Meezan Bank & Standard chartered Bank

Final Project report (FM)

Submited To:
Sir Muhammad Burhan

Gurop Members:
Ihtsham Ahmad Cheema
Muhammad Ali
Muhammad Azhar
Muhammad Usman

Analysis of Profitability Ratios:

Return on Assets
The return on assets (ROA) for Islamic banks remains high than conventional banks from 2002
to 2009, except in 2003 where conventional banks get some edge on Islamic banks.. ROA was
1.34% in 2002 which increased to 2.05% in 2003. But in 2004 the value again decreased to
1.20% while increased to 1.74% in 2005. In 2006 the ROA again slightly decreased to 1.556%.
In 2007 the value age decreased to 1.519%. In 2008 the value decreased highly to 0.466% and got
slightly high in 2009 to 0.680%. On the other hand, ROA for Islamic banks shows a upward trend from
2002-2009. Only in 2003 it shows a slight decrease to 1.786% from its previous value of 2.10%. but after
that it went highly upward and it reaches to the maximum value of 4.777 % in 2009.
CONVENTIONAL BANK
BANKS YEAR 2002 2003 2004 2005 2006 2007 2008 2009
MEAN 1.345 2.053 1.199 1.740 1.556 1.519 0.466 0.680
S.D. 0.586 1.070 0.734 1.256 1.514 1.323 1.853 1.248
Min 0.609 0.878 0.197 0.613 0.229 0.048 -2.321 -1.047
Max 2.227 3.543 2.193 3.793 4.163 3.680 2.810 2.360

ISLAMIC BANK
BANKS YEAR 2002 2003 2004 2005 2006 2007 2008 2009
MEAN 2.059 1.786 2.607 2.996 3.151 2.336 1.135 4.777
S.D. 1.545 1.101 1.586 1.909 1.931 1.630 2.334 7.923
Min 0.086 0.289 0.777 0.881 0.991 0.568 -2.808 0.770
Max 3.881 3.325 4.616 5.186 5.299 5.010 3.310 18.942

Return on Equity:
The Return on Equity (ROE) for Islamic banks is relative low than conventional banks 2002 to
2009. The ROE for conventional banks shows increasing trend from 2002 to 2007 but decreased
in 2008 and 2009. On the other hand the ROE for Islamic banks gradually increased from
20.05% in 2003 to 38% in 2007 but in the very next year it down to 22% and also decreased in
2009. As the conventional banks are getting high Return on Equity value so they have high
Return on Assets, or due to debt (leverage).

CONVENTIONAL BANK
BANKS YEAR 2002 2003 2004 2005 2006 2007 2008 2009
MEAN 27.308 28.058 30.473 35.385 28.683 43.746 29.872 32.836
S.D. 8.810 10.585 17.902 32.324 22.642 21.865 29.524 25.804
Min 16.352 18.317 13.947 12.776 12.451 13.933 -2.675 10.780
Max 37.889 42.133 60.548 92.473 68.083 73.830 74.880 74.680

ISLAMIC BANK
BANKS YEAR 2002 2003 2004 2005 2006 2007 2008 2009
MEAN 21.337 19.820 22.229 23.399 29.649 38.239 22.322 25.072
S.D. 16.445 11.994 9.983 17.421 23.248 36.331 45.821 25.126
Min 1.925 5.489 6.263 8.048 10.735 9.963 -44.618 1.090
Max 44.204 34.079 32.580 52.869 69.468 94.004 67.448 57.154
PROFIT TO EXPENCE RATIO:

The profit to Expense Ratio for the conventional banks shows an increasing trend as it
increased in 2002 and 2003 with the value of 46% to 52.93% but it decreased in 2004, 2005 and
2006. But they get high value of the 119.94 % in 2007 and slightly decreased in the coming
years.
CONVENTIONAL BANK
BANKS YEAR 2002 2003 2004 2005 2006 2007 2008 2009
MEAN 46.343 52.936 48.409 45.644 40.870 119.046 94.805 71.684
S.D. 20.448 33.264 18.849 17.061 16.703 133.958 122.050 132.014
Min 21.121 22.782 24.957 26.234 21.180 34.058 23.941 -37.905
Max 73.980 101.117 68.769 69.081 64.717 355.410 312.440 301.110

ISLAMIC BANK
BANKS YEAR 2002 2003 2004 2005 2006 2007 2008 2009
MEAN 49.221 66.158 63.552 87.164 83.967 90.402 3.140 44.028
S.D. 55.717 17.298 31.200 42.486 40.800 39.857 144.253 26.814
-
Min -39.806 44.085 26.647 44.637 25.412 45.455 250.000 3.990
Max 112.896 86.919 101.948 149.932 130.198 139.073 98.803 77.015
Liquidity Ratios:

Cash & Portfolio Investment to Deposits

The cash & portfolio investment to deposits ratio for the Islamic banks is high than conventional
banks during 2002-2009. They show decreasing trend from 2002 to 2006 with values of
141.311% to 128.76% but remains high than the conventional banks. For conventional banks this
ratio remained low during that period but rapidly increased during 2005 form103.266 to 130.432
but then gradually decreased to 69% till 2009.

CONVENTIONAL BANK
BANKS
YEAR 2002 2003 2004 2005 2006 2007 2008 2009
MEAN 115.862 114.902 103.266 130.423 103.593 76.598 77.393 68.961
S.D. 46.309 44.732 57.791 54.118 36.886 61.230 71.325 57.542
Min 65.547 59.182 45.018 53.511 45.739 10.600 2.200 5.160
Max 181.572 182.337 197.291 204.249 141.305 169.249 170.655 160.671

ISLAMIC BANK
BANKS
YEAR 2002 2003 2004 2005 2006 2007 2008 2009
MEAN 141.311 148.658 127.560 128.769 130.360 92.976 82.969 85.227
S.D. 37.298 36.627 2.770 4.995 12.710 74.985 62.793 61.852
Min 112.494 120.321 123.676 121.292 116.036 1.250 1.250 0.198
Max 203.203 211.003 131.466 133.874 149.827 181.929 147.698 145.958
Credit To Deposit Ratio:

The Credit To Deposit Ratio (CTDR) of Islamic bank were almost same in first two years that is
2002 with 69.2205% and in 2003 with 70.5693 but in 2004 it decreased to 56%. In 2005 and
2006 the percentage remain same so conventional bank decreased up 82% from 65 %. And
Islamic banks then show upward trend relatively to the conventional banks.
CONVENTIONAL BANK
BANKS YEAR 2002 2003 2004 2005 2006 2007 2008 2009
MEAN 67.465 71.155 55.600 82.378 58.500 59.561 61.801 43.237
S.D. 29.492 26.980 25.870 60.674 31.868 83.784 88.613 53.696
Min 19.018 23.463 15.309 8.322 9.993 0.188 0.152 0.162
Max 88.523 86.731 81.682 170.166 91.613 201.044 210.852 129.053

ISLAMIC BANK
BANKS YEAR 2002 2003 2004 2005 2006 2007 2008 2009
MEAN 69.221 70.569 58.614 58.655 60.101 75.873 69.316 71.979
SD 58.011 50.572 33.571 29.853 31.146 75.972 63.904 64.716
Min 5.173 4.782 8.043 12.082 12.116 12.376 12.150 11.800
Max 163.851 138.733 93.755 89.206 90.842 183.449 146.066 146.155
Risk and Solvency ratios:

Shareholder’s Equity to Credit Ratio:

Islamic Banks Shareholder’s Equity Credit Ratio (SECR) is higher in overall 9 years than the
Conventional banks. In 2002 the SECR of Islamic bank is 9.6%, while the conventional bank
SECR in 2002, 7.12%. Islamic bank SECR increased in 2003 up to 12.7% , and conventional
bank SECR increased up to 8.3% still less than Islamic banks SECR. The Islamic Bank SECR
increased 14.4% till 2005. While conventional banks SECR in 2005 decreased up to 6.9%. The
SECR of Islamic bank in 2006 decreased up to 11.4% but still higher than SECR of conventional
banks SECR of 7.3%. the SECR of the Islamic bank gradually decreased 6.6% in 2007 and also
2008 and 2009. But they were still above the percentage of the conventional banks. The SECR of
conventional Banks instantly decreased to 4.7% in 2007 and almost remained same in 2008 and
2009.

CONVENTIONAL BANK
BANKS
YEAR 2002 2003 2004 2005 2006 2007 2008 2009
MEAN 7.117 8.280 8.409 6.950 7.293 4.686 4.406 4.751
S.D. 1.981 4.728 5.493 4.823 4.670 2.581 2.465 2.268
Min 5.854 4.497 3.518 2.819 2.694 1.100 1.100 1.100
Max 10.579 16.522 17.485 14.768 14.970 7.121 6.933 6.933
 ISLAMIC BANK
BANKS YEAR 2002 2003 2004 2005 2006 2007 2008 2009
MEAN 9.577 12.685 12.506 14.412 11.450 6.655 5.962 6.659
S.D. 7.272 3.357 2.586 6.767 4.930 5.419 4.079 4.506
Min 1.633 9.033 9.804 9.495 6.761 1.400 1.200 1.250
Max 20.044 17.907 16.462 25.798 18.695 14.472 11.496 11.923

Credit to Total Assets Ratio:

Islamic banks Credit to Total Assets Ratio (CTAR) is relatively high than the conventional
banks. Conventional banks CTAR 94.21% in 2002 and decreased up to 77.16%. While the
Islamic banks CTAR started from 91.7% and decrease up to 87.5% till 2005. But in 2005 the
CTAR of Islamic Bank is greater than conventional banks. In 2006 the CTAR of conventional
banks increased up to 93.3%. While then CTAR of Islamic banks increased up to 98% which
was higher than the is conventional banks. CTAR of conventional banks in 2007 is 92.6% and
CTAR of Islamic banks increase up to 88.5% which is less than conventional banks. In 2008 and
2009 the conventional banks remained stable and increased to 93% and Islamic banks increased
a little bit but not enough to get above the conventional bank. Similarly 2009 the Islamic banks
showed decreasing trend and the value decreased to 88.7%.

CONVENTIONAL BANK
BANKS YEAR 2002 2003 2004 2005 2006 2007 2008 2009
MEAN 94.209 82.292 77.157 93.799 93.329 92.565 93.608 93.002
S.D. 0.398 18.463 39.420 4.094 3.927 5.017 3.936 3.470
Min 93.564 52.966 6.971 87.132 86.979 84.000 87.000 87.000
Max 94.528 95.697 100.000 97.258 97.377 97.005 97.432 95.970

ISLAMIC BANK
BANKS YEAR 2002 2003 2004 2005 2006 2007 2008 2009
MEAN 91.617 81.533 87.498 92.834 97.957 88.511 89.321 88.711
S.D. 5.955 22.235 14.916 13.057 21.947 3.999 3.734 3.338
Min 83.303 43.335 63.503 81.874 82.111 83.280 84.265 83.544
Max 97.402 101.290 104.644 115.329 136.537 93.413 92.993 92.604

Equity Multiplier:
Equity Multiplier Ratio (EMR) of conventional banks is greater than Islamic Banks throughout
2002 to 2009. But in 2007 it was higher and touched the 323.303 which was very high than the
Islamic banks. The average mean of EMR for conventional banks 140.974% and average mean
of EMR for Islamic banks is 34.086%. So according to the results the conventional banks are
more risky and have more chances of failure than the Islamic bank.

CONVENTIONAL BANK
BANKS YEAR 2002 2003 2004 2005 2006 2007 2008 2009
MEAN 79.703 79.104 81.575 98.145 92.812 323.303 200.919 172.232
S.D. 42.758 45.784 53.984 37.164 44.806 388.337 194.429 169.265
Min 18.276 17.622 9.051 66.228 55.137 50.599 43.651 28.838
Max 124.261 128.096 152.145 161.558 167.386 944.897 458.932 431.049

ISLAMIC BANK
BANKS YEAR 2002 2003 2004 2005 2006 2007 2008 2009
MEAN 46.699 36.240 40.303 31.370 33.457 33.526 24.948 26.148
S.D. 67.938 37.557 54.663 20.620 22.533 15.615 11.021 11.944
Min 6.961 9.221 8.116 12.286 17.773 17.773 14.243 12.983
Max 167.039 100.864 137.123 61.833 73.009 59.607 42.605 43.257

Efficiency Ratios:
Net operating margin:
If observe the change in the net operating margin (NOM) over time was increasing in Islamic
banks starting from1.2% to 1.23% by the year 2004 and more or less remained same in 2005 and
2006 with the value of 1.55% and 1.66% respectively. And shows a lower increasing rate. After
that the value got decreased and decreased. Then it lower than the conventional banks. Where
conventional banks starts from 0.65% of NOM to 1.55% NOM by the year 2006. Little decrease
in to 1.15% in year 2007. In 2008 it was much higher and got above the Islamic bank and 2009 it
decreased a little bit but still over the NOM of the Islamic banks. Conventional banks margin bit
stable than the Islamic bank operating margin different.

CONVENTIONAL BANK
BANKS
YEAR 2002 2003 2004 2005 2006 2007 2008 2009
MEAN 0.655 0.948 1.055 1.349 1.149 1.893 2.030 1.630
S.D. 0.481 0.703 0.793 1.382 0.891 2.715 3.043 3.308
Min 0.169 0.293 0.106 0.504 0.484 0.025 0.012 -0.937
Max 1.292 1.794 2.193 3.793 2.705 6.700 7.400 7.400

ISLAMIC BANK
BANKS
YEAR 2002 2003 2004 2005 2006 2007 2008 2009
MEAN 1.197 1.185 1.230 1.559 1.634 1.149 0.400 0.716
S.D. 1.221 0.625 0.749 0.668 0.934 1.200 2.093 0.587
Min -0.142 0.236 0.624 0.733 0.668 0.016 -3.089 0.011
Max 3.201 1.926 2.473 2.449 3.001 2.979 2.041 1.438

Assets Utilization:
In the below table we can see that conventional banks assets utilization ratio (AUR) 4.66% is
high in 2002 than the Islamic banks 4.0% And both banks ratio is almost equal in 2003, where
AUR of Islamic banks is 3.5% and Conventional Banks AUR is 3.85%. In 2004 the conventional
Banks AUR 4.72% bit high than Islamic Banks AUR 4.2%. In 2005 AUR of Islamic Banks got
lead over conventional banks of 5.1% and AUR of Conventional banks 4.70%. In 2006 the
Islamic banks AUR 5.1% is stable as in 2005 but, the conventional Banks AUR decrease to
4.38%. If we study the ratio of 2007, 2008 and 2009 AUR of Islamic banks remained stable but
conventional banks AUR decreased.

CONVENTIONAL BANK
BANKS YEAR 2002 2003 2004 2005 2006 2007 2008 2009
MEAN 4.662 3.848 4.722 4.799 4.381 2.960 2.367 2.404
S.D. 2.176 1.480 3.510 2.547 3.128 2.280 2.301 1.790
Min 2.712 2.468 0.310 2.536 1.786 0.038 -0.069 0.028
Max 7.077 6.290 9.728 9.075 9.532 5.500 5.100 4.800

ISLAMIC BANK
BANKS YEAR 2002 2003 2004 2005 2006 2007 2008 2009
MEAN 4.004 3.510 4.160 5.126 5.305 3.183 3.728 3.625
S.D. 1.795 1.243 1.425 1.901 1.937 2.614 2.622 2.435
Min 1.864 1.703 2.506 2.670 3.158 0.036 0.035 0.033
Max 6.716 4.802 6.270 7.103 7.540 7.211 6.218 6.089
Operating Efficiency ratio:

As we can observe from graph below, Operating Efficiency ratio (OER) in 2002 for Islamic
banks were 38%, while it was 95.86% for Conventional Banks. In 2003 the OER of Islamic
banks increased up to 49.23% but still below than conventional banks OER that is 90.28%.
Conventional banks OER are stable even in 2004 with OER of 90.31% while the Islamic banks
OER increased up to 49.6%. And in 2005 OER of Islamic bank decreased up to 40.65%. While
conventional banks also decreased the OER up to 70% but sill greater than Islamic banks OER.
Conventional bank OER increased in 2006 and 2008 again decreased to 85.17% and 50.74% and
the Islamic Bank OER are further decrease up to 37.87% and 35.24% respectively. Suddenly in
2008 the OER of conventional banks was as much decreased as low down to -623.002% which
was too much low than the Islamic Banks which showed increasing trend from 35% to 42.6%.
but in 2009 the OER of conventional banks again up to 63.65% . The Islamic banks OER little
increased from the previous year to 46.23%. The overall results shows that the OER of
conventional bank is high as compare to the Islamic Banks.

CONVENTIONAL BANKS
BANKS YEAR 2002 2003 2004 2005 2006 2007 2008 2009
MEAN 95.858 90.285 83.025 70.066 69.369 50.747 -623.002 63.653
S.D. 48.206 29.809 38.058 45.427 46.631 35.774 1484.660 64.976
Min 26.012 44.711 42.682 35.473 27.985 2.088 -3278.603 4.281
Max 151.614 127.525 128.280 145.935 141.797 96.900 64.130 173.409
 ISLAMIC BANKS
BANKS YEAR 2002 2003 2004 2005 2006 2007 2008 2009
MEAN 38.025 49.233 49.681 40.659 37.871 35.245 42.566 46.232
S.D. 13.260 29.700 25.315 24.960 27.094 30.437 27.287 28.071
Min 19.109 24.023 30.763 23.458 18.472 0.452 0.435 0.425
Max 53.324 97.723 93.504 82.877 83.166 83.166 73.035 69.880

CONCLUSION:

Islamic banks are exceeding in Return on Asset, Share Holders’ Equity to Credit ratio, Portfolio
Deposit Ratio, Credit Deposit Ratio Asset Utilization Ratio than the conventional banks. But
they are also lacking in the other ratios.
Conventional Banks have better performance on Return on Equity Ratio, Profit to the Total
Expense ratio, Equity Multiplier Ratio, Operating Efficiency Ratio, Credit to Total Asset Ratio
and Net Operating Margin Ratio. So in our point of view Conventional banks have overall lead
on Islamic Banks.
We found that the Islamic banks although are improving their performance, they can gradually
become more important. As most of the ratio are going in the favor of conventional banks, but
Islamic bank return is better than it. The Islamic banks are totally different from the conventional
banks, so in Islamic countries it is improving trend because they are working and practices
according to the Shariah.