Asset Liability Management Sources and Uses of Funds Similarities & Dissimilarities

A Comparison of Islamic and
Conventional Banking system
Asset liability
management
Sources and uses of funds
Similarities &
dissimilarities
Qazi waqas, Zulqarnain , Nouman
GROUP # 7
QAZI MUHAMMAD WAQAS
ZULQARNAIN HAIDER
SYED NOUMAN ATHER
PIONEER BATCH
RCIB MBA (IBF)
RIPHAH INTERNATIONAL
azi waqas, Zulqarnain , Nouman
Outlines:
Introduction of this Project

Objective of the Project
Companies selected for study
Faysal Bank
MEEZAN BANK LTD
Conceptual Framework for Islamic
Asset Liability Management Deposits
Uses of funds
Similarities & dissimilarities
Holy Quran:
We have created the night

as covering and we have
created the day for the
economic activities.
Hazrat Umar R.A., said:

Every system can prevail in
this world but not the one
which is unjust.
Introduction of this Project

In this Project our main focus on
three main things regarding Islamic
Banking system.
We will discuss the Comparison of
Conventional & Islamic Banking
Systems
According to these things:
Asset Liability Management,
Sources & Uses of Funds,
Similarities & Dissimilarities
Objective of the Project

The main objective of our project is to clear the basic
differences between Islamic and conventional system
We will try to discuss the real face of both systems in
depth.
Thats why our discussion will around these things:
How Islamic Banks manage their assets and liabilities
what is the main sources and uses of funds
what are the main and core similarities & dissimilarities
between Islamic bank and conventional bank.
Companies selected for study

We selected two banks first is Faysal
banks taken as the conventional
banks representative and
Second one is Meezan bank as
representative of Islamic banks,
Faysal Bank
Faysal Bank Limited was incorporated in Pakistan
on October 3, 1994, as a public limited company
under the Companies Ordinance, 1984.
Currently, the Bank's shares are listed on the
Karachi, Lahore and Islamabad Stock Exchanges
Faysal Bank is engaged in Commercial,
Consumer, Corporate and Islamic Banking
activities
10
Faysal Bank cont

The bank is principally engaged in
providing consumer, corporate and
investment banking services to its
customers.
The bank offers a wide range of
consumer banking products and
services which include deposit
accounts, car loans, home loans and
other consumer loans.
11
Faysal Bank cont

It also provides treasury and capital
market services and cash
management services to its
customers.
Balance Sheet of Bank
Assets
Liabilities
Loans and advances to customers
Customers deposits
Cash and cash balances with other Due to banks and other financial
banks
institutions
Investments in associates,
subsidiaries and joint ventures
Other liabilities
Financial assets held for trading
Sundry creditors
Cash and cash balances with the

central bank
Equity and reserves
12
MEEZAN BANK LTD

MEEZAN was established as an Islamic
Investment Bank in 1997 as AL MEEZAN
INVESTMENT BANK LTD.
First Islamic Commercial Banks license was
awarded to Al Meezan Investment Bank in
year 2002,
They bought the local operations of Socite
General (French Bank) 03 branches
13
MEEZAN BANK LTD cont

In 2009, Branch network of six dedicated Islamic
banks increases to 480 branches (including subbranches)
Meezan Bank having a 42% share of the Islamic
Banking branch network in the country .
201branches in 54 cities across the country.
Over 5.5% of the total Banking industry.
14
PRINCIPLES
BASIS OF ISLAMIC FINANCE
Prohibition of RIBA
Alkharaj-o-bildhaman (entitlement to profit is associated
with corresponding risk)-Risk Sharing, i.e. No Risk, No
Gain.
Prohibition of sale of goods before acquiring ownership
Prohibition of sale of food stuff before possession
Prohibition of debt for debt
Avoidance of Gharar (uncertainty)
Time value measured only through Price or Rent.
Debt contracts can be made / traded but without discount.
Risk can be distributed through forward Trading /
Contracts by way of Salam & Istisna.
15
Asset Liability
Management
Assets liability management is very important
phenomena in banks earning strategy even in
Islamic banking system, all the investments
contributions to this effects to be used even on
and off-balance sheet components in ALM.
The risk taking is the key determinant for the
banks either conventional or Islamic to
portfolio or ALM.
16
BALANCE SHEET STRUCTURE OF ISLAMIC BANK.
17
Objectives of ALM
To manage the portfolio in a manner consistent with the
banks investment policy.
To obtain the desired earning while holding risk at acceptable
levels.
To maintain adequate liquidity at a cost consistent with
earnings goals.
On and Off-balance sheet investments are considered in
ALM.
18
Techniques of ALM.
Matching Techniques.
Swap Techniques.
Futures as a Hedging Technique.
Options as Hedging Techniques.
Effective Portfolio Management.
19
ALM - Pillars
ALM Information Systems.
MIS
Information availability
Accuracy
Adequacy
Expediency
ALM Organization.
Structure and responsibilities
Level of top management involvement
ALM Process.
Risk
Risk
Risk
Risk
Parameters
Identification
Measurement
Management
20
Current Ratio:
The current ratio highlights
the firm ability to cover short
term liabilities with its current
assets.
Current Ratio = Current
Assets / Current Liabilities
Interpretation:
Faysal Bank
Meezan Bank
Particulars
2007
2008
2009
2007
2008
2009
Current
Assets
138,762,4
62
135,594,
508
176,797,8
78
66,145,5
96
83,395,5
55
121,561,1
87
Current
Liabilities
58,877,32
0
65,763,5
83
108,009,0
79
36,967,0
02
51,844,2
28
77,699,05
8
Current
Ratio
2.36
2.06
1.64
1.79
1.61
1.56
The current ratio of Faysal bank

& Meezan Bank for the year
2007, 2008 & 2009 is, 2.36,
2.06 & 1.64, 1.79, 1.61 & 1.56
respectively, compared to
standard ratio 2:1 this of
Meezan Bank ratio is then
Faysal Bank
21
Sales to Working Capital = Sales / Working Capital
In this ratio we compare the

working capital or net current
assets with sales which are part of
the revenue.
Faysal Bank
Meezan Bank
Particulars
2007
2008
2009
2007
2008
2009
Sales
11,610,
781
13,404,
132
16,957,
875
4,573,7
52
6,803,2
13
10,102,
060
Interpretation:
Working
Capital
79,885,
142
69,830,
925
68,788,
799
29,178,
594
31,551,
327
43,862,
129
Sales
Working
Capital
0.15
0.19
0.25
0.16
0.22
0.23
The average turnover in working

capital of Faysal Bank is 19% &
Meezan Bank have 20% this
shows the profitability of working
capital of Meezan Bank is slightly
high then Faysal Bank.
To
22
Working Capital = Current Assets Current

Liabilities
Arithmetically it is the
difference of Current Assets
Faysal Bank
Meezan Bank
Particula
rs
2007
2008
2009
2007
2008
2009
Current
Assets
138,762,
462
135,594,
508
176,797,
878
66,145,
596
83,395,
555
121,561,
187
Interpretation:
Current
Liabilities
58,877,3
20
65,763,5
83
108,009,
079
36,967,
002
51,844,
228
77,699,0
58
The working capital ratio of

Faysal Bank limited is higher
which indicates that Faysal
bank has have sufficient
resources to meets its current
obligations as compare to
Working
Capital
7988514
2
6983092
5
6878879
9
291785
94
315513
27
4386212
9
and Current Liabilities.
Meezan Bank Limited.

23
Balance Sheet Meezan Bank Limited
Horizontal
Analysis
2007
2008
ASSETS
2009
2007
Rs.In ,000
2008
2009
Rs.In ,000
Cash and balances with

treasury banks
5,644,028
5,763,710
8,387,432
100
102.12
148.61
Balances with other banks
3,729,549
1,344,974
5,260,467
100
36.06
141.05
Due from financial

institutions
8,850,000
18,108,000
34,499,500
100
204.61
389.82
Investments
10,535,186
14,286,949
23,290,309
100
135.61
221.07
Financings
34,576,339
39,768,481
44,188,066
100
115.02
127.80
Operating fixed assets
1,032,963
1,880,515
2,416,375
100
182.05
233.93
Deferred tax asset
204,172
#DIV/0!
Other assets
2,810,494
4,123,441
5,935,413
100
146.72
211.19
67,178,559
85,276,070
124,181,73
4
100
126.94
184.85
LIABILITIES
Bills payable
1,192,160
1,057,017
1,249,210
100
88.66
104.79
Due to financial institutions
2,415,606
4,008,496
8,468,425
100
165.94
24
350.57
REPRESENTED
BY
3,779,897
4,925,96
1
6,650,04
8
100
130.3
2
175.93
845,022
1,050,09
2
100
117.2
4
145.69
100
46.76
114.04
158.9
3
Share capital
Reserves
720,785
Unappropriated
profit
1,219,228
570,114
1,390,39
5
5,719,91
0
6,341,0
97
9,090,53
5
100
110.8
6
Deficit on
revaluation of
investments
(13,254)
(366,119
)
93,924
100
2,762.
33
(708.6
5)
5,706,65
6
5,974,9
78
9,184,45
9
100
104.7
0
160.9
4
25
Horizontal Analysis
Balance Sheet Faysal Bank Limited

2007
2008
ASSETS
2009
2007
2008
2009
Rs.In ,000
Cash and balances with

treasury banks
6,872,032
8,927,524
8,427,202
100
129.91
122.63
Balances with other banks
3,708,451
876,780
508,795
100
23.64
13.72
Lending's to financial
institutions
7,078,102
2,861,401
15,017,826
100
40.43
212.17
Investments
31,553,108
30,186,168
56,531,338
100
95.67
179.16
Advances
87,346,401
89,758,789
91,346,001
100
102.76
104.58
2,514,959
2,646,978
2,787,617
100
105.25
110.84
1,279,918
2,204,368
2,983,846
4,966,716
100
141,277,421
138,241,486
180,865,413
100
LIABILITIES
Operating fixed assets

Deferred tax assets - net
Other assets
100.00
135.36
225.31
97.85
128.02
Bills payable
2,406,927
1,536,517
1,465,451
100
63.84
60.88
Borrowings from financial

institutions
9,995,855
13,027,468
34,985,766
100
130.33
350.00
102,067,422
102,776,793
123,655,188
100
100.70
121.15
1,000,000
999,600
999,200
100
99.96
99.92
7,827
4,103
100
52.42
Deferred tax liabilities - net
2,691,466
2,483,355
100
92.27
Other liabilities
6,951,421
6,641,542
6,977,069
100
95.54
125,120,918
127,469,378
168,082,674
Qazi waqas,
Zulqarnain , Nouman
100
101.88
Deposits and other accounts

Sub-ordinated loans
Liabilities against assets
subject to finance lease
100.37
26
134.34
NET ASSETS
16,156,
503
10,772,
108
12,782,
739
10
0
66.67 79.12
REPRESENTE
D BY
Share capital
5,296,4
45
5,296,4
45
6,090,9
11
10
0
100.0
0
115.0
0
Reserves
3,567,0
33
3,790,0
23
4,030,0
56
10
0
106.2
5
112.9
8
Unappropriated 1,481,6
profit
68
1,049,5
19
1,215,1
79
10
0
70.83
82.01
10,135,
987
11,336,
146
10
0
109.5
97.98 8
10
0
10.95
10
0
66.67 79.12
10,345,
146
Surplus on
revaluation of
assets
5,811,3
57
636,121
1,446,5
93
16,156,
503
10,772,
108
12,782,
739
24.89
27
Conclusion/Findings
Liquidity position of Faysal Bank Limited is higher then
Meezan Bank Limited this indicates that Meezan Bank
Limited has higher leverage. Both financial institutes should
improve their current ratio & working capital position in
financial year 2011. The analysis shows that its lower down
gradually.
Net profit margin of Meezan Bank Limited is higher then
Faysal Bank Limited.
Gross profit margin of Meezan Bank Limited is higher then
Faysal Bank Limited so we would like to suggest Faysal Bank
should improve its Gross Profit margin to meet the expenses
efficiently and set a sight profit for shares holders.
28
Conclusion/Findings
The Operating income margin of Faysal Bank Limited is higher
then Meezan Bank Limited which indicates that Faysal Bank
Limited generates higher income by its own operation as compare
to Meezan Bank Limited.
The Long Term debt to long term liabilities ratio of Meezan Bank
Limited is higher then Faysal Bank Limited because Faysal bank
limited employed its funds in short term activities more then
Meezan Bank Limited
Meezan Bank Limited has a good market perception due to
continuous declaration of dividends but on the other hand Faysal
Bank limited did not declared dividend in financial year 2009.
The three years average price / earning ratio of Meezan Bank
Limited 13.97 while the Faysal Bank Limited has 7.78 % this
indicates the Meezan Bank Limited has much potential in stock
as compare to Faysal Bank Limited.
The operating cash flow to total debt ratio of Meezan

Bank Limited is little higher then Faysal Bank Limited29
Recommendations
With the assistance analyses of financial reports we would like to
recommend both financial institutes should over come their pit
falls, flaws and deficiencies. Meezan Bank limited should improve
its current ratio. The Meezan Bank Limited Net Profit Margin is
higher then Faysal Bank Limited. The Faysal Bank Limited should
improve its profitability ratio by efficiently use its resources.
Similarly the price earning ratio & dividend payout ratio of
Meezan Bank Limited is higher then Faysal Bank this highlights
good return on investment as well good market perception. Faysal
should also pay dividend consistently through generate the profit
by improving its operation. We would also like to recommend that
financial institute should much promote the business activities and
provide financial assistance to industry which will be reduce the
un employment, inflation and increase productivity of Pakistan
30
SIMILARITIES &
DISSIMILARITIES
There are two major difference between Islamic
Banking and Conventional Banking:
Conventional banking practices are concerned
with "elimination of risk" where as Islamic banks
"bear the risk" when involve in any transaction.
When Conventional banks involve in transaction
with consumer they do not take the liability only
get the benefit from consumer in form of interest
whereas Islamic banks bear all the liability when
involve in transaction with consumer. Getting out
any benefit without
bearing its liability is declared31
Haram in Islam.
Differences between Islamic and Banking

System
Conventional System
Islamic System
Money is a product besides medium of Real Asset is a product. Money is

exchange and store of value.
just a medium of exchange.
Time value is the basis for charging interest on Profit on exchange of goods &
capital.
services is the basis for earning
profit.
Interest is charged even in case, the Loss
is
shared
when
the
organization suffers losses. Thus no concept of organization suffers loss.
sharing loss.
While disbursing cash finance, running finance The execution of agreements for
or working capital finance, no agreement for the exchange of goods & services
exchange of goods & services is made.
is must, while disbursing funds
under Murabaha, Salam & Istisna
contracts.
Due to non existence of goods & services Due to existence of goods &
behind the money while disbursing funds, the services no expansion of money
expansion of money takes place, which creates takes place and thus no inflation is
inflation.
created.
Due to inflation the entrepreneur increases Due to control over inflation, no
prices of his goods & services, due to extra price is charged by the
incorporating inflationary effect into cost of entrepreneur.
product.
32
Bridge financing and long term loans lending is Musharakah
&
Diminishing
33

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A Comparison of Islamic and

Conventional Banking system

Qazi waqas, Zulqarnain , Nouman

Qazi waqas, Zulqarnain , Nouman

azi waqas, Zulqarnain , Nouman

Introduction of this Project

We have created the night

Qazi waqas, Zulqarnain , Nouman

Hazrat Umar R.A., said:

Qazi waqas, Zulqarnain , Nouman

Introduction of this Project

Objective of the Project

Companies selected for study

Qazi waqas, Zulqarnain , Nouman

Qazi waqas, Zulqarnain , Nouman

Faysal Bank cont

Faysal Bank cont

Loans and advances to customers

Financial assets held for trading

Cash and cash balances with the

Equity and reserves

MEEZAN BANK LTD

MEEZAN BANK LTD cont

BALANCE SHEET STRUCTURE OF ISLAMIC BANK.

Qazi waqas, Zulqarnain , Nouman

Qazi waqas, Zulqarnain , Nouman

The current ratio of Faysal bank

Sales to Working Capital = Sales / Working Capital

In this ratio we compare the

The average turnover in working

Working Capital = Current Assets Current

The working capital ratio of

and Current Liabilities.

Meezan Bank Limited.

Qazi waqas, Zulqarnain , Nouman

Balance Sheet Meezan Bank Limited

Cash and balances with

Balances with other banks

Due from financial

Operating fixed assets

Deferred tax asset

Due to financial institutions

Qazi waqas, Zulqarnain , Nouman

Balance Sheet Faysal Bank Limited

Cash and balances with

Balances with other banks

Operating fixed assets

Borrowings from financial

Deferred tax liabilities - net

Deposits and other accounts

Qazi waqas, Zulqarnain , Nouman

The operating cash flow to total debt ratio of Meezan

Differences between Islamic and Banking

Money is a product besides medium of Real Asset is a product. Money is

Qazi waqas, Zulqarnain , Nouman

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