Analysis of Balance Sheet of Financial Institution

Advanced Financial Management Report

7/21/2 1!

Habib Bank Limited

Valentine Fernandes (12584)

Table of Contents
"a#le of $ontents%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%% 2

INTRODUCTION:
&B' (as the first commercial #an) to #e esta#lished in *a)istan in 1+,7% -ver the years. &B' has gro(n its #ranch net(or) and #ecome the largest private sector #an) (ith over 1./ #ranches and 1. A"Ms across the country and a customer #ase e0ceeding seven million relationships% "he 1overnment of *a)istan privati2ed &B' in 2 , through (hich A3F45 ac6uired /17 of the Ban)8s shareholding and management control% ,1%/7 of the shareholding is retained #y the 1overnment of *a)istan 91-*:. (hilst 7%/7 is o(ned #y the general pu#lic i%e% over 1 ;. < 9as per 2 12 financial statements: shareholders follo(ing the pu#lic listing that too) place in =uly 2 7% >ith presence in 2, countries. su#sidiaries in &ong 3ong and the ?3. affiliates in @epal. 3enya and 3yrgy2stan and rep offices in Iran and $hina. &B' is also the largest domestic multinational% "he Ban) is e0panding its presence in principal international mar)ets including the ?3. ?A4. South and $entral Asia. Africa and the Far 4ast% 3ey areas of operations encompass product offerings and services in Retail. $ommercial and $orporate Ban)ing% &B' has one of the largest $orporate Ban)ing portfolio in the country (ith an active Investment Ban)ing arm% SM4 and Agriculture lending programs and #an)ing services are offered in ur#an and rural centers%

Most Notable Achievements:

Be st F0 Bank in Pakistan, E$ro 'one 1 Awards, 20)/

Be st -e tail Bank in Pakistan, Asian Banke r 'aga(ine20)/

*tronge st Bank in Pakistan, Asian Banke r 'aga(ine20)2

+e ading Bank in ,o% e -e %ittance s in 20)), Pakistan -e %ittance .nitiative

Be st Bank, Global Be st TradeFinance Finance'aga(ine Provide r , Global 20)0 Finance'aga(ine20)0

Be st E%e rging 'arke t Bank, Global Finance 'aga(ine 20)0

Be st E%e rging 'arke t Brand, Global Finance 'aga(ine2009

Bank o the!e ar, The Banke r 2009 "#$blication o Financial Ti% e s&

Be st Bank in Pakistan, Global FinanceAwards 2009

Be st TradeFinanceProvide r in Pakistan, Global Finance Awards 2009

Be st Fore ign ExchangeProvide r Be st Bank in Pakistan, Global in Pakistan, Global Finance FinanceAwards 2008 Awards 2009

Vision:
A4na#ling people to advance (ith confidence and successB

Mission:
A"o ma)e our customers prosper. our staff e0cel and create value for shareholdersB

Branch Network:
&B' has the largest domestic #ranch net(or) (ith over 1./ #ranches and 1. A"Ms and is present in 2, countries namely Bangladesh. Belguim. $hina. Sinagpore. France etc%

Geo ra!hical se ments:

"he Ban) operates in five geographic regions. #eingC D *a)istan D Asia *acific 9including South Asia: D 4urope D @orth America D Middle 4ast

D -thers ItEs &ead -ffice is at &a#i# Ban) *la2a I%I%$hundrigar Road. 3arachi. *a)istan%

"#bsi$iaries % Associates
"#bsi$iaries:
1% &a#i# Finance International 'imited. &ong 3ong F (holly o(ned 2% &a#i# Ban) Financial Services 9*rivate: 'imited. *a)istan F (holly o(ned !% &B' $urrency 40change 9*rivate: 'imited. *a)istan F (holly o(ned ,% &B' Asset Management 'imited. *a)istan F (holly o(ned /% &a#i# Allied International Ban) *lc%. ?nited 3ingdom F shareholding at + %/ 7 ;% &a#i#sons Ban) 'imited. ?nited 3ingdom F shareholding at + %/ 7 7% First &a#i# Ban) Modara#a. *a)istan G% &B' Stoc) Fund. *a)istan F shareholding G1% G7 +% &B' Multi Asset Fund. *a)istan D shareholding G+%+;7 1 %&B' Income Fund. *a)istan D shareholding ;1%/77

Associates
1% &imalayan Ban) 'imited. @epal D &olding 2 7 92 11C 2 7: D 'isted 2% 5iamond "rust Ban) 'imited. 3enya D &olding 11%;G7 92 11C 11%217: D 'isted !% 3yrgy2 Investment and $redit Ban). 3yrgy2 Repu#lic D &olding 1G7 92 11C 1G7: D ?nlisted ,% =u#ilee 1eneral Insurance $ompany 'imited D &olding 1;%2,7 92 11C 1,%277: D 'isted /% =u#ilee 'ife Insurance $ompany 'imited D &olding 17%+/7 92 11C 17%+/7: D 'isted ;% &B' Money Mar)et Fund D &olding 1%/17 92 11C 1%//7 : D 'isted

7% &B' Islamic Money Mar)et Fund D &olding 7!%1,7 92 11C ;,% G7: D 'isted G% &B' Islamic Stoc) Fund D &olding +7%;/7 92 11C +;%1,7: D 'isted +% &B' *ension 46uity Su# Fund D &olding +2%/!7 92 11C ++%2G7: D ?nlisted 1 %&B' *ension 5e#t Su# Fund D &olding ,,%/7 92 11C +;%!,7: D ?nlisted 11%&B' *ension Money Mar)et Su# Fund D &olding !+%//7 92 11C +7%2;7: F ?nlisted 12%&B' Islamic *ension 46uity Su# Fund D &olding G!%,,7 92 11C ++%+!7: D ?nlisted 1!%&B' Islamic *ension 5e#t Su# Fund D &olding ;/%2/7 92 11C ++%+!7: D ?nlisted 1,%&B' Islamic *ension Money Mar)et Su# Fund D &olding ;1%,77 92 11C ++%+77: F ?nlisted

Cre$it Ratin :
=$R HIS $redit Rating Agency of *a)istan has upgraded the entity ratings of the Ban) to AAAA / AD1<B 9"riple A/AD-ne *lus: from AAA</AD1<B 95ou#le A *lus / AD-ne *lus: (ith ISta#leE outloo)% &B' has therefore #ecome the first private sector #an) of *a)istan to achieve this landmar)%

&B' (RODUCT" % "C&)M)":

&B' !rovi$es the *ollowin services *or in$ivi$#al c#stomers:
$ar 'oan $redit $ards &ome 'oan *ersonal 'oan 5eposit Accounts Bancassurance

 5e#it $ard *hone Ban)ing Fast"ransfer Mutual Funds Salary *lus

B#siness c#stomers have been tar ete$ with the *ollowin schemes:
$orporate Ban)ing $ommercial Ban)ing SM4 Ban)ing Investment Ban)ing $ash Management Jarai Ban)ing 1lo#al "reasury Asset Management -ther than these specific individual and #usiness customer schemes and services &B' also provides &B' e0press a mode of transferring money any(here (ithin *a)istan is safe. 6uic) and simple and also the provision of having Islamic Ban)ing accounts%

"+OC Anal,sis:
"tren ths
'oo)ing at the training and development e0penditure from &B'Es financials the staff of the #an) is definitely s)illed. (ell trained and competent% &B' has centrali2ed decision ma)ing% &B' is the largest #an) in *a)istan. having 1/ < #ranches as (e can confirm in audited Financial Statements for 2 12%

&B' have an e0tensive #ranch net(or) throughout the country. around ;G online #ranches in *a)istan% By analy2ing capital ade6uacy ratio (e see that they have one of the highest in the #an)ing sector (hich fortifies their sta#ility -ne of the #est I" infrastructure. the first #an) in *a)istan to have a core #an)ing system. other have follo(ed suit. apart for the #ig / none of the small #an)s have it &B' e0press F #ranchless #an)ing% !rd largest credit card portfolio after ac6uisition of $iti#an) credit cards% 'argest deposit #ase% Strong regional presence. can emerge as a strong regional player. they are present in every country around *a)istan as (e can see in &B' 'ocations%

+eaknesses
Bad de#t rate is very high and they have poor system of recovery% Sense of insecurity in employees due to do(nsi2ing% &B' has #ecome victim of political. legal and socio cultural pressure% 4mployees are not satisfied due to unfair promotion system% "here is not aright criterion for promotionK many vacancies are filled at approach #asis% Advances of &B' are also very lo( (ith respect to its competitors as (e can see from advance to deposit ratio%

O!!ort#nities
?tili2e e0isting net(or) to enhance regional presence. offer product cross sell. e0plore merging mar)et such as east Africa% Although A"M and online #an)ing has started #ut it can #e made more effective #y applying itEs o(n A"M net(or)K as there are t(o A"M s(itches operational in the country. 1'I@3. hosted #y a consortium of #an)s. and M@4". hosted #y M$B Ban) 'td. #y having their o(n net(or) they can not only use it for themselves #ut also sell it as a service to other #an)s% A"M transactions costs are much lesser than transactions via human tellers as (ell%

"hey have the largest deposit #ase. focus should #e on improving deposit mi0 9$ASA current account / savings account: &B' has also an opportunity to e0pand its retail #an)ing and internet #an)ing facilities in order to serve the customer more efficiently% -pportunity to invest in 6uality advances% 'everage e0isting net(or) to offer cash management and transaction #an)ing% 40pand (ealth management #usiness% -ffer more SM4 and rural advances 9)ind of syncs (ith *a)istanEs gro(th:% "hey have recently introduced #ranchless #an)ing 9&B' e0press:. (e can use that to attract more customers 9transaction #an)ing:

Challen es
*rofit is #ecoming lo( due to declining spreads% Financial environment is changing day to day. ne( technologies are introduced #y foreign #an)s that provide customer efficient and 6uic) service% 5ue to lo( entry #arriers. there are more competitors. so the glo#al competition has increased Because of unfair promotion system and a#sence of proper and recruitment techni6ues competent persons may move to other #an)s% 'oss of confidence of overseas customers due to free2ing of accounts% ?nsta#le government policies

ORGANOGRAM O- COM(AN.

-INANC) ORGANOGRAM

/OB D)"CRI(TION O- MA/OR -INANCIA' (O"ITION:

Chie* -inancial O**icer 0Mr1 A,a2 Ahme$3
"o monitor the performance of all Regional &eads placed dispersed over 2, countries% "o assign the targets to all regions in respect of 5eposits. Advances. *rofit and other nonDfund #ased income generated through various services offered to customers at #ranch level% "o 1overn Financial *olicies 5evelop financial and ta0 strategies "o attend the various meetings called #y the president or #y #oard of directors% Ma)e sure S%-%* are follo(ed

Ma)e strategy and *olicies in formulating the company8s future direction

*erforms supervisory duties to other lo(er 5eputy 5epartment (ise $F-Es 951MEs: and Managers%

-versee the financial operations of su#sidiary and associate companies operations%

Report financial results to the #oard of directors

R)(ORT" (R)(AR)D B. -INANCIA' D)(ARTM)NT:

Monthly for Ban) 5aily and >ee)ly for "reasury functions Financial Reporting is done on 6uarterly #asis (hich comprises of ! 6uarterly and one Annual Report 5aily monitoring of fi0ed assets 5aily maintenance of foreign currency accounts/ investments and e0ecution of International payments and receipts%

11

COM(ARATIV) ANA'."I" O- BA'ANC) "&))T:

Balance sheet nal!sis
($%&ees in '""")

2""8

2""#

2"1"

2"11

2"12

(()T(
$ash and #alances (ith treasury #an)s Balances (ith other #an)s 'endings to financial institutions Investments Advances -perating fi0ed assets 5eferred ta0 asset -ther assets /;./!!.1!, !+.!;,.2+7 ;.1+!.7G7 12+.G!!.,, ; ,/;.!//./ 7 1,.7/1.2/2 12.1G;.G,G !,./GG.,,, 7,+.G ;.71 / 7+.G!+.G! ; , .!;;.;G 7 /.!/2.G7! 21;.,;7./ !2 ,/,.;;2., ++ 1;.7;;.;; G + .2 /.+,, ,1.2;2.7/ , G;!.+2,.7 +! G1.;, .2, ; !7.,1!.1G / ! .!!+.!, , 2/,.+ +.1 1; ,/+.7/ . 12 1;.1//.2+ +. /72.2 ! !,.+2 . 7 +2,.;++., ! 1 !.!++.;2 ! ,7.!,+./ / ,1./G1. 2+ ,1G.; ,.1, 7 ,/7.!;7.;/ ; 1+.1;7.;/, 7.27/.GGG ,,.G G.7 ! 1.1!+.//,. 2 / 1/7.22+./1 7 ,7.+G . !2 2,.G2G.2// 7+7. +,./, G ,++.G17.+ ; 2!.;!2.!2, ;. /;.,G! /!.;;+./ 7 1.;1 .! G. /72

L* B*L*T*)(
Bills paya#le Borro(ings from financial institutions 5eposits and other accounts Su#Dordinated loans +.G2G. G2 ,;.+;1.1;/ /+7. + ./, / !.+/,.+2/ 1 . ,1./, 2 /2./,2.+7 G ;G2.7/ . 7+ ,.212. G +. 77/. +! , .,/+.G; 7,7.!7,.7 ++ ,. 2G1.G!/ 1!.G+,./ 2 !+.,7!.;7 +!!.;!1./2 / /. !;.1 1G.+,!.2 7 1+;./G ./, G 1.21,.+;!. 7 /.,, .;/,

12

'ia#ilities against assets su#Lect to finance lease 5eferred ta0 lia#ility -ther lia#ilities

D D 2/.;;!.,11 ;G!.,+G.12 G

D D ! . ; G.!1

D D 2;.//7. , / G2G.,,G.; !2 +;.2/ .77 1

D D !7.+!1.,2 1. 2+.+;7. 217 1 +./G;.+G G

D D ,1.!,2.7 ! 1.,77.27 . G12 1!!. !7.7;

77+.//,.+ +/ G,.!;+.7+ G

+)T

(()T(

;;.! G./G7

(hareholders' e,%it!
Share capital Reserves ?nappropriated profit "otal e6uity attri#uta#le to the e6uity holders of the Ban) Minority interest Surplus on revaluation of assets D net of deferred ta0 7 ./+ . 2!.;/;. ,, !1.+!!.17G ;!.17+.222 G+ . ++ 2.2!+.2;; ;;.! G./G7 + .1 G. 27./27.!G !G.,+G.!! / 7/.1!!.71 / 1.1,!.2,1 G. +2.G,2 G,.!;+.7+ G 1 . 1G.G 2+.!//.// / ,7.,;7.7 , G;.G,2. / + 1.212.;/; G.1+;. /; +;.2/ .77 1 11. 2 .;G !2.1,/.7// 12.122.7,G !+.!7+.!/, ;7./2!.21/ 11+. 2/.!1 7 1.227.2 7 12.7G/.2!; 1!!. !7.7;

/;.+G .;+7 1 2 .1,7.1!

1.2!;.2+ G.2 !./;; 1 +./G;.+G G

+ote-

ll these amo%nts are re&resented as

0R#!ees in 45553

1!

"he cash and #alance (ith treasury #an)s amount includes @ational *ri2e Bonds in local and foreign currency. amount (ith State Ban) of *a)istan i%e% 'ocal currency current account and foreign currency deposit account. amount (ith other $entral Ban)s i%e% Foreign currency current account and Foreign currency deposit account and amount (ith @ational Ban) of *a)istan in 'ocal currency current account% It also includes remunerative accounts% It seems to increase over the years% "here has #een an inconsistent increase in this amount over the years% "he State Ban) of *a)istan local currency current account has increased #y a#out ! 7 in 2 + and the $entral #an)s Foreign currency deposit account increased to G% "he overall increase in 2 +

almost !%/ times as compared to the amount in 2

is appro0imately ,1%27% In 2 12 @ational *ri2e Bonds in 'ocal currency increased #y !+%G7 and the $entral #an)sE Foreign currency current account has increased #y more than t(ice of the amount in 2 11% "hus resulting in a drastic overall increase of /2%17 in 2 12%

1,

"he #alances (ith the other #an)s included the #alance inside *a)istan and outside *a)istan in the current and deposit accounts% "here seem to have relatively small fluctuations throughout the / year period almost remaining consistent% In *a)istanEs current account has increased #y 12 7 and outside *a)istan deposit account has increased #y appro0% 2!7% "hus in 2 11 the overall increase in other #an) #alances is 2;%;7%

1/

'ending to financial institution in local currency include call money lendingEs. repurchase agreement lendingEs 9reverse repo: and mar)et securities held as collateral against lendingEs to financial institutions (hich include mar)et treasury #ills% "here has #een drastic increase in the year 2 1 appro0imately a five times increase since 2 + (hich seems to #e due to the repurchase agreement lendingEs

that increased #y nearly /1,7% &o(ever there has #een a fall of , %!7 in 2 12%

1;

Investments #y type include &eld for "rading Securities 9&F":. &eldDtoDMaturity Securities 9&"M:. Availa#leDforDSale Securities 9AFS:. and Investment in Associates and =oint Henture% Investment #y Segment includes Federal 1overnment Securities. Fully paidDup -rdinary Shares. 5e#entures and $orporate 5e#t Instruments% Investments held for maintaining the li6uidity re6uirements of the SB* amounted to Rs% 1/1%2,/ million as at 5ecem#er !1. 2 12 92 11C Rs% 111%!+, million:% Investments include Rs% /,!%11, million as at 5ecem#er !1. 2 12 92 11C Rs% /1+%+/G million: pledged (ith SB* and @ational Ban) of *a)istan against ""/55 discounting facilities and demand loan facilities% Investments include Rs% +%++2 million as at 5ecem#er !1. 2 12 92 11C Rs% +%/;7 million: pledged (ith the $ontroller of Military Accounts in lieu of Regimental Fund Accounts #eing maintained at various #ranches of the #an)% "he increase in amounts of the investments per year is significantK from an increase of ;;%77 in 2 + to a 17%G7 increase in 2 1 % In 2 11 again (e see a ;,%27 of

increase% And finally in year 2 12 a + 7 increase in investment%

17

Advances include loans. cash credits. running finances. etc% in and outside *a)istan. net investment in finance lease D in *a)istan. #ills discounted and purchased (hich are paya#le in and outside *a)istan% "he amounts seem to remain fairly consistent in the period from 2 G to 2 11

increasing and decreasing from %,7 to 17% "he increase in advance in the year 2 12 is almost +7%

1G

-perating fi0ed assets include capital (or)DinDprogress. intangi#le assets and tangi#le fi0ed assets% "he operating fi0ed assets has increased over the years ranging from appro0imately 1,7 to 2!7 e0cept for 2 1 (here there (as a decrease of !7%

5eferred ta0 assets include deducti#le temporary differences and ta0a#le temporary differences% "he deferred ta0 has #een decreasing over the years% "he

1+

decrease has #een very rapid and dropped to nearly half of the amount in the 2 12 as compared to 2 G%

-ther assets include income / mar)Dup accrued in local currency . income / mar)Dup accrued in foreign currency. advances. deposits. advance rent and other prepayments. advance ta0ation 9payments less provisions:. receiva#le from defined #enefit plans. stationery and stamps on hand. accrued fee income. due from 1overnment of *a)istan. unnrealised gain on for(ard foreign e0change contract. nonD#an)ing assets ac6uired in satisfaction of claims. receiva#le from @ational Savings $entre / $learing in transit. dividend receiva#le and -thers% "he other assets amount increased to 1+%!7 in 2 + and fell to 1/%,7 in 2 1 %

"hen in 2 11 it increase to 2G7 and in 2 12 a further increase of 1+%G7%

"he #ills paya#le in and outside *a)istan have increased over the years e0cept for 2 1 (here there has #een a minor decline of only 2%77% "he increases in 2 11 and 2 12 have #een drastic from ,27 and !;7 respectively%

21

"he #orro(ings amount includes the transactions inside and outside *a)istan from financial institutions in local and foreign currency in the form of secured and unsecured #orro(ings% "he increase / decrease in the #orro(ings have #een #et(een increases in 2 117 to a decrease of 2!7 in 2 1 % In 2 12. particulars of #orro(ings in local currency increased #y //77% "he secured #orro(ings increased #y ;,G7 and unsecured #orro(ings increased #y !+G7% "he #orro(ings have increased significantly in 2 12%It is almost , times the amount it has #een in 2 11% + of

5eposits and other accounts include customers and financial institution in local and foreign currency% "he deposits and other accounts have increased from 1,7 in 2 + to +%/7 in 2 1 to 2/7 in 2 11 to ! %17 in 2 12%

22

"here has #een a gradual increase in su#Dordinated loan% "he highest increase (as in year 2 11 the percentage increase (as 17%;7% 5uring the year 2 1 . &a#i#sons Ban) 'imited has issued a su#ordinated loan of ?S M ; million e6uivalent to pa) rupees /!G%G1/ million% "his is repaya#le in the year 2 2 and carries interest at 'IB-R < 2% creditors% 7% "he loan is su#ordinated to the claims of depositors and other

2!

Mar)Dup / return / interest paya#le in local currency. Mar)Dup / return / interest paya#le in foreign currency. Accrued e0penses. *rovision for employees8 compensated a#sences. *rovision for post retirement medical #enefits. *rovision against offD#alance sheet o#ligations. *rovision for contingencies. Branch adLustment account. *rovision for staff retirement #enefits. *aya#le to defined #enefit plan. Amounts due to minority investors in fund consolidated #y &B'. *rovision for (or)ers (elfare fund. ?nearned commission. Nar2aDeD&asna Fund and -thers% "he other lia#ilities amount has increased over the years% &o(ever in 2 1 there (as a decrease of 11%/7 and in 2 11 there (as a significant increase in other lia#ilities%

2,

Authorised capital (as of 1.!G . and then increased to !.

shares of rupees 1 each from 2 shares of rupees 1 each in 2 12%

G to 2 11

Issued. su#scri#ed and paidDup capital over the / year period the share capital increased #y 2 7 in 2 year% + and thereafter there has #een a constant rise of 1 7 per

2/

"he amounts in the reserves account include 40change translation reserve and statutory reserves% "hese amounts seem to increase each year% In 2 12 the increase in the reserves has #een the greatest that is a#out 22%/7%

"he unappropiated profit has #een increasing consistently the increase percentage has #een #et(een 1G%/7 to 2!%!7%

2;

"he minority interest increased drastically in 2

+ #y 2G%,7 further increasing over

the years #y a relatively small percentage and finally in year 2 12 there (as a decrease of %77%

In 2

+ the percentage increase is 2;1%,7 and the increase percentage in 2 12 is + D2 11

//%G7% "his sho(s a very high disparity (hereas the years #et(een 2 remains almost consistent (ith only a ma0imum of 1%!7 increase%

Concl#sion:
&ence (e can conclude that &B' is not only a fast gro(ing local financial institution #ut also a (ell sta#ili2ed 1lo#al presence% "heir contri#utions in various su#sidiaries and associates spread locally as (ell as internationally is testament to this%

27

Recommen$ation:
It can increase itEs revenues #y (or)ing on eradicating as much as #ad de#t as possi#le and improving the situation of declining spreads% "heir recent innovation of Branchless #an)ing gives them a competitive advantage and can not only save costs #ut also improve profit #y having a fast and efficient streamlined process% "hey could (or) on increasing their glo#al presence as profit earned in foreign currency (ould #e of significant importance in terms of contri#ution to #ecoming more successful%

Biblio ra!h,:
httpC//(((%h#l%com httpC//(((%investorguide%com/definition/advancedeclineDratioDad%html httpC//(((%investopedia%com/university/mar)et#readth/mar)et#readth!%asp httpC//(((%li)efore0%com/glossary/(/advanceDdeclineDspreadD1;+ / httpC//en%(i)ipedia%org/(i)i/A"MOusageOfees

2G

BA'ANC) "&))T":
Balance Sheet of 2 +

2+

Balance Sheet of 2 1

Balance Sheet of 2 11

!1

Balance Sheet 2 12

!2