Commercial Banks

Commercial Banks – Assets And Liabilities

The balance sheet of Commercial Banks is a statement in its assets and liabilities at a particular time. The liabilities of the bank as shown below are the items, which are to be paid by the bank either to its shareholders or to the depositors. It includes capital and reserve funds, which belong to the depositors and the bank is liable to meet their demands.

Share capital refers to the contribution made by the shareholders of the bank. Reserve fund is the amount calculated over the years out of the undistributed profits, it actually belongs to the shareholders. The deposits from the public constitute the biggest proportion of the banks working funds. The assets side range from the highly liquid cash items, for example, cash in hand, cash at central banks, and bills discounted to the less liquid earning assets such as loans and investment and finally furniture and other property that the bank owns arranged in descending order of liquidity for example;

Abagana Community bank balance sheet as at 31st Dec 2001

Liabilities and capital

  • Paid up capital
  • Reserve fund
  • Deposits
  • Acceptance for customers (as per contra)


  • Cash in hand with eh central bank and with other banks
  • Money at call and shot notice
  • Bills discounted investments
  • Loan and advances
  • Furniture and fittings
  • Premises and other property

Cash Assets – These are funds readily available to commercial banks. They are kept either in form of coins or in the form of currency notes or as a balance with central bank or the other banks. Largely, they are non earning assets and are sometimes, known as primary reserves. Primary reserves are held for working purposes and required legal reserve purposes. The vault cash is used largely for meeting the day to day deposit withdrawals and as it were, constitutes the first line of defense for the commercial banks against depositors.

Cash items in process of collection (in essence with other banks or the central bank) reflect largely chaques presented for deposit by customers which need to be cleared hence they are normally added to balance due from other banks. Money at call and at short notice represent those funds lent to discount houses, bills brokers and petty stock brokers. Such loans can be recalled on demand or within a few days.

Securities – These are earning assets as well as they are sometimes referred to as investments. We may include here the bills discounted which become liquid as they mature. Generally, however securities carries herein are more of fixed interest or debt type rather than equity type. Most of the security holding of commercial banks reflects the monetization of public (Government) debts.

Securities holding of banks are classified according to the issuer, for example Federal Government, state government and may be all the others. They are available for general purchase and may be sold before maturity to other buyers, for example treasury bills/certificates, notes or bond.

Loans and Advances – These are earnings assets for the commercial banking system. They bring in the highest profits, though the risk is the greatest. Commercial banks deal in a variety of loans, which reflects its diversification or diversified lending operations that responds to changing needs for finance in the different sectors. These operations can be classified according to the different kinds of borrowers, for example commercial and industrial, real estate, Live Stock farming or agriculture in general, financial and consumer borrowing.

The total loan package does reflect the commercial banking system monetization of debt. This implies that the commercial banking system exchanges its IOU or promise to pay in form of a demand deposit for the private borrowers promise to pay in the form of loan instrument. These promises to pay are quite different in quantitative terms. The banking system’s IOU is money while the borrowers IOU do not have the essential features of money; prices fixity and general acceptability.

Deposits – Demand and time deposits from the principal liabilities of commercial banks. Total demand deposits adjusted for certain excluded items for example; Federal government demand deposits and inter-bank demand deposit and cash items in process of collection make up the largest part of the money supply.

Borrowings – Liabilities of this type include primarily federal funds transactions to money at call and cash borrowed from the discount window of the central bank and Eurodollar borrowings.

Capital Accounts – Since the equity claims of a concern are subordinated to the claims of the liability holders, the capital accounts provide a cushion or protection to the solvency of the banking system. Technically solvency exists when the total value of assets exceeds the total claims of the contractual liability holders. Any decline or determination in the values of assets exceeds the total claims of the contractual liability holders. Any decline or deterioration in the value of the assets is necessarily written off against the equity claims hence the capital adequacy of commercial banking system is appraised using the ratio of total capital accounts to total assets (in essence assets ratio). This is usually modified to capital risk assets ratio where the letter is defined as total assets less government securities.

Leave a Reply

Your email address will not be published. Required fields are marked *

Click Here To Call Us Now