ASKARI COMMERCIAL BANK LIMITED

PROFIT AND LOSS ACCOUNT

Mark-up/return / interest earned Mark-up/return / interest expensed Net mark-up / interest income Provision against non performing loans and advances Provision for diminution in the value of investments Bad debts written off directly Net mark-up / interest income after provisions NON MARK- UP/ INTEREST INCOME Fee, commission and brokerage income Dividend income Income from dealing foreign currencies Other income Total non mark-up / interest income NON MARK-UP / INTEREST INCOME Administrative expense Other provisions / write offs Other charges Total non mark-up / interest expense Extra ordinary unusual items PROFIT BEFORE TAXATION Taxation Current Prior years Deferred Profit after Taxation Inappropriate profit brought forward Profit available for appropriation APPROPRIATIONS: Transfer to: Statutory reserves Capital reserves (reserves for the issue of bonus shares) Revenues Reserves Proposed cash dividend Un-appropriated profit carried forward Basic earning per share - (Rupees) (Rupees in thousand) 4,487,206 4,073,715 1,117,206 1,379,609 3,370,000 2,694,106 277,398 308,528 38,066 7 315,471 308,528 3,054,529 2,385,578 649,988 26,318 180,992 776,230 1,633,528 4,688,057 1,845,179 138 1,845,317 2,842,740 2,842,740 876,089 43,611 919,700 1,923,040 1,923,040 384,608 251,170 1,036,092 251,170 1,923,040 15.31 524,775 37,658 112,808 278,512 953,753 3,339,331 1,436,304 1,227 1,437,531 1,901,800 1,901,800 873,639 (74,904) 798,735 1,103,065 1,103,065 220,613 114,168 539,948 228,336 1,103,065 8.78

FOR THE YEAR ENDED 31ST DECEMBER, 2006

TREND ANALYSIS

(Horizontal Analysis) FINANCIAL SUMMARY

Trend Analysis, also called Horizontal Analysis of the financial statements is one directional- upward or downward analysis and involves the computation of the percentage relationship that each statement item bears to the same item in the base year

Profitability Total Income Interest income Interest exp Fee, comm. Exch.Income Other income Spread Operating expenses Operating Profit Non performing assets Profit b/f tax Taxation Profit after taxation

2002 2003 2004 2005 2006 (Rs in million) 3840 3213 2274 506 122 939 680 886 134 752 436 316 5047 4251 2902 677 119 1349 854 1291 283 1008 458 551 5704 4858 3017 299 247 1841 1093 1595 351 1244 557 687 5028 4074 1380 638 317 2694 1438 2210 308 1902 799 1103 6121 4487 1117 831 802 3370 1845 3158 315 2843 920 1923

The operating expenses of the bank has been increased with sharp margin, the ACBL is newly born bank of only 14 years old and is growing rapidly so, we can say that the reason behind the rapid increase of its operating expenses may be the expansion of business. In order to get handsome profit the expenses are necessary as it is shown by the fact that if the banks operating expenses have been increased then, there is also an increase in the profit before income tax and profit after income tax.

SHAREHOLDERS FUNDS
2002 Shareholders Funds Total share holders fund Share capital Reserves Surplus on ROA 2155 986 1229 (60) 2003 2004 2005 2006

(Rs in million)

2579 1036 1521 22

4173 1087 1940 1146

5047 1142 2760 1145

6016 1256 4317 443

TREND ANALYSIS

2002 Shareholders Funds Total share holders fund Share capital Reserves 100 100 100

2003

2004 %AGE

2005

2006

119.6 105.0 123.7

193.6 110.2 157.8

234.2 115.8 224.6

279.2 127.4 351.2

The shareholders fund of the bank is continuously increasing, as the bank is running on profit, therefore, the business take interest in this project and wish to participate in it. The banks share capital and reserves are also increasing with the expansion of business.

LIABILITIES

2002 Liabilities Customers deposits Refinance borrowings Sub-ordinated loans Other liabilities 30360 2882 3058

2003

2004 2005 (Rs. in million) 51732 3392 11016 61657 7329 11354

2006

41200 3222 3980

83319 9777 1000 7055

TREND ANALYSIS
2002 Liabilities 2003 2004 2005 2006

PERCENTAGE

Customers deposits Refinance borrowings Other liabilities

100 100 100

135.7 111.7 130.1

170.4 117.7 360.2

203.0 254.3 371.3

274.4 340.0 230.7

New if we analyze the liability side of the bank we see that the banks deposits are going on increasing since its birth which is a very healthy sign for the bank as the banks basic business is to deal in money. The increase in deposits show that the people have interest in the bank and deposit their fund in the bank without any hesitation. However it has not been mentioned here that how many of the deposit are current and how many of them have fixed nature but we can say that it is a very important source of the bank to earn profit. As the banks usually earn through interest or mark ups imposed on the deposits they keep with themselves.

ASSETS
2002 Assets Advances Investments Cash, short funds and statutory deposits with SBP Operating fixed assets Other assets Total assets 641 1213 38454 723 1824 50980 1663 1817 70313 1980 1426 85387 2595 1460 107168 17893 8651 10056 23292 11706 13436 2003 2004 2006 (Rs. in million) 30035 26737 10061 44778 22104 15099 2007

69938 17239 15936

Now we will discuss the assets side of the bank. The liquidity position is essentially important for the bank, as it must have all the time sufficient funds to meet the demands for the money that may be made on it. It is the protection against the risk that losses may develop if banks are forced to sell or liquidate creditworthy assets in an adverse market. The current liquidity position of the bank has improved as indicated by the percentages shown in the table below.

TREND ANALYSIS

2002 Assets Advances Investments Cash, short funds and statutory deposits with SBP Operating fixed assets Other assets Total assets 100 100 100 100 100 100

2003

2004 2005 (Rs. in million) 167.8 309.1 100.0 259.4 149.8 182.8 250.2 255.5 150.1 308.9 117.5 222.0

2006

130.2 135.3 133.6 112.7 150.3 132.5

390.9 199.3 158.4 404.8 120.4 278.7

An upward trend in deposits accompanied by a upward trend in advances too, and mark up revenues means in effective credit policies, efficient credit collection resulting in healthy financial development. The property plant and equipment is the kind of asset, which is required by the service business only to increase its network therefore the ratio of the banks plant and equipments as compared with the other important particulars of the assets is high. But here one thing should be mentioned that it is the policy of the bank not to start the business on the rented premises. The bank has mostly started business on its own premises. The other assets of the bank are also showing a good amount that means that bank is in position to earn money from every available source.

BUSINESS TRANSACTED

2002 Business Transacted Imports Exports Guarantees 26.2 30.6 4.8

2003

2004

2005

2006

(Rs. In billion) 32.0 38.8 6.2 40.2 47.3 14.2 48.7 56.8 14.4 75.2 70.1 25.3

TREND ANALYSIS
2002 Business Transacted Imports Exports Guarantees 100 100 100 2003 2004 2005 2006

(PERCENTAGE) 122.1 126.8 129.2 153.4 154.5 295.8 185.8 185.6 300.0 287.0 229.1 527.1

Now we will discuss the business transacted opt the bank in terms of import and exports we see that imports and exports through ACBL are continuously on increase which is a very health sign for the banking business as the banks earn major portion of their profit through imports and exports. It shows the efficiency of the credit department. The reasons for this improvement may be Careful scrutinizing of all the documents Intelligent corresponding with the customer True 7 Cs analysis of the customer such as his business and moral character

This improvement in imports and exports is extremely large if we compare it with the figures of 2000.

COMMON SIZE ANALYSIS (VERTICAL ANALYSIS)

COMMON SIZE ANALYSIS An analysis of percentage financial statements where all balance sheet items are divided by total assets and all income statements items are divided by net sales or revenues. In addition to other financial ratios over time, it is often useful to express balance sheet items and income statement items as percentages. Common size Analysis, also called Vertical Analysis, or Component Percentage, or 100 percent Statements as each statement is reduced to the total of 100 and each individual item is stated as a percentage of the total of 100.

2002 Profitability Total Income Interest income Interest exp Fee, comm. Exch.Income Other income Spread Operating expenses Operating Profit Non performing assets Profit b/f tax Taxation Profit after taxation 100 83.6 59.2 13.2 3.18 24.4 17.7 23.1 3.49 19.6 11.3 8.23

2003 2004 2005 (Vertical Analysis) 100 84.2 57.5 13.4 3.94 26.7 16.9 25.6 5.61 19.9 9.07 10.9 100 85.2 52.9 5.24 4.33 32.3 19.2 27.9 6.15 21.8 9.76 12.0 100 81.0 27.4 12.7 6.30 53.6 28.6 43.9 6.12 37.8 15.9 21.9

2006

100 73.3 18.2 13.6 13.1 55.0 30.1 51.6 5.15 46.4 15.0 31.4

INTERPRETATION
The most important component of any profit and loss account of a banking concern is its mark up expenses it has to pay for servicing the depositors. The foregoing data shows that the markup expenses absorb about 85% of the revenues (a favorable position). This shows that the bank has been successful in Selling larger volumes of higher profit items. Increasing economy in procurement Adopting other effective and more profitable deposit raising policies at a lower lost. The interest expense of the ACBL is 18.2% of the total revenue of the bank in 2004, which is remarkable as the bank is earning about 85% of the revenue as interest income. We have handsome margin between the interest income and the interest expense of the bank. The data shows that the banks other income %age is not as much high rather it is very low which shows that the bank does not rely on other sources for its profit but it earns major portion of its income through its basic business. The bank seems to have increased control over its operating expenses, i.e. non-mark up expenses as these now absorb only 30% on average of the total revenues, that is a very

healthy sign for the bank. In the net shell, it would not be wrong to say that the bank has improved its financial position and operating efficiency over the last years. The profit after tax is showing about 31.4% of the total revenues of the bank although the margin of profit is not too much high but it is shown from the data that the bank is going on increasing its profit after tax over the year.

LIABILITIES AND OWNERS EQUITY (Vertical Analysis)

2002

2003 2004 2005 (Vertical Analysis) 4.82 1.93 2.84 76.9 6.02 7.43 100 5.69 1.48 2.64 70.5 4.62 15.0 100 5.65 1.28 3.09 69.0 8.21 12.7 100

2006

Total share holders fund Share capital Reserves Customers deposits Refinance borrowings Other liabilities Total

5.29 2.42 3.02 74.6 7.08 7.52 100

5.38 1.12 3.86 74.5 8.74 6.31 100

INTERPRETATION The liabilities and owners equity are side components of the bank showing the relationship as compared with the total of the liabilities and owners equity. The banks shareholders fund is showing percentage more than the share capital, which shows that the bank own capital is lees than the shareholders capital. However it is also evident from the data that the %age is decreasing of the overall %age of the share capital over the last two or three years. But it is also seen that the share capital %age as compared to the total liabilities of the bank has also been decreased. So we can say that the same conditions are prevailing regarding the share capital and the shareholders fund.

Among the assets of the bank the highest %age is of the customer deposits. The banks management seems to have adopted a very effective marketing policy, as the deposits of the bank constitute about 75% of the total assets of the bank. In the last year, this figure stood at 69% of the total resource. This shows the high level of products and associated services provided by the bank.

ASSETS (Vertical Analysis)

2002 Assets Advances Investments Cash, short funds and statutory deposits with SBP Operating fixed assets Other assets Total assets 1.67 3.15 100 46.5 22.4 26.1

2003 2004 2005 (Vertical Analysis) 45.7 22.9 26.3 1.42 3.57 100 42.7 38.0 14.3 2.36 2.58 100 52.4 25.8 17.6 2.32 1.67 100

2006

65.2 16.1 14.8 2.42 1.36 100

INTERPRETATION On one hand Advances have also increased from 52% in the previous year to 65% in the current year which may indicate that the bank utilize the funds raised in the other activities primarily lending to the financial institutions as it is the most secure source of financing available in the economy. Cash, short term funds and statutory deposits with SBP are also increasing. The property plant and equipment of the bank is showing a little portion of the banks total assets. In the last the bank is over all showing a good financial health and is going on healthy tracks in near future it has no risk of bankruptcy. Although the bank is showing good results but we cant say that these are the best conditions prevailing in the bank as we are unaware of the market conditions and cant compare it with other banks.

RATIO ANALYSIS
PROFITABILITY RATIOS LIQUIDITY RATIOS PROFITABILITY RATIOS

The continued viability of any bank depends on its ability to earn an appropriate return on its assets and capital. Good earning performance enables a bank to fund its operations, remain competitive in the market and increase or decrease in market funds.

RETURN ON CAPITAL FUND

Formula = Net mark up Received Capital Funds 2006 = 3370000 5573149 = 60.47%

2005 2004 =

2694106 3901279 1638357 3026550

= =

69.06% 54.13%

70 68 66 percentage 64 62 60 58 56 2003 2004 year 2006

INTERPRETATION

This ratio relates the net profits to the amount of capital funds that have been employed in making that profit.

The above given ratios suggest that the profitability of the bank has increased very in the year 2003 indicating more profitable operations of the bank. While discussing the trend analysis, we mentioned that the mark up charges have increased in some proportion but the mark up earned by the bank resulting increase in the profit available on the capital funds employed. This ratio showing a very good financial position of the bank.

RETURN ON INVESTMENT
Formula = Net income after taxes Total Assets

2006 2005 2004

= = =

3370000 5573149 1103065 85386902 686994 70313073

1.79% = = 1.29% 0.98%

2 1.5 percentage 1 0.5 0 2004 2005 year 2006

INTERPRETATION

This ratio indicates the profit earned by the bank on the resources employed. As far as ACBL is concerned, we observe an increase in the utilization of the resources. It has increased to 1.29 % in the year 2003 from 0.98 % in the year 2002, It has increased to 1.79 % in the year 2004 from 1.29 % in the year 2003, the reason behind the slight increase in the increase of profit may be due to the efforts of the management.

RETURN ON RISK ASSETS

Formula = Net income after taxes Total risk assets

2006 2005 2004 =

1923040

= =

2.75% 2.46% = 2.36%

69938041 1103065 = 44777538 550051 23291367

2.8 2.7 2.6 percentag 2.5 e 2.4 2.3 2.2 2.1 2004 2005 year 2006

INTERPRETATION
This ratio, with some fluctuation in 2003 came up from 2.46% in 2003 to2.75 % in the year 2004. It is indicating active utilization in the form of advances. The bank is finding it difficult to keep the level of its expenses less in proportion to the advances it has disbursed. Lending, no doubt is the core function of a banking concern. But the bank should find out effective ways of credit provisions affecting less on profitability of the operations. Non-mark up revenues should also be increased in the face of lower credit disbursements resulting in more.

RETURN ON DEPOSITS

Formula

Net income before taxes Total Deposits

2004 2005 2006

2842740 = =

3.41% = = 3.08% 2.47%

83318795 1901800 61657000 1244022 41200166

4 3 percentag 2 e 1 0 2004 2005 year 2006

INTERPRETATION
This ratio indicates to what extent deposits which represent funds mobilization on the part of the bank contribute towards income generation. Although the other ratios regarding the profitability are showing satisfactory position of the bank but still bank

need to increase its utilization of resources in order to increase its profitability because the banks have to pay heavy taxes on their profit.

OPERATING EXPENSES TO NET REVENUE

Formula = Operating Expenses Net Revenue (Rs. In million) 2006 2005 2004 = = = 1845 6121 1438 5028 1093 5704 = = 30.1% 28.6% = 19.2%

35 30 25 20 percentage 15 10 5 0 2004 2005 year 2006

INTERPRETATION
This ratio signifies the proportion of the revenues that is used to cover the operating expenses of the bank. The ratios calculated above gives a good picture of the banks operations. This ratio is increasing from year 2002 to 2004 and giving a bright picture of the profits for the bank. With respect to the banking expansions this ratio is showing a very good picture as we know the expansions required lot of expansions, although the operating expenses of the bank are increasing as we have seen in the trend ratio but their proportion of increase is not alarming. In short, the bank in an attempt to maintain at a good level of liquidity, has a low level of profitability but there is a continuous push in the profits and there are chances that the bank will reach at a point of high liquidity and profitability.

LIQUIDITY RATIOS
The liquidity position of a bank is like a reservoir. It may be adequate, although nearly depleted, just before the start of the rainy season. Or it may be inadequate, although three quarters full just before the summer drought. Liquidity can be defined as: The banks ability not only to meet possible deposit withdrawals but also to provide for the legitimate needs of the economy as well

ADVANCES TO DEPOSITS RATIO

Formula

Advances Total Deposits

2006 2005 2004

= = =

69938041

83.9% = = 58.6% 72.62%

83318795 44778000 61657000 30035484 51731506

100 80 percentage 60 40 20 0 2004 2005 year 2006

INTERPRETATION It demonstrate the degree to which bank has already used up its available resources to accommodate the credit needs of its customers. This ratio, a comparison of funds generation and its funds mobilization, indicates the total loans sanctioned by the bank in relation to total amount of money deposited with the bank stands at 83.9% compared with the last year figure of 58.6%. This shows that the bank has greater potential to advance additional loans. Total loan able funds roughly measured by the deposits are sufficient to enable the bank to make additional loans without recourse to more or less continuous borrowing. At present, the bank has got a relatively small amount of advances as compared with its deposits raised. One reason for fewer advances is the cautious and selective approach on the part of the management while deciding upon credit proposals.s DUE FROM BANKS TO TOTAL ASSETS Formula = Due from banks Total Assets 2006 2005 2004 = = 2324839 = = 2.17% 6.75% = 4.86%

107167541 5770842 = 85386902 3414470 70313073

8 7 6 5 percentage 4 3 2 1 0 2004 2005 year 2006

INTERPRETATION
It is an indication of ACBLs funds management policies. The funds allocation to the financial institutions has increased to a great extent despite the fact that still it holds a small proportion relevant to the total resources raised by the bank. It is a positive indicator in the sense that the financing to the banks are the most secure ways of lending. Considering the economic conditions of the country, it seems to be the best alternative available to the bank. In the current year this ratio has been reduced to the little extent. Although it is declining but the situation might not be alarming.

DUE FROM BANKS TO DUE TO BANKS Formula = Due from banks Due to Banks 2006 2005 2004 = = = 2324839 13781555 5770842 = = 16.87% = 36.29%

15903055 3414470 11460394

29.79%

40 30 percentage 20 10 0 2004 2005 year 2006

INTERPRETATION It shows the relationship between what the bank owes from other banks and what is due to it. An unfavorable condition has been observed in this ratio in the current year showing the fact that the bank has to seek fewer funds from the financial institutions owing to the strong liquid financial position. This ratio is going on increasing in last year but decreasing in current year, which involves a slight risk. In the phase of economic instability, the banks management should be efficient to access the risk involved in lending and they should control this ratio.

DUE TO BANKS TO TOTAL DEPOSITS Formula = Due to banks Total deposits 2006 2005 2004 = = 13781555 = 16.54% = 25.79% = 22.15%

83318795 15903055 = 61656607 11460394 51732000

30 25 20 percentage 15 10 5 0 2004 2005 year 2006

INTERPRETATION This ratio is an indicative of the proportion of the lending from the financial institutions in relation to the total funds raised by the bank in the form of deposits. This ratio for ACBL is 16.54% in the year 2004. There has been a significant decline in this ratio as previously the bank depended slightly more on the borrowings from financial

institutions. It shows that the bank is concentrating on raising funds from depositors and trying to relies less on the borrowed funds. It is a favorable indication in the sense that the bank has large potential to ask for borrowed funds in the phase of tight liquidity position. Further more, it shows the efficiency of the marketing department to have created so much of deposits that the bank does not need to look at the financial institutions for help in improving its liquid position. There is another favorable aspect of this declining tendency. The rate of interest offered to the depositors is very low in comparison with the interest to be paid to the financial institutions for their funds. A decline in this ratio means less mark up burden on the bank resulting in less financial risk for the bank.