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Analysis of Financial Statements

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GRADUATE SCHOOL OF MANAGEMENT
INTERNATIONAL ISLAMIC UNIVERSITY
ISLAMABAD
Muhammad Farooq (3440)
Muhammad Khalil Hussain (3443)
Muhammad Ahsan (3427)

+92 333 9835303


+92 333 6836340
+92 333 5023773
indusbreeze@yahoo.com
mianwali@yahoo.com

HABIB METROPOLITAN
BANK
Mr. Wasim Ullah
Director IMDC
MBA (LUMS)
DAIBP
0321-5824994
wasimullah@iiu.edu.pk

HABIB METROPOLITAN BANK


BANKING INDUSTRY OF PAKISTAN

Governor State Bank of Pakistan Syed Salim


Raza has said that Pakistan's banking industry
had tremendous potential for further
investment in the financial sector of the
country. Pakistan has a well-developed
banking system, which consists of a wide
variety of institutions ranging from a central
bank to commercial banks and to specialized
agencies to cater for special requirements of
specific sectors. Major factors like global
financial disorder, economic slowdown and
strict monetary policy were on the top but
Pakistani bank cater all these problems.
 Entity is a result of a merger b/w Habib Bank
AG Zurich & Metropolitan Bank Ltd. on 26-
Oct-2006
 Headquarter in Switzerland, the HBZ Group
also operates in Hong Kong, Singapore,
United Arab Emirates, Kenya, South Africa,
United Kingdom and North America.
 Over 100 branches throughout Pakistan.
 HBZ (incorporated 1967) enjoys
International ranking of 687 in terms of
capital.
HABIB METROPOLITAN BANK
 HMB is the first bank in Pakistan to join the
Global Trade Finance Program (GTFP) of
International Finance Corporation (IFC). By
virtue of joining the GTFP, HMB bank is now
listed in a panel of prominent banks in 70
countries
 Credit rating in long-term “AA+” and in short
term “A1+”
 Portfolio diversification
(54% advances to Textile industry)
 Rank within top 10 banks of Pakistan.

HABIB METROPOLITAN BANK


 Loans are given only to known, reputable
clients to avoid chances of fraud.
 Very low nonperforming loan.
 Majority of shares are owned by the Habib
group.
 HMB offers full range of Trade Finance
products and services to its customers.
Due to its wide network of correspondent
banking arrangements with most reputed
international banks
 Continuous growth in ROE (0.22 in 2008)

HABIB METROPOLITAN BANK


FUTURE OUTLOOK OF HMBL:

Up-till now HMBL has not been able to


come up with different products in
retail banking, branch banking,
insurance, and mortgage. With the
presence of large foreign banks like
Citibank, RBS and Standard Chartered
one finds it convenient to believe that
HMBL faces tough competition in
consumer banking from these
worldwide giants. HMBL's net interest
margin is one of the highest in the
industry. Interest income is the major
source of income for HMBL.
HABIB METROPOLITAN BANK
MICHEL PORTERS FIVE FORCES
ANALYSIS
1. Threat of Entry: (Medium)
No restriction from SBP for new banks. SBP gives free hand
to enter in this industry because there is a big scope in this
industry. To start a new bank there is a need of large financial
resources in order to compete with existing banks and
Government current interest policy is also a problem for new
entrant.
Existing banks have great customer loyalties and they
differentiate their services.
New entrant’s need network of branches and to get
favorable location for branches is also difficult. Existing banks
has also advantage of expertise and diversity of their
branches.

HABIB METROPOLITAN BANK


MICHEL PORTERS FIVE FORCES
ANALYSIS

2. Intensity of Rivalry among Existing


Competitors:
Degree of difference between products is very low.
Competition in existing firms has very high due to numerous
and equally balanced competitors. Due to entrance of new
foreign banks, competition increased.
There are high exit barriers due to high fixed cost, Govt. and
social restriction.
Banking industry growth is medium to high due to
competition increases day by day.
Some banks have new technology which gave advantage to
them.

HABIB METROPOLITAN BANK


MICHEL PORTERS FIVE FORCES
ANALYSIS

3. Threat of Substitute Products:


Islamic mode of financing is a substitute for conventional
banking system. Habib Metropolitan bank also start Islamic
banking in Karachi and Lahore.
4. Bargaining Power of Buyers:
Giant client bargain highly. Products or services have no high
difference. Buyer has full information about whole banking
industry in Pakistan then he/she may give tuff time for
bargaining. Switching cost is not high from one bank to another;
prospective banks charge low fees for switching. Banking
products/services may unimportant to the quality of the buyers.

HABIB METROPOLITAN BANK


MICHEL PORTERS FIVE FORCES
ANALYSIS

5. Bargaining Power of Supplier:


The State Bank of Pakistan control the whole banking
industry and National Bank of Pakistan control the
securities etc. They have power given by the Govt. of
Pakistan. They control the cash requirements of the banks
and all other banks follow the instructions given by the
SBP.

HABIB METROPOLITAN BANK


Segment 2008
Textile 54.03%
Exports/Imports 7.21%
Chemical and pharmaceuticals 3.65%
Wholesale and retail trade 2.98%
Electronics and electrical 2.29%
Others 29.84%

HABIB METROPOLITAN BANK


HABIB METROPOLITAN BANK
Liquidity Ratios:
Mar-09 2008 2007 2006
Advances to Deposit ratio 0.857 0.845 0.742 0.813
Earning Assets to Assets 0.906 0.888 0.900 0.863
Yield on earning Assets 0.027 0.098 0.077 0.057

HABIB METROPOLITAN BANK


Return on Equity:
Mar-09 2008 2007 2006
Net income after taxes 1,896,974 3,279,736 2,797,408 2,097,203

Total equity capital 16,904,052 15,096,526 13,519,908 10,869,426

ROE 0.11 0.22 0.21 0.19

HABIB METROPOLITAN BANK


Breakdown Analysis of ROE

Mar-09 2008 2007 2006


Net profit margin 0.34 0.16 0.18 0.23
Assets utilization 0.03 0.11 0.09 0.06
Equity multiplier 11 12 13 14
ROE 0.112 0.217 0.207 0.193

HABIB METROPOLITAN BANK


Solvency Ratios:
Mar-09 2008 2007 2006
Equity to assets 0.089 0.083 0.078 0.073
Equity to deposits 0.142 0.118 0.112 0.106
Earning assets to deposits 1.437 1.262 1.285 1.252
Cash assets and Government 0.052 0.063 0.059 0.076
securities to total assets

HABIB METROPOLITAN BANK


Solvency Ratios:

•Earning Assets to deposits

HABIB METROPOLITAN BANK


Debt Management :

Mar-09 2008 2007 2006


Debt to assets 0.911 0.917 0.922 0.927
Debt to equity 10.18 11.06 11.79 12.68
Capital Adequacy Ratio - 0.62% 2.50% 1.88%

HABIB METROPOLITAN BANK


Debt Management :

HABIB METROPOLITAN BANK


Profitability Ratios:
Mar-09 2008 2007 2006
Net interest Margin 0.93% 2.73% 2.15% 1.93%
Non interest Margin -0.01% 0.56% 0.53% 0.26%
Assets Utilization 3% 11% 9% 6%
Equity Multiplier 11.18 12.06 12.79 13.68
Net Operating Margin 0.75% 2.60% 2.43% 2.12%
Tax Management Efficiency 134.57% 69.14% 66.54% 66.70%
Expense Control efficiency 34.33% 16.28% 18.45% 23.25%
Asset Management efficiency 2.92% 11.06% 8.77% 6.07%
Funds Management efficiency 11.18 12.06 12.79 13.68

HABIB METROPOLITAN BANK


Profitability Ratios:

HABIB METROPOLITAN BANK


Earning Ratios:
Mar-09 2008 2007 2006
Return on deposits 0.008 0.026 0.023 0.020
Return on assets 0.005 0.018 0.016 0.014
Earning spread 0.010 0.029 0.022 0.023

HABIB METROPOLITAN BANK


Peer Group Analysis

Habib Metropolitan Bank Peer Group


2006 2007 2008 2006 2007 2008
Return on equity
(ROE) 19% 21% 22% 27% 26.18% 20.26%
Return on assets
(ROA) 1.40% 1.60% 1.80% 1.53% 1.56% 1.33%
Net interest margin 1.93% 2.15% 2.73% 3.29% 2.97% 3.72%
Net non-interest
margin 0.26% 0.53% 0.56% -0.93% -0.76% -1.10
Net operating margin 2.12% 2.43% 2.60% 2.34% 2.16% 1.99%
Earnings Per Share 4.92 5.57 5.45 6.59 4.59 4.95
Earning spread 2.90% 2.20% 2.31% 3.38% 3.07% 3.96%

HABIB METROPOLITAN BANK


RISK MANAGEMENT

2008 2007 2006


Non-performing assets to total loans and lease 0.53% 0.90% 1.00%
Non-performing assets to equity 4.08% 5.95% 7.18%
Loss to total loans 0.001% 0.04% 0.09%
Provision to total loans 0.37% 0.78% 1.00%
Capital adequacy 11.88% 12.50% 10.62%
Total loans to total deposits 81.30% 74.20% 84.49%

HABIB METROPOLITAN BANK


RISK
MANAGEMENT
Credit risk:
The HMB strategy is to minimize credit risk through a
strong pre-disbursement credit analysis, approval and risk
measurement process added with product, geography and
customer diversification. The Bank, as its strategic
preference, provides loans only to strong parties. Major
portion of the Bank credit portfolio is Textile industry
(54%) which is highly profitable business in Pakistan but it
may riskier and not a good diversification of portfolio, if
textile industry slump then it will crash the whole bank.
The bank has very low rate of Non-performing loans. The
ratios of risks are as under and we can see that they
reduce the risk as per their objective.

HABIB METROPOLITAN BANK


Market Risk:
Market risk is the possibility that fluctuation in interest
rates, foreign exchange or stock prices will change the
market value of financial products leading to a loss. The
HMB has formalized liquidity and market risk
management policies which contain action plans to
strengthen the market risk management system.
Foreign Exchange Risk:
Foreign Exchange Risk is the probability of loss resulting
from adverse movement is exchange rates. The HMB is
not in the business of actively trading and market
making activities but a conservative risk approach and
the Bank’s business strategy to work with export
oriented (Textile) client’s gives the ability to meet its
foreign exchange needs.

HABIB METROPOLITAN BANK


Interest rate risk:
Interest rate risk is the risk that the value of the financial
instrument will fluctuate due to changes in the market
interest rates. The HMB’s interest rate exposure is low
due to the short-term nature of the majority of business
transactions. Interest rate risk is also controlled through
flexible credit pricing mechanism and variable deposit
rates.
Liquidity risk:
HMB manages the liquidity position on a continuous
basis. The Bank’s liquidity position is based on “self
reliance” with a wide branch network to expand the Bank
deposit base. The Bank’s liquidity profile generally
consists of short-term, secured assets, in line with the
Bank’s credit strategy.

HABIB METROPOLITAN BANK


RECOMMENDATIONS
 Diversify the portfolio
 Introduction of new products/services in
the market
 Hire new management
 Give importance to all customers
 Increase the branches all over the country
 Improve standard of banking
 Start advertisement as soon as possible

HABIB METROPOLITAN BANK