Analysis Of Habib Metropolitan Bank Ltd Pakistan

Analysis of Financial Statements

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GRADUATE SCHOOL OF MANAGEMENT INTERNATIONAL ISLAMIC UNIVERSITY ISLAMABAD

Muhammad Farooq (3440) Muhammad Khalil Hussain (3443) Muhammad Ahsan (3427)

+92 333 9835303 +92 333 6836340 +92 333 5023773 [email protected] [email protected]

HABIB METROPOLITAN BANK

Mr. Wasim Ullah Director IMDC MBA (LUMS) DAIBP 0321-5824994 [email protected]

HABIB METROPOLITAN BANK

BANKING INDUSTRY OF PAKISTAN

Governor State Bank of Pakistan Syed Salim Raza has said that Pakistan's banking industry had tremendous potential for further investment in the financial sector of the country. Pakistan has a well-developed banking system, which consists of a wide variety of institutions ranging from a central bank to commercial banks and to specialized agencies to cater for special requirements of specific sectors. Major factors like global financial disorder, economic slowdown and strict monetary policy were on the top but Pakistani bank cater all these problems.

 Entity

is a result of a merger b/w Habib Bank AG Zurich & Metropolitan Bank Ltd. on 26Oct-2006  Headquarter in Switzerland, the HBZ Group also operates in Hong Kong, Singapore, United Arab Emirates, Kenya, South Africa, United Kingdom and North America.  Over 100 branches throughout Pakistan.  HBZ (incorporated 1967) enjoys International ranking of 687 in terms of capital. HABIB METROPOLITAN BANK

 HMB

is the first bank in Pakistan to join the Global Trade Finance Program (GTFP) of International Finance Corporation (IFC). By virtue of joining the GTFP, HMB bank is now listed in a panel of prominent banks in 70 countries  Credit rating in long-term “AA+” and in short term “A1+”  Portfolio diversification (54% advances to Textile industry)  Rank within top 10 banks of Pakistan. HABIB METROPOLITAN BANK

 Loans

are given only to known, reputable clients to avoid chances of fraud.  Very low nonperforming loan.  Majority of shares are owned by the Habib group.  HMB offers full range of Trade Finance products and services to its customers. Due to its wide network of correspondent banking arrangements with most reputed international banks  Continuous growth in ROE (0.22 in 2008) HABIB METROPOLITAN BANK

FUTURE OUTLOOK OF HMBL: Up-till now HMBL has not been able to come up with different products in retail banking, branch banking, insurance, and mortgage. With the presence of large foreign banks like Citibank, RBS and Standard Chartered one finds it convenient to believe that HMBL faces tough competition in consumer banking from these worldwide giants. HMBL's net interest margin is one of the highest in the industry. Interest income is the major source of income for HMBL.

HABIB METROPOLITAN BANK

MICHEL PORTERS FIVE FORCES ANALYSIS

1. Threat of Entry:

(Medium)

No restriction from SBP for new banks. SBP gives free hand to enter in this industry because there is a big scope in this industry. To start a new bank there is a need of large financial resources in order to compete with existing banks and Government current interest policy is also a problem for new entrant. Existing banks have great customer loyalties and they differentiate their services. New entrant’s need network of branches and to get favorable location for branches is also difficult. Existing banks has also advantage of expertise and diversity of their branches.

HABIB METROPOLITAN BANK

MICHEL PORTERS FIVE FORCES ANALYSIS 2. Intensity of Rivalry among Existing Competitors: Degree of difference between products is very low. Competition in existing firms has very high due to numerous and equally balanced competitors. Due to entrance of new foreign banks, competition increased. There are high exit barriers due to high fixed cost, Govt. and social restriction. Banking industry growth is medium to high due to competition increases day by day. Some banks have new technology which gave advantage to them.

HABIB METROPOLITAN BANK

MICHEL PORTERS FIVE FORCES ANALYSIS 3. Threat of Substitute Products: Islamic mode of financing is a substitute for conventional banking system. Habib Metropolitan bank also start Islamic banking in Karachi and Lahore.

4. Bargaining Power of Buyers: Giant client bargain highly. Products or services have no high difference. Buyer has full information about whole banking industry in Pakistan then he/she may give tuff time for bargaining. Switching cost is not high from one bank to another; prospective banks charge low fees for switching. Banking products/services may unimportant to the quality of the buyers.

HABIB METROPOLITAN BANK

MICHEL PORTERS FIVE FORCES ANALYSIS

5. Bargaining Power of Supplier: The State Bank of Pakistan control the whole banking industry and National Bank of Pakistan control the securities etc. They have power given by the Govt. of Pakistan. They control the cash requirements of the banks and all other banks follow the instructions given by the SBP.

HABIB METROPOLITAN BANK

Segment Textile

2008 54.03%

Exports/Imports

7.21%

Chemical and pharmaceuticals

3.65%

Wholesale and retail trade

2.98%

Electronics and electrical

2.29%

Others

HABIB METROPOLITAN BANK

29.84%

HABIB METROPOLITAN BANK

Liquidity Ratios: Mar-09

2008

2007

2006

Advances to Deposit ratio

0.857

0.845

0.742

0.813

Earning Assets to Assets

0.906

0.888

0.900

0.863

Yield on earning Assets

0.027

0.098

0.077

0.057

HABIB METROPOLITAN BANK

Return on Equity: Net income after taxes

Mar-09 1,896,974

Total equity capital

16,904,052 15,096,526 13,519,908 10,869,426

ROE

0.11

2008 3,279,736

0.22

HABIB METROPOLITAN BANK

2007 2,797,408

0.21

2006 2,097,203

0.19

Breakdown Analysis of ROE Mar-09

2008

2007

2006

Net profit margin

0.34

0.16

0.18

0.23

Assets utilization

0.03

0.11

0.09

0.06

Equity multiplier

11

12

13

14

0.112

0.217

0.207

0.193

ROE

HABIB METROPOLITAN BANK

Solvency Ratios: Mar-09

2008

2007

2006

Equity to assets

0.089

0.083

0.078

0.073

Equity to deposits

0.142

0.118

0.112

0.106

Earning assets to deposits

1.437

1.262

1.285

1.252

Cash assets and Government securities to total assets

0.052

0.063

0.059

0.076

HABIB METROPOLITAN BANK

Solvency Ratios:

•Earning Assets to deposits

HABIB METROPOLITAN BANK

Debt Management : Debt to assets

Mar-09 0.911

2008 0.917

2007 0.922

2006 0.927

Debt to equity

10.18

11.06

11.79

12.68

0.62%

2.50%

1.88%

Capital Adequacy Ratio

-

HABIB METROPOLITAN BANK

Debt Management :

HABIB METROPOLITAN BANK

Profitability Ratios: Mar-09 Net interest Margin 0.93% Non interest Margin -0.01% Assets Utilization 3% Equity Multiplier 11.18 Net Operating Margin 0.75% Tax Management Efficiency 134.57% Expense Control efficiency 34.33% Asset Management efficiency 2.92% Funds Management efficiency 11.18

2008 2.73% 0.56% 11% 12.06 2.60% 69.14% 16.28% 11.06% 12.06

HABIB METROPOLITAN BANK

2007 2.15% 0.53% 9% 12.79 2.43% 66.54% 18.45% 8.77% 12.79

2006 1.93% 0.26% 6% 13.68 2.12% 66.70% 23.25% 6.07% 13.68

Profitability Ratios:

HABIB METROPOLITAN BANK

Earning Ratios: Mar-09

2008

2007

2006

Return on deposits

0.008

0.026

0.023

0.020

Return on assets

0.005

0.018

0.016

0.014

Earning spread

0.010

0.029

0.022

0.023

HABIB METROPOLITAN BANK

Peer Group Analysis Habib Metropolitan Bank Return on equity (ROE) Return on assets (ROA) Net interest margin Net non-interest margin Net operating margin Earnings Per Share Earning spread

Peer Group

2006

2007

2008

2006

2007

2008

19%

21%

22%

27%

26.18%

20.26%

1.40% 1.93%

1.60% 2.15%

1.80% 2.73%

1.53% 3.29%

1.56% 2.97%

1.33% 3.72%

0.26% 2.12% 4.92 2.90%

0.53% 2.43% 5.57 2.20%

0.56% 2.60% 5.45 2.31%

-0.93% 2.34% 6.59 3.38%

-0.76% 2.16% 4.59 3.07%

-1.10 1.99% 4.95 3.96%

HABIB METROPOLITAN BANK

RISK MANAGEMENT Non-performing assets to total loans and lease Non-performing assets to equity Loss to total loans Provision to total loans Capital adequacy Total loans to total deposits

HABIB METROPOLITAN BANK

2008 0.53% 4.08% 0.001% 0.37% 11.88% 81.30%

2007 2006 0.90% 1.00% 5.95% 7.18% 0.04% 0.09% 0.78% 1.00% 12.50% 10.62% 74.20% 84.49%

RISK MANAGEMENT Credit risk: The HMB strategy is to minimize credit risk through a strong pre-disbursement credit analysis, approval and risk measurement process added with product, geography and customer diversification. The Bank, as its strategic preference, provides loans only to strong parties. Major portion of the Bank credit portfolio is Textile industry (54%) which is highly profitable business in Pakistan but it may riskier and not a good diversification of portfolio, if textile industry slump then it will crash the whole bank. The bank has very low rate of Non-performing loans. The ratios of risks are as under and we can see that they reduce the risk as per their objective.

HABIB METROPOLITAN BANK

Market Risk: Market risk is the possibility that fluctuation in interest rates, foreign exchange or stock prices will change the market value of financial products leading to a loss. The HMB has formalized liquidity and market risk management policies which contain action plans to strengthen the market risk management system.

Foreign Exchange Risk: Foreign Exchange Risk is the probability of loss resulting from adverse movement is exchange rates. The HMB is not in the business of actively trading and market making activities but a conservative risk approach and the Bank’s business strategy to work with export oriented (Textile) client’s gives the ability to meet its foreign exchange needs.

HABIB METROPOLITAN BANK

Interest rate risk: Interest rate risk is the risk that the value of the financial instrument will fluctuate due to changes in the market interest rates. The HMB’s interest rate exposure is low due to the short-term nature of the majority of business transactions. Interest rate risk is also controlled through flexible credit pricing mechanism and variable deposit rates.

Liquidity risk: HMB manages the liquidity position on a continuous basis. The Bank’s liquidity position is based on “self reliance” with a wide branch network to expand the Bank deposit base. The Bank’s liquidity profile generally consists of short-term, secured assets, in line with the Bank’s credit strategy.

HABIB METROPOLITAN BANK

RECOMMENDATIONS       

Diversify the portfolio Introduction of new products/services in the market Hire new management Give importance to all customers Increase the branches all over the country Improve standard of banking Start advertisement as soon as possible

HABIB METROPOLITAN BANK