10/7/2019 FIM ASSIGNMENT

 Zubair ali
 BS-iv (Acc & F)
Introduction
I have taken the two commercial banks of Pakistan, which are listed on the stock exchange of
Pakistan. I have written this report to compare and analyze the performance of both banks
MCB Bank limited and National Bank of Pakistan through calculating the ratios of return on
assets, return on equity and net interest margin, and then comparing them yearly to see which
bank has higher performance on yearly as well as on overall basis. I have taken the data from
the financial statements of both banks of last five years. Both banks are working for long
period in Pakistan.
After going through the last five year’s financial statements of both banks, I have concluded
that the both banks have varied strategies towards the balance sheet items as assets, liabilities
and capital. Both banks focus on different kind of balance sheet items for there better
performance. After analyzing the last five year’s balance sheets of MCB Bank ltd, it could be
seen that the assets like cash, other current assets, advances to the employees and fixed assets
have an increasing trend from the last five years, as the cash and fixed assets have increased
with the average of 20% each year for last five years, and the current assets have increase
with average rate of 13% each year for last five years, and advances have also the 10%
increasing trend. As the assets were increasing each year, banks liabilities are increasing each
year, it is due to the depositors are increasing each year, and due to getting good return and
availability of the products of MCB, it mainly has focused on the deposits from the general
public, and after analyzing the previous five years, it could be seen that the deposits of the
company has increase with the average yearly rate of the 7% , which is good for the
company, as in the last 5 years deposits increased from Rs.688 billion to Rs.1049 billion
which is almost doubled. MCB has also the liabilities in the form of borrowings from the
other investors and financial institutions, the borrowings are in the millions. While the equity
of MCB has least increasing trend from the five years it is on average 3%.
Coming towards the National Bank of Pakistan, after seeing its reports of last five years, the
assets of NBP cash, advances, investments, current assets and the fixed assets have also the
increasing trend from the last five years with almost similar percentages, but compared to
MCB, NBP assets have higher up downs in the last five years, sometimes they remain
unchanged, decrease or sometimes increase with almost double ratio. While liabilities are
also increasing as the deposits of NBP have increased yearly with approximately 5% each
year. Finally, the total equity of NBP has also varying nature, it has increased, as well as
decreased, but in the current year, it’s increased with almost 17%.
If we compare the total assets of both banks, we would see that assets of both banks are
increasing each year but with different percentages. Assets of MCB are increasing with
around 10% each year approximately, while NBP assets have slightly higher percentage
increase of 12% each year, but also the assets of NBP are higher in amount compared to the
MCB bank as, in 2018 the total assets counted for NBP were 2,798,566,188, while MCB had
1,498,130,061, from this it was obvious that NBP had double assets compared to the other.
NBP has also the higher liabilities in the form of deposits and borrowings compared to MCB
Bank, and even here liabilities of former are double to the MCB’s.
 Ratio Analysis

1. Return on Assets
𝑛𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
𝑅𝑂𝐴 = ∗ 100
𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
2. Return on Equity
𝑛𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
𝑅𝑂𝐸 = ∗ 100
𝑡𝑜𝑡𝑎𝑙 𝑒𝑞𝑢𝑖𝑡𝑦
3. Net Interest Margin

𝑁𝐼𝑀 = (𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 − 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑒𝑥𝑝𝑒𝑛𝑠𝑒)/𝑎𝑠𝑠𝑒𝑡𝑠

MCB Bank ltd.

Year 2018 2017 2016 2015 2014

Net Interest 46,014,150 42,406,914 43,766,900 49,321,839 43,512,303
Income

Net income 21,359,578 22,458,901 21,890,896 25,550,990 24,324,756

Total Assets 1,498,130,061 1,343,237,891 1,072,365,190 1,016,629,653 934,631,484

Total Equity 149,277,729 153,566,337 141,626,625 137,800,406 130,104,062

Year 2018 2017 2016 2015 2014

ROA 1.425% 1.67% 2.04% 2.51% 2.602%

ROE 14.3% 14.62% 15.45% 18.54% 18.69%

NIM 3.07% 3.16% 4.08% 4.85% 4.66%

 NBP Pakistan

Year 2018 2017 2016 2015 2014

Net Interest 60,666,230 54,252,879 54,824,436 53,720,936 44,166,431
Income

Net Income 20,015,122 23,027,987 22,752,285 19,218,864 15,028,229

Total Assets 2,798,566,188 2,505,320,968 2,008,854,940 1,706,361,383 1,543,054,317
Total Equity 206,868,535 175,382,081 176,732,776 168,351,475 178,197,080

Year 2018 2017 2016 2015 2014

ROA 0.715% 0.919% 1.13% 1.126% 0.973%

ROE 9.68% 13.13% 12.87% 11.42% 8.43%

NIM 2.17% 2.17% 2.73% 3.15% 2.86%

After calculating the three financial ratios of both banks, which are return on total assets that
both of the banks are using to earn profits through interest rates charged to the borrowers of
the loans, securities, and through their different products and schemes. The second ratio of
return on equity, net interest margin earned during the year through subtracting the interest
income from the interest expenses paid to the depositors and then dividing by the assets from
which the interest was earned.

Comparing the Ratios of 2014:

 MCB has the Return on assets of 2.602% in the year 2014, while NBP has of
0.973%, it means that MCB has higher ROA which employees that assets of MCB
are more profitable and fuller of opportunities compared to the NBP, which shows
that MCB is earning more money and is converting the investments into securities
and loans into the net income.
 The Return on equity of MCB is 18.69%, while NBP has 8.43%. it shows that MCB
has higher ROE which is the double compared to NBP, even the equity of MCB is
lower than NBP. That means MCB’s lower capital is generating more net income,
this reflects the better performance customers.
 NIM of MCB is declining each year for both banks.

Comparing the Ratios of 2015:

 In this year NBP has performed better compared to the MCB. The ratios of mcb have
slightly decreased with negligible change into them, while NBP reversed the situation
 and has increased all the three ratios of return on assets, return on equity and net
interest margin. It could be due to the better opportunities and performance of its
assets and equity, and due to which NBP has higher NIM ratio.

Comparing the ratios up to 2018:

Except 2014, MCB Bank ltd has not performed better as its all the three ratios are declining
each year, return on assets started declining from 2.602% to 1.425% which is a significant
change over the period of five years, this reflects that the assets of MCB which were more
profitable and income generating have become less profitable, the return on equity has also
declined from the 18.69% to 14.3%, it’s reasons could the less opportunities and lower
profitability or the increase in equity has caused this decline in the performance of MCB.
While NBP Pakistan has performed better in particular years as 2016 and 2017, with
increased ROE and ROA compared to MCB, NBP’s both returns are increased in those years,
but overall it’s ratios are also fluctuating, which means they don’t have the single trend of
increasing or decreasing, rather they follow both, in some years they have increased while in
others they have decreased.

Conclusion
Both banks are performing better, MCB has higher returns compared to NBP in all the five
years, but they are decreasing from higher to lower as seen in the table, which shows that
MCB is not earning enough return on both assets and equity, as it is declining each year.
While NBP has lower returns compared to the MCB, but it has increased in some years, while
on overall basis its returns on assets and equity are fluctuating rather than increasing only.