Financial Analysis Of Askari Commercial Bank Ltd

Financial analysis of Askari Bank Balance sheet & income statement (2006-2008)

Ratios analysis. Prepared by

Hira Manzoor MBA 4TH

Balance Sheet of Askari Commercial Bank Ltd. Assets Cash & Balances with treasury Banks Balance with other Banks Lending to Other Financial Institutions Investments Advances Operating Fix Assets Deferred Tax Assets Other Assets Total Assets Liabilities Bills Payable Borrowings Deposits & other accounts Sub-ordinate Loans

2006 14,879,231 7,336,838 8,392,950 28,571,969 99,179,439 3,828,818

2007 13,356,055 3,497,054 14,444,143 39,431,005 100,780,162 5,128,428

2008 16,029,635 3,954,814 4,479,754 35,677,755 128,818,242 8,266,458

3,824,105 166,013,350

5,535,038 182,171,885

8,964,480 206,191,138

1,839,077 14,964,087 131,837,230 2,998,500

2,627,051 17,553,525 143,036,707 2,997,300

2,584,828 15,190,148 167,676,572 2,996,100

Liabilities against assets subject to finance lease Deferred tax liabilities Other liabilities Total Liabilities Capital Share capital Reserves Inappropriate profit

4,440 726,497 2,608,360 154,978,191

471,519 3,219,796 169,905,898

12,987 4,759,140 193,219,775

2,004,333 5,814,754 1,781,908

3,006,499 6,948,336 2,144,810

4,058,774 7,667,141 308,980

Surplus on revaluation of assets- net of tax Total capital Total liabilities & Capital

1,434,164 11,035,159 166,013,350

166,342 12,265,987 182,171,885

936,468 12,971,363 206,191,138

Profit &Loss Account of Askari Bank Ltd. Mark- up/ return/ interest earned Mark- up/ return/ interest expensed Net mark-up / interest income Provision against non -performing loan Provision for impairment in the value of investment

2006 12,602,9 10 6,976,70 4 5,626,20 6 1,128,13 7 37 6

2007 15,143,2 41 8,685,62 4 6,457,61 7 3,920,24 0 1,50 1

1,128,51 3 4,497,69 3

3,921,74 1 2,535,87 6

2008 18,393,3 13 10,650,7 19 7,742,59 4 3,824,77 8 50 8 247,31 1 4,072,59 7 3,669,99 7

1,027,49 1 109,32 6 584,34 4 113,04 2 (1,25 0) 321,70 0 2,154,65 3

1,072,86 8 137,07 9 655,76 1 2,361,25 1 1,72 8 336,80 9 4,565,49 6

1,257,58 4 173,62 1 873,51 2 36,74 3 22,38 4 343,15 6 2,707,00 0

3,319,06 9

4,789,53 6

6,14 1 3,325,21 0

12,05 1 4,801,58 7

5,904,16 9 45 9 10,98 7 5,915,61 5

Bad debts written off directly Total provision expenses Net mark-up / interest income after provisions Non mark-up / interest income Fee, Commission and brokerage income Dividend income income from dealing in foreign currencies Gain on sale of securities -net Unrealized gain on revaluation of investment classified as held for trade-net Other income Total non-markup/ interest income Non mark-up/ interest expenses Administrative expenses Other provision / Write off Other charges Total non mark-up expenses

(1,170,55 7) 3,327,13 6 983,94 4

Net non interest income Profit before taxation Taxation current year Prior year

(236,09 1) 2,299,78 5 98,53 5 (233,95 0) (245,81 2) (381,22 7) 2,681,01 2 1,799,97 9 4,480,99 1 19,708,7 37

106,03 4 1,089,97 8 2,237,15 8 1,612,34 4 3,849,50 0 14,757,5 63

Deferred

Profit after taxation Inappropriate profit brought forward Profit available for appropriation Total operating Revenues

(3,208,61 5) 461,38 2 17,36 3 (50,00 0) 107,79 4 75,15 7 386,22 5 2,144,81 0 2,531,03 5 21,100,3 13

VERTICASL ANALYSIS ASKARI BANK BALANCE SHEET

14,879,231

9

13,356,055

7.3

16,029,635

Balance with other Banks

7,336,838

4.4

3,497,054

1.9

3,954,814

Lending to Other Financial Institutions

8,392,950

5.1

14,444,143

7.9

4,479,754

Investments

28,571,969

17.2

21.6

Advances

99,179,439

59.7

39,431,005 100,780,16 2

55.3

35,677,755 128,818,24 2

% 7 7.7 1 .91 2 .17 1 7.3 6 2.4

3,828,818

2.3

5,128,428

2

8,266,458

4.1

3

100

5,535,038 182,171,88 5

8,964,480 206,191,13 8

100

2,584,828

1 9.9

15,190,148

117

Assets Cash & Balances with treasury Banks

Operating Fix Assets

2006

%

2007

%

2008

Deferred Tax Assets Other Assets Total Assets

3,824,105 166,013,35 0

100

4 .34

Liabilities Bills Payable Borrowings

1,839,077 14,964,087

16.6 135. 4

2,627,051 17,553,525

21.4 143. 1

Deposits & other accounts Sub-ordinate Loans

131,837,23 0

1192 .8

143,036,70 7

1166 .1

167,676,57 2

2,998,500

27.1

2,997,300

24.4

2,996,100

4,440

Liabilities against assets subject to finance lease Deferred tax liabilities

726,497

6.7

154,978,19 1

23.6 1402 .1

Share capital

2,004,333

Reserves Inappropriate profit

Other liabilities Total Liabilities

471,519

0 3.8

1 292 0

12,987

0.1

169,905,89 8

26.2 1385 .2

193,219,77 5

18.1

3,006,499

24.5

4,058,774

5,814,754

52.6

6,948,336

56.6

7,667,141

1,781,908

16.3

2,144,810

17.5

308,980

3 1.2 5 9.1 2 .38

1,434,164

13

166,342

1.4

936,468

7 .21

100

12,265,987 182,171,88 5

100

12,971,363 206,191,13 8

2,608,360

3,219,796

4,759,140

3 6.6

Capital

Surplus on revaluation of assets- net of tax Total capital Total liabilities & Capital

11,035,159

166,013, 350

100

HORIZONTOL ANALYSIS OF ASKARI BANK(PROFIT & LOSS A/C) 2 2 006 007 2008 % % % Mark- up/ return/ interest earned

100

120

145

Mark- up/ return/ interest expensed

100

124

152

Net mark-up / interest income

100

114

138

Provision against non -performing loan

100

29

29

Provision for impairment in the value of investment

100

25

74

Total provision expenses

100

347

360

Net mark-up / interest income after provisions

100

57

82

Fee, Commission and brokerage income

100

104

122

Dividend income

100

125

158

income from dealing in foreign currencies

100

112

149

Gain on sale of securities -net

100

2,088

33

Unrealized gain on revaluation of investment classified as held for trade-net

100

-138

-1,790

Other income

100

104

106

Bad debts written off directly

Non mark-up / interest income

Total non-markup/ interest income Non mark-up/ interest expenses

100

144

177

Other charges

100

196

178

Total non mark-up expenses

100

144

177

Net non interest income

100

20

274

Profit before taxation

100

69

13

Taxation current year

100

10

2

Deferred

100

-231

101

Profit after taxation

100

119

17

Inappropriate profit brought forward

100

111

133

Profit available for appropriation

100

116

65

Total operating Revenues

100

133

142

Administrative expenses Other provision / Write off

Prior year

Financial Ratios Analysis Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a company's financial statements. The level and historical trends of these ratios can be used to make inferences about a company's financial condition, its operations and attractiveness as an investment. Ratio Analysis enables the business owner/manager to spot trends in a business and to compare its performance and condition with the average performance of similar businesses in the same industry. To do this compare your ratios with the average of businesses similar to yours and compare your own ratios for several successive years, watching especially for any unfavorable

trends that may be starting.

PROFITABILITY RATIOS RETURN ON CAPITAL FUND Formula

=

Net mark up Received Capital Funds

2006

2007

2008

58.60023883%

53.37030136%

64.33453719%

return on capital fund 80 %

60

return on capital fund

40 20 0 2006

2007

2008

years

INTERPRETATION This ratio relates the net profits to the amount of capital funds that have been employed in making that profit. The above given ratios suggest that the profitability of the bank has increased very in the year 2008 indicating more profitable operations of the bank. While discussing the trend analysis, we mentioned that the mark up charges have increased in some proportion but the mark up earned by the bank resulting increase in the profit available on the capital funds employed. This ratio showing a very good financial position of the bank.

RETURN ON INVESTMENT Formula

= 2006

1.347577168%

Net income after taxes Total Assets 2007

2008

1.471693615% 0.187314064%

return on investment 2 %

1.5

return on investment

1 0.5 0 2006

2007

2008

year

INTERPRETATION This ratio indicates the profit earned by the bank on the resources employed. As far as ASKARI is concerned, we observe decrease in the utilization of the resources. It has decreased to 1.47 % in the year 2007 from 0.18 % in the year 2008, the reason behind the decrease in profit may be due to the efforts of the management

RETURN ON RISK ASSETS Formula

=

Net income after taxes Total risk assets

2006

2007

2008

2.255667125%

2.66025768%

0.299821667%

return on risk assets 3 2 %

return on risk assets

1 0 2006

2007

2008

years

INTERPRETATION This ratio, with some fluctuation in 2007 in the year 2008. It is indicating active utilization in the form of advances. The bank is finding it difficult to keep the level of its expenses less in proportion to the advances it has disbursed. Lending, no doubt is the core function of a banking concern. But the bank should find out effective ways of credit provisions affecting less on profitability of the operations. Non-mark up revenues should also be increased in the face of lower credit disbursements resulting in more.

RETURN ON DEPOSITS Formula

=

Net income before taxes Total Deposits

2006

2007

2008

2.523669528%

1.607828542%

0.275161875%

%

return on deposits 3 2.5 2 1.5 1 0.5 0

return on deposits

2006

2007

2008

years

INTERPRETATION Interpret This ratio indicates to what extent deposits which represent funds mobilization on the part of the bank contribute towards income generation. Although the other ratios regarding the profitability are showing satisfactory position of the bank but still bank need to increase its utilization of resources in order to increase its profitability because the banks have to pay heavy taxes on their profit. It is showing decreasing trend in 2008 with high difference from last year.

RETURN ON ASSETS. Formula

=

Net Profit After Tax / Total Assets

2006

2007

2008

1.347577168%

1.471693615%

0.187314064%

return on assets 2 %

1.5 1

return on assets

0.5 0 2006

2007

2008

years

INTERPRETATION Shows that how the bank is utilizing there assets but the assets utilization of the askari bank is not good and return is decreasing time to time. The reason for deceasing return on asset is because the branches are increasing and assets and expenses are also increasing in 2006 only 115 branches, in 2007, 150 braches and now 200 branches are.

LIQUIDITY RATIOS ADVANCES TO DEPOSITS RATIO Formula

=

Advances Total Deposits

2006

2007

2008

75.22870361%

70.45755185%

76.82542675%

%

advances on deposits 78 76 74 72 70 68 66

advances on deposits

2006

2007

2008

years

INTERPRETATION It demonstrate the degree to which bank has already used up its available resources to accommodate the credit needs of its customers. This ratio, a comparison of funds generation and its funds mobilization, indicates the total loans sanctioned by the bank in relation to total amount of money deposited with the bank stands at 76% compared with the last year figure of 70%. This shows that the bank has greater potential to advance additional loans. Total loan able funds roughly measured by the deposits are sufficient to enable the bank to make additional loans without recourse to more or less continuous borrowing. At present, the bank has got a relatively small amount of advances as compared with its deposits raised. One reason for fewer advances is the cautious and selective approach on the part of the management while deciding upon credit proposals

DUE FROM BANKS TO TOTAL ASSETS Formula

=

Due from banks Total Assets

2006

2007

5.055587397%

7.928854115%

`2008 2.172621987%

%

DUE FROM BANK TO TOTAL ASSETS 10 8 6 4 2 0

DUE FROM BANK TO TOTAL ASSETS

2006

2007

2008

years

INTERPRETATION It is an indication of AB’s funds management policies. The funds allocation to the financial institutions has increased to a great extent despite the fact that still it holds a small proportion relevant to the total resources raised by the bank. It is a positive indicator in the sense that the financing to the banks are the most secure ways of lending. Considering the economic conditions of the country, it seems to be the best alternative available to the bank. In the current year this ratio has been reduced to the little extent. Although it is declining but the situation might not be alarming.

DUE FROM BANKS TO DUE TO BANKS Formula

=

Due from banks Due to Banks

2006

2007

2008

56.08728418%

82.28628153%

29.49118073%

%

DUE FROM BANKD DUE TO BANKS 100 80 60 40 20 0

DUE FROM BANKD DUE TO BANKS

2006

2007

2008

years

INTERPRETATION It shows the relationship between what the bank owes from other banks and what is due to it. An unfavorable condition has been observed in this ratio in the current year showing the fact that the bank has to seek fewer funds from the financial institutions owing to the strong liquid financial position. This ratio is going on increasing in last year but decreasing in current year, which involves a slight risk. In the phase of economic instability, the bank’s management should be efficient to access the risk involved in lending and they should control this ratio

DUE TO BANKS TO TOTAL DEPOSITS Formula

=

Due to banks Total deposits

2006

2007

2008

11.35042582%

12.27204217%

9.059195223%

DUE TO BANK TO DEPOSITS 15 10 %

DUE TO BANK TO DEPOSITS

5 0 2006

2007

2008

years

INTERPRETATION This ratio is an indicative of the proportion of the lending from the financial institutions in relation to the total funds raised by the bank in the form of deposits. This ratio for ACBL is 9.05% in the year 2008. There has been a significant decline in this ratio as previously the bank depended slightly more on the borrowings from financial institutions. It shows that the bank is concentrating on raising funds from depositors and trying to relies less on the borrowed funds. •

It is a favorable indication in the sense that the bank has large potential to ask for borrowed funds in the phase of tight liquidity position.

•

Further more, it shows the efficiency of the marketing department to have created so much of deposits that the bank does not need to look at the financial institutions for help in improving its liquid position.

Earnings Spread:-

Earning Spred 0.080 0.060 0.040

Earning Spred

0.020 0.000 2006

2007

2008

Peer Group

INTERPRETATION

The ratio of earnings spread tells us about the difference between the interest income and the interest expense that the bank has incurred. Thus it shows the better offering of bank in the market. Our analysis shows there is a increase in the earnings spread of the bank. In year 2008 earnings spread is 5% that is 4.30% in the previous year. In peer group the earning spread is 6.84% in the same year. Thus it shows that ACBL has about less as compared to peer group.

COVERAGE RATIO INTEREST COVERAGE RATIO Formula

=

Earning before int. & Tax Interest Exp.

2006 64.79750151%

2007 95.08306316%

2008 45.7602464%

%

INTEREST COVERAGE 100 80 60 40 20 0

INTEREST COVERAGE

2006

2007

2008

years

INTERPRETATION It shows whether the bank is earning enough profit before mark up charges to be paid to the financiers and the taxation obligations due to the government in order to remain solvent. The above figure shows the acceptable capacity on the part of the bank to cover its interest payments. It has increased in 2007 as compared with the last year. This increase in the ratio is a sign of improvement for the bank. But this is a short-term perspective of the bank’s financial position. in 2008 it shows the decreasing trend.

CAPITAL ADEQUACY RATIOS CAPITAL FUNDS TO TOTAL ASSETS RATIO Formula

=

Capital Funds Total Assets

2006

2007

2008

5.783266828%

6.641883845%

5.83676637%

CAPITAL FUNDS TO TOTAL ASSETS 7

%

6.5

CAPITAL FUNDS TO TOTAL ASSETS

6 5.5 5 2006

2007

2008

years

INTERPRETATION

This ratio indicates the extent of the funds employed by the bank in the total resources as shown in the balance sheet. This ratio has been decreased in the current year with a very low margin.

Capital Fund to Risk Assets Ratio Formula

=

Capital Fund Risk Asset

2006

2007

2008

10%

12%

9%

CAPITAL FUNDS 15 10 %

CAPITAL FUNDS 5 0 2006

2007

2008

years

INTERPRETATION This ratio take into account the difference between cash and marketable securities & other kind of assets. Cash & marketable securities, which are risk less items, are excluded to find out the true picture of the capital adequacy. In case of Askari the ratio is decreasing.

INVESTMENTS. INVESTMENTS 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 0

INVESTMENTS

2006

2007 YEARS

2008

INTERPRETATION The Askari Commercial Bank is showing a mix trend of increase and decrease in the investments of the bank, it goes on increasing from year 2007 to 2002 and its ratio is highest in 2007. From 2008 it starts declining.

Investment Portfolio

Federal Governm ent Securities Fully paid up ordinary s hares Fully paid preference s hares Lis ted com panies Term Finance Certificates Foreign Securities Other Inves tm ents

Credit Risk Ratio of non-performing assets to loans and leases:Ratio of non-performing assets to loans tells us about the assets that are exposed to credit risk and their full recovery is doubtful. Higher the ratio of non-performing assets to loans higher the credit risks. In our analysis ratio is high shows of high credit risking 2006 it is 2% now increases to 5%. Ratio of non-performing assets to equity capital:If there is more credit risk so, there is also present more risk of failure of bank and in turn more risk to the shareholder’s equity. Ratio of non-performing assets to equity capital tells us about this relationship. The risk involved in this ratio increased up to 85% in year 2008 from the previous year. The ratio of previous year is 60%, which shows that high risk involved now. But on the other hand the

ratio in peer group on this point is 46.32% in the same year which shows that the other banks have high rate of risk than ACBL. Annual provision for loans losses to equity capital:Ratio of annual provision for loan losses to Equity capital tells us about the credit risk level of any financial institution. Our ratio analysis of ACBL is 31.34% in year 2008 while in 2008 peer group average on this ratio is 2.70%. It shows that ACBL is maintaining less provision for loans. On the other hand the increase in provision for ACBL and Peer Group banks are maintaining due to current financial crisis.

1.00

Non-Performing Assets to total loans

0.80 0.60

Annual provision for loans losses to eqiuty capital

0.40 0.20 2006

2007

2008

Peer Deposits Group

Non Performing assets to equity capital

DEPOSITS(million) 200,000,000 150,000,000 DEPOSITS(million)

100,000,000 50,000,000 0 2006

2007 years

INTERPRETATION

2008

Askari Commercial Bank is known to be the leading bank in the private sector. Customers’ shows a lot of loyalty to the bank, therefore, the deposits of the bank go on increasing every year and its ratio has not been fall since the last Three years.

Loans and advances. (Rs in million) ADVANCES 150,000,000 100,000,000 ADVANCES

50,000,000 0 2006

2007 YEARS

2008

INTERPRETATION The Askari Commercial Bank has adequate amount of money as result of deposits it keeps with itself of their valuable customers. It keep a certain percentage of money in order to meet the day to day transactions of the bank and lend reaming amount as advances and loans which is very important source of business for the bank. The graph shows that the capacity of the bank to lend the advances and loans is going on increasing since the last 3 years and is highest in the year 2008.