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5.Financial Analysis

INVESTMENTS

Investments are made by the banks in order to secure themselves and earn

some profit from it. Generally these investments are done in government

securities and shares. NIB bank invested its money in the following types of

securities;

1. Market tr easur y bills

2. Preference shares

3. Ordinary shares of listed companies

4. Pakistan Investment bonds

5. Term finance certificates and

6. Investments in Associates

The Market Treasury Bills and Pakistan Investment Bonds are held by the State

Bank Of Pakistan which are eligible for rediscounting. The market treasury bills

matures within 3 to 12 months yielding 8% to 9% markup while the Pakistan

Investment Bonds matures in 7 to 8 years carrying 8% of markup per annum.

INVESTMENTS

40,439,935

35,176,823

5,129,2856,594,0361,187,529

2004 2005 2006 2007 2008

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RUPEES IN --- 000 -- -

YEAR 2004 2005 2006 2007 2008

INVESTMENTS 1,187,529 5,129,285 6,594,036 40,439,935 35,176,823

Interpretation

As we can see from the above graph that the investments especially in the government

papers wer e round about 1 billion in 2004 it is just because that at that time it was a new

bank just starting off its business however in the next year 2005 the NIB bank rose its

investments to 5 billion and kept on rising it in 2006 as it wer e 6.5 billion approximately.

Similarly we can see that ther e is a huge fluctuation in 2007 and 2008 its just because of

the fact that the NIB bank acquired the PICIC commercial bank. But however these

investments were declined from 2007 to 2008 from 40 billion approx to 35 billion

approx. it is because of the economic melt down and r ecession originating from the west

which affected the whole world so as Pakistanis banks as well.

DEPOSITS

Deposits are the liabilities of a bank which is the main source of raising the funds.

These funds are further lend to the other customers on a r ate higher on which

they are raised from the depositors. Deposits are the core ingredient of the

banking business without which a company cant be called a bank. Deposits ar e

of two main types;

1. DEMAND DEPOSITS

These deposits ar e fur ther classified to;

a) Curr ent deposits

b) Saving deposits2. TIME DEPOSITS

These deposits ar e fur ther classified to;

a) Notice term deposits

b) Fixed term deposits

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DEPOSITS

116,671,219

104,586,167

30,566,540

22,554,274

10,648,570

2004 2005 2006 2007 2008

RUPEES IN --- 000 ---

YEAR 2004 2005 2006 2007 2008

DEPOSITS 10,648,570 22,554,274 30,566,540 116,671,219 104,586,167

Interpretation

The above graph shows gradual increase in deposits from 2004 to 2006 but the

jump of the graph form 2006 to 2007 is just because of the fact that in this year

NIB bank acquired PICIC commercial bank. So the deposits came under its

umbrella. The decrease in deposits from 2007 to 2008 shows the inefficiency of

the bank to attract more deposits rather they decreased fr om 116 billion to 104

billion.

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ADVANCES

Banks after accepting deposits disburse the money In the form of loans to

generate the pr ofit from. However besides this function banks also perform other

different functions and disburse its collected funds in different areas. These areas

come under the umbrella of the advances. Advances of NIB Bank includes

disbursement of funds in the following areas;

a) Loans, cash credits and running finances (inside or outside Pakistan)

b) Net investments in finance and lease (inside or outside Pakistan) and;

c) Bills discounted and purchased (excluding treasury bills)

ADVANCES

81,932,37

9 80,344,193

31,052,16

919,622,92

11,737,27 9

5

2004 2005 2006 2007 2008

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RUPEES IN --- 000 -- -

YEAR 2004 2005 2006 2007 2008

ADVANCES 11,737,275 19,622,929 31,052,169 81,932,379 80,344,193

Interpretation

We can see from the graph that at the time 2004 the advances are the lowest

because at that time it was just like an infant baby, it was newly formed bank

gradually NIB bank started its business and we can see that further to the next

year s its graph is going on rising. In 2007 the acquisition of PICIC commercial

bank by NIB bank took place so thats why the graph jumped high in 2007.

PROVISIONS AGAINST NON PERFORMING LOANS

RUPEES IN --- 000 ---

YEAR 2004 2005 2006 2007 2008

Provisions 73,255 91,288 269,583 1,494,801 9,657,400

9,657,400

Provisions

1,494,801

73,255 91,288 269,583

2004 2005 2006 2007 2008

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RATIO ANALYSIS

Financial ratios are useful indicators of a firm's perfor mance and financial

situation. Financial ratios can be used to analyze trends and to compare the

firm's financials to those of other firms. Ratio analysis is the calculation and

comparison of ratios which are derived from the information in a company's

financial statements. Financial r atios ar e usually expressed as a percent or as

times per period. Ratio analysis is a widely used tool of financial analysis. It is

defined as the systematic use of ratio to interpr et the financial statements so that

the str ength and weaknesses of a firm as well as its historical performance and

current financial condition can be deter mined. The term ratio refers to the

numerical or quantitative relationship between two variables. With the help of

ratio analysis conclusion can be drawn r egar ding several aspects such as

financial health, profitability and operational efficiency of the undertaking. Ratio

points out the operating efficiency of the firm i.e. whether the management has

utilized the firms assets corr ectly, to increase the investors wealth. It ensures a

fair retur n to its owners and secures optimum utilization of firms assets. Ratio

analysis helps in inter-firm comparison by providing necessary data. An inter firm

comparison indicates relative position. It provides the relevant data for thecomparison of the performance of differ ent departments. If comparison shows a

variance, the possible reasons of variations may be identified and if results are

negative, the action may be initiated immediately to bring them in line. Yet

another dimension of usefulness or r atio analysis, relevant from the View point of

management is that it throws light on the degree efficiency in the various activity

ratios measures this kind of oper ational efficiency.

A. Liquidity Ra tios

B. Profitability Ratios

C. Market Ratios

D. Income over Expense Ratio

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A) LIQUIDITY RATIOS

Liquidity ratios measur e a firms ability to meet its current obligations. These

include:

Advances to Deposit ratio:

This ratio shows the ratio of advance to deposits which means that how

much advances wer e made with respect to deposits.

Formula is

Advances to Deposit rat io = Total advances (in the year)

Total deposits (in the year)

adv/dep ratio

1.1

1.01

0.87

0.77

0.7

2004 2005 2006 2007 2008

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Rupees in --- 000 ---

YEAR 2004 2005 2006 2007 2008

Advances 11,737,275 19,622,929 31,052,169 81,932,379 80,344,193

Deposits 10,648,570 22,554,274 30,566,540 116,671,219 104,586,167

1.10 0.87 1.01 0.70 0.77Ratio

Interpretation

As we can see fr om the above graph that the net advances in 2008 are 80.34

billion which is 2% less than the previous year. In reality the surge in advances is

5 billion but provision against non performing loans has lofted it thus it shows a

less amount of advances this year. Advances in 2007 are the highest because of

the loaning to the commercial, consumers and SME sector.

Ear ning Assets to Assets r atio:

This ratio shows the relation between earnings assets and total assets. Earning

assets are those which directly contribute in earnings of a business.

The formula is

Earning Assets to Asset Ratio = Earning Assets

Assets

Earning Assets to Asset

0.3 0.29 0.29

0.24 0.24

2004 2005 2006 2007 2008

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RUPEES IN --- 000 -- -

YEAR 2004 2005 2006 2007 2008

Earning Assets 4,967,239 9,285,427 13,464,364 42,449,386 42,938,188

Total Assets 16,557,463 32,018,715 46,428,843 176,872,441 178,909,115

Ratio 0.30 0.29 0.29 0.24 0.24

Interpretation

We can see that there is 3% decrease in the year 2005 with respect to the

previous year which means that the earning assets have decreased as compar ed

to the total assets in this year. In 2006 the ratio is the same which means that the

ear ning assets as well as the total assets have increased with the same ratio.

Fr om the year 2006 to 2007 there is 21% decrease in the ratio which means that

the earning assets have not increased with the increase in the total assets. The

ratio is the same in the 2008 which means that both the earning and total assets

have increased with the same rate.

B) PROFITABILITY RATIOS:

Profitability is the net result of a number of policies and decisions. This section of

the project discusses the different measures of corporate profitability and

financial performance. These ratios, much like the operational performance

ratios, give users a good understanding of how well the company utilized its

resources in generating profit and shareholder value. The long-term profitability

of a company is vital for both the survivability of the company as well as the

benefit received by shareholders. It is these ratios that can give insight into the all

important "profit". Profitability ratios show the combined effects of liquidity, assetmanagement and debt on operating r esults. These r atios examine the profit

made by the firm and compare these figures with the size of the fir m, the assets

employed by the fir m or its level of sales.

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Profit After Taxes

Profit after taxes are given in the income statement of the bank here we have the

values on the graph which shows the profit after taxes of the NIB Bank.

122609 103771 125937

-4897692 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8

PAT

-7474679

RUPEES IN --- 000 ---

Year 2004 2005 2006 2007 2008

PAT 122,609 103,771 125,937 -489,769 -7,474,679

Interpretation

As we can see from the above calculations that the profits are increasing as we

go from 2004 to 2008 which is a very good sign which shows a high amount of

market share of the NIB Bank and pertains its strong position. However the

fluctuation of the year 2008 is because of the acquisition of the PICIC

commercial bank.

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Return on Assets:

Return on Assets (ROA) = Profit after Taxation / Average Total assets x 100

ROA is a measure of a company's profitability, equal to a fiscal year's earnings

divided by its total assets, expressed as a percentage. This is an important ratio

for companies deciding whether or not to initiate a new project. The basis of this

ratio is that if a company is going to start a project they expect to earn a return on

it, ROA is the return they would receive. Simply put, if ROA is above the rate that

the company borrows at then the project should be accepted, if not then it is

rejected.

0.74051

0.32349 0.27125

-0.27124

2004 2005 2006 2007 2008

ROA ratio -4.17792

RUPEES IN --- 000 ---

Year 2004 2005 2006 2007 2008

PAT 122,609 103,771 125,937 -489,769 -7,474,679

Total 16,557,463 32,018,715 46,428,843 176,872,441 178,909,115

assets

ROA 0.74051% 0.32349% 0.27125% -0.27124% -4.17792%

ratio

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Interpretation

The above calculations identifies that the NIB Bank is getting 0.74%, 0.32%,

0.27%, 0.27%, 4.17% returns on its assets in 2004, 2005, 2006, 2007 and 2008

respectively. The ratio shows its highest fluctuation in 2008 because of merging

of PICIC commercial Bank into NIB Bank. However from 2004 to 2007 the ratio is

going on decreasing which means that the assets were not utilized efficiently.

Return on Equity (ROE):

Return on Total Equity = Profit after taxation x 100

Total Equity

Retur n on Equity measur es the amount of Net Income earned by utilizing each

dollar of Total common equity. It is the most important of the Bottom line ratio.

By this, we can find out how much the shareholders are going to get for their

shar es. This ratio indicates how profitable a company is by comparing its net

income to its average shareholders' equity. The return on equity ratio (ROE)

measures how much the shareholders earned for their investment in the

company. The higher the ratio percentage, the more efficient management is in

utilizing its equity base and the better return is to investors.

108.98993

ROE ratio

52.46 319 2.90722

0 -0.1883

2004 2005 2006 2007 2008 -1.34357

-5

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RUPEES IN --- 000 ---

Year 2004 2005 2006 2007 2008

Net income 122,609 103,771 125,937 -489,769 -7,474,679

1,363,848 4,212,875 4,331,875 36,452,822 39,698,508Total equit y

ROE ratio 8.98993% 2.46319% 2.90722% -1.34357% -0.1883%

Interpretation

Retur n On Equity ratio is declining from 2004 to 2008 because the bank was

expanding and progressing and was purchasing more and more assets and

establishing more and more branches over the country so the customers were

also increasing. As we can see that the ratio has a great fluctuation in 2008 that

is because of merging of PICIC with NIB so that the equity of PICIC commercial

bank came under the NIB so thats why in this year the ratio is the lowest as

compared to the other years.

Return on Operating Assets:

Return on Operating Assets = Profit after Taxation x 100

Operating assets

Whereas;

Operating assets = Operating fixed assets + Cash and balances with treasury banks +

Balances with other banks

RUPEES IN --- 000 ---

YEAR 2004 2005 2006 2007 2008Profit after 122,609 103,771 125,937 -489,769 -7,474,679

Taxation

Operating Assets 1,413,266 4,419,810 4,913,117 15,645,901 13,851,373

Return on 8.67% 2.35% 2.56% -3.13% -53.96%

Operating Assets

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ROOA8.67%

2.35% 2.56%-3.13%

2004 2005 2006 2007 2008

-53.96%

Interpretation

As we can see from the above table and chart that the ratio decreases from 2004

to 2005 but then the trend goes on increasing and we can see that ther e is huge

decr ease in the ratio in 2008 as the loss of the PICIC commer cial bank and NIB

bank were cumulated and similarly the operating assets of PICIC commercial

bank also came under NIB bank thus this justifies the fact of fluctuation and

sudden jump in the values from 2007 to 2008. Economic downturn in this tenure

also affected the profitability to some extent.

Return On Deposits

This ratio shows how much return is earned in relation to the total deposits. The

formula is:

Return on Deposit Rat io = Profit After Taxation x 100

Total Deposit s

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Return On Deposits

0.65% 0.63% 0.44%

-0.58%

2004 2005 2006 2007 2008

-10.13%

RUPEES IN --- 000 -- -

YEAR 2004 2005 2006 2007 2008

Profit after 122,609 103,771 125,937 -489,769 -7,474,679

Taxation

Deposits 10,648,570 22,554,274 30,566,540 116,671,219 104,586,167

Rat io 0.65% 0.63% 0.44% -0.58% -10.13%

Interpretation

As we can see from the above calculations that the tr end of the ratio is

decr easing fr om the year 2004 to 2008. The return on deposits in 2004 is 65

per cent while its 63 percent in 2005 and 0.44 percent in 2006 while it has gone

down to -0.58 percent in 2007 which shows total loss in this year while there in

2008 we can see that NIB bank suffered huge losses and the ratio is -10.13

per cent.

C) MARKET RATIO:

Market Value Ratios relate an observable market value, the stock price, to book

values obtained from the firm's financial statements.

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Earning Per Share- EPS:

Earning Per Share = Profit after Taxation

Number of Shares

The portion of a company's profit allocated to each outstanding share of common

stock. Ear nings per share serve as an indicator of a company's profitability.

Earnings per shar e are generally considered to be the single most important

variable in determining a share's price. It is also a major component used to

calculate the price-to-earnings valuation r atio.

E/Share0.99

0.45 0.37

-0.442004 2005 2006 2007 2008

-3.63

Year 2004 2005 2006 2007 2008

E/Share 0.99 0.45 0.37 -0.44 -2.63

Interpretation

As we can see from the above gr aph that the earning per share is declining over

the years but there is huge loss in shares in 2007 and 2008. This shows the lack

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of confidence of the customers in the bank. The other core factor is the

devaluation of the Pakistani currency as well as the devaluation of the

government securities and the economic downtur n in the wor ld.

D) INCOME OVER EXPENSE RATIO

This ratio shows the relation between income and expense of a company

and tells us that how many times a company or a bank can cover its expenses.

Ratio equal to 1 tells us that the company is just covering its expensing over and

above 1 is countered as the companys profit. Higher the value above the 1 more

the financially sound is the company or the bank.

The for mula is as under:

Income to expense ratio = tot al income/total expense

income/expense ratio

1.07 1.04 1.01

0.51

0.34

2004 2005 2006 2007 2008

RUPEES IN --- 000 ---YEAR 2004 2005 2006 2007 2008

Total I ncome 429,174 742,831 1,245,595 1,107,903 2,833,649

Total Expenses 397,841 713,054 1,223,682 2,146,173 8,164,241

Ratio (in times) 1.07 1.04 1.01 0.51 0.34

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Interpretation

In 2004 the income with r espect to expense is maximum but its decreasing year

by year which means that the banks expenses are increasing but the income is

proportionally increasing with a lower rate. In 2008 ratio is the lowest which

means that the income is insufficient to meet the expenses so which means that

the bank observed high losses this year.

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6.SWOT Analysis

Strengths

_ Being the emerging bank in Pakistan it is highly recognized all over Pakistan and

it is very well known among its customers.

_ NIB Bank has a huge amount of Branches all over Pakistan where other banks

still can not be able to provide their ser vices and that is a huge bonus point for

the bank

_ The bank has huge amount of assets.

_ The bank is involved in different investing activities where there is a huge amount

of output available for the bank that bank can use for its growth.

_ NIB Bank has a very senior and dedicated work force as well as young and

creative staff which is a very big asset for the bank.

_ NIB Bank has an edge over other local banks, as it was the fir st privatized bank.

The State Bank of Pakistan has restricted the number of branches that can be

opened by foreign banks, an advantage that NIB Bank capitalizes because of its

extensive branch network.

_ Eight years after starting, NIB Bank is now in a consolidation stage designed to

lock in the gains made in recent years and prepare the groundwork for futur e

growth.

_ NIB Bank looks with confidence at year 2003 and beyond, making strides

towards fulfillment of its mission, "to become the preferred provider of quality

financial services in the country with profitability and responsibility and to be the

best place to work".

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Weaknesses

With the strengths the Bank has also some weaknesses which ar e as under

_ Though NIB Bank installed computer yet the system has not totally shifted on

computer. Manual procedure is still there hence computer facility is not fully

availed. It should be fully availed and system should be fully computerized.

_ A lot of productive time is wasted by the staff in unproductive pursuits and tea

and lunch breaks are got voluntarily extended and the time spent in corridors,

cour tyards, depends on the staff will. This tendency of late must be eliminated

which reflect adversely on the image of the institution and has posed a serious

problem.

_ It should not be like that a person who may be a very good worker but

possessing lack of managerial capabilities should be posted as manager. But as

second place in command or some heavy working department wished persons

together with managerial qualities and manners in the same fashion should be

posted and placed as manager.

_ People have to wait for re-cashing their cheques for about 10 to 12 minutes,

which is not good for the r eputation of bank.

_ It is human nature one goes behind reward and incentives while and try to avoid

from punishment. Likewise in commercial institution like bank this system be

introduced with full force means active smart, educated skilled, self spoken and

well ver sed staff personal, should be reward and appreciates, while on the other

hand lazy, lethargic, hear d, rough dealers and ill mannered must be warned

penalized and punishes

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Opportunities

The bank has a lot of opportunities which includes

_ Since the Bank has an extensive networks of branches so if the bank can be able

to computerize all of its branches then it can be able to capture the market more

efficiently

_ The bank has already a huge amount of customers by providing better and better

services to their existing customers, but word of mouth can also be helpful in

increasing the number of customers to have a competitive advantage over its

growing number of competitors.

_ Since the Bank is earning a lot of pr ofit per annum so by increasing the

employees salaries and pr oviding incentives the Bank can produce more loyal

employees that can increase the productivity.

Threats

_ With opportunities the Bank has also some threats which includes

_ Due to increasing number of foreign banks in Pakistan which offer a very

attr active package for their employees the very key employees of the bank are

more likely to resign which is a very major threat.

_ Not all branches are computerized neither providing ATM services and no online

banking and the customers demand for these services is increasing day by day

so Bank should computerize all its branches.

_ At some places, the NIB Bank Limited is over-employed. which is causing over

expenditure

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