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8/8/2019 Analysis of the Banking Sector
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ANALYSIS OF THE
BANKING SECTORTERM PROJECT
SUBMITTED BY HARIS HUSSAIN8874 MUHAMMAD ABDULLAH JAFFER
SIDDIQUI 9038
SUBMITTED TO MR. AMYN WAHID
DATE 2-12-2009
ACKNOWLEDGEMENT
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The preparation of this important document would not have been possible
without the support, hard work and endless efforts of a large number of
individuals. We are particularly grateful for the Project Implementation Mr
Amyn Wahid
We appreciate his continuous concern from the very beginning, as the
project was spread over entire banking sector in the stock market. But with
his guidance, encouragement and at times whipping, of course, we were able
to straighten up a big discrepancy and successfully complete this project
INTRODUCTION
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As per the requirement of this project we were supposed to take fourcompanies within a particular sector. For that matter we decided to takebanking sector and the four banks we take are:
NO BANK NAME KATS CODE
1 Bank alfalah BAFL
2 MCB MCB
3 United Bank Ltd UBL
4 Arif Habib Bank Ltd AHBL
KARACHI STOCK EXCHANGE
Type Stock ExchangeLocation Karachi, PakistanOwner Karachi Stock Exchange LimitedKey people Adnan Afridi, CEOCurrency PKRNo. of listings 671Market Cap US$ 33.81 billionVolume US$ 12 billionIndexes KSE 100 Index
KSE-30 Index
Karachi Stock Exchange is the biggest and most liquid exchange in Pakistan.It was declared the Best Performing Stock Market of the World for the year2002. As of Sept25, 2009, 654 companies were listed with a marketcapitalization of Rs. 2.806 trillion (US$ 33.81 billion) having listed capital ofRs. 705.873 billion (US$ 10.615 billion).
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BRIEF PREAMBLE OF THE FOUR BANKS
BANK ALFALAH LTD
Bank Alfalah Limited was launched on June 21,1992 as a public limited company under the CompaniesOrdinance 1984. The bank commenced its operations on November 1, 1992. The bank introducedcommercial banking and related services as defined in the Banking companies ordinance, 196
Type PrivateFounded June 1992, KarachiHeadquarters Principal Office, Karachi PakistanKey people H.E. Sheikh Hamdan Bin Mubarak Al Nahayan(Chairman)
Industry BankingCapital Markets Products Loans, Credit Cards, Savings, ConsumerBanking etc
MCB
MCB Ltd formerly known as Muslim Commercial Bank Limited was incorporated by the Adamjee
Group on July 9, 1947, under the Indian Companies Act, VII of 1913 as a limited company Mian
Mohammad Mansha is the Chairman of the group (and also MCB) and hasplayed instrumental role in its success. In recognition of Mr. Manshascontribution, the Government of Pakistan has conferred him with "Sitara-e-Imtiaz", one of the most prestigious civil awards of the country.
Type PrivateFounded 1947Headquarters Registered Office: Islamabad, Principal Office:Karachi PakistanKey people Mian Mohammad Mansha (Chairman)Industry Banking
Capital Markets Products Loans, Credit Cards, Savings, ConsumerBanking etc.
UNITED BANK LTD
http://en.wikipedia.org/wiki/June_21http://en.wikipedia.org/wiki/1992http://en.wikipedia.org/wiki/November_1http://en.wikipedia.org/wiki/1992http://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/Incorporatedhttp://en.wikipedia.org/wiki/Adamjee_Grouphttp://en.wikipedia.org/wiki/Adamjee_Grouphttp://en.wikipedia.org/wiki/1992http://en.wikipedia.org/wiki/November_1http://en.wikipedia.org/wiki/1992http://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/Incorporatedhttp://en.wikipedia.org/wiki/Adamjee_Grouphttp://en.wikipedia.org/wiki/Adamjee_Grouphttp://en.wikipedia.org/wiki/June_218/8/2019 Analysis of the Banking Sector
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United Bank Limited (UBL) is one of the largest commercial banks in Pakistanhaving more than 1,000 branches inside the country. Its 15 branches outsidethe country are in the United States of America, Qatar, UAE, Bahrain, andRepublic of Yemen. It also has representative offices in Tehran, Iran, and
Almaty, Khazakstan. It owns subsidiaries in the UK (United National BankLimited), and in Zurich, Switzerland.
Type PublicFounded November 7, 1959Headquarters Karachi, PakistanKey people His Highness Shaikh Nahayan Mabarak Al Nahayan,Chairman
Sir Mohammed Anwar Pervez OBE, Deputy Chairman
Agha Hasan Abedi, FounderIndustry FinanceProducts Commercial Banking, Private Banking, Asset Management
ARIF HABIB BANK LTD
AHBL is one of the fastest growing Commercial Banks of the countrysupported by the strong sponsorship of Arif Habib Group.Arif Habib Group is among the largest, most innovative and fastest growing
Business Group in Pakistan. In addition to Financial Services (AssetManagement, Brokerage Services, Corporate Finance and Project Advisory,Private Equity and Commercial Bank), the Group has also interest inFertilizer, Cement and Real Estate.The Bank has an Authorized Share Capital of 6.0 Billion and Paid-up ShareCapital of 5.0 Billion. The management intends to double it in a short periodby injection of fresh capital which will strengthen the bank further.The Bank has a network of 38 Branches/Sub Branches. The branch networkcovers Sindh, Punjab, NWFP, Balochistan and Azad Jammu and Kashmir. TheBank plans to open further offices to better cover all four provinces within ashort time span.
All branches are Real Time Online providing our customers the facility todeposit at or withdraw from any of our Branches anywhere in Pakistanwithout incurring any additional charges making banking with us a faster,reliable and a convenient experience
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KSE 100 DATA FOR SIX MOTNHS
(See XLS FILE)Average closing price = 8175.238095
BAFL BETA CALCULATIONS
(See Appendix 1 BAFL Data)(For return see xls file)Average closing price = 12.02575238
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(For return see xls fil
Beta Alpha
KSE100 BAFL KSE100 BAFL
1.0 (0.0030) - 0.002
BAFL COST OF EQUITY CALCULATION
CAPM COST OF EQUITY CALCULATION
BAFL Beta -0.003
CAPM Cost o f equity
Risk Premium 1.67%
Market Return 14.00%
Risk Free Rate 12.33% (T-Bill 6 Month)
Cost Of Equity 12.32%
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MCB BETA CALCULATION
(See Appendix 2 MCB Data)(For return see xls file)Average closing price = 181.5125476
(See Appendix 2 MCB Data)(For return see xls file)
Beta Alpha
KSE100 MCB KSE100 MCB
1.0 0.033 - 0.003
MCB COST OF EQUITY CALCULATION
CAPM COST OF EQUITY CALCULATION
MCB Beta 0.032
CAPM Cost fo equity
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Risk Premium 1.67%
Market Return 14.00%
Risk Free Rate 12.33% (T-Bill
12
Month)
Cost Of Equity 12.38%
UBL BETA CALCULATION
(See Appendix 3 UBL Data)Average closing price = 48.294
(See Appendix 3b UBL Data)(For return see xls file)
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Beta Alpha
KSE100 UBL KSE100 UBL
1.0 (0.0487) - 0.002
UBL COST OF EQUITY CALCULATION
CAPM COST OF EQUITY CALCULATION
UBL Beta -0.048
CAPM Cost fo equity
Risk Premium 1.67%
Market Return 14.00%
Risk Free Rate 12.33%
(T-Bill 12 Month)
Cost Of Equity 12.25%
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ARIF HABIB BANK LTD BETA CALCULATION
(See Appendix 4 AHBL Data)(For return see xls file)Average closing price = 6.5538
(See Appendix 4 AHBL Data)(For return see xls file)
Beta Alpha
KSE100 AHBL KSE100 AHBL
1.0 0.1267 - 0.001
AHBL COST OF EQUITY CALCULATION
CAPM COST OF EQUITY CALCULATION
AHBL Beta 0.126
CAPM Cost fo equity
Risk Premium 1.67%
Market Return 14.00%
Risk Free Rate 12.33%
Cost Of Equity 12.54%
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PORTFOLIO BETA
Assuming that we have 50mn rupees to invest in the four banks that we
have taken, the portfolio beta and required return calculation isdemonstrated below based on the assume weights taken of each of thespecific bank
PROPORTION INVESTEDIN BANK % BETA
WEIGHTS
BETA*WEIGHT
AMOUNTINVESTED
PROPORTION INVESTED INBAFL % -0.003 0.25 -0.00075
12,500,000
PROPORTION INVESTED IN
MCB % 0.032 0.40 0.0128
20,0
00,000PROPORTION INVESTED IN
UBL % -0.048 0.20 -0.009610,0
00,000
PROPORTION INVESTED INAHBL % 0.126 0.15 0.0189
7,500,000
PORTFOLIO 1.00 0.021450,0
00,000
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Portfolio Required
Rate of Return
kP = kRF + (kM kRF) P
Portfolio Beta 0.0214
Risk Premium 0.67%
Market Return 13.00%
Risk Free Rate 12.33% ((T-Bill 12 Month))
Portfolio RequiredReturn 12.344 %
SECURITY MARKET LINE
BETAS RETURN
-0.003 12.32%
0.032 12.38%
-0.048 12.25%
0.126 12.54%
0 12.33%
1 13.00%
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GRAPHICAL REPRESENTATION OF SML
SUMMARY AND RECOMMENDATION
We would recommend MCB as our top pick amonf the four selected banks
reasons which are as follows:
1. DEPOSITS
BAFL MCB UBL AHBL
295603 361834 508707 24380
(see xls file forcalculation)
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Deposits is one of the most important parameter on judging the position on
which a bank stands. UBL has the most deep deposits base MCB stand
second
2. LOANS
Loans and deposits run side by side loans is the venue where banks earnedinterest ( which is their primary source of income) UBL stands top on loansMCB here also behind UBL
3. PROVISIONING
Though as we have seen on the deposits and loans terms on which UBL wasleading but there I a grim reality to it which is high amount of provisioningthat bank has dome in 9 months 2009. This higher provisioning signifies thebad debts poition of the bank
4. OUTSTANDING SHARES
BAFL MCB UBL AHBL691,104
,5001,349,156,
3001,112,890,
700500,000,
000
MCH has the highest number of outstanding shares in the market ascompared to the other three banks which means that bank is not being avictim of monopolizing activity and its price would not be easily manipulatedwhich is normally the case of small float stocks.
5. RETURN ON EQUITY
BANK 2008 2007
BAFL MCB UBL AHBL
188399 258849 368380 17530
BAFL MCB UBL AHBLBEST
CHOICE
PROVISIONING 1501 3892 6,423 659PROVISIONING AS A% OF LOANS 0.80% 1.50% 1.74% 3.76% BAFL
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BAFL 9.17% 25.72%
MCB 31.49% 37.68%
UBL 17% 23%
AHBL -3.29% 3.65%
6. RETURN ON ASSETS
BANK 2008 2007
BAFL 0.38% 1.04%
MCB 3.60% 4.06%
UBL 1.43% 1.26%
AHBL -0.77% 1.27%
7. EARNING PER SHARE
BANK 2008 2007
BAFL 1.63 3.92
MCB 34.81 33.92
UBL 7.15 5.09
AHBL -0.38 0.65
8. STANDARD DEVIATION
BANK 2009 (NINE
MONTHS)
BAFL 2.63%
MCB 2.914%
UBL 2.477%
AHBL 3.2546%
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APPENDIX 1 BAFL BETA
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.001567107R Square 2.45582E-06
Adjusted R Square -0.008194245
Standard Error 0.026514963
Observations 124
ANOVA
df SS
Regression 1 2.1064E-07
Residual 122 0.085771278
Total 123 0.0857
Coefficients Standard Error
Intercept 0.001858739 0.002408167
0.00283246 -0.002740545 0.158328068
APPENDIX 2 MCB BETA
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SUMMARY OUTPUT
Regression StatisticsMultiple R 0.016746032
R Square 0.00028043
Adjusted R Square -0.007913993
Standard Error 0.02936227
Observations 124
ANOVA
df SS
Regression 1 2.95043E-
Residual 122 0.1051814 Total 123 0.1
Coefficients Standard Erro
Intercept 0.002575379 0.0026667
0.00283246 0.032434653 0.1753301
Regression Statistics
R Square 0.00028043
Observations 124
APPENDIX 3 UBL BETA
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.029650726
R Square 0.000879166
Adjusted R Square -0.007310349
Standard Error 0.024952816Observations 124
ANOVA
df SS
Regression 1 6.68423
APPENDIX 4 AHBL BETA
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SUMMARY OUTPUT
Regression Statistics
Multiple R 0.059140807
R Square 0.003497635
Adjusted R Square -0.004670417
Standard Error 0.032572685
Observations 124
ANOVA
df SSRegression 1 0.000454
Residual 122 0.129439
Total 123 0
Coefficients Standard ErIntercept 0.001058887 0.002958
0.00283246 0.127276564 0.194500
Regression Statistics