1. Form PL Neil Bush plissues@bankofengland.co.uk

2. Objectives • Broad issues – e.g. “coding-up”, similarity between statutory accounts and PL figures • Common problems – e.g. interest rate swaps, netting, net spread earnings • Forum for questions and issues not covered

3. Outline of Seminar • Overview of PL requirements • ONS rationale • Interest • Net spread earnings and dealing profits • Fees, dividends, provisions and transfer pricing • Part 2 of form (formerly Form BP)

4. “Coding-up” • In line with Balance Sheet • Move away from manually intensive process • If problems, contact us

5. Benefits of PL Form • Improved economic data on GDP and Balance of Payments – use by MPC, Treasury, banks’ economists • As important as balance sheet data • Financial Stability role of BoE

6. Net interest income Format of A3 • Dividends received • Net fees and commissions - Net spread earnings • Other Operating income • Operating expenditure • Dividends paid

7. Net interest income Retained profit Format of PL - sectoral split • Dividends received • Net fees and commissions - product split • Dealing profits - Net spread earnings • Other Operating income • Operating expenditure - breakdown • Exceptional and extraordinary items • Tax • Dividends paid • Provisions for bad and doubtful debts - sectoral split

8. Differences with published accounts • Definitions, e.g. treatment of interest rate swaps • Reconciliation matrix – bilateral negotiations with 10 largest UK-owned banking groups

9. Reporting frequency • If A3 and BP both on same frequency – remain same • If quarterly on one, annual on other – report whole form quarterly • Notified by end-September

10. Help with PL Form • Seminar • FAQs on Monetary and Financial Statistics section of BoE website • Visits to reporters • E-mail: plissues@bankofengland.co.uk

11. Interest John Elliott PLissues@bankofengland.co.uk

12. Interest lines • Sectoral breakdown • Potential problem areas • Netted accounts

13. Present requirements

14. Sector split of loans/deposits and repos

15. Further detail on the loans and the deposits breakdown

16. Further detail on loans

17. Further detail on loans

18. Non-resident breakdown

19. Potential problem areas • Interest rate swaps • Should not be in interest lines • Dealing profits under derivatives • Inter-desk deals • Netted and therefore should have no effect

20. Netted accounts • Basically the same treatment as on the A3 • Except if a net flow is cross-sector • These should be excluded • Some examples

21. Netted accounts • Loan and deposit for one customer Interest is calculated gross Interest is charged net Interest should be reported gross

22. Netted accounts • Credit and debit balances exist for the same customer Interest is calculated net Interest is charged/paid net Interest can be reported on a net basis

23. Netted accounts • Credit and debit balances exist, but apply to different sectors/held in different countries Interest is calculated net Interest is posted net If gross flows not available, exclude

24. Netted accounts – in summary • Consistent with ER • Small discrepancies with published accounts • FAQs • Contact us to clarify

25. Coffee Break

26. Net Spread Earnings and Dealing Profits Neil Bush plissues@bankofengland.co.uk

27. Concept of NSEs • Part of dealing profits measuring service income. • Ideally – difference between sale/purchase price and mid-market price for all activities. • If not – accept for retail trades.

28. Example of management information as proxy for NSEs £100 £93.33 C S T $140 $140 Rates quoted: 1.40 Mid-market: 1.50

29. Example of management information as proxy for NSEs £6.67 £100 £93.33 C S T $140 $140 Rates quoted: 1.40 Mid-market: 1.50

30. Example of management information as proxy for NSEs £5.41 £100 £94.59 C S T $140 $140 Rates quoted: 1.40 Traders’ price: 1.48

31. Capturing NSEs • If cannot capture mid-market price: use management info measuring contribution of sales activity to trading business • Otherwise – discuss methodology with us • Questionnaire later 2003 on methodology • Item 8CA – NSEs on derivatives = optional

32. Dealing profits • Definition in line with published accounts • IAS on dealing profits– movement to fair value may affect definition on PL

33. The Three Alternatives for NSEs • Capturing difference – sales’ price and mid-market price for all transactions with non-bank counterparties • The above – but only with “retail” trades • Using management information to provide measure of sales activity in trading

34. Fees, dividends, provisions and transfer pricing John Elliott plissues@bankofengland.co.uk

35. Other items on the PL • Fees • Product breakdown • Non-resident element • Dividends • Provisions • Transfer pricing

36. Fees – present requirements

37. Fees – Part 1 product breakdown

38. Fees – Part 1 sector detail

39. Fees – Part 2 requirements

40. Fees – Part 1 product breakdown

41. Dividends • Should be reported on a cash basis • Intra-company payments • Treat as any other dividend payment

42. Provisions

43. Provisions

44. Transfer pricing • Responsible for large fluctuations on the expenditure line • Included in the breakdown of other expenditure • Quarterly figures

45. Part 2 of PL – the old BP Neil Bush plissues@bankofengland.co.uk

46. Issues on Part 2 • Reporting on branches, subs and associates • New definition of profit for items 31 and 32 • Implications for BG

47. Overview of Part 2 • Area least changed from current A3/BP requirements • Reordering to move in line with PL format • Usually straight forward mapping with Part 1 (except product split of fees)

48. Branches, subs and associates • Associate: 10-50% of voting rights and influence • Subsidiary: over 50% of voting rights or controls composition of board • Branch: same legal entity Cannot be more than one

49. Profits / losses (items 31 and 32) • Retained profit • But - exclude dealing profits • Plausibility questions – provide business reasons, particularly for increase in specific provisions

50. Effect on Form BG • Definitions to be consistent with PL • References to individual boxes changed • PL-compatible BG in forthcoming Stats Notice