Table of Content

Introduction ……………………………………………………………………………..2

DEFINITION …………………………………………………………..2

Banking in Pakistan …………………………………………………..2

Historical background of ABL …………………………………………………………3

Nationalization ………………………………………………………………....3

Causes of nationalization ……………………………………………………..3

Privatization on ABL ……………………………………………………………………4

Reasons of Privatization ………………………………………………………4

ABL 2005 ………………………………………………………………………………..5

ABL Today ……………………………………………………………………………....5

Vision ……………………………………………………………………………6

Mission ………………………………………………………………………….6

Core Values …………………………………………………………………….6

Products …………………………………………………………………………………7

Business of ABL ………………………………………………………………………..7

Socio Economic objective …………………………………………………….8

Functions of ABL ……………………………………………………………………….9

SWOT analysis …………………………………………………………………………10

Banking industry Resent Performance ………………………………………………11

ABL recent performance ………………………………………………………………11

Industry Review ………………………………………………………………………..13

Ratio Analysis ………………………………………………………………………….14

Comparison with top players …………………………………………………………28

ABL Vs. UBL …………………………………………………………………………...29

Future outlook ………………………………………………………………………….30

Suggestion ……………………………………………………………………………...32

1

INTRODUCTON

DEFINITION OF BANKING

The best definition of a bank is in terms of its functions. “A banker is a dealer in credit, he borrows from the public or people, and lends to merchants or manufacturers. He borrows by accepting deposits, and lends by way of advances against goods or securities or by discounting bills.”

Collins English Dictionary defines bank as “an institution offering certain financial services, such as the safe keeping of money, conversion of domestic into and from foreign currencies lending of money at interest.”

A bank is an organization or a business house, which deals with money, credit and other financial transactions. In general banks attract surplus money from the people who are not using it at the time and lend to those who are in a position to use for productive purposes. Thus people who have spare money they deposit the same in the band where it can earn profit. On the one hand bank receives deposits from the people and pays profit at a specified rate and on the other hand it advances loans to the people in need at the specified interest rate of mark-up.

BANKING IN PAKISTAN

At the time of independence, the areas, which now constitute Pakistan, were producing only food grains and agricultural raw material for Indo-Pakistan Sub-Continent. There were practically no industries, and whatever raw material was produced was being exported from Pakistan. However Commercial banking facilities were provided fairly well here. There were 487 offices of scheduled banks in the territories now constituting Pakistan.

Therefore, in accordance with the provision of Indian Independence Act of 1947, an Export Committee was appointed to study the issue. The Committee recommended that the Reserve Bank of Indian should continue to function in Pakistan until 30th Sep. 1948, so that the problems of time and demand liability, coinage, currencies, exchange etc. are settled between India and Pakistan.

Organization of Banking in Pakistan

At present the banking structure in Pakistan comprises of the following:

State Bank of Pakistan Commercial Banks

o Habib Bank Limitedo United Bank Limitedo National Bank of Pakistano Muslim Commercial Bank Limitedo Allied Bank of Pakistan Limited

Exchange Banks Cooperative Banks Cooperative Credit Societies

2

Saving Banks Specialized Credit Institutions

HISTORICAL BACKGROUND OF ABL

Allied Bank of Pakistan Limited is the first commercial bank established on Pakistani soil. It has emerged as an Australasia Bank on Dec. 3, 1942 at Lahore with paid up share capital of RS. 0.12 Million in a motor garage under the chairmanship of Khwaja Bashir Bux with a staff of three; initially, it was little more than an agency for the collection of rents from the family estate.

Nationalization of ABL

In 1973, Government of Pakistan decided to nationalize all banks of the country. In 1974, the Board of Directors of Australasia Bank was dissolved and was renamed Allied Bank. Those seventeen years was highly successful; profit exceeded Rs. 10 million, deposits rose by over 50 percent and approached Rs. 1460 million. Investments rose by 72 percent and advances exceeded Rs. 1080 million for the first time in the banking history. 116 new branches were opened during 1974 with three branches in U.K. Being a National Bank; ABL started participating in the Government’s spot procurement agriculture program.

Post privatization era proved a blessing for ABL and it has shown tremendous progress in all fields of banking.

CAUSES OF NATIONALIZATION

The nationalization of banks may be justified on the following grounds:

1. Large business and industrial houses dominate the lending policies of the commercial banks; this brought forward the problem of concentration of wealth.

2. Commercial banking operations were guided by profit motives and as a result the backward regions and the small entrepreneurs were never been their favorite customers.

3. The operation of banks, unlike after business, have direct implication on the entire national economy. For instance if the banks raise the cost of their credit, the cost of everything may goes up

4. Unhealthy complications among banks can lead to financial and economic problems.

5. The flow of bank advances towards national priority sector in general is not forthcoming because private banks are profit oriented.

3

ALLIED BANK 1991-2004

Privatization

September 10,1991 is the historical date as on this date the bank became the country’s 1st bank to be reconstituted as an institution jointly owned by its employees through the unique concept of Employees Stock Ownership plan [ESOP] developed by the Allied Management Group headed by Mr. Khalid Latif, enabled the bank staff to react creatively to the privatization challenge. More than 7500 staff members acquired a share in the bank

After privatization, Allied Bank entered a new phase, and became the world’s first bank to be owned and managed by its employees. In 1993 the “First Allied Bank Modaraba” (FABM) was floated. After privatization, Allied Bank became one of the premier financial institutions of Pakistan.

Allied Bank’s capital and reserves were Rs. 1.525 billion; its assets amounted to Rs. 87.536 billion and deposits to Rs. 76.038 billion (as from 1991 to 2004). Allied Bank enjoyed an enviable position in Pakistan’s financial sector and was recognized as one of the best amongst the major banks of the country.

In August 2004, as a result of capital reconstruction, the Bank’s ownership was transferred to a consortium comprising Ibrahim Leasing Limited and Ibrahim Group.

Today, the Bank stands on a solid foundation built over 69 years of hard work and dedication, giving it a strong equity, an asset and deposit base and the ability to offer customers universal banking services with more focus on retail banking. The Bank has the largest network of online branches in Pakistan connected to an online network and offers various technology-based products and services to its diverse clientele through its network of more than 805branches.

Reason of Privatization

Allied Bank Limited Second bank to be privatized in the public sector on 9th September 1991, 26 % shares was sold to the Allied Management Group, which represented the employees of ABL at a price of Rs. 70 per share. On 23rd August 1993, another 25 % shares were sold to AMG at price of Rs. 70 per share. This resulted in transfer of ownership from Government of Pakistan to AMG In 1999; it transpired that one of ABL’s major defaulters had purchased about 35-40 % of ABL shares from employees.

In July 1999, SBP imposed restriction on transfer of Shares from employees to non-employees except on prior approval from SBP.

On August 3, 2001, the SBP removed the Chairman And three Directors on the Board of ABL as they were found to be working against the interests of ABL and its depositors and appointed new Board.

4

ALLIED BANK 2005

In May 2005, the Ibrahim leasing group dissolved and the company was vested into Allied Bank Limited. All the shareholders were issued ABL shares instead of the all shares held by them. Applications for the listing of ABL shares of all the stock exchange companies of Pakistan were of

Islamabad stock exchange 8th August 2005 Lahore stock exchange 10th August 2005 Karachi stock exchange 17th August 2005

ABL Today

Today, with its existence of over 60 years, the Bank has built itself a foundation with a strong equity, assets and deposit base. It offers universal banking services, while placing major emphasis on retail banking. The Bank also has the largest network of over 805 online branches in Pakistan and offers various technology-based products and services to its diverse clientele

There are Four Provincial Headquarters of Allied Bank Limited situated at Lahore (Punjab), Karachi (Sind), Peshawar (NWFP & Azad Kashmir) and Quetta (Baluchistan).

805 Domestic Branches. Arrangements with large number of Correspondent Banks/Exchange Companies. Over 200 branches for Foreign Currency Accounts. Over 70 branches for trade finance. Large number of branches for Inland Remittances. Large number of branches for Rupee Travellers Cheques

5

VISION

To become a dynamic and efficient bank providing integrated solutions in order to be the first choice bank for the customers.

MISSION

To provide value-added services to our customers To provide high-tech innovative solutions to meet customers’ requirements To create sustainable value through growth, efficiency and diversity for all stakeholders To provide a challenging work environment and reward dedicated team members

according to their abilities and performance

VALUES

Integrity Excellence in Service High Performance Innovation and Growth

Economic Development of Pakistan

Allied Bank of Pakistan plays an important role in the economic development of Pakistan. The bank is bringing a rapid growth in various sectors of the Pakistani economy by their efficient, effective and disciplined mechanism in banking systems. Few of its roles are:

Rising Financial Resources New Investment Opportunities Promotion of Trade and Industry Development of Different Regions Export Promotion Cell

6

Products

Allied Bank is providing different types of products to its customers. Some of these are given below with their details.

These are divided into further categories. These are discussed below.

Deposit Products

I. Current accountII. Allied Business Account

III. PLS Saving Deposits IV. Allied Basic Banking Account V. Foreign Currency Deposits

VI. PLS Term Deposit Account VII. Allied Munafa Account

VIII. Allied Bachat Scheme (ABS) IX. Allied e-Savers Accounts (ESA)

Alternative delivery channels

I. Online bankingII. Allied cash and shop visa card

III. InternetIV. Helpline

Consumer Products

I. Visa credit card

Lending Products

I. Seasonal financeII. Agricultural finance

III. Import and Export Business/Trade financeIV. Running finance

SERVICES

I. Utilities bills collectionsII. Locker facilities

III. Hajj servicesIV. Home remittanceV. Remittance

7

VI. Commodity services

Business of ABL

The ABL is also a business organization and its main objective is to maximize its profit. The ABL can achieve its objective of profit maximization by two ways:

Increase in Deposits

Better Product with Attractive Rates

Improving Its Services

Courtesy

Professional Customer Officers

Extension of Loans

Service Objective

General banking services (deposits, loans, payment and collection).

Fund management services

Merchant banking and leasing

Credit for small and large enterprises

SOCIO-ECONOMIC OBJECTIVES

The Socio-Economic targets and goals of ABL are:

To participate in the economic development of the country

To ensure greater satisfaction of its customers by providing better quality services

To ensure more utilization of public money

To provide loan on easy terms to the unorganized sector of the economy so as to reduce

the income disparities and to help raise the standard of living of the poor

Beside these corporate and socioeconomic objectives, profit is the primary objective of

all financial organizations, and all different activities are aimed towards its achievement.

8

FUNCTIONS OF ALLIED BANK LIMITED

Functions of ABL are summarized below:

Accepting Depositsi. Current deposits:ii. Profit and Loss Sharing Account (Saving):iii. Fixed Deposits:

FINANCINGi. Demand Finances:ii. Running Finances:iii. Cash Finances:iv. Fixed Asset Financing

Discounting Bills Of Exchange

Agency Services to Customers

Following are the agency services to ABL.i. Collection of Chequesii. Collection of Dividends:iii. Purchase and Sale of Securities:iv. Execution of Standing Instructions:v. Transfer of Funds:vi. Acts as an Agent:

General Utility Services

ABL also performs a number of other general utility services to his client, which are as follows:

i. Foreign Exchange Business:ii. Acts as a Referee:iii. Acceptance of Bills of Exchangeiv. Issue of Traveler’s Chequesv. Collection of Utility Billsvi. Locker

Management By Employees Serving The Community

9

Organizational analysis with respect to the industry

To compare the Allied bank Limited with other banks I have made the SWOT analysis.

Strengths

ABL has always looked upon the customer’s demand and preferences while introducing new Islamic based products. That is why it has some strong points that others don’t have as follows:-

Bank is providing a high quality service to its customers. Large numbers of branches. The bank enjoys competitive profitability in the industry. ABL Bank has captured majority of potential customers in Pakistan. ABL Bank is Successive and Market oriented. In the list of banking industry the Allied bank is at number 5 in respect of its Balance

Sheet and overall its size. ABL Bank is investing large amount of funds on HR development and training. Customer default rate is lower as compared to other banks.

ABL is meeting the challenges of latest Technology by introducing online branches, ATM, VISA and MASTER cards.

Weaknesses

Employee’s turnover is high. Many people are leaving this bank because of getting less salary as compared to some other private banks.

ATM machines are not always up to dated. Low motivational level; non-aggressive marketing. Employees’ dissatisfaction due to improper reward system. It is not providing the Islamic modes of financing to the customer.

Opportunities

ABL can remove all the complaints of its customers. ABL can give its staff attractive fresh as well as old staff attractive packages, in order to

get them satisfied. Growth opportunities of ABL are very high as compared to other Banks. ABL has an opportunity to do aggressive marketing to increase its business. Can introduce the Islamic modes of financing to attract the more customers. Bank can advance loans to the agriculture sector of Pakistan.

Threats

New banks are setting up their operations in the Pakistan more rapidly. Foreign banks are flourishing in field of consumer financing. For the last of many years, Pakistan is facing economic and political instability, which is

a big threat. Today’s government idea of nationalization is a big threat to the bank.

10

Banking industry's recent performance

In the FY10, during the second half, the destructive floods derailed the economy further with total losses of USD 9-10 billion, of which USD 3-4 billion were in the agricultural sector. This combined with the electricity and gas shortages took a toll on the growth of economic activity during the year. 

The SBP also reverted back to the increased discount rate, which it decreased during the start of the year due to the decreasing inflationary pressure, seeing the risks to the economy caused by high inflation and the structural fiscal deficit. Despite this, M2 grew because of the sharp increase in borrowings by the Government from the banking sector. 

At the same time, the lending to the private sector grew at 4.8% as compared to 1.8% in FY09. The credit was primarily for working capital requirements. On the other hand, the credit for fixed investment witnessed a decline. 

However, the banks were careful in lending to the private sector as the number of NPLs rose during the year by almost 14%. 

The big 5 banks of Pakistan namely Allied Bank Limited, Habib Bank Limited, MCB Bank Limited, National Bank of Pakistan and United Bank Limited contributed 96% to the banking sector. These banks witnessed a 14% YoY increase in Net Interest Income and a 34% YoY decline in provision against advances. Average earnings per share were Rs 10 with a 14% Return on Equity. Deposits grew at an average of 6% with focus shifting from risky Advances to safer Investments. The ADR has shown improvement standing at an average of 62.48%. NPLs increased by 12.20% for the industry, with Provisions rising 17.97%.

Recent performance of ABL (2010)

The bank realized profit after tax of Rs 8.225 million as compared to 7.122 million in FY09 showing an increase of 16%

The interest income earned in FY10 was 9.414% higher than FY09, whereas interest expense negligibly rose only by 0.026%. The increase in the net interest income of the company is higher than the average for industry, which was 8%. The overall effect was 20. 67% increase in net interest income mainly led by growth in average earning asset and improving deposit mix towards low-cost core deposits. There was no increase in interest expenses because there were no significant changes in its sources i.e. the deposits, callable money borrowing, long-term borrowing or the short-term borrowings. 

Non-interest income of ABL was declined by 4.8% in FY10 as compared to FY09. This was mainly due to the decrease in brokerage income, dividend income and a significant decline in the income coming from dealing in foreign currencies. However, there was an increase in income from the sale of securities but the overall impact was of the decrease in the incomes. 

The non-interest expenses of the bank increased by 22.7% due to the increase in all the expenses including the administrative expenses, provisions and other charges. 

11

The deposits grew by almost 13% which equals the industry average of the banking sector. These mainly included the fixed customer accounts. The advances grew by 7. 5 % as compared to FY09 which was way higher than the industry average of just 1%. 

During the year ended FY10, the profitability of Allied Bank Limited has improved.  The bank posted a profit after tax of Rs 8.225 million in FY10 as compared to Rs 7.122 of FY09, showing a growth of 16%.  This improvement in the profits of the bank also translated into the improvement in the ROA and ROE of ABL.  The ROA in FY09 rose to 1.81% as compared t0 1.21% of FY08.  Also the ROE increased tremendously by 43.86% in FY09 to reach 30.5% as compared to 21.2% in FY08.

The earnings profile of the bank shows marked improvement over the period under consideration. Over last few years there have been slight changes in the earnings ratios as most the elements increased promotionally. These have been mainly achieved through considerable improvements in equity and profits of the bank. The bank’s interest and non-interest income continued to grow. The bank’s performing advances were higher this time. The yield on the earning assets grew by 12% and the cost of funding also increased by 6%. Of the non-interest income, the highest increase came from fee, commission and brokerage income as well income from the purchase and sale of securities and the dividend income. 

The bank’s earnings per share for the year ended 2010 were Rs 10. 52, an increase of 15.5%; as compared to the fiscal year 2009 which registered earnings per share of Rs 9. 11%. There were no significant changes in the return to deposits, return on assets and the return on equity. 

Allied Bank’s deposits, account for 7.3% of the total deposits of all the banks whereas its advances, account for 7.6%. ABL s total assets constitute 6.6% of the total assets of the banking industry. This proves that ABL has one of the major shares in the market and hence come under the top 5 banks of Pakistan. 

There has been a growth in the deposits as well as advances and the equity of the company as compared to 2009. Overall debt of the bank i.e. the liabilities increased by 6.6% whereas the equity and assets increased by 20% and 7.5% respectively. The increase in the debt was due to the increase in deposits and bills payable. The increase in the assets was primarily due to the increase in the investments registering a growth of 28%, mainly in risk-free MTBs. 

The bank has been able to contain the growth of its NPLs till the FY08. But in FY09, they rose significantly by 46%. When compared to the industry average of NPLs growth, it was 27.2% which means that the company s NPLs were much higher. Consequently, the bank also raised its provisions for the NPLs. 

For FY10, NPLs growth has been 13% and on a comparative basis it’s a bit better than industry. The industry the average growth of NPLs has been close to 14%. 

All the liquidity ratios of the bank have been maintained at favorable levels varying slightly from FY09 s ratios. 

Other than customer s deposits, the bank’s funding source is the interbank money market and borrowing from other financial institutions in general. The earning assets of the bank

12

have been growing all throughout. Higher deposits are being streamed into greater advances, investments and lending, all generating a higher return. 

The solvency ratios of the bank have persistently shown a stable trend throughout 2005-10. This indicates bright prospects of long-term sustainability of the bank. The solvency ratios of the bank for the last three years have been maintained in the vicinity of each other. The increasing equity portion of the bank explains this. The equity to assets and equity to deposits both have shown an upward trend because of the increase in equity, assets and deposits. However, the earning assets to deposits ratio has declined. 

The bank has been a consistent distributor of dividends. However, the rate (an increase of around 100%) has made this sector one of the most lucrative ones to invest. This increasing marketability profile is reflective of Allied s high yields on earning assets and favorable liquidity and solvency positions. The price to earnings ratio increased in 2010 to 6.7 from 5. 9 in 2009, which reflects that the earnings as well as the market price both have increased. The market value to book value showed a similar trend. The bank announced and paid dividends of Rs 4/share in both the years i.e. 2009 and 2010. The average share price of ABL for the year 2010 was 59.13.

Industry review CY09

During the period under review Banking Sector has shown signals of improvement and growth. The total asset base of the sector has increased from Rs 5,627 billion in CY08 to Rs 6,529 billion by the end of quarter December 09. The net investments of the sector have also shown improvement. They stood at Rs 1,753 billion on the quarter ended December 09, from levels of Rs 1,080 billion. Even the deposit base of the sector has shown improvement. They have increased from levels of Rs 4,217 billion in CY08 to Rs 4,787 billion in CY09.

Another major change that has been identified in the overall banking sector of Pakistan is change in the asset structure of the system. There has been a decline in the proportion of advances by the sector but a slight increase in the investments over the years. The private sector's low demand for bank credit has been reinforced by bank's risk aversion due to heightened credit risk. In this scenario the public sector has emerged as a major consumer of bank credit.

The 2009 was an extraordinary year for the global economy and the financial markets. Impact of the financial crisis was reflected in the performance of the real economy. Although Pakistan did not have a direct impact of the global financial crisis, but law and order, slow economic growth and lack of political stability had a lot of stress on many industries and in turn the financial sector. Industry wide NPLS were on the rise. The NPLs have increased from Rs 109 billion in CY08 to Rs 125 billion by the quarter ended December 09.The reason for this growth has been the increase in the loans classified under the loss category which required the full provisioning coverage, and so banks set aside relatively higher amount of provisions. 

During the year under review, SBP changed the policy discount rate thrice; it reduced it by 100 bps each time - in April 2009, August 2009 and by 50 bps in November 2009.

13

Ratio Analysis

Earnings Ratios

Return on Asset

Formula

Net Income/ Total Assets

2004 2005 2006 2007 2008 2009ABL 0.1% 1.8% 2.0% 1.4% 1.2% 1.81%

UBL 1.36% 1.71% 2.24% 1.59% 1.38% 1.48%

ROA tells you what earnings were generated from invested capital (assets). ROA for public companies can vary substantially and will be highly dependent on the industry. In case of Allied Bank Limited, ROA as compared with UBL was very low from 2004 – 2008, but it increases in 2009 which means change in policies and proper utilization of assets can now be practiced in ABL

Return on Deposit

2004 2005 2006 2007 2008 2009ABL 0.1% 2.1% 2.4% 1.7% 1.5% 2.3%

UBL 1.61% 2.06% 2.83% 2.10% 1.72% 1.88%

14

2004 2005 2006 2007 2008 20090

0.5

1

1.5

2

2.5

Return on Asset

Return on Asset

2004 2005 2006 2007 2008 20090

0.51

1.52

2.53

Return on Deposit

Allied Bank’s deposits account for 7. 3% of the total deposits of all the banks

Return on Equity

Formula

Net income / Shareholder’s Equity

2004 2005 2006 2007 2008 2009ABL 8.0% 28.0% 30.0% 23.5% 21.2% 30.5%UBL 21.32% 27.46% 31.71% 19.81% 19.00% 14.09%

2004 2005 2006 2007 2008 20090.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

Percentage

Allied Bank's ROE is 30.50%, considerably higher than the 2004 which was 8.0% due to increasing profitability of the bank. ROD stands at 1.78%, higher than all other big 5 banks' ROD except MCB. This owes to firstly, better mobilization of deposits and secondly, a better mix of low-cost deposits.

15

Current Ratio

Formula

Current Asset / Current Liabilities

2004 2005 2006 2007 2008 2009

ABL 0.75 0.89 1.06 2.31 2.05 1.55

UBL 0.69 0.77 0.94 1.95 1.87 1.74

2004 2005 2006 2007 2008 20090

0.51

1.52

2.5

Current Ratio

Current Ratio

Increasing trend in Current ratio of Allied bank from 2005 to 2008, and might be the reason of global economic crises hits the banks sector results in decrease in current ratio for Allied bank limited. In 2003 the current ratio was 0.89 which was increase in 2006 to 1.06 due to decrease in current liabilities although current assets decreases in 2006 but current liabilities decrease more than current liabilities the reason of decrease in current assets is due to decrease in lending to financial institutions also in this year bank made less investment compare to last year.

Asset Quality Ratio

Provisions to NPLs

Formula

Reserve / Total Loan

2004 2005 2006 2007 2008 2009ABL 10% 3% 6% 24% 10% 19%UBL 2.17% 7.53% 12.14% 24.96% 16.20% 24.67%

16

1 2 3 4 5 60%

5%

10%

15%

20%

25%

30%

Percentage

Percentage

Allied Bank’s NPLs stood at Rs. 18.95 billion in 3Q10, the lowest amongst the big 5 banks. NPLs to advances was 8.58%, also the lowest amongst the big 5 banks, indicating prudent lending practices of the bank. Provisions provided for NPLs were Rs. 15.12 billion, with Provisions to NPLs ratio of 79.8%. In comparison to the big 5 banks’ average of 77.32%, this ratio is significantly higher, showing the cautious approach of the bank. No benefit of Forced Sales Value of the collaterals held by the Bank has been taken while determining the provision against non-performing loans as allowed under BSD Circular No. 02 dated June 03, 2010.

Market Value Ratios

Price to Earnings

Formula

Market Value Per Share / Earning Per Share

2004 2005 2006 2007 2008 2009ABL 0.00 12.56 9.54 17.20 4.90 5.9UBL -- -- 13.00 18.40 5.80 7.5

17

2004 2005 2006 2007 2008 200902468

101214161820

Percentage

Percentage

A valuation ratio of a company’s current share price compared to its per-share earnings increased in 2007. It was maximum in 2007 and minimum in 2004.

Market Value to Book Value

Formula

Book Value of Firm / Market Value of Firm

2004 2005 2006 2007 2008 2009ABL 0.00 2.92 2.37 3.09 2.89 1.01UBL -- -- 3.70 3.40 1.00 1.1

2004 2005 2006 2007 2008 20090

0.51

1.52

2.53

3.5

Percentage

Percentage

Allied bank book value was maximum in previous years and it decrease to one percent in 2009. Average share price of Allied Bank Limited was Rs. 58 at the end of 3Q10, having fallen considerably since the floods hit Pakistan. Price to Earnings stood at 7.86 for ABL, indicating good market prospects of the bank. Market Value to Book Value is 1.43, considerably better than the average of the big 5 banks of 1.29. EPS of 7.48 is better than that of UBL only.

18

Debt Management Ratios

Debt to equity

Formula

Total Liabilities / Shareholders Equity

2004 2005 2006 2007 2008 2009ABL 41.82 13.83 13.46 15.10 15.40 12.96UBL 14.70 15.02 13.18 11.50 12.79 8.51

2004 2005 2006 2007 2008 200905

1015202530354045

Percentage

Percentage

A measure of a company’s financial leverage calculated by dividing its total liabilities by stockholders’ equity, it indicates what proportion of equity and debt the company is using to finance its assets. In 2004 the debts were very high at 41.82. However it became better in the recent years. In 2009 it was 12.96, which show bank is financing its assets very well.

Debt to Asset

Formula

Total Liabilities / Total Assets

2004 2005 2006 2007 2008 2009ABL 0.98 0.93 0.93 0.94 0.94 0.93UBL 0.94 0.94 0.93 0.92 0.93 0.89

19

2004 2005 2006 2007 2008 20090.9

0.920.940.960.98

1

Percentage

Percentage

Total liabilities divided by total assets. The debt/asset ratio shows the proportion of a company’s assets which are financed through debt. If the ratio is less than one, most of the company’s assets are financed through equity. If the ratio is greater than one, most of the company’s assets are financed through debt. Companies with high debt/asset ratios are said to be “highly leveraged,” and could be in danger if creditors start to demand repayment of debt.

Leverage Ratio

Financial leverage is concerned with the proportion of debts to its equity. Higher the leverage, higher the profitability as with the increase in leverage the financial risk increases.

Debt to Total Capitalization Ratio

Formula

Debt / shareholder’s Equity + Debt

2004 2005 2006 2007 2008 2009

ABL 23.39 21.59 16.15 19.63 16.09 14.94

UBL

20

2004 2005 2006 2007 2008 20090

5

10

15

20

25

Debt to Total Capatilization Ratio

Debt to Total Capatiliza-tion Ratio

The debt-to-capital ratio gives users an idea of a company's financial structure, or how it is financing its operations, along with some insight into its financial strength. In 2004 debt to equity ratio was 23.39 which decrease in 2005 and 2006, and in 2007 again rise due to increase in total debt in this year bank total deposit increase very much due to change in rate before this bank pays less interest rate but due to rate change in market Allied bank also change it and attract more customer. In 2008 this ratio goes down and same trend in 2009 the reason might be stakeholders investment in bank.

INTEREST COVERAGE RATIO

Formula

EBIT / Interest Expense

2004 2005 2006 2007 2008 2009

ABL 0.95 1.29 2.98 0.57 0.39 0.23

UBL 1.69 2.10 2.22 1.97 0.85 0.47

2004 2005 2006 2007 2008 20090

0.51

1.52

2.53

3.5

Interest Coverage Ratio

Interest Coverage Ratio

21

Profits before taxes available to cover interest expense have been fluctuating unevenly through 2004-2009. 1.29 In 2005, it increased to 2.98 in 2006. Financial year 2006 seems to be very profitable for all banks; creates more profits for banks to cover their interest expenses. 2007 wasn’t a good year as of reasons of political instability and law and order situation. Global economic crises in 2008 further decrease banks profitability in year 2008 and 2009.

NET PROFIT MARGIN

Formula

Net income / Revenue *100

2004 2005 2006 2007 2008 2009ABL -20% 27.07% 42.85% 23.02% 17.86% 17.70%UBL 40.1% 29.51% 28.70% 20.47% 15.95% 16.80%

2004 2005 2006 2007 2008 2009

-30-20-10

01020304050

Net Profit Margin

In year 2004, ABL faces net loss resulted in -20% net profit margin. Return on sale increased from 27% to 42.85% in 2006. In the following years despite of increase in sales, net profit has decreased, to 23.03% in 2007, 17.86% in 2008 and 17.7% in 2009. Possible reason may be increase in operating expenses and increase in inflation rate.

ADVANCES TO DEPOSITS RATIO

Formula

Total loan / Total Deposit

2004 2005 2006 2007 2008 2009

ABL 0.55 0.74 0.71 0.64 0.66 0.62

22

UBL 0.63 0.71 0.74 0.75 0.77 0.74

2004 2005 2006 2007 2008 20090

20

40

60

80

Advance to Deposit Ratio

Advance to Deposit Ra-tio

 It is how much they have coming in (deposits) vs. how much they have going out (loans). In the year 2005 the ratio is 57.73 which is increasing in the year 2006 i.e. 71.92. in the year 2007 there is a decline at 64.46 then again increase in year 2008 at 66.55. in the year 2009 it is on 62.75 which is in decrease

GROSS PROFIT MARGIN

Formula

Revenue – COGS/ Revenue

2004 2005 2006 2007 2008 2009

ABL 0.80 0.66 0.75 0.51 0.44 0.42

UBL 0.87 0.71 0.69 0.58 0.53 0.51

2004 2005 2006 2007 2008 20090

0.10.20.30.40.50.60.70.80.9

GP Margin

GP Margin

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With considerable increase in 2006 from 66% to 75% profits have decreased in the following years to 42.64% in 2009 due to competition in the banking sector and fluctuation in the economic stability has caused this decrease in gross profits.

CAPITAL ADEQUACY RATIO

Formula

Tier 1 Capital + Tier 2 Capital / Risk Weighted Assets

Two types of capital are measured: tier one capital, which can absorb losses without a bank being required to cease trading, and tier two capital, which can absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors.

2004 2005 2006 2007 2008 200910

10.511

11.512

12.513

13.5

CAR

CAR

2004 2005 2006 2007 2008 2009

ABL 12.45% 12.39% 11.80% 11.29% 13.07% 11.50%

Analysis Capital Adequacy Ratio is a measure of a bank's capital. It is expressed as a percentage

of a bank's risk weighted credit exposures. This ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world. In ABL’s case CAR is decreased in 2009 compared with 2008. Global economic crises is one of the cause of such decrease, by seeing other factors like bank’s Goodwill and market share, bank’s image shows more stable over the period under study. This ratio has been increased in case of Allied Bank which means that the bank has enhanced its shock absorbing capacity over five year observation period which shows that the bank is now more stable than previous years.

INCOME TO EXPENSE RATIO

2004 2005 2006 2007 2008 2009

ABL 1.044 1.785 0.207 1.505 1.436 1.461

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UBL 1.94 1.63 1.01 1.42 1.51 1.32

2004 2005 2006 2007 2008 20090

0.5

1

1.5

2

Income to Expanse Ratio

AnalysisIncome to expense ratio of ABL in 2005 is more than 2004, showing more income for

expanses, and is decreased in 2007 and remains stable for next years under study. Year 2006 was good for banking sector where banks make more profits, but in ABL’s case, ABL expenses were Rosen up causes to decrease in income to expense ratio.

COST OF BORROWINGS

= Markup paid / deposits

2004 2005 2006 2007 2008 20090123456

cost of Borrowings

cost of Borrowings

It is a comparison between mark-up paid and deposits, the lower the mark up paid is better for institution.

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2004 2005 2006 2007 2008 2009

ABL 0.75% 2.10% 3.62% 4.22% 4.98% 4.57%

UBL 0.75% 2.10% 3.62% 4.22% 4.98% 4.57%

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2004 2005 2006 2007 2008 2009

Total Assets 3, 043 3,660 4,353 5,172 5,627 6,529

Investment (Net) 679 800 833 1,276 1,080 1,753

Advances (Net) 1,574 1,991 2,428 2,688 3,183 3,248

Deposits 2.393 2,832 3,255 3,854 4,217 4,787

Equity 202 292 402 544 563 662

PBT 52 94 124 107 63 91

PAT 35 63 84 73 43 54

NPLs (Net) 59 41 39 30 109 125

Ratios 2004 2005 2006 2007 2008 2009 2010

Earnings Ratios

ROA 0.1% 1.8% 2.0% 1.4% 1.2% 1.81%

ROD 0.1% 2.1% 2.4% 1.7% 1.5% 2.3%

ROE 8.0% 28.0% 30.0% 23.5% 21.2% 30.5%

Earning Assets to Assets

84% 85% 84% 85% 85% 86%

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Advance to Deposit 41% 59% 69% 64% 72% 72%

Yield on Earning Assets

5% 7% 9% 8% 10% 11%

Cost of funding Earning Assets

1% 1% 4% 4% 5% 6% 6%

EPS (RS) 0.81 6.89 2.00 2.09 2.10 7.78 9.01

Market Value Ratios

Price to Earnings Ratio

0.00 12.56 9.54 17.20 4.90 5.9

Market Value to Book Value

0.00 2.92 2.37 3.09 2.89 1.01

Debt Management Ratios

Debt to Equity Ratio 41.82 13.83 13.46 15.10 15.40 12.96

Deposit Times Capital

37.91 12.34 11.98 13.28 13.31 10.98

Debt To Asset 0.98 0.93 0.93 0.94 0.94 0.93

Solvency Ratios

Equity to Assets 2% 7% 7% 6% 6% 7%

Equity to Deposit 2.64% 8.10% 8.35% 7.53% 7.52% 9.11%

Earning Assets to Deposit

95.17% 101.91% 100.99% 102.58% 104.68% 109.54%

Dividend Payout Ratios

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Dividend Yield 2.90% 2.70% 2.30% 8.0% 6.80% --

Dividend Cover 2.76 2.18 1.402 3.214 2.505 --

Growth Rates

Ratios 2004 2005 2006 2007 2008 2009 2010

Profit After Tax -- 42% -7% 2% 71% -- 16%

Advances 87% 30% 17% 26% 11% -- 7.5%

Deposits 28% 28% 28% 13% 11% -- 13%

Investments -22% 5% 79% -2% 15% --

Asset Quality Ratio

NPL to Advances 26% 11% 7% 7% 6% 7%

Provision of NPLs 10% 3% 6% 24% 10% 19%

NPLs (000) 15,383 12,699 10,479 11,355 13,772 16,281

NPLs Growth -17% -17% 8% 21% 18% 13%

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Comparison with the top players

The banking sector is dominated by National Bank of Pakistan, Allied Bank Limited, Habib Bank Limited, United Bank Limited and MCB Bank. The following graph indicates the trend of growth of deposits for the players.

As can be witnessed from the above graph that the deposit growth rate has been fluctuating over the last 5 years; a major decline was seen in the growth of deposits for ABL in 2008, when it fell from 28% to 13%. The reason cited for this slowdown was the slow growth of M2.

The advance growth rate for the top players has shown a similar trend, all the fluctuations for all the banks have been witnessed in the same direction. As can be observed ABL's performance in terms of advances growth rate has been better from the top players during the last 5 years. The advances of ABL grew by 11% in FY09 as compared to 5.58% of NBP and -4% of UBL and MCB each during the year under review.

Another major trend seen in the banking sector has been the growth in profits after tax for the top players. It can be clearly seen that the growth in PAT of ABL has been much above the other top players. During FY09 there was a growth of 71% in ABL's PAT, as compared to 14% of UBL and 2% of MCB. 

Another major comparison between ABL and the other top players is that in the growth of the net interest income area ABL has outperformed other major players. The growth in the net interest income is 41% in FY09 as compared to 18% of UBL, 16% of MCB and 3% of NBP.

In case of the non-interest income, the growth for ABL has been in line with that of its peer except for NBP whose growth though has fluctuated but still is above the other players in the market. The growth in non-interest income for ABL in FY09 is around 22%, as compared to 45% of NBP.

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ABL vs. UBL

ABL is providing its products which they are satisfied with their launching of their products. ABL is engaged in a number of products or services. They have launched Internet Banking which has the features funds transfer which means Sending money to distant and remote areas has never been so easy. With Allied Direct Funds Transfer facility you can transfer money anytime anywhere to your bank account or somebody else’s bank account.

ABL have more than 14 banks available for funds transfer paying utility bills is now more convenient than ever before. Customer can pay their utility bills through Allied Direct in a secure and hassle free way.

The funds transfer is a very secure service as the Allied Direct is protected by VeriSign. All financial transactions are done with dual authentication of user. Other bank funds transfer, utility bill payments, account statements

As an Allied VISA credit card holder, customer can now view and print your Credit Card statement anytime. In addition, they can also pay your bill in full or in partial 24 hours a day – 7 days a week.

Customer can now literally make payments to anyone anywhere in the country. This feature enables them to send money to anyone in Pakistan. The beneficiary does not need an account in any bank.

Other products can be named as trade services, import services, export services corporate loan, commercial loans. Osmotic inauguration, training management program, Treasury services for their customers, loans and other credit facilities, ABL has not launched the car loan product as they were the not in that condition in the market for capturing the customers towards them. As this product was launched by other banks.

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Future outlook

The recent economic trends suggest the possibility of a modest recovery during 2010. The major impetus for growth is expected to come from the services sector, while LSM has also lately shown signs of recovery. The positive improvement in macroeconomic indicators, mainly inflation and contraction in external imbalances bodes well for the revival of economic activity. However, risks to these improvements remains as inflationary pressures have not completely abated, the commodity prices may spur again to unmanageable levels and foreign inflows (for instance from FoDP and other bilateral arrangements) may not materialize on time. Meanwhile, the severe energy shortages and the sensitive security situation remain a major threat to the potential output of the economy. The rising fiscal slippages, deficit of 1.5% of GDP for Q1-FY10 as compared to 1.1% in Q1-FY09 poses another challenge. A sizeable portion of it also relates to increasing expenditure on defense and security. The continuing pressure in the operation environment suggests that the challenges for the banking sector would persist in 2010. ABL, while remaining prudent under the circumstances would continue to emphasize on improving cost effective deposit mix, building risk weighted assets by ensuring quality and optimizing costs to pursue the strategy of maintaining steady growth.

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Allied Bank Limited

Analysis of Financial Statement

Submitted to

Sir Fazal Ur Rehman

Submitted By

Raja Waqas Ahmed 01-120091-059

Syed Waqar Hassan 01-120091-075

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SUGGESTIONS

Following are some observations and suggestions during the internship.

When giving the loan, the Bank must carefully analyze the past six months transaction history of the

borrower. This will help in judging the dealing behavior and financial status of the client. In most

cases, this thing is not properly done and it is the major reason of default of many clients.

The Bank should keep the proper check on stock which is hypothecated. A textile owner may ret the

loan on same 1000 bales of cotton from checking system of the Bank.

The Bank should have the moving cameras in their branches for security purposes.

The Bank should try to give more loans to the small borrowers as the past history shows that most

of the loans given to the corporate borrowers have converted into bad debts.

The Bank has a lot of financing schemes but there is very little advertisement of these schemes. So

Bank should increase its advertisement.

When any one comes to operate the lockers, then the things which he keeps in locker should be

checked through metal detector for security purposes.

All the Bank Branches should be getting online to provide the quality and speedy services to the

customers and also remain competitive in the market.

Most of the bank employees are sticking to one seat only, with the result that they become master

of one particular job and lose their grip on other banking operations. In my opinion all the

employees should have regular job experience through job rotation. The promotion policy should be

adjusted.

Every year some of the employees should be sent for training to other countries and employees

from other branches should be brought here. More reading material should be brought / provided

in the reference Room, it should be relevant and its purpose should be to educate the employees

with the advance studies in their field. The employees should be provided the opportunities to

attend and participate in seminars and lectures on banking.

With the internship letter should also be requested to provide us the financial reports. Because

when we demanded the financial reports they said that this is confidential. And they are not allowed

to provide these statements to any trainee.

To create royalty in customers ABL should start the facility of online banking through Internet, so

that customers can check their balances and make transfer of fund online.

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