ADVANCED FINANCIAL MANAGEMENT

FINANCIAL ANALYSIS

INTRODUCTION..........................................................................................................................4Jahangir Siddiqui Bank.........................................................................................................................4BRANCHES:..........................................................................................................................................6

FINANCE DEPARTMENT OVERVIEW:...........................................................................................7HIERARCHY..........................................................................................................................................7Management.......................................................................................................................................8Role of the Financial Department:.......................................................................................................9

JS Bank Ltd. Offers:...................................................................................................................10Retail Banking:..................................................................................................................................10Wealth Management.........................................................................................................................11Corporate Banking.............................................................................................................................11Investment Banking...........................................................................................................................11Products and Services........................................................................................................................12JS Bank Treasury................................................................................................................................12

SWOC ANALYSIS:......................................................................................................................13STRENGTH:........................................................................................................................................13WEAKNESSES:....................................................................................................................................14OPPORTUNITIES:...............................................................................................................................14CHALLENGES:.....................................................................................................................................15

PEST ANALYSIS:........................................................................................................................16Political.............................................................................................................................................16Economical........................................................................................................................................16Social.................................................................................................................................................16Technological....................................................................................................................................16

FINANCIAL ANALYSIS:...............................................................................................................17Financial Statement...........................................................................................................................17Analysis of Financial Position.............................................................................................................20Advances vs. Investments..................................................................................................................21Analysis of Financial Performance.....................................................................................................24Profitability Analysis..........................................................................................................................25Market Value....................................................................................................................................27

CONCLUSION:...........................................................................................................................28

RECOMMENDATIONS:..............................................................................................................29

REFERNCES:..............................................................................................................................30

INTRODUCTION

Jahangir Siddiqui& Co. Ltd. (JSCL) was the first securities company is Pakistan and was incorporated under the Companies Ordinance, 1984 on May 04, 1991.

It was also the first corporate associate of the Karachi Stock Exchange Ltd. It was listed on the Karachi, Lahore and Islamabad stock exchanges in Pakistan on 10 August 1993.

 

Today JS Group stands as a financial service group in Pakistan. The company has developed and diversified within financial services to include asset management, and to enter the banking sector of insurance, Islamic, investment also has a micro finance and stock brokerage.

JS Groups headquarters are in Karachi. Today the Group continues to strengthen its whole systems and controls. There is continuous challenge for growth of business, while setting standards of excellence and governance.

JahagirSiddiqui& Co. Ltd is the holding company for Jahangir Siddiqui (JS) Bank which is the

holding company for JS Global Securities and JS Investments Ltd.

Jahangir SiddiquiBank

JS Bank Limited began work in Pakistan in December 30, 2006 as a fully functioning bank.

Formed after the merger and amalgamation of Jahangir Siddiqui Investment Bank Limited and

commercial banking operations of American Express Bank Ltd Pakistan. JS Bank is a majority-

owned subsidiary of Jahangir Siddiqui& Co. Ltd. While it operates as a commercial bank it also

has a Primary Dealer license for government securities from the State Bank of Pakistan.

Jahangir Siddiqui Investment Bank Limited (JSIBL) was formed when Jahangir Siddiqui& Co.

Ltd. acquired Citicorp Investment Bank (Pakistan) Limited in 1999. JSIBL principally mobilize

funds through issuance of Certificates of Investment to individual investors, corporate clients, and

financial institutions. Short-term financing was provided to corporate clients through these funds.

The investment bank was also an active investor in equity, bond markets, and money markets

through outright repo and reverse repo transactions.

JS Group is a progressive financial service groups in Pakistan. JS Group has dynamically

expanded its business in different sectors and has introduced JS Bank Limited with various

standards of banking. JS Bank Limited operates in the Commercial banking sector. It is a

scheduled bank engaged in commercial banking and related services.

The activities of JS Bank are categorized into five business units. They are:

1. Retail and Consumer Banking

2. Wealth Management

3. Treasury

4. Corporate Banking

5. Investment Banking

Presently JS Bank has laid its footprint across metropolises of Pakistan with plans to expand its

outreach with more branches nationwide this year.

CORPORATE OFFICE:

JS Bank Limited Shaheen Commercial Complex Dr. Ziauddin Ahmed Road P.O. Box 4847 Karachi-74200 Pakistan Phone : +92 (21) 111 JS BANK Phone : +92 (21) 111 57 2265 Fax : +92 (21) 263 1803

BRANCHES :

In 2006 the number of branches was 4, which increased to 9 in 2007. In 2008 the number increased

to 39 and to 101 in 2009. In 2010, the number of branches were 129. Currently, JS Bank has 185

branches in 100 cities.

CITY BRANCH

Karachi (32) 1 ShaheenComplex 10 Gulistan-e-Jauhar2 Park Towers 11 North Nazimabad3 S.I.T.E. 12 Korangi4 Khi Stock Ex. 13 Zamzama5 Defence 14 Federal B6 Cliftion 15 Gulshan7 Gulshan-e-Iqbal 16 Shah Faisal8 Shahrah-e-Faisal 17 M.A.Jinnah Road9 Dhoraji 18 Mauripur

Lahore (21) 1 Upper Mall 5 Faisal Town2 D.H.A 6 Chowburji3 AllamaIqbal Town 7 M. M. Alam Road4 Shadman Town 8 Model Town

Islamabad (7) Blue Area F-8 Marka

Other Main CitiesHyderabad (5) Rawalpindi (6) Quetta (1)Sukkur (2) Multan (2) Peshawar (3)Larkana (1) Faislabad (2)

FINANCE DEPARTMENT OVERVIEW:

HIERARCHY:

FINANCE DEPARTMENT

CHIEF FINANCIAL OFFICER

MANAGER FINANCE

FINANCIAL CONTROL (FINCON)

GROUP FINANCIAL REPORTING

GROUP ACCOUNTS

CAPITAL REPORTING

STATUTORY/ REGULATORY REPORTING

PRODUCT CONTROL FOR

TREASURY

TAXATION

BUSINESS PERFORMANCE &

ANALYTICS

ANALYSIS OF BUSINESS

PERFORMANCE

BUSINESS PLANNING

Management

Board of Directors

Jahangir Siddiqui (Chairman)

Mr. Mazharul Haq Siddiqui

Mr. Maqbool Ahmed Soomro

Mr. Ashraf Nawabi

Mr. Rafiq R. Bhimjee

Mr. Syed Amjad Ali

Mr. Adil Matcheswala

Role of the Financial Department:

The Finance Department is responsible for the financial functions and undertakings/ activities of

the Bank. Some main activities of Finance Department are as listed below:

Administering financial transactions

Recording all financial transactions

Preparation of Financial Statements

Making Financial portfolio

Maintenance of internal control procedures such as Financial Regulations, checking

routines

Payments of payroll and pensions to employees and staff

Collection of income from all sources

Business Reviews

Planning & Forecasting

Responsible for reporting, forecasting and dealing with Taxation.

Managing the Company or Banks profit

Financial Reporting

JS Bank Ltd. Offers:

Retail Banking:

JS Bank offers a variety of products and services for both depositors and borrowers at competitive

rates. Some of the products/services offered:

CUSTOMER SERVICE PRODUCTS

Opening of Account / Amendment in Account records.

Cheque book issuance.

Closing of account.

ATM/Debit Card.

Delivery of Account Statement

Issuance of balance certificate to customers and/or to Audit Firm.

Fix Deposit Setup.

Fix Deposit Cancellation.

Payment of Cash Cheques

Cash Receipt

Handling of Check Deposited for clearing / Transfer

Issuance of Pay order/Draft by Debit to Customer account.

Cancellation of Pay order request.

Inward Remittance.

Outward remittance.

Marking of Lien on Government Securities issued by us and pledged to other banks.

Complaint Acknowledgement

Complaint Resolution

ASSET SERVICES

Issuance of E-Form

Processing of Advance Payment

Processing of Export Bills sent on collection.

Realization of export collection document.

Issuance of Guarantee.

Implementation of Limits.

Release of Security.

Wealth Management

The Wealth Management Services are for individuals looking to create, preserve and grow their

wealth with the right investment solutions customized by a team of professionals. The Wealth

Management Services, our product lines are divided into the following:

- Bancassurance

- Mutual Funds

Corporate Banking

Arelationship team is assigned to every corporate customer with an experienced and committed

relationship manager.

Through this dedicated relationship team, customers can also approach all areas of the JS Group,

enabling them to benefit from a comprehensive package of banking/investment solutions.

Field of expertise include:

1. Treasury

2. Asset Management

3. Corporate Finance

4. Brokerage Services

5. Islamic Banking for shariah-compliant banking services.

Investment Banking

Some landmark achievements of JS Bank’s investment banking group:

1. Pakistan’s first ever local currency Islamic Sukuk

2. First ever subordinated TFC issue in Pakistan

3. First 10 year corporate bond

4. First TFC issue with a conversion option

5. First perpetual bond• First commercial paper

6. First floating rate TFC issue

Products and Services

Corporate debt origination and syndication,

Underwriting,

Coordinating as bankers to the issue

Facilitating trusteeship

Agency services.

JS Bank Treasury

In an exceedingly volatile & dynamic economic environment, JS Bank’s Treasury has evolved as

an active player in the Financial Market. The Bank's client-centric treasury endeavors to partner its

customers in ensuring they use the financial markets to optimize their risk profile and enhance

value to their stakeholders. The Treasury seeks to do this by becoming the risk solutions provider

of choice, offering quality treasury products, and being the leader in product innovation. JS Bank

Ltd is a “One Stop Solution” to all your financial needs, whether it pertains to Foreign Exchange,

Fixed Income (GoP, Corporate Debt), Mutual Funds & Money Market (Deposit or Loan)

transactions.

PEST ANALYSIS:

Politica

l

• Political Instability

• Employment practices – bias.

• Incident of high taxation

• Government policies

Economical

• Constraints in mobilization of public savings

• Staff cost

• Operating cost

• Bad debts

• Economic crisis

• Weak market conditions

• Inflationary pressure

Social

• Inadequate human resources

• Defaulters lobby

• Declining education & work ethics

Technological

• Centralized operations• Latest software• Customer satisfaction through advance technology

• Heavy investment in technology

FINANCIAL ANALYSIS:

To try and understand the strength and profitability of a bank financial analysis is necessary. It

encompasses looking at financial statements to define to what extent the bank is doing well.

Financial Statements help scrutinize the financial situation of an institute, which provides a process

of investigating performance.

Financial Statement

UNCONSOLIDATED STATEMENT OF FINANCIAL POSITION '000

CY09 CY10 CY11 CY12

ASSETS

Cash and balances with treasury banks 1,764,403 2,298,806 3,880,688 5,027,797

5.4% 5.8% 7.2% 6.2%

Balances with other banks 2,073,582 917,802 136,880 1,178,265

6.3% 2.3% 0.3% 1.4%

Lendings to financial institutions 3,229,839 3,643,360 4,073,103 3,940,958

9.8% 9.3% 7.6% 4.8%

Investments - net 5,138,709 9,535,555 13,701,699 22,649,824 46,259,398

29.0% 34.8% 42.0% 56.7%

Advances - net 9,680,449 11,689,653 13,978,113 18,018,778 20,054,921

35.5% 35.5% 33.4% 24.6%

Operating fixed assets 3,039,329 2,882,941 3,021,439 3,165,117

9.2% 7.3% 5.6% 3.9%

Deferred tax assets - net 924,907 1,184,613 1,082,466 699,272

2.8% 3.0% 2.0% 0.9%

Other assets 637,652 776,313 1,057,391 1,244,267

1.9% 2.0% 2.0% 1.5%

32,894,920 39,383,647 53,920,569 81,569,995

LIABILITIES

Bills payable 320,492 369,620 1,246,994 713,747

1.0% 0.9% 2.3% 0.9%

Borrowings 5,039,635 5,524,410 2,944,495 8,222,273

15.3% 14.0% 5.5% 10.1%

Deposits and other accounts 15,294,273 21,313,791 26,276,328 41,487,031 62,543,793

64.8% 66.7% 76.9% 76.7%

Sub-ordinated loans - - - -

Liabilities against assets subject to finance lease - - - -

Deferred tax liabilities - - - -

Other liabilities 566,443 1,375,003 765,019 1,134,373

1.7% 3.5% 1.4% 1.4%

27,240,361 33,545,361 46,443,539 72,614,186

82.8% 85.2% 86.1% 89.0%

NET ASSETS 5,654,559 5,838,286 7,477,030 8,955,809

17.2% 14.8% 13.9% 11.0%

REPRESENTED BY

Share capital 6,127,605 8,149,715 10,002,930 10,724,643

Reserves 18,040 18,040 89,978 231,613

Discount on issue of shares - (1,415,477) (1,944,880) (2,105,401)

Accumulated losses (523,192) (930,671) (642,918) (76,377)

5,622,453 5,821,607 7,505,110 8,774,478Surplus / (deficit) on revaluation of assets - net of tax

32,106 16,679 (28,080) 181,331

5,654,559 5,838,286 7,477,030 8,955,809

CONTINGENCIES AND COMMITMENTS

Analysis of Financial Position

Horizontal Analysis – five years

CY08 CY09 CY10 CY11 CY12

Total Assets 100.0% 152.1% 182.1% 249.3% 377.2%

Investments 100.0% 185.6% 266.6% 440.8% 900.2%

Advances 100.0% 120.8% 144.4% 186.1% 207.2%

Total Liabilities

100.0% 166.6% 205.1% 284.0% 444.1%

Deposits 100.0% 139.4% 171.8% 271.3% 408.9%

Borrowings 100.0% 937.3% 1027.5% 547.7% 1529.3%

Share Capital 100.0% 107.6% 143.1% 175.6% 188.3%

Total Equity 100.0% 107.2% 110.7% 141.7% 169.8%

JS Bank since inception in 2007 has swiftly improved its position in the banking industry. With

numbers presenting exponential growth, in CY12 total assets have soared to 377.2 percent of what

they were in CY08. Accordingly deposits have increased to 408.9 percent of their base year

figures.

JS Bank is currently considered to be one of the fastest growing banks in the industry. Total

equity/ net assets have increased by 69.8 percent in five years.

The two most important components of Assets on a bank’s balance sheet include advances and

investments. These embody the various assets or securities banks invest in.

The investments book consists of Government securities (T-bills, PIBs and IjaraSukuks),

Corporate Bonds (TFCs and Sukuks), equity investment in public Ltd and Private Ltd companies,

placement in investment companies (Mutual Funds invested in equity, debt and money market

products), etc. These investments are low risk in nature, where government securities are virtually

risk free, and corporate bonds hold low or moderate risk.

The bank went on to rapidly enhance its investments book where CY12 figures were 900.2 percent

of base year figures, this figure was doubled during CY12.

Advances are financing facilities given to businesses and various other clients. These generally

include loans, cash credit, running finances, leases, etc. Advances symbolize the true role of banks

in an economy, which is of a monetary facilitator.

For JS Bank, Advances have not grown at the same pace as investments. As we can see the former

has only increased 207.2 percent from its base year figures.

Deposits are considered the core and cheapest source of banks financing ability higher deposits

give banks room to increase lending and investments. Deposits at JS bank have increased by more

than 4x their base year value.

This phenomenon was particularly intriguing as to why banks are deviating from their role of

finance facilitators to local industries. When questioned about this, it was revealed that JS Bank

was not the only bank which had adopted this practice several other private sector banks had

achieved the same. Even though spreads in advances are much higher as to what they are in

investments.

During the global recession of 2008-09 several manufacturing concerns and private businesses

specifically those which are positively correlated with economic growth, faltered and could not

fulfill their financial obligations.

Non-performing loans (NPLs), are financing facilities which are considered bad and chances of

recovery against these facilities is considered low however reversals are common. These arise

from advances (loans and/or other facilities).

Non Performing Loans CY09 CY10 CY11 CY12

NPL Growth 88.2% 122.0% 46.0% 9.4%

NPL/ Gross Advances 7.3% 13.6% 15.4% 15.1%

The above figures depict how since CY09 YoY growth in NPLs have increased hurriedly. Soon

after the 2008-09 recession companies in several sectors such as construction & material and

chemicals defaulted on their outstanding debts. Well established groups like Engro,

DewanMushtaq and Maple Leaf today are nightmares for bankers, after these multimillion dollar

organizations defaulted on their debt. However the recession cannot be entirely blamed for the

bankruptcy of these organizations other internal and external factors did play their part, but the

timing was of coincidence.

It explains how banks are now reluctant to lend to the private sector as in CY11 and CY12 NPL as

a percentage of Gross Advances are 15.4 and 15.1 percent respectively. Remarkably JS Bank was

fortunate enough to have one of the lowest NPL/Advances ratios, whereas banks like The National

Bank of Pakistan had at the time NPLs of 27 percent. Hence now several banks have adopted this

new mechanism of generating earnings through investments, even at JS Bank the Treasury

department is paid more magnitude relative to other departments.

Analysis of Financial Performance

Horizontal Analysis – five years

CY08 CY09 CY10 CY11 CY12Mark-up / return / interest earned 100.0% 128.0% 167.1% 218.3% 304.9%Mark-up / return / interest expensed 100.0% 132.7% 165.6% 189.7% 276.0%Net Interest Income 100.0% 117.5% 170.3% 281.8% 369.2%

NON MARK-UP / INTEREST INCOME 100.0% 68.9% 67.6% 154.8% 366.9%Fee, commission and brokerage income 100.0% 127.8% 189.7% 339.5% 547.1%Dividend income 100.0% 35.8% 30.6% 27.8% 222.5%Income from dealing in foreign currencies 100.0% 87.2% 59.1% 96.0% 200.2%Gain on sale of securities - net 100.0% 42.3% 22.9% 115.5% 387.9%

PROFIT AFTER TAXATION 100.0% -1086.2% -744.0% 656.7% 1293.0%

Mark-up interest earned is the core earnings point in a banks Income Statement (Sales in a typical

IS), remarkable growth is observed in the institutions top line with Mark-up interest earned

increasing 304.9 percent in five years. The bank also benefits with Mark-up interest expensed

(direct cost) not increasing at the same pace, which has allowed the bank to gain wider spreads.

Hence we see Net Interest Income (Gross Profit) increased to 369.2 percent since CY08.

Non Mark-Up income are earnings which are not generated from the bank’s core operations, as we

can see the company has gained tremendously in this aspect. Total non mark-up income has

increased to 366.9 percent in the five year period. However bottom line income is considered

inconsistent and several of these inputs are one-offs.

Increased advisory, trustee and other fee commission & charges have propelled the Fee,

commission and brokerage income to 547.1 percent of its base year figures.

The largest component of Non mark-up income is Gain on Sale of Securities 46 percent of total

Non Mark-up income has increased to 387.9 percent in five years, this massive feet was

accomplished after the bank sought its treasury department into acceleration. The bank is one of

the leading dealers in government securities and with the State Bank of Pakistan reducing the

discount rate from 14 percent in 2008 to 9.5 percent by the end of CY12 the bank realized

extraordinary gains in securities it held.

With the bank reporting gigantic growth in all divisions it is not surprising that net profits have

increased by an unprecedented 1293 percent in five years. During CY09-10 JS Bank managed

heavy provisioning for Non performing loans which is why we see a loss in these years.

Profitability Analysis

CY09 CY10 CY11 CY12

Net Interest Margin 28.5% 31.7% 40.1% 37.6%

Operating Profit Margin -40.1% -24.3% -8.6% -4.8%

PAT Margin -23.5% -12.3% 8.3% 11.8%

Return On Equity -10.5% -7.0% 4.8% 7.9%

Return On Assets -1.8% -1.0% 0.7% 0.9%

Net interest margins appear promising for the bank as we can see stable growth in spreads from

28.5 percent in CY09 to 37.6 percent in CY12. This signifies that the bank has successfully kept

return on deposits low and enhanced their returns on Mark-up interest earned.

Operating profit margin however present a grim picture, Operating profit is Gross profit minus

selling, general and administrative expenses. With the operating margin in red throughout the four

years, it is a matter of dire concern as to why the management has failed to control these overheads

and bring them in line with the banks top line. However given an improving trend in the operating

margin and the Banks infancy years we hope to see better management in coming years.

Profit after Tax (PAT) margins have gradually improved since CY09, it must also be noted that the

initial two years were burdened with heavy provisioning against non performing loans. Even after

an operating loss in all four years the Bank has yet managed to procure enough earnings from its

bottom line (Non Mark-Up income) to make a profit in CY11 and CY12.

Return on Equity

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.

JS Bank has consistently been improving in this particular aspect from -10.5 percent in CY08 to

7.9 percent in CY12. Baring in mind the banks youth, management has administered the equity of

its stake holders promisingly well. However still low relative to industry standards but we must

again stress over the initial growing period of the bank currently in play.

Return on Assets

This ratio indicates how profitable a company is relative to its total assets. The return on assets

(ROA) ratio illustrates how well management is employing the company's total assets to make a

profit. The higher the return, the more efficient management is in utilizing its asset base. The ROA

ratio is calculated by comparing net income to average total assets, and is expressed as a

percentage.

The ROA for the bank is slowly improving which signifies improvement in management quality

and better use of the Bank’s assets. As a rule of thumb, investment professionals like to see a

company's ROA come in at no less than 5%. Of course, there are exceptions to this rule. An

important one would apply to banks, which strive to record an ROA of 1.5% or above. JS Bank

even though falling short of this has shown consistent growth in ROA and is expected to reach

these levels in coming years.

Market Value

Market ValuePrice 4.33Outstanding Shares 1,072,464,262Total Market Value 4,643,770,254

The net asset or book value of the bank for CY12 comes in at PKR 8.955bn, yet the market prices

the bank at PKR 4.643bn. Investor sentiments are reflected in the market value which is derived

from the price at which the share trades in the market. In this case we can see that the market has

undervalued JS Bank at PKR 4.33.

REFERNCES:

References

Financial Statements JS Bank > http://www.jsbl.com

http://www.kse.com.pk

http://www.investopedia.com