change in earnings arising from movements in interest rates and foreign exchange prices (not of a trading nature).

 Basis Point

One hundredth of 1 percent. So a 50 bp increase in interest rate means an increase of 0.5%.

 Basle Agreement

The agreement on risk-based capital adequacy standards for commercial banks reached by central banking authorities of US, Western Europe and Japan. It was finalized in July 1988 at the Bank for International Settlements (BIS) in Basle, Switzerland.

Board Rates

Interest rates posted by the bank on the board for its various loan products. These are not fixed rates and may change when the prime rate moves.

Book Value (BV)

Basically includes goodwill in addition to the bank's own NTA. Price / BV tends to be commonly referenced against a bank's ROE.

Capital Adequacy Ratio (CAR)

This is calculated by dividing Tier1 + Tier2 Capital by the risk weighted assets. It is a measure of how much capital is used to support the banks' risk assets. Minimum BIS standards is 8% (comprising 4% each of Tier 1 and Tier 2 capital) while Singapore's minimum CAR is more stringent at 12% (comprising 8% Tier1 and 4% Tier 2).

  • Tier 1 Capital : Core Capital comprising share capital, disclosed reserves and minority interests. MAS has expanded this definition to include restricted forms of "equity-like" capital instruments.
  • Tier 2 Capital : Supplementary Capital consisting of general loan loss reserves and revaluation reserves on investments and properties held for investment purposes.
  • Upper Tier 2 Capital: This is more stringent than that defined under BIS standards. These include funds raised from hybrid and long-dated subordinated debt instruments which satisfy MAS' conditions and a limited portion of the banks' unencumbered general provisions. Unlike BIS, revaluation surpluses of bank's holdings in properties and equities are not allowed. Conventional subordinated debt or shorter term Tier3 debt instruments are also not allowed.
  • Risk-weighted Assets: Total assets owned, where the value of each asset is assigned a risk weight (eg 100% for corporate loans; 50% for mortgage loans) and the credit equivalent amount of all off-balance sheet activities, where each credit equivalent amount is also assigned a risk weight.

Capital Asset Ratio (Leverage or Gearing Ratio)

Amount of capital maintained, divided by the total assets owned.

Cost-to-Income Ratio (Efficiency Ratio)

The ratio of operating expenses (before provisions) to total income of the bank.

Credit Risk

The risk that an issuer of debt securities or a borrower may default on his obligations.

Domestic Business Unit (DBU)

This refers to the domestic banking operations that are not under the ACUs.

Doubtful Loans

These are loans that have defaulted for 3 months or more and there is doubt as to their collateral value. As such, 50% of the loan has to be provided for in the loan loss reserves.

Fixed Rate Loans

 Long term loans where interest rates are fixed for the initial 1 - 3 years as for mortgage loans and over the entire loan period for other loans.

Foreign Exchange Risk

The risk that a long or short position in a foreign currency may, due to an adverse movement in the relevant exchange rate, have to be closed out at a loss.

Gapping

Mismatching the maturities of a bank's assets and liabilities, usually by borrowing short and lending long.

Hybrid instrument

Financial instrument that combine features of equity and debt. Eg mandatory convertible debt or convertible preference shares.

Interest Bearing Assets

These comprise cash, balances and placements with banks; loans & advances to banks and non-bank customers. Non-interest bearing assets include equity investments, fixed assets, accrued interest receivable, sundry debtors and revaluation of financial instruments and sundry deposits and prepayments.

Interest Bearing Liabilities

These comprise deposits and balances of banks and other accounts of non-bank customers; debt securities issued and other borrowings. Non-interest bearing liabilities include accrued operating expenses, sundry creditors, balances arising from revaluation of financial instruments and interest and other income received in advance.

Liabilities Base

The MAS defined "liabilities base" as the following eligible liabilities:- (i) all currencies deposits of non-bank customers, both resident and non-resident in Singapore (less any claims for the latter with banks outside of Singapore) (ii) all currencies borrowies from the MAS (iii) all currencies interbank borrowings (iv) borrowings from finance companies in Singapore (v) S$ certificate of deposits (vi) Funds purchased through repurchase agreements in Singapore Government securities with customers other than banks, approved primary dealers, finance companies or merchant banks.

LIBOR

The London Interbank Offered Rate on Eurodollar deposits traded between banks.

Liquid Assets

These comprise any balance with the MAS in excess of the required MCB; notes and coins which are legal tender in Singapore; Singapore dollar securities issued by the Singapore Government; Singapore government securities held under overnight repurchase agreements with banks in Singapore and bills of exchange in S$.

Liquid Asset Ratio

This is currently stipulated at 18% of the bank's liabilities base.

Liquidity Risk

Defined as the potential loss arising from the bank's inability to meet its own contractual obligations when due. Implies am imbalance in committed maturities of assets and liabilities.

Loans & Advances

 Loans and bills of exchange made to non-bank customers.

Loan-to-Deposit ratio

This is a measure of how much of the deposits collected have been utilized in making loans. It is calculated by dividing total loans by total deposits. A L/D ratio that is more than 100% implies that the bank is borrowing from the interbank market to fund its loan expansion.

Loan Loss Provisions/Reserves

 These are provisions and reserves held against future unidentified loan losses and are freely available to meet any subsequent loan losses.

MAS

The Monetary Authority of Singapore

Minimum Cash Balance Requirement

Every bank, other than its ACU, is required to maintain a daily interest-free minimum cash balance (MCB) with the MAS of not less than 3% of its liabilities base.

Net Interest Margin

 Net interest income as a percentage of average interest-bearing assets.

Non-Bank Customers

These are the banks' customers who are not banking institutions

Non-Performing Loans (NPLs)

These are either loans that have defaulted for three months or more under MAS guidelines; or loans where the borrower displayed financial weakness; or restructured loans. They are classified into three categories: Substandard, Doubtful or Loss.

NPL rate

 The ratio of NPLs over total gross non-bank loans

Operational Risk

 Refers to the potential loss arising from a breakdown in the bank's internal control or corporate governance that results in error, fraud or failure to perform.

Prime Rate

The rate at which banks lend to their best (prime) and most creditworthy customers. The all-in cost of a bank loan to a prime credit equals the prime rate plus the cost of holding compensating balances.

Provision Cover

The ratio of cumulative provisions or loan loss reserves over non-performing loans.

Provision Rate

This is a measure of the extent of provisions made by the bank as a percentage of its total non-bank customer loans.

Revolving Line of Credit

A bank line of credit on which the customer pay commitment fee and can take down and repay funds according to its needs. Normally the line involves a firm commitment from the bank for a period of several years.

Savings Deposit

Interest bearing deposit that has no specific maturity

SIBOR

 Singapore Interbank Offered Rate on S$ deposits traded between banks

Statutory Reserve Requirement

This refers to the MCB and minimum liquid asset requirement set by the MAS.

 Substandard Loans

These are loans which are still performing but are beginning to display weakness in the financial position of the borrower. Minimum provision requirement: 10% of the unsecured portion of the loan.

Subordinated Debt

The claims of this issue rank after the holders of various other unsecured debt incurred by the issuer.

Time Deposit

Interest bearing deposit that has a specific maturity.

Variable Rate Loan

Loan made at an interest rate that are pegged to either the prime rate, short term cost of funds or interbank rates.