Budget Review Sample for a Bank

Budget Review Sample for a Bank

PART: 3

 

3.1  Considerations

It should be noted that the financial figures accompanying this Plan require consideration in the light of the following:

·      The Plan has taken no account of the effect of a possible change in the value of the Bank’s freehold property although a formal revaluation was carried out at the end of 2002 and accepted as reasonable in November 2003 by the Board. The Board will further review the premises values in December 2004 but, unless market conditions dictate otherwise a further formal valuation of freeholds will not be required until December 2005.

·      The introduction of a debit card product with the maximum set-up costs of some $500,000 written off over five years from 2004 and ongoing annual estimated costs of some $300,000 has been included from 2012.

·      Pre-tax profitability for 2003 is expected to be in excess of $250,000 well above the budgeted figure of  $400,000. Approximately half of the pre-tax profit arises from the taking into profit the increase in value of the ABC Bank bonds written down in 2003.  

·      The net interest margin on resident business has averaged 5.5% over the past year. Earnings on money market placements (some $74m daily average) remain depressed due to the low interest rates on offer. It is estimated that each 1% increase in rates would yield the Bank some $150,000 on free balances. The Plan expects that interest rates will not be raised significantly during 2002 but marked increases may be seen thereafter. To attract longer dated maturities in its savings products the Bank expects to have to offer comparatively high interest rates to be competitive which again adds pressure on the earnings from the net interest margin.

·       The own-funds of the Bank are expected to be some $12.5m at the year-end 2000, the base year for the Plan. Of this $12m is shareholder capital.

·      The Bond and Promissory Note portfolio has been stated as being less than the Bank’s capital and reserves which is the maximum amount the Board has authorised in this category. It is recognised that in recent times such exposure has been below this target level reflecting the tight interest margins and, more recently, the unsettled nature found in the Markets. Bonds will continue to be marked-to-market.

·      The introduction of a debit card product has been recognised in attributing $100,000 per annum running costs.

·      It is expected that the Bank of ..USA.. Reserve Account balance will be maintained at $1m over the life of the Plan although it is recognised that the requirements of the Liquidity Regime may require a larger liquidity buffer than the $4m provided currently. This figure includes $2m of Gilts held in the bond portfolio.

·      No account has been taken of the likely cost of further developing the Bank’s Internet offering.

·      The Bank has planned for only a modest increase of one-half per cent in the Base Rate through 2001 to 1% and an increase through 2003 to 3% pa. Exchange rates between euro and the main currencies of USD and the Sterling are expected to remain broadly in line with the current levels over the length of the Plan.