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Comprehensive Valuation Mechanism for Asset and Liability Assessment in Failed Banks

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philip-clements
17 diapositives · 308 Views · Nov 15, 2014

This presentation outlines the processes and mechanisms for valuing assets and liabilities in the context of purchasing and assuming a failed bank. It emphasizes the importance of proper valuation to facilitate transactions, detailing balance sheet items, asset and liability classifications, and the role of independent valuers. Key concepts include tangible versus intangible assets, various types of deposits, and the mechanisms for valuing loans and advances. Additionally, it explores the benefits of accurate valuation, such as increased confidence in the banking system and improved fund availability for depositors.

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Comprehensive Valuation Mechanism for Asset and Liability Assessment in Failed Banks
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  1. RESOLUTION OF PROBLEMBANKS:PURCHASE AND ASSUMPTION OPTION ASSET (LIABILITY) VALUATION By B. A. MOJOLA

  2. PRESENTATION OUTLINE • INTRODUCTION • ITEMS ON BALANCE SHEET • ASSET VALUATION MECHANISM • LIABILITY VALUATION MECHANISM • ASSETS THAT DO NOT PASS TO ACQUIRER • BENEFITS OF PROPER VALUATION • CONCLUSION Asset/Liability Valuation

  3. I) INTRODUCTION • THERE WILL BE NOTHING TO BUY OR SELL WITHOUT THE PROPER VALUTION OF ALL THE NECESSARY ITEMS THAT WE HAVE ON THE BALANCE SHEET. Asset/Liability Valuation

  4. 2) ITEMS ON BALANCE SHEET • ASSET SIDE THIS CONTAINS ITEMS OF VALUE TO THE BANK AND USED IN GENERATING WEALTH/INCOME BY THE BANK. • LIABILITY SIDE THIS CONTAINS ITEMS THAT THE BANK HOLD ON BEHALF OF OTHERS AND IS A DEBT ON THE BANK. Asset/Liability Valuation

  5. 2.1)ASSETSCAN BE EITHER : • TANGIBLE ASSETS • Defined as assets having physical existence. INCLUDE ITEMS LIKE LAND AND BUILDING, MACHINERY, EQUIPMENT, COMPUTER, FURNITURE & FITTINGS. • INTANGIBLE • Defined as assets that cannot be seen, touched or physically measured. They are also crucial in judging the value of a company. COMMONLY INCLUDE PATENTS, TRADEMARK, TRADE NAME AND EVEN SOFTWARE. Asset/Liability Valuation

  6. 2.2) LIABILITIES • DEPOSITS THESE ARE MONIES BROUGHT TO BANKS FOR SAFE KEEPING AND ALSO AS INVESTMENTS. WE HAVE DIFFERENT TYPES OF DEPOSITS: • SAVINGS DEPOSITS • CURRENT DEPOSITS • TIME/FIXED DEPOSITS • OTHERS • TOTAL DEPOSITS IN MOST CASES FORM GREATER PERCENTAGE OF THE LIABILITY SIDE OF A BANK’S BALANCE SHEET • CONTINGENT LIABILITIES These include guarantees, bonds, etc Asset/Liability Valuation

  7. 3.0) ASSETS (VALUATION MECHANISM)THE FOLLOWING ASSETS ARE ALWAYS AVAILABLE FOR SALE TO WIILLING BIDDERS • LOANS AND ADVANCES • LANDS AND BUILDINGS • INVESTMENTS • UN-EXPIRED LEASEHOLD INTEREST IN RENTED PROPERTIES • VAULT DOORS • GENERATORS • MOTOR VEHICLES • AIR CONDITIONERS • COMPUTER AND OTHER IT EQUIPMENT • FUNITURE AND FITTINGS • OTHER EQUIPMENT Asset/Liability Valuation

  8. 3) ASSETS (VALUATION MECHANISM)FOR EASE OF VALUATION, THE LONG LIST WE HAVE IN THE EARLIER SLIDE IS GROUPED INTO FOUR (4): • LANDED PROPERTIES • UNEXPIRED LEASEHOLD • VAULT DOORS, MOTOR VEHICLES, GENERATORS, AIR CONDITIONERS AND IT EQUIPMENTS • FUNITURE, FITTINGS AND OTHER CHATTELS THE ESSENCE IS TO MAKE VALUATION EASIER AND UNIFORM. Asset/Liability Valuation

  9. 3) ASSETS (VALUATION MECHANISM ) • INDEPENDENT VALUERS • ESTATE VALUERS • AUTO MECHANICS • OTHER PROFESSIONALS • INVESTMENTS • QUOTED • PRICE FROM THE STOCK EXCHANGE • UNQUOTED - INFORMATION FROM THE CONCERNED COMPANIES Asset/Liability Valuation

  10. 3) ASSET (VALUATION MECHANISM) • LOANS AND ADVANCES • THE LIQUIDATOR COMPILES THE FAILED BANK LOANS AND ADVANCES WITH A VIEW TO PROVIDING INFORMATION TO BIDDERS TO ENABLE THEM DETERMINE THEIR REALISABLE VALUES. - LOAN ASSETS ARE CATEGORISED AS FOLLOWS: • TERM LOANS • OVERDRAFT • LEASES • BANKERS ACCEPTANCES/COMMERCIAL PAPERS • MORTGAGES • ACCOUNT RECEIVABLE Asset/Liability Valuation

  11. 3) ASSET (VALUATION MECHANISM) • PURCHASE PRICE (VALUATION PRICE) OF A LOAN ASSET SHALL DEPEND ON ITS VALUE AS ESTABLISHED THROUGH AN ASSET VALUATION REVIEW BASED ON THE FOLLOWING CLASSIFICATION: - PERFORMING - SUB STANDARD - DOUBTFUL - LOST • ANY LOAN THAT WAS IRREGULARLY GRANTED OR HAS MISSING DOCUMENTS MAY BE RETURNED TO THE LIQUIDATOR. • LOANS TO INSIDERS ARE NOT SOLD TO ACQUIRER. • LOANS ARE SOLD WITHOUT RECOURSE TO NDIC OR CBN. Asset/Liability Valuation

  12. 3)ASSET (VALUATION MECHANISM) . THE ASSETS ARE TO BE SOLD “AS IS” AND “WHERE THEY ARE” • THERE SHALL BE A RESERVED PRICE FOR EVERY ASSET ON SALE • THE ASSET SHALL BE SOLD TO THE HIGHEST BIDDER WHOSE BID MUST BE ABOVE THE RESERVE PRICE • THE BID PRICE SHALL BE NET OF ALL TAXES IN EFFECT, THE BIDDER SHALL BE RESPONSIBLE FOR ALL TAXES, LEVIES, AND CONVEYANCE FEES/EXPENSES (ESPECIALLY FOR LANDED PROPERTIES). • WINNERS OF LANDED PROPERTIES SHALL BE RESPONSIBLE FOR PERFECTING THEIR TITLES TO THE PROPERTIES. • IN THE EVENT OF A TIE BID THERE SHALL BE A FRESH BID BY THE CONCERNED BIDDERS Asset/Liability Valuation

  13. 4) LIABILITY (VALUATION MECHANISM) • THE ITEMS UNDER LIABILITY SIDE OF A BANK ARE: • DEPOSIT . SAVINGS . CURRENT . FIXED/TERM . OTHERS • UPDATE BALANCE AS AT CLOSURE - CONTINGENT LIABILITIES Asset/Liability Valuation

  14. 5) ASSETS THAT DO NOT PASS TO ACQUIRER • CASH • INVESTMENTS THAT ARE DIFFICULT TO VALUE • DEBTS OWED BY DIRECTORS Asset/Liability Valuation

  15. 6) BENEFITS OF PROPER VALUATION • MORE FUND TO PAY DEPOSITORS • CONFIDENCE IN THE BANKING SYSTEM • LIMITED LEGAL ISSUES Asset/Liability Valuation

  16. 7) CONCLUSION • LN ORDER TO GET THE BEST PRICE FOR THE ASSETS OF A FAILED BANK THERE IS NEED FOR INDEPENDENT AND TRANSPARENT VALUERS THIS WILL FURTHER ENGENDER MORE CONFIDENCE IN THE BANKING SYSTEM Asset/Liability Valuation

  17. THANK YOU FOR YOUR ATTENTION. Asset/Liability Valuation