financial analysis of Askari Commercial Bank Ltd
29
Financial analysis of Askari Bank Balance sheet & income statement (2006-2008) Ratios analysis. Prepared by Hira Manzoor MBA 4 TH
Transcript of 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 2006 2007 2008
Cash & Balances with treasury Banks 14,879,231 13,356,055 16,029,635
Balance with other Banks 7,336,838 3,497,054 3,954,814
Lending to Other Financial Institutions 8,392,950 14,444,143 4,479,754
Investments 28,571,969 39,431,005 35,677,755
Advances 99,179,439 100,780,162 128,818,242
Operating Fix Assets 3,828,818 5,128,428 8,266,458
Deferred Tax Assets
Other Assets 3,824,105 5,535,038 8,964,480
Total Assets 166,013,350 182,171,885 206,191,138
Liabilities
Bills Payable 1,839,077 2,627,051 2,584,828
Borrowings 14,964,087 17,553,525 15,190,148
Deposits & other accounts 131,837,230 143,036,707 167,676,572
Sub-ordinate Loans 2,998,500 2,997,300 2,996,100
Liabilities against assets subject to finance lease 4,440
Deferred tax liabilities 726,497 471,519 12,987
Other liabilities 2,608,360 3,219,796 4,759,140
Total Liabilities 154,978,191 169,905,898 193,219,775
Capital
Share capital 2,004,333 3,006,499 4,058,774
Reserves 5,814,754 6,948,336 7,667,141
Inappropriate profit 1,781,908 2,144,810 308,980
Surplus on revaluation of assets- net of tax 1,434,164 166,342 936,468
Total capital 11,035,159 12,265,987 12,971,363
Total liabilities & Capital 166,013,350 182,171,885 206,191,138
Profit &Loss Account of Askari Bank Ltd.
2006 2007 2008
Mark- up/ return/ interest earned 12,602,9
10 15,143,2
41 18,393,3
13
Mark- up/ return/ interest expensed 6,976,70
4 8,685,62
4 10,650,7
19
Net mark-up / interest income 5,626,20
6 6,457,61
7 7,742,59
4
Provision against non -performing loan 1,128,13
7 3,920,24
0 3,824,77
8
Provision for impairment in the value of investment 37
6 1,50
1 50
8
Bad debts written off directly 247,31
1
Total provision expenses 1,128,51
3 3,921,74
1 4,072,59
7
Net mark-up / interest income after provisions 4,497,69
3 2,535,87
6 3,669,99
7
Non mark-up / interest income
Fee, Commission and brokerage income 1,027,49
1 1,072,86
8 1,257,58
4
Dividend income 109,32
6 137,07
9 173,62
1
income from dealing in foreign currencies 584,34
4 655,76
1 873,51
2
Gain on sale of securities -net 113,04
2 2,361,25
1 36,74
3
Unrealized gain on revaluation of investment classified as held for trade-net (1,25
0) 1,72
8 22,38
4
Other income 321,70 336,80 343,15
0 9 6
Total non-markup/ interest income 2,154,65
3 4,565,49
6 2,707,00
0
Non mark-up/ interest expenses
Administrative expenses 3,319,06
9 4,789,53
6 5,904,16
9
Other provision / Write off 45
9
Other charges 6,14
1 12,05
1 10,98
7
Total non mark-up expenses 3,325,21
0 4,801,58
7 5,915,61
5
Net non interest income (1,170,55
7) (236,09
1) (3,208,61
5)
Profit before taxation 3,327,13
6 2,299,78
5 461,38
2
Taxation current year 983,94
4 98,53
5 17,36
3
Prior year (233,95
0) (50,00
0)
Deferred 106,03
4 (245,81
2) 107,79
4
1,089,978
(381,227)
75,157
Profit after taxation 2,237,15
8 2,681,01
2 386,22
5
Inappropriate profit brought forward 1,612,34
4 1,799,97
9 2,144,81
0
Profit available for appropriation 3,849,50
0 4,480,99
1 2,531,03
5
Total operating Revenues 14,757,5
63 19,708,7
37 21,100,3
13
VERTICASL ANALYSIS
ASKARI BANK BALANCE SHEET
Assets 2006 % 2007 % 2008 %
Cash & Balances with treasury Banks 14,879,231 9 13,356,055 7.3 16,029,635 77.7
Balance with other Banks 7,336,838 4.4 3,497,054 1.9 3,954,814 1.91
Lending to Other Financial Institutions 8,392,950 5.1 14,444,143 7.9 4,479,754 2.17
Investments 28,571,969 17.2 39,431,005 21.6 35,677,755 17.3
Advances 99,179,439 59.7100,780,16
2 55.3128,818,24
2 62.4
Operating Fix Assets 3,828,818 2.3 5,128,428 2 8,266,458 4.1
Deferred Tax Assets
Other Assets 3,824,105 5,535,038 3 8,964,480 4.34
Total Assets
166,013,350 100
182,171,885 100
206,191,138 100
Liabilities
Bills Payable 1,839,077 16.6 2,627,051 21.4 2,584,828 19.9
Borrowings 14,964,087 135.4 17,553,525 143.1 15,190,148 117
Deposits & other accounts
131,837,230 1192.8
143,036,707
1166.1
167,676,572 1292
Sub-ordinate Loans 2,998,500 27.1 2,997,300 24.4 2,996,100
Liabilities against assets subject to finance lease 4,440 0 0
Deferred tax liabilities 726,497 6.7 471,519 3.8 12,987 0.1
Other liabilities 2,608,360 23.6 3,219,796 26.2 4,759,140
Total Liabilities
154,978,191 1402.1
169,905,898
1385.2
193,219,775 36.6
Capital
Share capital 2,004,333 18.1 3,006,499 24.5 4,058,774 31.2
Reserves 5,814,754 52.6 6,948,336 56.6 7,667,141 59.1
Inappropriate profit 1,781,908 16.3 2,144,810 17.5 308,980 2.38
Surplus on revaluation of assets- net of tax 1,434,164 13 166,342 1.4 936,468 7.21
Total capital 11,035,159 100 12,265,987 100 12,971,363 100
Total liabilities & Capital
166,013,350
182,171,885
206,191,138
HORIZONTOL ANALYSIS OF ASKARI BANK(PROFIT & LOSS A/C) 2006 2007 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
Bad debts written off directly
Total provision expenses 100 347 360
Net mark-up / interest income after provisions 100 57 82
Non mark-up / interest income
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
Total non-markup/ interest income
Non mark-up/ interest expenses
Administrative expenses 100 144 177
Other provision / Write off
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
Prior year
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
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 FUNDFormula = Net mark up Received
Capital Funds
Following are the ratios which I calculated and explained here.
2006 2007 2008
58.60023883% 53.37030136% 64.33453719%
return on capital fund
0
20
40
60
80
2006 2007 2008
years
%
return on capitalfund
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 INVESTMENTFormula = Net income after taxes
Total Assets2006 2007 2008
1.347577168% 1.471693615%
0.187314064%
return on investment
0
0.5
1
1.5
2
2006 2007 2008
year
%return oninvestment
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
0
1
2
3
2006 2007 2008
years
%
return on riskassets
INTERPRETATIO N
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%
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
return on deposits
0
0.51
1.5
22.5
3
2006 2007 2008
years
% return on deposits
1.347577168% 1.471693615% 0.187314064%
return on assets
0
0.5
1
1.5
2
2006 2007 2008
years
% return on assets
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
66687072747678
2006 2007 2008
years
%
advances ondeposits
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 `2008
5.055587397% 7.928854115%2.172621987%
DUE FROM BANK TO TOTAL ASSETS
0
2
46
8
10
2006 2007 2008
years
%
DUE FROM BANKTO TOTALASSETS
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
0
20
4060
80
100
2006 2007 2008
years
%DUE FROMBANKD DUE TOBANKS
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
Earning Spred
0.000
0.020
0.040
0.060
0.080
2006 2007 2008 PeerGroup
Earning Spred
11.35042582% 12.27204217% 9.059195223%
DUE TO BANK TO DEPOSITS
0
5
10
15
2006 2007 2008
years
%DUE TO BANK TODEPOSITS
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:-
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 RATIOINTEREST COVERAGE RATIO
Formula = Earning before int. & Tax
Interest Exp.
2006 2007 2008
64.79750151%95.08306316%
45.7602464%
INTEREST COVERAGE
0
20
4060
80
100
2006 2007 2008
years
%
INTERESTCOVERAGE
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
5
5.5
6
6.5
7
2006 2007 2008
years
%
CAPITAL FUNDSTO TOTALASSETS
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
0
5
10
15
2006 2007 2008
years
% CAPITAL FUNDS
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
010,000,00020,000,00030,000,00040,000,00050,000,000
2006 2007 2008
YEARS
INVESTMENTS
INTERPRETATIONThe 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.
Credit Risk
Investment Portfolio
FederalGovernmentSecuritiesFully paid upordinary shares
Fully paidpreference sharesListed companiesTerm FinanceCertificates
Foreign Securities
Other Investments
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.
Deposits
-
0.20
0.40
0.60
0.80
1.00
2006 2007 2008 PeerGroup
Non-PerformingAssets to total loans
Annual provision forloans losses toeqiuty capital
Non Performingassets to equitycapital
DEPOSITS(million)
0
50,000,000
100,000,000
150,000,000
200,000,000
2006 2007 2008
years
DEPOSITS(million)
INTERPRETATION
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
0
50,000,000
100,000,000
150,000,000
2006 2007 2008
YEARS
ADVANCES
INTERPRETATIONThe 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.
