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Form PL Neil Bush [email protected] 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 Outline of Seminar

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Form pl l.jpg

Form PL

Neil Bush

[email protected]


Objectives l.jpg
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


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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)


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“Coding-up”

  • In line with Balance Sheet

  • Move away from manually intensive process

  • If problems, contact us


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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


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Net interest income

Format of A3

  • Dividends received

  • Net fees and commissions

- Net spread earnings

  • Other Operating income

  • Operating expenditure

  • Dividends paid


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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


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Differences with published accounts

  • Definitions, e.g. treatment of interest rate swaps

  • Reconciliation matrix – bilateral negotiations with 10 largest UK-owned banking groups


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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


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Help with PL Form

  • Seminar

  • FAQs on Monetary and Financial Statistics section of BoE website

  • Visits to reporters

  • E-mail: [email protected]


Interest l.jpg

Interest

John Elliott

[email protected]


Interest lines l.jpg
Interest lines

  • Sectoral breakdown

  • Potential problem areas

  • Netted accounts








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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


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Netted accounts

  • Basically the same treatment as on the A3

  • Except if a net flow is cross-sector

    • These should be excluded

  • Some examples


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Netted accounts

  • Loan and deposit for one customer

    Interest is calculated gross

    Interest is charged net

Interest should be reported gross


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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


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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


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Netted accounts – in summary

  • Consistent with ER

  • Small discrepancies with published accounts

  • FAQs

  • Contact us to clarify



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Net Spread Earnings and Dealing Profits

Neil Bush

[email protected]


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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.


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Example of management information as proxy for NSEs

£100

£93.33

C

S

T

$140

$140

Rates quoted: 1.40

Mid-market: 1.50


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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


Example of management information as proxy for nses30 l.jpg
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


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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


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Dealing profits

  • Definition in line with published accounts

  • IAS on dealing profits– movement to fair value may affect definition on PL


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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


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Fees, dividends, provisions and transfer pricing

John Elliott

[email protected]


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Other items on the PL

  • Fees

    • Product breakdown

    • Non-resident element

  • Dividends

  • Provisions

  • Transfer pricing







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Dividends

  • Should be reported on a cash basis

  • Intra-company payments

    • Treat as any other dividend payment




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Transfer pricing

  • Responsible for large fluctuations on the expenditure line

  • Included in the breakdown of other expenditure

  • Quarterly figures


Part 2 of pl the old bp l.jpg

Part 2 of PL – the old BP

Neil Bush

[email protected]


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Issues on Part 2

  • Reporting on branches, subs and associates

  • New definition of profit for items 31 and 32

  • Implications for BG


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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)


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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


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Profits / losses (items 31 and 32)

  • Retained profit

  • But - exclude dealing profits

  • Plausibility questions – provide business reasons, particularly for increase in specific provisions


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Effect on Form BG

  • Definitions to be consistent with PL

  • References to individual boxes changed

  • PL-compatible BG in forthcoming Stats Notice


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Summary

  • Issues discussed – importance of “coding-up”, treatment of netted interest, product split of fees, Net Spread Earnings, transfer pricing, part 2 of form, etc.

  • BoE’s role in facilitating transition to

    PL – Seminar, FAQs, bank visits.


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