The A-Z of Banking Terminology
Beginners' guide to understanding technical
charting reports :
a level where there is sufficient demand/ buying, actual or potential to halt a
a level where there sufficient selling / supply, actual or potential to halt an
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.
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.
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).
One hundredth of 1 percent. So a 50 bp increase in interest rate means an
increase of 0.5%.
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,
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
- 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.
The risk that an issuer of debt securities or a borrower may default on his
Domestic Business Unit (DBU)
This refers to the domestic banking operations that are not under the ACUs.
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.
Mismatching the maturities of a bank's assets and liabilities, usually by
borrowing short and lending long.
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.
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.
The London Interbank Offered Rate on Eurodollar deposits traded between banks.
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.
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.
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.
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
Net Interest Margin
Net interest income as a percentage of average interest-bearing assets.
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.
The ratio of NPLs over total gross non-bank loans
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
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.
The ratio of cumulative provisions or loan loss reserves over non-performing
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.
Interest bearing deposit that has no specific maturity
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.
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.
The claims of this issue rank after the holders of various other unsecured debt
incurred by the issuer.
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.