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

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 Limited
o United Bank Limited
o National Bank of Pakistan
o Muslim Commercial Bank Limited
o 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 Governments 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.
problems.

Unhealthy complications among banks can lead to financial and economic

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

ALLIED BANK 1991-2004

Privatization
September 10,1991 is the historical date as on this date the bank became the countrys
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 worlds 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 Banks 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 Pakistans 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 Banks 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 technologybased 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 ABLs 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 nonemployees 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.

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

Lahore stock exchange
Karachi stock exchange

8th August 2005

10th August 2005
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

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

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 account
II. 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.
II.
III.
IV.

Online banking
Allied cash and shop visa card
Internet
Helpline

Consumer Products
I. Visa credit card

Lending Products
I.
II.
III.
IV.

Seasonal finance
Agricultural finance
Import and Export Business/Trade finance
Running finance

SERVICES
I.
II.
III.
IV.
V.
VI.

Utilities bills collections

Locker facilities
Hajj services
Home remittance
Remittance
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.

10

FUNCTIONS OF ALLIED BANK LIMITED

Functions of ABL are summarized below:

Accepting Deposits
i.
ii.
iii.

Current deposits:
Profit and Loss Sharing Account (Saving):
Fixed Deposits:

FINANCING
i.
ii.
iii.
iv.

Demand Finances:
Running Finances:
Cash Finances:
Fixed Asset Financing

Discounting Bills Of Exchange

Agency Services to Customers

Following are the agency services to ABL.
i.
Collection of Cheques
ii.
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 Exchange
iv.
Issue of Travelers Cheques
v.
Collection of Utility Bills
vi.
Locker

Management By Employees
Serving The Community

11

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 customers demand and preferences while
introducing new Islamic based products. That is why it has some strong points that others
dont 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
Employees 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.

12

 For the last of many years, Pakistan is facing economic and political instability, which is
a big threat.
Todays government idea of nationalization is a big threat to the bank.

13

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.

14

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 banks interest and noninterest income continued to grow. The banks 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 banks 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 Banks 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 its 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 banks funding source is the interbank money
market and borrowing from other financial institutions in general. The earning assets of the bank

15

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.

16

Ratio Analysis
Earnings Ratios
Return on Asset
Formula
Net Income/ Total Assets

2004

2005

2006

2007

2008

2009

ABL

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%

Return on Asset
2.5
2
Return on Asset

1.5
1
0.5
0
2004

2005

2006

2007

2008

2009

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

2009
17

ABL

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%

Return on Deposit
3
2.5
2
1.5
1
0.5
0
2004

2005

2006

2007

2008

2009

Allied Banks deposits account for 7. 3% of the total deposits of all the banks

Return on Equity
Formula
Net income / Shareholders Equity

ABL
UBL

2004
8.0%
21.32%

2005
28.0%
27.46%

2006
30.0%
31.71%

2007
23.5%
19.81%

2008
21.2%
19.00%

2009
30.5%
14.09%

35.00%
30.00%
25.00%
20.00%
Percentage

15.00%
10.00%
5.00%
0.00%
2004

2005

2006

2007

2008

2009

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'

18

ROD except MCB. This owes to firstly, better mobilization of deposits and secondly, a better mix
of low-cost deposits.

19

Current Ratio
Formula
Current Asset / Current Liabilities
2004
0.75
0.69

ABL
UBL

2005
0.89
0.77

2006
1.06
0.94

2007
2.31
1.95

2008
2.05
1.87

2009
1.55
1.74

Current Ratio
3
Current Ratio

2
1
0
2004 2005 2006 2007 2008 2009

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

ABL
UBL

2004
10%
2.17%

2005
3%
7.53%

2006
6%
12.14%

2007
24%
24.96%

2008
10%
16.20%

2009
19%
24.67%

20

Percentage
30%
25%
20%
15%
10%
5%
0%

Percentage

Allied Banks 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

ABL
UBL

2004
0.00
--

2005
12.56
--

2006
9.54
13.00

2007
17.20
18.40

2008
4.90
5.80

2009
5.9
7.5

21

Percentage
20
15

Percentage

10
5
0
2004

2005

2006

2007

2008

2009

A valuation ratio of a companys 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

ABL
UBL

2004
0.00
--

2005
2.92
--

2006
2.37
3.70

2007
3.09
3.40

2008
2.89
1.00

2009
1.01
1.1

Percentage
4
3

Percentage

2
1
0
2004

2005

2006

2007

2008

2009

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,

22

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.

Debt Management Ratios

Debt to equity
Formula
Total Liabilities / Shareholders Equity

ABL
UBL

2004
41.82
14.70

2005
13.83
15.02

2006
13.46
13.18

2007
15.10
11.50

2008
15.40
12.79

2009
12.96
8.51

Percentage
50
40
Percentage

30
20
10
0
2004

2005

2006

2007

2008

2009

A measure of a companys 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
ABL
UBL

2004
0.98
0.94

2005
0.93
0.94

2006
0.93
0.93

2007
0.94
0.92

2008
0.94
0.93

2009
0.93
0.89

23

Percentage
1
0.98
0.96
0.94
0.92
0.9

Percentage

2004

2005

2006

2007

2008

2009

Total liabilities divided by total assets. The debt/asset ratio shows the proportion of a
companys assets which are financed through debt. If the ratio is less than one, most of the
companys assets are financed through equity. If the ratio is greater than one, most of the
companys 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 / shareholders Equity + Debt
ABL
UBL

2004
23.39

2005
21.59

2006
16.15

2007
19.63

2008
16.09

2009
14.94

24

Debt to Total Capatilization Ratio

25
20
15
10
5
0

Debt to Total
Capatilization Ratio

2004 2005 2006 2007 2008 2009

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

ABL
UBL

2004
0.95
1.69

2005
1.29
2.10

2006
2.98
2.22

2007
0.57
1.97

2008
0.39
0.85

2009
0.23
0.47

Interest Coverage Ratio

4
Interest Coverage
Ratio

3
2
1
0
2004 2005 2006 2007 2008 2009

25

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 wasnt 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
-20%
40.1%

ABL
UBL

2005
27.07%
29.51%

2006
42.85%
28.70%

2007
23.02%
20.47%

2008
17.86%
15.95%

2009
17.70%
16.80%

Net Profit Margin

60
40
20
0
-20

2004

2005

2006

2007

2008

2009

-40

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

ABL
UBL

2004

2005

2006

2007

2008

2009

0.55
0.63

0.74
0.71

0.71
0.74

0.64
0.75

0.66
0.77

0.62
0.74
26

Advance to Deposit Ratio

80
Advance to Deposit
Ratio

60
40
20
0
2004 2005 2006 2007 2008 2009

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

ABL
UBL

2004
0.80
0.87

2005
0.66
0.71

2006
0.75
0.69

2007
0.51
0.58

2008
0.44
0.53

2009
0.42
0.51

GP Margin
1
0.8
GP Margin

0.6
0.4
0.2
0
2004 2005 2006 2007 2008 2009

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.
27

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.

CAR
14
13

CAR

12
11
10
2004

ABL

2004
12.45%

2005

2005
12.39%

2006

2007

2006
11.80%

2008

2009

2007
11.29%

2008
13.07%

2009
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 ABLs 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 banks Goodwill and market share, banks 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

ABL
UBL

2004
1.044
1.94

2005
1.785
1.63

2006
0.207
1.01

2007
1.505
1.42

2008
1.436
1.51

2009
1.461
1.32

28

Income to Expanse Ratio

2
1.5
1
0.5
0
2004

2005

2006

2007

2008

2009

Analysis
Income 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 ABLs 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

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%

cost of Borrowings
6
cost of
Borrowings

4
2
0
2004 2005 2006 2007 2008 2009

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

29

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%

30

Earning Assets to
Assets

84%

85%

84%

85%

85%

86%

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%

31

Dividend Payout Ratios

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%

32

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.

33

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 elses 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.

34

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.

35

Allied Bank Limited

Analysis of Financial Statement

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.
36

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.

37