Internship Internship Report Report

5.Financial Analysis
YEAR 2004 2005 2006 2007 2008

INVESTMENTS

RUPEES IN --- 000 -- -

Investments are made by the banks in order to secure themselves35,176,823 and earn INVESTMENTS 1,187,529 5,129,285 6,594,036 40,439,935 some profit from it. Generally these investments are done in government securities and shares. NIB bank invested its money in the following types of Interpretation securities; As we can see from the above graph that the investments especially in the government 1. Market easur y bills papers tr wer e round about 1 billion in 2004 it is just because that at that time it was a new 2. Preference shares off its business however in the next year 2005 the NIB bank rose its bank just starting 3. Ordinary shares of listed and companies investments to 5 billion kept on rising it in 2006 as it wer e 6.5 billion approximately. 4. Pakistan Investment bonds Similarly we can see that ther e is a huge fluctuation in 2007 and 2008 its just because of 5. Term finance and acquired the PICIC commercial bank. But however these the fact thatcertificates the NIB bank 6. Investments Associates investmentsin were declined from 2007 to 2008 from 40 billion approx to 35 billion The Market Treasury Bills and Pakistan Investment Bonds are held by the State approx. it is because of the economic melt down and r ecession originating from the west Bank Pakistan eligible rediscounting. The market treasury bills whichOf affected thewhich wholeare world so asfor Pakistanis banks as well. matures within 3 to 12 months yielding 8% to 9% markup while the Pakistan Investment Bonds matures in 7 to 8 years carrying 8% of markup per annum.

DEPOSITS

Deposits are the liabilities of a bank which is the main source of raising the funds. These funds are further lend to the other customers on a r ate higher on which they are raised from the depositors. Deposits are the core ingredient of the

INVESTMENTS

banking business without which a company cant be called a bank. Deposits ar e of two main types; 1. DEMAND DEPOSITS These deposits ar e fur ther classified to; a) Curr ent deposits b) Saving deposits 2. TIME DEPOSITS
1,187,529 5,129,2856,594,036 40,439,935 35,176,823

These deposits ar e fur ther classified to; a) Notice term deposits b) Fixed term deposits
2004 2005 2006 2007 2008

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DEPOSITS
116,671,219 104,586,167

30,566,540 22,554,274 10,648,570

2004 2005 2006 2007 2008

RUPEES IN --- 000 --YEAR 2004 2005 2006 2007 2008 DEPOSITS 10,648,570 22,554,274 30,566,540 116,671,219 104,586,167 Interpretation The above graph shows gradual increase in deposits from 2004 to 2006 but the jump of the graph form 2006 to 2007 is just because of the fact that in this year NIB bank acquired PICIC commercial bank. So the deposits came under its umbrella. The decrease in deposits from 2007 to 2008 shows the inefficiency of the bank to attract more deposits rather they decreased fr om 116 billion to 104 billion.

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ADVANCES
Banks after accepting deposits disburse the money In the form of loans to generate the pr ofit from. However besides this function banks also perform other different functions and disburse its collected funds in different areas. These areas come under the umbrella of the advances. Advances of NIB Bank includes disbursement of funds in the following areas; a) Loans, cash credits and running finances (inside or outside Pakistan) b) Net investments in finance and lease (inside or outside Pakistan) and; c) Bills discounted and purchased (excluding treasury bills)

ADVANCES

81,932,37 9 80,344,193

19,622,92 11,737,27 9 5

31,052,16 9

2004 2005 2006 2007 2008

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RUPEES IN --- 000 -- YEAR 2004 2005 2006 2007 2008 ADVANCES 11,737,275 19,622,929 31,052,169 81,932,379 80,344,193 Interpretation We can see from the graph that at the time 2004 the advances are the lowest because at that time it was just like an infant baby, it was newly formed bank gradually NIB bank started its business and we can see that further to the next year s its graph is going on rising. In 2007 the acquisition of PICIC commercial bank by NIB bank took place so thats why the graph jumped high in 2007.

PROVISIONS AGAINST NON PERFORMING LOANS

RUPEES IN --- 000 --YEAR 2004 2005 2006 2007 2008 Provisions 73,255 91,288 269,583 1,494,801 9,657,400
9,657,400

Provisions

1,494,801 73,255 91,288 269,583

2004 2005 2006 2007 2008

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RATIO ANALYSIS
Financial ratios are useful indicators of a firm's perfor mance and financial situation. Financial ratios can be used to analyze trends and to compare the firm's financials to those of other firms. Ratio analysis is the calculation and comparison of ratios which are derived from the information in a company's financial statements. Financial r atios ar e usually expressed as a percent or as times per period. Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of ratio to interpr et the financial statements so that the str ength and weaknesses of a firm as well as its historical performance and current financial condition can be deter mined. The term ratio refers to the numerical or quantitative relationship between two variables. With the help of ratio analysis conclusion can be drawn r egar ding several aspects such as financial health, profitability and operational efficiency of the undertaking. Ratio points out the operating efficiency of the firm i.e. whether the management has utilized the firms assets corr ectly, to increase the investors wealth. It ensures a fair retur n to its owners and secures optimum utilization of firms assets. Ratio analysis helps in inter-firm comparison by providing necessary data. An inter firm comparison indicates relative position. It provides the relevant data for the comparison of the performance of differ ent departments. If comparison shows a variance, the possible reasons of variations may be identified and if results are negative, the action may be initiated immediately to bring them in line. Yet another dimension of usefulness or r atio analysis, relevant from the View point of management is that it throws light on the degree efficiency in the various activity ratios measures this kind of oper ational efficiency.

A. Liquidity Ra tios B. Profitability Ratios C. Market Ratios D. Income over Expense Ratio

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A) LIQUIDITY RATIOS
Liquidity ratios measur e a firms ability to meet its current obligations. These include: Advances to Deposit ratio: This ratio shows the ratio of advance to deposits which means that how much advances wer e made with respect to deposits. Formula is Advances to Deposit rat io = Total advances (in the year) Total deposits (in the year)

adv/dep ratio
1.1 1.01 0.87 0.77 0.7

2004 2005 2006 2007 2008

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Rupees in --- 000 --YEAR 2004 2005 2006 2007 2008 Advances Deposits Ratio 11,737,275 19,622,929 31,052,169 81,932,379 80,344,193 10,648,570 22,554,274 30,566,540 116,671,219 104,586,167 1.10 0.87 1.01 0.70 0.77

Interpretation As we can see fr om the above graph that the net advances in 2008 are 80.34 billion which is 2% less than the previous year. In reality the surge in advances is 5 billion but provision against non performing loans has lofted it thus it shows a less amount of advances this year. Advances in 2007 are the highest because of the loaning to the commercial, consumers and SME sector.

Ear ning Assets to Assets r atio:

This ratio shows the relation between earnings assets and total assets. Earning assets are those which directly contribute in earnings of a business. The formula is Earning Assets to Asset Ratio = Earning Assets Assets

Earning Assets to Asset

0.3 0.29 0.29 0.24 0.24

2004 2005 2006 2007 2008

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RUPEES IN --- 000 -- YEAR 2004 2005 2006 2007 2008 Earning Assets 4,967,239 9,285,427 13,464,364 42,449,386 42,938,188 Total Assets 16,557,463 32,018,715 46,428,843 176,872,441 178,909,115 Ratio 0.30 0.29 0.29 0.24 0.24 Interpretation We can see that there is 3% decrease in the year 2005 with respect to the previous year which means that the earning assets have decreased as compar ed to the total assets in this year. In 2006 the ratio is the same which means that the ear ning assets as well as the total assets have increased with the same ratio. Fr om the year 2006 to 2007 there is 21% decrease in the ratio which means that the earning assets have not increased with the increase in the total assets. The ratio is the same in the 2008 which means that both the earning and total assets have increased with the same rate.

B) PROFITABILITY RATIOS:
Profitability is the net result of a number of policies and decisions. This section of the project discusses the different measures of corporate profitability and financial performance. These ratios, much like the operational performance ratios, give users a good understanding of how well the company utilized its resources in generating profit and shareholder value. The long-term profitability of a company is vital for both the survivability of the company as well as the benefit received by shareholders. It is these ratios that can give insight into the all important "profit". Profitability ratios show the combined effects of liquidity, asset management and debt on operating r esults. These r atios examine the profit made by the firm and compare these figures with the size of the fir m, the assets employed by the fir m or its level of sales.

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Profit After Taxes Profit after taxes are given in the income statement of the bank here we have the values on the graph which shows the profit after taxes of the NIB Bank.

122609 103771 125937 -489769

20042005200620072008

PAT
-7474679

RUPEES IN --- 000 --Year 2004 2005 2006 2007 2008 PAT 122,609 103,771 125,937 -489,769 -7,474,679 Interpretation As we can see from the above calculations that the profits are increasing as we go from 2004 to 2008 which is a very good sign which shows a high amount of market share of the NIB Bank and pertains its strong position. However the fluctuation of the year 2008 is because of the acquisition of the PICIC commercial bank.

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Return on Assets: Return on Assets (ROA) = Profit after Taxation / Average Total assets x 100 ROA is a measure of a company's profitability, equal to a fiscal year's earnings divided by its total assets, expressed as a percentage. This is an important ratio for companies deciding whether or not to initiate a new project. The basis of this ratio is that if a company is going to start a project they expect to earn a return on it, ROA is the return they would receive. Simply put, if ROA is above the rate that the company borrows at then the project should be accepted, if not then it is rejected.

0.74051 0.32349 0.27125 -0.27124 2004 2005 2006 2007 2008

ROA ratio

-4.17792

RUPEES IN --- 000 --Year 2004 2005 2006 2007 2008 PAT 122,609 103,771 125,937 -489,769 -7,474,679 Total 16,557,463 32,018,715 46,428,843 176,872,441 178,909,115 assets ROA 0.74051% 0.32349% 0.27125% -0.27124% -4.17792% ratio

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Interpretation The above calculations identifies that the NIB Bank is getting 0.74%, 0.32%, 0.27%, 0.27%, 4.17% returns on its assets in 2004, 2005, 2006, 2007 and 2008 respectively. The ratio shows its highest fluctuation in 2008 because of merging of PICIC commercial Bank into NIB Bank. However from 2004 to 2007 the ratio is going on decreasing which means that the assets were not utilized efficiently.

Return on Equity (ROE): Return on Total Equity = Profit after taxation x 100 Total Equity Retur n on Equity measur es the amount of Net Income earned by utilizing each dollar of Total common equity. It is the most important of the Bottom line ratio. By this, we can find out how much the shareholders are going to get for their shar es. This ratio indicates how profitable a company is by comparing its net income to its average shareholders' equity. The return on equity ratio (ROE) measures how much the shareholders earned for their investment in the company. The higher the ratio percentage, the more efficient management is in utilizing its equity base and the better return is to investors.

10 5 0

8.98993

ROE ratio
2.46 319 2.90722 -0.1883

2004 2005 2006 2007 2008

-1.34357

-5
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RUPEES IN --- 000 --Year 2004 2005 2006 2007 2008 Net income Total equit y ROE ratio Interpretation Retur n On Equity ratio is declining from 2004 to 2008 because the bank was expanding and progressing and was purchasing more and more assets and establishing more and more branches over the country so the customers were also increasing. As we can see that the ratio has a great fluctuation in 2008 that is because of merging of PICIC with NIB so that the equity of PICIC commercial bank came under the NIB so thats why in this year the ratio is the lowest as compared to the other years. Return on Operating Assets: Return on Operating Assets = Profit after Taxation x 100 Operating assets Whereas; Operating assets = Operating fixed assets + Balances with other banks Cash and balances with treasury banks + 122,609 103,771 125,937 -489,769 -7,474,679 1,363,848 4,212,875 4,331,875 36,452,822 39,698,508 8.98993% 2.46319% 2.90722% -1.34357% -0.1883%

RUPEES IN --- 000 --YEAR 2004 2005 2006 2007 2008 Profit after 122,609 103,771 125,937 -489,769 -7,474,679 Taxation Operating Assets 1,413,266 4,419,810 4,913,117 15,645,901 13,851,373 Return on 8.67% 2.35% 2.56% -3.13% -53.96% Operating Assets

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8.67% 2.35% 2.56%

ROOA
-3.13%

2004 2005 2006 2007 2008

-53.96%

Interpretation As we can see from the above table and chart that the ratio decreases from 2004 to 2005 but then the trend goes on increasing and we can see that ther e is huge decr ease in the ratio in 2008 as the loss of the PICIC commer cial bank and NIB bank were cumulated and similarly the operating assets of PICIC commercial bank also came under NIB bank thus this justifies the fact of fluctuation and sudden jump in the values from 2007 to 2008. Economic downturn in this tenure also affected the profitability to some extent. Return On Deposits This ratio shows how much return is earned in relation to the total deposits. The formula is: Return on Deposit Rat io = Profit After Taxation x 100 Total Deposit s

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Return On Deposits
0.65% 0.63% 0.44% -0.58% 2004 2005 2006 2007 2008

-10.13%

RUPEES IN --- 000 -- YEAR 2004 2005 2006 2007 2008 Profit after 122,609 103,771 125,937 -489,769 -7,474,679 Taxation Deposits 10,648,570 22,554,274 30,566,540 116,671,219 104,586,167 Rat io 0.65% 0.63% 0.44% -0.58% -10.13%

Interpretation
As we can see from the above calculations that the tr end of the ratio is decr easing fr om the year 2004 to 2008. The return on deposits in 2004 is 65 per cent while its 63 percent in 2005 and 0.44 percent in 2006 while it has gone down to -0.58 percent in 2007 which shows total loss in this year while there in 2008 we can see that NIB bank suffered huge losses and the ratio is -10.13 per cent. C) MARKET RATIO: Market Value Ratios relate an observable market value, the stock price, to book values obtained from the firm's financial statements.

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Earning Per Share- EPS: Earning Per Share = Profit after Taxation Number of Shares The portion of a company's profit allocated to each outstanding share of common stock. Ear nings per share serve as an indicator of a company's profitability. Earnings per shar e are generally considered to be the single most important variable in determining a share's price. It is also a major component used to calculate the price-to-earnings valuation r atio.

0.99 0.45 0.37

E/Share

-0.44
2004 2005 2006 2007 2008

-3.63

Year 2004 2005 2006 2007 2008 E/Share 0.99 0.45 0.37 -0.44 -2.63 Interpretation As we can see from the above gr aph that the earning per share is declining over the years but there is huge loss in shares in 2007 and 2008. This shows the lack

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of confidence of the customers in the bank. The other core factor is the devaluation of the Pakistani currency as well as the devaluation of the government securities and the economic downtur n in the wor ld. D) INCOME OVER EXPENSE RATIO This ratio shows the relation between income and expense of a company and tells us that how many times a company or a bank can cover its expenses. Ratio equal to 1 tells us that the company is just covering its expensing over and above 1 is countered as the companys profit. Higher the value above the 1 more the financially sound is the company or the bank. The for mula is as under: Income to expense ratio = tot al income/total expense

income/expense ratio
1.07 1.04 1.01

0.51 0.34

2004 2005 2006 2007 2008

RUPEES IN --- 000 --YEAR 2004 2005 2006 2007 2008 Total I ncome 429,174 742,831 1,245,595 1,107,903 2,833,649 Total Expenses 397,841 713,054 1,223,682 2,146,173 8,164,241 Ratio (in times) 1.07 1.04 1.01 0.51 0.34

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Interpretation In 2004 the income with r espect to expense is maximum but its decreasing year by year which means that the banks expenses are increasing but the income is proportionally increasing with a lower rate. In 2008 ratio is the lowest which means that the income is insufficient to meet the expenses so which means that the bank observed high losses this year.

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6.SWOT Analysis
Strengths
_ Being the emerging bank in Pakistan it is highly recognized all over Pakistan and it is very well known among its customers. _ NIB Bank has a huge amount of Branches all over Pakistan where other banks still can not be able to provide their ser vices and that is a huge bonus point for the bank _ The bank has huge amount of assets. _ The bank is involved in different investing activities where there is a huge amount of output available for the bank that bank can use for its growth. _ NIB Bank has a very senior and dedicated work force as well as young and creative staff which is a very big asset for the bank. _ NIB Bank has an edge over other local banks, as it was the fir st privatized bank. The State Bank of Pakistan has restricted the number of branches that can be opened by foreign banks, an advantage that NIB Bank capitalizes because of its extensive branch network. _ Eight years after starting, NIB Bank is now in a consolidation stage designed to lock in the gains made in recent years and prepare the groundwork for futur e growth. _ NIB Bank looks with confidence at year 2003 and beyond, making strides towards fulfillment of its mission, "to become the preferred provider of quality financial services in the country with profitability and responsibility and to be the best place to work".

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Weaknesses
With the strengths the Bank has also some weaknesses which ar e as under _ Though NIB Bank installed computer yet the system has not totally shifted on computer. Manual procedure is still there hence computer facility is not fully availed. It should be fully availed and system should be fully computerized. _ A lot of productive time is wasted by the staff in unproductive pursuits and tea and lunch breaks are got voluntarily extended and the time spent in corridors, cour tyards, depends on the staff will. This tendency of late must be eliminated which reflect adversely on the image of the institution and has posed a serious problem. _ It should not be like that a person who may be a very good worker but possessing lack of managerial capabilities should be posted as manager. But as second place in command or some heavy working department wished persons together with managerial qualities and manners in the same fashion should be posted and placed as manager. _ People have to wait for re-cashing their cheques for about 10 to 12 minutes, which is not good for the r eputation of bank. _ It is human nature one goes behind reward and incentives while and try to avoid from punishment. Likewise in commercial institution like bank this system be introduced with full force means active smart, educated skilled, self spoken and well ver sed staff personal, should be reward and appreciates, while on the other hand lazy, lethargic, hear d, rough dealers and ill mannered must be warned penalized and punishes

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Opportunities
The bank has a lot of opportunities which includes _ Since the Bank has an extensive networks of branches so if the bank can be able to computerize all of its branches then it can be able to capture the market more efficiently _ The bank has already a huge amount of customers by providing better and better services to their existing customers, but word of mouth can also be helpful in increasing the number of customers to have a competitive advantage over its growing number of competitors. _ Since the Bank is earning a lot of pr ofit per annum so by increasing the employees salaries and pr oviding incentives the Bank can produce more loyal employees that can increase the productivity.

Threats

_ With opportunities the Bank has also some threats which includes _ Due to increasing number of foreign banks in Pakistan which offer a very attr active package for their employees the very key employees of the bank are more likely to resign which is a very major threat. _ Not all branches are computerized neither providing ATM services and no online banking and the customers demand for these services is increasing day by day so Bank should computerize all its branches. _ At some places, the NIB Bank Limited is over-employed. which is causing over expenditure

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