Public And Private Sector Banks Essay Example Pdf - Free Essay Example

In this part we will comparatively analyze the public and private sector banks. So for the purpose of analysis we will use a sample of two banks from each public sector and private sector banks. Public sector banks Private sector banks National bank of Pakistan limited Habib bank limited Bank of Punjab United bank limited As explained in the methodology part, we will analyze the bank by using the camel framework. And after analyze the bank we will rate each of them according to the results comes from analysis. In camel framework there are five different heads. We will take into consideration each of them one by one. Capital adequacy: In this part we have analyze capital portion of public sector anf private sector banks. Capital is most important part of banks balance sheet, because on the basis of capital banks issues the loans and advances. Capital portion also helps the bank in rainy days or recession. The Tier 1 capital postion of all four banks is shown in following chart. Tier 1 Capital: 2005 2006 2007 2008 2009 NBPL 32734347 48320611 64296830 73770137 85467027 BOP 5 6,585,03 10,475,865 14,357,020 3,361,351 - HBL 2 7,912,159 4 1,240,457 46,206,272 53,703,224 6 2,076,889 UBL 14,650,820 24,108,631 29,908,666 27,679,109 43,908,353 In public sector, NBP outperforms in tier 1 capital, as shown in the graph; tier 1 capital of the NBP is highest among the other three banks. In financial year 2009 the tier 1 capital of the is increased by 15.84%. NBP tier 1 capital is raised because in financial Year 2009 they have added the 9 billion inappropriate profits. On the other hand BOP Tier 1 capital is lower among the all, as we all familiar with the BOP is currently in different controversies due to which banks overall performance is under average so this all effect the banks Tier 1 capital .in financial year 2008 the bank Tier 1 capital is decreased by 76% because of the fact that 7 billion accumulated loss is deducted from Tier 1 capital. In private sector HBL, tier 1 capital is shows an continuous increasing trend over the five financial years. In financial year 2009 the tier 1 capital is increased by 15.59%. In HBL tier 1 capital, funds are t o raised through unapproapirte profit. In FY09 the 6 billion unapproate profit is added in tier 1 capital. In comparison with the public sector bank , HBL tier 1 capital is less as compared to NBP. But better as compared to the UBL and the BOP. The UBL tier 1 capital shows a mix trend over the five financial years. In financial year 2009 the tier 1 capital 58% , again due to the same reason unapproprited profit of 6 billion is added in tier 1 capital. Capital adequacy ratio: 2005 2006 2007 2008 2009 NBPL 15.59% 16.50% 17.72% 16.61% 16.88% BOP 12.78% 10.09% 9.69% 1.92% 0 HBL 9.93% 12.81% 12.33% 11.60% 13.07% UBL 9.25% 11.10% 10.85% 9.96% 13.18% CAR is a ratio of capital to risk weighted assets. The state bank of Pakistan in financial year prescribes a minimum CAR ratio of 10% to the banks. Capital adequacy ratio of the National bank of Pakistan is highest among the others in financial year 2009. From the financial year 2005 to 2009 the capital of the bank is increased with the average rate of 16%. And the risk weighted assets are also increased with same trend. Due to this CAR ratio will also show an increased trend over the year. The reasons to increase are the last year bank has raised an amount of 7 billion from unapropriated profit in capital. HBL has also maintained the higher ratio as compared to prescribe by the SBP. In financial year 2006 the ratio is increased by 29% due to the increase in the tier 1 capital. And in financial year 2009 again the ratio is increased by 12.6%. beacuaes of the increment in tier 1 capital by 6 billion. United bank limited has a CAR ratio of 9.25 % in financial year 2005 and its is increased to 13.18% in 2009.total capital is increased almost 2 times. The reason for the increment is the bank arranged funds through the revaulation reserve under the tier 2 capital head and the unapproaprate profit under the head of tier 1 capital. The bank of Punjab had a 12.78% CAR in 2005, but this was decreased to 1.92% in financial year 2009. The reason of decrese is the accumulated loss of 7 billion in financial year 2007. Which is to be carried forward in 2008 capital. Due to which capital is to be decresed by 58% in financial year 2008. This ulitimatily affects the CAR ratio of BOP. Debt to equity ratio: 2005 2006 2007 2008 2009 UBL 15.02 13.18 11.5 12.79 8.51 HBL 14.08541421 12.86186746 11.42424796 10.28144063 10.04877 NBP 8.27 6.69 6.05 6.22 6.94 BOP 14.12658301 13.65737077 13.94726359 35.11725574 The debt to equity ratio means that how much money bank is securely able to borrow over a longer period of time. According to general guidelines any bank debt to equity ratio above 50% should be looked more carefully that no liquidity problem arises. National bank of Pakistan debt to equity ratio shows a almost constant trend over the five years. And could not make any fluctuations above the average. In financial year 2005 the debt to equity ratio is 8.27% which is better than the industry average. Afterwards in financial year 2009 the ratio decreased by 16%. It was all due to increase in profits by 17%, these profits helps the bank to pay off its liabilities .If we compared the national bank debt to equity ratio with the private sector banks. In financial year 2009, the HBL debt to equity ratio is 10% and the debt to equity ratio of UBL is 8.51%. Bank of Punjab debt to equity ratio is almost constant till financial year 2007, after the year its will reached to highest level of 35%. And increased by 150% it was all due to loss of 7 billion in financial year 2007. Due to this loss capital decreased was also decreased by 56%. All these factors contribute to highest debt to equity ratio. In private sector the Habib bank limited, debt to equity ratio contiounly shows a decreasing trend over the five financial years. It was all due to increasing profits, this will help the bank to pay off its liabilities. From financial year 2005 to 2009 HBL profits are increased with an average rate of 11.90%. United bank limited, debt to equity ratio shows a mix trend over the five financial years. In financial year 2005, the ratio is 15% which is ultimately decreased to 8.51%. There is a continuous increment in reserves and surplus so that the ratio was continuously decreases and in the year 2009 it was decreased by 33%. Total advances to total assets: 2005 2006 2007 2008 2009 UBL 0.59014865 0.584289707 0.56468779 0.61290762 0.571351532 HBL 0.607829171 0.595803214 0.5523621 0.60744401 0.526544957 NBP 0.465345383 0.497707645 0.44649933 0.50502312 0.503125242 BOP 0.572391485 0.61459992 0.56975727 0.70857825 Total advances to total assets ratio shows that how much amount the bank hold in opposition to its assets. Here in NBPL, from 2005 to 2009, the ratio shows an increasing trend over the five financial years, except the FY07. The reason behind this the advances are shows an increases, but they could not meet up with the increasing rate of assets. In financial year 2007, the assets are increased by 20%. Except the financial year 2007, the ratio shows an increasing trend because of constantly increase in the advances. If we compare this ratio with private sector banks, overall private sector banks outperform this ratio. It was all due to better marketing skills and the customer service provided by the private sector banks. Bank of Punjab overall total advances to total assets ratio improved. But due to decrrrese in assets this ratio improved. In financial year 2007 assets are droped by the amount of 16 billion. Asset qualit y: NPL to advances: Asset quality of any bank is to be measured by the degree of nonperforming loans. This ratio clearly reflects the performance of the banks. A high level of NPLs ratio depicts the higher probability of credit defaults. National bank of Pakistan limited, NPLs to total advances ratio shows the mix trend over the five financial years. In finical year 2006, the ratio decreased by 16%. And afterwards in finical year 2009 the ratio shows an increase of 13.9%. if we compare this with private sector banks, it clearly depicts from the graph, that private sector banks will outperform in this ratio. Both the UBL and HBL NPLs to total advances ratio shows a decreasing return. BOP non performing loans shows a good percentage till financial year 2007. But afterwards due to haris steel mill case and due to such other cases. The ratio increased by 1600% and reached to the total level of 16.1% in financial year 2008. 2005 2006 2007 2008 2009 UBL 8.28 6.57 7.35 7.5 10.8 HBL 11.60% 8.00% 8% 7% 7% NBPL 14.26 11.97 11.35 12.58 14.34 BOP 1.3 1.13% 1.96% 16.31% Growth in non performing loans: Growth in non performing loans shows that every year how much loans adds to bad debts. National bank of Pakistan growth non performing graph shows a mix trend. In financial year 2005 the ratio decreased by 6.54% and afterwards shows an again upward trend. From 2007 onwards the state bank of Pakistan is asking different banks to implement the internal rating based approach under Basel accord II. But now of them with the exception of Habib bank limited have applied this approach till now.beacuse of the application of this approach habib bank limited is able control its non performing loans. In financial year 2009 habib bank limited has a lowest growth in non performing loans as compared to the industry. 2005 2006 2007 2008 2009 UBL -15.63% -4.16% 35.42% 26.47% 40.45% HBL -7.40% -24.40% 7.80% -1.20% 9.40% NBPL -6.54% 7.48% 5.68% 47.35% 25.61% BOP 60.75% 38.67% 129.10% 715% Management quality: The management quality of any bank is to be measured by decisions taken by the managements during the operations. Total advances to total deposit ratio: 2005 2006 2007 2008 2009 UBL 0.70813225 0.738066918 0.746567941 0.767515153 0.719646 HBL 0.738359363 0.68051225 0.711729091 0.761197203 0.661538 NBP 0.580110805 0.629862301 0.574952957 0.660843465 0.653287 BOP 0.719195934 0.735654652 0.697475366 0.802883678 This ratio shows the investment of the bank through approving the loans and through approving the loans against accepting the loan. In National bank of Pakistan , this ratio shows a mix trend over the years. In FY06 its is increased by 8%, due to the increase in the advances by 11%. Afterwards ratio shows the ups and downs over the years and in financial year 2009 the ratio again falls by the 3%. In financial year 2009 the advances shows an increase but can not match with rate of increase of deposits. If we compare NBPL ratios trend with the private sector banks. Private sector banks are outperform in this ratio, again due to better marketing skills and customer service helps private sector banks to gain more deposits and advances. Banks of Punjab this ratio is constantly increased except financial year 2007, in financial year 2007 this ratio shows an downturn of 5%.Afterwards in financial year 2008 the both the advnces and the deposits falls due to which this ratio shows a bett er results over the year. Business per employee: 2005 2006 2007 2008 2009 UBL 1892.03934 1658.94489 1894.996946 2042.389157 2270.593263 HBL 1753.26645 2090.81826 2386.89973 2615.383513 3200.221994 NBPL 2209.15227 2849.35174 3015.241139 2792.132334 2813.440801 BOP 274.595329 1745.18604 1830.829099 -3346.528393 Business per employee is a measure of how effienctily a bank is uilizizing its employees. Ideally every banks to be a highest Business per employee ratio because its donates a higher productivity. This is the positive sign for a bank that if business per employee ratio shows an increasing trend overtime. In National bank of Pakistan , this ratio shows an mix trend over the year. From financial year 2005 to 2007 shows an increasing trend. But after this till 2009, business per employee ratio drops by 6%. Even in financial year 2009 revenues are increased by 22%. But due to unnecessary hiring of employees companies overall productivity is decreased. In financial year 2009 , the no of employees are increased by 12%. If we compare, this performance with the private sector banks, private sector banks outperform in this ratio. In private sector banks mostly hiring is to be done on merit basis and hire the optimal number of employees, due to this overall productivity of the private sector banks is improved in FY09. The business per employee ratio of the Bank of Punjab shows a very different trend with the industry. From financial year 2005 t0 2007, the banks business per employee ratio shows an increasing trend. But after 2007 due to acculmatled loss of 7 billion companies overall business per employee ratio drops by 282%. It was all due to the internal controversies such Hamish khan case and due to the 150% increase in the non performing loans. Overall in this ration HBL outperform due to contiouns increasing trend over the five financial years. Then UBL also follows him in this ratio. Profit per employee: 2005 2006 2007 2008 2009 UBL 635.987973 616.060349 596.8172811 559.1196659 657.4657774 HBL 549.431261 555.039757 833.2998064 713.1840548 937.2536961 NBPL 919.375253 1214.23397 1351.926451 1251.89243 1118.388971 BOP 146.43881 146.43881 1140.779702 -2420.477623 Profit per employee is a measure of how resourcefully a particular bank is using its employees. In national bank of Pakistan, this ratio again shows an mix trend .due to unnecessary hiring in financial year 2007, the companys overall profit per employee ratio declines 7.4%. in financial year 2009 the companys overall number of employees are increased by 8%.If we compare this ratio with the private sector banks both the private sector banks shows less profit per employee ratio .But shows an overall increasing trend. HBL profit per employee ratio is 549 in FY05 which is to be increased by 70% in FY09. If we compare this performance with BOP, the BOP ratio again shows an downturn in FY07 and then in financial year 2008 the companys profit per employee turns to negative. UBL profit per employee ratio shows a mix trend over the years. In FY05 the profit per employee is 635 which is to be declined in FY06 and FY07 due to the extra hiring of employees. Ratio shows an downturn. But i n FY09 the banks profits per employee ratio shows an increased return of 17% . its was all due to improved profits in financial year 2009. Earning and profitability: Earning and profitability of bank is the very important measure, in order to know about the actual position of the bank. banks overall earning depends upon the advances and the investments made by the bank during the financial year. Return on average assets: 2005 2006 2007 2008 2009 UBL 1.71 2.24 1.59 1.38 1.48 HBL 1.84 2.67 2.9 2.99 3.12 NBPL 2.25 2.81 2.72 1.96 2.07 BOP 2.65 2.76 2.22 0.05 Return on average assets means how much profits is to be earned during the years with the average assets. Higher ROA is good for the bank , because if it is higher we can say that the return of the bank is high. In national bank of Pakistan , return on average assets shows mix trend over the years . in financial year 2006 the ratio is increased due to by the 24%. Because the profit after tax of the banks shows an increase of 5 billion. Than after wards the increase in profits could not match with the increase in average assets due to this ratio shows an declining trend over the next two financial years . In financial year 2009, the ratio shows an increase of 5% due to the increase in profits by 3 billion. If we compare NBPL returns with private sector banks. HBL shows an constantly increasing returns over the five financial years. In financial year 2009 the ROA is increased by 5%. HBL return on average assets returns are smooth with respect to other private sector banks. UBL overall returns shows a mix trend in financial year 2006 shows an increase of 30% due to the increase in profits after tax. After 2006 returns moves towards down phase and in financial year 2009 the return on average ass ets falls to 1.48%. BOP return on average assets shows a smooth return till 2007, but in financial year 2008 due to acculmated loss of 7 billion, the returns falls below average and return on assets reached to the level of 0.05%. Return on average equity: Return on equity means how much return is to be earned with the given equity. National bank of Pakistan, ROE shows an mix trend over the five financial years. In 2006 ROE drops by 13% and then shows an increase of 35%. In financial year 2009 ROE drops by the 3%.If we compare the performance of NBPL with private sector banks. Privte sector banks outperform in this average due better profits in private sector. And also the rate of increase of profits. BOP shows an better ROE than the industry till 2007, but the after 2007 due to downfall of profits by 7 billion the ROE fall below average and reached to the level of 1%. 2005 2006 2007 2008 2009 UBL 14.09 19 19.81 31.71 27.46 HBL 37.3 25 30.8 28.3 25.4 NBPL 16.41 14.13 19.2 21.58 20.82 BOP 42.03 43.64 34.5 1 Interest income to the total income: 2005 2006 2007 2008 2009 UBL 0.716748 0.72747491 0.66295105 0.64915587 0.632425076 HBL 0.747858 0.736826581 0.7777721 0.71816306 0.763233446 NBPL 0.692451 0.695509498 0.68093425 0.6137724 0.584726766 BOP 0.701361 0.555791363 0.23994536 1.30074592 Interest income to the total income ratio shows that how much income is to be earned through earning assets. This ratio was continuously decreased from financial year 2005 to 2009 in NBPL. Due to this its shows bad effects on profits because interest income is major income of the bank. the growth of net interest income is attributed from the earning assets. The NBPL earning assets are reduced over the five financial years, due to this it affects the overall interest income. In financial year 2009 the earning assets are increased but the interest bearing liabilities are also shows an increasing trend over the years due to this overall interest income shows a down turn. If we compare this ratio of NBPL with the private sector banks. HBL interest income to total income ratio shows an increasing trend over the years. Because of the fact that HBL overall earning assets are increased by 56% in financial year 2009. On the other hand UBL interest income to the total income ratio shows an decreasing return over the years. But still better than the industry average. And if we compare with the public sector banks. UBL interest income to total income ratio shows better results. BOP interest income to the total income ratio shows an decreasing return. Due to controversies attached with the BOP , this will seriously effect the banks overall interest income. And In financial year 2009 the banks ratio drops to the point 1.30% below than the average. Other income to the total income: 2005 2006 2007 2008 2009 UBL 0.283252 0.27252509 0.33704895 0.35084413 0.367574924 HBL 0.252142 0.263173419 0.2222279 0.28183694 0.236766554 NBPL 0.307549 0.304490502 0.31906575 0.3862276 0.415273234 BOP 0.298639 0.444208637 0.76005464 -0.30074592 Fee based income and dividend income is major banks other income portion. The bank generates high fee and commission income through innovative products and by adapting new technology. The higher ratio indicates higher fee based income. The ratio in NBPL increased from 30% to 41% in financial year 2005 to 2009 which shows an earning from government securities and through providing innovative products are to be increased. From financial year 2007 to 2009 this ratio increased by 30%. If we compare this ratio with private sector banks, its clearly shown in graph that NBPL out performs in this ratio. HBL, other income to total income ratio is improved over the financial years. But still falls behind the NBPL ratio. After NBPL the bank which performs better is UBL, UBL other income to total income ratio is improved over the five finical years. From financial year 2005 to financial year 2009. The ratio will increase from 28% to 36%. BOP again shows the same results, in financial year 2005 the ratio is 29%.and after wards in 2006 the ratio increased and reached to level of 44% . this shows that BOP interest income share drops 40% in just one year. After in financial year 2009 the ratio turns to negative portion in the graph. Due to decrease in total income by 205%. Liquidity: Liquidity for a bank means the banks ability to meet to financial obligations as they come due. In order to meet the short term obliagations its very necessary for every bank to maintain some ratio of liquid assets. Liquid assets to total assets: Liquidity for a bank means ability to meet the financial oblilagations. Higher the ratio higher the ability to manage liquidity risk. In NBPL this shows mix trend over the five financial years. In financial year 2006 due to the decrese in market tressury bills by 15%, the ratio falls by 23%. Afterwards in 2008 ratio increased by 53% due to the 55% increase in pakistan investment bonds and 34 % increase in the market tressuryy bills. If we compare this performance with the private sector banks, private sector banks can also depicts the same trend. From financial year 2005 to 2007 the ratio shows an increasing trend. After ulitimatily ratios falls. And in financial 2009 both the UBL and HBL ratio falls to 16%. BOP, liquid assets to total assets ratio shows a different trend with respect to the industry. In financial year 2005 the ratio is 4%. Which is to be increased to 21% in financial year 2007. But again in financial year 2008 drops to 3% below than average. In finical year 2008 ratio falls by 600% .it was all due to the fall of market tressury bills from 44 billion to 1 billion. 2005 2006 2007 2008 2009 UBL 12% 11% 18% 18% 16% HBL 17% 18% 22% 14% 16% NBPL 17% 13% 20% 16% 15% BOP 4% 8% 21% 3% Liquid assets to total deposits: The ratio shows how much part of the deposits is invested by the bank in the liquid assets. Again this is ratio is very important in order to know about the liquidity risk position of the bank. In NBPL, the ratio was 20% in financial year 2005 and after some flucations its was 19% in financial year 2009. The deposits were increased by 34% and the liquid assets are increased by 23%. Due to this ratio drops by 1.1 % in financial year 2009. If we compare this performance with the private sector banks. HBL liquid assets to total deposits ratio shows a mix trend over the year. In financial year 2005 ratio is 20% and after wards in financial year 2009 the again drops to 20.3%.UBL overall ratio shows a mix return over the years. In financial year 2005 the ratio is 14% and afterwards in financial year 2009 the reached to level of 20%. Bank of Punjab overall ratio trend as again opposite to the industry. In financial year 2005 the ratio is 5% and in financial year 2007, the ratio reac hed to the level of 25% due to the unexpected decrease in the deposits. The ratio increases and shows and unexpected result in 2007. After wards in financial 2008 the ratio again drops to 3%. 2005 2006 2007 2008 2009 UBL 14% 14% 24% 22% 20% HBL 21% 20% 28% 18% 20% NBPL 21% 17% 26% 20% 20% BOP 6% 10% 25% 3% Government securities to total assets: 2005 2006 2007 2008 2009 UBL 8% 9% 10% 11% 10% HBL 9% 11% 13% 14% 14% NBPL 10% 12% 13.50% 14% 14.90% BOP 6% 7% 19% 2.5% Government securities is the very important liquid assets for bank. This will help them to maintain the liquidity position of the bank. This ratio shows that percentage of government securities in total assets. If this ratio is higher its clearly shown that bank is investing more in government securities. In national bank, the ratio is 10% in financial year 2005 and constantly shows an increasing trend over the years .in financial year 2009 the ratio is 14.90 so this is clearly shown that national bank management is investing more in liquid assets in order to maintain liquidity position. If we compare the performance with the private sector banks, the ratios depicts that HBL is also constantly investing more towards government securities. From financial year 2005 to 2009 the ratio increased from 9 % to 14%. But still 6% less than the public sector bank. United bank limited, government securities to total assets ratio depicts mix trend over the five financial years . in financial year 2005 ratio is 8%.which is to be increased to 10% in financial year 2009. Bank of Punjab, ratio overall depicts different trend as compared to the industry average. In financial year 2005 ratio is 6% and financial year 2008 the ratio drops to 2.5%. Due to the drop in assets value by 21%.