Gross Spread Ratio

60

55 57.75

50 52.34
Percentage (%)

49.68 49.31
45
43.83 43.11 43.8
40
40.2
35
33.85
30
2018 2019 2020
Years

MCB UBL ABL

(b) Analysis and Interpretation

MCB has overall high Gross Spread Ratio over the period whereas ABL has the lowest in the same
period. Gross Spread Ratio of all banks has seen a dip in 2019 but has recovered in 2020.

FY 2019 has particular bad impact of the performance of the banks as all three banks show decrease
in Gross Spread Ratio. This decrease shows that banks have not been able to make large gains from
interest earning through issuance of loans. This probably means that banks had to borrow at higher
rate than expected and the little difference between interest on borrowing and interest on lending has
lead to lower profit and hence lower Gross Spread Ratio.

(c) Comparison of Performance

MCB, ABL and UBL have decreasing trend in 2019 which has reverted in 2020. MCB has high value.
Gross Spread Ratio of ABL is particularly lower keeping in view its Net Profit Margin which is greater
than UBL, depicting that ABL has greater portion of Non-Interest Income in its total profit.

13
3. Spread ratio:

Spread Ratio highlights the spread of interest between bank’s borrowings/ deposits and the loans
issued by bank. It is an indicator that how many times the interest payable by bank (to depositors) has
been turned over by the bank in the form of earned interest.
(a) Formula
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡𝐸𝑎𝑟𝑛𝑒𝑑
𝑆𝑝𝑟𝑒𝑎𝑑 𝑅𝑎𝑡𝑖𝑜 =
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡𝐸𝑥𝑝𝑒𝑛𝑠𝑒
Bank
2018 2019 2020
Name
83,318,994,000 138,291,896,000 136,075,705,000
37,204,844,000 78,675,682,000 64,741,214,000
MCB
= 2.24 times = 1.76 times = 2.10 times
113,198,299,000 4153,676,364,000 152,003,210,000
56,964,028,000 91,901,868,000 77,044,038,000
UBL
= 1.99 times = 1.67 times = 1.97 times
73,274,181,000 122,637,434,000 110,546,934,000
41,158,720,000 81,129,964,000 62,126,061,000
ABL
= 1.78 times = 1.51 times = 1.78 times

Working: Values of Interest Earned and Interest Expense taken from Financial Statements.

14
 Spread Ratio
2.3
2.2 2.24
2.1
2.1
Multiple (times)

2
1.9 1.99 1.97
1.8
1.7 1.78 1.76 1.78
1.6 1.67
1.5
1.51
1.4
2018 2019 2020
Years

MCB UBL ABL

(b) Analysis and Interpretation

Like Gross Spread Ratio, MCB has overall high Spread Ratio over the period whereas ABL has the
lowest in the same period. Spread Ratio of all banks has seen a dip in 2019 but has recovered in 2020.

Spread Ratio has similar trend as that of Gross Spread Ratio, confirming that banks had to make more
expenses in borrowing due to higher interest rates in 2019, thus decreasing their profit from interest-
based activities. However, chances are brightening in 2020.

MCB has the highest high value showing highest gain whereas ABL has the lowest value showing its
reliance on Non-Interest income.

(c) Comparison of Performance

MCB and UBL have made good in Interest- based activities whereas ABL could not perform well.

15
4. Non-interest income to total income ratio

Non-profit to total income ratio explains what portion of total income the bank has earned as non-
interest. Non-interest income is mainly derived from annual fees, penalties, service charges, etc.
Higher value of this ratio would be better for any bank.
(a) Formula
𝑁𝑜𝑛 − 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
𝑁𝑜𝑛 − 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 𝑡𝑜 𝑇𝑜𝑡𝑎𝑙 𝐼𝑛𝑐𝑜𝑚𝑒 𝑅𝑎𝑡𝑖𝑜 =
𝑇𝑜𝑡𝑎𝑙 𝑖𝑛𝑐𝑜𝑚𝑒

Bank
2018 2019 2020
Name
17,198,126,000 16,678,953,000 18,135,787,000
MCB 63,212,276,000 76,295,167,000 89,470,278,000
= 0.27 times = 0.22 times = 0.20 times

25,011,371,000 21,676,331,000 17,094,339,000

UBL 81,245,642,000 83,450,827,000 92,053,511,000

= 0.31 times = 0.26 times = 0.19 times

11,289,440,000 10,891,180,000 12,542,230,000
ABL 43,404,881,000 52,398,650,000 60,963,103,000
= 0.26 times = 0.21 times = 0.21 times

Working: Values of Non-Interest Income and Total Income taken from Financial Statements.

16
 Non-Interest Income/ Total Income
0.33
0.31
0.31
0.29
Multiple (times)

0.27
0.27
0.25 0.26 0.26
0.23
0.21 0.22
0.21 0.21
0.19 0.2
0.19
0.17
0.15
2018 2019 2020
Years

MCB UBL ABL

(b) Analysis and Interpretation

Charts show that non-interest portion of income has decreased over the years for all banks. ABL was
able to maintain the ratio in 2020 although it decreased initially from 2018 to 2019. However, other
banks i.e. MCB and UBL could not maintain it and the ratio has downward trend throughout the period.
Another point worth noticing is that the downward slope of trend has decreased for MCB meaning
MCB is somewhat successful in containing the decreasing trend whereas for UBL, the ratio has
decreased faster during 2020 than in 2019.

UBL had the highest ratio in 2018 which dropped sharply to the lowest among other banks in 2020.
This shows that UBL provided, among other things, most services in 2018 and earned from them but
its position weakened sharply. Although MCB has also faced downward trend but it has managed to
slow it down in 2020 with ratio decreasing by 0.2 as compared to 0.5 in 2019.

(c) Comparison of Performance

UBL has suffered most in terms of Non-Interest income whereas other banks have been able to control
the decrease in Non-Interest income.

17
5. Return on Equity

Return on equity (ROE) shows that how efficiently a bank is working to manage the funds of its
shareholders. It measures the profitability of bank with respect to equity because the equity is obtained
by deducting liabilities from assets. The good ratio lies between 15 to 20% showing good company
business.

(a) Formula
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐸𝑞𝑢𝑖𝑡𝑦 = × 100
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑠𝑡𝑜𝑐𝑘ℎ𝑜𝑙𝑑𝑒𝑟 ′ 𝑠𝑒𝑞𝑢𝑖𝑡𝑦

Bank
2018 2019 2020
Name
21,359,578,000 23,976,839,000 29,037,301,000
× 100 × 100 × 100
MCB 151,422,033,000 159,096,256,000 179,508,369,000
= 14.11% = 15.07% = 16.18%
15,226,095,000 19,133,774,000 20,898,783,000
× 100 × 100 × 100
UBL 155,288,497,500 160,169,415,500 176,570,895,000
= 9.81% = 11.95% = 11.84%
12,880,518,000 14,112,911,000 18,029,457,000
× 100 × 100 × 100
ABL 107,010,593,000 111,327,833,000 123,455,470,000
= 12.04% = 12.68% = 14.60%

Working: Values of Net Income taken from Financial Statements whereas Av. Equity is calculated
hereunder:

MCB Bank
𝐸𝑞𝑢𝑖𝑡𝑦(2017) + 𝐸𝑞𝑢𝑖𝑡𝑦 (2018) 153,566,337,000 + 149,277,729,000
𝐴𝑣. 𝐸𝑞𝑢𝑖𝑡𝑦 (2018) = = = 151,422,033,000
2 2
𝐸𝑞𝑢𝑖𝑡𝑦(2018) + 𝐸𝑞𝑢𝑖𝑡𝑦 (2019) 149,277,729,000 + 168,914,783,000
𝐴𝑣. 𝐸𝑞𝑢𝑖𝑡𝑦 (2019) = = = 159,096,256,000
2 2
𝐸𝑞𝑢𝑖𝑡𝑦(2019) + 𝐸𝑞𝑢𝑖𝑡𝑦 (2020) 168,914,783,000 + 190,101,955,000
𝐴𝑣. 𝐸𝑞𝑢𝑖𝑡𝑦 (2020) = = = 179,508,369,000
2 2

UBL Bank

18