Comparative Analysis of Public Sector Banks

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


18/27

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


19/27

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.


20/27

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


21/27

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 %


banks


Lendings to financial institutions

Investments

Advances


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


Sub-ordinated loans


23/27

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


Provision rate


24/27

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 %


banks



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


Sub-ordinated loans

Liabilities against assets subject to

finance lease


25/27

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


Interest expense


Provision rate


26/27

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


Investments - net

Advances - net


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


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


Interest expense


Provision rate

Comparative Analysis of Public Sector Banks

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