Chapter 12: Banks & Insurance Financials

Banks and insurance companies operate very differently from typical businesses. Their financial statements require a different approach to analysis.

This guide builds on the Cash Flow Guide and explains how to correctly interpret financial institutions listed on Investi.

Progress: Chapter 12 of 16

📌 What You Will Learn

🏦 Why Financial Institutions Are Different

Unlike most companies, banks and insurers:

💡 For banks, debt is not just financing — it is the business itself.

💰 Revenue Structure

🏦 Banks

Banks generate income mainly from:

The key metric:

Net Interest Income = Interest Income − Interest Expense

This replaces traditional “revenue” seen in other companies.

🛡️ Insurance Companies

Insurance companies earn from:

They also earn investment income from managing funds.

📊 Key Metrics for Banks

📈 Net Interest Margin (NIM)

Measures profitability of lending activities.

📉 Impairment Charges

Losses from loans that may not be repaid.

Higher impairments = higher risk.

🏦 Loans and Advances

Money lent to customers.

💳 Customer Deposits

Funds held on behalf of customers.

These are liabilities on the balance sheet.

📊 Key Metrics for Insurance Companies

💸 Claims Incurred

Payments made to policyholders.

📦 Technical Provisions

Reserves set aside for future claims.

📊 Combined Ratio

Measures profitability of insurance operations.

Combined Ratio = Claims + Expenses / Premiums

⚖️ Balance Sheet Differences

In financial institutions:

This is very different from normal companies.

Learn more:
Balance Sheet Guide

📉 Why Common Ratios Can Mislead

Typical ratios may not work well:

Instead, focus on:

🧠 How to Analyse Financial Institutions

For banks:

For insurers:

Then combine with:

⚠️ Common Mistakes

💡 Always analyse financial institutions using industry-specific metrics.

🔗 Related Guides

⬅️ Previous:
11. Cash Flow

➡️ Next:
13. Charts & Technical Analysis