IBSL Diploma in Applied Banking and Finance (DABF) Exam flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Nostro account

A bank's account held with a correspondent bank in another country and usually in that foreign currency, used to settle international payments and hold foreign balances.

Real-time gross settlement

A payment system that settles each transfer individually and irrevocably in central bank money as it is processed, without netting across participants.

Deferred net settlement

A clearing arrangement that offsets and nets participants' obligations over a period and settles only the net positions at designated times, creating intraday exposure.

Double-entry bookkeeping

Every transaction records equal debits and credits; debits increase assets and expenses, while credits increase liabilities, equity, and income.

Account payee crossing

A cheque marking restricting payment to collection for the named payee's bank account, preventing transfer or endorsement to another party.

Bank reconciliation

The process of matching the bank's ledger balance to the statement balance by adjusting for deposits in transit and outstanding cheques or payments.

Value date

The date on which funds become available to the holder or start accruing interest, which may differ from the date the transaction is booked.

Debt service coverage ratio

Net operating income divided by total debt service; a ratio below 1.0 indicates cash flow is insufficient to meet scheduled principal and interest.

Loan-to-value ratio

The loan amount divided by the appraised collateral value; higher ratios increase loss given default because collateral covers a smaller share of exposure.

Expected loss formula

Expected loss equals probability of default multiplied by loss given default multiplied by exposure at default, and is priced into the loan spread.

Five Cs of credit

Character, Capacity, Capital, Collateral, and Conditions; capacity, meaning repayment cash flow, is the primary source of loan repayment.

Negative covenant

A loan condition prohibiting specified borrower actions, such as taking additional debt or selling assets, without lender consent; breach triggers default or waiver.

Working capital cycle

Inventory days plus receivable days minus payable days; a lengthening cycle indicates growing liquidity risk for the borrower.

Large exposure limit

A regulatory cap on credit exposure to a single borrower or connected group, expressed as a percentage of eligible capital, limiting concentration risk.

Credit concentration risk

The risk of loss arising from excessive exposure to a single borrower, sector, or product, mitigated by diversification and exposure limits.

Additionality

The principle that a development finance intervention must produce outcomes beyond what commercial markets would deliver, justified by an identified market failure.

Blended finance

The structured use of concessional capital such as grants, guarantees, or subordinated debt to de-risk projects and mobilize private commercial investment.

Theory of change

A causal framework linking inputs and activities to outputs, outcomes, and impact, used to define measurable and attributable development indicators.

Grant element

The concessionality measure of a loan, equal to the difference between its nominal value and the present value of future debt service.

MSME finance gap

The unmet credit demand of micro, small, and medium enterprises, widest among women-owned and informal firms lacking collateral or records.

Credit guarantee fund

An entity that absorbs an agreed share of lender losses on default, enabling lending to borrowers with thin collateral or limited credit history.

Financial inclusion

The extent to which individuals and firms have access to and use affordable, appropriate financial services such as accounts, credit, and payments.

Banker-customer relationship

Primarily a contractual debtor-creditor relationship for deposits, combined with agency duties when the bank pays or collects on customer instructions.

Tournier principles

Four recognized exceptions permitting bank disclosure of customer information: compulsion by law, public duty, the bank's own interest, and customer consent.

Fixed charge

A security interest attaching to specific, identified assets, giving the holder priority over those assets ahead of floating charge holders.

Floating charge

A security interest over a changing pool of assets that the borrower may deal with until the charge crystallizes on default or winding-up.

Guarantee versus indemnity

A guarantee is a secondary obligation to pay another's debt if they default; an indemnity is a primary obligation to compensate loss directly.

Bank mandate

The authority given by a customer specifying who may operate an account and how; the bank must act within actual and apparent authority.

Right of set-off

A bank's ability to combine accounts and apply credit balances against matured debts owed by the same customer, often widened by contract.

CET1 capital ratio

Common Equity Tier 1 capital divided by risk-weighted assets; the Basel III minimum is 4.5%, plus a 2.5% capital conservation buffer.

Liquidity coverage ratio

High-quality liquid assets divided by net cash outflows over a 30-day stress period; the minimum requirement is 100%.

Leverage ratio

Tier 1 capital divided by the total exposure measure, a non-risk-weighted backstop with a Basel III minimum of 3%.