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Presented To:

Sir Waseem Ullah

Financial Analysis of Askari
Commercial Bank
Presented By:
Group No: 20

Umair Shahid
Reg#3495-FMS/MBA/S08 (19B)

Rao Umar Shahzad

Reg#3499-FMS/MBA/S08 (19B)

Zahid Adnan
Reg#3511-FMS/MBA/S08 (19B)

Zubair Abdullah
Reg#-3513FMS/MBA/S08 (19B)

Umar Munir Butt

Reg#-3498FMS/MBA/S08 (19B)

Graduate school Of Management Sciences (IIUI) 1

This project is dedicated to our dear parents and teacher


We are thankful to God Almighty who has given us the abilities to do sheer hard work
and enthusiasm to perform well. We owe a special dept of gratitude to our generous

We are also grateful to Sir Wasimullah who gave us a chance to write a report which
groomed us in the art of identification and statement of issues, problems and concerns;
determination of the parameters for purposes of in depth inquiry; drawing of a blowup of
all the reluctant knowledge in order to reach a synthesis or a reasoned out point of view at
the end. We are thankful to our teacher who taught us with such zeal and vigor to enable
us to present our thoughts and ideas in an arranged manner

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Askari Commercial Bank Limited was incorporated on October 09, 1991 and commenced
its operations in April 1992 as a public limited company. The bank principally engaged in
the banking business. It has a diverse customer base comprising of corporate, SMEs,
individuals, households and farmers etc.The registered office of the Bank is situated at
AWT Plaza, The Mall, Rawalpindi. Army Welfare Trust directly and indirectly holds a
significant portion of the Bank’s share capital.

Its share price has remained approximately 12% higher than the average share
price of quoted banks during the last four years. Askari Bank has expanded into a nation
wide presence of 200 Branches, 199 in Pakistan and Azad Jammu and Kashmir, including
18 Islamic Banking branches, 11 sub branches and an Offshore Banking Unit in Bahrain.
A shared network of over 800 online ATMs covering all major cities in Pakistan supports
the delivery channels for customer service. The mobile ATM’s facility is first time started
by Askari commercial bank in 2005 dedicated to serving the urban consumer market;
Askari is committed to aggressively market this segment

ACBL has a Correspondent Bank Network in more than 95 countries with about
167 banks. Askari Bank is the only bank with its operational head office in the twin cities
of Rawalpindi-Islamabad, which have relatively limited opportunities as compared to
Karachi and Lahore. Corporate banking division was established in April 1999 with the
primary focus on servicing large corporate and multi-national companies.Askari Bank
had set up a retail-banking group in July 2000; Askari Investment Management Limited
(AIM) is the wholly owned subsidiary of the Askari Bank. The bank has an offshore
banking unit in Bahrain. In 2006, the bank launched Islamic Banking under the name
"Askari Islamic Banking" The strategy is to provide their customers with a basket of
innovative products to meet their varying needs.
The Bank Basically provides four kinds of services;
1) Consumer Banking Services.
2) Islamic Banking Services.
3) Agriculture Finance Solution.
4) Corporate and Investment Banking.

Askari Bank has the following Entity Ratings from the Pakistan Credit Rating Agency

• A1+ for Obligations supported by the highest capacity for timely repayment
• 'AA' ratings denote a very low expectation of credit risk. they indicate very strong
capacity for timely payment of financial commitments. This capacity is not
significantly vulnerable to foreseeable events.

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Industry Overview

Banks play very important role in the economy of a country and Pakistan is no
exemption. Banks are caretaker to the assets of the general public. It influences and
facilitates the economic activities like resources mobilization, production and distribution
of public finance. Pakistan has a well-developed banking system. Pakistan started without
any worthwhile banking network in 1947 but made growth in the first two decades. By
1970, it had acquired a flourishing banking sector.

State Bank of Pakistan acts as a regulator in the financial system of the country. SBP was
established on the first of July 1948 under the SBP order 1948 as the central bank of the
country. In October 1993, complete autonomy was granted to SBP. There are almost 40
banks working in Pakistan, which can be categorized as;

1. Public Sector Commercial Banks

2. Local Private Banks
3. Foreign Banks
4. Specialized Banks

Last year banking sector of Pakistan has gone through a liquidity stress. The major reason
for this liquidity stress was the economic slow down. The current account deficit was
quite high and the exchange rate put the pressure on PKR/US$ exchange rate and led to
capital outflows.

Breakdown of capital markets in Pakistan and the rumors on the financial meltdown in
markets raised the general public doubts about the financial strength of some Pakistani
banks. Due to these rumors people withdraw their cash from banks and putting these
banks into liquidity crunch. The impact of this was sworn on small banks. Cash Reserve
Requirements (CRR) and Statutory Liquidity Requirements (SLR) requirements were
reduced in early weeks of October 2008 to manage the liquidity stress.

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An analysis indicating towards the organizations strengths, weaknesses, opportunities and
threat is termed as SWOT Analysis. Such an analysis is very important for the
management in retaining the strength, overcoming the weaknesses, capitalizing over the
emerging market opportunities, and carving ways to successfully tackle with the threats
and ultimately converting them in the strengths for the organization.


1. Leading Private Sector Bank

2. Automatic Operation
3. Electronic Banking
4.Ethical Concern and Public Image

1. Manual Book Keeping

2. Centralization
3.Lack of Training Facilities

1. It deals in bulk business.

2. A large amount of foreign investment is attracted.
3. Strong potential for growth
4. Steady increase in Customer Deposits
5. Overseas Operations
6. Branches In Remote Areas
7. Islamic Banking
8. Sharp increase in imports and exports


1. High Employees Turnover

2. High charges
3. Less attractive rate of return
4. Stiff Competition
5. Less Experienced Staff

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Potter’s Model

Entry Barriers:

Pakistani Banking is regulated by SBP. There are certain barriers which check the entry
of any new foreign or domestic bank. Control on the deposit taking, loan lending and also
the number of branches. Mostly peoples have a perception to invest in a public sector
bank rather than private bank. Last year SBP put restriction on banks to have a sufficient
amount of branches.

Threat from Substitutes:

There are plenty of substitute in the banking market. Other financers like moneylender,
NBFCs, etc. These institutions also do leasing and financing which cause substitution
threat for Askari Commercial Bank.

Rivalry among the Existing Competitors:

Almost 56 Banks in both private and public sector are working in Pakistan. It creates a
rivalry. All the bank now a day are trying to raise their fund by attracting new customers.
Existing competition in market make it difficult due to high regulations

Bargaining Power of Suppliers:

Suppliers are the people who deposit their amount with the bank. The depositors have a
high bargain power. Any bank giving higher interest rate will attract the customers and
ultimately will be able to hold a high reserve.

Bargaining power of the Customers:

Customers have a high bargain power. As there are numbers of banks operating in market,
offering similar services. Customers now select the bank with latest technology and high
quality services. Askari bank is also providing high quality services to satisfy its

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Financial Analysis
Earning Ratios:

Return on Equity (ROE):

ROE changes due to (e.g., interest rate declines reduced expenses faster than revenues,
which caused ROE to increase; new branches increased assets and expenses, but have yet
to produce revenues, which caused ROE to decline; etc.).
From 2006 to 2007 return on equity increased from 20.27% to 21.86% and 2008 it has
decreased to 2.98% which is due to the non interest losses .It is another reason decrease
in ROE that when branches increase then assets and expenses increase. And also expense
control of Askari Bank is not so good because net profit margin is decreasing. On other
side asset utilization is increasing and equity multiplier remains stable. The management
should take steps to erode the loss.

Return on Assets:
Shows that how the bank is utilizing there assets but the assets utilization of the askari
bank is not good and return is decreasing time to time. The reason for deceasing return
on asset is because the branches are increasing and assets and expenses are also
increasing in 2006 only 115 branches, in 2007, 150 braches and now 200 branches are.

Net interest Margin:-

Net interest margin measure difference between income generated from interest and
interest paid on borrowing such as deposits. In 2006 interest margin is 2.7% and in 2007
margin is 1.39% decreasing but in 2008 interest margin is 1.78% increasing. Reason for
the fluctuation of interest margin is that interest expenses are increasing but as much
interest income is not increasing and provisioning expenses also effects on net interest
margin. There is another reason that average assets of the Askari bank are increasing.

Non interest margin:-

Non interest margin measure the difference between the non interest income (e.g. fee,
commission and other charges of services) and non interest expenses. Askari bank
noninterest margin is negative because non interest expenses are greater than the non
interest income.

Net operating margin:-

Operating margin gives analysts an idea of how much a bank makes (before interest and
taxes) on each Rs of revenue. When looking at operating margin of Askari bank but it is
not so good because non interest losses and other expenses. In 2006 operating margin was
2%, in 2007 was 1.26% and in 2008 margin is .22% which is decreasing from pervious
three years.

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Debt management Ratios

Debt to Equity Ratio:-

The Debt to Equity Ratio is used for Measuring Solvency and researching the Capital
Structure of a company. It indicates how much the company is leveraged (in debt) by
comparing what is owed to what is owned. In other words it measures a company's ability
to borrow and repay money.

Debt to asset Ratio:-

Total liabilities divided by total assets. The debt/asset ratio shows the proportion of a
company's assets which are financed through debt. If the ratio is less than one, most of
the company's assets are financed through equity. If the ratio is greater than one, most of
the company's assets are financed through debt. Companies with high debt/asset ratios are
said to be "highly leveraged," and could be in danger if creditors start to demand
repayment of debt. Askari bank has 93% liabilities in the total assets. We already know
that bank is highly leveraged but Askari bank liabilities remain same over the three years.

Solvency Ratios

Equity to assets Ratios:-

This key figure is the ratio between the equity and the long-term assets. It indicates,
whether the assets are financed by capital at risk. A relative high ratio indicates a strong
firm that have no solvency problem, but sometimes it also means an overly conservative
company, foolishly foregoing business opportunities. Equity to assets ratios of Askari
banks is not so good in 2006 6.6%, in 2007 6.7% and 2008 is 6.2%. This show that
financing of the Askari bank is mostly from the debt and less from equity. There may be
problem of solvency for Askari bank in the future.

Equity to deposits Ratio:-

This ratio tells how much capital than the deposits. This ratio also measures the solvency
of bank. Askari bank equity to deposits ratio is less which is not good chance for bank.
When this ratio will be more than bank will be more solvent because the capital has
characteristics to absorb losses. In 2006 this ratio of Askari bank is 8.3%, in 2007 it
increase to 8.5% and then in 2008 it decrease to 7.7%. This shows that Askari bank is
highly leveraged.

Earning assets to deposit:-

This ratio also tells us the solvency of the bank, Askari bank earning assets to deposits is
good which increase in 2006 to 2007 but in 2008 has been decreased.

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Liquidity Ratio
Liquidity refers to a company's ability to pay its current bills and expenses. The liquidity
of the bank has maintained a consistent trend, with its yield on earning assets always
above the cost of funding them and these two have been increasing since the past two to
three years. Hence, the bank at least, in the short run may be in a comfortable position.
This liquidity consistency may be attributed to the excess liquidity that prevailed in the
Industry due to high reserve growth of the banking sector.

Advances to Deposit Ratio:-

It means that for every 100 of deposit solicited by the bank, it is able to lend 75. Banks
are required to maintain a certain level of deposit reserve. Beyond this reserve
requirement, the bank can invest the funds in loans so as to make the funds earn or

Earning Assets to Assets:-

ACBL in a good position to obtain return on its assets, it is in 86% in 2006 which
decreases now in 2008 to 84% but its not bad from previous year .

Provision to Total Loans:-

Provisions against the loans or advances issued by the bank are higher in 2008 as
compared to 2006 and 2007, which is due to high percentage of non performing assets in

Earnings Spread:-
The ratio of earnings spread tells us about the difference between the interest income and
the interest expense that the bank has incurred. Thus it shows the better offering of bank
in the market.
Our analysis shows there is a increase in the earnings spread of the bank. In year 2008
earnings spread is 5% that is 4.30% in the previous year. In peer group the earning spread
is 6.84% in the same year. Thus it shows that ACBL has about less as compared to peer

Liquidity Risk

Cash and Due from Balances Held At Other Depository Institutions to Total
Cash and due from balances held at other depository institutions are also part of current
assets or cash and its equivalent. The more the ratios is, less the risk of liquidity to bank.
From our analysis the ratio of Bank ACBL decreased over the year from 8.94%to 7.77%.
It is not a good sigh. But when we see that peer group average we come to know that this

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ratio is above than ratio of ACBL in all three years. So, we can conclude that peer
group banks may not face the liquidity risk and on the other hand ACBL should
consider increasing the ratio to avoid any type of uncertainty about liquidity in future.

Credit Risk

Ratio of non-performing assets to loans and leases:-

Ratio of non-performing assets to loans tells us about the assets that are exposed to credit
risk and their full recovery is doubtful. Higher the ratio of non-performing assets to loans
higher the credit risks. In our analysis ratio is high shows of high credit risking 2006 it is
2% now increases to 5%.

Ratio of non-performing assets to equity capital:-

If there is more credit risk so, there is also present more risk of failure of bank and in turn
more risk to the shareholder’s equity. Ratio of non-performing assets to equity capital
tells us about this relationship.
The risk involved in this ratio increased up to 85% in year 2008 from the previous year.
The ratio of previous year is 60%, which shows that high risk involved now. But on the
other hand the ratio in peer group on this point is 46.32% in the same year which shows
that the other banks have high rate of risk than ACBL.

Annual provision for loans losses to equity capital:-

Ratio of annual provision for loan losses to Equity capital tells us about the credit risk
level of any financial institution.
Our ratio analysis of ACBL is 31.34% in year 2008 while in 2008 peer group average on
this ratio is 2.70%. It shows that ACBL is maintaining less provision for loans. On the
other hand the increase in provision for ACBL and Peer Group banks are maintaining due
to current financial crisis.

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The year 2007 was a volatile year for the banking sector in terms of profitability. The
overall profitability declined by 5.6% in 2007. The profitability of the bank for the fiscal
year 2007 is little below its previous years. The interest income was much higher in this
year than the previous years. The non-interest income share in the total income is also
increasing gradually. the bank is either not very efficient at collecting the outstanding
loans or has a very liberal loan distribution policy. The bank may face considerable credit
risk from its loan defaulters. The debt profile of the bank appears to be improving. The
bank is making the efforts to make slight changes in its capital structure that shift towards
little more of equity financing. The liquidity of the bank has maintained a consistent
trend. The solvency of the company has been successfully maintained over the years. The
market value of its share has shown an upward trend throughout. The bank has
maintained its reputation as one of the consistent payers of dividend.

 Banks would have to manage their credit disbursement policy prudently in order
to minimize the non performing loans.
 SBP has tightened the monetary policy.
 The bank should require making more prudent investments.
 SBP should maintain the interest rates.
 Bank should control their administrative expenses.
 As there is sign of recession in the economy the bank should adopt prudent
 the bank should be efficient in collecting the outstanding loans.
 Bank should adopt the careful loan distribution policy.

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Investment Portfolio

Investment Portfolio

Fully paid up
ordinary shares

Fully paid
preference shares
Listed companies
Term Finance

Foreign Securities

Other Investments

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Exhibit #3

Return on Equity

Profitability Ratios
ROE using Break
2006 2007 2008 Peer

Profitability Ratio

25.00% 2006
15.00% 2007
10.00% 2008
0.00% Peer Group
Return On

Net interest



Debt Management Ratio

10.000 Debt to Assets
6.000 Debt to Equity
2006 2007 2008 Peer

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Solvency Ratio

Equity to Assets
Equity to Deposit
0.000% Earning Assets to
2006 2007 2008 Peer Deposits

Provision for Loan Losses Ratio

Provision / Total
2.00% Provision /
1.00% Average total
Loan and leases
2006 2007 2008 Peer

Earning Spread

Earning Spred

0.040 Earning Spred
2006 2007 2008 Peer

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Exhibit # 4
Credit Risk

1.00 Non-Performing
0.80 Assets to total loans
Annual provision for
loans losses to
0.20 eqiuty capital
- Non Performing
2006 2007 2008 Peer assets to equity
Group capital

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Exhibit # 1

Balance Sheet of Askari Commercial Bank Ltd.

Assets 2006 2007 2008
Cash & Balances with treasury Banks 14,879,231 13,356,055 16,029,635
Balance with other Banks 7,336,838 3,497,054 3,954,814
Lending to Other Financial Institutions 8,392,950 14,444,143 4,479,754
Investments 28,571,969 39,431,005 35,677,755
Advances 99,179,439 100,780,162 128,818,242
Operating Fix Assets 3,828,818 5,128,428 8,266,458
Deferred Tax Assets
Other Assets 3,824,105 5,535,038 8,964,480
166,013,35 182,171,88 206,191,13
Total Assets 0 5 8
Bills Payable 1,839,077 2,627,051 2,584,828
Borrowings 14,964,087 17,553,525 15,190,148
Deposits & other accounts 131,837,230 143,036,707 167,676,572
Sub-ordinate Loans 2,998,500 2,997,300 2,996,100
Liabilities against assets subject to finance lease 4,440
Deferred tax liabilities 726,497 471,519 12,987
Other liabilities 2,608,360 3,219,796 4,759,140
Total Liabilities 154,978,191 169,905,898 193,219,775
Share capital 2,004,333 3,006,499 4,058,774
Reserves 5,814,754 6,948,336 7,667,141
Inappropriate profit 1,781,908 2,144,810 308,980

Surplus on revaluation of assets- net of tax 1,434,164 166,342 936,468

Total capital 11,035,159 12,265,987 12,971,363
Total liabilities & Capital 166,013,350 182,171,885 206,191,138

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Exhibit # 2

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Profit &Loss Account of Askari Bank Ltd.
2006 2007 2008
12,602 15,143 18,393
Mark- up/ return/ interest earned ,910 ,241 ,313
6,976, 8,685, 10,650
Mark- up/ return/ interest expensed 704 624 ,719
5,626, 6,457, 7,742,
Net mark-up / interest income 206 617 594
1,128, 3,920, 3,824,
Provision against non -performing loan 137 240 778
Provision for impairment in the value of investment 376 501 508
Bad debts written off directly 311
1,128, 3,921, 4,072,
Total provision expenses 513 741 597
4,497, 2,535, 3,669,
Net mark-up / interest income after provisions 693 876 997
Non mark-up / interest income
1,027, 1,072, 1,257,
Fee, Commission and brokerage income 491 868 584
109, 137, 173,
Dividend income 326 079 621
584, 655, 873,
income from dealing in foreign currencies 344 761 512
113, 2,361, 36,
Gain on sale of securities -net 042 251 743
Unrealized gain on revaluation of investment classified as held (1, 1, 22,
for trade-net 250) 728 384
321, 336, 343,
Other income 700 809 156
2,154, 4,565, 2,707,
Total non-markup/ interest income 653 496 000
Non mark-up/ interest expenses
3,319, 4,789, 5,904,
Administrative expenses 069 536 169

Other provision / Write off 459

6, 12, 10,
Other charges 141 051 987
3,325, 4,801, 5,915,
Total non mark-up expenses 210 587 615
(1,170, (236, (3,208,
Net non interest income 557) 091) 615)
3,327, 2,299, 461,
Profit before taxation 136 785 382
983, 98, 17,
Taxation current year 944 535 363
(233, (50,
Prior year 950) 000)
106, (245, 107,
Deferred 034 812) 794
1,089, (381, 75,
978 227) 157
2,237, 2,681, 386,
Profit after taxation 158 012 225
1,612, 1,799, 2,144,
Inappropriate profit brought forward 344 979 810
Graduate school Of Management Sciences 3,849,
(IIUI) 4,480, 20
Profit available for appropriation 500 991 035
14,757 19,708 21,100
Total operating Revenues ,563 ,737 ,313
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