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Glossary of key financial concepts.

Balance sheet mismatch: A balance sheet is a fiscal statement showing a company's assets, liabilities and capital on a specified date. A 'mismatch' in a balance sheet indicates that the maturities of the liabilities differ (are typically shorter) from those of the assets and/or that some liabilities are denominated in a foreign currency whilst the assets are not.

Banking soundness: The financial health of a single bank--measured by annual returns on total assets and equity--or of a country's banking system.

ROE: The return on equity, which equals total amount less preferred dividends divided by total common equity multiplied by 100.

ROA: The return on assets, which equals net income before preferred dividends plus interest expense on debt minus interest capitalised multiplied by i; minus the tax rate and divided by previous year's total assets multiplied by 100.

Asset liability management: Refers to the prudent management of assets to ensure that liabilities are sufficiently covered by productive assets at all times.

Assets under management: Funds managed by an investment company on behalf of investors.

Intermediation: The process of transferring funds from the ultimate source (savers) to the ultimate user (borrowers). A bank 'intermediates' credit when it obtains money from depositors and on-lends it to borrowers.

Collateral: Security pledged for the repayment of a loan.

Liquidity: The ability to convert an asset into cash quickly.

Basel II Accord: A comprehensive revision of the Basel capital adequacy standards issued by the Basel Committee on Banking Supervision.

Total capital: Common equity, preferred stock, minority interests, long-term debt, non-equity reserves and deferred tax liability in untaxed reserves.

Common equity: Shareholders' total funds minus preferred equity.

Risk capital: Money allocated for speculative investment activities.

Tangible assets: Total assets minus intangible assets such as deferred tax assets and goodwill.

Total debt: All interest-bearing and capitalised lease obligations.

Short-term debt: That portion of debt payable within one year.

Time draft: A demand for payment on a specified future date--comprising banker's acceptance, bill and sight draft.

Time bill: A banker's acceptance or bill of exchange that is not payable until some specific future time. This contrasts with a banker's draft or sight bill, which is good for immediate payment at sight.

HOW WE RANKED THE TOP 100

The Top 100 African banks were ranked according to 'Tier V capital that comprises [a] common shareholders' equity and retained profits or net earnings; [b] qualifying non-cumulative preferred stock (up to a maximum 25% of core capital); lc] minority interests in equity accounts of consolidated subsidiaries.

The BASEL Capital Convergence Accord as operated by most domestic regulators in the region requires banks to hold Tier 1 capital equivalent to at least 8% of their risk-adjusted assets, with half of this cushion in the form of core capital and other half comprising 'Tier 2' capital. The latter comprises [a] undisclosed and revaluation reserves; [b] general provisions or general loan loss reserves; [c] perpetual preferred stock not qualified to include into Tier 1; [d] hybrid debt instruments and subordinated debt items; [e] preferred stock with mediumterm remaining current maturity.

Profit margin: the difference between the price received by a company for its products/services and total production cost (including labour).

Yield curve: The relationship between the interest rates (or yields) and time to maturity for debt securities of equivalent credit risk.

LIBOR: The London Interbank Offered Rate at which banks offer to lend unsecured funds to other banks in the London whole money market.

Leverage: The proportion of debt to capital often measured as the ratio of on- and off-balance sheet exposures to capital.

Leveraged loans: 'Sub-prime' loans rated below investment grade (BB+ and lower by Standard & Poor's and Bai and lower by Moody's Investors Services).

Leveraged buyout: Acquisition of a company heavily funded by loans or bond issues to meet the cost of take-over. Usually, the assets of acquired company are used as collateral for bank loans.

Syndicated loans: Consortiums of banks make large loans jointly to one borrower, sovereign or corporate. Usually, one lead bank takes a small percent of the loan and partitions (i.e. syndicates) the rest to other banks.

Non-performing loans: Bad debts that are in default or close to being in default. Securitisation: Creating securities from a pool of pre-existing assets and receivables, which are placed under the legal control of investors through a 'special purpose vehicle' (SPV) or 'special purpose entity' (SPE).

SWIFT: stands for Society For Worldwide Inter-bank Financial Telecommunications--a messaging system that facilitates global funds transfers.

MICR: refers to Magnetic Ink Charter Recognition--a secure, high-speed method of scanning and processing information used by banks.
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Title Annotation:TOP 100 BANKS
Comment:Glossary of key financial concepts.(TOP 100 BANKS)
Publication:African Business
Article Type:Glossary
Date:Oct 1, 2011
Words:760
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