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7/29/2019 Comparative Analysis of Public Sector Banks
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Contribution of Public Sector Banks to
the Banking Industry of Pakistan.
Banks: National Bank of Pakistan, First Women Bank
Bank of Khyber, Bank of Punjab
Presented to :
BBA7
Submitted by : HSN Financial Analysts
Muhammad Hamad 057
Syed Waqas Shah 091
Umer Khan Niazi 065
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1.1. IntroductionBanks being the vital component of the financial system performs very importing role of
mobilizing funds from the surplus units to the deficient parties, banks basically plays a role of
bridge between the savers of the funds and users of the funds. It is the bank which mobilizes the
money from the savor to the entrepreneur or the business man. The financialsystem is a complex
yet understandable and easily identifiable network of interrelated markets and intermediaries
(investment banks, saving banks, pension plan, insurance companies, financial institutions) that
allocates capital and shares risks by linking lenders to borrowers, investors to entrepreneurs,
savers to spenders and the risk-averse to risk-takers, by performing this function it brings two
very important outcome i.e. fair distribution of wealth and accumulation of wealth. The
operations of bank involves a lot of risk, in fact the financial statements of the banks depicts a lotof risk. The risk involved in the banking operations is the Credit Risk. Credit risk arises by
dealing in lending, trading, settlement, and other financial transactions in which bank is directly
involved with the transacting party thats why it is adhered to that credit risk. The actual loss to
the bank could be due to the reduction in the portfolio value of the bank and either the loss could
have actually happened or it could be perceived but either the state means loss to the bank. To
cope with these potential risks is the task of a credit manager and here comes the Credit Risk
Management. So before the advancement of loans the credit officer has to evaluate the applicant
for the loan. A credit manager can take help of a number of models to assess the credit applicant
the most widely used are the traditional model and the new model. Beside these models a credit
manager can take a greater help from the prevailing indicators like interest rates and inflation
rates in the economy. Due to their crucial role in the financial systems as the intermediaries the
banks have been given a lot of importance.
To analyze the performance of a bank there have been a number of models and approaches
available both qualitative and quantitative. The qualitative tools include CAMEL approach. 5 Cs
or the traditional model etc and quantitative tools include Ratio Analysis, and DuPont Analysis
etc. These approaches have been used in the past and even now to determine the standing of the
financial institutions especially banks. In terms of quantitative analysis technique of ratio
analysis has been commonly used. Generally four major categories of the ratios are used to
analyze quantitatively, these ratios clearly depicts the original picture of the position of the bank
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and provide us with the information on the basis of which we can evaluate the performance, dig
out the reasons of failures, and compare our performance with past performances as well as with
other banks and industry average. These four broad categories of ratios include liquidity ratio
which indicate the borrowers ability to meet short-term obligations, continue operations and
remain solvent, profitability ratio specifically indicate the earnings potential and its impact on
shareholder returns, leverage ratios indicate the financial risk in the firm as evidenced by its
capital structure, and the consequent impact on earnings volatility, and operating ratios exhibit
how efficiently the assets are being utilised to generate revenue.
Being a private credit rating analysis company CSN private limited, we have analysed the public
sector banks of Pakistan. The public sector banks of Pakistan include National Bank, Bank of
Punjab, Bank of Khyber, and First Women Bank. The public banking sector of Pakistan is
lacking behind the private sector banks. This opinion is based on the fact that public sector banks
are ranked lower by the other credit rating agencies of Pakistan. During our this analysis we have
used the Du Pont analytical approach for the quantitative analysis and CAMELS approach for
the qualitative analysis.The Du Pont analytical approach has been introduced in 1920 by DuPont
corporation and this approach is also sometimes known as Du Pont identity. This model provides
us with the detailed information of the above mentioned four ratios and helps us to draw a clear
picture about the performance of the banks. Though Du Pont model has some disadvantages but
its advantages like ease in calculating and clearer results overcome these disadvantages and
make it widely used and a reliable source of information that can be used in decision making. On
the other hand CAMEL is qualitative approach for the rating of the banks. The camel is an
acronym; C-Capital advocacy, A-Assets quality, M-Management quality, E-earnings, L-
Liquidity, S-Sensitivity to market risk. This approach has enabled us to rate the public sector
banks and identify that which bank is batter on which factor. The coming sections in the report
are quantitative analysis, discussion and practical implications, and at the end the conclusion.
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1.2. Quantitative AnalysisQuantitative analysis is the process of drawing out the useful information from the raw data orfacts for decision making using complex mathematical and statistical tools. The effort is made in
order to quantify the data and facts in numerical form so that visibility and understanding of the
data is enhanced. The analysts while performing the quantitative analysis try to assign
mathematical values to the compact and abstract variables and then continue the process of
drawing out the relevant information out of the data under consideration.
The major approach that has been practiced in the quantitative analysis of the banks is Du Pont
analysis. This approach is one of the simplest and easy in calculation approach and it providesclear and reliable information for decision making. Beside the Du Pont analysis we have done
the financial statement analysis in which the focus was on the balance sheet and income
statement. In the financial statement analysis we have calculated the key ratios of balance sheet
and income statement on the basis of which we can compare the banks and rank them
accordingly. In the following sub sections we discuss the comparative financial statement
analysis, Du Pont analysis and its findings.
1.2.1.Financial Statement AnalysisFinancial statement analysis is the process of generating useful information from the data
available in the financial statements. Financial statement analysis is generally done with the help
of ratio analysis that is we compute ratios of the data available and then use the information for
year wise analysis inside the company to find out the trend of operations and to compare with the
industry bench marks in order to find the contribution towards the industry as whole. In thisproject the financial analysis of two financial statements have been done i.e. the balance sheet or
stamen of financial position and income statement or the profit and loss account.
First we discuss the comparative analysis ofbalance sheet. The first item under consideration is
the net worth. Net worth of banks is calculated by taking the difference of total assets and
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liabilities and it is commonly called as the net assets. Net worth is key measure of how much an
entity is worth. A constant increase in the value of net assets is a good indication to the firm, but
the net worth may be decreased due to losses and economic conditions prevailing in the economy
in which the company is operating. Taking the net worth of the public sector banks of Pakistan.
Figure 1 shows the net
worth of the public
sector banks in
Pakistan. The trends in
figure depict that the
net worth of the public
sector bank is growing
as whole, except the
year of 2008, and the
basic reason of that is
the economic crisis in
the economy and the
increased liabilities of the banks that dropped the net worth of these banks. If we expend the
discussion and take individual banks in account then the most worthy bank amongst these for
banks is the bank of Punjab. On the other hand there is a little difference between the net worth
of the national bank of Pakistan and first women bank. This means that in terms of net worth
these two banks are almost identical. Bank of Khyber is also showing a growing trend in terms of
the net worth. With birds eye view we can rightly claim that there is a growing trend in the
public sector banks and they are contributing to the banking industry.
The second ratio that has been calculated from the balance sheet items is the cash to total assets
ratio. This ratio measures the portion of a company's assets held in cash or marketable securities.
There is a debate among different schools of thought one is of the opinion that a higher ratio can
be good from the creditor stand point on the other hand another school of thought is of the
opinion that a higher ratio may hurt the profitability of the bank in the long run. However the
bottom line is to have a moderate ratio so that the short term liabilities and the requirements of
95000000
105000000
115000000
125000000
135000000
145000000
2007 2008 2009 2010 2011
A
m
o
u
n
t
Years
Net Worth
Bank Of Punjab
Bank Of Khyber
First Women Bank
National Bank Of
Pakistan
Figure 1: Net Worth
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the short time deposit holder can be entertained without hurting the profitability of the bank in
the longer run.
Fig.2. indicates the
cash to assets ratios
of the public banks
of Pakistan. As
indicated in the
figure the national
bank of Pakistan has
the greater ratio,
which means that it
is maintaining more
cash and short term
securities as
compared to the rest of three bank, the basic reason behind this deviation are; firstly national
bank of Pakistan is the major collector of government, secondly most of the salaries of the
government employees is paid by the national bank for that they have to keep more in cash,
thirdly the pensions of the government employees is paid through this bank. All these reasons
force the national bank of Pakistan to keep greater sum in cash and liquid securities. On the other
hand the remaining banks in the discussion have maintained a moderate ratio in order to keep
their operations going.
The third ratio that has been computed is non deposit ratio. This ratio is concerned with the
reputation risk of the bank. It means that a bank having a greater ratio will be having a greater
chance of default. Non deposit borrowings are the borrowing that a bank make in order to fulfill
its needs of funds. Though these funds help the banks in the critical situations but these funds
bring a lot of risk in terms of reputation or the default risk. So it is necessary for bank to keep the
non deposits borrowing a less as possible.
12.0306%
6.3051%5.6363%
7.0582%
0.0000%
2.0000%
4.0000%
6.0000%
8.0000%
10.0000%
12.0000%
14.0000%
National
Bank Of
Pakistan
Bank Of
Punjab
Bank Of
Khyber
First
Women
Bank
R
a
t
e
Banks
Cash To Total Asset Ratio
Cash to total asset ratio
Figure 2: Cash to Total Assets Ratio
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Fig.3. shows the non
deposit borrowing
ratio of the public
sectors of Pakistan.
Here the statistics
shows that bank of
Khyber and bank of
Punjab are having
more default risk. The
possible reason for
increased borrowing
are the financial crisis
of year 2008 and the pressure of the state bank of Pakistan to increase the number of branches.
To increase the number of branches the banks have to incur the fixed expenses, merely the
profits of the banks cannot bear these major investments so to meet these increased demands of
funds the banks have to borrow more from other sources.
After discussing three major components of balance sheet we now turn towards the ratio that has
been calculated from the Income statement items. Income statement is also known as the
statement of profit and loss and it indicates the expenses and revenues of a company or a bank.
The income statement of a bank is quite different from the income statement of other
manufacturing concerns and that is because of the nature of the business operations of a bank.
The ratio that has been calculated is the overhead efficiency ratio, and the ratio is concerned
about how much the non interest income contributing towards the coverage of the non interest
expenses. This ratio gives us a clear picture that whether a bank is capable of paying it overhead
or non interest expenses with the help of its non interest income. Banks can increase their noninterest incomes by moving to modern banking.
2.8966%
6.6769%
10.1471%
1.9827%
0.0000%
2.0000%
4.0000%
6.0000%
8.0000%
10.0000%
12.0000%
National
Bank Of
Pakistan
Bank Of
Punjab
Bank Of
Khyber
First
Women
Bank
R
a
t
e
Bank
Non Deposit Borrowing Ratio
Non deposit borrowing
ratio
Figure 3: Non Deposit Borrowing Ratio
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Fig.4. represents the over
head ratios of the banks
under consideration. The
graph suggests that the
bank of Punjab is almost
recovering its all non
interest expenses with its
non interest income. The
second most recovering
bank is the national bank
that is recovering its three
fourth noninterest expense
with its non interest income. On the other hand the bank of Khyber and first women bank have to
implement the modern banking patterns in order to increase its non interest income because they
far behind then the two other banks and from recovering their non interest expense with the
noninterest expenses.
Besides these key ratios from the balance sheet and income statement, vertical analysis of the
financial statements is also conducted of these banks. Vertical analysis is process ortechnique
foridentifying relationship between items in the same financial statement by expressing
all amounts as the percentage of the total amount taken as 100.vertical analysis is also known as
the common size analysis. In a balance sheet cash and other assets are shown as a percentage of
the total assets and the liabilities as a percentage of the total liabilities and owner equity, on the
other hand in an income statement, each expense is shown as a percentage of the sales revenue.
The graphs of the vertical analysis a given in the Annexure 1.
0.7496
0.9742
0.4548
0.2381
0.0000
0.2000
0.4000
0.6000
0.8000
1.0000
1.2000
National
Bank Of
Pakistan
Bank Of
Punjab
Bank Of
Khyber
First
Women
Bank
Ra
t
e
Banks
Overhead Ratio
Overhead ratio
Figure 4: Overhead Ratio
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1.2.2.Du Pont AnalysisDuPont is a quantitative technique for the analysis of financial statements of the company. The
DuPont analysis was first introduced by the DuPont Corporation in 1920. Basically the DuPont
analysis decomposes the return on equity into its components. Following is the stepwise
discussion about the DuPont analysis of the public sector banks.
Return on equity is one of the
key ratios and it indicates the
dollar return as a percentage of
the shareholders equity. This
ratio indicates that how much
the firm is earning against the
shareholders equity invested.
Figure 5 represents the graph
of the return on equity of the
public sector banks. The graph
and the findings of this ratio
suggest that national bank of
Pakistan and first women banks
are good at generating worth for the shareholders and the amount they have invested, on the
other hand the bank of Khyber and bank of Punjab are generating less return against the amount
invested by their shareholders.
0.2926
0.06590.0479
0.1595
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
National
bank of
pakistan
Bank of
punjab
Bank of
Khyber
First
women
bank
R
a
t
e
Banks
Return On Equity
ROE
Figure 5: Return on Equity
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Return on assets is one of the
two components when return on
equity is decomposed in the
DuPont analysis. Return on
assets shows that how much
return a bank is earning against
the total assets. Figure 6
represents the return on asset
ratio of the four public banks in
Pakistan. The pattern of the
return on assets is the same as
that of the return on the equity
except the bank of Punjab whose value has gone negative in the determination of the return on
assets ratio. And it is evident that the national bank of Pakistan and first women bank are leading
and the bank of Khyber is following the pattern but is lagging far behind. The major reason of
the lacking behind is the increased pressure of the state bank of Pakistan to increase the number
of branches due to which they have to do fixed expenses. In case of bank of Punjab, there have
been losses in three consecutive years. Another reason for lagging behind can be the low values
of the equity multiplier which is discussed in the coming paragraph.
The next ratio in the
DuPont analysis is the
Equity multiplier. Equity
multiplier is the measure
of financial leverage and
is like a double edge
sword i.e. it can enhance
the returns when the
banks are earning, and
can make the situation
even worsen if the banks
are in losses. The equity multiplier can be calculated if the total assets are divided by the total
2.0121%
-1.8451%
0.3794%
1.0118%
-0.025
-0.02
-0.015
-0.01
-0.005
0
0.005
0.01
0.015
0.02
0.025
National
bank of
pakistan
Bank of
punjab
Bank of
Khyber
First
women
bank
R
a
t
e
Banks
Return On Asset
ROA
Figure 6: Return on Assets
14.8992
5.1915 5.1431
13.5679
02
4
6
8
10
12
14
16
National
bank of
pakistan
Bank of
punjab
Bank of
Khyber
First
women
bank
R
a
t
e
Years
Equity Multiplier
Equity multiplier
Figure7: Equity Multiplier
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equity. Figure 7 represents the graphical representation of the equity multipliers of the public
sector banks of Pakistan. Due to the higher values of equity multiplier the returns of the first
women bank and national bank is increased and it is evident from the previous discussion about
the return on equity and return on assets. On the other hand the returns of bank of Khyber and
bank of Punjab are lesser because of the lesser values of the equity multiplier.
The ratio that fall next in the DuPont analysis is the asset utilization ratio. This ratio suggest that
how the assets are used
to generate good
outcomes for the bank.
This ratio basically refers
to the effective use of the
asset by the bank. This
ration is mathematically
calculated by dividing
the revenues of the bank
by the total assets of a
bank, the resulting figure
suggest that how good
are the assets utilized. Figure 8 represents the graph of the public sector banks of Pakistan, which
shows that the national bank and first women bank are doing well in asset utilization; bank of
Khyber is also doing the same pattern but is lagging a little bit behind. On the other hand the
bank of Punjab is doing at almost at the half of the remaining banks. This means that the
management of the bank of Punjab should take actions in order to improve its assets utilization.
0.1024
0.0408
0.0853
0.0925
0
0.02
0.04
0.06
0.08
0.1
0.12
National
bank of
pakistan
Bank of
punjab
Bank of
Khyber
First
women
bank
R
a
t
e
Banks
Asset Utilization
Asset utilization
Figure 8: Asset Utilization
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The next ratio after the asset
utilization is the Yield on Assets.
Figure 9 is the graph of the yield
on assets of the under
consideration four banks. Since
yield on assets is the ration
between the interest income and
average total income, and
interest income is major income
of a bank so it better for the
banks to maintain a high yield on
assets. All the under
consideration banks are generating good yield on assets which is a good sign for all these banks.
Noninterest income to
average total ratio is yet
another ratio that comes
to consideration while
doing the DuPont
analysis. Noninterest
income is also a
significant portion of the
banks income. This
income can be in the
form account fee, credit
or debit card fee, and
commission on collection of bills and other amount on behalf of others. Figure 10 contains the
noninterest income to average total assets ratio. The ratio of national bank is highest because it is
0.0829
0.0338
0.07510.0839
0
0.01
0.02
0.03
0.04
0.050.06
0.07
0.08
0.09
National
bank of
pakistan
Bank of
punjab
Bank of
Khyber
First
women
bank
R
a
t
e
Banks
Yield On Asset
Yield on asset
Figure 9: Yield on Asset
0.0195
0.0070
0.01010.0086
0
0.005
0.01
0.015
0.02
0.025
National
bank of
pakistan
Bank of
punjab
Bank of
Khyber
First
women
bank
R
a
t
e
Banks
Non Interest Income
Non interest income
Figure 10: Non Interest Income
Figure9: Yield on Asset
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the major collector of the government of Pakistan. On the other hand the remaining banks are
maintaining good ratios which are helpful for the coverage of non interest expenses
Interest expense ratio
shows how much a bank
has to pay to its depositors
as return of their
investment. Like any other
organization banks must try
to minimize their expenses.
To minimize interest
expense banks should get
funds from savers at low
interest rate and lend at
high interest rate. Figure 11
shows that Bank of Khyber has highest level of interest expense ratio that is due to the fact that
when we compare the trend of deposits we come to know that Bank of Khyber has high deposits
so for that very reason it has to pay more interest.
Premium margin is a key
financial indicator of
banks performance.
Premium margin shows
how much of its revenue
a bank is converting in
profit. A low premium
margin shows high level
of risk because a small
change in revenue may
lead to serious loss. To
increase premium margin
banks must carefully develop and improve their pricing strategies, cut their expenses, and
0.0381
0.0305
0.0516
0.0387
0
0.01
0.02
0.03
0.04
0.05
0.06
National
bank of
pakistan
Bank of
punjab
Bank of
Khyber
First
women
bank
R
a
t
e
Banks
Interest Expense
Interest expense
Figure 11: Interest Expense
0.1994
0.0418
0.07110.0939
0
0.05
0.1
0.15
0.2
0.25
National
bank of
pakistan
Bank of
punjab
Bank of
Khyber
First
women
bank
R
a
t
e
Banks
Premium margin
Profit margin
Figure 12: Premium Margin
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enhance process efficiencies. Premium margins take in account two major issues one is how
efficient bank is and how it is managing its cost. A high level of margin shows that bank is
efficient in converting its revenues to actual profits. Annexure 2.Fig.8 shows the average
premium margin for public sector banks. National Bank of Pakistan has the highest premium
margin in public sector banks as 19.9337% of total revenue is converted to actual profit,
followed by First Women Bank, Bank of Khyber, and Bank of Punjab. The reason for low
premium margin of Bank of Punjab is loss from 2008 to 2010.
1.3. Qualitative Analysis
Employing qualitative analysis of bank refers to that the analyses is made on abstract andcompact variable without going into deep mathematical and statistical procedures and methods
of quantitative analysis. Unlike the quantitative approach which gives us a compact figure say
five million sales, the qualitative analysis provides us with the generalized results say this bank is
batter on the basis of these variables. For the qualitative analysis we have employed CAMELS
rating approach.
1.3.1. CAMELS Rating
Components of CAMELS rating are capital adequacy, asset quality, management quality,
earnings, liquidity, and sensitivity to market risk. Capital adequacy- refers to banks capacity to
maintain commensurate with the nature and extent of all types of risks, as also the availability of
the bank managers to identify, measure, monitor and control these risks. Assets quality this
measure reflects the magnitude of credit risk prevailing in the bank due to its composition and
quality of loans, advances, investments, and off balance sheet activities. Management quality
signals the ability of board of directors and senior managers to identify, measure, monitor and
control risks associated with banking; this qualitative measure use risk management policies as
an indicator of sound management. Earnings this indicator shows not only amount and trend in
earnings but also analyses the robustness of expected earnings growth in future. Sensitivity to
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market risk this is recent addition to the ratings parameters and reflects the degree to which
changes in interest rates, exchange rates, commodity prices, and equity prices can affect earnings
and hence the banks capital. CAMELS rating system is to be evaluated on the scale of one to
five rating in ascending order. Lower the ratio better for the bank
Bank CAR Asset
quality
Management
quality
R
OA
R
OE
Liquidity
L-1
Liquidity
L-2
Sensitivity
ratio
Compo
siterating
NBP 1 4 2 1 2 2 2 2 2
FWB 1 3 3 5 5 2 2 2 4
BOK 1 5 1 1 3 1 1 4 3
BOP 1 5 4 5 3 1 1 4 4
Credit rating by state bank of Pakistan gives AAA to National bank of Pakistan.AAA ratingsdenote the lowest expectation of credit risk. They are assigned only in case of exceptionally
strong capacity for timely payment of financial commitments. This capacity is highly unlikely to
be adversely affected by foreseeable events and by CAMELS rating also National bank of
Pakistan is top of the list this shows high level of performance by National bank of Pakistan.
First women bank has credit rating of BBB; BBB ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic conditions is more
likely to impair this capacity. This is the lowest investment grade category. While on CAMLES
rating it scored 4 which shows high risk in future. Bank of Khyber has credit rating of A- ; A-
ratings denote a low expectation of credit risk. This capacity for timely payment of financial
commitments is considered strong. This capacity may, nevertheless, be more vulnerable to
changes in circumstances or in economic conditions than is the case for higher ratings. Same is
shown by CAMELS rating that shows a stable position. Bank of Punjab as compared to other
public sector bank has low credit rating AA- showing stable performance but due to poor
management and return on asset it scored least on CAMELS rating.
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1.4. Discussion and Practical Implications
The major discussion has been the public sector banks. The public sector of Pakistan is showing
growing trends and is contributing towards the overall banking industry of Pakistan. The results
of the analysis show
productive results. To
continue the
discussion and to
support these claims
of growing trend we
carry forward with
the trends ininvestments, deposits
and advances growth
of these banks over a
period of five years
and we base our
arguments after the post
crisis period of 2008. To start with we take the deposit pattern of these banks.
It is obvious from the graph that the deposits in public sector are showing a growing pattern.
This shows that the public sector banks are performing the basic function of mobilizing the funds
efficiently. On the other hand this trend means that the public sector banks are doing well and
people have trust in them and these banks have attained the confidence of the public. Reasons
behind this increasing trend can be the well established networks of branches even in the remote
areas and another reason is the policy of government to pay salaries to its servants through these
banks which is resulting in making non savers. To draw a compact output from this graph it can
be stated that these banks are operating efficiently and contributing a lot to the banking sector
and towards the services providing to the public and organization in the economy.
Advancing loans to the public and organizations is also a major operation of banks. Banks
perform this function in order to perform its basic function of mobilizing the funds from the
savers of the funds to the investors of the funds. If banks dont advance loan many entrepreneurs
500,000,000
600,000,000
700,000,000
800,000,000
900,000,000
1,000,000,000
1,100,000,000
1,200,000,000
1,300,000,000
2007 2008 2009 2010 2011
A
m
o
u
n
t
Years
Deposits
Bank Of Khyber
Bank Of Punjab
First Women Bank
Nationa Bank Of
Pakistan
Figure 13: Deposits
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will find it difficult to
convert their ideas to
final product hindering
economic development,
expansion plans cant
be executed, risk averse
people will not be able
to find any way to
make money on their
savings. The following
graph shows the trends
of public sector banks
of Pakistan.
The graph suggests that the public sector banks are performing their functions in a good pattern.
The banks are receiving funds from the public and then mobilize these funds to the public and
organizations. The graph suggests that the advances of the bank of Khyber and bank of Punjab
are quite higher than the national bank of Pakistan and first women bank. Though there are
differences between the advances of the individual banks in the public sector but as a whole the
trends are growing which indicate that these banks are contributing to the banking sector and
economy as a whole by advancing consumer loans and commercial loans. For the betterment of
society and economy public sector banks advance loans to small businesses, to agriculturists, and
blue chip companies as well. By advancing loans to agriculture sector public sector banks had
made a tremendous contribution for strengthening economy and small enterprises.
Along with deposits and advances investments are also one of the major components of banksbalance sheet. There is no doubt that banks major investments are their consumer and
commercial loans in the form of house building finance, credit cards, line of credit, loans for
purchase of machinery and equipment, providing finances for a major real estate project and etc,
but banks have to find other ways to make more profit such as investing in government
securities, purchasing foreign currencies and shares, and other money market investments. For
300,000,000
350,000,000
400,000,000
450,000,000
500,000,000
550,000,000
600,000,000
650,000,000
700,000,000
2007 2008 2009 2010 2011
Am
o
u
n
t
Years
Advances
Bank Of Khyber
Bank Of Punjab
First Women Bank
National Bank Of
Pakistan
Figure 14: Advances
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the investment purpose
banks try to find the right
mix of short term and long
term investments so that
neither liquidity nor
profitability got hurt.
Figure 15 shows the trend
of investment by public
sector banks.
The same trend is followed
in investment pattern as in
deposits and advances
Bank of Khyber being on top followed by Bank of Punjab, First Women Bank, and National
Bank of Pakistan.
1.5. Conclusion
There is a strong relationship between a strong banking sector and economy. It is evident from
many studies that countries having good financial system for channelization of funds develop
more quickly than others. In Pakistan State Bank Of Pakistan along with National Bank Of
Pakistan, Bank Of Punjab, Bank Of Khyber, and First Women Bank are struggling to provide
sound base for overall financial system and banking sector specifically. DuPont approach was
being used for analyzing public sector banks. From this study this come to the knowledge thathigher the level of deposits higher the level of interest expense. Increasing trend in deposits,
advances, and investments show the confidence of public in public sector banks but still lot have
to be done. Public sector banks are facing competition from private as well as foreign banks.
Along with traditional banking public sector banks must give importance to fee based banking,
and also recovery of loans. For this purpose public sector banks have to change their product and
100,000,000
150,000,000
200,000,000
250,000,000
300,000,000
350,000,000
400,000,000
450,000,000
500,000,000
2007 2008 2009 2010 2011
A
m
o
u
n
t
Years
Investments
Bank Of Khyber
Bank Of Punjab
Figure 15: Investments
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service pricing strategies, eliminate the redundant expenses, and create transparency in
processes.HSN analyst tried to provide a concise report for its clients, but this report is subject to
time and data constraints. The data constraints refer to the availability and extraction of data
from on the internet.
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Annexure.1.
Fig.1. components of Assets in % National Bank of Pakistan
Fig.2. components of Liability in % National Bank of Pakistan
12.0306% 3.7954%
2.7805%
25.4488%47.6692%
2.6068%
0.3958%
5.2728%
Components Of Asset In %
Cash and balances with treasury
banks
Balances with other banks
Lendings to financial institutions -
net
Investments - net
Advances - net
Operating fixed assets
Deferred tax assets - net
Other assets - net
1.0407%2.8966%
78.6966%
0.0000%
0.0056%0.1401%
4.4815%
1.2210%
2.2841%
6.0773%
3.1566%
Components Of Liability In %Bills payable
Borrowings
Deposits and other accounts
Sub-ordinated loans - - -
Liabilities against assets subject to
finance leaseDeferred tax liabilities
Other liabilities
Share capital
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Fig.3. Revenue composition National Bank of Pakistan
Fig.4. Expense composition National Bank of Pakistan
81%
19%
Revenue= Yeild On Asset + Non Interest Income
Yield on asset
Non interest income
52%34%
14%
Expense=Interest Expense+Non Interest
Expense+Provision
Interest expense
non interest expense
Provision rate
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Fig.5. components of Assets in % Bank of Punjab
Fig.6. components of Liabilities in % Bank of Punjab
6%1%
2%
25%
56%
1% 4%4%
Components Of Assets In %
Cash and balances with treasury
banks
Balances with other banks
Lendings to financial institutions
Investments
Advances
Operating fixed assets
0%
7%
86%
0%
0%0%
2%
2%
2%3%
1%
Components Of Liabilities In %
Share depositor money
Surplus on revaluation of assets -
net
Reserves
Bills payable
Borrowings
Deposits and other accounts
Sub-ordinated loans
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Fig.7. Revenue Composition Bank of Punjab
Fig.8. Expense composition Bank of Punjab
83%
17%
Revenue = Yeild On Asset + Non Interest Income
Yield on asset
Non interest income
64%12%
24%
Expense = Interest expense+ Non Interest
Expense + Provisions
Interest expense
non interest expense
Provision rate
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Fig.9. Components of Assets in % Bank of Khyber
Fig.10. Components of liabilities in % Bank of Khyber
5.65%6.61%
5.61%
40.97%
34.23%
1.62%0.69% 4.23%
Components Of Assets in %
Cash and balances with treasury
banks
Balances with other banks
Lendings to financial institutions
Investments
Advances
0.57%
10.15%
70.66%
0.00%
0.00%
0.00%
2.67%
11.47% 2.12%
0.39%
4.20%
0.57%Components Of Liabilities in %
Bills payable
Borrowings
Deposits and other accounts
Sub-ordinated loans
Liabilities against assets subject to
finance lease
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Fig.11. Revenue Composition Bank of Khyber
Fig.12. Expense Composition Bank of Khyber
88%
12%
Revenue = Yeild On Asset + Non Interest Income
Yield on asset
Non interest income
63%
24%
13%
Expense = Interest Expense+ Non Interest
Expense + Provisions
Interest expense
non interest expense
Provision rate
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Fig.13. Components of Assets in % First Women Bank
Fig.14. Components of Liabilities in % First Women Bank
0.070581526
0.045760715
0.095056575
31.9287%
0.427079557
0.017065713
0.002667128
0.022501342
Components Of Assets in %Cash and balances with treasury
banksBalances with other banks
Lendings to financial institutions
Investments - net
Advances - net
Operating fixed assets
Deferred tax assets - net
Other assets - net
1.0526% 1.9827%
83.5609%
0.0000%
0.0000%
0.0221%
2.3482%
3.9991%
2.1356%
4.6134%
0.2854%Components Of Liabilities in %
Bills payable
Borrowings
Deposits and other accounts
Subordinated loan
Liabilities against assets subject
to finance leaseDeferred tax liabilities - net
Other liabilities
Share capital
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Fig.15. Revenue Composition First Women Bank
Fig.16. Expense Composition First Women Bank
91%
9%
Revenue = Yeild On Asset + Non Interest
Income
Yield on asset
Non interest income
48%
45%
7%
Expense = Interest Expense+ Non Interest
Expense + Provisions
Interest expense
non interest expense
Provision rate