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FINANCIAL STATEMENTS ANALYSIS

TEN YEARS PERFORMANCE
1990 Capital & Reserves Deposits Advances Investments Income Expenditure Pre-tax Profit Total Assets 418 19825 11115 7268 2044 1983 61 23319
OF

7
1999 3012 93107 55264 26775 10925 10854 71 106926

1991 451 25041 11871 9981 2349 2249 100 28342

1992 566 33757 15734 14586 3435 3080 355 37973

1993 645 37121 18037 14948 4453 4038 415 41759

1994 733 41445 19901 16549 5010 4665 345 47390

1995 1219 51124 29552 15610 6102 5571 531 58480

1996 1389 55897 32766 15553 7056 6822 234 63439

1997 1515 63430 36231 20193 8397 8368 29 72404

1998 3002 76541 42719 25605 8974 8814 170 89356

TREND ANALYSIS
Capital & Reserves Deposits Advances Investments Income Expenditure Pre-tax Profit Total Assets

TEN YEARS PERFORMANCE

1991 7.89 26.31 6.80 37.33 14.92 13.41 63.93 21.54 1992 25.50 34.81 32.54 46.14 46.23 36.95 33.98 1993 13.96 9.97 14.64 2.48 29.64 31.10 9.97 1994 13.64 11.65 10.33 10.71 12.51 15.53 13.48 1995 66.30 23.35 48.50 (5.67) 21.80 19.42 23.40 1996 13.95 9.34 10.88 (0.37) 15.63 22.46 8.48 1997 9.07 13.48 10.57 29.83 19.01 22.66 14.13 1998 98.15 20.67 17.91 26.80 6.87 5.33 23.41 1999 0.33 21.64 29.37 4.57 21.74 23.14 (58.24) 19.66

1990

255.00 16.90

(16.87) 53.91

(55.93) (87.61) 486.21

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D epos , A ites dvances & Inves ents tm

100000 90000 80000 70000 60000 50000 40000 30000 20000 10000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Y ears D eposits Advances Investm ents

Rs. in billion

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D epos , A ites dvances & Inves ents tm

60 50 Percentage 40 30 20 10 0 -10 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Years D eposits Advances Investm ents

The graph shows a good picture of companys past 10 years performance regarding deposits, advances and investments. Deposits and advances are constantly increasing but the rate of increase is different during different periods. But when we see at the rate of change, it has a lot of ups and downs. Particularly rate of change in Advances fluctuate in a very wider band. In year 1992 advances increased by 6.80% in the next year it increased by 32.54% and in year 1995 it increased by 48%. There is no stability in the rate of change.

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Income, E xpenditures & Pre-tax Profit

600
Rs. in billion 100 20 100 00 80 00 60 00 40 00 20 00

In o e, E en itu c m xp d res&P re-tax P fit ro

500 Rs. in billion 400 300 200 100 0 -100 -200 Y ears 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

0 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 Y rs ea I co e n m E e d re xp n itu P -ta P fit re x ro

Incom e

E xpenditure

P re-tax P rofit

The graph shows that the income of the bank is increasing gradually. This seems to be good but at the same time if we take into consideration the facts, not only income of the bank is increasing but expenditure is too increasing that shows the in efficiency of the management. The pre-tax profit is least. The bank should notice that what are the reasons behind this? Why the expenses are increasing with the passage of time. Another thing notable in this regard is that there is a great fluctuation in the income expenditure and profit. This fluctuation is giving a negative impression to the investor, and as well other people who are dealing with the bank in other matters, this complex situation can be controlled by effective organization and techniques. ALLIED BANK OF PAKISTAN LTD. BALANCE SHEET AS ON DECEMBER 31, 1999

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Assets Cash Balance with other Banks Money at call and short notice. Investments Advances net of provisions Operating Fixed Assets Capital work in Progress Net investments in Finance Lease Other Assets 1999 8,601,193 1,757,510 300,000 26,774,76 6 55,263,76 2 3,062,045 44,246 34,415 11,088,39 4 106,926, 331 93,107,29 1 7,144,163 1,073,491 2,588,936 103,913,8 81 3,012,450 1998 7,646,93 7 1,878,79 6 100,000 25,605,4 70 42,719,1 79 2,488,61 9 37,472 53,707 8,827,98 7 89,358,1 67 76,541,1 53 6,243,51 7 1,084,15 0 2,487,44 0 86,356,2 61 3,001,90 6 1,063,15 6 455,760 16,094 1,535,01 0 1,466,89 6 3,001,90 6 1997 6,316,337 1,380,840 450,000 20,192,699 36,231,357 872,730 33160 43,755 6,882,772 72,403,650 63,429,709 4,914,558 802,367 1,741,598 70,888,232 1,515,418

LIABILITIES Deposits and other accounts Borrowings from other bank agents etc. Bills Payable Other Liabilities

Net Assets PRESENTED BY Share capital Reserve fund and Other Reserves Unappropriate profit Shareholders equity Surplus on revaluation of Fixed Assets. MEMORANDUM ITEMS Bills for collection Acceptances endorsements and other obligations contingent liabilities and commitments

1,063,156 480,760 1,638 1,545,554 1,466,896 3,012,450

1,063,156 451,760 502 1,515,418 1,515,418

Hailey College of Commerce, University of the Punjab 8,142,388 10,910,8 10,062,812 97 18,360,24 13,354,8 13,622,536 4 26 -

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ALLIED BANK OF PAKISTAN PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED DECEMBER 31, 1999 PARTICULARS Mark up interest and discount or return earned Less Cost/Return on Deposits, borrowing etc Free commission and brokerage Profit from dealing securities Profit from investment securities Dividend Income Other operating income 1999 7,287,43 2 6,953,00 6 334,426 358,997 1,172,04 2 971,956 21,791 995,310 3,520,07 8 3,854,50 4 OPERATING EXPENSES Administrative Expenses
Provision written back and against non performing Advances

1998 6,059,06 0 5,289,97 1 769,089 426,229 1,033,31 0 755,170 14,401 607,820 2,836,93 0 3,606,01 9 3,396,44 0 (254,88 5) 218,398 36,587 3,396,44 0 209,579 88,017 297,596 128,004 169,592 150,000 -150,000

1997 5,026,78 4 4,639,05 3 387,731 361,322 1,130,24 2 564,453 18,398 1,191,17 6 3,265,59 1 3,653,32 2 2,960,69 9 712,492 (9,649) 33,157 3,696,69 9 (43,377) 104,144 60,767 32,001 28,766 335,125 (320,02 3) 15,102

3,772,88 9 (53,131) --3,719,75 8 134,746 64,356 199,102 128,004 71,098 60,554 -60,554

Loss from diminution value of investments Other provisions

Other Income Other charges Profit before taxation Taxation Current Deferred

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Profit after taxation Unappropriated profit brought forward Profit available for appropriation Appropriations Transfer to statutory reserve Unappropriated profit carry forward 10,554 16,091 26,638 25,000 1,638 19,592 502 20,094 4,000 16,094 13,664 338 14,002 13,500 502

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ALLIED BANK OF PAKISTAN LTD. COMMON SIZE BALANCE SHEET AS ON DECEMBER 31, 1999

ASSETS Cash Balance with other Banks Money at call and short notice. Investments Advances net of provisions Operating Fixed Assets Capital work in Progress Net investments in Finance Lease Other Assets LIABILITIES Deposits and other accounts Borrowings from other bank agents etc. Bills Payable Other Liabilities Net Assets PRESENTED BY Share capital Reserve fund and Other Reserves Unappropriate profit Shareholders equity Surplus on revaluation of Fixed Assets. MEMORANDUM ITEMS Bills for collection Acceptances endorsements and other obligations contingent liabilities and commitments

1999 8.04 1.64 0.28 25.04 51.68 2.86 0.04 0.03 10.37 100.00 87.08 6.68 1.00 2.42 97.18 2.82 0.99 0.45 0.00 1.45 1.37 2.82 7.61 17.17 -

1998 8.56 2.10 0.11 28.65 47.81 2.78 0.04 0.06 9.88 100.00 85.66 6.99 1.21 2.78 96.64 3.36 1.19 0.51 0.02 1.72 1.64 3.36 12.21 14.95 -

1997 8.72 1.91 0.62 27.89 50.04 1.21 0.05 0.06 9.51 100.00 87.61 6.79 1.11 2.41 97.91 2.09 1.47 0.62 0.00 2.09 2.09 13.90 18.81 -

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ALLIED BANK OF PAKISTAN COMMON SIZE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED DECEMBER 31, 1999 Particulars Mark up interest and discount or return earned Less Cost/Return on Deposits, borrowing etc Free commission and brokerage Profit from dealing securities Profit from investment securities Dividend Income Other operating income 1999 100.0 0 95.41 4.59 4.93 16.08 13.34 0.30 13.66 48.30 52.89 51.77 (0.73) 51.04 1.85 0.88 2.73 1.76 0.98 0.83 0.83 0.14 0.22 0.37 0.34 0.02 1998
100.0 0 87.31 12.69 7.03 17.05 12.46 0.24 10.03 46.82 59.51

1997 100.00 92.29 7.71 7.19 22.48 11.23 0.37 23.70 64.96 72.68 58.90 14.17 (0.19) 0.66 73.54 (0.86) 2.07 1.21 0.64 0.57 6.67 (6.37) 0.30 0.27 0.01 0.28 0.27 0.01

OPERATING EXPENSES Administrative Expenses

Provision written back and against non performing Advances

56.06 (4.21) 3.60 0.60 56.06 3.46 1.45 4.91 2.11 2.80 2.48 2.48 0.32 0.01 0.33

Loss from diminution value of investments Other provisions

Other Income Other charges Profit before taxation Taxation Current Deferred Profit after taxation Unappropriated profit brought forward Profit available for appropriation Appropriations Transfer to statutory reserve Unappropriated profit carry forward

0.07 0.27

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RATIOS ANALYSIS
PROFITABILITY RATIOS
NET PROFIT RATIO = Net Profit after Tax Interest Received 100 1997 13,664 5,026,784 0.2718% 1998 19,592 6,059,060 0.3234 % 1999 10,554 7,287,432 0.1448 %

Net Profit After Tax Interest Received Net Profit Ratio Net profit as percentage of Interest received increased a little in 1998 (from 0.2718% to 0.323%), but it is very low and has a decreasing trend in year 1999 it decreased to 0.1448% from year 1998 i.e. 0.3234% the decrease in the profit from year 1998 to year 1999 is too much than an increase in profit volume from year 1997 to year 1998. The decreasing Net Profit trend shows the managements inefficiencies to control the operating costs and maximize the profit.

Net Profit Ratio

0.3500 0.3000 Percentage 0.2500 0.2000 0.1500 0.1000 0.0500 1997 1998 Years 1999

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RETURN =

ON

ASSETS 100 1997 13,664 72,403,650 0.0189 1998 19,592 0.0219 1999 10,554 0.0099

Net Profit after Tax Total Assets

Net Profit After Tax Total Assets Return on Assets This ratio shows that the return is lesser in 1999 as compared to return on assets in the year 1998. it was 0.0189% in 1997 and increased to 0.0219% in 1998, but it decreased very sharply in 1999 to 0.0099%. Although interest and discount on loans which is the major source of revenue for bank has increased in 1999 as compared to last year, but cost on deposits and borrowing which is the major expenditure of bank has increased more in the current year than the last year.

89,358,167 106,926,331

Return on Assets
0.0250 0.0200 Percentage 0.0150 0.0100 0.0050 1997 1998 Years 1999

Another reason of decrease in return is the reduction in lending rate and increase in financial cost, total assets in 1999 have also increased substantially than last year so return on assets has decreased in 1999.

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RETURN =

ON

SHAREHOLDERS FUNDS 100 1997 13,664 1,515,418 0.9017 1998 19,592 3,001,906 0.6527 1999 10,554 3,012,450 0.3503

Net Profit after Tax Shareholders Funds

Net Profit After Tax Shareholders Funds Return on Shareholders Funds

This ratio is a further explanation of the above ratio that is the rate of return has decreased substantially in year 1998 and again in year 1999. The reason behind is that rate of increase in revenue in 1999 is lesser than the rate of increase in expenditure, moreover in 1999 profit after tax has decreased and on the other hand its denominator shareholders fund has increased due to increase in reserve fund and other reserves. Therefore both the factors are responsible for this worrisome ratio.

Return on Shareholders Fund

1.0000 0.9000 0.8000 0.7000 0.6000 0.5000 0.4000 0.3000 0.2000 0.1000 1997 1998 Years 1999

If this ratio decreases due to decrease in Profit, it is not a positive sign, but if the ratio decreases due to increase in shareholders equity, it is not bad. In this case the net profit of year is more 1998 then that of year 1997, but the ratio decreased due to increase in the shareholders equity, which is resultant of increased reserves. The sharp decline in year 1999 is due to decrease in profits.

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RETURN =

ON

EQUITY CAPITAL 100 1997 13,664 1,063,156 1.2852 1998 19,592 1,063,156 1.8428 1999 10,554 1,063,156 0.9927

Net Profit after Tax Equity Capital

Net Profit After Tax Equity Share Capital Return on Equity Share Capital Calculation made on the base of data available shows that profit earning after taxes in 1999 has decreased due to increased financial cost of funds for which expected investment avenues did not open up the situation rather worsened with reduced return on lending. Here in this ratio we see that ratio is disturbed by the single factor of reduction in profit as there in no further flotation of share in the stock exchange in current year.

Return on Equity Capital

2.0000 1.8000 1.6000 1.4000 1.2000 1.0000 0.8000 0.6000 0.4000 0.2000 1997 1998 Years 1999

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EARNING =

PER

SHARE 100 1997 13,664 106,316 0.1285 1998 19,592 106,316 0.1843 1999 10,554 106,316 0.0993

Net Profit after Tax No. of Equity Shares

Net Profit After Tax No. of Equity Shares Return on Equity Share Capital

This ratio is telling the same story as was telling the above ratio. Because there is no issuance of share capitals in year 1998 and year 1999. The profit increased in year 1998, but it has decreased in 1999 and that is why earning per share has also decreased. This ratio has a great importance for the shareholders point of view. The shareholders want a higher return on their investment.

Earning per Share

0.2000 0.1800 0.1600 0.1400 0.1200 0.1000 0.0800 0.0600 0.0400 0.0200 1997 1998 Years 1999

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Rupees

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RATE

OF

RETURN

AT

LOANS

Interest Income Total Loans

100

Interest Income Total Loans Rate of Return on Loans

1997 5,026,784 36,231,357 13.8741

1998 6,059,060 42,719,179 14.1835

1999 7,287,432 55,263,762 13.1866

Here we are watching very interesting situation, as there is an increasing interest income in 1999 but ratio is decreasing reason is this that growth ratio (20%) in interest income not accompanied by ratio of increase in total loans. As government reduced lending rate during 1999 and people borrowed more from banks for investment that is why return on loans has decreased in 1999.

Rate of Return at Loans

14.4000 14.2000 14.0000 Percentage 13.8000 13.6000 13.4000 13.2000 13.0000 12.8000 12.6000 1997 1998 Years 1999

Investment in any country will be encouraged by fall in the interest ratio. In improvement in the ratio leads to improvement in very aggregate profitability measures.

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OPERATING RATIO = Operating Costs Interest Earned Operating Costs Interest Earned Operating Ratio As the graph shows the operating costs are decreasing year by year. In year 1997 it was 73.54 % of the interest earned and it decreased in year 1998 to 56.06% in the next year it again decreased to 51.04% of the interest earned. The decreasing trend of the operating costs shows the efficiency of the management to control the operating costs. But the Operating costs itself as a percentage of the interest earned is very heavy although the management is trying to control these costs; these are still a very huge percentage of interest earned. 1997 3,696,699 5,026,784 73.5400 1998 3,396,440 6,059,060 56.0556 1999 3,719,758 7,287,432 51.0435 100

Operating Ratio
80.0000 70.0000 60.0000 Percentage 50.0000 40.0000 30.0000 20.0000 10.0000 1997 1998 Years 1999

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LIQUIDITY RATIOS
CURRENT RATIO = Current Assets Current Liabilities 1997 8,147,177 49,911,493 1:0.16 1998 9,625,733 54,266,721 1:0.18 1999 10,658,703 67,896,718 1:0.16

Current Assets Current Liabilities Current Ratio

Current Ratio

Current ratio of the bank is going to be decreased as in it 0.16 in 1997, increased somewhat to 0.18 in 1998 and decreased 0.16 in 1999. The fluctuation in the ratio is normal thing by year to year, but is alarming because, it is less than one. It is recommended that the current ratio should be at least 1 : 1, where it not so. It means the Bank is not in a position to its current liabilities fully. It should be increased.

1.2000 Current Asset/Current Liabilities 1.0000 0.8000 0.6000 0.4000 0.2000 1997 1998 Years 1999

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LOAN =

TO

DEPOSITS RATIO 100 1997 36,231,357 63,429,709 57.12% 1998 42,719,179 76,541,153 55.81% 1999 55,263,762 93,107,291 59.35%

Total Loans Total Deposits

Total Loans Total Deposits Loan to Deposit Ratio

This ratio shows a relationship between loans and advances and reveals how much productively the deposits are used. Analysis shows an increase in loan to deposit ratio, this is because of Govt. has decreased lending rate that is why borrowing is more in 1999 as compared to in 1998 on the other hand banks deposits are also increasing sharply if deposits increase by higher rate than an increase in loan then bank has to face difficulty to pay its borrowing cost to the lender.

Loan to Deposit Ratio

60.0000 59.0000 Percentage 58.0000 57.0000 56.0000 55.0000 54.0000 1997 1998 Years 1999

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LOAN =

TO

ASSETS RATIO 100 1997 36,231,357 72,403,650 50.0408 1998 42,719,179 47.8067 1999 55,263,762 51.6840

Total Loans Total Assets

Total Loans Total Assets Loan to Assets Ratio Total assets of the bank increased from Rs.89 (billion) to Rs.107 (billion) in 1999 (72 billion to 89 billion in year 1998) and advances/loans net of provision have increased from Rs.43 (billion) in 1998 to Rs.55 (billion) in 1999. We have 22% increase in assets and 28% increase in total assets is lesser than the increase in total advances which has resulted in an increase in loan to assets ratio from 47.80% in 1998 to 51.68% in 1999.

89,358,167 106,926,331

Loan to Assets Ratio

52.0000 51.0000 Percentage 50.0000 49.0000 48.0000 47.0000 46.0000 45.0000 1997 1998 Years 1999

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LONG

TERM

SOLVENCY & CAPITAL RATIOS

TO

EQUITY CAPITAL =

ASSETS RATIO 100 1997 1,063,156 72,403,650 1.47% 1998 1,063,156 1.19% 1999 1,063,156 0.99%

Equity Capital Total Assets

Equity Capital Total Assets Equity Capital to Assets Ratio In current year banks assets have been increased from Rs.89 billion to Rs.107 billion there by increase @ 20.22% over the last year (year 1998: 23.42% increase). On the other hand banks equity has not increased and remained unchanged during the year 1999, so this is the reason that ratio equity to assets has decreased from 1.19% in 1998 to 0.994% in 1999. Denominator total assets have increased substantially during the year 1999 but no increase in equity capital resulting in decreasing ratio.

89,358,167 106,926,331

Equity Capital to Assets

1.6000 1.4000 1.2000 Percentage 1.0000 0.8000 0.6000 0.4000 0.2000 1997 1998 Years 1999

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PROPRIETARY RATIO Shareholders Funds Total Assets 1997 1,515,418 72,403,650 2.09% 1998 3,001,906 3.36% 1999 3,012,450 2.82%

100

Shareholders Funds Total Assets Proprietary Ratio

89,358,167 106,926,331

This ratio explains that participation in the assets by the shareholders funds is limited by outsiders fund but when we take year under review (1999) we see ratio has further decreased in 1999 as compared to the year 1998 that was increased in year 1998. Reason behind this is that increase in assets in financed by outsiders fund rather than the fund provided by the shareholders because there is lesser increase in shareholders fund as compared to increase in total assets.

Proprietry Ratio
4.0000 3.5000 3.0000 Percentage 2.5000 2.0000 1.5000 1.0000 0.5000 1997 1998 Years 1999

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DEBT EQUITY RATIO = Long term Debt Shareholders Equity 100 1997 70,888,232 1,515,418 97.9:2.09 1998 1999 86,356,261 103,913,881 3,001,906 96.64:3.36 3,012,450 97.18:2082

Long Term Debt Shareholders Equity Debt Equity Ratio This ratio depicts the relation between equity and debt financing. This current year ratio shows an increase in ratio from 28.76times to 34.49 times. The ultimate increase in this ratio has decreased the ling term solvency of the bank. Because lesser is the equity financing lesser will be the soundness of the bank. The reason behind this increase is an increase in external borrowings although there is an increase in internal debt but rate of increase in external borrowing.

Debt Equity Ratio

120.0000 100.0000 Percentage 80.0000 60.0000 40.0000 20.0000 1997 1998 Years 1999

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Recommendations
Allied Bank of Pakistan Limited is a well known and successful financial institution in the banking sector, it is said, nothing is perfect in the world, and there is always space for deficiencies. I would like to suggest some recommendations for the deficiencies which I have found during my internship. I am humbly committed that these recommendations are not result of financial analysis of the bank because recent accounts were not available to me. In order to complete with the other banks ATM services should be expanded throughout the country. All branches should be linked through network that can better help to meet the daily transactions. In this regard Internet, E-mail and Fax Services should be provided at least in the main branches of each region. Some of the schemes are not profit making where as the bank is an institution that earn earns from them, so those unprofitable schemes should be finished as Karsaaz Scheme. Separate counters must be set up to give the facility of bills collection of all utilities like WAPDA, SUI GAS, and TELEPHONE. There should be separate cashiers for the Receipts & Payments in the each branch office. Door to door marketing in this regard especially media and electronic marketing should be promoted in order to acquire handsome share of banking sector. Bank branches must be beautified internally and externally by providing appropriate interior decoration. As we know that only 15% of the people have their bank accounts, so it is the need of the time to open the branches in rural areas as well. The bank should acquire the services of the highly qualified people accompanied by lucrative incentives to promote its status as desirable in the next millennium. In order to market its products as Allied Tahaffuz Deposit Scheme, it should accentuate to give advertisements on both print and electronic media. The bank should develop healthy relationships with the renowned banks of the work in order to expand its operations globally. The individual efficiency of worthy employees should be rewarded in the form of proper increments and promotion in grades.

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