Outlines:

Introduction of this Project

Objective of the Project

Companies selected for study

Faysal Bank

MEEZAN BANK LTD

Conceptual Framework for Islamic Asset Liability

Management Deposits

Uses of funds

Similarities & dissimilarities

Holy Quran:
We have created the

night as covering and

we have created the
day for the economic
activities.

Hazrat Umar R.A., said:

Every system can

prevail in this world but
not the one which is
unjust.

Introduction of this Project

In this Project our main focus on three main things

regarding Islamic Banking system.

We will discuss the Comparison of Conventional

& Islamic Banking Systems

According to these things:

Asset Liability Management,

Sources & Uses of Funds,

Similarities & Dissimilarities

Objective of the Project

The main objective of our project is to clear the

basic differences between Islamic and conventional
system

We will try to discuss the real face of both systems in

depth.

Thats why our discussion will around these things:

How Islamic Banks manage their assets and liabilities

what is the main sources and uses of funds

what are the main and core similarities & dissimilarities

between Islamic bank and conventional bank.

Companies selected for

study

We selected two banks first is Faysal banks taken as the

conventional banks representative and

Second one is Meezan bank as representative of Islamic

banks,

Faysal Bank

Faysal Bank Limited was incorporated in Pakistan

on October 3, 1994, as a public limited company
under the Companies Ordinance, 1984.

Currently, the Bank's shares are listed on the

Karachi, Lahore and Islamabad Stock Exchanges

Faysal Bank is engaged in Commercial,

Consumer, Corporate and Islamic Banking
activities

Faysal Bank cont

The bank is principally engaged in providing

consumer, corporate and investment banking
services to its customers.

The bank offers a wide range of consumer

banking products and services which include
deposit accounts, car loans, home loans and
other consumer loans.

Faysal Bank cont

It also provides treasury and capital market services and cash

management services to its customers.

Balance Sheet of Bank

Assets

Liabilities

Loans and advances to customers

Customers deposits

Cash and cash balances with other

banks

Due to banks and other financial

institutions

Investments in associates, subsidiaries

Other liabilities
and joint ventures
Financial assets held for trading

Sundry creditors

Cash and cash balances with the

central bank

Equity and reserves

MEEZAN BANK LTD

MEEZAN was established as an Islamic

Investment Bank in 1997 as AL MEEZAN
INVESTMENT BANK LTD.

First Islamic Commercial Banks license was

awarded to Al Meezan Investment Bank in year
2002,

They bought the local operations of Socite

General (French Bank) 03 branches

10

MEEZAN BANK LTD cont

11

In 2009, Branch network of six dedicated Islamic

banks increases to 480 branches (including subbranches)

Meezan Bank having a 42% share of the Islamic

Banking branch network in the country .

201branches in 54 cities across the country.

Over 5.5% of the total Banking industry.

PRINCIPLES
BASIS OF ISLAMIC FINANCE

Prohibition of RIBA

Alkharaj-o-bildhaman (entitlement to profit is

associated with corresponding risk)-Risk
Sharing, i.e. No Risk, No Gain.

Prohibition of sale of goods before acquiring

ownership

Prohibition of sale of food stuff before

possession

Prohibition of debt for debt

Avoidance of Gharar (uncertainty)

Time value measured only through Price or

12

13

Avoidance of Gharar (uncertainty)

Time value measured only through Price

or Rent.

Debt contracts can be made / traded

but without discount.

Risk can be distributed through

forward Trading / Contracts by way of
Salam & Istisna.

Asset Liability
Management

Assets liability management is very important phenomena in

banks earning strategy even in Islamic banking system, all
the investments contributions to this effects to be used even
on and off-balance sheet components in ALM. The risk
taking is the key determinant for the banks either
conventional or Islamic to portfolio or ALM.

14

BALANCE SHEET STRUCTURE OF ISLAMIC BANK.

15

Objectives of ALM

16

To manage the portfolio in a manner consistent

with the banks investment policy.

To obtain the desired earning while holding risk at

acceptable levels.

To maintain adequate liquidity at a cost consistent

with earnings goals.

On and Off-balance
considered in ALM.

sheet

investments

are

Techniques of ALM.

Matching Techniques.

Swap Techniques.

Futures as a Hedging Technique.

Options as Hedging Techniques.

Effective Portfolio Management.

17

ALM - Pillars

ALM Information Systems.

MIS

Information availability

Accuracy

Adequacy

Expediency

ALM Organization.

Structure and responsibilities

Level of top management involvement

ALM Process.

Risk Parameters
Risk Identification
Risk Measurement
Risk Management

18

Current Ratio:

The current ratio highlights

the firm ability to cover short
term liabilities with its current
assets.
Current Ratio = Current
Assets / Current Liabilities

Interpretation:

The current ratio of Faysal bank

& Meezan Bank for the year
2007, 2008 & 2009 is, 2.36,
2.06 & 1.64, 1.79, 1.61 & 1.56
respectively, compared to
standard ratio 2:1 this of
Meezan Bank ratio is then
Faysal Bank

Faysal Bank

Meezan Bank

Particulars

2007

2008

2009

2007

2008

2009

Current
Assets

138,762,4
62

135,594,
508

176,797,8
78

66,145,5
96

83,395,5
55

121,561,1
87

Current
Liabilities

58,877,32
0

65,763,5
83

108,009,0
79

36,967,0
02

51,844,2
28

77,699,05
8

Current
Ratio

2.36

2.06

1.64

1.79

1.61

1.56

Current Ratio

2.50

2.36
2.06

2.00

Ratio

1.79
1.61

1.64 1.56
Faysal Bank

1.50

Mezaan Bank
1.00
0.50
0.00
2007

2008

2009

19

Sales to Working Capital = Sales / Working Capital

In this ratio we compare the

working capital or net current
assets with sales which are part of
the revenue.
Interpretation:
The average turnover in working
capital of Faysal Bank is 19% &
Meezan Bank have 20% this
shows the profitability of working
capital of Meezan Bank is slightly
high then Faysal Bank.

Faysal Bank

Meezan Bank

Particulars

2007

2008

2009

2007

2008

2009

Sales

11,610,
781

13,404,
132

16,957,
875

4,573,7
52

6,803,2
13

10,102,
060

Working
Capital

79,885,
142

69,830,
925

68,788,
799

29,178,
594

31,551,
327

43,862,
129

0.15

0.19

0.25

0.16

0.22

0.23

Sales
Working
Capital

To

Sales To Working Capital Ratio

0.30
0.22
0.19

0.25
0.20

Ratio

0.25
0.23

0.150.16

Faysal Bank

0.15

Mezaan Bank

0.10
0.05
0.00
2007

2008

2009

20

Working Capital = Current Assets

Current Liabilities
Arithmetically it is the
difference of Current Assets
and Current Liabilities.

Interpretation:

The working capital ratio of

Faysal Bank limited is
higher which indicates that
Faysal bank has have
sufficient resources to meets
its current obligations as
compare to Meezan Bank
Limited.

Faysal Bank

Meezan Bank

Particula
rs

2007

2008

2009

2007

2008

2009

Current
Assets

138,762,
462

135,594,
508

176,797,
878

66,145,
596

83,395,
555

121,561,
187

Current
Liabilities

58,877,3
20

65,763,5
83

108,009,
079

36,967,
002

51,844,
228

77,699,0
58

Working
Capital

7988514
2

6983092
5

6878879
9

291785
94

315513
27

4386212
9

Working Capital Ratio

100000000.00
80000000.00

Ratio

Faysal Bank

60000000.00

Mezaan Bank

40000000.00
20000000.00
0.00
2007

2008

2009

21

Balance Sheet Meezan Bank Limited

Horizontal Analysis
2007
ASSETS

2008

2009

2007

Rs.In ,000

22

2008

2009

Rs.In ,000

Cash and balances with treasury

banks

5,644,028

5,763,710

8,387,432

100

102.12

148.61

Balances with other banks

3,729,549

1,344,974

5,260,467

100

36.06

141.05

Due from financial institutions

8,850,000

18,108,000

34,499,500

100

204.61

389.82

Investments

10,535,186

14,286,949

23,290,309

100

135.61

221.07

Financings

34,576,339

39,768,481

44,188,066

100

115.02

127.80

Operating fixed assets

1,032,963

1,880,515

2,416,375

100

182.05

233.93

204,172

5,935,413

100

146.72

211.19

100

126.94

184.85

Deferred tax asset

Other assets

2,810,494
67,178,559

4,123,441
85,276,070

124,181,734

#DIV/0!

LIABILITIES
Bills payable

1,192,160

1,057,017

1,249,210

100

88.66

104.79

Due to financial institutions

2,415,606

4,008,496

8,468,425

100

165.94

350.57

Deposits and other accounts

54,582,353

70,233,875

100,333,051

100

128.68

183.82

Sub-ordinate loan

Liabilities against assets subject to

finance leases

100

105.27

100

124.45

173.48

Deferred tax liabilities

Other liabilities
NET ASSETS

430,377

453,038

2,851,407

3,548,666

4,946,589

61,471,903

79,301,092

114,997,275

100

129.00

187.07

5,706,656

5,974,978

9,184,459

100

104.70

160.94

23
REPRESENTED BY

Share capital

3,779,897

4,925,961

6,650,048

100

130.32

175.93

Reserves

720,785

845,022

1,050,092

100

117.24

145.69

Unappropriated profit

1,219,228

570,114

1,390,395

100

46.76

114.04

6,341,097

9,090,535

100

110.86

158.93

(366,119)

93,924

100

2,762.33

(708.65)

5,974,978

9,184,459

100

104.70

160.94

5,719,910
Deficit on revaluation of
investments

(13,254)
5,706,656

Horizontal Analysis

Balance Sheet Faysal Bank Limited

2007

ASSETS

2008

2009

2007

2008

Rs.In ,000

24

2009

Cash and balances with treasury

banks

6,872,032

8,927,524

8,427,202

100

129.91

122.63

Balances with other banks

3,708,451

876,780

508,795

100

23.64

13.72

Lending's to financial institutions

7,078,102

2,861,401

15,017,826

100

40.43

212.17

Investments

31,553,108

30,186,168

56,531,338

100

95.67

179.16

Advances

87,346,401

89,758,789

91,346,001

100

102.76

104.58

2,514,959

2,646,978

2,787,617

100

105.25

110.84

1,279,918

Operating fixed assets

Deferred tax assets - net
Other assets

100.00

2,204,368

2,983,846

4,966,716

100

135.36

225.31

141,277,421

138,241,486

180,865,413

100

97.85

128.02

Bills payable

2,406,927

1,536,517

1,465,451

100

63.84

60.88

Borrowings from financial

institutions

9,995,855

13,027,468

34,985,766

100

130.33

350.00

102,067,422

102,776,793

123,655,188

100

100.70

121.15

1,000,000

999,600

999,200

100

99.96

99.92

7,827

4,103

100

52.42

Deferred tax liabilities - net

2,691,466

2,483,355

100

92.27

Other liabilities

6,951,421

6,641,542

6,977,069

100

95.54

100.37

125,120,918

127,469,378

168,082,674

100

101.88

134.34

LIABILITIES

Deposits and other accounts

Sub-ordinated loans
Liabilities against assets subject to
finance lease

25

16,156,50
3

10,772,10
8

12,782,73
9

100

66.67

79.12

Share capital

5,296,445

5,296,445

6,090,911

100

100.00

115.00

Reserves
Unappropriated
profit

3,567,033

3,790,023

4,030,056

100

106.25

112.98

1,481,668

1,049,519

1,215,179

100

70.83

82.01

10,345,14
6

10,135,98
7

11,336,14
6

100

97.98

109.58

5,811,357

636,121

1,446,593

100

10.95

24.89

16,156,50
3

10,772,10
8

12,782,73
9

100

66.67

79.12

NET ASSETS
REPRESENTED
BY

Surplus on
revaluation of assets

Conclusion/Findings

26

Liquidity position of Faysal Bank Limited is higher then

Meezan Bank Limited this indicates that Meezan Bank
Limited has higher leverage. Both financial institutes should
improve their current ratio & working capital position in
financial year 2011. The analysis shows that its lower down
gradually.
Net profit margin of Meezan Bank Limited is higher then
Faysal Bank Limited.
Gross profit margin of Meezan Bank Limited is higher then
Faysal Bank Limited so we would like to suggest Faysal Bank
should improve its Gross Profit margin to meet the expenses
efficiently and set a sight profit for shares holders.

Conclusion/Findings

27

The Operating income margin of Faysal Bank Limited is higher

then Meezan Bank Limited which indicates that Faysal Bank
Limited generates higher income by its own operation as compare
to Meezan Bank Limited.
The Long Term debt to long term liabilities ratio of Meezan Bank
Limited is higher then Faysal Bank Limited because Faysal bank
limited employed its funds in short term activities more then
Meezan Bank Limited
Meezan Bank Limited has a good market perception due to
continuous declaration of dividends but on the other hand Faysal
Bank limited did not declared dividend in financial year 2009.
The three years average price / earning ratio of Meezan Bank
Limited 13.97 while the Faysal Bank Limited has 7.78 % this
indicates the Meezan Bank Limited has much potential in stock as
compare to Faysal Bank Limited.

The operating cash flow to total debt ratio of Meezan

Bank Limited is little higher then Faysal Bank Limited

Recommendations

28

With the assistance analyses of financial reports we would like to

recommend both financial institutes should over come their pit
falls, flaws and deficiencies. Meezan Bank limited should
improve its current ratio. The Meezan Bank Limited Net Profit
Margin is higher then Faysal Bank Limited. The Faysal Bank
Limited should improve its profitability ratio by efficiently use its
resources. Similarly the price earning ratio & dividend payout
ratio of Meezan Bank Limited is higher then Faysal Bank this
highlights good return on investment as well good market
perception. Faysal should also pay dividend consistently through
generate the profit by improving its operation. We would also like
to recommend that financial institute should much promote the
business activities and provide financial assistance to industry
which will be reduce the un employment, inflation and increase
productivity of Pakistan

SIMILARITIES &
DISSIMILARITIES

29

There are two major difference between Islamic

Banking and Conventional Banking:

Conventional banking practices are concerned

with "elimination of risk" where as Islamic banks
"bear the risk" when involve in any transaction.

When Conventional banks involve in transaction

with consumer they do not take the liability only get
the benefit from consumer in form of interest
whereas Islamic banks bear all the liability when
involve in transaction with consumer. Getting out
any benefit without bearing its liability is declared

Differences between Islamic and Banking

System
30
Conventional System

Islamic System

Money is a product besides medium of exchange Real Asset is a product. Money is just
and store of value.
a medium of exchange.
Time value is the basis for charging interest on Profit on exchange of goods &
capital.
services is the basis for earning
profit.
Interest is charged even in case, the organization Loss is shared when the organization
suffers losses. Thus no concept of sharing loss.
suffers loss.
While disbursing cash finance, running finance or The execution of agreements for
working capital finance, no agreement for the exchange of goods & services is
exchange of goods & services is made.
must, while disbursing funds under
Murabaha,
Salam
&
Istisna
contracts.
Due to non existence of goods & services behind Due to existence of goods &
the money while disbursing funds, the expansion services no expansion of money
of money takes place, which creates inflation.
takes place and thus no inflation is
created.
Due to inflation the entrepreneur increases prices Due to control over inflation, no
of his goods & services, due to incorporating extra price is charged by the
inflationary effect into cost of product.
entrepreneur.