EXECUTIVE SUMMARY:This reports relates to the legal merger of PICIC Commercial Bank and NIB Bank will be completed by the end of current year, banking sources said here Tuesday. They said the name of the merged entity would be decided later after a market research. It may be noted that NIB Bank, a subsidiary of Singapore-based Temasek Holdings, had acquired PICIC Group on July 1, 2007, for Rs 20.5 billion equivalent to $342 million.

HISTORY OF BANKS:

PICIC COMMERCIAL BANK LIMITED:

PICIC Commercial Bank Limited was incorporated in 1993 as Schön Bank Limited and commenced its business on 4 April 1994, with a paid-up capital of PKR 500 Million. In 1997, Al Ahlia Portfolio Securities Company, Sultanate of Oman acquired the major shareholding and changed the bank’s name to Gulf Commercial Bank Limited. Thereafter, in February 2001, the bank’s management again changed when Pakistan Industrial Credit and Investment Corporation acquired 60% controlling shares from Al-Ahlia and changed its name to PICIC Commercial Bank in May 2001. Since acquisition, the bank performance has turned around and it is now among the fastest growing private commercial banks in Pakistan. At the time of takeover by PICIC in February 2001, the Bank had only 15 branches. Now it is the 6th largest bank in the country. On December 31, 2007, the operations of PICIC Commercial Bank were merged with and into NIB Bank Limited.

NIB BANK LIMITED

The NIB Bank Limited Nordic Investment Bank (formerly NDLC-IFIC Bank Limited) was incorporated in March 2003 as a publicly listed company. In October 2003, all assets and liabilities and all rights and obligations of the former National Development Leasing Corporation ("NDLC") and Pakistan operations of IFIC Bangladesh were amalgamated with and into NIB Bank. In April, 2004 the Pakistan operations of Credit Agricole Indosuez (the Global French bank) were also amalgamated with and into NIB Bank.

In 2007nNIB Bank acquired the assets Pakistan Industrial Credit and Investment Corporation (PICIC). In June 2005, Temasek Holdings of Singapore through Bugis Investments (Mauritius) Pte. Limited acquired over 70 percent shares in the capital of NIB Bank. As of 2012, NIB Bank has a countrywide network of over 240 branches with a number of new branches under various stages of development.

NIB Bank is the fourth largest bank in Pakistan (Number of Branches 2012), and is among the top five in terms of capitalization.NIB Bank Limited started as NDLC-IFIVIACK Bank Ltd.[1] 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 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.

INVESTMENTSInvestments 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 . M a r k e t T r e a s u r y b i l l2 . P r e f e r e n c e s h a r e s3 . O r d i n a r y s h a r e s o f l i s t e d c o m p a n i e s4 . P a k i s t a n I n v e s t m e n t b o n d s5 . T e r m f i n a n c e c e r t i f i c a t e s6 . I n v e s t m e n t s i n A s s o c i a t e s 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

INTERPRETATIONAs 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 anew 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 2008it’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 economical down and recession originating from the west which affected the whole world so as Pakistanis banks as well.

DEPOSITS

1 ) D E M A N D D E P O S I T SThese deposits are further classified to;a ) C u r r e n t d e p o s i t s b ) S a v i n g d e p o s i t s2 . T I M E D E P O S I T SThese deposits are further classified to;a ) N o t i c e t e r m d e p o s i t s b ) F i x e d t e r m d e p o s i t s

INTERPRETATIONThe 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

ADVANCESBanks 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

INTERPRETATIONWe 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 places t h a t ’ s w h y t h e g r a p h j u m p e d h i g h i n 2 0 0 7 h o w e v e r f u r t h e r f r o m t h i s y e a r t h e a d v a n c e s d i d n ’ t i n c r e a s e d r a t h e r d e c r e a s e d t h i s i s j u s t b e c a u s e o f t h e e c o n o m i c a l constraints that shocked the whole globe as well as this bank

RETURN ON ASSETS:Return on Assets (ROA) = Profit after Taxation / Average Total assets x 100R O A i s a m e a s u r e o f a c o m p a n y ' s p r o f i t a b i l i t y , e q u a l t o a f i s c a l y e a r ' s e a r n i n g s 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

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. T h e r a t i o s h o w s i t s h i g h e s t f l u c t u a t i o n i n 2 0 0 8 b e c a u s e o f m e r g i n g o f P I C I C 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 100Total EquityReturn 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 s h a r e h o l d e r s ' e q u i t y . T h e r e t u r n o n e q u i t y r a t i o ( R O E ) m e a s u r e s h o w m u c h t h e s h a r e h o l d e r s e a r n e d f o r t h e i r i n v e s t m e n t i n t h e c o m p a n y . T h e h i g h e r t h e r a t i o percentage, the more efficient management is in utilizing its equity base and the better return is to investors

INTERPRETATION:R e t u r n o n E q u i t y r a t i o i s d e c l i n i n g f r o m 2 0 0 4 t o 2 0 0 8 b e c a u s e t h e b a n k w a s 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:Return on Operating Assets = Profit after Taxation x 100Operating assetsWhereas; Operating assets = Operating fixed assets + Cash and balances with treasury banks +Balances with other banks

INTERPRETATION:As we can see from the above table and chart that the ratio decreases from 2004 to2005 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 u n d e r N I B b a n k t h u s t h i s j u s t i f i e s t h e f a c t o f f l u c t u a t i o n a n d s u d d e n j u m p i n t h e v a l u e s f r o m 2 0 0 7 t o 2 0 0 8 . E c o n o m i c d o w n t u r n i n t h i s t e n u r e a l s o a f f e c t e d t h e 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 Ratio = Profit After Taxation x 100/Total Deposits

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

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 sharesThe 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 p e r s h a r e a r e g e n e r a l l y c o n s i d e r e d t o b e t h e s i n g l e m o s t i m p o r t a n t v a r i a b l e i n determining a share's price. It is also a major component used to calculate the price-to-earnings valuation ratio

INTERPRETATION: As we can see from the above graph that the earning per share is declining over the y e a r s b u t t h e r e i s h u g e l o s s i n s h a r e s i n 2 0 0 7 a n d 2 0 0 8 . T h i s s h o w s t h e l a c k o f 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

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 itsexpenses. Ratio equal t o 1 t e l l s u s t h a t t h e c o m p a n y i s j u s t c o v e r i n g i t s e x p e n s i n g o v e r a n d a b o v e 1 i s 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 expenses

INTERPRETATION:In 2004 the income with respect to expense is maximum but it’s decreasing year by y e a r w h i c h m e a n s t h a t t h e b a n k ’ s e x p e n s e s a r e i n c r e a s i n g b u t t h e i n c o m e i s 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 a g a i n s t t h e o b l i g a t i o n s o f P I C I C a n d P C B L . T h e s e p r o v i s i o n s w e r e m a d e b y t h e p r o p e r n o t i c e f r o m t h e S t a t e B a n k o f P a k i s t a n a s t h i s w a s m a n d a t o r y f o r t h e N I B bank. The NIB bank although made a profit of 2 billion during the years 2007 and2008 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 e a r n i n g s w e r e n o t e n o u g h t o c o v e r t h e s e e x p e n s e s . S i m i l a r l y t h e t o t a l a s s e t s a l s o 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 there cession, 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 erythematic such a marketing campaign that promotes the bank and create value of the bank in the minds of its customers