Economical performance review of commercial and investment banking in

Pakistan (2001-2010)
Abstract
This paper concentrates on economical performance of commercial and investment banks in
Pakistan. The purpose of this research paper is to test out the progress and development of the
financial institutions working in Pakistan. To accomplish this research economical data is used of
both commercial and investment banks. Banks are backbone of an economy. Economic
deepening has become more intense during the last many years however, the banks are
undoubtedly the main players accounting for 90 % of the total monetary assets of the system.
This study also interprets many statistical tests in which different variables like Paid-up capital,
total assets, equity, sales and profit before and after taxation are tested. The results of this
research paper shows that commercial banks are on sustainability but investment banks are
suffering deficit. This paper also includes recommendations for improvement and betterment of
an economy.
Keywords: Paid-up Capital, Equity, ANOVA, Regression
Introduction
Economic Sector throughout Pakistan offers a wide range of financial banking organizations
Commercial banks, specialized banks, national savings systems, insurance agencies, growth
financial organizations, investment banks, stock exchanges, corporate and business brokerage
houses, leasing companies, discount houses, micro-finance organizations as well as Islamic
banks. They offer a whole variety of product or service equally for the assets and liabilities area.
Economic deepening has become more intense during the last many years however, the
commercial banks are undoubtedly the main players accounting for 90 % of the total monetary
assets of the system.
Banking institutions are generally monetary intermediaries. The actual function of an economic
intermediary is always to promote its responsibilities and to purchase the responsibilities
associated with others. Through bestowing its responsibilities with impressive attributes, a good
intermediary may promote its responsibilities at a greater price than it has to fund the
responsibilities it purchases. On the other hand, to express the similar thing in a different manner,
it can market its responsibilities at a reduced interest rate than it can control the responsibilities it
purchases. The actual stretch involving the interest rate of interest it pays on its own
responsibilities and the one it gets on for the responsibilities associated with additional
expenditures of doing business must subsequently have deduced. The net profits following these
kinds of additional deductions signify the return to the investors for their contribution in the
activity of an economic intermediary.
'Bank is definitely an organization managing the business of accepting, for the reason of lending
as well and investment, of deposits associated with money belonging to the community,
repayable on requirement or else, and withdrawals through Cheque, draft order or otherwise and
involves any post office saving bank. '
There are varieties of banking institutions, i. e. central bank, commercial banks, industrial banks,
exchange banks etc. however for our purpose it will be sufficient |take into account only
investment and commercial banks.
You will find 39 scheduled banks (including 11 international banks) working in Pakistan.
Competition is actually somewhat higher, especially after the difficult capital adequacy
benchmarks place by the State Bank of Pakistan in order to promote a well-balanced banking
system. Attracting international investment and winning lucrative clients are definitely the only
options left to help banks regarding survival.
Opportunities for international banking companies, specifically in consumer and retail banking,
are generally greater than ever before. During the financial year regarding 2004-05, the banking
sector encountered expansion rates of 21% along with 36% in its deposit and advances portfolio
correspondingly, which in turn, has increased the banks’ steadiness in comparison to the
previous year.

Pakistan as a developing state has a relatively reduced degree of income that is why necessary
development rate is actually low because there is hardly any kind of savings. The quality lifestyle
along with the value associated with life is the most recent notion in Pakistan, which accentuates
upon individual facets of human nature. These have resulted in international aids, which has been
a holding power to bridge the gap for people involving our financial savings along with assets.
However, these kinds of aids have grown to be the drowning strength for Pakistan. By virtue of
being an associate of the most western assistance range, the well-known IMF occupies a
significant position in our economies sphere simply by having an influence on our international
financial negotiations and generates the rapidity of our progression policies. IMF’s principal
objective |regarding Pakistan is to maintain stable exchange rates, multi lateral credit system and
also worldwide liquidity to recover the state from its most detrimental financial crisis. On the
other hand, Pakistan’s financial issues can largely be aspired through interior advancement and
reduction regarding any kind of major international role.
Central bank of Pakistan is State bank of Pakistan. Although its establishment, as firstly put
down in the State Bank of Pakistan Order 1948, continued to be unaffected right up until 1 st
January 1974 when the Bank was state-owned, the span regarding its functions was considerably
increased. The State Bank of Pakistan Act 1956, with successive changes, forms the foundation
regarding its businesses currently.
Beneath the State Bank of Pakistan Order 1948, the Bank was acquired with the duty to
normalize the issue of Bank notes as well as maintenance of reserves with a view to protecting
economic steadiness in Pakistan and usually to run the currency and credit structure of the
country to its advantage. The scope of the Bank’s operations was significantly enlarge in the
State Bank of Pakistan Act 1956, which indispensable the Bank to adjust the monetary and credit
system of Pakistan and to bring about its growth in the finest national interest with a outlook to
securing financial balance as well as fuller consumption of the country’s prolific resources.
National bank of Pakistan is the largest bank in terms of asset, deposits and equity.
High proportion of low cost deposits as given rise to favorable funding costs and high net interest
margin. Habib Bank Ltd (HBL) has a dominant domestic presence being the largest bank in the
country in terms of advances and branch network. In terms of deposits, assets and equity, it
stands second only to National Bank of Pakistan (NBP). In an industry where size does matter,
HBL’s size has expected to be a big advantage. Low costs deposit base due to extensive branch
network is a key advantage.
United Bank Limited (UBL) is actually Pakistan’s third largest bank in terms of assets and
deposits. Post privatization in 2002, the bank has revamped its strategy and emerged as a strong
market player within both corporate and consumer segments. MCB Bank (MCB) is the fourth
largest financial institution in terms of assets as well as deposits. It is one of the fastest
developing banking institutions in the market with a strong backing of Nishat Group. Post
privatization, MCB’s focus has been upon aggressive cost reduction. Bank Alfalah Limited
(BAFL) is Pakistan’s fifth largest bank concerning assets and deposits. It has been the fastest
growth tale in the industry. BAFL has shown superb asset quality, sufficient capital levels and
excellent profitability
FABL is a tiny sized private lender, with a share of 2. 7% in the assets associated with total
banking system in 2006. FABL has the most steady dividend payout channels within the banking
sector. Bank of Punjab (BOP) is a public segment bank with substantial branch network and
favorable funding mix. The low cost deposits form more than 55% of overall deposits. The
Government of Punjab retains the majority stake in the bank.
Mybank (MYBL) is a small sized private financial institution with overall assets less than 1% of
the total banking system. MYBL operates a network of 60 branches in all of the major cities of
Pakistan. Comparing the international banks, Standard Chartered Bank stands out at first having
its highest assets, deposits and equity.
The consumer-banking division in Pakistan has been going through a wide-ranging but
complicated and throbbing process of reforming since 1997. It has targeted at making these
institutions monetarily sound and forging their relations firmly with the authentic sector with
regard to encouragement of savings, investment and expansion. Even though a whole turnaround
in banking sector performance has not predicted until the completion of reforms, signs of
progress are noticeable. The almost instantaneous nature of an assortment of elements makes it
difficult to disentangle indicators of improvement and destruction.
Investment banking is definitely an important pillar of the financial sector and specially the
NBFC regime within Pakistan. It took its origins in 1987; however, it is still at an ascent phase.
Nowadays, investment banks in Pakistan are providing a full range of capital market products
and advisory services to their customers. The industry is comprised of a variety of businesses,
which are efficiently serving institutional, corporate, government and individual clients. After the
transfer associated with regulatory authority over investment banks from SBP to SECP in
December 2002, and promulgation of the NBFC Regulations, the SECP has undertaken a {two|
2} pronged approach. One is to liquidate the investment banks that have been in financial
difficulty and the other is to develop as well as strengthen the existing ones into healthy NBFCs.
Currently you will find 13 investment banks among which only 9 are licensed; the remaining are
in liquidation process. Within the NBFC sector, investment banking is at the higher end in terms
of the specialized services they offer, particularly the capital market merchandise as well as
advisory services.
There is still, however, a pressing need to enhance the financial health and performance of
NBFCs. The development of the segment is critical to enhance domestic resource mobilization
and to engender competition in the financial sector.
After the transfer of regulatory authority over investment banks from Because of the inherent
design of the NBFC Rules, the investment banks have strengthened their balance sheets by
obtaining leasing and other licenses permitted to NBFCs under NBFC Rules. This has allowed
them to precede a step ahead in terms of risk diversification, as they are able to operate as
multiple product organizations. Some of the leasing companies have also followed and obtained
investment-banking licenses. Such product diversification helped these NBFCs to not only boost
their spreads but have given them a greater capability of risk diversification. These are compact,
highly innovative, financial institutions, which now, through the NBFC Regulations, have the
power to alter their operating plans with changes in market dynamics.
A number of Asian countries, like India, Sri Lanka and Bangladesh have achieved rapid savings
growth beyond the banking system by establishing the NBFC sector. In Pakistan, this industry
faces critical competition from commercial banks, development finance institutions (DFIs),
brokerage firms, introduction of Islamic consumer banking services and accountancy firms
offering corporate and business financial services. The commercial banks with availability of
low cost funds and strong stability sheets and brokerage firms involving in underwriting and
capital market advisory activities make the NBFCs’ atmosphere difficult; the sector is calling for
any paradigm shift to take hold of} the universal licensing regime. Despite the competition,
NBFCs have immense importance in the economy and they meet the credit gap within the
borrowing profile.
In order to additional strengthen the sector, especially in the face of this competitors; the SECP
would like to proceed towards integration through instituting a Universal Non-banking regime.
This will include a universal license, under which the NBFCs can take on all the activities
permitted to them at the same time without the need for applying for separate licenses. In case if
one activity is being concentrated, the NBFC will have the choice to decide for acquiring one
single-activity dependent license. Capital needs for this type of common nonbanking license are
currently been worked out. Investment banking institutions play an essential role in domestic
financial field as a viable element. In Pakistan, they offer the various services like strategic type
of advisory services for the acquisitions and mergers, equity as well as debt financing and
leasing, and corporate and business restructuring etc. They facilitate corporate and business,
government agencies and government to lift up resources by selling in addition to issuing
securities in primary market, assist private and public corporations in raising money by investing
in money market. In past, there was an enormous difference between the services of commercial
banks and investment banks in Pakistan however in recent years these differences have begun to
eliminate and now many commercial banks are providing key services of investment banking in
Pakistan. Because of the competition with banking sector, investment-banking institutions cannot
produce enough fee earnings from advisory services or interest earnings from financing (SBP,
Financial Balance Review, and 2008-2009). In FY-07, there were 10 investment banks, 12 in
FY-08, 9 in FY-09 as well as 8 in FY-10 with the share of assets in the NBFCs aggregate assets
of 11. 6% in FY-06, 7. 9% in FY-07, 7. 4% in FY-08 and 6. 6% in FY-09 (SBP, Financial
Steadiness Review, 2009-2010). SECP, being the regulatory body associated with investment
banks in Pakistan, is taking many measures for the growth of investment banks in Pakistan and
new regulations regarding NBFCs has introduced in 2008 for overall NBFC sector.
Literature review
Barth et al. (1998) focus on the regulation and supervision of the banking sector and ask whether
regulatory restrictions on banks are a substitute for the strength of the government capacity and
bureaucratic system. They also consider the link between regulatory restrictions and
developments in the banking system Molyneux and Thornton (1992) were the first to explore
thoroughly the determinants of bank profitability on a set of countries. They use a sample of 18
European countries during the 1986-1989 periods. They find a significant positive association
between the return on equity and the level of interest rates in each country, bank concentration
and government ownership.
Abreu and Mendes (2002) investigate the determinants of bank’s interest margins and
profitability for some European countries in the last decade. They report that well capitalized
banks face lower expected bankruptcy costs and this advantage “translate” into better
profitability. Although with a negative sign in all regressions, the unemployment rate is relevant
in explaining bank profitability. The inflation rate is also relevant. One of the foundations of the
theoretical literature on banking regulation is that branch banking leads to more stable banking
systems by enabling banks to better diversify their assets and widen their depositor base (Gart
1994, Hubbard 1994. Government owned institutions has dominated the banking in Pakistan. It
has accommodated the financial needs of the government, public enterprises and private sectors
(Khan, 1995; Khan and Khan, 2007). Public sector dominancy, among others, lead to
inefficiency in the banking sector (Haque,1997).The economic efficiency of the banks
remained low that led to low savings and investment in the private sector which resulted in low
growth (Khan and Khan, 2007).These problems include concentrated ownership of financial
assets, high taxes, narrow range of products and have not diversified into consumer and
mortgage financing (Haque, 1997 and Limmi, 2002).
A strong regulatory and supervisory system is necessary to cope with the financial crises and
promotes the efficient function of financial markets (Caprio and Klingebiel, 1997).Therefore the
challenge is to formulate an appropriate regulatory framework that enables the banking system to
be more resilient to insolvency. In addition timing, sequencing and speed of restructuring
measures are very important for successful restructuring (Khatkhate, 1998 and Alawode and
Ikhide, 1997). Moreover, the reforms of the financial system are important to remove market
distortions (Eatwell, 1996; Mavrotas and Kelly, 2001; and Khan and Khan, 2007). Financial
sector in Pakistan has been under reforms process since early 1990’s. The objectives of these
reforms has been removing inefficiencies of financial intermediations and maintaining stability
and enhancing growth (Faruqi, 2007).
In order to improve the efficiency of financial system the Government of Pakistan initiated
macroeconomic and financial sector restricting program. International agencies such as
International Monetary Fund (IMF), The World Bank and government of Japan provided
technical support as well as banking sector adjustment loan (BSAL) in 1996. The current spell of
reforms process has started in 1997. The main concern of the reforms agenda has been on the
recovery of non-performing loans, retrenchment of surplus staff, closure of over-extended
branches, privatization of banks, introduction of international accounting standards,
strengthening prudential regulation and establishment of banking courts. During 1998 and 1999,
the reform process suffered badly.
The Government of Pakistan has decided in 2000 to review the reforms program. Therefore the
Government approached the World Bank to get support for revival of the reforms program. As a
result the World Bank approved a credit for the Pakistan Banking Sector Restructuring and
Privatization Project (PBSRPP). The main focus of PBSRPP has been to improve the efficiency
of state owned banks by reducing the cost structure, complete privatization of banks, liberalizing
bank branching policy, reduction in taxes, integration of national savings scheme to the financial
markets, discontinuance of the mandatory placement of foreign currency deposits by the
commercial banks, and strengthening the central bank to play effective role as a regulator of
banking sector (Qayyum and Ahmed, 2006).
A financial system is of vital in nature for the economic development as it provides relieve in
funds mobilization. Today’s volatile economic environment requires efficient financial system
for specialism in production, to retain investors’ friendly relationship and competitive market to
assist economic transaction. A stable and efficient financial system represents efficient allocation
of resources and becomes the foundation of rising of financial performance of an organization,
which leads to enhance actions and functions of the organization. Investment banks, as a
component of financial system, serve as stakeholder in the economy and work for development
of the economy of a country. Investment banks provide a backup to all capital market in the
economy through trading in shares, investment holdings, and merchant banking activities. They
also support the credit market in the country through short term and medium term loans. For the
enhancement of financial performance, three principal factors have been argued; its asset
management (AM), institution size (IS), and operating efficiency (OE) (Tarawneh, 2006).
Until the end of 1980s, Pakistan’s banking sector was heavily regulated in most pursuits as
financial sector was largely directed by the government as a means to implement its development
strategy’ (Hardy & di Patti, 2001, p. 4). The government’s nationalization of the banking system
in the 1970s created an industry structure where competition was unknown to the management of
banks. Forced by structural reform agenda and a desire to strengthen its financial system,
Pakistan initiated financial sector reforms in the early 1990s. It started with the privatization of
state-owned commercial banks and the induction of new ones from the private sector to establish
a market-based banking system.
The banking market in Pakistan is diverse, comprised of public sector commercial banks, private,
and foreign banks. Through the agenda of continued reforms and its drive towards an efficient
banking system, the government of Pakistan managed to privatize the United Bank Limited
(UBL) and the Habib Bank Limited (HBL), the two biggest nationalized commercial banks,
during the years 2002 and 2003, respectively. The privatization of public banks and a move
towards the consolidation of weak financial institutions (through mergers and acquisitions) has
helped to shift the assets of the banking sector from the public to the private sector. The share of
the private sector in bank assets stood at 41.5% in the year 1996, while it increased to 77.1% in
the year 2005 (SBP, 2006B)
Methodology
Financial data of commercial and investment banks have used to accomplish this paper from the
year 2001-2010. A statistical software “SPSS” is used for its interpretation. Several tests have
been applied to the data to get different results. There are some limitations in this research paper
as defaulter companies and the companies with zero paid-up capital had eliminated. Due to some
unknown reasons, the data for the year 2008 was unavailable so this paper does not have its
analysis.
Empirical results
Firstly, there is Mean, Standard deviation and co-efficient of variance of different variables of
commercial banks.

Table no. 1: Paid-up capital, No. of shares and equity of COMMERCIAL BANKS

Years Means S.D CV

PAID-UP 2001 813.1903 536.3847 65.9605
CAPITAL 2002 1313.5362 1800.2016 137.0500
2003 1616.7188 924.8305 57.2042
2004 2007.4116 978.3498 48.7369
2005 2955.6999 1240.2399 41.9610
2006 3552.3071 1401.2745 39.4469
2007 7146.9773 7449.8902 104.2383
2009 10429.4354 9474.9334 90.8480
2010 11117.7218 10198.2318 91.7295
TOTAL AVERAGE 4550.3331 3778.2596 75.2417
         
No. of Shares 2001 81.31903333 53.6385 65.96054121
2002 131.3536235 180.0201628 137.0500165
2003 161.671875 92.4830 57.20416501
2004 200.7411588 97.83497635 48.7369
2005 295.569985 124.0239935 41.96095674
2006 355.2307 140.1274486 39.44688482
2007 714.6977333 744.9890209 104.2383355
2009 1042.943538 947.4933387 90.8480
2010 1111.772175 1019.82318 91.72951103
TOTAL AVERAGE 455.0333145 377.8260 75.24169884
         
EQUITY 2001 1363.363667 1210.058166 88.75534793
 2002 2722.643 6607.917413 242.7023085
2003 4965.133625 6603.335703 132.9941186
2004 6891.413588 9922.173994 143.9787914
2005 11412.00947 16536.50581 144.9044171
2006 12044.12018 16947.55488 140.7122697
2007 16624.7922 17844.85931 107.3388413
2009 22008.64263 25426.90374 115.5314491
2010 23158.14049 28317.59761 122.2792375
TOTAL AVERAGE 11243.36209 14379.65629 137.6885312
Table no. 1 shows that paid-up capital and no. of shares remain consistent in 2006 but equity was
consistent in 2001
Table no. 2: Total assets and sales of commercial banks
  Years Means S.D CV
TOTAL ASSETS 2001 25433.11483 42539.97799 167.262163
2002 63271.32412 218863.8316 345.9132
2003 80313.29519 121635.3259 151.4510463
2004 97506.81212 131937.2732 135.3108263
2005 136531.6115 144148.1979 105.5786249
2006 140594.8169 158969.118 113.0689747
2007 193021.058 206725.351 107.0998953
2009 242504.5072 257986.2471 106.384104
2010 263359.792 286406.1961 108.7509198
TOTAL AVERAGE 138059.5924 174356.8354 148.9799674
  Years Means S.D CV
SALES 2001 2573.081167 4389.295122 170.5851793
2002 4929.471235 16338.79903 331.4513515
2003 410.2909048 697.9451084 170.1098173
2004 3759.484941 4984.219513 132.5771905
2005 9731.245263 10662.31205 109.5678072
2006 12235.85386 14290.01076 116.7880143
2007 17495.41728 18257.37152 104.3551647
2009 25733.56996 27546.29036 107.0441855
2010 26968.28471 29599.69124 109.7574116
TOTAL AVERAGE 11537.41104 14085.10386 150.248458
Table no. 2 shows that total assets were consistent in 2005 and sales in 2007.
Table no.3: Profit before and after tax of commercial banks
  Years Means S.D CV
PROFIT 2001 290.5368333 659.1323598 226.8670558
BEFORE TAX 2002 934.7897059 3031.694725 324.3183687
2003 1564.592375 2219.116198 141.8335046
2004 1853.100059 2853.512306 153.9858732
2005 3477.62995 4959.622052 142.6150028
2006 4074.740682 6888.58865 169.0558784
2007 4131.75244 7391.649392 178.8986513
 2009 3453.942667 8240.777544 238.5904556
2010 4493.506042 9688.068165 215.6015386
TOTAL AVERAGE 2697.17675 5103.573488 199.0851477
  Years Means S.D CV
PROFIT 2001 137.1060556 383.3764273 279.6203462
AFTER TAX 2002 456.6340588 1245.623678 272.783787
2003 908.4341875 1102.693475 121.3839692
2004 1144.881824 1501.46466 131.1458204
2005 2359.96875 3307.654434 140.1567048
2006 2748.568364 4478.75053 162.9484858
2007 2859.41068 5086.46578 177.8851081
2009 2394.582833 5827.495733 243.3616266
2010 2878.743083 6536.586578 227.0639091
TOTAL AVERAGE 1765.369982 3274.456811 195.149973

Table no. 3 shows that Profit before and after tax were consistent in year 2003
Now, there is data for investment banks in following tables.
Table no. 4: Paid-up capital, No. of shares and Equity of investment banks
  Years Means S.D CV
PAID-UP 2001 191.33685 164.6068438 86.0299
CAPITAL 2002 234.50075 219.4623804 93.58706973
2003 269.1010476 263.8080693 98.03308893
2004 1523.970588 973.7002551 63.89232592
2005 453.6677615 735.6474184 162.1555422
2006 496.9389727 852.0272565 171.4551088
2007 661.0335833 902.5935559 136.5427686
2009 1150.322405 1687.439314 146.6927278
2010 11117.72175 10198.2318 91.72951103
TOTAL AVERAGE 1788.732634 1777.501877 116.6797793
  Years Means S.D CV
NO. OF SHARES 2001 19.133685 16.46068438 86.02987025
2002 23.450075 21.94623804 93.58706973
2003 26.91010476 26.38080693 98.03308893
2004 152.3970588 97.37002551 63.89232592
2005 45.36677615 73.56474184 162.1555422
2006 49.69389727 85.20272565 171.4551088
2007 66.10335833 90.25935559 136.5427686
2009 115.0322405 168.7439314 146.6927278
2010 1111.772175 1019.82318 91.72951103
TOTAL AVERAGE 178.8732634 177.7501877 116.6797793
  Years Means S.D CV
EQUITY 2001 276.37295 379.1073065 137.1723631
2002 304.7165 501.4763915 164.5714595
2003 676.4241429 1205.305313 178.1878021
 2004 4672.855941 6506.230546 139.2345629
2005 1419.983865 2315.522748 163.0668351
2006 1652.6367 2802.108079 169.5537851
2007 2198.493157 4142.655972 188.4316064
2009 2511.036477 5380.387392 214.2695831
2010 23158.14049 28317.59761 122.2792375
TOTAL AVERAGE 4096.740025 5727.821262 164.0852483

Table no. 4 shows that the paid-up capital and no. of shares were consistent in year 2004 but
equity in year 2010.
Table no. 5: Total assets and Sales of investment banks
TOTAL ASSETS 2001 1498.0548 3333.271644 222.5066562
2002 1875.23355 3654.616613 194.8886107
2003 2979.781333 5258.757517 176.4813229
2004 75590.08524 119372.1223 157.9203435
2005 4803.619629 8597.356172 178.9766226
2006 4924.875081 8387.037862 170.2995045
2007 4649.6180 5395.89682 116.0503261
2009 4302.0170 6433.0266 149.5351279
2010 263359.792 286406.1961 108.7509198
TOTAL AVERAGE 40442.56406 49648.69795 163.9343816
  Years Means S.D CV
SALES 2001 193.0729 370.5528773 191.923816
2002 248.09285 405.8086268 163.5712705
2003 410.2909048 697.9451084 170.1098173
2004 4560.677882 6667.681974 146.1993622
2005 648.1939571 1139.878725 175.8545744
2006 697.3417048 1153.818385 165.4595412
2007 779.5329667 872.1148828 111.8765877
2009 113.6937682 918.0977344 807.5180804
2010 26968.28471 29599.69124 109.7574116
TOTAL AVERAGE 3846.575738 4647.287729 226.9189401
Table no. 5 shows that total assets and sales were consistent in year 2010.
Table no. 6: Profit before and after taxation of investment banks
  Years Means S.D CV
PROFIT 2001 31.9726 112.3198 351.3001
BEFORE TAX 2002 45.26035 125.0233017 276.2314072
2003 184.8787619 402.0673649 217.4762318
2004 1471.944706 2182.342308 148.2625196
2005 364.3984909 751.1885217 206.1447949
2006 347.7251818 1057.854112 304.2213126
2007 502.7946524 1000.71864 199.0312816
2009 -1256.3383 3026.2599 -240.8794
2010 -459.0749 2025.7310 -441.2637
 TOTAL AVERAGE 687.3492 2038.4269 186.3766
  Years Means S.D CV
PROFIT 2001 23.0826 94.66275669 410.1043933
AFTER TAX 2002 43.52385 120.5412244 276.9544156
2003 190.957619 368.474643 192.9614774
2004 854.3605294 1090.70822 127.6636949
2005 340.4067 716.9714 210.6220365
2006 327.3796 942.9185596 288.0199578
2007 483.5036762 954.856946 197.4870085
2009 -1266.83977 3038.386819 -239.839867
2010 -438.4102 2027.924928 -462.563402
TOTAL AVERAGE 61.99606632 1039.493947 111.2677461

Table no. 6 shows that there was deficit in year 2009-2010 and profit before and after tax were
consistent in this year 2010.
Now there is a bar chart of comparison of profitability of commercial banks and investment
banks

Chart no. 1: Profitability comparison of commercial and investment banks

3500

3000

2500

2000

1500
Means of commercial banks
1000
Means of investment banks
500

0
2001 2002 2003 2004 2005 2006 2007 2009 2010
-500

-1000

-1500
This chart shows that commercial banks are continuously making profits but investment banking
is in deficit now.
Now, ANOVA test has applied on different variables. Ho is our null hypothesis and H1 is
Alternative hypothesis.
Ho: μ2001= μ2002= μ2003= μ2004= μ2005= μ2006= μ2007= μ2009= μ2010
H1: At least one variable is different
Table no. 7: ANOVA for Paid-up capital, No. of shares, Equity, Total assets and sales with years
ANOVA
Sum of Squares df Mean Square F Sig.
Paid-up Between Groups 1820358924 8 227544865.5 9.324 0.000
Capital Within Groups 9029916597 370 24405179.99    
Total 10850275521 378      
Sum of Squares df Mean Square F Sig.
No. of Between Groups 18203589.3 8 2275448.663 9.324 0.000
Shares Within Groups 90299165.9 370 244051.8    
Total 108502755.2 378      
Sum of Squares df Mean Square F Sig.
Between Groups 7360338335 8 920042291.8 4.658 0.000
Equity
Within Groups 70515291389 357 197521824.6    
Total 77875629724 365      
Sum of Squares df Mean Square F Sig.
Total Between Groups 696861655222.68 8 87107706903 3.638 0.000
Assets Within Groups 8548956866702.85 357 23946657890    
Total 9245818521925.53 365      
Sum of Squares df Mean Square F Sig.
Between Groups 8530492197 8 1066311525 4.997 0.000
Sales
Within Groups 76186792166 357 213408381.4    
Total 84717284363 365      
As all the values in the above table are highly significant, this means these are less than 0.05, so
we reject Ho and accept H1. It means that there is at least one different variable in paid-up
capital, no. of shares, equity, total assets and sales. Therefore, to determine the difference in
these variables, LSD test has applied.
Table no. 8: LSD Test of Paid-up capital with years
Years Years Mean difference Sig.
2001 2007 -3608.86948 0.001
2009 -5505.69971 0.000
2010 -6057.80109 0.000
2002 2007 -3383.98933 0.001
2009 -5280.81956 0.000
2010 -5832.92094 0.000
2003 2007 -3242.91386 0.003
2009 -5139.74409 0.000
2010 -5691.84547 0.000
2004 2007 -2329.07742 0.034
2009 -4225.90764 0.000
2010 -4778.00903 0.000
2005 2007 -2553.26071 0.011
2009 -4450.09093 0.000
2010 -5002.19232 0.000
2006 2007 -2070.14549 0.042
2009 -3966.97570 0.000
 2010 -4519.077 0.000
Above table no. 8 shows, that year 2001, 2002, 2003, 2004, 2005 and 2006 are significantly
different from 2007, 2009 and 2010.

Table no. 9: LSD Test of Equity with years

Years Years Mean difference Sig.
2001 2006 -6177.946355 0.049
2007 -9247.609782 0.003
2009 -11892.43726 0
2010 -12916.73289 0
2002 2007 -8660.95961 0.005
2009 -11305.78709 0
2010 -12330.08272 0
2003 2007 -7507.871856 0.016
2009 -10152.69934 0.001
2010 -11176.99496 0
2004 2009 -6901.56579 0.031
2010 -7925.861414 0.014
2005 2009 -6517.504524 0.033
2010 -7541.800149 0.015
2006 2010 -6738.786535 0.0027
In above table no 9, equity has taken as dependent variable, which shows that year 2001 is
significantly difference from 2006, 2007, 2009 and 2010. Other significantly differences between
years have shown in the table.
Table no. 10: LSD Test of Total Assets with years
Years Years Mean difference Sig.
2001 2004 -73712.73386 0.044
2007 -94189.68576 0.006
2009 -115745.8623 0.001
2010 -135581.0032 0
2002 2007 -78347.2616 0.021
2009 -99903.4381 0.003
2010 -119738.5791 0.001
2003 2007 -70604.09974 0.04
2009 -92160.27624 0.007
2010 -111995.4172 0.001
2005 2010 -81042.30228 0.018
2006 2010 -74079.31458 0.014
In the table no. 10, Total assets is dependent variable and this shows that year 2001 has different
variables with respect to year 2004, 2007, 2009 and 2010. Similarly, year 2002 has also
significantly difference with 2007, 2009 and 2010. The rest of the values have shown in the
table.
Table no. 10: LSD Test of Total Assets with years

Years Years Mean difference Sig.

2001 2007 -8543.807465 0.008
 2009 -12160.14046 0.000
2010 -13871.96672 0.000
2002 2007 -7547.603959 0.018
2009 -11163.93695 0.001
2010 -12875.76321 0.000
2003 2007 -7536.186243 0.020
2009 -11152.51923 0.001
2010 -12864.3455 0
2004 2009 -9320.504282 0.005
2010 -11032.33055 0.001
2005 2009 -8517.942366 0.007
2010 -10229.76863 0.002
2006 2009 -6879.819163 0.027
2010 -8591.645428 0.007
In the above table no. 11, sales have taken as dependent variables with respect to years, which
show that the year 2001 is significantly different from 2007, 2009 and 2010. Similarly, 2002 is
also dissimilar from these three years. Other diversifications have shown in table.

Now there is ANOVA table for profit before and after tax.
Table no. 12: ANOVA test for profit before and after tax with no. of years
ANOVA
Sum of Squares df Mean Square F Sig.
Profit Between Groups 231514219.6 8 28939277.46 1.289 0.248
before Tax Within Groups 8103222808 361 22446600.58    
Total 8334737028 369      
Profit Between Groups 120090502.4 8 15011312.8 1.4 0.195
after Tax Within Groups 3871501692 361 10724381.42    
   Total 3991592194 369      
This table demonstrates that the value is insignificant as it is larger than 0.05, so we accept null
hypothesis and reject alternative hypothesis which means there are no difference in variables.
Now multiple linear regressions have applied on data. Profit after tax has assigned as dependent
variable and independent predictors are Paid-up capital, profit before tax, no. of shares, sales,
equity and total assets. Therefore, the model will be like following:

PAT =bo+ b1 No. of shares + b2 EQUITY + b3 Total assets + b4 Sales + b5 profit before tax
Table no. 13: Model Summary
Model R R Square Adjusted R Square Std. Error of the Estimate
1 .992(a) 0.985 0.985 410.8346852
The above table no. 7 shows the value of R square which tells about goodness of fit of model. Its
value is 0.985 so we can say that our model is 98.5 % accurate.
Table no. 14: Coefficients for model
Coefficients(a)
Model Unstandardized Coefficients t Sig.
B Std. Error
1 (Constant) 35.304 25.391 1.39 0.165
No. of shares 0.133 0.062 2.126 0.034
Equity -0.018 0.005 -3.379 0.001
Total Assets -0.005 0.001 -8.1 0
Sales 0.043 0.007 6.327 0
Profit before Tax 0.769 0.012 62.443 0
a. Dependent Variable: Profit After Tax
Now this table shows different variables, their beta and their p values, we can put these values in
above OLS model as shown below:
PAT =35.304+ 0.133 No. of shares + (-0.018) EQUITY + (-0.005) Total assets + 0.043 Sales +
0.769 profit before tax
This model shows that if we add one unit of number of shares profit after tax will increase with
0.133 and if we add one unit in equity profit will decrease by 0.018. Similarly, if we add one unit
in total assets, profit after tax will decrease by 0.005. Moreover if one unit will be added in sales
and profit before tax then profit will be increased by 0.043 and 0.769 respectively.
Lastly, it has tested that whether our data is homogenous or heterogeneous. It is assumes that
Ho: Variances are homogenous
H1: Variances are heterogeneous

Table no. 16: Testing of Homogeneity or Normality

Test of Homogeneity of Variances
Levene Statistic df1 df2 Sig.
Paid-up Capital
12.303 8 370 0.00
Levene Statistic df1 df2 Sig.
No. of shares
12.303 8 370 0.00
Levene Statistic df1 df2 Sig.
Equity
10.27176181 8 357 0.00
Levene Statistic df1 df2 Sig.
Total Assets
10.57140554 8 357 0.00
Levene Statistic df1 df2 Sig.
Sales
16.28114943 8 357 0.00

Profit before
Levene Statistic df1 df2 Sig.
Tax
7.220103532 8 361 0.00
Levene Statistic df1 df2 Sig.
Profit After Tax
7.642671116 8 361 0.00

The above table shows that all values are highly significant. It means we reject null hypothesis
and accept alternative hypothesis. So these results show that the variances are heterogeneous and
falls in normality.
Conclusion and Recommendations
Most businesses have a need for a line of credit or other backing and funding with a bank. Banks
are very important for an economy as it encourage savings, helpful in industrial and economic
development; facilitate remittances, loan facilities, safety of funds and many more. The results of
this study shows that commercial banks of Pakistan are standing on stability but investment
banks in Pakistan are in deficit, which shows an appalling impact on economy.  Investment
banking assists the firms in elevating capital. It facilitate the trading of securities thus, escalating
the liquidity of the securities. It endow with investment prospects to the individuals or entities.
Recessions and economic crises in Pakistan negatively affect the overall economy.
We also recommended that:
1. Government should support financial sectors of Pakistan to improve overall economy.
2. Banks should avoid the pitfalls; find out what to buy and when to sell.
3. There should be strong monetary policies and all banks should sincerely follow it.
4. Treat your customers copiously, bearing in wits the fact that a bank prospers as its
clientele prosper, but never authorize them to dictate your policy.
5. Distribute the loans rather than concentrate them in a few hands.

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