FINANCIAL STATEMENT ANALYSIS OF FIVE

LARGE MARKET BASE CAPITALIZED

COMMERCIAL BANKS

A Research proposal submitted in partial fulfillment of the

requirements for the degree of Master of Business
Administration

by

Naveen Nawaz Talpur

0904-MBA01

Department of Management Sciences

Faculty of Computer & Management Sciences
Isra University, Hyderabad.

INTRODUCTION
At the time of independence, the areas which now constitute Pakistan were producing
only food grains and agricultural raw material for indo – Pakistan sub continent. There
were practically no industries, and whatever raw material was produced was being
exported from Pakistan. However, commercial banking facilities were provided fairly
well here. There were 487 offices of scheduled banks in the territories now constituting
Pakistan. As a new country without resources it was very difficult for Pakistan to run its
own banking system immediately. Therefore, in accordance with the provisions of Indian
independence act of 1947, an expert committee was appointed to study the issue. The
committee recommended that the reserve bank of India should continue to function in
Pakistan until 30th September 1948, so that the problems of time and demand liability,
coinage, currencies, exchange etc. are settled between India and Pakistan. The
imperial bank of India which had been acting as the agent of reserve bank of India
closed down most of its offices in Pakistan, and also wasn’t willing to purchase even
token amounts of government of Pakistan securities on the plea that these securities
were not marketable. In order to make necessary arrangements for the assumption of
control an expert committee was appointed to recommend necessary steps, including
the required legislation to establish a central bank for Pakistan. The foreign expert
advised that due to acute shortage of qualified staff the establishment of a central bank
was not practicable; but he recommended a currency board until such time as the
conditions become favorable. However, contrary to the recommendations, the
government of Pakistan decided to establish a full fledge central bank. Consequently
the Governor-General of Pakistan and the father of the Nation, Quaid-i-Azam
Mohammad Ali Jinnah, inaugurated the state bank of Pakistan on July 1st, 1948, after
the state bank of Pakistan order was promulgated on may 12, 1948. Thus all and mark
was made in the history of banking when the state bank of Pakistan assumed full
control of banking and currency in Pakistan. (SBP- manual 2002)

Pakistan is a developing country its financial sectors consist of

different types of institution. Commercial banks are the major part of the financial sector.
In the development of the Pakistan’s economy increasing commercial banks playing an
important role. The state bank of Pakistan— sbp, the central bank was formed after
partition in 1948. In 1974 all domestic commercial banks were nationalized by the
government. In 1997 SBP started to perform as the sole regulatory authority for banks
and financial institutions in Pakistan.sbp performs both the traditional and
developmental functions to achieve macroeconomic goals. In 1990, seven domestic
banks and seventeen foreign banks were doing business in Pakistan. All the domestic
banks were owned by the government. Entry of domestic private sector in the banking
business had been banned since the promulgation of banks Nationalization act 1974.
However, as a part of financial liberalization strategy of 1990s, private sectors were
allowed to open commercial banks in 1991. During the next ten years the process of
entering of new banks and existing of inefficient banks continued. To make the banking
sector competitive, the government also denationalized a couple of commercial banks.
In 1999, there were 19domestic banks among these banks, four were owned by the
federal government, two were privatized, two were owned by the provincial
governments and the rest were in the private sector. Except these banks seventeen
foreign banks were also in Pakistan during that time period.

(M. FAROOQ sbp- October 2003)

LITRATURE REVIEW
Financial Statements serve a major purpose in any business or organization. The main
purpose of financial statements, according to HBS Management (Singer, 2007), is for a
business to determine how well they are doing as a company. Financial statements also
tell the organization’s stockholders and investors how profitable the company is.
Lenders use financial statements to see if a company can afford to pay their bills on
when they are due. Financial statements provide lots of information for all the people
involved in a company. Health care financial statements provide the same information to
be given but fall under a different set of rules from other industries, the computation of
ratios differently (McLean, 2003)

Financial statements, as defined by the Oxford Business Dictionary are the “annual
statements summarizing a company’s activities over the past year...” These statements
include, but are not limited to the Cash Flow Statement, the Profit and Loss Statement
(Income Statement), and the Balance Sheet. According to the FASB (The Financial
Accounting Standards Board), the financial statements of a firm should provide
sufficient information to be useful to all .Stakeholders for example investors and
creditors. Financial statements are prepared periodically in accordance with a set of
standards known as the generally accepted accounting principles (GAAP). These
standards provide the framework of guidelines for financial accounting.(oxford business
dictionary)

PROBLEM DEFINITION
Commercial banks have been in stabilized economically and financially. Unawareness
of the services of Commercial Banks among Public is covering a quite a vast region,
that is to be uncovered in order to achieve better growth in Commercial Banking Sector.

Commercial banks are developing day by day. Strong earnings and

profitability of banks reflects the present and future operations. Now Banking is a vast
financial sector which protects the savings of the people and provides various facilities
at their doorsteps. Increasing commercial bank’s products give impact on their
productivity and profit and people also satisfy having such facilities which makes easy
their lives like getting know how about their balance through mobile banking system.
They can easily deposit or transfer their money through online banking system. And
now also people are more facilitated by providing them many saving schemes like
investment savings, engro rupaya certificate etc. By increasing such products
commercial banks are enhancing their business and achieving their goals. This thing
increases my interest of study towards the large capitalized commercial banks.

SCOPE OF STUDY
This entire research is based on the analysis of the annual financial statements of top
five market based capitalized commercial banks for evaluating their performance and
progress . These five banks are:

Allied bank limited. (780 branches all over the Pakistan)

Habib bank limited. (1400 branches in 25 countries)

MCB bank limited. (1000 branches in nationwide distribution)

National bank of Pakistan. (1250 branches in Pakistan)

United bank limited (1100 branches in Pakistan)

OBJECTIVE
Following are the specific objectives of the study:

To analyze the annual financial statements.

To forecast the future Growth of the commercial banks.

To Analyze the earnings and profitability scenario and also loses.

HYPOTHESIS
If Commercial banks use their capital, assets, and other resources efficiently then they
must remain in their same position.

RESEARCH METHODOLOGY
In this research both qualitative and quantitative data will be used. But the major part of
the thesis will be covered by using secondary data like financial statements,
newsletters, magazines etc.

REFERENCES
www.sbp.com.pk

Structure and performance of commercial banks in Pakistan by M. FAROOQ sbp-

October 2003

McLean, research paper 2003

Oxford Business Dictionary