ASSIGNMENT: 3

Subject: Islamic Finance

Title: Financial Ratios of Meezan Bank (2016-2020)

Submitted By:
Student Name: WARDAH
Roll No. : FA18-BBA-133, Section: D
Submitted To: Dr. Waheed Akhter

December 26, 2021

Department of Management Sciences,

COMSATS University Islamabad (CUI), Lahore Campus,
Pakistan.
 Meezan Bank 2016-2020
Select a sample Islamic Bank or Islamic Banking Window, compile data related to its Income
Statement and Balance Sheet for the past 05 years and compute the following:
a. Analyze its Assets and Deposits performance over a 05 years period.
Table 1

Year Total Assets (in thousands)

2016 662,055

2017 788,808

2018 937,915

2019 1,121,258

2020 1,521,560

In terms of Assets Meezan Bank is performing quite well as the value of Total assets has increased
continuously during the period of 5 years. Total Assets has increased significantly from 662,055 in
2016 to 1,521,560 in 2020. Not only has the value of total assets increased over the period of 5
years but also the return on assets. Increasing ROA values (table 3) shows that the bank is
performing well in accordance with its assets. In other words the bank is utilizing its assets
efficiently.

Table 2

Year Total Deposits (in thousands)

2016 559,398

2017 667,181

2018 785,477

2019 932,579

2020 1,254,431
With respect to deposits Meezan Bank has good performance as shown by increasing total deposits
of 559,398 in 2016 to 1,254,431 in 2020. This increase can be due to accumulation of deposits and
increasing trust on banks that attracts more customers for deposit. Moreover, table 6 shows that
return to depositors has increased to almost double the value of 5.1 in 2019 as compared to 2.4 in
2016. This increasing return to depositors shows that the bank performed well in respect of
returning to depositors. However, in 2020 return to depositors declined sharply from 5.1 in 2019 to
3.3 in 2020. This shows that less returns were given to depositors during this period.

Figure 1

This figure shows that both Total Assets and Total Deposits are increasing during the time period of 2016 to
2020. This shows improving performance. Moreover increasing ROA also shows that assets are performing
well.
b. Calculate ROA, ROE and EPS in each year over the 05 years period.

i. Return on Assets (ROA)

Return on Assets=Net Income/ Total Assets

Table 3

ROA (%) Return on Average Assets

Year Net Income (A) Total Assets ( B) (A/B) (%)

2016 5,562,000 662,055,000 0.84 0.9

2017 6,313,000 788,808,000 0.80 0.9

2018 8,962,000 937,915,000 0.95 1

2019 15,232,000 1,121,258,000 1.4 1.5

2020 22,166,000 1,521,560,000 1.5 1.7

ROA helps in analyzing how profitable a company is performing in accordance with its
assets. Meezan bank has a trend of increasing ROA except for the year 2017 in which it decreases
from 0.84 to 0.80. The overall increasing return on assets from 2018 to 2020 shows that the bank
is getting stronger and more profitable with time. So we can say that Meezan bank has a strong
ROA of 1.5 as compared to 0.84 in 2016 which shows improvement.
 ii. Return on Equity (ROE)

Return on Equity=Net Income / Total Shareholder Equity

Table 4

Total Shareholder ROE (%) Return on Average

Year Net Income (A) Equity (B) (A/B) Equity (%)

2016 5,562,000 30,474,000 18.3 19.6

2017 6,313,000 35,077,000 18.0 19.3

2018 8,962,000 40,333,000 22.2 23.8

2019 15,232,000 59,015,000 25.8 30.7

2020 22,166,000 69,155,000 32.1 34.6

Same trend can be observed in ROE as with ROA. Meezan bank has a trend of increasing ROE
except for the year 2017 in which it decreases from 18.3 to 18.0. The overall increasing return on
equity from 2018 to 2020 shows that the bank is getting profitable with time. Meezan bank has a
strong ROE of 32.1 as compared to 18.3 in 2016.

iii. Earnings per Share (EPS)

Earnings per share= Profit for the Year/ Weighted Average number of ordinary shares
Table 5

Weighted Average number of ordinary shares

Year Profit For the Year( A) (B) EPS (A/B)

2016 5,562,000 1,002,737,895 5.5

2017 6,313,000 1,135,477,682 5.6

2018 8,962,000 1,169,192,400 7.6

2019 15,232,000 1,414,722,784 10.8

2020 22,166,600 1,414,722,784 15.67

 Table 5 showing EPS values shows that EPS also has an increasing trend from 2016-2020. It
increases significantly from 5.5 in 2016 to 15.67 in 2020. This increasing EPS shows that the bank
is getting more profitable from year to year. Higher values of EPS results in investors paying more
for shares as they will think that the bank is profitable.

c. Calculate Return to Depositors in each year over the 05 years period.

Return to Depositors = Return on deposits/ Total Deposits

Table 6

Return to Depositors (%)

Year Return on deposits (A) Total Deposits (B) A/B

2016 13,239,000 559,398,000 2.4

2017 15,684,000 667,181,000 2.4

2018 20,457,000 785,477,000 2.6

2019 47,731,000 932,579,000 5.1

2020 41,740,000 1,254,431,000 3.3

d. Does Return to Depositors differ from ROA, ROE? Why or Why not? Explain
with suitable reasons.

Table 7

Year ROA ROE Return to Depositors

2016 0.84 18.3 2.4
2017 0.8 18 2.4
2018 0.95 22.2 2.6
2019 1.4 25.8 5.1
2020 1.5 32.1 3.3
 Figure 2

ROA, ROE and Return to depositors differ as ROA deals with total assets, ROE deals with
Equity and return to depositors deals with total deposits and return on them. As far as
difference in ROA and ROE is concerned it is mainly due to debt value. As otherwise assets
would be equal to equity. Thus financial leverage results in higher values for ROE as
compared to ROA.

Figure shows that return to depositors is different from ROA and ROE. In this case of
Meezan bank ROE has high values as compared to return to depositors and ROA.

Return to Depositors and ROA

Return to depositors and ROA are two different ratios as one deals with how return
depositors get on their deposits while the other deals with how a company is performing in
accordance with the assets.

In case of Meezan bank Return to depositors is slightly higher as compared to ROA despite
Total assets greater than total deposits each year. This is due to the fact that the total return
on deposits each year is higher than Net income each year. For example in 2019 return on
deposits was 47,731,000 while net income was 15,232,000. This shows that the bank
returns more to depositors than Net income mentioned in the income statement. However
this is balanced out by the return that the bank receives from financing, investments and
placements as shown in Profit and loss account. However, the figure shows that return to
depositors decreased in 2020 while ROA increased this is due to the fact net income
increased while return on deposits were less as compared to 2019.

Main Reason: High value of Return on Deposits paid as compared to Net Income.

Return to Depositors and ROE

Return to depositors and ROE are two different ratios as one deals with how much return
depositors get on their deposits while the other deals with how a company is performing in
accordance with the total shareholder’s equity.

In the case of Meezan Bank ROE is significantly higher than return to depositors. The main
reason is that total deposits value is significantly higher than total equity value each year.
For example in 2017 total shareholder’s equity was 35,077,000, while total deposits were
667,181,000. This shows that the bank has high financial leverage and less equity
percentage. Thus lower values of equity results in higher values of ROE as compared to
return to depositors. Higher ROE represents that profits for shareholders is more as
compared to price and it attracts more investors.

Main Reason: High value of Total Deposits as compared to Total Shareholders’ Equity.

Conclusion:
Meezan bank is performing well in accordance with assets and deposits. Increasing ROA
and ROE values shows that the bank is getting stronger and more profitable with time.
Moreover increasing return to depositors also shows that depositors are getting more in
return. All these values show improved performance.
References
https://www.meezanbank.com/financial-information/

https://www.meezanbank.com/wp-content/themes/mbl/downloads/annualreport2020.pdf

https://www.meezanbank.com/tag/annual-report-2019/

https://www.meezanbank.com/wp-content/themes/mbl/downloads/annualreport2018.pdf

https://www.meezanbank.com/wp-content/themes/mbl/downloads/annualreport2017.pdf

https://www.meezanbank.com/wp-content/themes/mbl/downloads/annualreport2016.pdf