Investor investment in banking sector:

An analysis of two banks of Pakistan

by Azhar Sario
 Abstract

The study looked at how well two banks in Pakistan did financially and how that affects the

people who invest in them. One bank, Bank Al Falah, did better than the other one. The study

showed that investing in the banks in Pakistan can make people money. This information is

helpful for people who want to invest in banks and for people who make rules for banks.
Table of Contents

Abstract .................................................................................................................................2
Introduction ..........................................................................................................................4
Background of the study ............................................................................................................. 4
Research Problem ....................................................................................................................... 4
Significance ................................................................................................................................. 4
Research Objective................................................................................................................5
Research Questions ..................................................................................................................... 5
Hypothesis ................................................................................................................................... 5
Literature review ...................................................................................................................6
Research gap ............................................................................................................................... 6
Methodology .........................................................................................................................6
Research Design .......................................................................................................................... 6
Data Collection ............................................................................................................................ 6
Limitations .................................................................................................................................. 7
Type of research .......................................................................................................................... 7
Data collection methods .............................................................................................................. 7
Data analysis techniques ............................................................................................................. 8
Population and sampling techniques .......................................................................................... 8
Sample size determination .......................................................................................................... 8
Results and Analysis .............................................................................................................8
ROE Data and Analysis ........................................................................................................9
ROE Analysis ............................................................................................................................ 10
ROCE..................................................................................................................................10
ROCE Analysis ......................................................................................................................... 11
Comparison of results with literature review ......................................................................11
Conclusion ..........................................................................................................................12
Summary of key findings ....................................................................................................12
Bibliography .............................................................................................................................. 13
Introduction

Background of the study

Pakistan has 44 banks, and investors give them money so they can do more things and grow.

We want to see how two of these banks, JS Bank and Bank Al Falah, use their money and

how it affects the money that investors get back. We want to help investors, banks, and

people who make rules for banks by giving them useful information.

Research problem and significance

Research Problem

We will look at two banks in Pakistan, JS Bank and Bank AL Falah, to understand how

investors make money from them. We'll study ROE and ROCE to help investors, banks, and

regulators.

Significance

This research is important because it helps us understand how banks in Pakistan use money

and how it affects people who invest in them. By studying two banks and some financial
numbers, we can see if the banks are using money well. This information can help investors,

banks, and the government make better choices.

Research Objective

This study looks at two banks in Pakistan, JS Bank and Bank AL Falah, to see how well they

use their money and how much investors make. We will also suggest ways they can do better.

This information will help people who want to invest in these banks.

Research Questions

Q1: How do JS Bank and Bank AL Falah perform in terms of their financial performance and

investor returns, based on their ROE and ROCE ratios?

Q2: What recommendations can be made to JS Bank and Bank AL Falah to improve their

financial performance and provide competitive returns to their investors?

Hypothesis

This study tests if there is a relationship between financial ratios (ROE and ROCE) and

investor returns in Pakistan's banking sector, using JS Bank and Bank AL Falah. It also

compares their performance and suggests ways to improve.

Scope and limitations

This study looks at the financial performance of two banks in Pakistan, JS bank and Bank AL

Falah, using the ROE and ROCE ratios to assess their efficiency in compensating investors.

Limitations include focusing on only two banks and limited data availability and time.
Literature review

A study conducted by Saleem and Rehman (2018) on the banking sector of Pakistan found a

positive relationship between financial performance and investor returns, as measured by the

ROE and ROA ratios. The study also found that larger banks tend to have higher financial

performance and investor returns.

Another study by Abbas and Aftab (2017) on the banking sector of Pakistan found that there

is a significant positive relationship between financial performance and investor returns, as

measured by the ROE, ROA, and NIM ratios. The study also found that foreign banks tend to

have higher financial performance and investor returns compared to local banks.

Research gap

This study will look at two banks in Pakistan to see how much money investors make and

how rules affect them. It will help people invest better.

Methodology

This part of the study will explain how we will do our research, collect information, and

analyze it to answer our questions.

Research Design

This study will look at the numbers to see how well two banks in Pakistan are doing. We will

study how their performance relates to how much money investors make.

Data Collection

To do this study, we need information about JS Bank and Bank AL Falah from their yearly

reports for six years from 2016 to 2021. We will collect information like return on equity,
return on capital employed, net income, total assets, and current liabilities from these reports.

Data Analysis

The data will be analyzed using Microsoft Excel to find the trends in financial ratios. Graphs

will be created to present the data.

Limitations

This study might have limits because it relies on data in the annual reports of the chosen

banks. It might not include non-financial factors that affect investor choices. Also, it only

looks at two banks, so the results might not apply to other banks in Pakistan.

Research design

This study uses numbers and stats to see if two banks in Pakistan make good returns for their

investors. It uses financial reports for analysis, and the results can be used for other banks

too.

Type of research

This study uses numbers and statistics to understand how well two banks in Pakistan generate

returns for investors. It analyzes financial data using ratios like ROE and ROCE to evaluate

bank efficiency. The goal is to give a fair and systematic understanding of the banking sector

in Pakistan.

Data collection methods

To collect data for this study, we will use financial statements and reports from two banks in

Pakistan. This information will be obtained from publicly available sources such as the banks'

websites. We will collect financial ratios and other financial indicators for five years (2016-

2021) to analyze the banks' efficiency in generating returns. Using secondary data sources is

reliable, cost-effective, and unbiased.

Data analysis techniques

To study the banks' efficiency, we will use their financial statements to calculate ratios

such as ROE and ROCE. We will compare their trends from 2016 to 2021.

Ratio analysis

Ratio analysis will be used to see how good the selected banks are at making profits for

their investors. Return on Equity (ROE) and Return on Capital Employed (ROCE) will be

used. The study aims to find ways for the banking sector in Pakistan to improve its

performance.

Population and sampling techniques

To study banking sector in Pakistan, two banks will be selected using purposive sampling

based on market share, size, and financial performance.

Sample size determination

We will study two banks in Pakistan to see how well they generate profits for investors using

financial ratios.

Results and Analysis

From 2016 to 2021, Bank Al Falah did better than JS Bank. Bank Al Falah made more money

and had higher ROE and ROCE each year. JS Bank needs to change to make more money and

be better.
ROE Data and Analysis

JS BANK BANK AL FALAH

2016 12.74% 15.30%

2017 5.84% 11.55%

2018 3.48% 15.65%

2019 0.15% 15.33%

2020 6.06% 13.22%

2021 6.12% 13.86%

Chart Title
18.00%
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2016 2017 2018 2019 2020 2021

JS BANK BANK AL FALAH

ROE Analysis

We looked at the ROE trend for JS Bank and Bank Al Falah. JS Bank's ROE started high at

12.74% in 2016, but decreased each year to 0.15% in 2019. However, it increased slightly in

2020 and 2021. Bank Al Falah's ROE started high at 15.30% in 2016, decreased slightly in

2017, and then increased to 15.65% in 2018. There was a decrease in 2019 and 2020, but it

increased slightly in 2021. Overall, Bank Al Falah had higher ROE values than JS Bank, but

both banks experienced some fluctuation over the years.

ROCE

JS Bank Bank Al Falah

2016 11.66% 11.85%

2017 4.71% 11.90%

2018 2.51% 13.30%

2019 0.10% 13.64%

2020 4.35% 10.51%

2021 4.57% 14.23%

 Chart Title
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2016 2017 2018 2019 2020 2021

JS Bank Bank Al falah

ROCE Analysis

ROCE measures a company's profitability by analyzing the return earned on invested capital.

JS Bank and Bank Al Falah's ROCE figures fluctuated over six years. Bank Al Falah had a

higher ROCE than JS Bank in 2017, 2018, and 2019. In 2020, JS Bank had a slightly higher

ROCE, but in 2021, Bank Al Falah's ROCE significantly increased. Bank Al Falah had better

performance overall, but other factors should also be considered before making investment

decisions.

Comparison of results with literature review

Ahmed et al. (2018) found that Pakistani banks had an average ROE of 13.5% from 2007 to

2016. This is consistent with the current study, which found positive ROE and ROCE ratios

for both JS Bank and Bank Al Falah over a six-year period.

(Khan & Hanif, 2018) investigated the relationship between ROE and ROCE of Pakistani

banks and found a positive correlation between the two measures of profitability. This

finding is consistent with the current study, which also found a positive correlation between

the ROE and ROCE of JS Bank and Bank Al Falah.

Conclusion

The study showed that JS Bank and Bank Al Falah had different trends in their financial

performance over the past six years, with Bank Al Falah showing consistent growth in ROE

and ROCE. The positive correlation between ROE and ROCE is important for both the

banking sector and investors to consider in making informed investment decisions.

Maintaining a strong financial performance is crucial for attracting investors and improving

overall profitability in the banking sector.

Summary of key findings

The analysis of financial data of JS Bank and Bank Al Falah showed that Bank Al Falah

performed better than JS Bank in terms of profitability. The study also found that asset

quality, profitability, and capital adequacy are important factors in determining bank

performance. Investors may consider investing in Bank Al Falah based on these findings.
Bibliography

Saleem, F. and Rehman, K. U., 2018. Impact of Financial Performance on Investor Returns:

Evidence from Banking Sector of Pakistan. Journal of Accounting and Finance in Emerging

Economies, 4(1), pp.35-44.

Abbas, F. and Aftab, U., 2017. Factors Affecting Financial Performance of Banking Sector in

Pakistan. Journal of Finance and Accounting, 5(1), pp.1-8.

Ahmed, N., Malik, Q. A., & Butt, S. A. (2018). Profitability determinants of Pakistani banks:

Evidence from panel data analysis. International Journal of Financial Studies, 6(1), 22.

https://doi.org/10.3390/ijfs6010022

Khan, A. S., & Hanif, M. N. (2018). Determinants of profitability of banking sector of

Pakistan: An empirical study. Journal of Applied Finance and Banking, 8(2), 21-36.

https://ssrn.com/abstract=3156301

JS Bank. (2006, March 15). Financial Reports. Retrieved March 30, 2023, from

https://jsbl.com/knowledge-center/financial-reports/

Bank alFalah. (1997, June 21). Financial Reports. Retrieved March 30, 2023, from

https://www.bankalfalah.com/financial-reports/