Glossary

This glossary is for general information only, in the context of the banking industry. It should not be relied upon as legal or professional advice. Whilst reasonable care has been taken to ensure the accuracy of the information herein, no warranty or representation is made as to its correctness or completeness. Content herein may be modified at any time without notice.

Financial Term Description
Additional Tier 1 capital securities (AT1 capital) Capital instruments that have no fixed maturity, including preferred shares and high contingent convertible securities. These perpetual instruments must contain no incentive for the issuer to redeem them. As such, they characteristically absorb losses prior to, or at, the point of insolvency. This is also known as perpetual capital securities.
Blockchain An immutable digital ledger system which is implemented in a distributed fashion (without a central repository). At its most basic level, a blockchain enables a community of users to record transactions in a ledger public to that community such that no transaction can be changed once published.
Common equity Tier 1 capital (CET1 capital) A component of Tier 1 capital. For Singapore banks, common equity Tier 1 capital comprises a bank’s core capital and includes paid-up ordinary share capital, share premium, retained earnings, eligible non-controlling interests, accumulated other comprehensive income and other disclosed reserves.
Common equity Tier 1 capital adequacy ratio One of the bank solvency measures that gauges a bank’s capital strength. Ratio of common equity Tier 1 capital to risk weighted assets. Various abbreviations include CET1 CAR and CET1 ratio.
Cost-to-income ratio (CIR) Total operating expenses compared with total income. Also referred to as expense/income ratio.
Covered bonds Debt instruments secured by a cover pool of mortgage loans (property as collateral) that remain on the issuer’s balance sheet to which investors have a preferential claim in the event of default. If the issuer can no longer service the periodic bond payments, investors have a preferential claim on this pool of assets and the associated cash flows. If the cover assets are not insufficient to meet the bond payments in full, covered bondholders also have an unsecured claim on the issuer to recover any shortfall. This is known as dual recourse.
Cryptocurrency An encrypted, decentralized digital currency transferred between peers and confirmed in a public ledger. Cryptocurrencies use decentralized control as opposed to centralized electronic money and central banking systems. The decentralized control of each cryptocurrency is facilitated on a blockchain.
Expected credit loss (ECL) International Financial Reporting Standard 9 - Financial Instruments (IFRS 9) requires an ‘expected credit loss’ (ECL) approach to credit loss provisioning. Effective from 1 January 2018, IFRS 9 requires recognition of ECL on a point-in-time, forward-looking and probability weighted basis. ECL is updated at each reporting date.
Leverage ratio Calculated by dividing Tier 1 capital by total exposures (sum of on-balance sheet assets, derivatives exposures, securities finance transaction exposures and off-balance sheet items). Under Basel III as well as MAS Notice 637, a minimum of 3% is required for the leverage ratio.
Liquidity coverage ratio (LCR) A requirement under Basel III for a bank to hold high-quality liquid assets sufficient to cover 100% of its stressed net cash requirements over 30 days.
Loan-to-deposit ratio (LDR) The ratio of non-bank customer loans (net of expected credit losses) to non-bank customer deposits.
Net interest income The difference between interest earned on interest-bearing assets and interest incurred on interest-bearing liabilities.
Net interest margin (NIM) Annualised net interest income divided by average interest-earning assets.
Non-performing loan (NPL) A loan which is delinquent (or in excess for a revolving credit facility such as an overdraft) for more than 90 days, or when a borrower exhibits definable weaknesses, either in respect of business, cashflow or financial position that may jeopardise repayment based on existing terms of the loan.
Non-performing asset (NPA) Combination of loans, debt securities and other exposures which are delinquent for more than 90 days or when borrower/issuer exhibits definable weaknesses.
NPL ratio Ratio of the amount of non-performing loans to the total amount of outstanding loans.
NPL coverage Total ECL allowance for loans divided by non-performing loans. Also known as NPL reserve coverage.
NPA coverage Total ECL allowance for assets divided by non-performing assets. Also known as NPA reserve coverage.
Net stable funding ratio (NSFR) A requirement under Basel III that stipulates a bank’s available amount of stable funding should exceed its required amount of stable funding. This is to limit banks’ over-reliance on short-term wholesale funding and to promote more medium and long-term funding that better support a bank’s assets maturing beyond the one-year horizon.
Return on average assets (ROA) An indicator of the efficiency in using a bank’s assets to generate earnings. It is computed as annualised net profit after tax (including non-controlling interests) divided by average total assets for the period.
Return on average shareholders’ equity (ROE) A measure of the return on each dollar of shareholders’ funds. It is computed as annualised profit for the period attributable to equity holders (excluding non-controlling interests and perpetual capital securities distributions) divided by average shareholders’ equity for the period.
Return on average risk weighted assets (RoRWA) A measure of the return generated based on the risk assumed (and therefore the capital consumed). It is computed as annualised net profit after tax (including non-controlling interests) divided by average risk weighted assets.
Risk weighted assets (RWA) A measure of a bank’s assets and off-balance sheet items adjusted for their associated risks. For Singapore banks, the calculation of risk weighted assets is set in accordance with MAS Notice 637.
Singapore Interbank Offered Rate (SIBOR) The interest rate in which banks are willing to lend money to one another at in Singapore on an unsecured basis.
Singapore Dollar Swap Offer Rate (SOR) The synthetic rate for Singapore dollar (SGD) funds, which represents the effective cost of borrowing the SGD synthetically by borrowing US dollar (USD) for the same maturity, and swapping out the USD in return for the SGD. The SOR is therefore based on USD cost of funds as well as the expected forward exchange rate between the USD and SGD.
Stage 1 – ECL 12 month ECL recognised on exposures such as loans, which have no significant increase in credit risk since initial recognition.
Stage 2 – ECL Lifetime ECL recognised on exposures such as loans, which have experienced a significant increase in credit risk since initial recognition.
Stage 3 – ECL Lifetime ECL recognised on exposures such as loans, which have been classified as non-performing.
Subordinated notes Debt instruments that rank below deposits and other senior creditors. In the event that a company defaults and is liquidated, holders of subordinated notes only receive distributions after all senior creditors’ claims have been fully met. Also known as Tier 2 capital instruments.
Tier 1 capital Comprises common equity Tier 1 capital plus additional Tier 1 capital securities.
Tier 1 capital adequacy ratio One of the bank solvency measures that gauges a bank’s capital strength. Ratio of Tier 1 capital to risk weighted assets. Various abbreviations include Tier 1 CAR and Tier 1 capital ratio.
Tier 2 capital Supplementary capital which consists of items such as subordinated notes and accounting provisions in excess of expected losses as defined under Basel / MAS Notice 637.
Total capital Comprise Tier 1 capital and Tier 2 capital.
Total capital adequacy ratio One of the bank solvency measures that gauges a bank’s capital strength. Ratio of total capital to risk weighted assets. Various abbreviations include Total CAR and Total capital ratio.