A Brief History

CB Bank Limited formerly known as Muslim Commercial Bank Limited is one of

the leading banks of Pakistan. The bank came into being on July 9, 1947 under the flag of Adamjee Group. It was established with a view to provide banking facilities to the business community, especially the Muslim community, of the Indian Subcontinent. After the partition, the bank moved its operations to Dhaka, East Pakistan, from where it commenced business on August 1948. In 1956, the

bank transferred its registered office to Karachi, West Pakistan. In 1974 the bank was nationalized and remained so till 1991. MCB became the first bank of Pakistan to be privatized (de-nationalized) in 1991. The bank was purchased by a consortium of local corporations led by the Nishat Group. At that time Nishat was one of the leading and most diversified business groups of the country with strong presence in most important business sectors including textile, cement and insurance. In 2005-06, the official name, i.e. Muslim Commercial Bank Limited was officially dropped in favor of MCB Bank Limited, as the bank was facing resistance due to the word Muslim specially from Western Countries to avail license. In 2008 the head office of MCB was shifted from Karachi to Lahore in a newly constructed building, namely MCB House located at Shara-e-Ghous-ul-Azam, commonly known as Jail Road. Shortly after this move the Nishat Group became the majority stake holder of the bank. In May 2008 Malaysian bank, Maybank and MCB signed an agreement, whereby Maybank acquired up to 20% of the ordinary shares in MCB from Nishat Group. The acquisition was in-line with Maybanks strategy, as Malaysias financial services leader in the region, to build its presence in key growth markets across the region. It also paves the way for MCB, one of Pakistans premier financial services groups, to engage Maybank as its exclusive foreign strategic partner. Maybank initially acquired from Nishat Group 94,241,527 ordinary shares of MCB, representing a 15% stake in the Bank, for a cash price of PKR470 per share. The total consideration paid was approximately US$686 million. The purchase price represented an 11.4% premium to MCBs closing share price of PKR 422 on May 2, 2008, and a premium of 12.9% to the average closing share price for MCB over the 30 trading days immediately preceding the date of this announcement. Based on MCBs December 31, 2007 audited book value, the purchase price represents an implied price to book value multiple of 5.13x, a price to 2007 earnings multiple of 18.0x and a price to 2008 earnings multiple of 15.2x. In July 2008 Maybank exercised its right to increase its stake to 20%.

The stake in MCB allows Maybank the right to appoint two Directors to represent its interest on the Board of MCB. One of these Directors was to be appointed immediately and the second Director will be appointed upon completion of the term of the existing Board, scheduled to be on March 27, 2009.

The Bank
During the last ten years, the bank has concentrated on its growth through improving service quality, investment in technology and HR, and innovation via improved risk management and processes. Presently MCB is the fourth largest bank of Pakistan, with an estimated asset base of US$6.7 billion, with capitalization of US$4.1 billion. The bank has a customer base of approximately 4.5 million and a nationwide distribution network of 1200 branches, including 8 Islamic banking branches, and over 450 ATMs, in a market catering to a population of 160 million. As mentioned, MCB is one of the few banks of Pakistan to have a nationwide presence, with branches spread across the length and breadth of the country. A break-up of MCB branches, province wise, is as under: Punjab : Sindh : AJK : NWFP : 62% 23% 10% 3%

Baluchistan : 2%

In fact MCB also has overseas offices/branches in Bangladesh, Bahrain and Sri-Lanka and arrangements with many foreign countries through foreign banks.

The bank has its registered office at MCB Building, F-6/G-6, Jinnah Avenue, Islamabad while its principal office is situated at MCB Tower, I.I.Chundrigar Road, Karachi. The bank is working in Pakistan under the Banking Company Act 1981 and its operation are regularized by State Bank of Pakistan vide State Bank of Pakistan Act and other judicial laws and regulations.

The Banks Vision

As stated in MCBs Annual Report 2009, Overcoming Challenges, the vision of the bank is to be the leading financial services provider for a more prosperous and secure future.

The Banks Mission

The banks mission is to provide innovative and efficient financial solutions to create and nurture long-term relationships with its customers. In doing so, we ensure that our shareholders can invest with confidence in us.

The Banks Core Values

Integrity
The bank considers itself a trustee of public funds. As per the annual report it believes in being the best at always doing the right thing and delivering on its responsibilities and commitments to its customers and colleagues.

Innovation
MCB encourages and rewards people who challenge the status quo and think beyond the boundaries of the conventional.

Excellence
It takes personal responsibility for its role as a leader in pursuit of excellence. According to the annual report it considers itself a performance driven, result oriented organization where merit is the only criterion for reward.

Customer Centricity
The bank regards its customers as the heart of everything it does. According to the annual report it thrives on the challenge of understanding its customers needs and aspirations, both realized and unrealized.

Respect
Respect is an integral element of MCBs philosophy. The bank believes in respecting its customers values, beliefs, culture and history. It values the equality of gender and diversity of experience and education that its employees bring with them. MCB creates an environment where each individual is enabled to succeed.

Awards
It is no wonder that MCB is one of the most celebrated banks of Pakistan. Some of the international awards bestowed upon it are as under: 2009 Asiamoney: Best Domestic Bank in Pakistan 2009 The Asset: Best Domestic Bank in Pakistan 2008 Euromoney: Best Bank in Asia 2008 Euromoney: Best Bank in Pakistan 2008 Asiamoney: Best Domestic Bank in Pakistan 2006 Asiamoney: Best Domestic Bank in Pakistan 2006 Euromoney: Best Bank in Pakistan 2005 Asiamoney: Best Domestic Bank in Pakistan 2005 Euromoney: Best Bank in Pakistan 2004 Euromoney: Best Bank in Pakistan 2004 Asiamoney: Best Domestic Bank in Pakistan 2003 Euromoney: Best Bank in Pakistan 2001 Euromoney: Best Bank in Pakistan

Products and Services

MCB Online Banking MCB MNET MCB Cash Management MCB Local Rupee Drawing Arrangement MCB Home Remittance MCB Corporate Financing MCB Project & Structured Finance MCB Syndicated Loans and Debt Capital Markets MCB Equity Capital Raising 4

MCB Salary Club MCB Investment Services MCB Visa Credit Card MCB Car4 MCB Islamic Banking MCB Privilege Current Account Savings Account Terms Deposit MCB Smart Card MCB Rupee Travelers Cheque MCB ATMs MCB Mobile MCB Bancassurance

MCB Business Groups

MCB has five different business groups: 1. 2. 3. 4. 5. Corporate banking group Commercial banking group Islamic banking group Consumer banking group Treasury & Forex group

MCB Business Segments

MCB has four different business segments, these are 1. CORPORATE FINANCE: It includes underwriting, securitization, investment banking, IPO related activities, syndications and secondary private placements 2. TRADING & SALES: It includes fixed income, equity, foreign exchange commodities, lending to financial institutions and brokerage debt. 3. RETAIL & CONSUMER BANKING: It includes retail lending and deposits, banking services, private lending and deposits, banking services offered to retail customers, small and medium enterprises. COMMERCIL BANKING: It includes project finance, export finance, trade finance, leasing, lending, guarantees and bills of exchange relating to corporate customers

Competitive Profile Matrix (CPM)

Critical Success Factors (CSF) Market Capitalizatio n Variety of Products Customer Service Customer Loyalty Deposits base Global Expansion Profitability Financial Position Number of Branches TOTAL

Weight

Rating

Weighted Score

Ratin g

Weighted Score

Rating

Weighte d Score

0.20 0.10 0.10 0.10 0.10 0.10 0.05 0.12 0.08 1.00

4 3 3 3 4 2 4 4 4

0.80 0.30 0.30 0.30 0.40 0.20 0.20 0.48 0.32 3.30

3 4 3 3 2 2 3 3 3

0.60 0.40 0.30 0.30 0.20 0.20 0.15 0.36 0.24 2.80

2 3 2 2 2 1 3 2 2

0.40 0.40 0.20 0.20 0.20 0.10 0.15 0.24 0.16 2. 20

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11

12

13

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Inter banks ratio analysis

Description of ratio

%/Rs/

Ratio
Return on Average Equity (ROE) Return on Average Asset (ROAA) Earnings Per Share After Tax (EPS) Advance / Deposits Ratio (ADR) Earnings Assets to Total Assets NPLs to Gross Advance

Times

2009

2010

2009

2010

2009

2010

27.35 3.25 22.42 73.37 87.23 8.62 5.00 53.52 2.49 2.49

25.11

15.88 1.5 13.36 66.66 93 7

17.60 1.9 16.52 61.50 92 7.5 3.11 32 1.01 7.50

28.8 1.8 9.11 72 91 6.5 6.8 50 1.39 5.7

28.8

3.12

1.9 10.52 76 88 7 5.7 48 1.59 6.7

Rs

22.60

% % %

60 94.08 7.9 5.03 56.32 2.51

Dividend Yield Ratio

Dividend Pay Out Ratio

%
%

3.2 31 1.25 9.50

Price to Book Value Ratio

Price to Earning Ratio

Times Times

10.30

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Financial Ratios Profit Before Tax Ratio Gross Spread (NIM) Return on Average Equity (ROE) Return on Average Asset (ROAA) Earnings Per Share After Tax (EPS) Rs. Advance / Deposits Ratio (ADR) Break-up Value Per Share Earnings Assets to Total Assets NPLs to Gross Advance Investments to Deposits

2010 % 64.27 % 67.18 % 25.11 % 3.12

2009 55.91 69.31 27.35 3.25

2008 63.80 71.13 31.49 3.60

2007 70.16 75.26 37.66 4.06

22.60 % 60 Rs. 93.69 % 94.08 % 7.9 % 49.39

22.42 73.37 88.37 87.23 8.62 45.46

22.25 82.64 75.60 85.70 6.70 29.26

22.09 78.65 65.71 83.60 4.67 38.71

Dividend Ratios
Dividend Yield Ratio Dividend Pay Out Ratio % % 5.03 56.32 5.00 53.52 9.14 56.19

Share Information
Price to Book Value Ratio Price to Earning Ratio Times Times 2.51 10.30 2.49 2.49 1.66 5.66

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VERTICAL ANALYSIS OF PROFIT AND LOSS STATEMENT

MARK-UP/ INTEREST INCOME:
MCB is maintaining certain percentage of mark-up/interest income. Every year, from 2006 to 2010, interest income of bank has increased. In year 2006, it was 84% of total income, in year 2007, 08 and 09 , it was reported 84%, 87% and 90% of total income. In year 2009, it was reported 90%, an increase of 6% in last five years.

Markup Interest Earned

91% 90% 89% 88% 87% 86% 85% 84% 83% 82% 81% 2010 2009 2008 2007 2006 84% 84% 87% 90% 90%

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PROFIT AFTER TAXATION (PAT) :

PAT of bank has decreased to total sale ( total income), which remained 28% of total income, decline of 11% in last five years. This was due to increase in mark-up expenses, operational expenses taxes, and decline in ADR ratio.

PROFIT AFTER TAX(PAT)

2500 2000 Axis Title 1500 1000 500 0 Series1 Series2 1 2006 39% 2 2007 40% 3 2008 34% 4 2009 27% 5 2010 28%

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VERTICAL ANALYSIS OF FINANCIAL POSITION STATEMENT

TOTAL ASSETS:
Total asset of bank has surged with good percentage every year from 2006 to 2010. In year 2006, these were Rs 342,108 millions, which increased to Rs 567,553 millions. Especially from 2008 to 2010, asset of bank has risen significantly, due to investments, which increased to Rs 120,000 millions in these described couple of years.

Total Assets (In million)

600,000 567,552 500,000 400,000 300,000 200,000 100,000 2010 2009 2008 2007 2006 509,224 443,616 410,486 342,108

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INVESTMENTS-NET:
Significant upward move has been reported in investments of bank. In year 2006, these were 19%, which moved to 33% in 2009. In year 2009, bank earned Rs 70B on investments. Approximately 91% of the gross investment is concentrated in risk free government securities with T-Bills increasing by 32% or Rs. 46B over 2009. Bank `s major investments are done in T.bills, which is near to 70% of total investments, while the rest are done in PIB, Sukok bonds, listed and unlisted companies, TFC`s, subsidiaries and associates and other government securities.

38%

33%

Investment
22%

28% 18%

2010

2009

2008

2007

2006

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ADVANCES-NET:
Stable trend has been observed in advances, from 2006 to 2010. In year 2006, these were 58%, which declined to 53% in year 2007. In year 2010, these were reported 45%, the lowest in last five years. Due to inflation, energy crises, uncertainty, law and order situation, the whole economic sector in general and specifically banking sector, has suffered decline trend. Bank`s advances are given to transport, textile, power, wholesale, retail, textile, agriculture, financial sectors and others.

70% 60% 50% 50% 40% 30% 20% 10% 0% 2010 2009 45%

Advances
59% 53% 58%

2008

2007

2006

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DEPOSITS:
Deposit of bank has remained stable around 71% in last five years. In year 2006, these were 75%. No significant up and down trend has been reported in last five years except slight change. Bank`s deposits are categorised in three accounts namely current which holds the major share, fixed deposits and saving deposits. Deposits are divided in groups namely, corporate, consumer, Islamic and others.

Deposits
77% 76% 75% 74% 73% 72% 71% 70% 69% 68% 2010 2009 2008 2007 2006 72% 71% 74% 76% 75%

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HORIZENTAL ANALYSIS OF PROFIT AND LOSS AND FINANACIAL POSITION STATEMENTS

PROFIT AFTER TAXATION (PAT):
PAT of MCB has changed remarkably 267% in year 2005. This was the result of high interest income and non mark-up income. Changes of 36% and 26% were reported in year 2006 and 2007 respectively. In year 2008 and 2009, slight change of 1% each year was reported. While in year 2010, PAT increased by 7% to its preceding year`s PAT.

Profit After Tax

2006 2007 2008 2009 2010 0% 5% 1% 1% 7% 26% 36%

10%

15%

20%

25%

30%

35%

40%

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INVESTMENTS-NET:
Investments have changed positively 78% in year 2007. Negative change of (15%) was noted in year 2008. Again in year 2009, bank focused on investments, which increased 73% in year 2009. This huge change also benefited bank and its total assets increased by 7,000 millions in year 2009. Bank concentrated/ carried this strategy to maintain investments, specially, investing in T.bills.

Investments
100% 80% 60% 40% 20% 0% 2010 -20% 2009 2008 -15% 2007 2006 -9% 27% 73% 78%

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TOTAL ASSETS:
Bank is maintaining 15% of change in its total assets. In year 2007, total assets of bank increased by 20%. In year 2008, assets increased by 8% this was due to no significant increase in other assets except lending to financial institutes. In year 2009, bank total assets have risen by 15%, due to 73% increase in investments. While in year 2010 bank`s total assets increased by 12% to its preceding year ,2009. This change was reported due majorly increased in investment, fixed assets and lending to financial institutes.

Total Assets
25% 20% 20% 12% 15% 10% 5% 0% 2010 2009 2008 2007 2006 15% 15%

8%

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NET ASSETS:
Significant changes were reported in net assets in year 2006 and 2007, when net assets changed 35% and 6% respectively. These changes occurred due to increase in bank reserves and inappropriate profits. Bank net assets changed 6% in year 2008, while change of 19% was recorded in net assets, when inappropriate profit increase 72% and surplus on revaluation of assets, changed 40% in 2009. While in 2010,net asset increased by 14%.

Net Assets
80% 70% 60% 50% 40% 30% 20% 10% 0% 2010 2009 2008 2007 2006 19% 14% 6% 35% 75%

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RATIO ANALYSIS
Profit before tax ratio
This ratio indicates the profit before the provision of taxes. It highlights the core operations and management of any firm. It can be the parameter to judge the efficiency of every department.

PROFIT BEFORE TAX RATIO ( In %)

80% 70% 60% 50% 40% 30% 20% 10% 0% 2010 2009 2008 2007 2006 64% 56% 64% 70% 70%

From above chart it reavels that the ratio for the bank has shown some mix-up trend. In the next coming year 2007, ratio was reported 70.15%, no significant change was observed to year 2006. In year 2008, ratio decreased to 63.80% decline of 6.35%. In year 2009,further decline was experienced when ratio was reported 55.91%, the change of (7.89%). Two components of profit before tax ratio are 1. PBT 2. Total income In year 2006 & 2007, ratio for bank were reported 70.49% and 70.16% respectively. In the same years total incomes were reported Rs 26,244 millions with the growth of 26.61% and Rs 30,369 million, with the growth of 15.71% ,respectively. PBT for the same years 2006 & 2007, remained Rs 18,501 millions(42.14% more) and Rs 21,308 millions (15.17% more). In year 2008, PBT ratio declined to 63.80% PBT & Total income the year 2008 were reported Rs 21,668(1.68 more) and Rs 34,275 millions(12.86%) respectively.In year 2009, further decline was reported in PBT ratio, which moved down to 55.91%. This declined was caused by significant increase total income, which was Rs 41,417 millions(20.83% more) while the PBT for the same year was reported Rs 23,155 millions (5.88% more).

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Gross Spread (NIM / Int income)

It refers the net interest margin or fund base income divided by total interest / mark up income. Gross spread=Fund based income/ mark-up / returned earned It (ratio) indicates the fraction of income is earned by funds, of interest income. NIM is acquired by the deduction of mark up expense from mark up income .MCBs gross spread ratios are:

Gross Spread NIM (In %)

90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2010 2009 2008 2007 2006 67% 69% 71% 75% 82%

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Return of Average assets (ROAA) ratio:

Return of average assets is a measure of profit relative to size that is most commonly used is analysing banks and financial companies. ROA = Profit After Tax / Average assets As numbers for assets are usually only available for the end of the reporting periods, average is an approximately that may not reflect high or low between the ends of reporting periods. Nonetheless, it is a reasonably useful efficiency measure for banks that is not dissimilar to margin numbers for non finance businesses.

Return of Average assets ROAA ( In %)

5% 4% 4% 3% 3% 2% 2% 1% 1% 0% 4% 3% 3% 4% 4%

2010

2009

2008

2007

2006

Above bar chart of MCBs ROAA or pretends the ROA of last five years from year 2006 to year 2010 has remained relatively near to each other. In year 2006 ROE was 3.20% which increased 18.43% in year 2006. ROA of year 2007 was 4.06% which has 7.12% higher than 3.79% year 2006 ROA. Negative direction decrease of 11.33% to year 2007 and 9.72% to year 2008 were observed in the ROA of year 2008 and 2009 respectively. Two variables of ROAA:

1.
Years PAT

Net income after tax

2010 16,873 % chng 9 2009

2.
15,495 1

Average assets
% chng 2008 15,375 % chng 1 2007 15,266 % chng 26

TA

567,553

12

509,224

14

443,616

410,486

19.99

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Return on average equity(ROE):

It measures a firm efficiency at generating profits from every unit of shareholder's equity. It shows how well a company uses investment funds to generate earning growth. ROE = Net income after tax / Average shareholders equity

High ROE yields no immediate benefit, since stock prices are most strongly determined by earning per share (EPS).

RETURN ON AVERAGE EQUITY ROE

50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 2010 2009 2008 2007 2006 25% 27% 31% 38% 45%

From above bar chart, it reveals MCB ROE is decreasing every year from 2006 to 2010. In 2006, ROE was 45% while next year 2007, it decreased 7 % to year 2006. This sharp decrease was caused y increased shareholders equity, which was 40,844 million 36% more than shareholders equity of year 2007, which was Rs 55,120 million. As in ROE two major components / variables influence 1- Net income after tax 2- Average shareholders equity Increase in net income after tax (PAT) made ROE high if shareholders equity is constant or lesser increase than PAT and vice versa. From year 2007 to 2010, profit after tax was relatively constant, while shareholders equity rose consecutively. This imbalance increase caused the lower ROE, from year 2006 to year 2010.

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Earning per share ratio:

It refers the earning returned on the initial investment amount. Investors , sometimes focuses on EPS of any company, if they intend to buy its stocks. EPS is one of parameter of profitability. EPS = Profit after tax/Shares outstanding

EARNING PER SHARE EPS (In Rs.)

25.00 20.00 15.00 10.00 5.00 2010 2009 2008 2007 2006 22.60 22.42 22.25 22.09 17.67

MCBs EPS has maintained its growth every year, from year 2006 to year 2009, which has increased 77% in last five years. In year 2006, EPS was reported to Rs 12.91, which was increased 36.09% and 25.72% in 2006 and 2007 respectively. Next two years, 2008 and 2009, EPS was reported 22.25 and 22.42 respectively. In last two years no significant increase has been noted. No substantial growth has been reported in EPS, for the year 2010. Two major variables of EPS ratio are: Net income / Profit after tax (PAT) Shares outstanding Increase in PAT, while other things are relatively constant, EPS will increase and vice versa. In year 2006, PAT increased from Rs. 8,922 millions to Rs. 12, 142 millions, with the growth of 36.09%. Banks shares outstanding also increased from 4.255 millions to 5,463 millions shares. These increased shares were bonus shares as capital gain to existing stock holders. Bank issued 20% bonus shares to stock holders in the end of year 2005.

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Bank issued 15% bonus shares in the end of year 2006. This issuance increased shares outstanding from 5,463 million to 6,283 millions. Therefore, EPS for 2007 was reported Rs. 22.09 the growth of 25.72%. Banks PAT for year 2007 was reported Rs 15,266 millions, Rs 3,124 millions more than Rs. 12,142 millions of year 2006. No significant change was observed in the EPS of year 2008. PAT and shares outstanding remained relatively unchanged, because there was no bonus shares were issued in the end of year 2007. IN 2009, EPS was reported Rs. 22.45 per share. PAT was Rs 15,495 millions while shares outstanding increased from 628.3 millions to 691.1 millions. Bank issued 10% bonus shares in the end of year 2008.

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Advances to Deposit ratio

This ratio indicates how much percentage of deposits which are the borrowing of the bank is lending as advances. Advances generate funds which are the prime source of any bank or financial institute income. It is very important parameter to measure the soundness of the bank. If lending rate is increased to any significant level, the borrowing will decline resulting in death of liquidity which is again inflationary. ADR = Gross advances / Gross deposits

Advances to Deposit Ratio

90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 83% 73% 60% 79% 80%

2010

2009

2008

2007

2006

MCB has maintained ADR in last five years. ADR declined nominally in 2006 from 82.03% to 80.34%. In year 2007, advances to deposits ratio further decreased and was reported 78.64. In year 2008, ADR showed positive change and reported 82.64%, the highest in last five years. In year 2009, it again observed decline of 9.27% and was reported 73.37%. Major decline in ADR was reported in year 2010, when ADR was reported 60%.

ADR has two main components: 1. 2. Advances Deposits

Increase in advances while deposits remain unchanged or change less than advances then ADR will increase and vice versa. Due to high M2 growth owing to an expansionary fiscal policy by State bank of Pakistan but during 2008 banks faced liquidity constraints due to high cash reserve requirement (CRR) and statutory liquidity requirement (SLR) along with extra

33

ordinary cash outflow from the system. This forced smaller banks to borrow at high rates and big banks were obligated to further increase their return on deposits to fetch fresh funds. MCB has the industry deposits share of 8.50% which is maintained for last five years. The dissection of the deposit mix depicts that MCB had a benefit of low cost deposits which reduced its interest expense.

MCB deposits in last five years are:

Year PKR

2010 431,372

2009 367,605

2008 330,182

2007 292,098

2006 257,462

MCB advances for the same period are:

Year PKR

2010 254,552

2009 253,249

2008 262,135

2007 218,961

2006 198,239

Bank advances increased in 2006 and 2007 are 9.9% (Rs.18,708 M) and 11.06% (Rs.22,885 M ) respectively. Significant increased was noted in advances of year 2008, 15.80% (Rs.43,141 M) and was reported Rs.272,874 M, the highest in last five years (2006 to 2010). In year 2008, MCBs major portion of advances went to Power & Gas sector with a share of 17.7% in the total lending in year 2008 up from 6.5% in year 2007. Textile sector share declined from 15.6% in year 2007 to 12.9%, in year 2008, owing to slowdown in the sectors performance. Demand for credit from transportation, storage and communication rose to 12.1% from 5.0% in year 2007. Individual segments stake in the advances mix declined from 13.9%, in year 2007 to 12.0% in year 2008.

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Break up of advances in year 2010;

% of advances
1% 18% 8% 2% 13% 24% 8%
Electronics appliances Power sector Agriculture, forestry, hunting and fishing Textile Chemical and pharmaceuticals Cement Sugar Footwear and leather garments

15% 5% 1% 3% 1% 1%

In year 2010 gross advances slightly reduced by 1% closing at Rs 274Billion. This was consistent with the continued economic downturn and minor increase in industry lending. Out of the total advances portfolio, consumer lending decreased majority owing to the increased cost of living and induction of micro-finance in the economy. The banks concentration on private sector lending decreased by 11%, while simultaneously increased in the public sector by 32%. A major to the transport and storage segment of the industry that now stand at RS 59 Billion, 22% of the total advances.

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Earning assets of total assets ratio

It refers to the sum of loans, investments exclusive of equity investments and operating fixed assets, which is divided by total assets. Earning Assets to Total Assets = Earning Assets (Lending to financial institutes +

Investments + Advances + Operating fixed Asset) / Total Assets This ratio shows the % of earning assets to total assets..

Earning Assets of Total Assets

96% 94% 92% 90% 88% 86% 84% 82% 80% 78% 2010 2009 2008 2007 2006 87% 86% 84% 86% 94%

This ratio shows the % of earning assets to total assets. If earning assets are higher then funds will be earned more. Higher the earning to total assets ratio, higher, the bank income. MCB has maintained its earning assets to total asset ratio to 85.0% in last five years from 2006 to 2010. Bank `s highest this ratio was reported in year 2010, when it raised to 94%.

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Investment to deposits ratio (IDR):

It refers the fraction of deposits are invested to generate funds/ spreads. IDR = Investments / Deposits

Investment to Deposits (IDR):

60% 50% 40% 30% 20% 10% 0% 2010 2009 2008 2007 2006 29% 49% 45% 39% 31%

MCB IDR ratio has remained mix up. In year 2008, IDR was 36.93% which declined 3070% in year 2006. Again in year 2007 IDR rose to 38.71% which dropped in 2008 to 29.26%. Significant surge was reported in year 2009, when IDR rose to 45.46%. in year 2010, it was reported 49%, the highest in the last five years,2006 to 2010.

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Dividend yield ratio

Dividend yield or dividend-price ration on a company stock is the company annual dividend payments divided by its market capitalization, or the dividend per share, divided by the price per share. It is expressed in percentage usually. Dividend yield Ratio = Dividend/Price per market share

Dividend Yield Ratio

10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 2010 2009 2008 2007 2006 3% 3% 5% 5% 9%

From above bar chart it reacts that MCB's dividend yield ratio for year 2005,2006 and 2007 were 2.38%,2.95% with the change of 0.18% respective .Major up and down were reported in next ye There are two major variables of dividend yield ratio. 1. Dividend (Cash) 2. Net price per share If cash dividend increases while price of share is unchanged or less change to cash dividend then dividend yield ratio increases and vice versa. From year 2006 to year 2007, bank gave cash dividend Rs 7.25 and 12.50 respectively. In these two years, bank cash dividend to stockholder increased with the growth of 81.25% to year 2005 26.78% to year 2006.Market Price of the share in these two years remained Rs 167.80,Rs 246.10 and Rs 399.95. Significant growth was observed in year 2008, when dividend yield ratio surged to 9.14% the growth of 192.01. This change was observed due to decrease in cash dividend and market price of the share.

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Both dropped 8% and 68.54% respectively. This significant drop specially in market price of share due to uneven political conditions, less economic activities liquidity crunch in money market and capital market, decline in KSE-index, negative trend in major economic

indicators caused dividend yield ratio more suitable. In year 2009, dividend yield ratio decreased to 5%, when cash dividend was given Rs 11.00 less than Rs 11.50 of previous year while the price of share of MCBs surged to Rs. 218.68 with the growth of 74.61% due to this change in denominator, dividend yield ratio dropped to 44.44%.in ye ars,2008 and 2009. In 2010, it remained flat, when it was reported 5%.

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Dividend payout ratio

It refers to the fraction of net income (NI) is paid to stock holders. Dividend Payout = Dividends / Ratio Net Income

The part of the income not paid to stockholders is left, investment to provide for future earning growth. Most of the investors prefer the company with high dividend payout ratio.

Dividend Payout Ratio

58% 56% 56% 54% 54% 52% 50% 50% 48% 46% 2010 2009 2008 2007 2006 56% 57%

MCB's dividend payout ratio for year 2007 was reported 57% of total income, with the growth of 14% to 50% of the year 2006. Bank retained 43.41% in year 2007, when bank paid 56.59% as dividend payout of net income. Bank maintained this ratio for the year 2008 and year 2009, when bank paid 56.19% and 53.25% respectively as dividend. A growth of 2% was reported in 2010, when bank paid 56% as dividend. There are two main variables of dividend payout ratio: 1. Dividends 2. Net income/Profit after tax (PAT)

Positive change in dividends while PAT remains unchanged or relatively less change to dividends then positive change will be reported in dividend payout ratio and vice versa.

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Bank maintained dividend payout ratio to 49.79% of PAT in year 2006. Next two years in 2007 and 2008, banks dividend payout ratio remained relatively close to each other which were 56.59% and 56.19% respectively. In year 2007, banks dividend payout ratio increased from 49.79% of year 2006 to 56.59%. This shift was noted due to increase in PAT, which was Rs 15,266 M while banks dividend amount for the same year was Rs 7,854 M. Banks dividend payout ratio dropped in 2009 from 56.59% to 53.52%. This shift was noted due to increase of Rs 377 M in dividend amount, while the increase of Rs 120 M reported in PAT in 2009. Dividend amount increases due to 10% increase in shares outstanding which were given as bonus shares, while the cash dividend decreased per share from Rs 11.50 to Rs 11.00 in year 2009.

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Price to book Value or Market/Book (M/B) Ratio

This ratio of a stock's market price to its book value gives indication of how investors regard the company. Companies with relatively high rate of return on equity, generally sell at higher multiples of the book value than those with low return. Book Value Per share = Common Equity / Share outstanding

Price to Book Value Ratio (In Times)

7.00 6.09 6.00 5.00 4.00 3.00 2.00 1.00 2010 2009 2008 2007 2006 2.51 2.49 1.66 4.77

Bank's five years ratio has shown mix up result in positive direction though it has remained more than 1.0 time in last five years. From 2006 to 2007 bank's M/B ratio remained relatively more, which was 4.77x, 6.09x and 6.09x respectively. In year 2008 and 2009 it ended 1.66x and 2.49x respectively. In year 2010, it was reported 2.51x. Price to Book Value = Market Price Per Share / Book Value Per Share Market to book value ratio has two major components or variables.

1. Market price 2. Book value

Increase in book value, while market price remained unchanged will make M/B ratio relatively lesser times and vice versa. Substantial surge in market price of the bank in 2005 which war Rs 67.20, while book or breakup value was 26.49, made M/B ratio comparatively more attractive than 2006, which was 4.41 times.

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Market price of the bank in the end of year 2007 was at its top, while book value for the same year was Rs. 65.71 more than 27.36% to 2006 year. Because of the increase in shareholders equity in 2007, which were 45,414 million and 27.36% more than 2006, 35,657 million. This indicates the same percentage change in book value to its last year will also result the same change if the shares outstanding are the constant in year 2008, M/B ratio was the lowest in last five years, 2005 to 2009. Due to sharp decrease in market price of MCB which was Rs. 125.81, 218% less than the price of 2007, Rs. 399.95 market to book value ratio ended 1.66 times. In year 2009 the growth of 50% was observed in the M/B ratio, due to increase in market price 219.68, 74.61% more than the price of 2008. Book value also increased in the same year from 75.60 to 88.37 a change of 16.89%.

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Price to Earning (P/E) ratio

This ratio indicated how much inventors are willing to pay per rupee of reported profits. P/E ratios are higher firms with strong growth prospectus, other things held constant but they are lower for riskier firms.

P/E = Price per share / Earning per share

Price to Earning (P/E) Ratio (In Times)

20.00 18.00 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 2010 2009 2008 2007 2006 5.66 10.30 9.80 14.01 18.11

Soaring situation was observed in year 2008, when negative change of 68.74% in P/E ratio of 2007, which ended 5.66 times, they worst in last five years, from 2006 to 2010. In year 2009 , P/E ratio was 9.8 times, with the growth of 91.78% to the P/E of 2008. There are two variables in P/E ratio 1- Price per share 2- Earning per share If price per share increases, while EPS in constant or less increase than price per share then P/E ratio will be higher and vice versa. In year 2006, P/E ratio was 14.01 times, 8.28% more than 13.00 times of year 2006. In that year price per share of MCB rose 46.66% ended Rs. 246.1, in year 2006 while the growth of

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36.09% was reported in EPS for the same year, which was Rs. 17.57 year 2007, was the year when price per share was reported the highest on from year 2006 to 2009. Price was Rs. 399.95 while EPS was Rs. 22.09, the growth of 62.51% and 25.72% respectively. These positive changes influenced the P/E ratio, which was reported 18.11 times, the highest in last five years. Due to significant decline in market price of MCB in year 2008, which was Rs. 125.81, negative change of 68.54% and EPS for the same year was reported Rs. 22.25, with the positive change of 0.72% these changes influenced the P/E ratio for year 2008, which was reported 5.66 times, the lowest in last five years. In year 2009, P/E ratio was reported 9.80 times with the growth of 73.14% to year 2008. This growth in P/E ratio was due to increased price per share and EPS, which were Rs. 219.68 and Rs. 22.45 respectively. In 2010, P/E ratio strengthen, when it was reported 10.30 times.

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NPLS to total advances ratio

This ratio refers to the ratio of non-performing loans (NPLs) to total loans, inclusive of inter bank loans, advances.

NPLS to Total Advances

10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0%

8%

9% 7% 5% 4%

2010

2009

2008

2007

2006

NPLS to total advances ratio = NPLS / Gross Advances

From above bar chart it reveals that MCBs NPLs to gross advances ratio is increasing only in year 2006 slight decline of 0.32% was noted. While the growth of 2%, 1.92% was noted in 2008 and 2009 respectively. Higher the ratios worst the situation. There are two variables in this ratio: 1. Non performing loans (NPLs) 2. Gross advances Continued local pressure increased the NPLs which also affected the NPLs to gross advances. In year 2006 to 2008, this ratio remained relatively constant. Significant increase in NPLs, which were reported Rs 18,269 millions in year 2008 which influenced the NPLs to gross advance ratio, which rose to 6.70%. Rising NPLs reflected the inefficient management of loan recovery persons. NPLs also increased due to economic downturn, power shortage and political uncertainty. Volume of NPLs increased 70% to NPLs of year 2007. In year 2009, further increase was seen in NPLs which surged Rs 23,239 millions from Rs 18,269 millions (change of 27.20%) gross advances decreased from Rs 272,847 millions to Rs 269,722 millions (change of 1.14%), which resulted NPLs to gross advances ratio to 8.62%, highest in last five years. In 2010, this ratio of reported 8%, lesser than previous year`s.

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Conclusion & Comments

Focus on its commercial and consumer banking sectors. The use of technology and development of mobile banking sector should be encouraged. Bank should provide services to account holders with small amount holders Eliminate nepotism and politics in the middle and top management The bank should expand its expertise in the region, and instead of maintaining individual branches (outposts) in foreign countries should take the cue to establish itself abroad especially in UAE. Internal procedures should also be strengthened inline with State Bank of Pakistan requirements. For effectiveness and efficiency, provide job security to the employees Introduce crops insurance schemes

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