ijcrb.webs.

com

MAY 2011
VOL 3, N O 1

INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS Comparative Analysis of NBP & MCB Performance under CAMELS Model
Minhoon Khan Laghari Assistant Professor Dept of Business Administration Shah Abdul Latif University Khairpur, Sindh Pakistan Dr. Amant Ali A Jalbani PhD Coordinator SZABIST Karachi Iram Rani Assistant Professor Dept of Business Administration Shah Abdul Latif University Khairpur, Sindh Pakistan

Abstract This research investigates the performance of NBP& MCB under camel Model. Data were collected from NBP and MCB bank by using various ratios. In terms of liquidity position, a falling assets ratio or a rising loans to deposits ratio indicates problems for banks. In this study, three ratios i.e., liquid asset to total assets, loans to deposits, and yield on earning assets are used to gauge liquidity. As shown in Table #5, these two ratios seem to indicate some sign of difficulty for NBP and MCB after 1997. Movement in liquidity indicators since 1997 captures the painful adjustment process triggered by the freezing of Foreign Currency Accounts [FCA]. Ratio of liquid asset to total assets has gone down from 44.62% in 1997 to 40.4% in 2001 in the case of NBP and from 43.91% in 1997 to 42.62% in 2001 for MCB. This was consciously brought about by the monetary policy changes [both the Cash Reserve Requirement (CRR) and the Statuary Liquidity Requirement (SLR) was reduced to manage the increased withdrawal of deposits due to freezing of FCAs] by the SBP. These steps were reinforced by decline in SBP s discount rate and T-bill yield, which helped banks manage Rupee withdrawals and still meet the credit requirements of the private sector Keywords: Comparative Analysis of NBP & MCB Performance under CAMELS Model

Introduction:
Performance indicators are statistics, ratios or other quantitative information, which indicates whether these criteria are being observed in any particular case or not. These are defined as a numerical value used to measure something, which is difficult to quantify [Cave et al. 1988: 17]. Performance indicators provide a measurement for assessing the quantitative or qualitative performance of an organization. The key performance indicators, which are selected from the Annual Reports of NBP and MCB 1996-2005, for evaluating performance of these two banks are accordance to CAMELS model. Both

COPY RIGHT 2011 Institute of Interdisciplinary Business Research

1105

ijcrb.webs.com

MAY 2011
VOL 3, N O 1

INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

banks showed good performance in assets and equity during 1996-2005, as shown in the Table 1. NBP with the large assets and equity base continued to hold No. 1 position. Its assets are 122% and its equity is 141% above MCB in the year 2001. Due to an easing in SBP s monetary stance credit expansion [advances] by both the banks accelerated sharply reflecting double digit growth over the preceding three years. NBP has the large advances portfolio. Its advances are 69% and MCB 31% of the total advances by these two banks. On the other hand, investment portfolio of both banks recorded a decline for the 5th consecutive years with the exception of MCB, which recorded an increase in the year 2001. Despite the decline, NBP continued to enjoy large investment portfolio in comparison. Large volume of non-performing loans [NPLs] is the most dominating factor affecting the earning capacity of banks. NBP s NPLs portfolio showed a considerable rise because of NPLs of former National Development Finance Corporation [NDFC], which has been amalgamated with NBP, while MCB s NPLs showed a modest rise. MCB has the smallest NPLs portfolio in comparison. Rising trend was observed in the deposits of both the banks. NBP has managed to hold its 7% deposit growth for the past three years and 10% growth in 2001 and continued to enjoy large deposit base, although MCB recorded the highest growth 13% in the year 2001 in comparison. Cost effective measures taken by both the banks have helped in cutting down the overall expenditure, as both banks recorded declines during the period 1996-2005. With respect to the size of expenditure, NBP has a sizeable amount. Interest income earning from different sources of each bank showed a declining trend. Although, income at NBP has fallen, it remains high between the two banks. However, in 2001 MCB showed a considerable rise in interest income. Due to downward trend in interest rate, interest expense in the case of both banks continued to fall for the four consecutive years, with the exception of MCB which recorded a rise in 1998. Net interest income is the major source of revenue growth. Growth of revenue in both the banks was entirely on account of 37.5% rise in net interest income in the case of MCB and 41% in the case of NBP in sharp contrast to preceding years fall. Both banks showed an increase in provisioning to NPLs. NBP recorded high growth [57.5%] during 1996-2005 while MCB s provision to NPLs was increased by 45.3% during the same period. Staff size over the past 5 years has been reduced by 16% for NBP and 14% for MCB. Both banks recorded increase in pre-tax profit in 2000 and 2001 with the exception of year 2001, where NBP emerged as the highest pre-tax profit earner, MCB s profit was high in comparison to NBP during 1996-2005.

COPY RIGHT 2011 Institute of Interdisciplinary Business Research

1106

ijcrb.webs.com

MAY 2011
VOL 3, N O 1

INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

Financial Analysis under CAMELS for checking the impact of re-structuring on NBP & MCB: In this part, financial performance of both NBP and MCB will be analyzed by using CAMELS framework which involves the analysis of following six groups of indicators. o Capital Adequacy Ratios (NBP & MCB) o Asset Quality Ratios (NBP & MCB) o Management Soundness Ratios (NBP & MCB) o Earnings and Profitability Ratios (NBP & MCB) o Liquidity Ratios (NBP & MCB) o Sensitivity to Market Risk Ratios (NBP & MCB) 1 Capital Adequacy Ratios (NBP & MCB): Capital adequacy focuses on the total amount of bank capital, which is vital in reducing the risk of insolvency and potential cost of banks failure. In other words, this determines the robustness of financial institutions against shocks to their balance sheets. Three ratios can be used as a measure of capital adequacy. The first ratio is the bank s capital to its liability [CL] that shows the extent to which capital and reserves of a bank provide coverage to liabilities [primarily to its depositors]. Although there is no benchmark, a high CL ratio signals strong position of a bank. In the case of NBP CL ratio was declining, indicating erosion of capital base, while in the MCB case, CL ratio shows improvement/rising trend indicating MCB s strong position comparatively and at the same time it reflects that MCB is moving in the right direction. Other measures of capital adequacy are the capital ratio and capital to risk asset [CRA] ratio. A high capital ratio and CRA ratio reflect strong position of a bank. Both these ratios in the case of NBP were declining during 1996-2005, and in the case of MCB were rising comparatively. Despite this rise in its equity, MCB stood second to NBP, which continued to enjoy the largest equity base. Insert Table 1 Here 2 Asset Quality Ratios (NBP & MCB): The solvency risk of a financial institution often originates from the quality of its asset portfolio. Asset quality is generally measured in relation to the level and severity of nonperforming assets, recoveries, the adequacy of provisions, distribution of assets, etc. In this financial analysis six ratios are used to gauge the asset quality of both NBP and MCB. The first ratio to measure asset quality is earning assets to total assets. A large share of earning assets would lead to higher profitability at given level of expenses. Asset quality as measured by earning assets to total assets ratio reveals declining trend continuously for MCB and marginally for NBP as shown in Table No.2. NPLs to gross advances ratio as represented in Table No..2, remains high for both the banks reaching a high of 22.54% for NBP while it was the lowest at 16.22% for MCB. It is important to note that this ratio has got down slightly from 21.48% to 19.1% for NBP and from 17.37% to 13.67% for MCB during 1999 2000, shows a significant improvement. However, in 2001 it started rising again for both the banks. Prior to those banks were used to report only default or overdue portion of their NPLs instead of total

COPY RIGHT 2011 Institute of Interdisciplinary Business Research

1107

ijcrb.webs.com

MAY 2011
VOL 3, N O 1

INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

outstanding amount of such loans. This adjustment has added to the volume of NPL said both banks under review. Comparatively, of the two banks, this ratio is still the highest for NBP and the lowest for MCB. An increasing trend in this ratio signals deterioration in the quality of asset portfolio and consequently, in banks cash flows, net income, and solvency. NBP had the larger share in total NPLs in comparison which was much greater than its share in assets or deposits. This was due to substantial loans provided by NBP on political ground, especially during the early and mid-1990s that resulted in NPLs after a time lag. The ratio of net NPLs to net advances, another indicator of asset quality, grew during the period 1996-2005 for both banks; however, it was the lowest for MCB and highest for NBP. The ratio of provisions to gross advances has dropped during 1997-2000 for both NBP and MCB; however, both banks recorded an increase in this ratio during 2000-2001. Again, the % of this ratio is high in the case of NBP in comparison. Marked improvement is visible in recovery efforts during the period 1996-2005. This is remarkable in the case of NBP in terms of reduction in the ratio of loan defaults to gross advances from 0.02% to negative. The loan recovery drive of the military regime has led to the reduction in the stock of defaulted loan. However, MCB does not show significant improvement in this ratio, indicating that MCB needs to focus on recoveries, side by side with more aggressive credit extension. Insert Table 2 here 3 Management Soundness Ratios (NBP & MCB): Management soundness is a crucial pre-requisite for the growth and success of the banking institutions. However, it is difficult to judge management efficiency and effectiveness on the basis of monetary indicators/financial accounts due to the qualitative nature of management. Nevertheless, total expenditures to total income, operating expense to total expenses, earning and operating expenses per employee and interest rate spread are generally used to gauge management soundness. Management soundness indicators/ratios are reported in Table No.3. A high expense to income [EI] ratio indicates the operating inefficiency that could be due flaws in management. EI ratio for both NBP and MCB was very high, almost touching 100% in the case of NBP. This is due to provisioning against bad loans and to some extent Golden Hand Shake Scheme. However, it started tempering down since 1998in both banks. Comparatively, in the case of NBP this ratio is very high. The management inefficiency can also be traced to higher operating expense to total expenditure ratio due to the extensive branch network of these two banks. An across the board increase in administrative expenditures to total expenses and salary & allowances etc. to total expenses is also visible in the Table No. 3. The reason for this is mostly the high salaries, allowances and perks of bank s employees, surprisingly, the worst performers in this regard is the MCB. NBP did have a good administrative efficiency in comparison. Administrative expense to expense ratio is high for MCB and low for NBP. Both banks have successfully reduced their cost of deposits, while maintaining their deposit base. Extensive branch network has allowed them to tap into a lucrative base of low cost and stable deposits. Cost of deposits ratio has dropped

COPY RIGHT 2011 Institute of Interdisciplinary Business Research

1108

ijcrb.webs.com

MAY 2011
VOL 3, N O 1

INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

for both banks understudy. Despite the declining trend, cost of deposits ratio at NBP is high in comparison. On the other hand, intermediation cost is low at NBP and high at MCB. Interest rate spread can also be used as an important indicator of management efficiency in relation to profitability of the banks. This is because higher spread may be caused either by higher operating cost reflecting management inefficiency, or by banks desire to earn more profit. A rising trend in the spread in both MCB and NBP indicates growing inefficiency of banks. However, this rising trend is very nominal in the case of NBP, which can be treated as stagnant. Insert table 3 here 4 Earnings and Profitability Ratios (NBP & MCB):

To measure earning and profitability, the widely used indicators are ROA, ROE, ROD, NIM, PTM, and revenue to expense ratio. As shown in Table No.4 both banks have managed to improve their ROA, ROE, and ROD ratios in 2001. MCB s ROA, ROE and ROD remain the highest and NBP s the lowest between the two. Despite an increase in ROA and ROD, these ratios for NBP remained below 1%. These ratios showed significant improvement for MCB. However, positive value of ROA, ROE, and ROD indicates that these banks are earning profits. Rise in NIM and PTM can also be seen in the table. NIM is high for MCB [6.6%] and low for NBP [4%]. The low NIM and PTM at NBP explain its lower ROA, and ROE in comparison with MCB. High cost of fund, low ratio of advances to deposits and the low fee based income to total income ratio have nullified NBP administrative efficiency and better loan quality to such an extent that ROD and PTM at NBP are the lowest between the banks under review, whereas NBP both the ratio should have been the highest because of its much larger deposit base. An increasing trend in ROA ratio indicates that banks are earning profit more on their assets, thus giving way to increase in profitability. However, a declining trend of total income to total assets for both NBP and MCB indicated that expenses increased proportionately. Share of fee based income is only 12.6% in NBP and 11.4% in MCBs total income. However, the share is on the increase. Both banks have recorded double digit growth in their fee based income. Revenue to expense ratio remained strong for both banks during 1996-2005. NBP recorded the high growth [194.20%] a sharp turnaround from preceding years decline. MCB also showing similar trend i.e., sharp increase in 2001, in contrast to decline a year earlier. Insert table 4 Here 5. Liquidity Ratios (NBP & MCB): In terms of liquidity position, a falling assets ratio or a rising loans to deposits ratio indicates problems for banks. In this study, three ratios i.e., liquid asset to total assets, loans to deposits, and yield on earning assets are used to gauge liquidity. As shown in Table No.5, these two ratios seem to indicate some sign of difficulty for NBP and MCB after 1997. Movement in liquidity indicators since 1997 captures the painful adjustment process triggered by the freezing of Foreign Currency Accounts [FCA]. Ratio of liquid asset to total assets has gone down from 44.62% in 1997 to 40.4% in 2001 in the case of NBP and from 43.91% in 1997 to 42.62% in 2001 for MCB. This was consciously brought about by the monetary policy changes [both the Cash Reserve Requirement (CRR) and the Statuary Liquidity Requirement (SLR) was reduced to manage the increased withdrawal of deposits due to freezing of FCAs] by the SBP. These steps were

COPY RIGHT 2011 Institute of Interdisciplinary Business Research

1109

ijcrb.webs.com

MAY 2011
VOL 3, N O 1

INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

reinforced by decline in SBP s discount rate and T-bill yield, which helped banks manage Rupee withdrawals and still meet the credit requirements of the private sector. Increase in loan to deposit ratio of both the banks under review during 1996-2005 is a direct consequences of steps described above. The analysis further reveals that yield on earning assets has also fallen in the case of both the banks; however, MCB has the better yield on earning assets in comparison. Insert table 5 here 6 Sensitivity to Market Risk Ratios (NBP & MCB): In addition to liquidity problems, banks also faced other risks i.e., a large investment in volatile assets would make banks more vulnerable to fluctuations in the prices of those assets. Similarly, a concentration of advances in a few sectors would increase default risks if these sectors do not perform well. Furthermore, interest rate and foreign exchange risk tend to have significant impact on banks assets and liabilities. However, in this study two ratios [gap between RSA & RSL and their ratio] are used to measure sensitivity to market risk. A higher RSL than RSA indicates that banks are risk sensitive to changes in interest rates; an increase in interest rate may affect them negatively, and vice versa. Looking at Table No.5, the growing gap, or declining ratio during 1996-2005 showed their exposure to rising interest rate. The negative gap has stretched from -57.35 billion to -81.44 billion during 1996-2005 for NBP and from -10.30 billion to -19.41 billion for MCB during the same period. Negative value indicates comparatively higher risk sensitivity towards liability side than the assets side. It also reflects that an increase in interest rate may affect banks negatively, while decline in interest rate may prove beneficial. Higher sensitivity towards liabilities also reflected in less than 100 value of ratio between RSA and RSL. Decline in this ratio in the case of both the banks indicates the rise in their sensitivity. Conclusions & Recommendations: CONCLUSIONS: I. II. Comparative study suggested that both NBP and MCB have performed better during the period under review. NBP has maintained its position as Pakistan s largest bank [under strong government support] and despite some weak indicators like declining investment, over staffing, large NPLs, political intervention, and high administrative expense, NBP emerged as financially strong bank. MCB after being privatized has made substantial improvement and also emerged as a strong bank. It has maintained profitable growth along with proactive risk management and expansion of product range for customers and has been rightly declared the best bank of Pakistan for 2001 among all local and foreign banks by Euro money a world renowned financial magazine. While both banks deposits grew, investment has fallen.

III.

IV.

COPY RIGHT 2011 Institute of Interdisciplinary Business Research

1110

ijcrb.webs.com

MAY 2011
VOL 3, N O 1

INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

V. VI. VII.

VIII.

IX. X.

XI. XII.

Despite the shrinking spread, revenue growth has been impressive. Interest income has also increased significantly. Despite efforts to curtail operating costs, significant growth in administrative expenditure and staff cost was recorded by NBP and MCB. An increasing trend in ROA ratio indicates that banks (NBP & MCB) are earning profit more on their assets, thus giving way to increase in profitability. However, a declining trend of total income to total assets for both NBP and MCB indicated that expenses increased proportionately. Both banks have managed to improve their ROA, ROE, and ROD ratios in 2001. MCB s ROA, ROE and ROD remain the highest and NBP s the lowest between the two. Yield on earning assets has also fallen in the case of both the banks; however, MCB has the better yield on earning assets in comparison. EI ratio for both NBP and MCB was very high, almost touching 100% in the case of NBP. This is due to provisioning against bad loans and to some extent Golden Hand Shake Scheme. The management inefficiency can also be traced to higher operating expense to total expenditure ratio due to the extensive branch network of these two banks. Although some financial ratios have improved, efforts are needed to bring them at par with internationally accepted standard. The below par performance on return on assets needs to improve on four counts, namely; reduction in NPLs to enhance markup income, reduction in staff and administrative costs, reduction in cost of deposits, improvement in fee based income from international trade related and corporate finance activities.

Recommendations I. Financial institutions have sturdily suggested apply CAMELS in factual means to measure the soundness of institution. Otherwise real reforms are unexpected. II. CAMELS is a best tool for bank supervision because it evaluates the risk inherent in the bank operations either off-site & on-site. III. NBP is suggested to take measures so that they desist from government intervention for merit based environment. A high need of vigilance is required to control the over staffing & other administrative expenses. IV. A clear line of demarcation of responsibilities is available in the State Bank policy in between board and management. It should be ensured. V. In developing the credit administration areas, bank should ensure in documentation, legal covenants, and contractual requirements, collateral. VI. Before loan sanction first monitors the financial condition of borrower so that recovery problem will not face the bank. VII. Credit risk should monitored should taken through the exposure profile until maturity in relation to potential market movement. VIII. If the ROA, ROE & ROD is improved by reducing the NPL`s over employment and non profitable business units then bank become strong in public entities.

COPY RIGHT 2011 Institute of Interdisciplinary Business Research

1111

ijcrb.webs.com

MAY 2011
VOL 3, N O 1

INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

IX. MCB also need extra spirit of team work & commitment for performance maintenance. X. MCB deposits are well but investment should be increased by local or foreign investor to strengthen the business. XI. Income generated from revenues should proper utilize to clear the debts burden so that sustainability can be assured. XII. Closing down of unprofitable branches and curtailment of other administrative expenses can increase the income. XIII. ROA is well but if again there are a proper control on expenses then a moir chance of income rising. XIV. ROA, ROE & ROD further improved if NPLs reduced increase in mark up income from foreign trade and corporate finance activities.

Areas for Further Research:

Reforms/Restructuring is a continuous phenomenon. Therefore the banks/financial institutes should keep it up with new emerging standards like BASEL II with CAD III for making the financial institutions more competitive.

COPY RIGHT 2011 Institute of Interdisciplinary Business Research

1112

ijcrb.webs.com

MAY 2011
VOL 3, N O 1

INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

References Akhter, M, H (2002) X-Efficiency Analysis of Commercial Banks in Pakistan: A Preliminary Investigation , The Pakistan Development Review Part II, (winter, 2002) pp. 567-580 Alexis Derviz, Ji Podpiera, Predicting Bank CAMELS and S&P Ratings: The Case of the Czech Republic, WORKING PAPER SERIES, 2004 Altman, Edward I. Financial Ratios, Discriminant Analysis, and the Prediction of Corporate Bankruptcy. Journal of Finance, September 1968, 23(4), pp. 589-609 Altman, Edward I. Predicting Performance in the Savings and Loan Association Industry. Journal of Monetary Economics, October 1977, 3(4), pp. 443-66. Ansoff, I H (1984). Implanting Strategic Management. Prentice Hall International, London. Barth, James, Gerard Caprio Jr., and Ross Levine (2001). Banking Systems Around the Globe: Do Regulation and Ownership Affect Performance and Stability? In Frederic Mishkin (eds.) Prudential Supervision: What Works and What Doesn t. NBER Conference Report. University of Chicago. Boehmer, Ekkehart, Robert C. Nash, and Jeffry M. Netter (2003). Bank Privatization in Developing and Developed Countries: Cross-Sectional Evidence on the Impact of Economic and Political Factors. Paper presented at World Bank Conference on Bank Privatization, Nov. 20-21. Bonaccorsi di Patti, Emilia and Daniel Hardy (2003). Bank Reform and Bank Efficiency in Pakistan. Presented at World Bank Conference on Bank Privatization, Nov. 2021. Burki, A A. and Niazi, G S K (2003) The Effects of Privatization, Competition and Regulation on Banking Efficiency in Pakistan, 1991 2000 . Caprio, G, and Daniela K, (1999), Episodes of systematic and borderline financial distress, Manuscript, The World Bank. Clarke, R.G., Robert Cull and Mary Shirley (2003). Empirical Studies of Bank Privatization: An Overview. Presented at World Bank Conference on Bank Privatization, Nov. 20-21. Cole, Rebel A. and Gunther, Jeffery W. Predicting Bank Failures: A Comparison of Onand Off-Site Monitoring Systems. Journal of Financial Services Research, April 1998, 13(2), pp. 103-17. Cole, Rebel A.; Cornyn, Barbara G. and Gunther, Jeffery W. FIMS: A New Monitoring System for Banking Institutions. Federal Reserve Bulletin, January 1995, 8(1), pp. 1-15. Finance Division and Planning Commission, Interim Poverty Reduction Strategy Paper (Islamabad, November 2001). Gerschenkron, Alexander (1962). Economic Backwardness in Historical Perspective. Cambridge: Harvard University Press.

COPY RIGHT 2011 Institute of Interdisciplinary Business Research

1113

ijcrb.webs.com

MAY 2011
VOL 3, N O 1

INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

Gilbert, R. Alton; Meyer, Andrew P. and Vaughan, Mark D. Could a CAMELS Downgrade Model Improve Off-Site Surveillance? Federal Reserve Bank of St. Louis Review, January/February 2002, 84(1), pp. 47-63. Gilbert, R. Alton; Meyer, Andrew P. and Vaughan, Mark D. The Role of Supervisory Screens and Econometric Models in Off-Site Surveillance. Federal Reserve Bank of St. Louis Review, November/December 1999, 81(6), pp. 2-27. Goodhart C, Hartman P, Llewllyn D, Rojas-Surez, L and Weisbrod, S (1998) Financial Review. Hanweck, Gerald A. Predicting Bank Failure. Board of Governors of the Federal Reserve System, Research Papers in Banking and Financial Economics, November 1977, 19. Haque, Ul N. (1997) Financial Market Reforms in Pakistan, The Pakistan Development Review Part-II, pp: 839-854. Hirtle, Beverly J. and Lopez, Jose A. Supervisory Information and the Frequency of Bank Examinations, Federal Reserve Bank of New York Economic Policy Review, April 1999, 5(1), pp. 1-19.

COPY RIGHT 2011 Institute of Interdisciplinary Business Research

1114

ijcrb.webs.com

MAY 2011
VOL 3, N O 1

INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

Annexure Table:No.1 NBP Ratios Capital Section Total Capital to Total Assets Growth rate of Capital Growth rate of Assets Equity / Total Liabilities Net Non-Performing Advances To Capital (including surplus) Net Non-Performing Advances To Core Capital MCB Ratios Capital Section Total Capital to Total Assets Growth rate of Capital Growth rate of Assets Equity / Total Liabilities Net Non-Performing Advances To 2.71% 34.00% 10.79% 3.29% 1.01% -0.25% 3.34% 5.55% 5.92% 3.32% 69.23% 95.07% 1996 1997 69.23% 66.67% 27.36% 80.03% 2.64% 43.85% 13.31% 3.37% 49.45% 4.66% 4.89% 6.75% 7.80% 4.84% 1996 1997 1998 1999 2000

2001

2002

2003

2004

2005

5.88% 5.02% 6.06% 4.79% 3.11% 11.69% 4.40% 36.70% 15.24% 4.27% 5.85% 8.36% 6.25%

8.36% 12.87% 67.65% 60.75% 17.97% 4.43%

9.12% 14.77%

70.78% 104.17%

75.91% 43.79%

15.24%

4.24%

41.54% 124.95% 105.64% 152.53% 127.26% 66.61% 1998 1999 2000 2001 2002 2003

28.31% 2004

8.72% 2005

4.08% 9.59% 10.17% 3.31% 23.14% 7.06% 3.82% 69.87% -5.04%

5.62%

7.80%

31.00% 60.16% -4.83% 15.28% 5.95% 14.74% 8.46% 2.48%

25.71% 15.81% 5.24% 4.25%

53.05% 65.92%

83.78% 163.63% 139.88% 104.28%

49.73% 37.71%

COPY RIGHT 2011 Institute of Interdisciplinary Business Research

1115

ijcrb.webs.com

MAY 2011
VOL 3, N O 1

INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

Capital (including surplus) Net Non-Performing Advances To Core Capital

53.05% 89.19% 111.95% 213.33% 174.48% 144.04%

92.15% 54.21%

23.32%

3.24%

Table: No. 2 Asset Quality Assets Quality Ratio NPLs to Advances Net NPLs to Net Advances Net NPLs to TA Provisions to NPLs Net NPLs to Total Capital Recoveries to NPLs Earning Asset to Total Assets Growth rate of Advances Provision to Weighted NPLs Advances to Public Sector To Total Assets Assets Quality Ratio NPLs to Advances Net NPLs to Net Advances Net NPLs to TA MCB 9.4% 3.1% 1.4% 10.9% 4.9% 2.1% 11.6% 6.2% 2.7% 17.4% 12.4% 5.3% 13.7% 9.1% 4.5% 16.2% 9.4% 3.8% 14.1% 7.4% 2.5% 10.6% 4.3% 1.5% 6.1% 1.6% 0.8% 4.5% 0.3% 0.2% 17.7% 17.7% 71.2% NBP 1996 19.0% 5.7% 1.8% 74.2% 69.2% 1997 19.0% 6.4% 2.2% 70.8% 66.7% 0.0% 70.0% 23.0% 1998 16.4% 3.8% 1.3% 80.0% 27.4% 0.0% 65.7% 3.7% 1999 21.5% 10.6% 3.7% 56.9% 80.0% 16.0% 62.2% 11.9% 2000 19.1% 8.6% 3.2% 60.4% 70.8% 7.7% 69.4% 14.5% 2001 22.5% 10.7% 4.4% 58.8% 104.2% 8.3% 70.1% 21.4% 2002 26.3% 12.9% 4.2% 58.4% 75.9% 0.0% 78.9% -17.5% 2003 21.0% 7.5% 2.6% 69.6% 43.8% 0.0% 81.4% 14.7% 2004 14.4% 3.2% 1.3% 80.5% 15.2% 0.0% 77.8% 36.9% 85.1% 2005 11.3% 1.2% 0.5% 90.7% 4.2% 0.0% 81.9% 21.8% 94.4%

COPY RIGHT 2011 Institute of Interdisciplinary Business Research

1116

ijcrb.webs.com

MAY 2011
VOL 3, N O 1

INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

Provisions to NPLs Net NPLs to Total Capital Recoveries to NPLs Earning Asset to Total Assets Growth rate of Advances Provision to Weighted NPLs Advances to Public Sector To Total Assets 79.9% 68.9% 53.0% 57.7% 65.9% 0.0% 82.2% 6.6% 49.6% 83.8% 0.0% 81.1% 1.8% 32.7% 163.6% 5.6% 77.2% 2.9%

37.1% 139.9% 12.0% 83.0% 28.1%

46.6% 104.3% 10.6% 80.5% -11.3%

51.6% 49.7% 0.0% 87.0% 3.1%

61.9% 37.7% 0.0% 87.1% 23.2%

75.7% 14.7% 0.0% 85.3% 41.3% 79.4% 13.0%

93.1% 2.5% 0.0% 87.4% 31.3% 98.3% 13.0%

Table: No.3 Management Soundness Management NBP 1996 104.5% 1997 97.1% 1998 93.8% 1999 98.5% 2000 96.9% 2001 91.6% 2002 81.3% 2003 66.3% 2004 59.0% 2005 55.7%

Total Expenses / Total Income Admininstrative Expenses To Total Expenses Salaries & Allowances To Total Expenses

23.2%

19.4%

19.0%

22.8%

24.5%

26.6%

34.8%

46.8%

51.5%

46.6%

0.0%

0.0%

0.0%

0.0%

15.2%

26.6%

17.4%

26.9%

33.0%

27.4%

Administrative Expenses Per Employee Interm.Cost (Admin expense./Ave. Dep&Borrow.) Intermediation Cost (including provision) 4.4% 3.7% 2.5% 3.8% 2.8% 2.5% 2.2% 2.7%

0.522

0.574

0.749

0.624

0.646

0.810

2.5%

2.5%

2.5%

2.1%

2.0%

2.4%

3.1%

3.2%

3.1%

2.8%

2.4%

2.8%

COPY RIGHT 2011 Institute of Interdisciplinary Business Research

1117

ijcrb.webs.com

MAY 2011
VOL 3, N O 1

INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

Deposits per Employee

20.617

23.057

29.755

29.799

33.872

33.523

Profit per Employee

0.030

0.076

0.185

0.316

0.451

0.919

Cost per Employee

0.522

0.574

0.749

0.624

0.646

0.810

Assets per Employee Net Interest Income+Fee Based Income to Administrative Expenses 111.8% 143.9% 164.8% 158.9%

24.209

27.375

35.490

35.335

40.250

41.791

144.3%

176.8%

170.3% 192.9%

219.5% 252.2%

COPY RIGHT 2011 Institute of Interdisciplinary Business Research

1118

ijcrb.webs.com

MAY 2011
VOL 3, N O 1

INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

Table: No. 3 Management Soundness Management MCB 1996 98.3% 1997 93.7% 1998 95.2% 1999

2000 92.2%

2001 89.1%

2002 82.7%

2003 75.8%

2004 69.5%

2005 43.8%

Total Expenses / Total Income Admininstrative Expenses To Total Expenses Salaries & Allowances To Total Expenses

93.3%

33.6%

33.0%

32.2%

42.3%

45.8%

42.8%

50.8%

58.4%

78.2%

63.6%

0.0%

0.0%

0.0%

0.0%

29.4%

42.8%

30.3%

35.7%

43.1%

45.5%

Administrative Expenses Per Employee Interm.Cost (Admin expense./Ave. Dep&Borrow.) Intermediation Cost (including provision) 5.5% 6.0% 4.7% 5.5% 4.4% 4.7% 4.5% 5.3%

0.588

0.631

#DIV/0! 0.648

0.733

0.689

4.9%

4.6%

4.1%

2.9%

3.0%

2.6%

5.7%

6.0%

4.5%

3.3%

3.2%

3.1%

Deposits per Employee

11.208

13.307

#DIV/0! 20.810

22.355

24.458

Profit per Employee

0.061

0.095

#DIV/0! 0.219

0.246

0.952

Cost per Employee Assets per Employee

0.588

0.631

#DIV/0! 0.648 #DIV/0!

0.733

0.689

COPY RIGHT 2011 Institute of Interdisciplinary Business Research

1119

ijcrb.webs.com

MAY 2011
VOL 3, N O 1

INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

14.400 Net Interest Income+Fee Based Income to Administrative Expenses 97.6% 127.9% 117.2% 102.7% 109.3%

16.106

26.793

26.208

31.863

141.3%

135.4% 128.7%

124.5% 269.7%

COPY RIGHT 2011 Institute of Interdisciplinary Business Research

1120

ijcrb.webs.com

MAY 2011
VOL 3, N O 1

INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

Table: No. 4 Earnings and Profitability Section NBP Interest Income to Total Assets Interest Expense to Total Assets Net interest income to Total Assets Non-interest income to Total Assets Non-interest expense to Total Assets Provision for loan losses to Total Assets Income before taxes to T. Assets Provision Expense to Gross Income Operating Expense to Total Income Net Interest Income to Gross Income Non-interest Income to Gross Income Gains on Sale of Securities to Gross Income Trading & Foreing Exchange gain to Gross Income Operating Expense to Gross Income (Cost Income Ratio) 72.0% 63.4% 75.4% 73.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 5.1% -0.5% 41.2% 38.2% 66.4% 33.6% 5.6% 0.3% 27.6% 29.2% 72.8% 27.2% 5.2% 0.7% 6.2% 27.4% 75.8% 24.2% 5.1% 0.2% 23.1% 39.3% 72.1% 27.9% 1996 9.1% 6.8% 2.3% 1.2% 2.5% 1997 10.7% 7.9% 2.7% 1.0% 2.4% 1998 10.0% 7.2% 2.8% 0.9% 2.7% 1999 9.3% 6.2% 3.1% 1.2% 3.1%

2000 8.2% 5.8% 2.4% 1.1% 2.1%

2001 8.0% 4.8% 3.2% 1.1% 2.3%

2002 6.4% 3.5% 2.9% 1.2% 2.2%

2003 4.3% 1.5% 2.8% 1.6% 1.8%

2004 4.1% 1.3% 2.8% 1.6% 1.7%

2005 5.9% 1.8% 4.1% 1.7% 2.0%

5.1% 0.3% 13.1% 27.2% 68.6% 31.4%

6.6% 0.8% 12.7% 31.3% 73.4% 26.6%

6.0% 1.4% 12.0% 34.9% 70.5% 29.5%

6.1% 2.0% 13.1% 41.0% 63.7% 36.3%

5.7% 2.3% 7.7%

5.4% 3.4% 6.8%

36.5% 31.8% 63.5% 71.2% 36.5% 28.8%

0.0%

0.0%

2.2%

10.4%

2.9%

4.2%

6.0%

4.7%

3.7%

3.6%

4.5%

3.7%

58.4%

53.6%

52.0%

41.8%

39.4% 35.0%

COPY RIGHT 2011 Institute of Interdisciplinary Business Research

1121

ijcrb.webs.com

MAY 2011
VOL 3, N O 1

INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

Admin Expense to Gross Income (NII+Not Interest Income) ROA before Tax ROE Before Tax ROA After Tax ROE After Tax NIM (based on earning assets) Average Cost Of Deposits & Borrowings Avg. Return On Advances & Investments Average Spread Basic Earnings(pre provision and tax) to net loans Operating Cost to Deposits Return on Loans & Advances cost of Deposits Spread Return of Total Advances Return on Performing Loans Spread Between Return on Performing Loans 3.1% 2.9% 0.0% 0.0% 0.0% 0.0% 3.8% 2.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 2.6% 3.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.1% 3.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 12.8% 5.2% 15.1% 6.0% 14.7% 6.4% 14.5% 7.4% 7.6% 9.1% 8.4% 7.1% 71.7% -0.5% -17.9% -0.3% -11.3% 3.2% 58.8% 0.3% 11.6% 0.0% 0.7% 3.9% 53.2% 0.7% 16.9% 0.2% 4.2% 4.1% 55.2% 0.2% 3.3% 0.0% 0.2% 4.8%

62.3% 0.3% 6.2% 0.1% 2.8% 3.7%

51.5% 0.8% 17.5% 0.3% 6.7% 4.5%

51.8% 1.4% 29.2% 0.5% 10.9% 3.9%

41.5% 2.0% 35.0% 0.9% 16.3% 3.5%

39.2% 34.2% 2.3% 3.4%

32.4% 31.6% 1.2% 2.2%

16.8% 21.1% 3.5% 5.2%

6.6%

5.5%

4.0%

1.7%

1.5%

2.2%

12.5% 5.9%

11.4% 5.9%

8.6% 4.6%

5.4% 3.7%

5.2% 3.7%

7.4% 5.3%

1.9% 2.4% 11.0% 6.5% 4.5% 9.7% 12.2% 2.5%

3.0% 2.6% 10.9% 5.4% 5.5% 9.6% 12.1% 2.5%

5.8% 2.5% 9.9% 4.0% 5.9% 8.5% 11.2% 2.7%

7.2% 2.1% 6.2% 1.7% 4.4% 5.2% 6.8% 1.6%

6.2% 1.9% 5.7% 1.5% 4.2% 5.0% 6.0% 1.0%

7.9% 2.5% 8.6% 2.2% 6.4% 7.7% 8.8% 1.1%

COPY RIGHT 2011 Institute of Interdisciplinary Business Research

1122

ijcrb.webs.com

MAY 2011
VOL 3, N O 1

INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

and Total Loans Incidence of NPLs: Effective Return on Gross Loans Return on Performing Loans Total Effective Incidence of NPLs -3.9% -2.7% 0.0% 2.7% -0.6% 0.0% 0.6% -2.5% 0.0% 2.5%

8.6% 12.2% 3.6%

8.4% 12.1% 3.7%

7.3% 11.2% 3.9%

3.8% 6.8% 3.1%

4.2% 6.0% 1.8%

6.9% 8.8% 1.9%

COPY RIGHT 2011 Institute of Interdisciplinary Business Research

1123

ijcrb.webs.com

MAY 2011
VOL 3, N O 1

INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

Earnings and Profitability SectionMCB 1996 Interest Income to Total Assets Interest Expense to Total Assets Net interest income to Total Assets Non-interest income to Total Assets Non-interest expense to Total Assets Provision for loan losses to Total Assets Income before taxes to T. Assets Provision Expense to Gross Income Operating Expense to Total Income Net Interest Income to Gross Income Non-interest Income to Gross Income Gains on Sale of Securities to Gross Income Trading & Foreing Exchange gain to Gross Income Operating Expense to Gross Income (Cost Income Ratio) 77.4% 69.3% 86.8% 82.4% 74.6% 63.1% 67.9% 63.3% 66.0% 32.2% 0.0% 0.0% 0.0% 0.0% 6.3% 5.9% 4.2% 2.8% 4.4% 2.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.2% 17.1% 7.0% 4.3% 3.1% 0.2% 18.8% 41.1% 62.1% 37.9% 3.0% 0.9% 17.5% 41.6% 72.2% 27.8% 2.7% 0.6% 2.1% 38.8% 71.5% 28.5% 2.6% 0.8% 3.7% 41.4% 73.8% 26.2% 2.8% 0.8% 11.7% 49.3% 71.4% 28.6% 3.5% 1.2% 19.0% 49.8% 81.2% 18.8% 2.9% 1.5% 6.1% 49.0% 78.2% 21.8% 2.7% 1.4% 6.5% 56.1% 62.1% 37.9% 2.5% 1.5% 2.5% 57.9% 62.4% 37.6% 2.8% 4.7% 5.6% 33.3% 73.4% 26.6% 10.0% 6.8% 3.2% 1.9% 3.9% 1997 11.9% 7.1% 4.7% 1.8% 4.6% 1998 11.5% 7.4% 4.1% 1.6% 5.0% 1999 10.2% 6.1% 4.2% 1.5% 4.6% 2000 8.5% 4.3% 4.1% 1.7% 4.3% 2001 9.4% 4.2% 5.2% 1.2% 4.1% 2002 7.3% 2.9% 4.4% 1.2% 3.8% 2003 4.1% 1.2% 2.9% 1.8% 3.0% 2004 3.4% 0.8% 2.6% 1.6% 2.8% 2005 6.4% 1.0% 5.4% 1.9% 2.4%

COPY RIGHT 2011 Institute of Interdisciplinary Business Research

1124

ijcrb.webs.com

MAY 2011
VOL 3, N O 1

INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

Admin Expense to Gross Income (NII+Not Interest Income) ROA before Tax ROE Before Tax ROA After Tax ROE After Tax NIM (based on earning assets) Average Cost Of Deposits & Borrowings Avg. Return On Advances & Investments Average Spread Basic Earnings(pre provision and tax) to net loans Operating Cost to Deposits Return on Loans & Advances cost of Deposits Spread Return of Total Advances Return on Performing Loans Spread Between Return on Performing Loans 2.6% 4.7% 0.0% 0.0% 0.0% 0.0% 4.5% 5.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1.7% 6.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 2.3% 5.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 12.5% 4.9% 14.6% 6.7% 14.1% 5.7% 12.9% 6.0% 7.6% 8.0% 8.3% 6.9% 77.4% 0.2% 7.5% 0.1% 2.9% 4.0% 64.4% 0.9% 29.5% 0.2% 5.7% 5.8% 70.2% 0.6% 19.7% 0.3% 8.3% 5.0% 81.9% 0.8% 24.4% 0.4% 11.5% 5.3%

73.9% 0.8% 24.7% 0.4% 13.7% 5.1%

62.7% 1.2% 33.7% 0.6% 17.8% 6.4%

63.4% 1.5% 33.4% 0.8% 18.7% 5.2%

55.0% 1.4% 31.7% 0.9% 19.6% 3.4%

64.3% 1.5% 31.6% 0.9% 19.0% 3.1%

31.7% 4.7% 68.8% 3.2% 47.1% 6.2%

5.0%

4.8%

3.3%

1.3%

0.9%

1.1%

10.6% 5.6%

11.5% 6.8%

8.7% 5.4%

4.7% 3.4%

4.0% 3.1%

7.4% 6.2%

2.8% 5.3% 9.1% 4.3% 4.8% 8.6% 10.1% 1.6%

5.6% 4.8% 11.1% 4.2% 6.8% 10.4% 12.2% 1.8%

4.8% 4.4% 9.4% 3.1% 6.3% 8.7% 10.3% 1.6%

4.5% 3.6% 5.2% 1.1% 4.1% 4.9% 5.5% 0.7%

3.2% 3.4% 4.2% 0.7% 3.5% 4.0% 4.3% 0.3%

7.9% 2.9% 7.6% 0.2% 7.4% 7.3% 7.7% 0.4%

COPY RIGHT 2011 Institute of Interdisciplinary Business Research

1125

ijcrb.webs.com

MAY 2011
VOL 3, N O 1

INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

and Total Loans Incidence of NPLs: Effective Return on Gross Loans Return on Performing Loans Total Effective Incidence of NPLs -2.0% -2.5% 0.0% 2.5% -0.3% 0.0% 0.3% -0.5% 0.0% 0.5%

7.2% 10.1% 2.9%

7.8% 12.2% 4.4%

7.9% 10.3% 2.4%

4.0% 5.5% 1.5%

3.7% 4.3% 0.6%

6.6% 7.7% 1.1%

COPY RIGHT 2011 Institute of Interdisciplinary Business Research

1126

ijcrb.webs.com

MAY 2011
VOL 3, N O 1

INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

Table No .5 Liquidity & Sensitivity Section NBP 1996 0.0% 36.4% 1997 0.0% 41.4% 1998 0.0% 40.1% 1999 0.0% 41.6%

2000 2.3% 44.3%

2001 1.8% 48.7%

2002 0.7% 38.7%

2003 0.0% 40.8%

2004 0.2%

2005 1.1%

Net Call Money to Total Liabilities Loan and Advances to Total Deposits Loans to Deposits Ratio: Net of Export Refinance Borrowings Growth rate of Deposits Equity Market Holdings to Fixed Income Gov. Securities Liquid assets to Total Assets Liquid assets to Deposits Liquidity & Sensitivity Section MCB

47.4% 58.0%

34.0%

39.1% 8.0%

37.2% 7.3%

38.5% 7.8%

43.6% 7.4%

48.2% 10.5%

38.2% 3.8%

40.3% 9.0%

46.7% 57.1% 17.7% -0.5%

0.0% 55.1% 64.0%

0.0% 46.2% 56.2%

0.0% 42.9% 51.0%

0.0% 43.3% 51.5%

2.0% 43.6% 51.2%

9.3% 40.3% 47.9%

5.0% 51.4% 61.3%

3.8% 51.9% 61.6%

4.5%

4.4%

46.5% 37.1% 55.3% 46.3%

Net Call Money to Total Liabilities Loan and Advances to Total Deposits Loans to Deposits Ratio: Net of Export Refinance Borrowings Growth rate of Deposits Equity Market Holdings to Fixed Income Gov. Securities Liquid assets to Total Assets Liquid assets to Deposits

0.0% 53.5%

0.0% 51.7%

0.0% 52.9%

0.0% 51.7%

2.9% 63.5%

4.4% 49.6%

1.0% 43.2%

1.2% 46.0%

2.9%

3.0%

62.1% 78.6%

50.1%

48.1% 10.1%

49.1% -0.5%

46.7% 5.3%

60.7% 4.3%

48.0% 13.6%

41.8% 18.2%

44.2% 15.8%

60.1% 76.5% 4.5% 3.7%

0.0% 41.8% 50.1%

0.0% 43.4% 52.4%

0.0% 42.6% 51.6%

0.0% 38.4% 46.8%

8.7% 35.8% 46.0%

7.3% 46.1% 55.7%

5.0% 57.6% 74.1%

4.6% 56.5% 72.8%

10.1% 12.8% 37.2% 30.9% 43.6% 40.2%

COPY RIGHT 2011 Institute of Interdisciplinary Business Research

1127

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.