3 Issuing costs of state guaranteed bonds - Financial Risk and ...

4 Impact of state guaranteed bonds on bank lending, funding and profitability performance
In order to compare the performance of the two types of banks, the descriptive analysis below
focuses on the change in a number of key balance sheet items one year after the issue of the state
guaranteed bonds relative to the year immediately preceding the issue of the guaranteed bond.
The following balance sheet items are considered in the analysis below:
Assets
net loans 17
Liabilities
total deposits and short-term funding
total long-term funding
total liabilities and equity
The data used in the analysis and their source are described above.
Unfortunately, the analysis of the changes in the balance sheet items has to be limited to the
items listed above as detailed information on the various types of loans on the asset side and
deposits on the liability side is missing for an overwhelming majority of the banks in our sample.
In addition, a comparison of the profit performance of the two bank groups following the issue of
guaranteed bonds is also undertaken below. To that end, two different profit indicators are used,
namely a) the ratio of net interest income to total liabilities and equity, and b) the ratio of
operating income to total liabilities and equity.
As data are only available annually for the majority of the banks in our sample, changes between
end-year figures are used when the performance of banks is measured at the level of the balance
sheet and changes between annual figures are used when the focus of the analysis is profitability.
The basic idea underlying the post-issue period /pre-issue period comparison is that the full impact
of the issue on either the asset or the liability side of the balance sheet is likely to take some time
to materialise. For the purpose of the analysis we assume that this adjustment lag is at a minimum
3 quarters.
If quarterly data were available, it would be easy to compute the change in a balance sheet item
between the end of quarter t+3 and the end of quarter t-1 with quarter t being the quarter of the
issue of the guaranteed bonds.
With annual data, the definition of the pre- and post-issue periods is somewhat less precise as the
lag between the post-issue period and the issue period, when measured in terms of quarters,
unavoidably varies depending on the issue quarter.
17 Net loans includes Residential Mortgage Loans + Other Mortgage Loans + Other Consumer/ Retail Loans + Corporate & Commercial
Loans + Other Loans-Reserve against possible losses on impaired or non performing loans
89