We would like to dedicate this project to our parents who have

always encouraged us throughout in our academic career and make

possible for us to stand where we are today.

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In the name of ALLAH, the most kind and most merciful.

First of all we are grateful to ALLAH ALMIGHTY, who bestowed us with health,

abilities and guidance to complete the project in a successful manner, and without HIS

help we were unable to perform this task.

More than anybody else, we would like to acknowledge our project advisor, Dr.

Muhammad Mohsin Khan for his never ending support and untiring efforts. He was

always there to guide us whenever I felt stuck off and his encouragement always

worked as moral booster for us. We have found him very helpful while discussing the

tricky issues in this dissertation work.

We are thankful to all of our class fellows specially Muhammad Shahab, Zuhaib Ali

and all other friends who helped us during the project whenever any problem arose

before us.

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Executive Summary

Common Size Financial Statement discloses the internal structure of the firm. It

indicates the existing relationship between sales and each income statement account.

It shows the mix of assets that produce income and the mix of the sources of capital.

Banking sectors plays a vital role in the economy of a country because it directly

deals with the money and capital market of a country. A slight fluctuation in this

sector, directly affect the economy of a country. So we can say that it’s like the

backbone of a country. Investors take the ratings and financial analysis of a bank very

seriously, because objective of financial analysis is to forecast or determine the actual

financial status and performance of a bank.

In this report we have a brief overview of the NIB Bank. We have analyzed the

financial statements of the bank and drew a brief sketch of the financial performance

of the bank. For this purpose we have calculated a number of ratios such as liquidity

ratios, profitability ratios etc.

After studying this report you will be clear about the financial position and financial

performance of the NIB Bank.

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TABLE OF CONTENTS

TITLE PAGE NO

SECTION 1

Introduction............................................................................................ 05

Vision and mission................................................................................. 06

Quick facts.............................................................................................. 07

History of the bank................................................................................ 08

Board of directors.................................................................................. 09

Credit rating........................................................................................... 09

Investments............................................................................................. 10

Deposits................................................................................................... 11

Advances................................................................................................. 13

Provisions................................................................................................ 14

SECTION 2

Ratio analysis.......................................................................................... 15

A) Liquidity ratios……………………………………………….......... 16

Advances to Deposits…………………………………………….. 16

Earning Assets to Assets................................................................. 17

B) Profitability ratios……………………………………………......... 18

Profit after Taxes............................................................................. 19

Return on Asset............................................................................... 20

Return on Equity............................................................................. 21

Return on Operating Asset.............................................................. 23

Return on Deposits.......................................................................... 24

C) Market Ratio…………………………………………………........ 25

Earnings Per Share.......................................................................... 25

D) Income over Expense Ratio.............................................................26

Conclusion.............................................................................................. 27

Bibliography........................................................................................... 28

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INTRODUCTION

The objective of financial statements is to provide information about the financial

position, performance and changes in financial position of an enterprise that is useful

to a wide range of users in making economic decisions. Owners and managers

require financial statements to make important business decisions that affect its

continued operations. Financial analysis is then performed on these statements to

provide management with a more detailed understanding of the figures. These

statements are also used as part of management's annual report to the stockholders.

The purpose of financial statement analysis is to examine past and current financial

data so that a company's performance and financial position can be evaluated and

future risks and potential can be estimated. Financial statement analysis can yield

valuable information about trends and relationships, the quality of a company's

earnings, and the strengths and weaknesses of its financial position.

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Our Mission: To improve the quality of life for millions

Our Vision: To be the most admired Financial Institution in Pakistan

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Quick Facts about NIB

NIB started as NDLC-IFIC Bank which was incorporated in March 2003, as a public limited company

Started operations in October 2003 with paid up capital of Rs. 1.2bn with amalgamation of NDLC and of IFIC’s Pakistan operations and their assets & Liabilities, and subsequently those of Credit Agricole Indosuez Pakistan in April 2004

Temasek Holdings acquired 25% shareholding in NIB in March 2005 through Bugis Investments which was enhanced to over 70% in June 2005

NIB has grown rapidly from 2 branches in 2003 to around 240 post merger in the first quarter of 2008, with a corresponding increase in its deposits and assets base

NIB vision is to rank amongst top 5 banks in Pakistan. Therefore it acquired majority shares of PICIC on June 28 2007, which gave control of its subsidiaries (a commercial bank –PCBL, an asset management company - PICIC AMC and PICIC Insurance). NIB also has a shareholding in NAFA, an asset management company, along with National Bank of Pakistan and Fullerton Asset Management Company

Legal merger of PICIC & PCBL into NIB took place on 31st December ’07, once all regulatory approvals were obtained. Number of branches then increased from 45 to 240

Post merger NIB total assets increased to Rs. 176.6 bn as of 31st December 2007, further increasing to Rs 180 bn as of 31st September ’08. Present paid up capital of Rs. 40.4 bn is highest amongst banks in Pakistan o NIB is now the 7th largest bank in Pakistan in terms of branch network. Temasek Holding remains the largest single shareholder with approximately 74% shareholding

NIB has almost 4900 employees.

NIB business units include: a) Small Medium Enterprises and Commercial Banking Group /li> b) Corporate and Investment Banking Group / Financial Institutions c) Consumer and Small Enterprise Group d) Treasury

These are supported by 10 business enabling functions.

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History Of The Bank NIB Bank Limited started as NDLC-IFIC Bank Ltd. which was incorporated in March 2003 as a public limited company. It started operations in October 2003 when all assets, liabilities, rights and obligations of the former National Development Leasing Corporation (NDLC) and Pakistan operations of IFIC Bank were amalgamated with and into the Bank with a paid up capital of Rs.1.2bn. In April 2004 the Pakistan operations of Credit Agricole Indosuez were also amalgamated with and into NIB. In March 2005 Temasek Holdings of Singapore acquired 25% shareholding in NIB Bank, through Bugis Investments. This shareholding was further enhanced to over 70% in June '05 following an increase in NIB's paid up capital to Rs 3.4 bn. NIB Bank has since grown rapidly from a base of 2 branches in 2003 to 45 in the 4th quarter of 2007, with a corresponding increase in its assets and deposits base. NIB Bank's vision is to rank amongst the top 5 banks in the country. Therefore towards the end of June 2007 it acquired majority shares of PICIC with the aim of merging PICIC and its commercial banking subsidiary PICIC Commercial Bank Limited (PCBL) into NIB. The acquisition was financed through the country's largest private sector rights issue, with resultant increase in NIB's paid up capital to Rs.22.0 bn. The PICIC acquisition bought with it another subsidiary "PICIC AMC" and an affiliate "PICIC Insurance". NIB already has a shareholding in NAFA, an Asset Management Company (AMC) whose shareholders also include National Bank of Pakistan and Fullerton Fund Management Company; thus NIB Group’s asset management business has also increased, while it has diversified into the insurance business as well. The legal merger of PICIC & PCBL into NIB took place on December 31, 2007, once all regulatory approvals were in place. NIB Bank continues to be led by Khawaja Iqbal Hassan, supported by four business heads and ten business enabling function heads. The merger resulted in a vastly expanded branch network and total assets of Rs 176.6 bn on merger date. NIB has the highest paid up capital of Rs. 40.4 bn amongst all banks in Pakistan. Merger synergies include lower cost deposits, enhanced customer service delivery channels and overall improved efficiencies. These help provide a competitive edge in the face of increasing competition in the banking sector. Temasek Holdings continues to be the largest single investor in NIB Bank with approximately 74% shareholding. The powerful franchise of the three merged entities has been brought together to form a much larger and stronger bank to complete in the market place.

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Board   of Directors

Francis Andrew Rozario Chairman

Chia Yew Hock Wilson Director

Tejpal Singh Hora Director

Asif Jooma Director

Mahmudul Huq Bhuiyan Director

Syed Aamir Zahidi Director

Sng Seow Wah Director

Khawaja Iqbal Hassan Director and President/CEO

Credit Rating Of NIB Bank

Recognizing the progress of the NIB Bank PACRA has upgraded NIB’s long-term ratings to AA- (double A minus) and short-term ratings to A1 (A one) in July 2009.

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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 treasury 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.

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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 were 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 were 6.5 billion

approximately. Similarly we can see that there is a huge fluctuation in 2007 and 2008

it’s 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 recession

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 rate higher on which they are

raised from the depositors. Deposits are the core ingredient of the banking business

without which a company can’t be called a bank. Deposits are of two main types;

1. DEMAND DEPOSITS

These deposits are further classified to;

a) Current deposits

b) Saving deposits

2. TIME DEPOSITS

These deposits are further classified to;

a) Notice term deposits

b) Fixed term deposits

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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 from 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

profit 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)

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

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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 years its graph is

going on rising. In 2007 the acquisition of PICIC commercial bank by NIB bank took

place so that’s why the graph jumped high in 2007 however further from this year the

advances didn’t increased rather decreased this is just because of the economical

constraints that shocked the whole globe as will as this bank.

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

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RATIO ANALYSIS

Financial ratios are useful indicators of a firm's performance 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 ratios

are 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 interpret

the financial statements so that the strength and weaknesses of a firm as well as its

historical performance and current financial condition can be determined. The term

ratio refers to the numerical or quantitative relationship between two variables. With

the help of ratio analysis conclusion can be drawn regarding 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 firm’s assets correctly, to increase the investor’s wealth. It ensures a fair

return to its owners and secures optimum utilization of firm’s 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 the comparison of the

performance of different 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

ratio 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 operational

efficiency.

A. Liquidity Ratios

B. Profitability Ratios

C. Market Ratios

D. Income over Expense Ratio

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A) LIQUIDITY RATIOS

Liquidity ratios measure a firm’s 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 were made with respect to deposits.

Formula is

Advances to Deposit ratio = Total advances (in the year)

Total deposits (in the year)

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

Ratio 1.10 0.87 1.01 0.70 0.77

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Interpretation

As we can see from 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.

Earning Assets to Assets ratio:

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

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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 compared to the total

assets in this year. In 2006 the ratio is the same which means that the earning assets as

well as the total assets have increased with the same ratio. From 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, asset management and debt on operating results. These ratios examine the profit made by the firm and compare these figures with the size of the firm, the assets employed by the firm 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.

RUPEES IN --- 000 ---Year 2004 2005 2006 2007 2008PAT 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.

RUPEES IN --- 000 ---Year 2004 2005 2006 2007 2008PAT 122,609 103,771 125,937 -489,769 -7,474,679

Total assets 16,557,463 32,018,715 46,428,843 176,872,441 178,909,115ROA ratio 0.74051% 0.32349% 0.27125% -0.27124% -4.17792%

Interpretation

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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

Return on Equity measures 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 shares. 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.

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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

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

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

Interpretation

Return 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 that’s why in this year the ratio is the lowest as compared to the other years.

Return on Operating Assets:

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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 2008

Profit after Taxation 122,609 103,771 125,937 -489,769 -7,474,679Operating Assets 1,413,266 4,419,810 4,913,117 15,645,901 13,851,373

Return on Operating Assets

8.67% 2.35% 2.56% -3.13% -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 there is huge decrease in the ratio in 2008 as the loss of the PICIC commercial 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.

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Return On DepositsThis ratio shows how much return is earned in relation to the total deposits. The formula is:

Return on Deposit Ratio = Profit After Taxation x 100 Total Deposits

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

Profit after Taxation 122,609 103,771 125,937 -489,769 -7,474,679Deposits 10,648,570 22,554,274 30,566,540 116,671,219 104,586,167

Ratio 0.65% 0.63% 0.44% -0.58% -10.13%

Interpretation

As we can see from the above calculations that the trend of the ratio is decreasing from the year 2004 to 2008. The return on deposits in 2004 is 65 percent while it’s 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 percent.

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C) MARKET RATIO:

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

values obtained from the firm's financial statements.

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. Earnings per share serve as an indicator of a company's profitability. Earnings

per share 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 ratio.

Year 2004 2005 2006 2007 2008E/Share 0.99 0.45 0.37 -0.44 -2.63

Interpretation

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As we can see from the above graph 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 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 downturn in the world.

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 company’s profit. Higher the value above the 1 more the financially sound is the company or the bank. The formula is as under:

Income to expense ratio = total income/total expense

RUPEES IN --- 000 ---

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YEAR 2004 2005 2006 2007 2008Total Income 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 8,164,241Ratio (in times) 1.07 1.04 1.01 0.51 0.34

Interpretation

In 2004 the income with respect to expense is maximum but it’s decreasing year by year which means that the bank’s 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.

CONCLUSION

The NIB bank in the year 2004, 2005 and 2006 is showing positive ratios while the bank profitability decreased and even it suffered huge losses due to the acquisition of PICIC and PCBL during the years 2007 and 2008. This is because of huge provisions against the obligations of PICIC and PCBL. These provisions were made by the proper notice from the State Bank of Pakistan as this was mandatory for the NIB bank.

The NIB bank although made a profit of 2 billion during the years 2007 and 2008 but it was veiled by the huge provision. NIB bank made for about 9 billion of provisions in 2008. Expenses were also increased during these two years and the earnings were not enough to cover these expenses. Similarly the total assets also increased as NIB bank acquired the prescribed banks so there was a huge problem of managing these assets.

Second reason but an indirect reason for the losses in 2007 and 2008 is the recession, which affected almost all the world’s economic systems. Thus all the banks in Pakistan as well as NIB bank were affected by this economic crisis.

NIB bank’s managers should properly manage assets by understanding the basic principals of management and by implementing them properly. They should use the resources optimally. They should also rythemate such a marketing campaign that promotes the bank and create value of the bank in the minds of its customers.

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BIBLIOGRAPHY

ANNUAL REPORTS OF NIB BANK

WWW.NIBPK.COM

WWW.GOOGLE.COM

WWW.WIKIPEDIA.COM

WWW.ANSWER.COM

BOOK OF COMMERCIAL AND CORPORATE BANKING BY S.T PETER ROSE

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