How to read a bank's financial statements

For someone used to reading the accounts of manufacturers or retailers, a bank's annual report can be disorienting: no revenue line, no inventory, and a balance sheet many times larger than its equity. This guide walks through an illustrative bank's financial statements, explains each key line and ratio, and shows where to look for risk.

By Awais Jameel, Chartered Accountant. Reviewed by Muhammad Bilal, Chartered Accountant. 3 minute read.

Short answer

Bank financial statements look different from a normal company's: the balance sheet is mostly loans, securities and deposits, and the income statement starts with net interest income rather than revenue. To read them, start with the balance sheet mix and funding, then net interest income and margin, fee income, costs, impairment and capital. In this guide's illustrative bank, net interest margin is 3.5%, the cost-to-income ratio 54%, cost of risk 0.57% and return on equity 16.9%.

At a glance

Largest asset
Loans to customers
Largest liability
Customer deposits
Main income
Net interest income
Key ratios
NIM, cost-to-income, cost of risk
Capital
CET1 ratio, outside the IFRS statements
Where risk hides
ECL, Level 3, liquidity gaps
How to read a bank's financial statementsLargest asset: Loans to customers; Largest liability: Customer deposits; Main income: Net interest income; Key ratios: NIM, cost-to-income, cost of risk; Capital: CET1 ratio, outside the IFRS statements; Where risk hides: ECL, Level 3, liquidity gaps.KEY FACTS AT A GLANCEHow to read a bank's financial statementsLargest assetLoans to customersLargest liabilityCustomer depositsMain incomeNet interest incomeKey ratiosNIM, cost-to-income, costof riskCapitalCET1 ratio, outside theIFRS statementsWhere risk hidesECL, Level 3, liquiditygapsTax BakersHow to read a bank's financial statementsLargest asset: Loans to customers; Largest liability: Customer deposits; Main income: Net interest income; Key ratios: NIM, cost-to-income, cost of risk; Capital: CET1 ratio, outside the IFRS statements; Where risk hides: ECL, Level 3, liquidity gaps.KEY FACTS AT A GLANCEHow to read a bank's financialstatementsLargest assetLoans to customersLargest liabilityCustomer depositsMain incomeNet interest incomeKey ratiosNIM, cost-to-income, cost of riskCapitalCET1 ratio, outside the IFRS statementsWhere risk hidesECL, Level 3, liquidity gapsTax Bakers
Key facts at a glance, as set out in this guide.

What does a bank balance sheet look like?

AssetsCU millionLiabilities and equityCU million
Cash and central bank balances1,000Customer deposits8,000
Loans to customers, net of ECL7,000Debt securities issued1,200
Investment securities2,000Derivatives250
Derivatives300Other liabilities250
Other assets200Equity800
Total10,500Total10,500

Equity is under 8% of total assets: the bank is funded mostly by depositors. Banks usually list assets in order of liquidity rather than splitting current and non-current.

What does a bank income statement look like?

CU millionAmount
Net interest income350
Net fee and commission income100
Trading and other income30
Operating income480
Operating expenses(260)
Expected credit losses(40)
Profit before tax180

Which ratios matter in bank financial statements?

Key ratios for the illustrative bankKey ratios for the illustrative bankResultCalculationNetinterest margin3.5%NII/ average interest-earning assetsCost-to-incomeratio54%Costs/ operating incomeCost of risk0.57%Impairment/ average loansLoan-to-depositratio87.5%Loans/ depositsReturn on equity16.9%Profit after tax/ equity
Five ratios that summarise a bank's performance.

Each ratio tells part of the story: margin shows pricing power and funding costs, cost-to-income shows efficiency, cost of risk shows credit quality, and the loan-to-deposit ratio shows how much lending is funded by stable deposits. Return on equity brings them together.

Why is a bank's cash flow statement less useful?

Because lending and taking deposits are a bank's operating activities, changes in loans and deposits sit in operating cash flows, which can swing by large amounts from year to year without signalling anything about profitability. Readers usually focus on liquidity disclosures instead.

What is in a bank's equity?

Share capital, retained earnings and reserves, as for any company, plus, at many banks, additional tier 1 instruments classified as equity under IAS 32 because their coupons are discretionary. Coupons on those instruments are distributions, deducted from equity rather than shown as interest expense.

Where is the capital ratio?

Not in the primary statements. The CET1 ratio, the main measure of a bank's solvency, is in the capital management note or the risk report, based on regulatory adjustments to equity. See regulatory capital vs IFRS equity.

Where should readers look for risk?

  • The ECL note: the split of loans by stage, coverage ratios, and how much of the allowance comes from overlays. See stage 2 lending.
  • The fair value note: how much of the balance sheet is Level 3.
  • The liquidity note: the contractual maturity gaps and liquid asset buffers. See bank risk disclosures.
  • Concentrations: exposures to single sectors, such as commercial real estate, or to single large borrowers.

A quick checklist for reading a bank's annual report

  1. How is the balance sheet funded, and how stable is that funding?
  2. Is net interest margin rising or falling, and why?
  3. Are costs growing faster than income?
  4. Is the cost of risk in line with the loan book's quality, and how much comes from overlays?
  5. How much headroom is there above minimum capital requirements?

What changes with IFRS 18?

From 2027, banks will present income and expenses in operating, investing and financing categories adapted to their main business of lending, with most interest income and expense, fees and impairment in the operating category, and an operating profit subtotal. Comparisons over the change will need care. See IFRS 18 for entities with specified main business activities and bank accounting.

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Questions people ask

How do you read a bank's financial statements?

Start with the balance sheet mix and funding, then net interest income and margin, fees, costs, impairment, and capital and risk disclosures in the notes.

What is net interest margin?

Net interest income divided by average interest-earning assets, showing the spread a bank earns on its lending and investments.

What is cost of risk?

The expected credit loss charge as a percentage of average loans, a measure of credit quality.

Where is a bank's CET1 ratio reported?

In the capital management note or risk report, not in the primary financial statements.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IFRS 9 Financial Instruments

Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.

BankingBank accounting: the key IFRS issuesBankingRegulatory capital vs IFRS equityBankingLiquidity and market risk disclosures

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This guide is general information. It is not tax or legal advice for your situation.