Hailey College of Commerce, University of the Punjab
92
Deposites, Advances & Investments
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
100000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Years
Rs
. in
bil
lio
n
Deposits Advances Investments
Hailey College of Commerce, University of the Punjab
93
Deposites, Advances & Investments
-10
0
10
20
30
40
50
60
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Years
Perc
en
tag
e
Deposits Advances Investments
The graph shows a good picture of company’s past 10 years performance regarding deposits, advances and investments. Deposits and advances are constantly increasing but the rate of increase is different during different periods. But when we see at the rate of change, it has a lot of ups and downs. Particularly rate of change in Advances fluctuate in a very wider band. In year 1992 advances increased by 6.80% in the next year it increased by 32.54% and in year 1995 it increased by 48%. There is no stability in the rate of change.
Hailey College of Commerce, University of the Punjab
94
Income, Expenditures & Pre-tax Profit
-200
-100
0
100
200
300
400
500
600
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Years
Rs. in
billio
n
Income Expenditure Pre-tax Profit
Income, Expenditures & Pre-tax Profit
0
2000
4000
6000
8000
10000
12000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Years
Rs. in
billio
n
Income Expenditure Pre-tax Profit
The graph shows that the income of the bank is increasing gradually. This seems to be good but at the same time if we take into consideration the facts, not only income of the bank is increasing but expenditure is too increasing that shows the in efficiency of the management. The pre-tax profit is least. The bank should notice that what are the reasons behind this? Why the expenses are increasing with the passage of time. Another thing notable in this regard is that there is a great fluctuation in the income expenditure and profit. This fluctuation is giving a negative impression to the investor, and as well other people who are dealing with the bank in other matters, this complex situation can be controlled by effective organization and techniques.
ALLIED BANK OF PAKISTAN LTD.BALANCE SHEET
AS ON DECEMBER 31, 1999ASSETS 1999 1998 1997
Cash 8,601,193 7,646,937 6,316,337Balance with other Banks 1,757,510 1,878,796 1,380,840Money at call and short notice. 300,000 100,000 450,000Investments 26,774,766 25,605,470 20,192,699Advances net of provisions 55,263,762 42,719,179 36,231,357Operating Fixed Assets 3,062,045 2,488,619 872,730Capital work in Progress 44,246 37,472 33160Net investments in Finance Lease 34,415 53,707 43,755Other Assets 11,088,394 8,827,987 6,882,772
106,926,331 89,358,167 72,403,650 LIABILITIESDeposits and other accounts 93,107,291 76,541,153 63,429,709Borrowings from other bank agents etc. 7,144,163 6,243,517 4,914,558Bills Payable 1,073,491 1,084,150 802,367Other Liabilities 2,588,936 2,487,440 1,741,598
Hailey College of Commerce, University of the Punjab
95
PRESENTED BY Share capital 1,063,156 1,063,156 1,063,156Reserve fund and Other Reserves 480,760 455,760 451,760Unappropriate profit 1,638 16,094 502Shareholders equity 1,545,554 1,535,010 1,515,418Surplus on revaluation of Fixed Assets. 1,466,896 1,466,896 -
3,012,450 3,001,906 1,515,418MEMORANDUM ITEMSBills for collection 8,142,388 10,910,897 10,062,812Acceptances endorsements and other obligations
18,360,244 13,354,826 13,622,536
contingent liabilities and commitments - - -
Hailey College of Commerce, University of the Punjab
96
ALLIED BANK OF PAKISTAN
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED DECEMBER 31, 1999
PARTICULARS 1999 1998 1997
Mark up interest and discount or return earned 7,287,432 6,059,060 5,026,784 Less Cost/Return on Deposits, borrowing etc 6,953,006 5,289,971 4,639,053
334,426 769,089 387,731Free commission and brokerage 358,997 426,229 361,322Profit from dealing securities 1,172,042 1,033,310 1,130,242Profit from investment securities 971,956 755,170 564,453Dividend Income 21,791 14,401 18,398Other operating income 995,310 607,820 1,191,176
OPERATING EXPENSESAdministrative Expenses 3,772,889 3,396,440 2,960,699Provision written back and against non performing Advances (53,131) (254,885) 712,492Loss from diminution value of investments -- 218,398 (9,649)Other provisions -- 36,587 33,157
Hailey College of Commerce, University of the Punjab
97
ALLIED BANK OF PAKISTAN LTD.COMMON SIZE BALANCE SHEET
As on december 31, 1999ASSETS 1999 1998 1997
Cash 8.04 8.56 8.72 Balance with other Banks 1.64 2.10 1.91 Money at call and short notice. 0.28 0.11 0.62 Investments 25.04 28.65 27.89 Advances net of provisions 51.68 47.81 50.04 Operating Fixed Assets 2.86 2.78 1.21 Capital work in Progress 0.04 0.04 0.05 Net investments in Finance Lease 0.03 0.06 0.06 Other Assets 10.37 9.88 9.51
100.00 100.00 100.00 LIABILITIESDeposits and other accounts 87.08 85.66 87.61 Borrowings from other bank agents etc. 6.68 6.99 6.79 Bills Payable 1.00 1.21 1.11 Other Liabilities 2.42 2.78 2.41
97.18 96.64 97.91 Net Assets 2.82 3.36 2.09
PRESENTED BY Share capital 0.99 1.19 1.47 Reserve fund and Other Reserves 0.45 0.51 0.62 Unappropriate profit 0.00 0.02 0.00 Shareholders equity 1.45 1.72 2.09 Surplus on revaluation of Fixed Assets. 1.37 1.64 -
2.82 3.36 2.09 MEMORANDUM ITEMSBills for collection 7.61 12.21 13.90 Acceptances endorsements and other obligations 17.17 14.95 18.81 contingent liabilities and commitments - - -
Hailey College of Commerce, University of the Punjab
98
ALLIED BANK OF PAKISTAN
COMMON SIZE PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED DECEMBER 31, 1999
PARTICULARS 1999 1998 1997
Mark up interest and discount or return earned 100.00 100.00 100.00 Less Cost/Return on Deposits, borrowing etc 95.41 87.31 92.29
4.59 12.69 7.71 Free commission and brokerage 4.93 7.03 7.19 Profit from dealing securities 16.08 17.05 22.48 Profit from investment securities 13.34 12.46 11.23 Dividend Income 0.30 0.24 0.37 Other operating income 13.66 10.03 23.70
48.30 46.82 64.96 52.89 59.51 72.68
OPERATING EXPENSESAdministrative Expenses 51.77 56.06 58.90 Provision written back and against non performing Advances (0.73) (4.21) 14.17 Loss from diminution value of investments - 3.60 (0.19)Other provisions - 0.60 0.66
51.04 56.06 73.54 1.85 3.46 (0.86)
Other Income 0.88 1.45 2.07 2.73 4.91 1.21
Other charges 1.76 2.11 0.64 Profit before taxation 0.98 2.80 0.57 Taxation – Current 0.83 2.48 6.67 Deferred - - (6.37)
0.83 2.48 0.30 Profit after taxation 0.14 0.32 0.27 Unappropriated profit brought forward 0.22 0.01 0.01 Profit available for appropriation 0.37 0.33 0.28
Hailey College of Commerce, University of the Punjab
99
RATIOS ANALYSIS
PROFITABILITY RATIOS
NET PROFIT RATIO
= × 100
1997 1998 1999
Net Profit After Tax 13,664 19,592 10,554
Interest Received 5,026,784 6,059,060 7,287,432
Net Profit Ratio 0.2718% 0.3234 % 0.1448 %
Net profit as percentage of Interest received increased a little in 1998 (from 0.2718% to 0.323%), but it is very low and has a decreasing trend in year 1999 it decreased to 0.1448% from year 1998 i.e. 0.3234% the decrease in the profit from year 1998 to year 1999 is too much than an increase in profit volume from year 1997 to year 1998. The decreasing Net Profit trend shows the management’s inefficiencies to control the operating costs and maximize the profit.
Hailey College of Commerce, University of the Punjab
Net Profit Ratio
-
0.0500
0.1000
0.1500
0.2000
0.2500
0.3000
0.3500
1997 1998 1999
Years
Pe
rce
nta
ge
100
Net Profit after TaxInterest Received
RETURN ON ASSETS
= × 100
1997 1998 1999
Net Profit After Tax 13,664 19,592 10,554
Total Assets 72,403,650 89,358,167 106,926,331
Return on Assets 0.0189 0.0219 0.0099
This ratio shows that the return is lesser in 1999 as compared to return on assets in the year 1998. it was 0.0189% in 1997 and increased to 0.0219% in 1998, but it decreased very sharply in 1999 to 0.0099%. Although interest and discount on loans which is the major source of revenue for bank has increased in 1999 as compared to last year, but cost on deposits and borrowing which is the major expenditure of bank has increased more in the current year than the last year.
Another reason of decrease in return is the reduction in lending rate and increase in financial cost, total assets in 1999 have also increased substantially than last year so return on assets has decreased in 1999.
Hailey College of Commerce, University of the Punjab
Return on Assets
-
0.0050
0.0100
0.0150
0.0200
0.0250
1997 1998 1999
Years
Pe
rce
nta
ge
101
Net Profit after TaxTotal Assets
RETURN ON SHAREHOLDERS FUNDS
= × 100
1997 1998 1999
Net Profit After Tax 13,664 19,592 10,554
Shareholders’ Funds 1,515,418 3,001,906 3,012,450
Return on Shareholders’ Funds 0.9017 0.6527 0.3503
This ratio is a further explanation of the above ratio that is the rate of return has decreased substantially in year 1998 and again in year 1999. The reason behind is that rate of increase in revenue in 1999 is lesser than the rate of increase in expenditure, moreover in 1999 profit after tax has decreased and on the other hand its denominator shareholders fund has increased due to increase in reserve fund and other reserves. Therefore both the factors are responsible for this worrisome ratio.
If this ratio decreases due to decrease in Profit, it is not a positive sign, but if the ratio decreases due to increase in shareholders’ equity, it is not bad. In this case the net profit of year is more 1998 then that of year 1997, but the ratio decreased due to increase in the shareholders’ equity, which is resultant of increased reserves. The sharp decline in year 1999 is due to decrease in profits.
Hailey College of Commerce, University of the Punjab
Equity Share Capital 1,063,156 1,063,156 1,063,156
Return on Equity Share Capital 1.2852 1.8428 0.9927
Calculation made on the base of data available shows that profit earning after taxes in 1999 has decreased due to increased financial cost of funds for which expected investment avenues did not open up the situation rather worsened with reduced return on lending.
Here in this ratio we see that ratio is disturbed by the single factor of reduction in profit as there in no further flotation of share in the stock exchange in current year.
Hailey College of Commerce, University of the Punjab
Return on Equity Share Capital 0.1285 0.1843 0.0993
This ratio is telling the same story as was telling the above ratio. Because there is no issuance of share capitals in year 1998 and year 1999. The profit increased in year 1998, but it has decreased in 1999 and that is why earning per share has also decreased.
This ratio has a great importance for the shareholders point of view. The shareholders want a higher return on their investment.
Hailey College of Commerce, University of the Punjab
Here we are watching very interesting situation, as there is an increasing interest income in 1999 but ratio is decreasing reason is this that growth ratio (20%) in interest income not accompanied by ratio of increase in total loans.As government reduced lending rate during 1999 and people borrowed more from banks for investment that is why return on loans has decreased in 1999.
Investment in any country will be encouraged by fall in the interest ratio. In improvement in the ratio leads to improvement in very aggregate profitability measures.
Hailey College of Commerce, University of the Punjab
Rate of Return at Loans
12.6000
12.8000
13.0000
13.2000
13.4000
13.6000
13.8000
14.0000
14.2000
14.4000
1997 1998 1999
Years
Pe
rce
nta
ge
105
Interest Income
Total Loans
OPERATING RATIO
= × 100
1997 1998 1999
Operating Costs 3,696,699 3,396,440 3,719,758
Interest Earned 5,026,784 6,059,060 7,287,432
Operating Ratio 73.5400 56.0556 51.0435
As the graph shows the operating costs are decreasing year by year. In year 1997 it was 73.54 % of the interest earned and it decreased in year 1998 to 56.06% in the next year it again decreased to 51.04% of the interest earned. The decreasing trend of the operating costs shows the efficiency of the management to control the operating costs. But the Operating costs itself as a percentage of the interest earned is very heavy although the management is trying to control these costs; these are still a very huge percentage of interest earned.
Hailey College of Commerce, University of the Punjab
Operating Ratio
-
10.0000
20.0000
30.0000
40.0000
50.0000
60.0000
70.0000
80.0000
1997 1998 1999
Years
Pe
rce
nta
ge
106
Operating Costs
Interest Earned
LIQUIDITY RATIOS
CURRENT RATIO
=
1997 1998 1999
Current Assets 8,147,177 9,625,733 10,658,703
Current Liabilities 49,911,493 54,266,721 67,896,718
Current Ratio 1:0.16 1:0.18 1:0.16
Current ratio of the bank is going to be decreased as in it 0.16 in 1997, increased somewhat to 0.18 in 1998 and decreased 0.16 in 1999. The fluctuation in the ratio is normal thing by year to year, but is alarming because, it is less than one. It is recommended that the current ratio should be at least 1 : 1, where it not so. It means the Bank is not in a position to its current liabilities fully. It should be increased.
Hailey College of Commerce, University of the Punjab
Current Ratio
-
0.2000
0.4000
0.6000
0.8000
1.0000
1.2000
1997 1998 1999
Years
Cu
rre
nt
As
se
t/C
urr
en
t L
iab
iliti
es
107
Current Assets
Current Liabilities
LOAN TO DEPOSITS RATIO
= × 100
1997 1998 1999
Total Loans 36,231,357 42,719,179 55,263,762
Total Deposits 63,429,709 76,541,153 93,107,291
Loan to Deposit Ratio 57.12% 55.81% 59.35%
This ratio shows a relationship between loans and advances and reveals how much productively the deposits are used. Analysis shows an increase in loan to deposit ratio, this is because of Govt. has decreased lending rate that is why borrowing is more in 1999 as compared to in 1998 on the other hand bank’s deposits are also increasing sharply if deposits increase by higher rate than an increase in loan then bank has to face difficulty to pay its borrowing cost to the lender.
Hailey College of Commerce, University of the Punjab
Loan to Deposit Ratio
54.0000
55.0000
56.0000
57.0000
58.0000
59.0000
60.0000
1997 1998 1999
Years
Pe
rce
nta
ge
108
Total Loans
Total Deposits
LOAN TO ASSETS RATIO
= × 100
1997 1998 1999
Total Loans 36,231,357 42,719,179 55,263,762
Total Assets 72,403,650 89,358,167 106,926,331
Loan to Assets Ratio 50.0408 47.8067 51.6840
Total assets of the bank increased from Rs.89 (billion) to Rs.107 (billion) in 1999 (72 billion to 89 billion in year 1998) and advances/loans net of provision have increased from Rs.43 (billion) in 1998 to Rs.55 (billion) in 1999. We have 22% increase in assets and 28% increase in total assets is lesser than the increase in total advances which has resulted in an increase in loan to assets ratio from 47.80% in 1998 to 51.68% in 1999.
Hailey College of Commerce, University of the Punjab
Loan to Assets Ratio
45.0000
46.0000
47.0000
48.0000
49.0000
50.0000
51.0000
52.0000
1997 1998 1999
Years
Pe
rce
nta
ge
109
Total Loans
Total Assets
LONG TERM SOLVENCY & CAPITAL RATIOS
EQUITY CAPITAL TO ASSETS RATIO
= × 100
1997 1998 1999
Equity Capital 1,063,156 1,063,156 1,063,156
Total Assets 72,403,650 89,358,167 106,926,331
Equity Capital to Assets Ratio 1.47% 1.19% 0.99%
In current year bank’s assets have been increased from Rs.89 billion to Rs.107 billion there by increase @ 20.22% over the last year (year 1998: 23.42% increase). On the other hand bank’s equity has not increased and remained unchanged during the year 1999, so this is the reason that ratio equity to assets has decreased from 1.19% in 1998 to 0.994% in 1999. Denominator total assets have increased substantially during the year 1999 but no increase in equity capital resulting in decreasing ratio.
Hailey College of Commerce, University of the Punjab
Equity Capital to Assets
-
0.2000
0.4000
0.6000
0.8000
1.0000
1.2000
1.4000
1.6000
1997 1998 1999
Years
Pe
rce
nta
ge
110
Equity Capital
Total Assets
PROPRIETARY RATIO
= × 100
1997 1998 1999
Shareholders’ Funds 1,515,418 3,001,906 3,012,450
Total Assets 72,403,650 89,358,167 106,926,331
Proprietary Ratio 2.09% 3.36% 2.82%
This ratio explains that participation in the assets by the shareholders funds is limited by outsiders fund but when we take year under review (1999) we see ratio has further decreased in 1999 as compared to the year 1998 that was increased in year 1998. Reason behind this is that increase in assets in financed by outsider’s fund rather than the fund provided by the shareholders because there is lesser increase in shareholders fund as compared to increase in total assets.
Hailey College of Commerce, University of the Punjab
This ratio depicts the relation between equity and debt financing. This current year ratio shows an increase in ratio from 28.76times to 34.49 times. The ultimate increase in this ratio has decreased the ling term solvency of the bank. Because lesser is the equity financing lesser will be the soundness of the bank.
The reason behind this increase is an increase in external borrowings although there is an increase in internal debt but rate of increase in external borrowing.
Hailey College of Commerce, University of the Punjab
Debt Equity Ratio
-
20.0000
40.0000
60.0000
80.0000
100.0000
120.0000
1997 1998 1999
Years
Pe
rce
nta
ge
112
Long term Debt
Shareholders’ Equity
RecommendationsAllied Bank of Pakistan Limited is a well known and successful financial institution in the banking sector, it is said, nothing is perfect in the world, and there is always space for deficiencies. I would like to suggest some recommendations for the deficiencies which I have found during my internship. I am humbly committed that these recommendations are not result of financial analysis of the bank because recent accounts were not available to me.
In order to complete with the other banks ATM services should be expanded throughout the country.
All branches should be linked through network that can better help to meet the daily transactions. In this regard Internet, E-mail and Fax Services should be provided at least in the main branches of each region.
Some of the schemes are not profit making where as the bank is an institution that earn earns from them, so those unprofitable schemes should be finished as Karsaaz Scheme.
Separate counters must be set up to give the facility of bills collection of all utilities like WAPDA, SUI GAS, and TELEPHONE.
There should be separate cashiers for the Receipts & Payments in the each branch office.
Door to door marketing in this regard especially media and electronic marketing should be promoted in order to acquire handsome share of banking sector.
Bank branches must be beautified internally and externally by providing appropriate interior decoration.
As we know that only 15% of the people have their bank accounts, so it is the need of the time to open the branches in rural areas as well.
The bank should acquire the services of the highly qualified people accompanied by lucrative incentives to promote its status as desirable in the next millennium.
In order to market its products as Allied Tahaffuz Deposit Scheme, it should accentuate to give advertisements on both print and electronic media.
The bank should develop healthy relationships with the renowned banks of the work in order to expand its operations globally.
The individual efficiency of worthy employees should be rewarded in the form of proper increments and promotion in grades.
Hailey College of Commerce, University of the Punjab
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