UNIVERSITY OF TECHNOLOGY, JAMAICA

SYLLABUS OUTLINE

COLLEGE/FACULTY COLLEGE OF BUSINESS AND MANAGEMENT

SCHOOL/DEPT SOBA/FINANCE

COURSE OF STUDY BACHELOR IN BUSINESS ADMINISTRATION (BBA)

LEVEL FOUR (4)

MODULE TITLE BANK MANAGEMENT

MODULE CODE FIN 4017

DURATION 45 HOURS

CREDIT VALUE THREE (3) CREDITS

PREREQUISITES FINANCIAL MANAGEMENT (FIN3001); FINANCIAL

MARKETS AND INSTITUTIONS (FIN3017); FINANCIAL
REGULATORY ENVIRONMENT (FIN3018); SECURITIES
ANALYSIS (FIN4003)

MODULE DESCRIPTION

This module is a comprehensive study of banking services aimed at providing students with an
understanding of how banks operate and the challenges that face managers in these institutions. The
course emphasizes the practical application of financial models and decision frameworks to specific
aspects of these issues or problems that banks may face.

1.0 MODULE OBJECTIVES/LEARNING OUTCOMES

Upon completion of this module, the student should:

i. understand the services provided, the structure and regulation of banking service firms;

ii. analyse the types of bank risk: credit, liquidity, interest rate, capital, operational, and
reputational

iii. appraise alternative approaches to the measurement and management of interest rate risk;

iv. analyse different aspects of a banking firm’s operations and financial performance; and

v. evaluate balance sheet management and the trade-offs between profitability and risk and
appreciate the significance of core banking business models.

3.0 MODULE CONTENT AND CONTEXT

3.1.0 UNIT 1: BANKING SERVICES INDUSTRY (3 Hours)

SPECIFIC OBJECTIVES

At the end of this unit students should be able to:

1
3.1.1 Describe the typical services offered by a bank and the different kinds of banks (global,
regional, full-service etc.)
3.1.2 Differentiate between various banking models
3.1.3 Discuss various channels for delivering banking services such as branch, ATMs, Online
banking and Mobile banking
3.1.4 Describe the regulatory environment in which financial services companies compete.
3.1.5. Discuss the goals and functions of depository institution regulation
3.1.6 Judge how the regulation of depository institutions impacts their safety and soundness.
3.1.7 Examine how regulation of financial institutions impacts the efficiency and competitiveness
of the financial system.
3.1.8 Describe the causes and consequences of the credit crisis of 2007 – 2009.
3.1.9 Assess the impact of Too Big to Fail phenomenon.
3.1.10 Discuss recent developments in the Jamaican banking services industry: asset growth,
banking performance, economic and competitive challenges.

CONTENT

 Definition of a bank and description of various types of banks

 Services that banks provide: payment services, financial intermediation and other services
 Factors that constrain bank goals: social, market, legal and regulatory factors
 Channels for delivery of banking services
 Banking models: such as transactions banking, relationship banking and universal banking
 Goals and functions of regulations: safety and soundness, provision of an efficient and
competitive system, monetary stability and the integrity of the payments system
 Benefits of regulation
 Causes of the credit crisis and the consequences of crisis
 Securitization
 Define Too Big to Fail concept.

3.2.0 UNIT 2: ANALYSIS OF BANK PERFORMANCE (6 Hours)

SPECIFIC OBJECTIVES

At the end of this unit students should be able to:

3.2.1 Examine bank financial statements, including the basic balance sheet and income statement,
and discuss the interrelationship between them.
3.2.2 Employ the framework for analysing bank performance over time and relative to peer banks.
3.2.3 Utilize key financial ratios to evaluate profitability and the different types of risks faced by
banks.
3.2.4. Discuss the trade-off between bank profitability and risk.
3.2.5 Distinguish between types of bank risk; credit, liquidity, interest rate, capital, operational,
and reputational.
3.2.6 Describe the nature of and meaning of regulatory CAMELS ratings for banks.
3.2.7 Apply data analysis to sample banks’ financial information.
3.2.8 Describe performance characteristics of different-sized banks.
3.2.9 Describe how banks can manipulate financial information to ‘window-dress’ performance.

CONTENT
 Commercial bank financial statements
 The relationship between the balance sheet and the income statement
 The Return on Equity Model
 Managing risks and returns
 Evaluating bank performance
 Maximizing the market value of equity
 Financial statement manipulation

2
3.3.0 UNIT 3: MANAGEMENT OF NON-INTEREST INCOME AND EXPENSES
(3 Hours)

SPECIFIC OBJECTIVES

At the end of this unit students should be able to:

3.3.1 Calculate financial ratios that characterize a bank’s ability to generate non-interest income
and control non-interest expense.
3.3.2 Discuss the sources of bank non-interest income.
3.3.3 Explain the significance of the efficiency ratio and operating risk ratio.
3.3.4 Explain the importance of knowing which customers are profitable.
3.3.5 Examine the link between business mix and fee income.
3.3.6 Assess the various strategies to manage non-interest expense

CONTENT

 Non-Interest Income: trading revenues, deposit service charges, trust services, securitization
income etc.
 Non-Interest Expense: personnel expense, goodwill impairment, rent, depreciation etc.
 Key ratios: net overhead expenses, efficiency ratio, operating risk ratio, asset quality ratios
 Line of business profitability analysis
 Cost management strategies
 Revenue enhancement strategies

3.4.0. UNIT 4: FUNDING MANAGEMENT (3 Hours)

SPECIFIC OBJECTIVES

At the end of this unit students should be able to:

3.4.1 Describe the composition and characteristics of bank liabilities.

3.4.2 Compare the average interest cost and servicing cost of various bank liabilities.
3.4.3 Calculate the average cost of transactions accounts.
3.4.4 Describe how Eurodollar deposits and loans originate.
3.4.5 Examine the nature and role of electronic money.
3.4.6 Calculate the marginal cost of a single source of bank funds
3.4.7 Calculate the weighted-average marginal cost of funds.
3.4.8 Describe the usefulness and interpretation of historical cost of funds analysis.
3.4.9 Analyse the relationship between the composition of bank funds and risk.

CONTENT
 The relationship between liquidity requirements, cash and funding sources
 Characteristics of retail deposits
 Characteristics of wholesale deposits
 Electronic money
 Measuring the cost of funds
 Funding sources and banking risks

3.5.0. UNIT 5: LIQUIDITY MANAGEMENT (3 Hours)

SPECIFIC OBJECTIVES

At the end of this unit students should be able to:

3.5.1 Describe the relationships between cash holdings and liquidity requirements.
3.5.2 Examine the requirements for meeting legal reserves.
3.5.3 Outline the procedures and problems in clearing checks and managing floats.
3.5.4 Examine the strengths and weaknesses of traditional balance sheet measures of liquidity.

3
3.5.5 Assess liquidity planning models for the reserve maintenance period and longer periods.
3.5.6 Construct liquidity measures which indicate a funding surplus or need.
3.5.7 Explain the need to have a contingency plan for funding.
3.5.8 Discuss real time gross settlement (RTGS) and automated clearing house (ACH) reforms in
Jamaica

CONTENT

 Ways to acquire liquidity

 Liquid assets requirements
 Objectives of cash management
 Reserves balances at Central Bank
 Required reserves and monetary policy
 Trade-off between liquidity and profitability
 Aggregate measures of liquidity risk
 Short term and long term liquidity planning
 Contingency funding
 Real time gross settlement (RTGS) and automated clearing house (ACH)

3.6.0. UNIT 6: INTEREST RATE RISK MANAGEMENT: GAP AND EARNINGS

SENSITIVITY (3 Hours)

SPECIFIC OBJECTIVES

At the end of this unit students should be able to:

3.6.1 Examine factors that cause a bank’s net interest income and net interest margin to change.
3.6.2 Describe the traditional static GAP model used to assess a bank's interest rate risk.
3.6.3 Categorize the strengths and weaknesses of the static GAP model.
3.6.4 Explain why bank managers do not change loan rates by the same amounts and at the same
time that they change rates paid on liabilities.
3.6.5 Discuss the basic features of an earnings sensitivity analysis.
3.6.6 Prepare a rate sensitivity report and earnings at risk report.
3.6.7 Apply strategies to manage interest rate risk.
3.6.8 Examine whether banks can vary GAP to take advantage of perceived movements in interest
rates.

CONTENT

 Define GAP
 Steps to develop static GAP analysis
 Factors that affect rate sensitivity
 Factors that affect net interest income
 Strengths and weaknesses of static GAP
 Steps to develop earnings sensitivity analysis
 Managing GAP and earnings sensitivity risk

3.7.0. UNIT 7: INTEREST RATE RISK MANAGEMENT: DURATION GAP AND

ECONOMIC VALUE OF EQUITY
(Time Spent: 3 Hours)

SPECIFIC OBJECTIVES

At the end of this unit students should be able to:

3.7.1 Discuss the importance of measuring interest rate risk in terms of price sensitivity of assets,
liabilities, and stockholders’ equity.
3.7.2 Describe the economic value of equity (EVE) analysis and distinguish EVE from the static
GAP and earnings sensitivity analysis.

4
3.7.3 Apply Macaulay’s duration, modified duration, and effective duration in estimating price
sensitivity.
3.7.4 Calculate Duration Gap and duration-based models of interest rate risk.
3.7.5 Examine how sensitivity analysis is applied to a bank’s economic value of equity (EVE).
3.7.6 Discuss the strengths and weaknesses of GAP versus duration gap analysis.
3.7.7 Critique various strategies to manage earnings and EVE in terms of what a bank’s bets are
versus the prevailing yield curve.

CONTENT
 Define duration, modified duration and effective duration
 Measuring interest rate risk with duration gap
 Economic Value of Equity Sensitivity Analysis
 GAP versus duration gap
 EVE versus earnings sensitivity analysis

3.8.0. UNIT 8: INTEREST RATE RISK MANAGEMENT: DERIVATIVES

(3 Hours)

SPECIFIC OBJECTIVES

At the end of this unit students should be able to:

3.8.1 Describe the characteristics of financial futures contracts and how they are priced, and basic
trading activity.
3.8.2 Discuss the differences between speculation and hedging activity.
3.8.3 Examine how banks can use financial futures to manage interest rate risk associated with
specific transactions (micro-hedging).
3.8.4 Examine how banks can use financial futures to manage interest rate risk associated with the
entire portfolio (macro-hedging).
3.8.5 Describe the characteristics of forward rate agreements (FRAs).
3.8.6 Evaluate how banks can use forward rate agreements to manage interest rate risk with
specific transactions.
3.8.7 Apply the mechanics of basic interest rate swaps and demonstrate their use in managing
interest rate risk.
3.8.8 Assess the characteristics of interest rate caps, floors and collars.

CONTENT
 Characteristics of financial futures
 Pricing a futures contract
 Mechanics of futures trading
 Speculation versus hedging
 Micro-hedging applications
 Macro-hedging applications
 Features of forward rate agreements
 Features of an interest rate swap
 Comparing futures, FRAs and swaps
 Interest rate caps, floors and collars

3.9.0 UNIT 9: CAPITAL MANAGEMENT (3 Hours)

SPECIFIC OBJECTIVES

At the end of this unit students should be able to:

3.9.1 Explain the structure of risk-based capital standards

3.9.2 Examine what the functions of bank capital are both from the view of bank regulators and
bank managers.
3.9.3 Assess the influence of regulatory capital requirements on bank operating policies.

5
3.9.4 Describe what balance sheet items constitute bank capital.
3.9.5 Discuss the characteristics and advantages and disadvantages of different types of internal
and external capital.
3.9.6 Examine the role and impact of Deposit Insurance and proposals to improve current
weaknesses of the system.
3.9.7 Describe the basic features of Basel III, which will establish the new risk-based capital
standards for banks throughout the industrialized world.

CONTENT

 Importance of capital
 Risk based capital standards: Basel I and II
 What constitutes bank capital
 Capital adequacy
 Effect of capital on bank operations
 External capital sources
 Internal capital sources
 Capital Planning
 Basel III

3.10.0 UNIT 10: MANAGING THE INVESTMENT PORTFOLIO (6 Hours)

SPECIFIC OBJECTIVES

At the end of this unit students should be able to:

3.10.1 Describe the bank’s role as a securities dealer and in managing a trading account.
3.10.2 Examine the objectives of the investment portfolio.
3.10.3 Describe the composition of the average bank’s investment portfolio.
3.10.4 Examine the characteristics of securities comprising the investment portfolio.
3.10.5 Analyse the nature of the market for asset-backed securities and provide an example of an
asset-backed security.
3.10.6 Summarize basic investment policy guidelines.
3.10.7 Compare the laddered maturity strategy with the barbell (long and short) strategy when
determining the appropriate maturity for new security purchases.
3.10.8 Discuss the advantages and disadvantages of active versus passive investment strategies.
3.10.9 Analyse maturity strategies to ride the yield curve using total return analysis.

CONTENT

 Objectives of Investment portfolio

 Accounting for investment securities
 Composition of portfolio: taxable and non-taxable securities, asset backed securities, money
market instruments and capital market instruments
 Active investment strategies: riding the yield curve
 Passive investment strategies: barbell, laddering
 Tax equivalent yield

4.0 LEARNING AND TEACHING APPROACHES

The following instructional approaches will be used throughout this course:

6
UNIT APPROACH AIM
Units 1-10 Interactive Lectures The purpose of the lectures is to transmit
information which enhances reading, promote
understanding via explanations and create or
engage interest in a new area. Lectures will be
interactive. Students are therefore asked to
read the relevant material prior to attending
each lecture in order to enhance the quality of
the discussions.

Units 1-10 Problem Sets These problems are developed to promote

understanding, the ability to calculate, and to
promote comfort with utilising various
financial methods. Students are asked to
attempt independent solutions to the problems
set before tutorials and to use the tutorial time
to clarify and cement an understanding
Units 1-10 Discussions Active discussions during lectures and tutorials
are important to further explanations, identify
problems, conflicts and inconsistencies and
also to get feedback from and give feedback to
students. Students are encouraged to make
good use of this avenue to enhance their
learning.

Unit 1,2,9 Guest Lecture This allows students to hear from industry
participants on developments in the sector
(regulation, performance, capital adequacy etc.)
and to relate the concepts learned in the course
to the real world context.
Unit 2, 3,9 Mini Case Studies This allows students to become active
participants in their learning and to relate
knowledge to real world situations. Case
analysis will be done during the tutorials and
students are asked to read and prepare as much
as possible beforehand.

5.0 ASSESSMENT PROCEDURES

Individual Presentations 15%

Coursework Test 15%
Group Project 20%
Final Exam 50%
Total 100%

Students will be assigned individual questions and are expected to make a PowerPoint presentations
during their respective tutorial sessions. This is to assess the student’s ability to solve a problem,
summarise research, compare and contrast approaches and theories and find and identify examples
of a concept or theory.

The Coursework Test and Final Exam which consist of multiple choice and short structured
questions will require students to not only recall information but to also to explain, interpret and
calculate and assess important concepts, data and approaches.

A Group Project will be assigned which will require students to utilise research skills, calculate and
interpret financial data, as well as, further develop their team work, planning and time management
skills.

7
6.0 BREAKDOWN OF HOURS

Lectures 13
Tutorials 26
Assessment 6
Total 45

7.0 TEXTBOOKS AND REFERENCES

Required Text:

Koch, T.W. and MacDonald, S.S. (2015). Bank Management. Cengage Learning. 8th Edition.

Recommended Reading:

Rose, P.S. and Hudgins, S.C. (2012). Bank Management & Financial Services. 9th Edition.
McGraw Hill

8.0 NAME/S OF SYLLABUS WRITER/S OR DEVELOPER/S

Original: Samuel Parkes (Treasury Management)

Date: September 2004

8.1 NAME/S OF SYLLABUS REVIEWER/S

First Review: Karlene Bailey

Second Review: Karlene Bailey and Lloyd Wint

8.2 DATE/S OF REVISION: July 2012

July 2015

9.0 APPROVAL

9.1 PROGRAMME DIRECTOR (PD)

Gregory Linton

9.2 SIGNATURE OF PD

9.3 COLLEGE/FACULTY CURRICULUM COMMITTEE

9.4 SIGNATURE OF COMMITTEE CHAIR

10.0 ACCEPTANCE BY OFFICE OF CURRICULUM DEVELOPMENT &

EVALUATION (OCDE)

10.1 DATE OF ACCEPTANCE BY OCDE

8
9