Research Project, Usman Aziz 01-120121-079, Arslan Aziz 01-120121-011, Khwar Aziz 01-120121-034

8/20/2019 Research Project, Usman Aziz 01-120121-079, Arslan Aziz 01-120121-011, Khwar Aziz 01-120121-034

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“Financial Performance Analysis of Allied Bank Limited

over the period of (2008-2012)

By:

(USMAN AZIZ) (01-120121-079)

(ARSLAN AZIZ) (01-120121-011)

(KHAWAR AZIZ) (01-120121-034)

MBA

Session:

2012-2015

Supervisor:

(A!AB "#A$ B%&"')

Department of Management Sciences

Bahria University s!ama"a#

2015

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Dedication:

We dedicate this study to our families that supported us during up and downs of our life,

special feeling of thankfulness to our caring parents who always encouraged us and supported

us throughout our studies.

“There are no secrets to success. It is the result of preparation, hard work, and learning

from failure.”

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Acknowledgement

All praises for the all mighty Allah who is most beneficent and the most merciful. I would

like to give my thankfulness to the supervisor Sir Ajab Khan urki who due to his support,

motivation and knowledge made me complete our !esearch "roject. We also thank to #rs.

#aria Iftikhar for her sincere and friendly guidance and made sure that our !esearch "roject

is on the right path. And we are taking this chance to thank everyone including my our

dearest Sister #rs. $i%a Sibtan who encouraged and motivated us throughout our !esearch

"roject.

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Abstract

In emerging economies like "akistan the commercial bank plays and important role by

providing financial services to the individuals and corporate sector. &o evaluate and e'amine

the performance of financial institutes specially the banks the most useful tool is ratio

analysis and (A#)* analysis is also be considered. $or the evaluation of the financial

performance of Allied bank limited by keeping financial aspects and elements in view, ratio

and (A#)* analysis has been selected as an evaluating tool. &he research team used the

final reports from the year +- to the year ++ for gathering and interpreting the data for

this study. &his research work is based on secondary data which is collected from annual

reports of A* bank, past journals about bank/s performance and financial books. &hefinancial analysis of Allied bank limited refers that the bank has made a slow progress over

the financial year +- to the year ++ as the bank has e'pended its business in these years

and its e'penses grow more rapidly than that of income, but the end of the year + bank

was in a position where it reduced its interest e'penses which ultimately result in increase of

its profit.

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Table of ContentsAcknowledgement.................................................................................................4

Abstract.................................................................................................................5

CHAPTER NO. 1......................................................................................................

1.! "ntrod#ct$on..................................................................................................

1.1 Problem area...........................................................................................1%

1.2 Rat$onal o& t'e st#d(............................................................................... 1%

1.3 Ob)ect$*e o& t'e st#d(............................................................................. 1%

1.4 +$gn$,cance o& t'e st#d(.........................................................................1%

CHAPTER NO. 2.................................................................................................... 1

2.! -ackgro#nd +t#d(...................................................................................... 1

2.1 $nanc$al "n&ormat$on /sers..................................................................... 2!

2.2 Need &or $nanc$al Anal(s$s......................................................................2!

2.3 -ank Per&ormance "nd$cators...................................................................21

2.4 -ank Per&ormance 0eterm$nants.............................................................23

2.5 acroeconom$c actors...........................................................................25

CHAPTER NO. 3.................................................................................................... 2

3.! Researc' et'odolog(...............................................................................2

3.1 Researc' 0es$gn......................................................................................2

3.2 Nat#re o& 0ata.........................................................................................2

3.3 Anal(t$cal Tools........................................................................................2

3.4 Presentat$on o& Res#lts............................................................................2%

3.5 "mortance o& $nanc$al Rat$os.................................................................2%

CHAPTER NO. 4.................................................................................................... 2

4.! "nterretat$ons and Res#lts.........................................................................2

4.1 Ret#rn on E#$t(......................................................................................2

4.2 Ret#rn on Asset.......................................................................................3!

4.3 Net "nterest arg$n..................................................................................31

CAE...........................................................................................................32

4.4 Ca$tal Ade#ac(....................................................................................32

4.5 Asset 6#al$t(........................................................................................... 33

4. anagement 6#al$t(...............................................................................35

4.% Earn$ng Ab$l$t(......................................................................................... 3

4.7 $#$d$t(...................................................................................................3%

CHAPTER NO. 5.................................................................................................... 3

5.! Common +$8e Anal(s$s o& $nanc$al +tatement...........................................3


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5.1 9ert$cal Anal(s$s o& A-..............................................................................3

5.1.! Assets...................................................................................................3

5.1.1 $ab$l$t$es..............................................................................................4!

5.1.2 "ncome +tatement................................................................................41

5.2 Hor$8ontal Anal(s$s o& A-.......................................................................... 42

5.2.! Assets...................................................................................................42

5.2.1 $ab$l$t$es..............................................................................................43

5.2.2 "ncome +tatement................................................................................44

CHAPTER NO. .................................................................................................... 45

.! Concl#s$on and Recommendat$on...............................................................45

CONC/+"ON....................................................................................................... 45

RECOEN0AT"ON..............................................................................................4

-$bl$ogra'(.........................................................................................................4%

TABLE OF FIGURES

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Table age no!

TABLE ": R ETUR# O# E$UIT%!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!&'TABLE (: R ETUR# O# ASSET!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!&"

TABLE &: #ET I#TEREST )ARGI#!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!&(

TABLE *: +AITAL ADE$UA+%!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!&*

TABLE ,: ASSET $UALIT%!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!&,

TABLE -: )A#AGE)E#T $UALIT%!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!&-

TABLE .: EAR#I#G ABILIT%!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!&.

TABLE /: LI$UIDIT%!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!&0

TABLE 0: 1ERTI+AL A#AL%SIS OF ABL ASSETS!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!*'

TABLE "': 1ERTI+AL A#AL%SIS OF ABL LIABILIT%!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!*"

TABLE "": 1ERTI+AL A#AL%SIS OF ABL I#+O)E STATE)E#T!!!!!!!!!!!!!!!!!!!!!!!!!!*(

TABLE "( : 2ORI3O#TAL A#AL%SIS OF ABL ASSETS!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!*&

TABLE "&: 2ORI3O#TAL A#AL%SIS OF ABL LIABILITIES!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!**

TABLE "*: 2ORI3O#TAL A#AL%SIS OF ABL I#+O)E STATE)E#T!!!!!!!!!!!!!!!!!!!!!!!*,

+2ATER #O! "

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"!' Introd4ction

anks are essential organi%ation in any general public as they altogether add to the

improvement of an economy through assistance of business. anking industry is the most

imperative monetary go0between in the economy as it interfaces surplus and shortage

financial operators. &he relative significance of the diverse parts of banks shifts considerably

crosswise over nations and times in any case, banks are constantly discriminating to the

monetary framework. As of late saving money organi%ations are confronting the environment

that is changing 1uickly and rivalry is e'panding at nearby and worldwide level.

anks are the essential wellspring of stores for overall population, government organi%ationand additionally for chip in areas. anks additionally encourage the improvement of sparing

arranges and are instruments of government2s financial method among others. (onse1uently

the part of a bank is to give a sheltered spot to keep your cash and here and there the chance

to ac1uire enthusiasm on your store. 3ations whose managing an account framework is

productive can effectively deal with the money related trouble and improve a commitment in

the consistency of budgetary framework by drawing in more investment funds from client

and give the better 1uality administrations to the general population. In this way it is helpful

to e'amine what are the central 4point which can influence the benefit of banks.

A significant measure of changes have been happened in overseeing managing an account

segment of "akistan since 567. 8nder the Act 59: State bank of "akistan, encouraged

private division to make the budgetary establishments. y ;une 576 in "akistan all the banks

were nationali%ed by the regulatory body. $rom this time forward privati%ation in 55+ attract

the adjacent and what2s more distant e'aminer to secure the banks of "akistan.

An aggressive keeping money framework advances the proficiency and in this way essential

for development, however market influence is vital for steadiness in the managing an account

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income of the nation. &hey have been paying a lot of duty consistently. )'ecution assessment

is the vital methodology for undertakings to give motivator and to limitation to their

administrators. It is likewise an imperative channel for big business partners to get the

e'ecution data


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organi%ation or a firm by making two essential sorts of e'aminations. Initially, the e'pert can

hope to measure up the present proportions with the past proportions to figure out whether

there has been a change or change happen in the association over the time. Second, the ratio

of one association is contrast and comparable association performing same capacity in the

business sector. &his is the sort of benchmarking so that one may figure out if the

association is performing more terrible, great or superior to anything others. Bn the other

hand, the instrument additionally has its drawback that the discoveries of the e'amination

will just give 1uantifiable information. &his implies the e'amination is utili%ed as a part of

figuring out what2s wrong yet not giving any suitable arrangements.

In today2s dynamic and 1uickly developing economy, banks are assuming an imperative part

in money related business sector. &he adjustment in the fiscal atmosphere has a significant

influence on banks, as these banks are battling ade1uately by concerning their benefit ratio at

low level on credits, ratio for rivalry to store and for the changes occur in the general business

sector, industry patterns and monetary varieties. It/s being a task for the banks to viably

implement their development techni1ues with the upcoming and recent financial markets, an

increase in the rate of interest show that it helps the financial and monetary institutions and it

impact the change on buyers and organi%ations.

$inancial performance of banks can be measured through the financial ratios using

accounting and financial data of pre and post Statement. S, +-= (ompare the

financial ratios to measure the efficiency of banks in "akistan. &his study has the importance

for the concerned institutions, customers, shareholders, investors, competitors and internal

management.

&husly !atio analysis is essential piece of entire business key arranging. udgetary

e'amination allude to an evaluation of the practicality, dependability and productivity of

business, sub0business or task. &he accounting report and the announcement of salary are

fundamental, yet they are just the beginning stage for effective monetary administration. 8se

of ratio analysis to budgetary e'planations ought to prompt investigate the achievement,

disappointment, and advancement of business. &ransient venture to current resource decay. In

today2s dynamic and 1uickly developing environment, the banks are vital players in

budgetary market and offer money related administrations, for e'ample, venture reserves,

corporate account and business giving. &he emerging fiscal atmosphere has an intensive

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influence on banks and economies as they encounter viably to concern with their benefit ratio

spread notwithstanding low rates on credits, rate for rivalry to stores and the changes occur in

general business, industry policies or patterns and financial matters variances.

)'amination finds that banks are discriminatingly critical for modern development, the

corporate administration of the organi%ations, and capital portion. At the point when banks

effectively activate and apportion finances, this brings down the e'pense of funding to firms,

supports capital development, and fortifies efficiency development. (onse1uently the

working of banks has repercussions for the operations of the organi%ations and the success of

countries

It/s being a task for a bank to ade1uately implement the development techni1ues with the

emerging monetary markets. An increasing trend in the rate of interest may indicate to help

money related establishments, yet the effect of the developments on shoppers and business is

unpredictable and the task stays for the institution to create an arrival to their shareholders.

$or being the proprietors of these budgetary establishments the troughs, suppliers, clients,

administrative offices, every one re1uire money related data for compelling choice making.

&he fundamental hotspot for getting money related data is budgetary e'planation. #onetary

proclamation e'amination is a key ability in a mi'ture of occupations like venture

administration, corporate money, business giving and e'pansion of credits.

anks provide facility of financing to different industries and provide the best possible

services for the economic growth of the country. &he bank which has been selected here for

financial analysis is Allied ank *imited, a prominent name among the private commercial

banks of "akistan.

Associated ank includes the first Islamic ank to be built in "akistan. It began in *ahore by

the name Australasia ank before autonomy in Cec ?, 56+ with a paid up Share capital of

!s. .+6 million. ank had pulled in stores that were proportionate to !s. .6?+? million in

its initial - months. &hen again, today Allied ank2s paid up Share (apital is !s. 5.67-:

billion, stores surpass to !s. .956 billion and aggregate resources !s. .9?5? billion.

*ater on they change the name of the bank into Allied ank of "akistan *imited in 576 and

after that Allied ank *imited in +9. As it is going to be 7 years by establishment of the

bank, the ank has fabricated itself an establishment with a solid value, resources and store

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base. It offers widespread saving money administrations, while setting substantial

accentuation on retail managing an account. &he ank likewise has the biggest system of

more than 7 online branches in "akistan and offers different innovative services and items

also administrations to banks assorted customer base.

&he main reasons behind selection of the topic is to analy%e the overall financial performance

of Allied ank *imited including the financial policies, bad debts, loaning, deposits and

interest rates and their risks associated to the bank. &his !esearch project will evaluate the

financial position of the Allied ank through time series trend analyses. In this analysis,

ratios are compare over periods of time. Dearly comparisons can pin point the re1uirement for

action and this trend analyses works best with five years of ratios. !esearch work also

elucidates the reason to take these trends into account in order to survive and e'cel in the

banking industry. &he privati%ation of commercial banks in "akistan was made and new

banks were established in private sector as more individual/s investors began to see the open

access for putting investment into a de0regulated system hence in a result this built a market

based banking system. &he "akistani government showed its interest in upgrading the

effectiveness and efficiency of the banking industry in the country, which made positive steps

to reinforce the asset 1uality, improve the capital ade1uacy, the e'pansion of incomes and to

enhance the management practices. esides, interest rate/s deregulation, the cancellation of

policies under which the credit is controlled and to make improvements in money market has

additionally determined to keep focus on banking sector.

y 5-/s the activities in banking industry of "akistan were vigorously controlled by the

government authorities. $or e'ecuting the developmental procedures normally the "akistan

government influences the financial activities. Subse1uently, the state owned financial

institution and government of "akistan is engaged to make a competition where there is no

chance of rivalry. Eowever, in 55 the economy was influenced by the basic changes plan

and the financial structure is supposed to be reinforce, which results in liberali%ation and

deregulation in financial sector of the country.

In "akistan there are different groups of banks including private banks, foreign banks and

state owned banks. y the end of year 55? "akistan has total ?? commercial banks including

5 foreign and 6 local banks. y the year + there were more local banks started

business in "akistan as local, which e'panded the banking sector from ?? banks to 6?. In

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such case, this type of deregulation implies the 2ade1uate survival2 of society. &he banks those

perform efficiently can make their survival in the market on the other hand the banks with

inefficient performance will be evicted from the industry. &he banking industry and real

economy support each other in any country, the dynamic and growing banking industry plays

a sufficient role in the financial growth of "akistan.

In "akistan the center of monetary part is established by the banking industry. &he investment

from private sector and its utili%ation are the key characters by which the economy may drive.

In this manner, these characters can be reinforced by developing the financial services and

intermediaries including both the banks and other financial institutions, stock market and the

securities through which the borrowing can be made. A financial sector including banks

assume an imperative part through lending relationship and e1uity proprietorship for various

organi%ation, and by and large the bank connections, depending on both the market and the

e1uity, un1uestionably influence the investments made for capital. &hus, the bank influence

the performance of market by having affirmative inconse1uential effect. :ot$s; 2!!<

='en t'e reg#lat$ons and s#er*$s$on &rom bank $s not cons$dered t'e

res#lts obta$ned &rom e#$t( to assets s'ows t'e ot$m#m roort$on.

-anks do e>$st $n s#c' a market w'ere t'e state owned banks doled o#t

t'e lower rat$ngs. ='ereas; t'e e>ans$on o& ,nanc$al er&ormance co#ld

be meas#red b( t'e c'anges occ#r $n tec'n$#es and assets. T'$s $s one

o& t'e wa( or a ke( to meas#re t'e arameters o& monetar( deendab$l$t(

rt'ermore t'$s re&ers to t'e nct$on$ng le*el er&ormed b( t'e banks

and t'e s#r*$*al $n long r#n.

&hen again, usual way to doing things of business managing an account is altering at a very

1uick speed. !ivalry is getting severer and focused in this manner, it turns into the essential

for the banks to build them aggressiveness and proficiency by enhancing their performance.

3ormally budgetary e'ecution of financial institutions and the banks is being measured by

utili%ing a mi'ture of benchmark, evaluating the performance regarding spending plan and

the ratios analysis. &he evaluation of financial performance is progressed and is appreciated

in financial and management sector #edhat, +:=.

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F, +6= Cemonstrated it is a vital issue to analy%e the performance of bank in

such a state where the economy moves due to the function perform by monetary part shows a

fruitful move. &hen again, the investigation conducted by two personals in +, the result of

which leads towards traditional as well as Islamic banking system in "akistan, which assure

in keeping money e'ecution of traditional banks is more compelling than the Islamic ones.

&he e'panded working e'pense along with wastefulness of administration is used to be

credited by them. y the late 5-/s the baking e'ecution was made on basis of new

composition of investigation &.#, += along with utili%ation of efficiency

structure and the market power #atthaios, +9= &he market

power refers the e'panded outside business sector strengths results into benefit. Also, the

theory recommend that just firms with huge piece of the overall industry and all around

separated portfolio item can win their rivals and ac1uire monopolistic benefit. &hen again, the

efficiency structure shows that improved administrative and scale proficiency prompts higher

focus and afterward to higher benefit.

#odern financial analysts have demonstrated an energetic and rising enthusiasm for the field

of business keeping money as they think of it as an essential branch of mechanical financial

aspects. Cespite the fact that capital markets additionally secure connections among

borrowers and moneylenders yet business banks have the remarkable favorable position

because of their capacity to give obligation within data they have of the indebted person. As

instability in choice making in the field of fund can prompt slips which have an enduring

effect on the capital markets as well as on people, budgetary investigation turns into the

essentials for the purpose of decrease the dependence on perceptions, ideas, conjectures, and

instinct. $or the judgment of somebody the re1uirement is distributed with a successful,

orderly premise which depended up to the settling on firms choices. &he outcomes can be

utili%e as viably oversee, can be improve or use in anticipation of organi%ation/s e'ecution in

this era of reports. Income statement is one of the reports that is a monetary e'planation

which measures the firm/s money related items and their e'ecution throughout the financial

year. #onetary e'ecution is evaluated by giving a synopsis of how the business ac1uires its

incomes and costs through both working and non0working e'ercises. It likewise demonstrates

the net benefit or misfortune brought about over a particular bookkeeping period, commonly

over a monetary 1uarter or year.

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&he e'pansion and reduction in total assets of any organi%ation is demonstrated by the net

salary before the consideration of dispersals to commitments done by the stakeholders. In

addition, the financial position of an organi%ation can be e'pressed with the help of balance

sheet for a particular financial year. #ost organi%ations take after the general bookkeeping

guideline of displaying the alance Sheet regarding resource and liabilities.

Cespite the fact that the dependence on the capital proportions, informally as well as

formally, is being around for 1uite a while, method for utili%ing those is not generally being

same. A case refer to this, in prior day/s severe capital prere1uisites, bank chiefs utili%ed

investment proportions to the dependable guideline and gage level to capital of an

association. &here was no clue for individuals that customary proportions i.e. cash flow to

aggregate resources or funding to stores can likewise utili%ed for the e'act measurement of

sufficient capital re1uired by any bank, however e'pansive deviancies to genuine investment

proportions to the benchmark of supervisory which recommended re1uirement if there is a

need of investigation anymore.

effectiveness, the impact of which may the organi%ation will survive

straightforwardly. )'act conse1uences e'plores #, += clarified an

organi%ation, having a better proficiency, doesn2t imply the dependably and will demonstrate

a better viability.

"roportion investigation is not about just contrasting figures of the budgetary reports. It also a

source to have a look on the figures contrary to earlier year, different organi%ations, industries

and the economies when all is said in done. "roportion if we take a gander as a sample from

the connection which the individuals have in their values and then compare them and to relate

with any organi%ation that how an organi%ation had performed now and how it did before.


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straightforwardly. &he e'act aftereffects of the looks into #, += and

#edhat, +:= clarified an organi%ation, which had a better productivity, it

doesn2t imply the dependably and will demonstrate a better viability.

"!" roblem area

As in emerging markets the banking is a promptly growing industry and the banks are trying

to improve their overall position by increasing its profits to have a strong position in the

financial market. &his study will help to evaluate the financial performance of Allied bank

from the period +-0++.

"!( Rational o5 t6e st4d7

&his Study will help in understanding the important factors which are affecting the financial

performance and risk associated with it. &his study will also show that how A* is

competing efficiently and effectively in this upgrading and growing business world with an

intensive influence of competitors by following and adapting the recommendation of this

study. &his study will help them to enhance their knowledge and abilities by which they can

increase their efficiency of management. &he financial performance analysis is a tool to

evaluate the past performance of any organi%ation as well as it also predicts the future

outcomes up to some e'tent. asically it is an analysis of the firm/s financial statement and

its flow of funds. Analysis of financial statement can be done on the basis of different ratios

calculation. !atio analysis help the concerned parties including creditors, mangers, and

investors to e'amine the organi%ation/s financial performance relatives to that of other. &he

decision of corporate investment, and financial operations can be made on behalf of the ratio

analysis of firm. &he study will e'amine the banks performance in the crisis period +-.

"!& Ob8ecti9e o5 t6e st4d7

o &o evaluate the financial performance of A* for the financial year +-0++

o &o e'amine the vertical analysis and hori%ontal analysis for A*

o &o make recommendations on behalf of results calculated

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"!* Signi5icance o5 t6e st4d7

&he study would provide management with the true state of financial performance of the

Allied bank and also make projections into the future with the view to ensure improved

performance. &his piece of work would help the management of the bank to evaluate their

overall performance in past 9 years.

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+2ATER #O! (

(!' Backgro4nd St4d7

&he (A#)* is a tool to make analysis of efficiency or financial position through some

different angles.


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(!" Financial In5ormation Users

&he groups interested in financial information are wide in range but the main focused groups

involve are, Government, the e1uity investors, creditors, regulatory body of financial

institution, general public including stakeholders, ta'ation department, unions of labor and

customers. All of them have a definite interest in the analysis of financial statement or

financial performance but the major groups which shows more interest in statements are the

creditors and investors to make decisions about their amount. So the standards of financial

accounting are being set according to the need of investors and creditors. &he main concern

of financial statement analysis is to make a comparative study or to measure the comparison

of return and risk to take decision about credits and to put investment. $or such decisions the

estimation is made on the yearly basis, semi0annually, 1uarterly, monthly or even for a

decade.

#ostly the interest on the owner e1uity depends on long term basis, the growth ability,

company/s power of earning, and to increase its value by measuring its capacity of paying

dividends to its stakeholders. As the investors faces the residual risk in the businesses, which

is instable in nature and one of the severe risk, the (A#)* is the most useful analysis to

make judgments as it is also followed and implemented by the e'ternal analysts.

(reditors mostly want a different analytical approach specially the creditors who lends their

money on short term basis including banks and trade creditors who wants their capital or

amount on early pay back basis. &he investors who made long term investments regarding

bonds, insurance, pension funds, are mostly consider the assets position and earnings of the

businesses for long run


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business, it will be easy to make analysis and to understand that analysis is also get easy,

nonetheless the situation is up to some e'tent is being changed. #ostly the reports made over

a time period of financial year have complimentary data which in result helps the analyst to

e'amine and to do interpretation of the statement, and make it able to adjust the results of

business performance through which they make an ade1uate comparison, and present the real

face of economy.

&he analysis of financial statement is being used to make a comparison between returns and

the risk of an industry portfolio to help out the investors of financial markets and the creditors

to make ade1uate decision about their lending and investments. In an industry portfolio these

type of decision can easily made by the help of evaluating the past trend which a firm keepsover the time period of its business life by comparing it with other organi%ations in same

industry. Another key advantage that the ratio analysis have, is able to make a comparison

between the risks and returns through using the data of diverse businesses, so an investor can

make diversity in its investments. &hrough ratio analysis the users can be aware of a firm/s

competitive advantage, its economical features, its different operations, and its investments

and financial features


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the return on e1uity ratio. It is something that really concerns the shareholder which they find

out that how much they are getting in return as compared to the money they have invested.

&he higher the return on investment of the company the more the company is considered to

be capable to earn more cash internally. &he more the return on investment he more will be

the will be the profit of the company. It is more enlightened by


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(!* Bank er5ormance Determinants

$or the purpose of determination of the bank performance there are two way that/s are used

the internal and the e'ternal one. &he internal way is the bank specific and the e'ternal one is

the macroeconomics Eassan, +=. &he individual characteristics of the bank

are the internal factors. &hese factors are influenced by the decisions of the management. Bn

the other hand the e'ternal factors consist of the country wide and the sector side influence

and the individual bank has nothing to do with it. &here is an advantage with the internal

factors that these factors can be manipulated by the banking organi%ations and these factors

are not the same for every bank. &hese factors include capital si%e, si%e and composition of

credit portfolio, si%e of deposit liabilities, labor productivity, interest rate policy and state of

risk level, information technology, management 1uality, bank si%e, ownership. (A#)*

framework often used by scholars to substitute the bank specific factors 8yen,

+=.

(!*!" +a=ital Ade4ac7

In order to support the organi%ation in the adverse time most of the banking organi%ation havetheir own funds or capital to support the organi%ation and to survive the bad time

#atthaios, +9=. *i1uidity that is generated through the

capital and more the li1uidity of the capital of the bank the less are the chances of the

organi%ation in the state of the problems. When the company that withstands the risk in the

form of credit and operational risks absorb potential losses and protect the bank debtors is

capital ade1uacy.

&he ratio that is used to measure the capital ade1uacy is the capital ade1uacy ratio


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(!*!( Asset $4alit7

&he profitability of the bank is influenced by the assets of the bank that consist of current

assets, fi'ed assets, credit portfolio and other investments. #ostly the loan lent by the banks

are also considered as the important asset of the bank that constitute the major part of the

bank overall income. &his is mostly seen in the case of the commercial banks. So we can

judge the profitability of the bank through the 1uality of the bank loan portfolios. Bne of the

major risks in this regard are the loans lent by the banks and are not recovered by it. So the

1uality of the assets of the bank is best measured through the loans that are not been

recovered. So in order to ensure the 1uality of the assets the management of the bank try to

ensure the level of the loans that are not been recovered should be kept at minimum level.

&he reason for this is that these loans directly influence the overall profitability of the banks.

If the banks succeed in lowering this ratio the better will be there performance

3a%ir, +=.

(!*!& )anagement E55icienc7

&he management efficiency is another factor that determines the profitability of the banks. It

deals with the ability of the management of the banking organi%ation to deploy there

resources in such a way that ma'imi%es their efficiency and effectiveness and reducing the

overall cost and ma'imi%ing the income of the bank. &he financial ratios that are included in

this ratio are total asset growth, loan growth rate and earnings growth rate


25/48

(!, )acroeconomic Factors

&he macroeconomic factor that determine the profitability and stability of a particular sector

include Gross Comestic "roduct, Inflation, Interest !ate and "olitical instability. &he change

in the GC" growth also has an impact on the profitability of the sector because the decrease

in GC" results in the fall of demand for the credit that would ultimately reduce the

profitability. In contrary to it the increase in the GC" results in the increase of the demand for

the credit resulting in increase in the profitability. #atthaios,

+9= Eave figured that the relationship between banks profitability and inflation level is not

conclusive. &he major reason that the companies go for the financial analysis is when they

decide to ac1uire or make investment in the other companies. &hat can only happen in

fre1uently changing markets. $inancial reporting, in other developed and rising financial

markets, has come a long way in terms of research and its application during the past several

years.

25


26/48

+2ATER #O! &

&!' Researc6 )et6odolog7

&he descriptive research method is used in this research to analy%e the financial performance

of A* by consulting their annual reports and generals as well as secondary data. Whereas

(A#)* and ratio analysis are also used as main measurement tool to hold this research.

&!" Researc6 Design

&he research used to describe the manifest evidences of numeric data is descriptive in nature.

o Cescriptive research has been carried out to achieve the intended objective.

o A* has been selected for this study

o &he study will appraise five year financial performance of the A* from year +-0

++.

&!( #at4re o5 Data

&his study is based on secondary data collected form the annual report of the Allied bank

limited for the year +- to the year ++ and the data is being evaluated by using ratios and(A#)* analysis.

&!& Anal7tical Tools

&here are numerous methods of measuring the efficiency of banks but most commonly used

method to analy%e the efficiency measurement is the financial analysis. &his study includes

2


27/48

the different ratios and (A#)* analysis with the vertical and hori%ontal analysis to analy%e

the financial performance of selected bank.

Ratios

o !eturn on )1uity

o !eturn on Assets

o 3et Interest #argin


28/48

o Identify the strategy that the firm selects to complete in the business

o 8nderstand the important concepts and principles underline the firm/s financial

statement used in the computing of financial ratios.

&he financial statement operators attach different degrees of importance to the four categoriesof the ratio according to their subject. &he potential investors or security analysts consider

profitability more pivotal than li1uidity and debt utili%ation. Bn the other hand bankers or

trade creditors emphasi%e on the firm/s e'isting capability to meet its debt commitments.

#ostly the debt to e1uity ratio effects the bondholders as it shows about the value creation by

li1uidation. While by focusing the effectiveness of the firm in the term of ability to perform

its debt obligations of course. &he e'penditure analysts look at all the ratios but with

different degree of attention.

27


29/48

+2ATER #O! *

*!' Inter=retations and Res4lts

*!" Ret4rn on E4it7

According to Investopedia Jreturn on e1uity is the aggregate of net income paid as a

percentage of shareholders equity”. It estimates the net profit that a stockholder have received

from capitali%ing their amount in the bank. !eturn on e1uity ratio is important for the

investor in security market.

Table 1: Return on Equity

%EARS +- +5 + + ++

RESULTS .++ .?9 .+-- .+59 .+5

2!!7 2!! 2!1! 2!11 2!12

0.21

0.310.29 0.3 0.29

Ret#rn O& E#$t(

&he ratio of profit after ta' to average capital reflect the investor/s average return which they

get by holding their capital. &he ratios also need to infer with great restraint as increase in

ratio may specify both high profitability as well as low capitali%ation and decrease in ratio

specify low profitability as well as high capitali%ation. &he !B) of Allied bank had increased

from +.+@ to +5.5@ by the year +5, and then get stable which is good for the bank, more

the !B) shows the profitability of the bank.

2


30/48

*!( Ret4rn on Asset

&his ratios show that how the assets of the bank are efficiently utili%ed. It is measured by

dividing profit after ta' by total assets. !BA is basically a gauge of managerial efficiently. It

shows that how proficiently the management of the bank has been transforming the

organi%ation/s asset in to earnings. It indicates the efficiency with which management

employed the total capital resource available to it. It is a better measure of operating

performance than !B) because !B) is affected by degree of financial leverage.

Table 2: Return on Asset

%EARS +- +5 + + ++

RESULTS .+ .- .-5 .+ .+?

2!!7 2!! 2!1! 2!11 2!12

0.01

0.02 0.02

0.020.02

RET/RN O A++ET

&he above result from !BA shows and increasing trend from the financial year +- to the

year ++ which show that Allied ank had incurred more return on asset than its assets

value. &he ma'imum return was earned from year +- to year +5 and then it increases

slowly.

3!


31/48

*!& #et Interest )argin

According to Investopedia definition J3et interest margin


32/48

+A)EL

&he acronym J(A#)* denotes the major five resources of the bank in term of financial

analysis including (apital ade1uacy, Asset 1uality, #anagement 1uality, )arning ability and

*i1uidity.

(A#)* is an assessment tool for financial situation of a bank which adds scoreLrating for

every component of (A#)* from capital ade1uacy to li1uidity. &he rating and + tells that

the credit union is rigorous with the administrative concern, although credit unions of ?, 6 >

9 shows normal toward severe level of managerial issues. &he State ank of "akistan has

recogni%ed Security and )'change (ommission of "akistan, which is liable for managerial

charge of altering re1uirements of a stable and strong financial structure. A supervisor of S"

carried both off0site and on0site assessment to estimate the institution/s profile of risk. &his is

a parameter through which the commercial bank/s regulations can be monitored. It mainlu

focuses on capital ade1uacy, connected lending and reisk e'posure.

&he results of (A#)* rating consisted of private supervisory information of the bank are

approachable only for its e'ecutive management and related administration and are never

unconfined or disclosed to general public.

*!* +a=ital Ade4ac7

(apital Ade1uacy is the tool to measure the ratio of banks capital to its risk. &he financial

personal are supposed to sustain an ade1uate or acceptable level of capitali%ation through this

parameter.

-@ (apital ade1uacy ratio is mandatory for international settlement according to the bank/s

AS)* committee. &he actions made for the setbacks in balance sheet of financial

institutions can be judged by (apital ade1uacy ratio which helps in to understand that how

the institution deals with these setbacks and confront them. &he easy way to calculate the

(apital Ade1uacy ratio is, if the analyst knows about the associated risks to the assets of the

institution which includes the three risk types i.e., foreign risk, credit risk and financial risk.

(A! consider the interest of depositor and encourages the proficiency and purpose of capital

structure.

32


33/48

According to the AS)* the re1uired percentage for (apital ade1uacy ratio set by the baking

regulators is -@.

Table 4: Capital Adequacy

%EARS +- +5 + + ++

RESULTS .5 .?67 .?-6 .?6? .:7

2!!7 2!! 2!1! 2!11 2!12

0.11

0.13 0.14 0.13

0.16

Ca$tal Ade#ac(

&he increasing trend of (A! shows that the bank meets the standard set by the regulatory

body. A 5@ capital ade1uacy refers that the A* has such a position where it can meet the

une'pected losses, liabilities, withdrawals and boosts the confidence level of investor, though

there is a slight decline in (A! by year + but it gets boost again in year ++.

*!, Asset $4alit7

It shows that how much a bank is rigid or liable in case of loss in asset value. &he main

reason behind the problems and issues occur in banking, is fading the value of assets which

further affects directly by hitting the capital as loss, which results in the reduction of earning

ratio of the bank. &he calculation of asset 1uality can be made by relation to degree and non0

performing assets, capability or provision. Generally loan default to total assets, non0

performing loans to advances and recoveries to loan default ratio come in this framework.

Weakened assets shows the risk of an institution referring its solvency stage, that/s where it is

most important to monitor the asset 1uality by defining a definite risk. 3on0performing loan

33


34/48

to total loan is one aspect. &he gross non0performing loans to gross advances ratio has critical

and more importance referring the good 1uality credit decision making by a banker. *ower

ratio refers the good 1uality credit decision making by the institution and vice0versa.

Table : Asset !uality

%EARS +- +5 + + ++

RESULTS .:9 .:9 .:57 .7- .79

2!!7 2!! 2!1! 2!11 2!12

0.060.07

0.07

0.08

0.07

Asset 6#al$t(

&his shows the increasing trend of non0performing loans due to &here was increase in non0

performing loans because of inade1uate lending principles and incompetent operating

practices the allied bank is performing to sustain its high 1uality assets and 3"*s by the year

+ but non0performing loans increased by the end of +0 ;une ++ it shows a slightly

decline by the end of ++.

*!- )anagement $4alit7

(A#)*/s other components influence the #anagement 1uality ratio. #oreover it is

grounded on leadership styles of top management, rules and regulations, and policies that are

supposed to be implemented in the banks. An effective and efficient management is one of

34


35/48

the most prosper element of any financial institution. &he factors of a good 1uality

management cannot be gathered easily through the whole sector but can be implemented

specifically in an organi%ation solely. #oreover the accuracy of a good 1uality management

cannot be 1uantify on behalf of financial progress or accounts of a bank. Bn the other hand

the items of income statement including operating e'penses, net income and other

e'penditures can be used as a helping tool to 1uantify the 1uality management. &herefore it is

difficult to measure but a good 1uality management has a core position in a bank/s

performance. &he non0interest e'pense to total asset ratio is a tool by which the management

1uality can be measured. &he non0interest e'penses includes the compensations to workers,

and imitate the position of management policies. &he efficiency ratios demonstrated that how

a company or bank utili%es its asset efficiently and manages its operations.

Table ": Manage#ent !uality

%EARS +- +5 + + ++

RESULTS .?: .+5+ .??+ .?+- .?9

2!!7 2!! 2!1! 2!11 2!12

0.36

0.29

0.32 0.32 0.32

anagement 6#al$t(

In year +- the non0interest e'penses were high but control immediately in +5 by making

sound management decisions these e'penses again get high slightly by the year + but

controlled by the management by making good decisions through which these e'penses are

now maintained up to the time of study conducted.

35


36/48

*!. Earning Abilit7

&he profits and earnings of any financial institution are the main source of addition in its

capital that can be measured in relation to I!


37/48

points. Allied bank/s earning ability ratio is increasing in nature which is a better sign for a

bank that bank can recover from loss and pay dividend to the investors.

*!/ Li4idit7

Sufficient li1uidity position is, when at a bearable cost by increase in liability and e'change

in assets the sufficient funds can be generate. &he e'posure of interest rate between risk

weighted assets and risk weighted liabilities is being calculated by using the gap techni1ue,

whereas li1uid to total assets ratio is used for the calculation of li1uidity. &he poor

management of short term li1uidity is a cause of the earliest solvency. *i1uidity means that

how immediately an institution/s assets can be converted inti cash, or you can say the degree

of conversion of an asset into the cash. #ost of the banks and financial institution thought

that their safety depends upon the volume and si%e of the li1uid assets or their ratio so they

can able to meet their une'pected obligations, withdrawals and losses.

Table %: &iquidity

%EARS +- +5 + + ++

RESULTS .7+ .:::+ .77 .7?5 .7+

3%


38/48

2!!7 2!! 2!1! 2!11 2!12!.!

!.!

!.!%

!.!%

!.!%

!.!%

!.!%

!.!7

$#$d$t(

$rom +- to +5 liduidity was dcreased by ?: basis points, from +5 to + it was

increase by 6 basis points, from + to + its was increased by ?+ basis ponits and from

+ to ++ it was decresed by ?7 basis points. $rom +- to ++ there is no chnge in their

li1uidity ratio which is not a very good sign for a bank because their current liabilties are

increasing more rapidly than their current assests.

+2ATER #O! ,

37


39/48

,!' +ommon Si>e Anal7sis o5 Financial Statement

A yearly base analysis which shows the changes occur in assets and liabilities and in cost

structure, is the common si%e analysis. &he financial statement of common si%e indicates each

and every item of income statement and balance sheet as a proportion to revenue earned and

total assets correspondingly. (ommon si%e analysis of profit and loss account and income

statement over the financial years have some important understandings for every bank and as

a comparison between the banks.

,!" 1ertical Anal7sis o5 ABL

,!"!' Assets

Table ': (ertical Analysis o) A*& Assets

%EARS (''/ (''0 ('"' ('"" ('"(

(ash and balance with treasury

banks

(,?.,"

.@

(.?."-

.@

&"?/*,

.@

&/?",0

.@

**?&/"

.@

*ending to $inancial Institution ",?.0&

*@

(/?"(&

-@

""?*/0

&@

"?&-(

'@

"'?.("

(@Investment /(?-*-

(&@

0*?./0

(&@

"("?".&

(.@

"0,?-0*

&/@

(-.?*'&

*(@

Advances ("(?0.(

,/@

(&.?&**

,.@

(,(?&*,

,-@

(**?*&&

*.@

(."?'/*

*&@

Bperating $i'ed Assets ""?"&*

&@

"(?**.

&@

",?&-'

&@

"/?'/.

*@

"0?/."

&@

Bther Assets "/?&00

,@

".?0,,

*@

".?."0

*@

".?0-*

*@

"/?*,,

&@

&otal Assets &--?-0,

"''@

*"/?&.* "

"''@

**0?0&"

"''@

,",?-00

"''@

-&"?0",

"''@

In financial year ++, the cash and balances with treasury banks were increased by 7

percent, from Cecember +- it shows the increasing trend and at the same rate. &he lending

to financial institution is increased by the + percent by the year of ++, the past five years

results shows little fluctuations by one percent or + percent increase or decrease, but by the

year of + to ++ it decreases. &he investment on securities had increased in ++ and it

showed upward trend from the past five years. &he advances portfolio of Allied bank

decreased by 6 percent at the end of year ++ but by year + it was decreased by 5 percent, in year +- it was increased by 9 percent. &he operating fi'ed assets and other

3


40/48

assets of the bank showed average trend from the year +- to +, there were no such

changes occurred in operating fi'ed assets and other fi'ed assets.

,!"!" Liabilities

Table 1+: (ertical Analysis o) A*& &iability

%EARS (''/ (''0 ('"' ('"" ('"(

(ustomer deposits (0.?*.,

/"@

&(/?/.,

.0@

&."?(/*

/(@

&00?,-(

..@

,"*?.'.

/"@

Inter bank borrowings (.?../

.@

&0?/"0

0@

('?..*

,@

*0?00&

"'@

&/?0"-

-@

ills payable (?0,(

"@

&?"-(

"@

*?""0

"@

*?'",

"@

-?('&

"@Bther liabilities "&?-&-

*@

""?'-"

&@

"(?(/*

&@

"&?(0-

&@

",?-/*

&@

Sub0ordinated loans (?*0/

"@

,?*0.

"@

,?*0,

"@

,?*0&

"@

,?*0'

"@

&otal *iabilities &**?&&0

0*@

&//?*"*

0&@

*"&?0,-

0(@

*.(?&,0

0(@

,/"?'''

&@

&he customer deposit showed a little change of up to + percent in the year +- to +, but

in the year + it was decreased by 9 percent because the li1uidity position of the market

was not good in that year and it was increased by 6 percent again in ++. Inter bank borrowings were decreased by : percent in the financial year ++ as rate of borrowing were

high for inter0bank borrowing, other liabilities shows a constant result for the last five years

i.e. from year +- to ++.

,!"!( Income Statement

Table 11: (ertical Analysis o) A*& Inco#e ,tate#ent

%EARS (''/ (''0 ('"' ('"" ('"(

Interest L !eturn L 3on InterestIncome earned

4!


41/48

#arkup L !eturn L Interest

earned

&'?,."

/-@

*"?"((

//@

**?00&

/0@

,"?/"*

//@

*0?,'&

./@

$ee, (ommission, rokerage

and )'change income

&?(--

0@

&?*.'

.@

(?0"'

-@

&?&0,

-@

&?"-0

,@

(apital gain > Cividend

income

"?,."

,@

(?*,(

,@

(?,""

,@

&?,'.

-@

"'?&,&

".@

Bther income ,0

'@

&-

'@

(,"

'@

*/

'@

(.(

'@

&otal -&?(0.

"''@

,/?.-*

"''@

,'?--,

"''@

*.?'/'

"''@

&,?*-.

"''@

#arkup L !eturn L Interest and

3on0Interest )'pense


e'pensed

;".?(.&<

*0@

;((?*((<

*/@

;((?*(/<

**@

;(-?-*&<

*,@

;&"?"*(<

*0@

Bperating e'penses ;/?,"&<

(*@

;0?.'-<

("@

;""?,-.<

(&@

;"&?.*,<

(&@

;"*?0((<

(*@

"rovisions ;&?,-"<

"'@

;*?*"-<

0@

;*?&(-<

0@

;&?(-.<

-@

;"?&-(<

(@

&a'ation ;"?0-*<,@

;&?*"*<.@

;*?""/<0@

;*?0-0<0@

;*?"0,<.@

&otal e'pense 0 percentage of

total income

;&"?&""<

//@

;&0?0,/<

/,@

;*(?*&0<

/*@

;*/?-(*<

/&@

;,"?-("<

/(@

"rofit after ta'ation *?",-

"(@ .?"((

",@

/?((,

"-@

"'?"*'

".@

""?-.-

"/@

In the year ++ the profit after ta' of the bank was increased by - percent, the past trend of

five year showed an upward trend in income of Allied bank limited but in +- it was

decreased by 6 percent as compare to the income in +7. &he interest e'pense of the Allied

bank was increased from the last five years which shows less profitability of the bank.

In +6 the bank faced a loss but the bank improves its position by minimi%ing its non0

interest and interest e'penses. In ++ interest income increased by 7- percent but it is

percent less than the interest earned in +. &he profit of the bank for year ++ is decreased

due to e'cess of the interest e'pense over the interest income as the interest rate for

borrowing from other institutions were high.

,!( 2ori>ontal Anal7sis o5 ABL

,!(!' Assets

Table 12 : -ori.ontal Analysis o) A*& Assets

%EARS (''/ (''0 ('"' ('"" ('"(

(ash and balance with treasury banks

(,?.,"

",@

(.?."-

/@

&"?/*,

",@

&/?",0

('@

**?&/"

"-@

41


42/48

*ending to $inancial Institution ",?.0&

"*,@

(/?"(&

./@

""?*/0

,0@

"?&-(

//@

"'?.("

-/.@

Investment /(?-*-

(@

0*?./0

",@

"("?".&

(/@

"0,?-0*

-"@

(-.?*'&

&.@

Advances ("(?0.(

(-@

(&.?&**

""@

(,(?&*,

-@

(**?*&&

&@

(."?'/*

""@

Bperating $i'ed Assets ""?"&**.@

"(?**.

"(@

",?&-'

(&@

"/?'/.

"/@

"0?/."

"'@

Bther Assets "/?&00

-(@

".?0,,

(@

".?."0

"@

".?0-*

"@

"/?*,,

&@

&otal Assets &--?-0,

",@

*"/?&.* "

"*@

**0?0&"

/@

,",?-00

",@

-&"?0",

(&@

&he results shows that the cash and balance with treasury and other banks were increased by

: "ercent in the financial year ++ and in + it was increased by + percent, where as in

+- it shows negative result of declining by 9 percent due to the financial crises faced bythe bank.

&he lending to financial institutions decreased by 69 percent in year +- and remains

negative by the year + due to financial recession faced by the bank and less customers

deposits but it increased by :-7 percent by the year ++. Allied bank limited basically lend

advances to the corporate sector of economy which were increased by percent as it was in

negative ? percent in year +, the bank made more investment in bonds and different

securities by the year ++.

,!(!" Liabilities

Table 13: -ori.ontal Analysis o) A*& &iabilities

%EARS (''/ (''0 ('"' ('"" ('"(

(ustomer deposits (0.?*.,

"&@

&(/?/.,

""@

&."?(/*

"&@

&00?,-(

/@

,"*?.'.

(0@

Inter bank borrowings (.?../

("@

&0?/"0

*&@

('?..*

*/@

*0?00&

"*"@

&/?0"-

((@

ills payable (?0,(

"-@

&?"-(

.@

*?""0

&'@

*?'",

&@

-?('&

,*@

Bther liabilities "&?-&-/-@

""?'-""0@

"(?(/*""@

"&?(0-/@

",?-/*"/@

42


43/48

Sub0ordinated loans (?*0/

'@

,?*0.

"('@

,?*0,

'@

,?*0&

'@

,?*0'

'@

&otal *iabilities &**?&&0

",@

&//?*"*

"&@

*"&?0,-

.@

*.(?&,0

"*@

,/"?'''

(&@

In financial year + the customer deposits were - percent increased as a result to year +

but in year ++ it was increased by +5 percent. &he inter bank borrowing by the year ++

showed negative result of ++ percent decrease which is ++ percent less than standard

borrowing as the interest rate for the inter bank borrowing were high in the year ++

whereas there were more borrowing made in the year +. &he bank faced an inappropriate

loss in ++ due to the high borrowing rate.

,!(!( Income Statement

Table 14: -ori.ontal Analysis o) A*& Inco#e ,tate#ent

%EARS (''/ (''0 ('"' ('"" ('"(

Interest L !eturn L 3on Interest

Income earned


earned

&'?,."

**@

*"?"((

&,@

**?00&

0@

,"?/"*

",@

*0?,'&

*@

$ee, (ommission, rokerage

and )'change income

&?(--

*,@

&?*.'

-@

(?0"'

"-@

&?&0,

".@

&?"-0

.@

(apital gain > Cividend

income

"?,."

"@

(?*,(

,-@

(?,""

(@

&?,'.

*'@

"'?&,&

"0,@

Bther income ,0

(*@

&-

&0@

(,"

,0.@

*/

/"@

(.(

*-.@&otal &,?*-. *.?'/' ,'?--, ,/?.-* -&?(0.

43


44/48

*"@ &&@ /@ "-@ /@

#arkup L !eturn L Interest and

3on0Interest )'pense


e'pensed

;".?(.&<

."@

;((?*((<

&'@

;((?*(/<

'@

;(-?-*&<

"0@

;&"?"*(<

".@

Bperating e'penses ;/?,"&<

&.@

;0?.'-<

"*@

;""?,-.<

"0@

;"&?.*,<

"0@

;"*?0((<

0@

"rovisions ;&?,-"<

(*@

;*?*"-<

(*@

;*?&(-<

(@

;&?(-.<

(*@

;"?&-(<

,/@

&a'ation ;"?0-*<

,@

;&?*"*<

.*@

;*?""/<

("@

;*?0-0<

("@

;*?"0,<

"-@

&otal e'pense 0 percentage of

total income

;&"?&""<

*0@

;&0?0,/<

(/@

;*(?*&0<

-@

;*/?-(*<

",@

;,"?-("<

-@

"rofit after ta'ation *?",-

(@ .?"((

."@

/?((,

"-@

"'?"*'

(&@

""?-.-

",@

#arkup and interest earned showed a negative result as the interest rate were high. &helending made by the bank was not sufficient or up to the estimate which results in negative

interest income generation. &he brokerage fee and commission was also decreased by 7

percent, the interest e'pense also increases in year ++ due to which the profitability of the

bank decreased. &he bank had overall better performance in year ++, as in such a situation

the bank faced in year +6 results in bearing loss to the bank. &he Allied bank increased its

profit after ta' +6 by managing its interest and non0interest e'penses.

+2ATER #O! -

-!' +oncl4sion and Recommendation

+O#+LUSIO#

Bn the basis of the study conducted some discrepancies occurred regarding the financial

health of Allied bank limited. &o analy%e the financial performance of Allied bank !atio

analysis, (A#)* analysis and vertical > hori%ontal analysis are used as a tool. &his analysis

point out some elements regarding financial condition or operations of the bank.

&he return on e1uity show the profit stability from the last three years i.e. from the financial

year + to the year ++. &he result from return of asset shows and increasing trend from

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the financial year +- to the year ++ which show that Allied ank had incurred more

return on asset than its assets value. &he ma'imum return was earned from year +- to year

+5 and then it increases slowly. &he result of 3et interest margin show that from the year

+- to the year + the net interest margin show and increasing trend which is a cause of

deposits which are accepted by the bank on low cost, but it gradually decreases in year +

and ++. As the interest rate gets higher. &hese deposits reflects the current and saving

accounts. $urthermore in (A#)* analysis the capital ade1uacy ratio show that the bank is in

a condition where it is able to meet an une'pected loss and liabilities. As the bank followed

the incompetent operating practices and inade1uate lending principles, there were an increase

in non0performing loan which is a not a good sign for Allied bank limited. y the year +

the non0interest e'pense were controlled by making 1uality decision by the bank/s

management. Another element of (A#)* is earning ability which shows the increasing trend

in favor of bank that it can recover its losses and can pay to its shareholders in term of

dividend. As the li1uidity shows a constant movement from the year +- to the year ++, it

reflects negative sign because the bank/s current liabilities are increasing rapidly than that of

their current assets.

Allied ank is competing in a situation where it can a little profit after accomplishing its

operational cost. &he inter0banking bowering rate is higher so its interest income is up to

some e'tend not sufficient as compare to its interest e'penses.

RE+O))E#DATIO#

o Allied bank should reduce their operating e'pense so that they can increase their

profitability because their operating e'penses were uniform during financial year

+ to the year + but they increase by the end of year ++.

o Another element from the income statement interest and non0interest e'pense for the

betterment of earnings and to reduced cost.

o As the inter0banking markup rate in higher the bank should reduce the ratio of loan

from other banks, so it can be reduces the interest e'pense.

o &he provision for non0performing loan should be reduced in term of increase in profit

for bank and for reduction in bad debts.

o Allied bank limited should reduce their non0performing loan and also by improving

their loan procedures they can increase their markup income.

o As for profitability by assets management, Allied bank should improve the current

working fi' assets.

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o Allied bank should improve its li1uidity by increasing its current assets, profitability

and to make reductions in its current liabilities.

o Allied bank should open international branches in respect to capture and to hold the

foreign market earning good reputation there.

Bibliogra=67

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+arker; A. :2!!5

Documents

Research Project, Usman Aziz 01-120121-079, Arslan Aziz 01-120121-011, Khwar Aziz 01-120121-034