PAKISTAN BANKING INDUSTRY

Pakistan Banking Industry

28 13,340 12.5
On average there
Trillion
is only one bank
branch to serve
20,000 people

Banks Branches Deposits

(Including Sub Branches)

Only 13% of adults have a formal Bank account

< 5% Female
 Foreign Banks
18%
Domestic Private
Banks
58% Public Sector
Commercial Banks
13%

Specialized Banks
11%

Share of Category of Banks in Pakistan

BANKING INDUSTRY METRICS
GROUP MEMBERS:
Ramsha Naseem
Asavira Shahid
Arsalan Ali
Syed Talha Hassan
Abid Malik
LOAN LOSS RATE
LLR is a percentage (%) that reflects accumulated provision
expenses (minus write-offs) and gives an indication of the
management's expectation of future loan losses.

Formula: Principal Amount Written Off During Period

Average Outstanding Loan Portfolio

Loan Loss
Rate
 Implication
Example:
Portfolio outstanding at the beginning of the FY $100,000
Portfolio outstanding at the end of FY $120,000
Amount written off $20,000, Amount recovered $5,000
Calculation:
Average portfolio outstanding=(beg. portfolio outstanding plus ending portfolio outstanding)/2
= ($100,000 + $120,000)/2= $110,000
Written off –recovered = $20,000 - $5,000 = $15,000
Divide net written off/average portfolio outstanding= $15,000/$110,000=13.6%

It is a rough indicator of the overall quality of the portfolio.

It represents the “loan loss reserve amounts maintained to offset the default risk in its total
(outstanding) loan portfolio”.
The higher the non performing loan, the higher the provision for loan losses should probably
be. Consequently this would reduce net income and earning per share.

Loan Loss
Rate
NEW ACCOUNTS SET-UP ERROR RATE
New Accounts Set-up Error Rate (%)

Formula: Total No. Of New Banking customer accounts containing error* at set-up
Total No. Of new banking customer accounts setup at the same point in time.

* wrong name, wrong address, different account type etc.

New Accounts
Set-up Error
Rate
 Implication
This matrix tells us the reliability factor of the service quality.
Managers must reduce chances of error.
Managers must try to reduce errorrate.

Managers should strive for higher %by reducing error and thus increasing.
Communication and delivery process needs to be improved.

New Accounts
Set-up Error
Rate
BANKING EFFICIENCY RATIO
➢ Bank's efficiency ratio is essentially equivalent to a
regular company's operating margin, in that it measures
how much the bank pays on operating expenses, like
marketing and salaries. By and large, lower is better

➢ Formula:

Bank Efficiency Ratio = Expenses* / Revenue

*not including interest expense

Bank Efficiency Ratio

 Implication
Increasing cost of banking operations threaten the margin ofprofitability
of the bank.
Lower the bank efficiency ratio, the more efficientbank is.
Inefficiency may be the result of over staffing, excessive salaries,investme
nt in new branches.
Strategic planning should focus on the components of the efficiencyratio.

Bank Efficiency Ratio

LOAN TO DEPOSIT RATIO
 LTD is a commonly used statistic for
assessing a bank's liquidity by dividing the
bank's total loans by its total deposits.

Formula: Loan / Deposits

Loan to
Deposit
Ratio
 Implication
This number is expressed as a percentage.

If the ratio is too high, it means that the bank may not have enough liquidity
to cover any unforeseen fund requirements.

If the ratio is too low, the bank may not be earning as much as it could be.

Loan to
Deposit
Ratio
DORMANCY RATE
 𝐍𝐨.𝐨𝐟 𝐝𝐨𝐫𝐦𝐚𝐧𝐭 𝐚𝐜𝐜𝐨𝐮𝐧𝐭𝐬
Dormancy Rate= ∗𝟏𝟎𝟎
𝐓𝐨𝐭𝐚𝐥 𝐍𝐨.𝐨𝐟 𝐝𝐨𝐫𝐦𝐚𝐧𝐭 𝐚𝐜𝐜𝐨𝐮𝐧𝐭𝐬 𝐢𝐧𝐚𝐛𝐫𝐚𝐧𝐜𝐡

Dormancy
Rate
 Implication
Indicates the level of customerservice

Factors due to which account holders are not engaged in any

transaction

Dormancy
Rate
TRANSACTION PER TELLER
Transaction per teller = Total transactions performed/Number
Number of teller FTEs

Transaction
Per Teller
 Implication
Example: At day end, the total transactions carried out by B
ranch Awere 160 per day, as reported by the 3 tellers and a
CSOofficer.
= 160 / 4
= 40 transactions per teller
Efficiency of ateller

Below average number Inefficient process of bankingtransaction

Transaction
Per Teller
CASA Ratio
 Current & Saving Deposit
CASA Ratio:
Total Deposit

CASA Ratio
 Implication
CASA ratio of a bank is the ratio of deposits in current and saving accounts to total deposits.

A higher CASA ratio indicates a lower cost of funds, because banks do not usually give any
interests on current account deposits and the interest on saving accounts is usually very low

This is beneficial to a bank because it's getting money at a lower cost.

A higher CASA ratio leads to higher net interest margin.

CASA Ratio
CUSTOMERS PER BRANCH
 Formula

= Total customers / Total no. of branches

Example: UBL has a customer base of 5 Million and has a network of 1300 branches all over Pakistan.

= 5,000,000 / 1300

= 3,846 customers per branch

 Implication
Customer per branch will help us to identify which branch has more customer and
which branch has lesser customer as compare to other.

• It is useful to increase operational efficiency.

• It can empower management to take decision whether where they should open
more branches and which branch the should close instead.
• It can be use to bench mark growth inspiration with respect to industry.
NPL Ratio
 Nonperforming Loans
NPL Ratio:
Total Loans

NPL Ratio
 Implication

Nonperforming Loans Ratio: Because banks are so leveraged, it’s

critical that they only invest in assets with little risk of default.

Analysts use the NPL ratio to measure how lenders perform in this
regard. It’s calculated by dividing a bank’s nonperforming loans by
total loans. A good rule of thumb is that the Bank should closely
monitor its NPL ratio at all stages of the credit cycle.

NPL Ratio
Net Charge-Off Ratio
 Net Charge-Offs
Net Charge-Off Ratio:
Total Loans

Net Charge-Off
Ratio
 Implication

Net Charge-Off Ratio: A close cousin of the NPL ratio, the NCO ratio
measures what happens after loans actually default, triggering a
bank’s obligation to charge the loans off against its capital.

Because this metric factors in the recovery of collateral, a bank’s

NCO ratio should be smaller than its NPL ratio. If not, the bank
probably isn’t focusing enough on collections.

Net Charge-Off
Ratio
 Other Banking Ratios
• Revolver / Transactor Ratio
• Delinquency Ratio
• Revenue to Expense Ratio
• Statement Returned & Delivery Ratio
• Transactions per Customer
• Loan Decision Cycle Time
• Customer Attrition / Retention Ratio
Thank You
 Net Interest Margin: A bank is a leveraged fund that borrows money
at low short-term rates and then invests the funds into higher interest-
earning assets. By doing so, a bank earns “net interest income.” If
you divide this by a bank’s earning assets, you get its net interest
margin, which shows how much the business yields on its invested
assets
Net Interest Income
Net Interest Margin:
Average Earning Assets