IBSL Diploma in Applied Banking and Finance (DABF) Exam cheat sheet

Nostro account = our bank's account held with a correspondent bank in another currency; Vostro account = a foreign bank's account held with us.

Double-entry rule: every transaction debits one account and credits another for equal amounts; assets and expenses increase on debit, liabilities, equity and income increase on credit.

Clearing settlement: deferred net settlement batches and offsets obligations, while real-time gross settlement (RTGS) settles each payment individually and irrevocably.

KYC minimum elements: identify the customer, verify identity from reliable documents, identify beneficial owners, and understand purpose and intended nature of the relationship.

Cheque crossing (two parallel lines) directs payment through a bank account; 'account payee only' restricts further negotiation to collection for the named payee.

End-of-day reconciliation: ledger balance + deposits in transit - outstanding items = bank statement balance; unresolved differences are aged and escalated.

Value date determines when funds earn or cost interest; transaction date records the booking, and the two can differ for forward-dated items.

Operational risk loss events map to the Basel categories: internal fraud, external fraud, employment practices, clients/products, damage to assets, business disruption, execution/delivery.

Five Cs of credit: Character, Capacity, Capital, Collateral, Conditions; capacity (cash flow) is the primary repayment source.

Debt service coverage ratio (DSCR) = net operating income / total debt service; a ratio below 1.0 signals insufficient cash flow to service debt.

Loan-to-value (LTV) = loan amount / appraised value; higher LTV raises loss given default because collateral covers less of exposure.

Expected loss = PD x LGD x EAD; expected loss is priced into the loan spread, while unexpected loss is covered by capital.

Loan pricing floor: interest rate must cover cost of funds + operating cost + expected loss + capital charge + target margin.

Covenants are affirmative (maintain insurance, submit statements) or negative (no additional debt, no asset sales); breach typically triggers default or waiver.

Working capital cycle = inventory days + receivable days - payable days; a lengthening cycle raises liquidity risk for the borrower.

Credit concentration limits cap single-borrower and single-group exposure as a percentage of eligible capital to control large-exposure risk.

Development finance targets additionality: the intervention should produce outcomes that would not occur on purely commercial terms (market failure rationale).

Blended finance stacks concessional capital (grants, guarantees, subordinated debt) to de-risk and mobilize private commercial capital.

Impact measurement follows the theory of change: inputs to activities to outputs to outcomes to impact; indicators must be measurable and attributable.

Concessionality = the grant element of a loan, computed as the difference between the loan's nominal value and the present value of its future debt service.

MSME finance gap: the unmet credit demand of micro, small and medium enterprises; women-owned and informal firms face the widest gaps.

Financial inclusion is measured by account ownership, usage, and access; transaction accounts and digital payments are core indicators.

Guarantee funds shift part of default risk from lenders to the guarantor, enabling lending to segments with thin or no collateral.

Development finance institutions apply the same prudential credit discipline as commercial banks plus a development mandate test for each transaction.

Banker-customer relationship is primarily contractual (debtor-creditor for deposits) plus agency duties when the bank collects or pays on instructions.

Duty of confidentiality (Tournier principles): a bank may disclose customer information only where compelled by law, where public duty requires, where the bank's interest requires, or with customer consent.

Mandate: a bank must honour a customer's valid payment instruction; a forged or unauthorized signature generally does not bind the customer.

Set-off requires mutual debts, maturity, and the same parties; banks contract for a broader right of combination across accounts.

Security interests: a fixed charge attaches to specific assets; a floating charge hovers over changing assets and crystallizes on default or winding-up.

Guarantee vs indemnity: a guarantee is a secondary obligation to pay another's debt; an indemnity is a primary obligation to compensate loss.

Statute of limitations bars recovery of a debt after a defined period unless the debtor acknowledges the debt or makes a part payment.

Agency law: an agent acting within actual or apparent authority binds the principal; the bank must verify authority for account operators.

Basel III capital: CET1 minimum 4.5% of risk-weighted assets, Tier 1 minimum 6%, total capital minimum 8%, plus capital conservation buffer of 2.5% CET1.

Liquidity standards: LCR = high-quality liquid assets / net cash outflows over 30 days (minimum 100%); NSFR = available stable funding / required stable funding (minimum 100%).

Leverage ratio = Tier 1 capital / total exposure measure; the Basel III minimum is 3%.

AML obligations: customer due diligence, ongoing monitoring, suspicious transaction reporting to the FIU, record keeping, and a risk-based approach.

Sanctions screening matches names against designated lists; a hit must be investigated and, where confirmed, blocked and reported.

Three lines model: business units own risk (first line), risk and compliance functions oversee (second line), internal audit provides independent assurance (third line).

Compliance risk is the risk of legal or regulatory sanctions, material financial loss, or reputational damage from failure to comply with laws, rules, and standards.

Regulatory reporting must be accurate, complete, and timely; misreporting is itself a breach even where the underlying prudential position is sound.