DECLARATION I hereby declare that this project report titled CAMELS ANALYSIS of Allied Bank Limited is the original

work done by me under the guidance of Prof. Waqas Ahmad, Faculty of Management and Sciences at International Islamic University Islamabad.

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ACKNOWLEDGEMENT
All praise to Almighty Allah, the most sympathetic and compassionate, who give me skills and abilities to complete this Project successfully We are grateful to our parents who are always been a source of encouragement for us throughout our life and from start to the end of this report We express our greatest gratitude to our kindhearted Supervisor Mr. Waqas Ahmad who was the Person who gave us an opportunity to work on this project. His enthusiasm shows the way forward to us to achieve this success and who kept us in high spirit through his appreciation. He helped us a lot each time we went up to him.

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Executive Summary
A Bank normally received deposits and provide loans to borrowers. There are different analysis to evaluate the bank performance of banking industry. But we choose the Camels analysis which is a better tool to evaluate the performance of Banking industry. Allied Bank Limited is innovative bank in Pakistan. This Bank is profitable bank in last 10 years. We have done Camels analysis of Allied Bank Limited which is leading bank of Pakistan. We collected data from primary sources and secondary sources such as balance sheets income statement annual reports, ABL website and other websites. We have been done analysis of ABL last five years (2007-2011).BASSEL ACCORD II have also been discussed in this project which describe to maintain capital as 9% and also State Bank of Pakistan similar percentage of Capital as 9%.

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Definition of Bank A bank is financial institution which accept deposits and give advances to firms, individuals companies. The bank usually lend at higher rate of interest. Definition of banker J.W Gilbert has defined banker as A banker is dealer in capital or more properly, a dealer in money. He is intermediate party between the borrower and the lender. He borrows of one and lends to another.

Functions of commercial banks:

Commercial banks receive deposits and give loans because banks have surplus money and they can lend money to customers who need. Commercial Banks play as intermediaries in financial market. They lend money not only to individual customers but to also large corporations. There are other secondary functions which are performed by commercial banks. Here are some functions given as below. 1.Accepting Deposits: First function of commercial banks are accepting deposits. Because, people keep their savings in shape of deposits.Some are types of deposits. a-Current Accounts or Demand Deposits: Current Account is defined as which repayable to customers on demand without any notice. In current account interest is not given to customers.Usually banks do not use such deposits because these deposits are short term and must keep cent percent reserves because customers can withdraw his amount any time.Bank charge commission on his services rather than interest but bank pay small interest to the people which have heavy amount in bank. b-Fixed Deposits or Time deposits: Fixed deposits are defined as fixed amount of money which are keep in bank at certain period and these deposits can withdraw amount from bank account after expiry of the period.Bnaks pay high interst to their customers and rate of interst increase as time of deposit increase. 4|Page

c-Saving bank deposit Savings deposit exist between current and fixed account these deposit has a certain limit to withdraw up to 25% of deposit. Saving deposit have less interest paid rather than fixed deposit. Giving loans Banks not only received deposits but also give loans to their clients. Banks give loans and charge interest. Usually bank lent their money to traders and business man for shorter period. This is due to meet the demand of depositor who have invested money for short term. Bank can advance their money in following ways a. Over draft Over draft defined as term which means if a customer has not sufficient money in their account they can borrow money from bank and pay interest on extra amount which has to be repaid in a short period. The amount of over draft changes with the financial condition of the borrower. b. Loan against mortgage Banks can also lend cash credit to their customers. Such a person who receive a loan from bank he keeps mordgage against their loan and he also satisfy bank manager ability to pay loan and financial position of their business. Usually person who wants loan deposit his security which can easily convert in markets e.g shares of listed companies or govt. security. A brower can not with draw total amount of loan in cash usually a current account opened with that amount in bank. If a person does not keep an account with the bank so that is the amount which a person deposited in his account. Banks create deposits through this perspective that is why we can say that every loans creates a deposit when time period of borrowing has been expired the borrower the loan with interest. And bank generate profit through this way. c. Discounting Bills Banks lend their money through discounting of bills. They purchase bills from bill brokers or discount companies and discount directly from traders. The bills have quite save investments because two parties are involve in these bills such as drawier and drawee so that if one person become insolvent or dis honest bank can 5|Page

take money from other party this the best way of investment which is use by banks. Discounting of bills are highly liquid and safe. Hance a good manager have a sound knowledge to differentiate bill and mortgage. 3. Remitting Funds Banks can send funds to their clients by using bank draft with in a country and also abroad where they have branches or agencies this way is quite safe and chepest way to send their money. 4. Miscellaneous Functions Banks not only perform above discussed functions but also perform other functions which are given below. a. Safe Custody Customers can keep their valuable goods such as gold ornaments and security documents. In save deposit with banks. Save deposit room consist of fitteted lockers and bank also charge some of money on yearly basis. b. References Banks provide referances about the financial of their customers this information keeps confidential usually this information provide by bank to others firms about make connection with the customers. c. Letters of Credit Bank also play a role in term of international trade in this regard bank issue letter of credit. Letter of credit is a document which usually issue by a persons bank which import goods from abroad. d. Under writing Services Banks provide underwriting services in case of securities such as debentures when private companies issue debentures for public may hesitate to buy such debentures so bank play a role as under writer. The public relay on banks signatures and have full confidence on banks. Banks charges commission fee on under writing services.

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e. Advice of Financial matters If the economic condition of the country is not well bank fully advice to their customers about their financial matters and they give financial advice to their customers.

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Allied Bank Limited

ABL is one of the largest banks in Pakistan, serving the Country for over 70 years in all spheres at banking and financial Services.

History of ABL
Allied bank Ltd was named as Australia Bank and established in Dec 1942. It had paid up capital 0.12 million deposits were 0.431 million and PKR 0.572 million were assets at that time. The first chairman of ABL was Khawaja Bashir Bux and Abdul Rehman Malik who was one of original Board of Directors. But now ABL paid up capital amount 105 billion; total assets 170 billion and deposits increased by Rs 143 billion. 1942-1947 Pre independence Era: Before the formation of Pakistan Muslim community was keeping need of any financial institution because they took part in trade and industry. But on the other hand Hindus take part in this industry more than muslims. Khwaja Bashir Bux and Abdul Rehman Malik took steps to build a bank for muslims. After the struggle of both of them the Muslims got first bank for muslims on the soil of Punjab which was came into being 1942. 1947-1974 The first muslim bank presented on Pakistan territory was Australasia Bank on August 14th 1947.At the time of freedom this bank has all branches in India such as (Amritsar, Jalandar, ludiana, Dehli and batala) which were closed down. This bank was opened new branches in Karachi, Rawalpindi, Peshawar, Sialkot and Sargodha, Jhang, Gujranwala and kasur. Afterwards this bank also spread into Quetta and Multan. By 1970 it had 101 branches. But when East Pakistan was separated it east 51 branches. In the end of 1973 the bank had 186 branches in West Pakistan.

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1974-1991 In 1974 the bank was renamed Allied Bank due to dissolution of Board of Directors. This bank has profit more than 10 million deposits were escalating by more than 50% and 1460 million. Investments and advances are reached to 1080 million at firs time of bank history. No of branches are increased from 353 to 748 from (1974-1991) 1991-2004 When privatization of ABL was came into being it has privilege to worlds first bank which was owned and controlled by its employees. ABL floated its Allied bank Modarba at first time in 1993. In August 2004 the ownership of this bank was going to Ibrahim Leasing Ltd and Ibrahim Group. 2005 In May 2005, ABL shares in all stock exchange was floated which was big achievement of bank. ABL shares are listed in Islamabad, Lahore and Karachi stock exchange . 2011 Today Mohammad Naeem Mukhtar is CEO of ABL. Today The bank was strong equity assets and deposits base over 70 years struggle. It offers customer base banking and is also performing retail banking. This bank has technological good and has largest network of over 700 branches in Pakistan.

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Basel Accord II
Basel Accord Capital framework which is given by worlds central banks formulated in 2004 to support consistency and promote risk management active banking internationally. Basel Accord II depends upon three bases 1) Minimum requirement of capital 2) Supervisory review 3) Discipline of market to promote stability in financial system. The First Base The first base actually depends upon three major components of risk that bank faces, market risk, credit risk and operational risk. These risk are developed by banks in their own category. The first base defined the minimum capital requirement which should be minimum 9 %. The Second Pillar The supervisory agencies like controller of currency which have to adjust capital minimum 9% for individual banks when necessary. It relates with the first pillar and provide more authentic tools. Instead of those which used Basel 1. It also gives frame work which have to face many risks of banks like strategic risk, pension risk, legal risk, systematic risk, concentration risk, which comes under the head of residual risk. It also gives power to bank to review risk management system. Third Pillar Third Pillar tells about market discipline to give some extra reviews by banking agencies. This pillar deals with disclosure that bank should made. It is designed in such a way to give better picture of overall total risk position of bank and let the other parties to deal and price according to situation. So, the Basel II allows banks to evaluate and manage risks properly and set-up regulatory capital to minimize risk. 10 | P a g e

CAMEL Frame Work: C-capital A-asset quality M-management soundness E-earnings and profitability L-liquidity S-sensitivity to market risk
Capital Adequacy Through capital adequacy ratio depositors are able to know about the risk of the institution. Beside this we can say for financial manager of the institution its the key parameter to maintain their level of capital. CRWA is know as Capital to risk weighted asset ratio and its the indicator which is most widely used in financial institution. According to Basle committee its necessary for the banks to maintain minimum 9 cents of CRWA. Capital adequacy ratio also how financial institutions handle the stock of their financial statements. Capital adequacy ratio is also helpful to know the important financial risks, interest rate risk, credit risk, foreign exchange risk by assigning the weights to the institution assets. Asset Quality Asset quality tells us about the strength of financial institutions along with loss in the value of asset. The basic problem of bank is the falling in the value of assets which reflects in other areas. Such losses are often deducted against capital. Due to this aspect asset quality is linked to adequacy of provision distribution of asset etc. The major indicators in asset quality are GNPA and NPA.

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Such as GNPA (Gross Non-Performing Asset to Gross Advances) and NAA (Net NPA to net advances). It is necessary for financial institution to inspect the quality of their assets in terms of difficult time to manage specific risk. The gross non-performing loans to gross advances ratio play a role for decision by banker in terms of credit quality. Whenever GNP is higher, show poor credit decision making. According to guidelines of (SBP) advances are grouped into two types such as performing and non performing advances (NPAS). NPAs has demonstrated into two categories such as doubtful and loss asset. Simply non performing assets are leased assets because these assets generate revenue for banks. Management Soundness A financial institution can check their management soundess in term of risk sensitivity rating earnings liquidity capital adequacy quality profitability. Indeed, management rating is mixture of performance in technical competence administrative ability, ability to plan react to changing circumstances and leadership. The secret behind the success of financial institution based on sound management techniques. Even management quality can not measure through financial accounts of banks but also determine through operational expense to total expense and total expenditure to total income. We can not measure the soundness of management in real terms although it is key of banks performance. It can also determine through total advances to total deposit, business per employee ( Total Income / Total Employees) and profit per employee ( PAT / Total employees) Earning & Profitability Earning & Profitability is measured through adequacy of provisioning and interest rate policies and commonly generate through rise in capital base. Further more it also depends upon future and present operations of banks. As earning and profitability is strong which depicts bank operation position of past and future. Earning and profitability tells us about how much banks has capacity to absorb losses, build up capital, finance its expansion and 12 | P a g e

pay dividend to shareholders. Many indicators are used to determine the mentioned indicators but the most commonly used and important indicator is Return On Assets (ROA). If for in depth analysis you can use another indicator which is known Net Interest Margin (NIM). High profitability reflects high risk taking in financial institution. Liquidity Liquidity is most important factor in camel analysis. It reflects a financial position of financial institution to convert their asset into money whenever they required an adequate funds. It normally depends upon total assets and total liabilities. If there is mismatch in assets and liabilities then it leads to risk, liquidity. Liquidity of financial institution can measure through liquidity of total asset. Here are some examples of liquid asset which can easily convert into cash such as foreign exchange, stock traded in stock exchange or treasury bonds. Banks liquidity can measure through bank cash maintenance with other banks and central banks. Bank that have more liquid asset are more safer then other banks which have low liquid assets. Sensitivity to market Risk Sensitivity to market risk usually changes according to market condition. Market risk depends upon interest rates commodity prices, foreign exchange rate and equity prices. Other risk are important but most important risk is interest rate risk. The interest rate risk, equity, price risk and foreign exchange volatility is covered in sensitivity analysis. Market risk monitor and control by management ability through sensitivity risk implementation. Usually, banks perform different type of operations which link to market risk which normally involve in interest rate risk and foreign exchange risk

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OBJECTIVE OF STUDY To evaluate the financial performance of Allied Bank Limited by using CAMELS model technique. To analyze bank to get the desired results by using CAMEL as a tool of measuring performance.

To analyze the performance through CAMEL model and give suggestion for improvement if necessary.

LIMITATIONS OF STUDY Time and resources constraints. The study was completely done on the basis of ratios calculated from the balance sheets and Income statement. It has not been possible to get a personal interview with the top management employees of ABL. METHOD OF DATA COLLECTION

The period for evaluating performance through CAMELS in this study is four years, i.e. from financial year 2007,2008,2009,2010&2011. The data is collected from various sources as follows. Primary data: A Primary data is a data, which is collected for the first time for a particular interest to have more information. Primary data was collected from the company

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balance sheets and company profit and loss statements and interaction with the employees of Allied Bank Limited.

Secondary data: Secondary data are those which have already been collected by someone else and which have already passed through the statistical processes. Secondary data on the subject was collected from Business journals, Business dailies, company prospectus, company annual reports and ABL websites.

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1-CAPITAL 1.1Capital Adequacy Ratio:

CAAR is ratio of Capital Fund to Risk Weighted Assets. Total capital of institution include tier-I and Tier-II capital. Intangible assets, paid up equity capital, free reserves are included in Tier-I capital. Hybrid debt capital instruments, long term unsecured loans; loss reserves are included in Tier II capital. The higher the CRAR, shows the minimum risk of bank and guarantee high safety for bank liquidation.

CRAR =
Years 2007 2008 2009 2010 2011

TierI + TierII Total Risk Weighted Credit Exposure

Total Regulatory Capital 21,097,826 23,475,566 32,576,104 37,916,269 41,349,800 Risk weighted assets 226,992,530 212,053,995 239,179,740 271,441,632 304,557,146 Ratio(%) 9.29% 11.07% 13.61% 13.96% 13.57%

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14 12 10 8 6 4 2 0 2007 2008 9.29 11.07

13.62

13.96

13.57

Capital Adequacy Ratio

2009

2010

2011

Data Interpretation:
Capital Adequacy ratio has increased from FY07 to FY10 from 9.29% to 13.96% but slightly decreased from FY10 to FY11 from 13.96% to 13.57%. As state bank of Pakistan prescribed the capital adequacy ratio minimum 9%. Whereas the graph clearly shows that capital adequacy continuously increase. This depicts that bank has minimum risk and guarantee high safety against the liquidation of bank.

2. Debt To Equity Ratio

Debt equity ratio is the indicator of leverage of Bank. This shows the weight of debt and weight of equity. How much the institution financed through debt and equity. As the debt equity ratio is more shows high risk for creditors and depositors in banking sector.

Debt Equity Ratio =

Years 2007 Debt
300,231,481

Debt NetAssets
Ratio(%) 15.10% 17 | P a g e

Total Shareholder equity

19,878,242

2008 2009 2010 2011

344,332,545
388,417,684 409,857,987 468,393,937

22,235,899
25,857,515 31,171,817 43,340,110

15.48% 15.02% 13.14% 10.80%

16 14 12 10 8 6 4 2 0

15.1

15.48

15.02 13.14 10.8

Debt To Equity Ratio

2007

2008

2009

2010

2011

Data Interpretation:
Debt to equity ratio has increased from FY07 to FY08 as 15.10% to 15.48% and decreased from FY09 to FY11 as 15.02% to 10.80%. The declining trend of ratio shows that ABL debt to equity ratio is decreasing. This declining trend depict that depositors and creditors have low risk. As the ratio will high more the risk will be.

3. Advances to Asset Ratio

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This ratio shows the Banks percentage of banks lending out of total assets which is effective in profitability for banks. Every financial institution / Banks aim to have high ratio of advances than the lower. The bank advances also include banks receivables.

Total Advances to Total Assets Ratio =

Tota Advances Total Assets

Years 2007 2008 2009 2010 2011

Advances
168,407,280

Total Asset
320,109,723

Ratio(%) 52.60% 58.09% 56.74% 56.25% 47.39%

212,972,008
237,382,522 253,099,509 244,433,474

366,568,444
418,340,852 449,931,000 515,699,000

60 50 40 30 20 10 0 2007 52.6

58.09

56.74

56.25 47.39

Advances To Asset Ratio

2008

2009

2010

2011

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Data Interpretation:
Advance to asset ratio has increased from FY07 to FY08 as 52.06% to 58.09% and decreased from FY09 to FY11 as 56.74% to 47.39%. Mostly banks lending out their total assets which is effective. Every bank has aim to have high ratio of advances rather than low. So we can examine through this graph there is increasing trend in advances to total asset ratio

4. Govt Securities to Total Investment Ratio:

It is the percentage of investment in risk free securities mostly in government securities. It is very important indicator which shows how much the bank has risk taking ability. It also shows that the banks is involved in which strategy, like high profit and high risk or low profit and low risk strategy. Government securities are the safe investment which have a lowest return and almost no risk. It shows if the bank investing high in government securities the lower the risk of bank will be in investments.

Govt Securities to Total Investments =

Govt Securities Total Investment

Years 2007 2008 2009 2010 2011

Government Securities
49,193,392 44,477,480 42,106,875 68,332,299 151,323,963

Total Investment
83,958,463 82,449,475 94,673,100 121,158,730 195,789,638

Ratio(%) 58.59% 53.94%

44.47% 56.39% 77.28%

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80 70 60 50 40 30 20 10 0 2007 2008 2009 2010 58.59 53.94 44.47 56.4

77.28

Govt Securities to Total Investment Ratio

2011

Data Interpretation:
Government securities to total investment ratio has decreased from FY07 to FY09 as 58.59% to 44.47% and increased from FY10 to FY11 as 56.40% to
77.28%

Actually government securities are risk free which gives less return but no risk. We can understand through this chart ABL has invest more in government securities and it continuously increase in recent years.

2. Asset Quality
NPA: Non Performing Assets The advances are grouped in performing and non performing advances. NPA is further sub divided in doubtful and loss assets. An asset which have leased asset becomes non performing, it stop to generate income for bank. NPA is considered as advance or loan where installment remains to overdue for a period of more than 3 months w.r.t loan term. Following are the ratios which are used to evaluate asset quality.

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Gross NPA ratio: This ratio indicate the increasing or decreasing level of Gross NPAs on quarterly or yearly bases. This ratio also shows that the banks has add a new stock of bad loans. This ratio also shows that either the bank is or not exercising its SOPs while offering loans.

Gross NPA Ratio =

Gross NPA Gross Loans

Ratio(%) 6.36% 6.15% 6.51% 6.95% 7.80%

Years 2007 2008 2009 2010 2011

Gross NPA
11,354,923 13,771,895 16,281,178 18,688,166 20,452,465

Gross Loan
178,524,357 223,687,877 249,925,187 268,532,972 262,143,554

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8 7 6 5 4 3 2 1 0 2007 2008 2009 2010 6.36 6.15 6.51 6.96

7.8

Gross NPA Ratio

2011

Data Interpretation
Gross NPA Ratio has decreased from FY07 to FY08 as 6.36% to 6.15% and increased from FY09 to FY11 as 6.51% to 7.8%. As we can examine through this graph the GPA ratio increase in current years. As these loans having increasing trend which is not well for ABL.

Net NPA Ratio Net NPAs shows the bank performance. As NPAs high shows occurrence of credit defaults which effect the profitability and net worth of banks and also decline the value of asset. Advances are considered as largest asset of most of the banks. As the NPA ratio is high there is more risk involved.

Net NPA Ratio =

Net NPA Net Loans

Net Loan
168,407,280

Years 2007

Net NPA
11,354,923

Ratio(%) 6.74%

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2008 2009 2010 2011

13,771,895 16,281,178 18,688,166 20,452,465

213,020,108
237,382,522 253,102,710 244,439,837

6.46% 6.86% 7.38% 8.36%

9 8 7 6 5 4 3 2 1 0 2007 2008 2009 2010 6.74 6.46 6.86 7.38

8.36

Net NPA Ratio

2011

Data interpretation:
Net NPA ratio has decreased from FY07 to FY08 as 6.74% to 6.46% and increased from FY09 to FY11 as 6.86% to 8.36%. As net NPA ratio increase. The major asset for banks are the advances. As the ratio increased there is more risk involved.

3. Management Quality
3.1 Total Advances to Total Deposit Ratio

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This ratio is the indicator of measuring efficiency and ability of management by converting deposits into high earning advances. Bank deposits include deposit of other bank, term deposit, saving deposit, & demand deposit. In bank total advances total receivables are also included.

Total Advances to Total Deposit Ratio =

Total Advances Total Deposit

Years 2007 2008 2009 2010 2011

Total advances
178,524,357 223,687,877 237,382,522 252,345,000 244,433,000

Total Deposit
263,972,382 297,474,543 324,678,295 371,284,000 399,562,000

Ratio(%) 67.62% 75.19% 73.11% 67.96% 61.17%

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80 70 60 50 40 30 20 10 0 2007 67.62

75.19

73.11

67.96 61.17

Total Advances to Total Deposit Ratio

2008

2009

2010

2011

Data interpretation:
Total advances to total deposit ratio has increased from FY07 to FY09 as 67.62% to 75.19% and decreased from FY09 to FY11 as 73.11% to 61.1 We can examine through this chart as advances of ABL as deposits are also increased. This ratio measure the efficiency of management.

3.2 Business Per Employee: Revenue / employee is the indicator of how efficiently bank is utilizing its employees. Its the objective of the bank to have highest business per employee as possible as it demonstrate high output.

Bu sin ess Per Employee =

Total Income No of Employees

Years

Total Income

No Of employees

Ratio

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2007 2008 2009 2010 2011

25,121,521 34,763,154 47,222,924 50,664,482 58,764,086

10,297 11,108

2439.69 3129.56 4027.19 4010.48 4510.25

11,726
12,633 13,029

5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 2007 2008 2009 2010 2439 3129 4027 4010

4510

Business Per Employee

2011

Data Interpretation:
Business per employee data showed that it has been increased from FY07 to FY09 as 2439 to 4251 and decreased from FY09 to FY10 as 4215 to 4010 and afterwards increased again from FY10 to FY11 as 4010 to 4510. This ratio shows how bank efficiently used its employee. As ABL has highest business employee and it demonstrate high output.

3.3 Profit Per Employee Ratio

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This ratio shows the excess profit which has the bank earned at per employee. This ratio is find out by dividing the profit of bank after tax earned by the total no of employees of bank. As the ratio is high the bank management is more efficient.

Pr ofit Per Employee =

Pr ofit after Tax No. of Employees

Years 2007 2008 2009 2010 2011

Net Profit
4,076,158 4,093,861 7,149,310 8,283,817 10,256,173

No Of employees
10,297 11,108

Ratio (Rs) 395.85 368.55 609.69 655.72 787.18

11,726
12,633 13,029

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800 700 600 500 400 300 200 100 0 2007 2008 2009 2010 395 368 609 655

787

Profit Per Employee

2011

Data Interpretation:
Profit per employee data showed that it has been continuously increased from FY07 to FY11 as 395 to 787. This ratio depicts the profit which bank earned excess of employees. As this ratio is high in ABL showing more efficiency.

4. Earning Performance
4.1 Dividend Payout Ratio: This ratio shows that how much the cents of profit is shared with the shareholders. As the dividend payout ratio of bank is more the goodwill of the bank will affect in the same manner in the share market.

Dividend Payout Ratio =

Dividend Net Pr ofit

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Years 2007 2008 2009 2010 2011

Dividend
807955.00 646,364 1,422,002

Net profit
4,076,158 4,093,861 7,149,310

Ratio(%) 19.82% 15.78% 19.89% 19.014% 20.97%

1,564,000 2,150,777

8,225,332 10,256,173

25 20 15 10 5 0 2007 2008 2009 2010 2011 19.82 15.78 Dividend Payout Ratio 19.89 20.97 19.01

Data Interpretation:
Dividend payout ratio has increased from FY07 to FY11 as 19.82%% to 20.97%. This ratio depicts the profit of bank which distribute in employees. As we can see through this chart the dividend payout ratio fluctuate.But the decline the ratio in 2008 due to stock exchange collapse. However,it increase later years.

Return on Asset

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Return on asset shows the efficiency of the banks w.r.t utilizing its assets. As the return on asset ratio is high shows the better income generating capacity of the assets and efficiency.

Re turn on Asset =

Net Pr ofit Total Asset

Ratio(%) 1.27% 1.11% 1.71% 1.84% 1.98%

Years 2007 2008 2009 2010 2011

Net Profit
4,076,158 4,093,861 7,149,310

Total Asset
320,109,723 366,568,444 418,340,852

8,283,817 10,256,173

449,931,000 515,699,000

2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2007 2008 2009 1.27 1.11 1.71

1.98 1.84

Return On Asset Ratio

2010

2011

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Data Interpretation:
Return on asset ratio has decreased from FY07 to FY08 as 1.27% to 1.11% and increased from FY09 to FY11 as 1.71% to 1.98%. This ratio depicts that the efficiency of banks w.r.t using its assets. As we can see that this ratio continuously increase which represents ABL earns return on asset

4.3 Operating Profit by Average Working Fund This ratio shows that from the operations of bank how much a bank can earn. As the ratio is high the better it is. The ratio tells about the operating profit generated out of working fund employed. As the funds are better utilized higher the operating profit will be. The ratio will also point out how the bank has employed its working fund in generating profits.

Operating Pr ofit by Working Fund =

Years 2007 2008 2009 2010 2011 Operating Profit
12,387,675 14,998, 413 20,290,540 22,565,000 25,171,000

Operating Pr ofit Average Working Fund

Total Assets
320,109,723 366,568,444 20,290,540 449,931,000 515,699,000

Ratio(% ) 3.86% 4.09% 4.85% 5.01% 4.88%

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6 5 4 3 2 1 0 2007 2008 2009 2010 2011 3.86 4.09 Operating Profit by Average Working Fund 4.85 5.01 4.88

Data Interpretation
Operating profit by average working fund ratio has from FY07 to FY10 as 3.86% to 5.01% and decreased from FY10 to FY11 as 5.01% to 4.88%. This ratio depicts how much bank earns through its operations. As we can understand through chart there is fluctuation in this ratio. So ABL should utilize its asset more efficiently.

4.4 Net Profit to Average Asset This ratio point out the banks efficiency in utilizing their assets for generating profits. As the ratio is high better the income generating capacity of assets of the bank will be and management efficiency.

Net Pr ofit to Average Assets =

Net Pr ofit Average Asset

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Years 2007 2008 2009 2010 2011

Net Profit
4,076,158 4,093,861 7,149,310

Total Asset
320,109,723 366,568,444 418,340,852

Ratio(%) 1.27% 1.11% 1.71% 1.84% 1.98%

8,283,817 10,256,173

449,931,000 515,699,000

2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2007 2008 2009 1.27 1.11 1.71

1.84

1.98

Net Profit to Average Asset

2010

2011

Data Interpretation:
Net profit to average asset ratio has decreased from FY07 to FY08 as 1.27% to 1.11% and increased from FY09 to FY11 as 1.71% to 1.98%. Net profit to average asset is similar to ROA. As ABL has more net profit to average asset, showing it has more efficiently utilize its asset to cover profit.

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4.5 Interest Income to Total Income The major source of bank revenue is interest income. The interest income to total income point out the how much the bank have ability to generate income from lending. This ratio measures the cent of income generated by lending operations to total income.

Interest Income to Total Income =

Interest Income Total Income

Years 2007 2008 2009 2010 2011

Interest Income
21,201,422 30,594,020 41,144,667

Total Income 25,121,521 34,763,154 47,222,924 50,664,482 58,764,086

Ratio(%) 84.39% 88.00% 87.13% 88.84% 88.19%

45,011,184 51,828,897

89 88 87 86 85 84 83 82 2007 2008 2009 84.39 88 87.13

88.84 88.19

Interest Income to Total Income

2010

2011

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Data Interpretation:
Interest income to total income ratio has increased from FY07 to FY08 as 88.39% to 88% and increased from FY09 to FY10 as 87.12% to 88.84% and once again decreased from FY10 to FY11 as 88.84% to 88.19%. Interest income is major source of income for banks. This tells how much bank has ability to generate income from lending. As we can see through this graph and chart that interest income is fluctuating so ABL should keep in mind interest income to total income.

4.6 Other Income to Total Income Some part of bank income include other income ( fee charged by bank on services). By adapting new technology and innovative product bank generates higher fee. As the ratio of other income is high shows increasing proportion of fee based income.

Other Income to Total Income =

Other Income Total Income

Years 2007 2008 2009 2010 2011

Interest Income 3,920,099

4,169,134 6,078,257

Total Income 25,121,521 34,763,154 47,222,924 50,664,482 58,764,086

Ratio(%) 15.6% 11.99% 12.87% 8.55% 6.69%

4,333,182 3,933,490

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16 14 12 10 8 6 4 2 0

15.6 11.99 12.87

8.55 6.69

Other Income to Total Income

2007

2008

2009

2010

2011

Data Interpretation:
Other income to total income ratio has decreased from FY07 to FY08 as 15.6% to 11.9% and increased from FY08 to FY109as 11.9% to 12.87%% and once again decreased from FY09 to FY11 as 12.87% to 6.69%. The graph showing the decreasing trend that ABL other income is keep on decreasing. ABL is not concentrating on commission, fee, income with dealing with other banks etc.

5. Liquidity 5.1 Liquidity Asset to Total Asset Liquidity for a bank is the ability to meet its financial obligations as the bank is not in position to fulfill in normal situation. One thing that the bank must ensure is its own liquidity under all reasonable situations. Where as liquid asset include money at short and call notice, balance with other banks, balance with state bank, and the cash in hand. The proportion of liquid asset to total asset tells us about the liquidity position of the financial institution.

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Liquid Asset to Total Asset =

Liquid Asset Total Asset

Years 2007 2008 2009 2010 2011

Liquidity
30,408,306 25,751,365 27,716,274

Total Assets
320,109,723 366,568,444 418,340,852

Ratio(%) 9.49% 7.02% 6.63% 7.07% 7.4%

31,845,000 38,159,000

449,931,000 515,699,000

10 9 8 7 6 5 4 3 2 1 0

9.49 7.4

7.02

6.63

7.07

Liquidity Asset to Total Asset

2007

2008

2009

2010

2011

Data Interpretation:
Liqiudity asset to total asset ratio has decreased from FY07 to FY09 as 9.49% to 6.63% and increased from FY09 to FY109as 6.63% to 7.4% Liquidity shows the money at short balance with other bank balances with SBP. As ABL has less ratio because it has less balance with other banks and cash in hand. 38 | P a g e

5.2 Govt Securities to Total Asset For banks the government securities are the most liquid and safe investment. This ratio point out the part of government securities to total assets. This ratio also helps the banks to maintain their portfolio as per their required rate of return. At which proportion the bank invest in risk free asset and in risky asset to get their required rate of return.

Govt Assets to Total Assets =

Government Securites Total Assets

Years 2007 2008 2009 2010 2011

Govt. Securities
49,193,392 44,477,480 42,106,875

Total Assets
320,109,723 366,568,444 418,340,852

Ratio(%) 15.36% 12.13% 10.06% 15.18% 29.34%

68,332,299 151,323,963

449,931,000 515,699,000

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30 25 20 15 10 5 0 2007 2008 2009 2010 15.36 12.13 10.06 15.18

29.34

Govt Securities to Total Asset

2011

Data Interpretation:
Govt.Securities to Total Asset ratio has decreased from FY07 to FY09 as 15.36% to 10.06% and increased from FY09 to FY11as 10.06% to 29.34%. Government securities are risk free investment for bank. As government securities are increased the ABL has more investment in government securities. This is good sign for ABL 5.3 Approved Securities to Total Asset The securities other than government securities are approved securities. Bank invest in approved securities after meeting their statutory liquidity ratio(SLR) requirements.

Approved Securities to Total Assets =

Approved Securites Total Assets

Total Assets Ratio(%)

Years

Approved Securities

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2007 2008 2009 2010 2011

34,516,438 38,153,638

320,109,723 366,568,444 418,340,852 449,931,000 515,699,000

10.78% 10.4% 12.56% 11.74% 8.62%

52,566,225 52,826,431 44,465,675

14 12 10 8 6 4 2 0 2007 2008 2009 2010 2011 12.56 10.78 10.4 8.62 Approved Securities to Total Asset 11.74

Data Interpretation:
Approved securities to total asset ratio has decreased from FY07 to FY08 as 10.78% to 10.4% and increased from FY08 to FY09as 10.4% to 12.56%.and decreased once again from FY09 to FY11 as 12.56% to 8.62%. ABL invest less in approved securities. Because approved securities are risky than government securities. These securities depend on credit rating. As we can see through this graph the ratio decrease continuously. 5.4 Liquidity Asset to Demand Deposit

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Liquid asset to demand deposit ratio measure the ability of a bank to fulfill demand from deposits in a particular year.

Liquidity Asset to Demand Deposit =

Liquidity Asset Demand Deposit

Years 2007 2008 2009 2010 2011

Liquidity
30,408,306 25,751,365 27,716,274 31,845,000 38,159,000

Demand Deposit
110,093,420 115,585,535

Ratio(%) 27.62% 22.27% 19.65% 18.97% 9.55%

140,980,195
167,877,810 181,789,402

30 25 20 15 10 5 0

27.62 22.27 19.65 18.97 Liquidity Asset To Demand Deposit

9.55

2007

2008

2009

2010

2011

Data Interpretation:

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Liqiudity asset to demand deposit ratio has decreased from FY07 to FY11 as 27.62% to 9.55% . Liquid asset to demand deposit ratio is decreased in previous years. ABL has more demand deposit rather than liquid assets, which is good sign for ABL. 5.5 Liquidity Asset to Total Deposit This ratio access the financial institution liquidity available to the deposits of financial institution. Bank deposits include deposits of other financial institutions, term deposits, savings deposits, demand deposits.

Liquidity Asset to Total Deposit =

Liquidity Asset Total Deposit

Years 2007 2008 2009 2010

Liquidity
30,408,306 25,751,365 27,716,274

Total Deposit
254,261,119 297,474,543 324,678,295

Ratio(%) 11.95% 8.65% 8.53% 8.57%

31,845,000

371,284,000

2011

38,159,000

399,562,000

9.55%

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12 10

11.95 9.55 8.65 8.53 8.57

8 6 4 2 0 2007 2008 2009 2010 2011 Liquidity Asset To Total Deposit

Data Interpretation:
Liqiudity asset to total deposit ratio has decreased from FY07 to FY10 as 11.95% to 8.57% and increased from FY10 to FY11 as 8.57% to 9.55%. This ratio decrease in previous year. As this ratio has decreasing trend because total deposits are increase by less percentage rather than liquidity. Earning Per share Earning per share is defined as the portion of a companys earnings, which is allocated to each share of common stock.It cn be calculated as by dividing net income earned to total number of outstanding shares. Years 2007 2008 2009 2010 2011 Net Profit
4,076,158 4,093,861 7,149,310 8,283,817 10,256,173

No Of ordinary shares
646,364,325 646,364,325 711,000,758 782,100,834 860,310,917

Ratio 6.30% 6.43% 10.01% 10.54% 11.78%

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12 10 8 6 4 2 0 2007 2008 2009 2010 6.3 6.43 10.01 10.51

11.78

Earning Per Share

2011

Data Interpretation:
Earning per Share has increased from FY07 to FY11 as 6.3 to 11.78. As earning per share is increased which depicts it has more portion of ABL earning.

Conclusion:
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We have been concluded that ABL has Capital adequacy ratio which is far better than minimum capital requirement as 9%.As ABL has minimum Capital requirement as 13.5%.ABL has sound Management which clearly describe that it has Business per employee is relatively increased from recent years.ABL earnings and profitability increased as recent years.But dividend payout ratio is increasing from last five years even though financial condition of stock exchange is not well. The detailed CAMELS analysis of ABL depicts that it is one of most stable bank in Pakistan. Usually Pakistan banking sector survived even in the worst economic conditions, but in other countries of the world mostly banks failed to survive. The banking sector of our country is extremely efficient especially in case of capital adequacy. According to bassel II bank should have minimum capital of 9% but most of our country banks have maintained higher level, it means that ABL offer less risk to the depositor. Because of all these factor ABL was observed very stable while during the financial crisis which affected the major economies of the world. But still there are many things to improve in ABL this factor are high inflation rate and high interest rate. These factors created an immense hurdle in the way of bank development. However this happened due to the strongest competition amongst the local bank and foreign banks. Still you can say that ABL can be compared with the international bank over many prospective such as liquidity and capital adequacy. The factor which is affecting adversely to this bank is the presence of non-performing loans. These loans are decreasing the probability of ABL. Some improvements should also be made from management side.

Recommendations 46 | P a g e

We have observed that ABL still have the need of some improvements. So, want to make following recommendations to the banking industry. Non-performing loans are too much higher as compared to international standards. These loans should be reduced to improve the profitability of bank. New technology and innovative products should be introduced so that ABL can compete easily with foreign bank. State bank of Pakistan should adopt such a monetary policy that inflation and interest rate can be controlled consequently it can increase the profitability ABL especially government is more liable for improving worse economic conditions. ABL should invest in government securities because it has already given NonPerforming loans.

References: www.scribd.com www.ABL.com.pk www.investopsdia.com www.wikipedia.com ABL Annual Reports

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