Professional Documents
Culture Documents
JUNE, 2009
In the last five years the growth in GDP reduces to 5.8% against the target of 7.2% in
fiscal year 2008. It demonstrate Pakistan economies resilience as it was achieved major
internal and external shocks including hike in oil and food prices, energy shortages, rising
interest rates, political uncertainty, deteriorating law and order situation. The foreign
investments decrease to 5.2$ billion after hitting 8.4 $ billion mark.
With the enormous economic challenges still at the forefront for which the International
monetary fund (IMF) support has been sought for stabilization, the betterment of
economic fundamentals can be forecast but with many strict strings. The recent
improvement in fiscal and current account deficit, stabilization in rupee –dollar parity,
some reduction in inflation and foreign exchange build up are some of the positive signs
that the economy is currently exhibiting.
The Bank of Punjab was formed under The Bank of Punjab Act, 1989. It was given the
status of a scheduled bank by the State Bank of Pakistan (SBP) on September 19, 1994. It
is principally engaged in commercial banking and related services with its registered head
office at Lahore. The Bank has 272 branches in Pakistan and Azad Jammu and Kashmir.
The Bank is listed on Lahore, Karachi and Islamabad Stock Exchanges. The majority
shares of the Bank are held by the Government of Punjab.
COMPETITORS:
MCB
BANK ALFALAH
HBL
National Bank Of Pakistan
PORTER FIVE FORCES MODEL
The investments of the Bank are classified into the following categories:
(a) Held-for-trading securities
These are investments acquired principally for the purpose of generating profit from short
term fluctuations in price or dealer’s margin.
(b) Held-to-maturity securities
These are investments with fixed or determinable payments and fixed maturity and the
Bank has positive intent and ability to hold to maturity.
(c) Available-for-sale securities
These are investments which do not fall under the trading or held to maturity categories.
According to BSD Circular No. 14, dated September 24, 2004 issued by the State Bank
of Pakistan (SBP), investments classified as held to maturity are carried at amortized
cost.
In accordance with the requirements of SBP, quoted securities are valued at market value.
The surplus / (deficit) arising on quoted securities classified as available for sale is kept
in a separate account shown in the balance sheet below equity. Unquoted securities are
valued at cost less provision for impairment, if any. On derecognizing or impairment in
quoted available-for-sale investments, the cumulative gain or loss previously reported as
surplus / (deficit) on revaluation is included in the profit and loss account for the period.
Following are the schemes launched by The Bank of Punjab these are:
Kissan dost scheme
The Kissan dost scheme is for the facilitation of farmers to increase the agriculture
productivity.
Karobar barhao scheme
The Karobar barhao scheme is for the small investors to increase there businesses.
Lady entrepreneur financing scheme
This scheme is for ladies to start their own business.
The major portion of assets is investment and advances of financial institutions. In which
total assets increased 44.83bn, 67.60% in 2006 and 64.34bn, 39.03% in 2008 against their
years and net income is 70.08% and 86.62% in 2006 and 2008 respectively. That is the
reason ROA is move upward consistently and increased 0.05, 0.24, and 0.38 in, 2006,
2007 and 2008 respectively.
Profitability Ratios
2005 2006 2007 2008
.1
3
.5
1
9
.0
2
.3
0
4th Qtr
8
.4
2
5
.4
2
5
.9
2
6
.4
1
3rd Qtr
.4
2
3
.8
2
7
.8
1
.1
3
2nd Qtr
9
.1
2
3
.7
2
9
.5
2
.2
1
1st Qtr
0 2 4 6 8 10 12
Spread Earning
The spread measures the effectiveness of a financial firm's intermediation function in
borrowing and lending money and also the intensity of competition in the firm's market
area. The BOP is loosing earning spread highly and also peer group also because of
increasing competition among financial institution. The BOP management has to find
other ways to diversify services for generating income. The services is the most required
to grow earning efficiency.
Operating Efficiency
To maximize profitability and stockholder value BOP has to increase their efficiency in
their operations to reduce operating expenses and to increase productivity of their
employees by providing technological equipment and training. BOP increases their
services and productivity over the years but less efficient that peer group.
BOP Peer Group
2006 2007 2008 2006 2007 2008
Earning
Spread 4.72 3.78 1.85 2.4 2.1 1.96
Operating
Efficiency 38.19 42.02 96.77 34.85 55.98 126
CREDIT RISK:
It may not able to repay the principle or interest or both within period of time. The
probability that sum of the financial institution’s assets especially its loans will decline in
value and perhaps becomes worthless is known as Credit risk.
In 2006 the bank had 2.1% non performing assets as compared to 7% of the peer group
which may be due to the reason that it started its commercial banking in 2006. In 2007
0.81% of the loans were nonperforming which is least than the peer group which means
that bank’s lending department is working efficiently. Nonperforming assets compare
with equity capital it explicit the BOP is tremendous to decreasing half of nonperforming
assets against peer group it tells the bank is very well to their rules to manage their
customer s by providing proper services and facilities. Loan loss provisions are 14% less
from the peer groups which suggest that bank is down their risk that its loans will more
than the peer group.
Credit Risk BOP Peer Group
2006 2007 2008 2006 2007 2008
Non perform asset
Total loans 2.1 0.81 1.14 7.01 6.5 8.45
Non performing assets
Equity capital 7.62 10.80 17.45 15 8.23 15.25
Total loans
Total deposit 71.92 73.57 69.75 81.82 91.44 72.31
0
BOP PEER
LIQUIDITY RISK:
Bankers and other financial firm managers are also concerned about the danger of not
having sufficient cash and borrowing capacity to meet customer’s withdrawal, loan
demand and other cash needs. To evaluate the liquidity risk is very important because
financial institution may be faced to borrow emergency funds at excessive cost to cover
its immediate cash needs, reducing its earning
The BOP had held portion of cash and deposit in NBP , SBP and foreign higher 16.26
against peer 10.56 but plummeted ratio of BOP against increasing ratio of peer group it
implies bank is cautious to averse from liquidity risk
Government securities to total assets ratio is less than the peer group which means that
bank is not investing as much as its peer group is but the bank should invest in these
securities rather than purchasing the funds from other institutions at high cost so that its
interest expense may reduce.
100%
80%
60%
40%
20%
0%
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
CAPITAL RISK:
Capital has ability to absorb losses that absorption reduces the risk. Fluctuation of interest
result risk that indulges solvent and insolvent. Compare to total assets the BOP has
average 6.5% capital that is less chances to handle the worse situation like financial crisis
but good dealings with other institutions rescue from financial distress otherwise
investors and institutions withdraw their money.
Capital Risk BOP Peer Group
2006 2007 2008 2006 2007 2008
Equity capital
Total assets 6.07 6.42 6.52 7.09 5.24 7.5
MARKET RISK :
In market oriented economies where most of the world’s banks and other leading
financial institutions offer their service today, the market values of assets , liabilities and
net worth of banks and other financial service providers are constantly in a state of flux
creating market risk. Change in interest rates, currency prices, shifting public demands
for bank services and the services offered by non bank financial firms causes the value of
institutional assets, liabilities and equity to move up or down.
The risk to a financial institution’s bottom line i.e. its net income after all expenses are
covered is known as earning risk. Earnings may decline unexpectedly due to factors
inside the financial firm or due to external factors, changes in economic conditions or in
laws and regulations. Earning risk can be evaluated measuring the standard deviation or
variance of after tax net income, return on equity and return on asset
Profitability Ratios
50.76
35.65
3.31
50.76
2.48
36.89
0 10 20 30 40 50 60 70 80 90 100
Surplus on revaluation of
3,418,618 6,893,241 3,474,623 101.64
assets- net deferred tax
7,839,083 13,670,114 5,831,031 74.38