analysis of the banking sector

8/8/2019 Analysis of the Banking Sector

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ANALYSIS OF THE

BANKING SECTORTERM PROJECT

SUBMITTED BY HARIS HUSSAIN8874 MUHAMMAD ABDULLAH JAFFER

SIDDIQUI 9038

SUBMITTED TO MR. AMYN WAHID

DATE 2-12-2009

ACKNOWLEDGEMENT


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The preparation of this important document would not have been possible

without the support, hard work and endless efforts of a large number of

individuals. We are particularly grateful for the Project Implementation Mr

Amyn Wahid

We appreciate his continuous concern from the very beginning, as the

project was spread over entire banking sector in the stock market. But with

his guidance, encouragement and at times whipping, of course, we were able

to straighten up a big discrepancy and successfully complete this project

INTRODUCTION


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As per the requirement of this project we were supposed to take fourcompanies within a particular sector. For that matter we decided to takebanking sector and the four banks we take are:

NO BANK NAME KATS CODE

1 Bank alfalah BAFL

2 MCB MCB

3 United Bank Ltd UBL

4 Arif Habib Bank Ltd AHBL

KARACHI STOCK EXCHANGE

Type Stock ExchangeLocation Karachi, PakistanOwner Karachi Stock Exchange LimitedKey people Adnan Afridi, CEOCurrency PKRNo. of listings 671Market Cap US$ 33.81 billionVolume US$ 12 billionIndexes KSE 100 Index

KSE-30 Index

Karachi Stock Exchange is the biggest and most liquid exchange in Pakistan.It was declared the Best Performing Stock Market of the World for the year2002. As of Sept25, 2009, 654 companies were listed with a marketcapitalization of Rs. 2.806 trillion (US$ 33.81 billion) having listed capital ofRs. 705.873 billion (US$ 10.615 billion).


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BRIEF PREAMBLE OF THE FOUR BANKS

BANK ALFALAH LTD

Bank Alfalah Limited was launched on June 21,1992 as a public limited company under the CompaniesOrdinance 1984. The bank commenced its operations on November 1, 1992. The bank introducedcommercial banking and related services as defined in the Banking companies ordinance, 196

Type PrivateFounded June 1992, KarachiHeadquarters Principal Office, Karachi PakistanKey people H.E. Sheikh Hamdan Bin Mubarak Al Nahayan(Chairman)

Industry BankingCapital Markets Products Loans, Credit Cards, Savings, ConsumerBanking etc

MCB

MCB Ltd formerly known as Muslim Commercial Bank Limited was incorporated by the Adamjee

Group on July 9, 1947, under the Indian Companies Act, VII of 1913 as a limited company Mian

Mohammad Mansha is the Chairman of the group (and also MCB) and hasplayed instrumental role in its success. In recognition of Mr. Manshascontribution, the Government of Pakistan has conferred him with "Sitara-e-Imtiaz", one of the most prestigious civil awards of the country.

Type PrivateFounded 1947Headquarters Registered Office: Islamabad, Principal Office:Karachi PakistanKey people Mian Mohammad Mansha (Chairman)Industry Banking

Capital Markets Products Loans, Credit Cards, Savings, ConsumerBanking etc.

UNITED BANK LTD
http://en.wikipedia.org/wiki/June_21http://en.wikipedia.org/wiki/1992http://en.wikipedia.org/wiki/November_1http://en.wikipedia.org/wiki/1992http://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/Incorporatedhttp://en.wikipedia.org/wiki/Adamjee_Grouphttp://en.wikipedia.org/wiki/Adamjee_Grouphttp://en.wikipedia.org/wiki/1992http://en.wikipedia.org/wiki/November_1http://en.wikipedia.org/wiki/1992http://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/Incorporatedhttp://en.wikipedia.org/wiki/Adamjee_Grouphttp://en.wikipedia.org/wiki/Adamjee_Grouphttp://en.wikipedia.org/wiki/June_21


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United Bank Limited (UBL) is one of the largest commercial banks in Pakistanhaving more than 1,000 branches inside the country. Its 15 branches outsidethe country are in the United States of America, Qatar, UAE, Bahrain, andRepublic of Yemen. It also has representative offices in Tehran, Iran, and

Almaty, Khazakstan. It owns subsidiaries in the UK (United National BankLimited), and in Zurich, Switzerland.

Type PublicFounded November 7, 1959Headquarters Karachi, PakistanKey people His Highness Shaikh Nahayan Mabarak Al Nahayan,Chairman

Sir Mohammed Anwar Pervez OBE, Deputy Chairman

Agha Hasan Abedi, FounderIndustry FinanceProducts Commercial Banking, Private Banking, Asset Management

ARIF HABIB BANK LTD

AHBL is one of the fastest growing Commercial Banks of the countrysupported by the strong sponsorship of Arif Habib Group.Arif Habib Group is among the largest, most innovative and fastest growing

Business Group in Pakistan. In addition to Financial Services (AssetManagement, Brokerage Services, Corporate Finance and Project Advisory,Private Equity and Commercial Bank), the Group has also interest inFertilizer, Cement and Real Estate.The Bank has an Authorized Share Capital of 6.0 Billion and Paid-up ShareCapital of 5.0 Billion. The management intends to double it in a short periodby injection of fresh capital which will strengthen the bank further.The Bank has a network of 38 Branches/Sub Branches. The branch networkcovers Sindh, Punjab, NWFP, Balochistan and Azad Jammu and Kashmir. TheBank plans to open further offices to better cover all four provinces within ashort time span.

All branches are Real Time Online providing our customers the facility todeposit at or withdraw from any of our Branches anywhere in Pakistanwithout incurring any additional charges making banking with us a faster,reliable and a convenient experience


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KSE 100 DATA FOR SIX MOTNHS

(See XLS FILE)Average closing price = 8175.238095

BAFL BETA CALCULATIONS

(See Appendix 1 BAFL Data)(For return see xls file)Average closing price = 12.02575238


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(For return see xls fil

Beta Alpha

KSE100 BAFL KSE100 BAFL

1.0 (0.0030) - 0.002

BAFL COST OF EQUITY CALCULATION

CAPM COST OF EQUITY CALCULATION

BAFL Beta -0.003

CAPM Cost o f equity

Risk Premium 1.67%

Market Return 14.00%

Risk Free Rate 12.33% (T-Bill 6 Month)

Cost Of Equity 12.32%


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MCB BETA CALCULATION

(See Appendix 2 MCB Data)(For return see xls file)Average closing price = 181.5125476

(See Appendix 2 MCB Data)(For return see xls file)

Beta Alpha

KSE100 MCB KSE100 MCB

1.0 0.033 - 0.003

MCB COST OF EQUITY CALCULATION


MCB Beta 0.032

CAPM Cost fo equity


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Risk Premium 1.67%


Risk Free Rate 12.33% (T-Bill

12

Month)


UBL BETA CALCULATION

(See Appendix 3 UBL Data)Average closing price = 48.294

(See Appendix 3b UBL Data)(For return see xls file)


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Beta Alpha

KSE100 UBL KSE100 UBL

1.0 (0.0487) - 0.002

UBL COST OF EQUITY CALCULATION


UBL Beta -0.048

CAPM Cost fo equity

Risk Premium 1.67%


Risk Free Rate 12.33%

(T-Bill 12 Month)



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ARIF HABIB BANK LTD BETA CALCULATION

(See Appendix 4 AHBL Data)(For return see xls file)Average closing price = 6.5538

(See Appendix 4 AHBL Data)(For return see xls file)

Beta Alpha

KSE100 AHBL KSE100 AHBL

1.0 0.1267 - 0.001

AHBL COST OF EQUITY CALCULATION


AHBL Beta 0.126

CAPM Cost fo equity

Risk Premium 1.67%


Risk Free Rate 12.33%



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PORTFOLIO BETA

Assuming that we have 50mn rupees to invest in the four banks that we

have taken, the portfolio beta and required return calculation isdemonstrated below based on the assume weights taken of each of thespecific bank

PROPORTION INVESTEDIN BANK % BETA

WEIGHTS

BETA*WEIGHT

AMOUNTINVESTED

PROPORTION INVESTED INBAFL % -0.003 0.25 -0.00075

12,500,000

PROPORTION INVESTED IN

MCB % 0.032 0.40 0.0128

20,0

00,000PROPORTION INVESTED IN

UBL % -0.048 0.20 -0.009610,0

00,000

PROPORTION INVESTED INAHBL % 0.126 0.15 0.0189

7,500,000

PORTFOLIO 1.00 0.021450,0

00,000


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Portfolio Required

Rate of Return

kP = kRF + (kM kRF) P

Portfolio Beta 0.0214

Risk Premium 0.67%


Risk Free Rate 12.33% ((T-Bill 12 Month))

Portfolio RequiredReturn 12.344 %

SECURITY MARKET LINE

BETAS RETURN

-0.003 12.32%

0.032 12.38%

-0.048 12.25%

0.126 12.54%

0 12.33%

1 13.00%


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GRAPHICAL REPRESENTATION OF SML

SUMMARY AND RECOMMENDATION

We would recommend MCB as our top pick amonf the four selected banks

reasons which are as follows:

1. DEPOSITS

BAFL MCB UBL AHBL

295603 361834 508707 24380

(see xls file forcalculation)


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Deposits is one of the most important parameter on judging the position on

which a bank stands. UBL has the most deep deposits base MCB stand

second

2. LOANS

Loans and deposits run side by side loans is the venue where banks earnedinterest ( which is their primary source of income) UBL stands top on loansMCB here also behind UBL

3. PROVISIONING

Though as we have seen on the deposits and loans terms on which UBL wasleading but there I a grim reality to it which is high amount of provisioningthat bank has dome in 9 months 2009. This higher provisioning signifies thebad debts poition of the bank

4. OUTSTANDING SHARES

BAFL MCB UBL AHBL691,104

,5001,349,156,

3001,112,890,

700500,000,

000

MCH has the highest number of outstanding shares in the market ascompared to the other three banks which means that bank is not being avictim of monopolizing activity and its price would not be easily manipulatedwhich is normally the case of small float stocks.

5. RETURN ON EQUITY

BANK 2008 2007

BAFL MCB UBL AHBL

188399 258849 368380 17530

BAFL MCB UBL AHBLBEST

CHOICE

PROVISIONING 1501 3892 6,423 659PROVISIONING AS A% OF LOANS 0.80% 1.50% 1.74% 3.76% BAFL


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BAFL 9.17% 25.72%

MCB 31.49% 37.68%

UBL 17% 23%

AHBL -3.29% 3.65%

6. RETURN ON ASSETS

BANK 2008 2007

BAFL 0.38% 1.04%

MCB 3.60% 4.06%

UBL 1.43% 1.26%

AHBL -0.77% 1.27%

7. EARNING PER SHARE

BANK 2008 2007

BAFL 1.63 3.92

MCB 34.81 33.92

UBL 7.15 5.09

AHBL -0.38 0.65

8. STANDARD DEVIATION

BANK 2009 (NINE

MONTHS)

BAFL 2.63%

MCB 2.914%

UBL 2.477%

AHBL 3.2546%


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APPENDIX 1 BAFL BETA

SUMMARY OUTPUT

Regression Statistics

Multiple R 0.001567107R Square 2.45582E-06

Adjusted R Square -0.008194245

Standard Error 0.026514963

Observations 124

ANOVA

df SS

Regression 1 2.1064E-07

Residual 122 0.085771278

Total 123 0.0857

Coefficients Standard Error

Intercept 0.001858739 0.002408167

0.00283246 -0.002740545 0.158328068

APPENDIX 2 MCB BETA


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SUMMARY OUTPUT

Regression StatisticsMultiple R 0.016746032

R Square 0.00028043



Observations 124

ANOVA

df SS

Regression 1 2.95043E-

Residual 122 0.1051814 Total 123 0.1

Coefficients Standard Erro

Intercept 0.002575379 0.0026667

0.00283246 0.032434653 0.1753301


R Square 0.00028043

Observations 124

APPENDIX 3 UBL BETA

SUMMARY OUTPUT


Multiple R 0.029650726

R Square 0.000879166


Standard Error 0.024952816Observations 124

ANOVA

df SS

Regression 1 6.68423

APPENDIX 4 AHBL BETA


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SUMMARY OUTPUT


Multiple R 0.059140807

R Square 0.003497635



Observations 124

ANOVA

df SSRegression 1 0.000454

Residual 122 0.129439

Total 123 0

Coefficients Standard ErIntercept 0.001058887 0.002958

0.00283246 0.127276564 0.194500


analysis of the banking sector

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