BANK ISLAMI PAKISTAN LTD

INTRODUCTION BankIslami Pakistan Limited (BankIslami) is located in Karachi Pakistan. BankIslami Pakistan Limited was the first Islamic Commercial Bank to receive the Islamic banking license under the Islamic banking policy of 2003 from State Bank of Pakistan in 2005. The Bank started its operations from April 7, 2006 and offers shariah compliant retail banking, investment banking, consumer banking and trade finance products. The Bank has a nationwide presence, its branch network consists of 102 branches & sub branches spread over 49 cites of Pakistan. The Bank provides financing mainly through Murabaha, Ijarah, and other Islamic modes. . OBJECTIVES OF ISLAMIC BANKING Islamic banking has been defined as banking in consonance with the ethos and value system of Islam and can be governed under the principles laid down by Islamic Shariah . The primary objectives of Islamic Economic System are as under. Equal Distribution of wealth Social justice Circulation of wealth Interest free transactions These objectives can never be achieved in Interest/Riba based economic systems. In Islamic banking there is no right of profit if there is no risk involved. The profit and loss sharing depositor may lose money in case of loss.

HABIB BANK LTD

INTRODUCTION HBL was the first commercial bank to be established in Pakistan in 1947. It is the largest commercial bank in Pakistan having more than 1450 branches. The Government of Pakistan privatized HBL in 2004. HBL is majority owned (51%) by the Aga Khan Fund for Economic Development, 42.5% of the shareholding is retained by the Government of Pakistan (GOP), whilst 7.5% is owned by the general public.

DIFFERENCES B/W ISLAMIC AND CONVENTIONAL BANKING SYSTEM In conventional banking system all transactions are based on the concept of interest, while Islamic is free from interest based transactions. The focus of conventional banking system is on the concentration of wealth , while that of Islamic banking system is on the circulation of wealth.

In conventional banking system money is a product besides medium of exchange and store of value, while in Islamic banking system the real Asset is a product. Money is just a medium of exchange. In conventional banking system due to failure of the projects the loan is written off as it becomes non performing loan , while due to failure of the project, the management of the organization can be taken over to hand over to a better management.

In conventional banking system there is no concept of sharing loss, while in Islamic banking system this concept is present.

In conventional banking system government very easily obtains loans from Central Bank through Money Market Operations, while in Islamic banking system government can not obtain loans from the Monetary Agency. In conventional banking system functions and operations are based on fully man made principles, while in Islamic banking system functions and operations are based on Shariah principles.

LIQUIDITY RATIO

This ratio shows the ability of a company to meet with its short term obligations. In which short term creditors and suppliers are interested. CURRENT RATIO
= Current Assets Current Liabilities

It shows a firms ability to cover its current liabilities with its current assets. Description BANK ISLAMI HBL
1.2 1 0.8 0.6 0.4 0.2 0 BANK ISLAMI HBL

2011

0.19
1.05

Interpretations In the above case Bank islami has 0.19 rupee of current assets for every 1 rupee of current liability, which unfavorable. While HBL has 1.05 rupee of current assets for every 1 rupee of current liability, which is favorable. By comparing this ratio of both banks the performance of HBL is better.

ADVANCE TO DEPOSIT RATIO:

2011

BANK ISLAMI HBL

39.76% 48.99%

Interpretations This ratio is favorable when it is not too much high nor too much low. In this case HBL is favorable.
50.00% 40.00% 30.00% 20.00% 10.00% 0.00% BANK ISLAMI HBL

CASH RATIO
= Cash and cash equivalent Current liability

It explains that how a firm cover its short term obligations with its readily available cash. 2011 BANK ISLAMI HBL 1.026 0.10

1.2 1 0.8 0.6 0.4 0.2 0 BANK ISLAMI HBL

Interpretations Bank islami has 1.026 rupee of cash for every 1 rupee of current liability, which is favorable. While HBL has 0.10 rupee of cash for every 1 rupee of current liability, which is unfavorable. In this case the position of Bank islami is favorable. LEVERAGE RATIOS:This ratio shows that how much a company rely on debts and long term creditors are interested in this ratio.
1).DEBT-TO-EQUITY RATIO = Total Debt Total shareholder equity

It shows the extent to which a firm is using borrowed money. It can be simply calculated by dividing total debts of the firm by its shareholder equity.

2011 BANK ISLAMI HBL 9.96 39.41

40 35 30 25 20 15 10 5 0 BANK ISLAMI HBL

Interpretations In case of Bank islami creditors provides 9.96 rupee for every 1 rupee provided by shareholders, while in case of HBL creditors provides 39.41 rupee for every 1 rupee provided by shareholders. In this case the performance of Bank islami is upto the mark. DEBT-T0-TOTAL ASSETS =
Total Debt Total Assets

The debt to total assets ratio is derived by dividing a firm total debts by its total assets. 2011 BANK ISLAMI HBL
0.90% 0.85% BANK ISLAMI 0.80% 0.75% 0.70% HBL

79% 90%

Interpretations Incase of bank islami about 79% of total assets are financed through different types of debts while incase of HBL about 90% of total assets are financed through different types of debts and remaining by shareholder wealth. In this case the position of bank islami is favorable. PROFITABILITY RATIOS:This ratio is about the profit and both owners and shareholders are interested in this ratio. 1). RETURN ON EQUITY (ROE). = Net Profit
Total Equity X 100

It compares net profit after taxes with the equity that shareholders have invested in the firm. 2011 BANK ISLAMI HBL
25.00% 20.00% 15.00% 10.00% 5.00% 0.00% BANK ISLAMI HBL

7.68% 21.70%

Interpretations For every 100 rupee provided by shareholders the bank earns 7.68% in case of Bank islami. While in case of HBL For every 100 rupee provided by shareholders the bank earning is 21%. 2) EARNING PER SHARE
E/P = Net income after tax divided by Total no of shares outstanding.

2011 BANK ISLAMI HBL 20.13 0.77

25 20 15 10 5 0 BANK ISLAMI HBL

Interpretations In case of Bank islami the EPS is less than that of HBL and thats why the position of HBL is better than Bank islami in this ratio. CONCLUSIONS I have compared different types of ratios of financial year 2011 of two banks namely Bank Islami and Habib bank. On the basis of which I have concluded that the over all performance of HBL is favorable than Bank islami in 2011. I have compared 7 different types of ratio of both banks of financial year 2011 and in which majority ratios are favorable in case of HBL, thats why I can say that in 2011 the competitive position of HBL was stronger than Bank islami. REFERENCES WWW.HBL.COM.PK WWW.BIPL.COM.PK WWW.KSE.COM.PK