General Banking Semester Project Report Financial analysis of Bank Alfalah

Foundation University Rawalpindi Campus

Presented to : Sir. Shoaib

Presented by: Rehab ButtHassan TariqOsman AhmedFlahta Bin RashidSyeda Kanwal NoreenMuhammad Umair Tariq

Date : 16th December, 2014

Dedication

This report is dedicated to our nation, who has given us multiple resources and platform to lavish our skills and work for its prosperity. Furthermore we would like to dedicate this to our teachers, without their consultancy we would not be able to finish this report.

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Acknowledgement

We would like to thank Mr. Usman for providing us this wonderful opportunity of visiting the bank. Giving us the necessary information and data which was required for the completion of our report. Answering our questions and queries to his fullest capabilities although some questions were not answered due to privacy issues. None the less we are thank full to him for the wonderful hospitality he provided us while on our visit. Also we would like to thank the Foundation University Islamabad and its professor Shoaib (general banking and procedures teacher) for giving us this wonderful opportunity to visit these banks. This report and visit has helped us a lot and will prove even more fruitful in our future business life and endeavor’s. Last but not least I would thank my group members because without their efforts the completion of this report would have been close to impossible.

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ContentsDedication..................................................................................................................................................2

Acknowledgement.....................................................................................................................................3

Executive summary....................................................................................................................................5

1. Introduction............................................................................................................................................6

2. Ratio Analysis........................................................................................................................................6

1. Efficiency Ratio.....................................................................................................................................6

1.1. Net interest margin ratio.................................................................................................................6

1.9. Administrative Expense to non-interest income...........................................................................10

1.10. Earnings per share.......................................................................................................................11

2.1. Cash and balances with banks to total assets................................................................................12

2.4. Advances and total assets..............................................................................................................13

2.6. Gross advances to deposits...........................................................................................................15

2.8. Long term total investment to total assets.....................................................................................16

2.3. Asset Quality Ratio:..........................................................................................................................16

3.1. Non-Performing Loans (NPLs) to gross Advances......................................................................16

3.2. Provision against NPLs and Gross Advances...............................................................................17

3.3. NPLs to equity Ratio.....................................................................................................................17

3.4. NPLs write off to NPLS Provision Ratio......................................................................................18

3.5. NPLS Provision to NPLs Ratio....................................................................................................18

2.4. Capital/leverage ratio........................................................................................................................19

4.1. Capital Ratio.................................................................................................................................19

4.2. Contingent Liabilities and commitment to shareholder's Equity..................................................19

4.3. Breakup Value per Share..............................................................................................................20

4.4. Deposit to Equity Ratio.................................................................................................................21

3. Conclusion...........................................................................................................................................22

4. Appendix..............................................................................................................................................23

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Executive summary

Simply, the study unfolds the financial reports of the past five years of Bank Alfalah. This report is a brief overlook on the main aspects and features that enhances the financial position of the bank as well as it clicks the issues. Any new ideas that can be implemented to make its financial standing better are explained in this report. No issues has been missed or overlooked. Although it took us a bit of time to calculate all the ratios necessary for making suggestions and justifications we are satisfied that we have done our work to the finest of our abilities.

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1. Introduction

Incorporated on June 1, 1997 as a private company owned by renowned group Abu Dhabi under the conditions set by the company’s ordnance in 1984. It started its banking practices from November 1st, four months after its incorporation. The bank deals in commercial banking and related services as stated in the Banking companies audience of 1962.Bank Alfalah consists of 546 branches across the Middle East and Asia. There are many main branches in each major city of Islamic republic of Pakistan. Including Pakistan it has head offices in Afghanistan, Bahrain and Bangladesh. It has Head office located in Karachi as well. Most of its branches are located in Pakistan. In 2003, seeing the potential of Islamic rules and regulations, Bank Alfalah started its own Islamic banking division. All of its products being offered are made according to the sharia compliant by hiring an experienced official who knows about it from top to bottom. The official’s main job is to advise and calculate new solutions according to the Islamic laws of banking and finance.

2. Ratio Analysis

1. Efficiency Ratio

1.1. Net interest margin ratio

net interest margin ratio = interest earned - interest expense / assets * 100

Net Interest Margin Ratio

Year total interest income total income expense total assetCalculated

Result

2009 35561312 2465418038907005

52.80338511

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2010 37530256 2385544841148383

93.32329163

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2011 414298178 2568748546817380

283.0056469

1

2012 46079918 2750005653646669

4 3.46337661

2013 43961060 27066229.0061061429

12.76685810

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Return on Asset

Year Net Profit after Taxtotal assets

calculated result

2009 897035 389070055 0.2305587362010 968452 411483839 0.2353560232011 1930588 468173802 0.4123656622012 2227081 536466694 0.4151387262013 4675950 610614291 0.765778016

A performance metric that examines how fruitful a firm's investment decisions are compared to its debt situations. Higher ratio is better and it is preferred over lower income.FOR BANK AL FALAHWe see that, this company has net interest margin ratio 83.00 times in 2011, 3.46 times in 2012 and 2.76 times in 2013. It means they haven’t improved much in the past years.

1.2. Return on investment Net profit after tax / total assets * 100

Ratio for companies deciding whether or not to initiate a new project. If ROA is above the rate that the business borrows at then the project should be accepted, if not then it is rejected.FOR BANK AL FALAHWe see that, this company has ROA 0.41 times in 2011, 0.41 times in 2012 and 0.76 times in 2013. It means they have been constant and are improving in year 2013.

1.3. Return on equity

net profit after tax / shareholders equity * 100

Return on EquityYear Net Profit after Tax Total Shareholder's equity calculated results2009 897035 22133420 4.0528531062010 968452 22305544 4.3417546782011 1930588 25777038 7.4895649382012 2227081 30247402 7.3628835962013 4675950 31901744 14.65734914

The return on equity ratio (ROE) processes how much the shareholders earned for their investment in the company.FOR BANK AL FALAHWe see that, this company has ROE 7.48 times in 2011, 7.36 times in 2012 and 14.6 times in 2013. ROE is increasing gradually throughout the years, they have been constant and are improving in year 2013.

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1.4. Non-interest income to total assets ratio

total non-markup income / total assets * 100

Non-Interest income to total Assets RatioYear Total non-markup income Total assets calculated results2009 5182253 389070055 1.3319588422010 4708161 411483839 1.1441909872011 5367713 468173802 1.1465214362012 7281340 536466694 1.3572771772013 24119877 610614291 3.95010031

Bank and creditor income consequent primarily from fees. The higher it is the better it is for the bank and vice versa.FOR BANK AL FALAHAnalysis shows company has non-interest income to total assets ratio 1.14 in 2011, 1.35 in 2012 and 3.95 in 2013. It has been almost constant in 2011, 2012 and is improving in year 2013.

1.5. Interest ratiointerest paid /interest earned * 100

Interest RatioYear Interest Paid Interest earned calculated results

2009 24564180 35561312 69.075572912010 23855448 37530256 63.563243482011 25687485 44298172 57.987686262012 27500056 46079918 59.679047172013 27066229 43961060 61.56864507

This ratio states the payment of interest mainly to depositors. Lower the ratio better it is for company.FOR BANK AL FALAHAnalysis shows company has interest ratio 57.9 in 2011, 59.6 in 2012 and 61.5 in 2013. It has been gradually increasing throughout the years. 1.6. Administrative expenses to profit before tax

administrative expenses / profit before tax * 100

Administrative Expense

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Year Administrative Expenses profit before Tax calculated results2009 10923507 1016316 1074.8140342010 12578080 1368745 918.94984092011 13832096 5433718 254.56043172012 15204036 2227081 682.68895472013 17288779 6807211 253.9774219

Ratio that expresses the relationship between administrative expenses and profit before tax.FOR BANK AL FALAHAnalysis Shows Company has administrative expenses 254.5 in 2011 and with a major increase in expenses at 682.6 in 2012 and finally at 253.9 in 2013 which is back to what it was in 2011.

1.7. Net interest income after provision to total assets

net interest income after provision / total assets * 100

net interest income after provision to Total assetYear Net interest income after provision Total Assets calculated results

2009 6835605 389070055 1.7569085342010 9414425 411483839 2.287920962011 14281193 468173802 3.0504041322012 15021330 536466694 2.8000489442013 15841183 610614291 2.594302694

This is the relation between interests earned less provision to total assets. It is very useful for banks.FOR BANK AL FALAHAnalysis shows company has net interest income after provision to total assets is 3.05 in 2011, 2.80 in 2012 and 2.59 in 2013. It has increased in 2011 and with a drop in 2012 it has further dropped to 2.59 in the year 2013.

1.8. Non-interest expenses to total income

non-interest expenses / total income * 100

Non-interest expense to total incomeYear Non-interest expenses total income calculated results

2009 11001542 10907132 100.86558042010 1368745 13674808 10.00924474

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2011 14215188 19648906 72.345951472012 15519468 22302670 69.585695342013 17312666 168911831 10.24952835

1.9. Administrative Expense to non-interest income

=Administrative Expense / non-interest income*100

Administrative Expenses to non-interest income

Year Administrative Expenses non-interest income calculated results2009 10923507 5182253 210.78683342010 12578080 4708161 267.15484032011 13832096 5367713 257.69067762012 15204036 7281340 208.80821392013 17288779 8278694 208.8346181

The ratio expresses total admin expense to non-interest income.FOR BANK AL FALAHAnalysis shows company has admin expense to non-interest income 257.6 in 2011, 208.8 in 2012 and 208.8 in 2013. It has decreased and remained constant in 2012, 2013 however it was higher in year 2011.

1.10. Earnings per share

=net profit after tax / no of ordinary shares

Earnings per share (EPS)Year net profit after tax Par value share capital calculated results

2009 897035 10 13491563 66.488589942010 968452 10 13491563 71.782046312011 1930588 10 1349156.3 1430.9594822012 4556121 10 13491563 337.70149542013 4675950 10 13491563 346.5832684

EPS is the ratio between net profits after tax to no of ordinary shares at the end of the year as

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presented in balance sheet.FOR BANK AL FALAHAnalysis shows company has EPS 1430 in 2011, 337 in 2012 and 346 in 2013. It has been considerately higher in 2011 and with an exceptional decrease in 2012 it has been constant in 2013 in comparison to 2012.

1.11. Operating expense ratio

operating expense / net income * 100

Operating Expense RatioYear Operating Expense Net income calculated results

2009 10923507 12017858 90.893959642010 12578080 14122586 89.063575182011 13832096 19648906 70.396265322012 15204036 4556121 333.70571152013 17288779 24119877 71.67855375

It is a measure of operating efficiency.FOR BANK AL FALAHAnalysis shows company has operating expense ratio 70.3 in 2011 and with an increase of 333.7 in 2012. However it’s again back to 71.6 in 2013 as comparison to 2011.

1.12. Gain ratio

total gains / total income * 100

Gain RatioYear Total Gain Total income calculated results

2009 1019732 12017858 8.4851393652010 1211153 14122586 8.5760001742011 1255510 19648906 6.3897196112012 2637703 22302670 11.826848532013 6724703 24119877 27.88033703

A total gain consist of gain on sales of securities, gain on re-measurement, gain on long term deal etc.FOR BANK AL FALAHAnalysis shows company has gain ratio 6.38 in 2011, 11.8 in 2012 and 27.8 in 2013. It has been gradually increasing in 2011, 2012 and has taken a jump to 27.8 in year 2013.

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2. Liquidity ratios

2.1. Cash and balances with banks to total assets

=cash and balances with banks / total assets * 100

Cash and Balance with Banks to total assets

Year Cash and Balance with Banks Total Assets calculated results

2009 57778651 389070055 14.85044923

2010 57377096 411483839 13.94394884

2011 50882662 468173802 10.86832748

2012 58044054 536466694 10.81969387

2013 61204697 610614291 10.02346291 The ratio states the percent of total assets present in the form of highly liquid assets.FOR BANK AL FALAHAnalysis shows company cash and balance with banks to total assets at 10.8 in 2011, 10.8 in 2012 and 10.2 in 2013. It has been constant in 2011, 2012 and is improving in year 2013.

2.2. Total deposit and other accounts to total assets

total deposit and other accounts / total assets * 100

Total Deposit and other Accounts to total assetsYear Total Deposit and other Accounts total assets calculated results

2009 324759752 389070055 83.470765182010 354015311 411483839 86.033831092011 401247886 468173802 85.70489942012 457118723 536466694 85.209152432013 525525770 610614291 86.06509506

The relation shows what percent of total assets includes total deposits and other accounts.FOR BANK AL FALAHAnalysis shows company’s total deposit and other accounts to total assets at 85.7 in 2011, 85.2 in 2012 and 86.0 in 2013. It has been constant in 2011, 2012 and is increasing in 2013.

2.3. Investment and total assets

=total investment / total assets * 100

Investment and Total Assets

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Year Total Investment Total Assets calculated results2009 99159957 389070055 25.486401672010 113425861 411483839 27.565082822011 166531768 468173802 35.570501232012 189486762 536466694 35.32125372013 219690369 610614291 35.97858292

The relationship between investment and total assets shows investment activity with position to its total assets.FOR BANK AL FALAHAnalysis shows company’s investment and total assets at 35.5 in 2011, 35.3 in 2012 and 35.9 in 2013. It has remained constant in years 2011, 2012 and 2013 respectively.

2.4. Advances and total assets

advances net / total assets * 100Advances and Total assets

Year Advances total assets calculated results2009 188042438 389070055 48.331254382010 207152546 411483839 50.342814562011 198468512 468173802 42.392058492012 233933358 536466694 43.606315292013 260779850 610614291 42.70778687

fThe relation of advances to total assets. Is valuable for banks and DFIs.FOR BANK AL FALAHAnalysis shows company’s advances and total assets at 42.3 times in 2011, 43.6 times in 2012 and 42.7 times in 2013. It has been constant in 2011 and 2013 but it increased by a percent in year 2012.

2.5. Total liabilities to total assets

=total liabilities / total assets * 100

Total Liability to Total assetsYear Total liability Total assets calculated results

2009 366936635 389070055 94.31119932010 389178295 411483839 94.579241792011 25777038 468173802 5.5058693782012 30247402 536466694 5.638262792

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2013 31901744 610614291 5.224532814

Shows the proportion of banks assets which are financed through debt instruments.FOR BANK AL FALAHAnalysis shows company’s total liability to total assets at 5.5 in 2011, 5.6 in 2012 and 5.2 in 2013. It has decreased in year 2011 with a slight increase in 2012 and has again decreased in year 2013.

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2.6. Gross advances to deposits

=gross advances / deposits * 100

Gross Advances to DepositsYear Gross Advances Deposits calculated results

2009 188042438 324759752 57.902014292010 207152546 354015311 58.51513752011 198468512 401247886 49.46281812012 233933358 457118723 51.17562382013 26077850 525525770 4.962240006

The relation states the percent of gross advances to deposits and expresses the use of deposits in the core business of a bank.FOR BANK AL FALAHAnalysis shows company’s gross advances to deposits at 49.4 in 2011, 51.1 in 2012 and 4.96 in 2013. It has slightly increased from 2011 to 2012 but has declined in the year 2013.

2.7. Gross advances to borrowing and deposits

=gross advances / borrowing + deposits * 100

Gross advances to Borrowing and depositsYear Gross advance Borrowing deposits calculated results

2009 188042438 20653921 324759752 54.439778362010 207152546 13700124 354015311 56.335015152011 198468512 18168978 401247886 47.320107762012 233933358 15519468 457118723 49.495229642013 26077850 23115102 525525770 4.753173037

The ratio shows activity of a banking business as it echoes that advances are being made more/less than deposits.FOR BANK AL FALAHAnalysis shows company’s gross advances to borrowing and deposits at 47.3 in 2011, 49.4 in 2012 and 4.75 in 2013. It has increased slightly from 2011 to, 2012 and has decreased in year 2013.

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2.8. Long term total investment to total assets

=long term total investment / total assets * 100Long term investment to total assets

Year Long term investment total assets calculated results2009 99159957 389070055 25.486401672010 113425861 411483839 27.565082822011 166531768 468173802 35.570501232012 189486762 536466694 35.32125372013 219690369 610614291 35.97858292

The relation between long term investments to total assets shows investment activity with position to its total assets.FOR BANK AL FALAHWe see that company’s long term investment to total assets at 35.5 times in 2011, 35.3 times in 2012 and 35.9 in 2013. It has remained constant in years 2011, 2012 and 2013.

3. Asset Quality Ratio:3.1. Non-Performing Loans (NPLs) to gross Advances

= NPLs / gross advances * 100

Non-Performing Loans (NPLs) to gross AdvancesYear NPLs Gross advances calculated results

2009 59817 188042438 0.0318103732010 25504 207152546 0.01231172011 5696 198468512 0.0028699772012 5696 233933358 0.0024348812013 4288 260779850 0.001644299

Relation states the quality of loan portfolio of a bank.

FOR BANK AL FALAH

The analysis of bank shows non-performing loans to gross advances at 0.002 in 2011, 0.002 2012 and 0.001 in year 2013. It means that it remained constant for the first two years and then saw a decrease in year 2013.

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3.2. Provision against NPLs and Gross Advances

= provision against NPLs / gross advances * 100Ratio reflects the quality of advances of banks and DFIs.FOR BANK AL FALAHThe analysis of bank shows provision against NPLs and gross advances at 0.93 in 2011, 0.79 2012 and 0.36 in year 2013. It means that it was high for year 2011 and then gradually decrease in the next two years i.e 2012 - 2013.

Provision against NPLs and Gross Advances

Year Provision against

NPLs Gross Advances calculated results2009 3694546 188042438 1.9647405342010 2243687 207152546 1.083108582011 1864510 198468512 0.9394487732012 1848535 233933358 0.7901972662013 954563 260779850 0.366041701

3.3. NPLs to equity Ratio

= NPLs / total shareholders’ equity * 100

NPLs to equity Ratio

Year NPLsTotal shareholder's

equity calculated results

2009 59817 22133420 0.270256472

2010 25504 22305544 0.114339287

2011 5696 25777038 0.022097186

2012 5696 30247402 0.018831369

2013 4288 31901744 0.013441271

Relationship that indicates the exposure of equity holders to non-performing loans.FOR BANK AL FALAHThe analysis of bank shows NPLs to equity ratio at 0.02 in 2011, 0.01 2012 and 0.01 in year 2013. It means that it was increased in year 2011 but remained constant for the next two years i.e 2012 - 2013

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3.4. NPLs write off to NPLS Provision Ratio

= NPLs write off / NPLs provision * 100

NPLs write off to NPLS Provision Ratio

Year NPLs write off NPLS Provision calculated results

2009 59817 3694546 1.619062261

2010 25504 2243687 1.13670044

2011 5696 1864510 0.305495814

2012 5696 1848535 0.308135902

2013 4288 954563 0.449210791

Ratio that expresses the percent of NPLs to the provision maintained for NPLs.FOR BANK AL FALAHThe analysis of bank shows NPLs write off to NPLs provision ratio at 0.30 in 2011, 0.30 2012 and 0.44 in year 2013. It means that it remained constant for year 2011 and 2012 however it increased in the year 2013.

3.5. NPLS Provision to NPLs Ratio

= NPLs provision / NPLs * 100

NPLS Provision to NPLs RatioYear NPLS Provision NPLs calculated results  

2009 3694546 59817 6176.414732  2010 2243687 25504 8797.392566  2011 1864510 5696 32733.67275  2012 1848535 5696 32453.21278  2013 954563 4288 22261.26399  

The ratio portrays what percent of provision has been made against NPLs.FOR BANK AL FALAHThe analysis of bank shows NPLs provision to NPLs ratio at 32733.6 in 2011, 32453.2 2012 and 22261.2 in year 2013. It means that it remained almost constant with a slight change for year 2011 and 2012 however it saw a decrease in the year 2013.

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4. Capital/leverage ratio

4.1. Capital Ratio

= total shareholders’ equity / total assets * 100

Capital Ratio

Year

Total shareholder's equity Total assets calculated results

2009 22133420 389070055 5.6888006972010 22305544 411483839 5.4207582142011 25777038 468173802 5.5058693782012 30247402 536466694 5.6382627922013 31901744 610614291 5.224532814

Ratio shows the shareholders’ investment as a percent of total assets.FOR BANK AL FALAHThe analysis of bank shows capital ratio 5.5 in 2011, 5.6 2012 and 5.2 in year 2013. It shows that it remained almost constant with a slight change of a 0.1% for year 2012 and also it saw a downfall in the year 2013.

4.2. Contingent Liabilities and commitment to shareholder's Equity

= Contingent liabilities and commitment / shareholders’ equity

Contingent Liabilities and commitment to shareholder's Equity

Year

Contingent Liabilities and commitment shareholder's Equity calculated results

2009 3117529 22133420 14.085166232010 4738505 22305544 21.243619972011 6791219 25777038 26.346002212012 6016548 30247402 19.89112321

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2013 7996863 31901744 25.06716561

Ratio that Expresses exposure of contingent liabilities and commitments by banks.FOR BANK AL FALAHThe analysis of bank shows Contingent liabilities and commitment to shareholders equity 26.3 in 2011, 19.8 2012 and 25.0 in year 2013. It shows that it remained 26.3 times in 2011 and decreased to 19.8 in 2012 however it also saw a rise in the year 2013.4.3. Breakup Value per Share

= total shareholders’ equity / no of ordinary shares

Is the net worth per share and is essential to measure financial soundness of a firm.FOR BANK AL FALAHThe analysis of bank shows breakup value per share at 191.0 in 2011 and a downfall to 22.4 times in 2012 with a further rise to 23.6 in the year 2013.

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Breakup Value per share

Year

Total shareholders’

equity par value capital share calculated results2009 22133420 10 13491563 16.405378682010 22305544 10 1349563 165.27975352011 25777038 10 1349156.3 191.06042792012 30247402 10 13491563 22.419494322013 31901744 10 13491563 23.64569917

4.4. Deposit to Equity Ratio

= total deposits / total shareholders’ equity

Deposit to Equity Ratio

Year Total

Deposit Total shareholder's equity calculated results2009 324759752 22133420 14.672822912010 354015311 22305544 15.871180322011 401247886 25777038 15.566097472012 457118723 30247402 15.112660682013 525525770 31901744 16.47326146

Ratio states the relation between total deposits in a bank to the shareholders equity.FOR BANK AL FALAHThe analysis of bank shows deposits to equity ratio at 15.5 in 2011, 15.1 in 2012 and 16.4 in year 2013. It means that it remained constant for the year 2011 and 2012 however it increased in the year 2013.

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5. Conclusion

Carefully analyzing the current business situation of bank Alfalah, we observed many key aspects that could bring great revenue’s and success to the organization. The bank has great potential and if it just focuses on some of the reasons we are about to list its economy can boom. Its liquidity ratio analysis shows that bank is not up to the average level. Having greater numbers in liquidity ratio means that bank would be able to pay its debt if needed. Bank Alfalah needs to stable its leverage ratio because if its fixed cost remains the same then in the long run it generates more revenue as compared to variable cost where profit may become less due to fluctuation in prices. Although inflation may still have an effect, the problem can still be minimized to some extent. The greater the financial standing of the bank, the higher will be its share acquiring amount. So that when the bank floods shares in the market, it can sell for higher amount.

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4. Appendix

1. Year 2009, 2010

Balance sheet

Income statement

2. Year 2011, 2010

Balance sheet

Income statement

3. Year 2012, 2013

Balance sheet

Income statement

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