Financial Analysis

To analyse the financial position of PSB, different tools are use, which includes Ratio Analysis,
Common size Analysis of the last five years.

Introduction and Importance of Financial Analysis

Financial analysis involves the use of various financial statements. These statements do several
things. First the balance sheet and the second is income statement.
The balance sheet summarizes the assets, liabilities, and owner’s equity of a business at a point
in time, while the income statement summarizes revenues and expenses of a firm over a
particular period of time. A conceptual framework for financial analysis provides the analyst
with an interlocking means for structuring the analysis.

Financial Analysis
To analyse the financial position of BOP, different tools are use, which includes Ratio Analysis,
Common size Analysis of the last five years.

Introduction and Importance of Financial Analysis

Financial analysis involves the use of various financial statements. These statements do several
things. First the balance sheet and the second is income statement.
The balance sheet summarizes the assets, liabilities, and owner’s equity of a business at a point
in time, while the income statement summarizes revenues and expenses of a firm over a
particular period of time. A conceptual framework for financial analysis provides the analyst
with an interlocking means for structuring the analysis.

Financial Statements (2009-10)

Balance Sheet

Balance Sheet
As of DEC 31, 2007
2010 2009
Rupees in ‘000
Assets
Cash and balances with treasury banks 37882625 19570665
Balances with other banks 9670641 9933722
Lendings to financial institutions 11,846,823 2450000
Investments 178868385 126274290
Advances 326391078 246153492
Operating fixed assets 5389069 5557630
Deferred tax assets - -
Other assets 9446990 7248080
 566648788 413637869
Liabilities
Bills payable 856,448 937647
Borrowings 6,989,424 17842915
Deposits and other accounts 4915508556 346756547
Sub-ordinated loans - -
Liabilities against assets subject to finance lease 40,988 40321
Deferred tax liabilities 298,616 2205530
Other liabilities 11931375 9413147
148,729,423 215978401
Net Assets 566648788 413637869
Represented By
Share capital 3830560 3830560
Reserves 22325483 17572855
Unappropriated profit 3,219,246 3452842
10,658,968 15110453
Surplus on revaluation of assets - net 5,466,746 3885341
566648788 413637869

Financial Business Summary (5Yrs)

2005 2006 2007 2008 2009

Operating Results
Markup/ return/ interest Rs in
earned m 1,664 2,555 6,125 11,579 17,539
Markup/ return/ interest Rs in
expenses m 484 719 2,669 7,509 13,939
Rs in
Net markup income m 1,180 1,836 3,456 4,070 3,600
Rs in
Non-markup based Income m 831 1,097 1,331 2,954 5,423
Rs in
Non-markup based expenses m 1,002 1,150 1,291 1,882 2,289
Rs in
Provision against NPLs m 8 47 331 374 1,888
Rs in
Net profit before tax m 1,002 1,736 3,165 4,769 4,846
Rs in
Net profit after tax m 689 1,368 2,353 3,804 4,446

Balance Sheet
Rs in 111,15 164,85 234,97
Total Assets m 43,621 66,320 4 5 4
Rs in 101,32 133,89
Advances (net) m 18,344 39,439 63,624 0 4
 Rs in
Investments m 11,458 16,198 18,026 28,233 73,462
Rs in
Shareholders Equity m 3,052 4,420 6,777 10,659 15,110
Rs in
Revaluation Reserve m 2,155 3,419 6,893 5,467 3,885
Rs in 137,72 191,96
Deposits m 34,938 54,724 88,465 8 9
Rs in
Borrowings from FIs m 2,684 2,832 6,791 6,989 17,843

Graphical Representation of Financial Summary (Income statement)

Operating Results
• PSB’s income
statement for the last 25,000

five years represents a

high growth in it. 20,000

• Its all due to the

RS in Millions

15,000
increase in the deposits
of the bank.
10,000
• Rise in the Markup
Interest earning 5,000
income results rise up
in the profit of bank 0
represents increase in 2003 2004 2005 2006 2007

lending by the bank. Total Income/ Revenues Total Expenses Net profit before tax Net profit after tax

Graphical Representation of Financial Summary (Balance Sheet)

• Deposits are almost rose upto around Balance Sheet

300% in last 5 years.
250,000

• As last 5 years were really good for

banking sector. Assets of the banks are 200,000

risen upto 400% particularly in 2007 just

Rs in Millions

150,000

because of crescent towers.

100,000

50,000

0
2003 2004 2005 2006 2007

Total Assets Investments Shareholders Equity Deposits Borrowings from FIs

 Common Size Analysis

Horizontal Analysis
This type of analysis represents the percent change in specific line item of the Income statement
or the balance sheet from the last year. This analysis is used to comment on the growth of
specific line item in the industry or the firm.

2005 2006 2007 2008 2009

Operating Results
Markup/ return/ interest - 58.2857 47.1025 33.9814
earned % 24.399 34.8728 1 1 1
-
Markup/ return/ interest 105.78 32.6842 73.0610 64.4559 46.1295
expenses % 5 8 7 9 6
35.7298 -
Net markup income % 9.0678 5 46.875 15.086 13.0556
24.2479 17.5807 54.9424 45.5283
Non-markup based Income % 54.994 5 7 5 1
4.0918 12.8695 10.9217 31.4027 17.7806
Non-markup based expenses % 2 7 7 6 9
82.9787 11.4973 80.1906
Provision against NPLs % -575 2 85.8006 3 8
56.886 42.2811 45.1500 33.6338 1.58893
Net profit before tax % 2 1 8 9 9
58.780 41.8614 38.1440 14.4399
Net profit after tax % 8 49.6345 5 6 5
Balance Sheet
32.296 34.2264 40.3350 32.5746 29.8411
Total Assets % 4 8 3 9 7
63.906 53.4876 38.0123
Advances (net) % 5 6 9 37.2049 24.3282
27.605 29.2628 10.1409 36.1527 61.5678
Investments % 2 7 1 3 9
22.575 30.9502 36.4199 29.4573
Shareholders Equity % 4 3 34.7794 3 1
55.916 36.9698 50.3989 - -
Revaluation Reserve % 5 7 6 26.0838 40.7207
31.973 36.1559 38.1405 35.7683 28.2550
Deposits % 8 8 1 3 8
51.937 5.22598 58.2977 2.83302 60.8305
Borrowings from FIs % 4 9 5 3 8

Graphical Representation (Income Statement)

 • Total earnings mark-up & non mark-up were rising 33% from last year. As deposits and
the lendings of the banks are rising up. Income Statement

• Administrative expenses are increased 180.00

with a great pace in last few years 160.00

because of high rate of inflation. 140.00

120.00

• Rise in expenses results decrease in the

Percentage
100.00

22% percent profit from last year. 80.00

60.00

40.00

20.00

Graphical Representation 0.00

2003 2004 2005 2006 2007

(Balance Sheet) Total Earnings (Markup/Non Markup) Total Expense Net profit after tax

• Total assets were increased in last few B alance Sheet

years. 22% increase in the assets from
the last year represents growth in the 45.00

Bank. 40.00

35.00

• As bank increase their paid up capital 30.00

because of which SOE increase at the 25.00
Percentage

end of 2006. 20.00

• BOP is grabbing the confidence of 15.00

their customers results increase in the 10.00

deposits. 5.00

0.00
2003 2004 2005 2006 2007

Total Assets S hareholders E quity Deposits

Ratio Analysis
Ratio analysis is used to calculate the profitability, liquidity/leverage etc. of the firm. From ratio
analysis it is possible to predict future variances.
Following ratios of PSB has been calculated:
Ratios 2005 2006 2007 2008 2009

Gross spread ratio % 71 72 56 35 21

Profit before tax to total
income % 49.8 59.19 66.11 67.89 53.71
Markup/ Interest cover ratio times 5.15 5.08 2.79 1.94 1.65
Profit after tax to total
income % 34.26 46.65 49.16 54.16 49.27
Total assets turnover times 0.06 0.06 0.07 0.09 0.1
Return on avg total assets
(after tax) % 1.88 2.49 2.65 2.76 2.22
Price earning ratio times 5.09 7.25 10.23 7.71 9.31
 Rs./shar
EPS (Non dilutive) e 6.86 9.08 10.01 13.14 10.51
Rs./shar
Dividend per share e 2.5 4 5.2 3.25 3.5
Rs./shar 102.4 101.2
Market value per share e 34.95 65.9 5 5 97.8
Capital adequacy Ratio % 15.5 12.83 12.78 10.09 9.69
No. of branches No. 241 253 266 266 272
Staff Strength No. 3,019 3,144 3,430 3,681 3,859
Gross margins % 4.00% 3.51% 4.19% 3.10% 3.30%
Net margin % 3.30% 3.41% 3.99% 3.03% 3.16%
Net Interest Margin % 3.23% 3.34% 3.90% 2.95% 3.09%
Total revenue % 5.50% 5.34% 5.39% 4.81% 4.91%
11.60 11.90 12.10 10.80 10.30
Equity / Assets % % % % % %
16.20 21.00 21.90 25.50 25.40
RoE % % % % % %
49.80 38.10 26.90 26.40 24.70
Cost/Income % % % % % %

Gross spread ratio

• Gross spread ratio defines the total spread of in terest between borrowing and lending.
• Spread: Difference between funded revenue as a percentage of average earning assets and
the cost of funds as a percentage of average paying funds.
• The higher the spread the higher will be the profit margin.
• GSR= Rev/CGS
• GSR= (Mark-up earned – Mark-up Expense)/Mark-up earned
• GSR is 2nd highest all over the globe in Pakistan.
• GSR of the bank is decreasing because of the decrease in margin, a SBP rise up the
interest rates on the deposits.

Profit before tax to total income

• Operating income less operating cost

(profit before tax).
• This ratio tells what percent of total income is earned before paying all the taxes.
• PSB has a high value of profit before tax to total income and they are decreasing after
2006 because of increase in admin expenses and righting off the bad debts.
• The main reasons for reduction in the profitability were additional provision against NPL
due to the elimination of benefit of FSV and downturn in consumer and individual
banking.

Mark-up/ Interest cover ratio

• This ratio tells what percent of interest is covered from the total income of a firm or a
bank.
• It tells the ability of a bank to pay its mark-up to the depositors..
• MP/Interest cover ratio= EBIT/Mark-up

Profit after tax to total income

• This ratio analysis tells profitability of a firm after paying all the taxes to total income.
• Profitability of PSB is increased because of decrease in the tax paid to the govt and of
high spread ratio.
• PSB negotiated their taxes with the government and only paid 20% tax in 2006 and only
8% in 2007 instead of 35%

Total assets turnover

• Asset turnover= Net Income/ Total assets

• This ratio tells the turnover of the asset to generate income.
• This ratio is increased during last few years which represent increase in the turnover by
assets.
 Return on Total assets (after tax)

• This ratio gives an idea of returning net profit generated by the bank in comparison with
assets.

• Return on assets= Profit after tax / Total Assets

• This ratio is decreasing in the last year because of decrease in Profit as expenses raised
up.

• The decrease was mainly due to increased equity as a result of increase in minimum
capital requirements and additional provision due to withdrawal of benefit of FSV for
most types of advances.

Price earning ratio

• Price Earning Ratio= Market price of a share/ EPS

• From this ratio it is analyzed what % of EPS is the part of MPS. What percent earned
from a share equivalent to the worth of 1 RS MPS by the bank or a firm.

Earning Per Share

• EPS = Net Income/ total shares

• Through this ratio it can be analyzed what percent of 1RS share is earned.
 Capital adequacy Ratio

• Capital adequacy ratio informs lending up to a certain ratio of equity.

• This ratio is set by the State Bank of Pakistan.

Net Interest Income

• Difference between funded revenue as a percentage of average earning assets and the cost
of funds as a percentage of average paying funds.

Return on equity

• Profit before tax as a percentage of total equity.

• The decrease was mainly due to increased equity as a result of increase in minimum
capital requirements and additional provision due to withdrawal of benefit of FSV for
most types of advances.

Cost/Income

• Operating cost includes all expenses charged to arrive at profit before tax excluding cost
of funds, provisions and head office expenses. Head office expenses are not considered
since all banks do not account for head office expenses in their financial statements.
 • Operating income means funded and non-funded revenue less cost of funds and
provisions.
• As administrative costs are increased because of which results decrease in the cost to
Income ratio

Industrial Analysis

Overview on the Major Players of Bank Industry

The brief overview on the bank industry and the major players involved on it. The combined
values of all major players are collected from their financial statements of 2009.
Assets Liab ilities & E quity

900,000 900,000
Cash & bank
800,000 800,000

700,000 Investments 700,000

B ills Payable
600,000 Lendin To Financial 600,000 B orrowings
Institutions
Rs In Millions

500,000 500,000 Depos its

Rs in M

Advances
S ubOrdinated Loans
400,000 400,000 O ther Liabilities
Op Fixed Assets &
300,000 Intangible Assets 300,000 E quity
Other assets Total
200,000 200,000
Total
100,000 100,000

0 0
NBP HBL UB L MCB B AF ABL SCB BOP
L

L
P

B
L

P
CB
BA

AB
HB

UB

SC
NB

BO
M

• As graphical shows NBP (National Bank of Pakistan) is the key player and the leader in
the industry with total assets and liabilities of RS. 764,609. While PSB is RS. 234,991.
• Major Player Includes SBI, PNB, HDFC, ICICI, BOB, BOI and PSB.
• Total Assets of the major players in the industry are RS. 3,561,195 (M).
• PSB is considered as one of the major banks in INDIA by assets.
• Like major Player SBI has the largest Profit before and after Tax i.e., 28,452(M) and
19,405 (M) respectively. While PSB has PBT RS. 4,856 (M) and PAT RS. 4,454 (M)
only
• The total Profit before and after tax of the major players are RS. 99,835 (M) and RS.
70,045 (M) respectively.
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