Analysis of Financial Statements

Stay Ahead with HMB!

 GRADUATE SCHOOL OF MANAGEMENT

INTERNATIONAL ISLAMIC UNIVERSITY ISLAMABAD

Muhammad Farooq (3440)
Muhammad Khalil Hussain (3443)
Muhammad Ahsan (3427)

+92 333 9835303

+92 333 6836340
+92 333 5023773
indusbreeze@yahoo.com
mianwali@yahoo.com

HABIB METROPOLITAN BANK

Mr. Wasim Ullah
Director IMDC
MBA (LUMS)
DAIBP
0321-5824994
wasimullah@iiu.edu.pk

HABIB METROPOLITAN BANK

BANKING INDUSTRY OF PAKISTAN

Governor State Bank of Pakistan Syed Salim Raza has said

that Pakistan's banking industry had tremendous
potential for further investment in the financial sector of
the country. Pakistan has a well-developed banking
system, which consists of a wide variety of institutions
ranging from a central bank to commercial banks and to
specialized agencies to cater for special requirements of
specific sectors. Major factors like global financial
disorder, economic slowdown and strict monetary policy
were on the top but Pakistani bank cater all these
problems.
  Entityis a result of a merger b/w Habib Bank AG
Zurich & Metropolitan Bank Ltd. on 26-Oct-2006
 Headquarter in Switzerland, the HBZ Group also
operates in Hong Kong, Singapore, United Arab
Emirates, Kenya, South Africa, United Kingdom and
North America.
 Over 100 branches throughout Pakistan.
 HBZ (incorporated 1967) enjoys International ranking
of 687 in terms of capital.

HABIB METROPOLITAN BANK

 HMB is the first bank in Pakistan to join the Global Trade
Finance Program (GTFP) of International Finance
Corporation (IFC). By virtue of joining the GTFP, HMB
bank is now listed in a panel of prominent banks in 70
countries
 Credit rating in long-term “AA+” and in short term
“A1+”
 Portfolio diversification

(54% advances to Textile industry)

 Rank within top 10 banks of Pakistan.

HABIB METROPOLITAN BANK

  Loans are given only to known, reputable clients to
avoid chances of fraud.
 Very low nonperforming loan.
 Majority of shares are owned by the Habib group.
 HMB offers full range of Trade Finance products and
services to its customers. Due to its wide network of
correspondent banking arrangements with most
reputed international banks
 Continuous growth in ROE (0.22 in 2008)

HABIB METROPOLITAN BANK

 FUTURE OUTLOOK OF HMBL:

Up-till now HMBL has not been able to come up

with different products in retail banking, branch
banking, insurance, and mortgage. With the
presence of large foreign banks like Citibank,
RBS and Standard Chartered one finds it
convenient to believe that HMBL faces tough
competition in consumer banking from these
worldwide giants. HMBL's net interest margin is
one of the highest in the industry. Interest income
is the major source of income for HMBL.

HABIB METROPOLITAN BANK

 MICHEL PORTERS FIVE FORCES ANALYSIS

1. Threat of Entry: (Medium)

No restriction from SBP for new banks. SBP gives free hand to enter in this
industry because there is a big scope in this industry. To start a new bank
there is a need of large financial resources in order to compete with existing
banks and Government current interest policy is also a problem for new
entrant.
Existing banks have great customer loyalties and they differentiate their
services.
New entrant’s need network of branches and to get favorable location for
branches is also difficult. Existing banks has also advantage of expertise and
diversity of their branches.

HABIB METROPOLITAN BANK

 MICHEL PORTERS FIVE FORCES ANALYSIS

2. Intensity of Rivalry among Existing Competitors:

Degree of difference between products is very low.
Competition in existing firms has very high due to numerous and equally
balanced competitors. Due to entrance of new foreign banks, competition
increased.
There are high exit barriers due to high fixed cost, Govt. and social
restriction.
Banking industry growth is medium to high due to competition increases
day by day.
Some banks have new technology which gave advantage to them.

HABIB METROPOLITAN BANK

 MICHEL PORTERS FIVE FORCES ANALYSIS

3. Threat of Substitute Products:

Islamic mode of financing is a substitute for conventional banking system.
Habib Metropolitan bank also start Islamic banking in Karachi and Lahore.
4. Bargaining Power of Buyers:
Giant client bargain highly. Products or services have no high difference. Buyer
has full information about whole banking industry in Pakistan then he/she may
give tuff time for bargaining. Switching cost is not high from one bank to
another; prospective banks charge low fees for switching. Banking
products/services may unimportant to the quality of the buyers.

HABIB METROPOLITAN BANK

 MICHEL PORTERS FIVE FORCES ANALYSIS

5. Bargaining Power of Supplier:

The State Bank of Pakistan control the whole banking industry and
National Bank of Pakistan control the securities etc. They have power
given by the Govt. of Pakistan. They control the cash requirements of the
banks and all other banks follow the instructions given by the SBP.

HABIB METROPOLITAN BANK

 Segment 2008
Textile 54.03%
Exports/Imports 7.21%
Chemical and pharmaceuticals 3.65%
Wholesale and retail trade 2.98%
Electronics and electrical 2.29%
Others 29.84%

HABIB METROPOLITAN BANK

HABIB METROPOLITAN BANK
Liquidity Ratios:
Mar-09 2008 2007 2006
Advances to Deposit ratio 0.857 0.845 0.742 0.813
Earning Assets to Assets 0.906 0.888 0.900 0.863
Yield on earning Assets 0.027 0.098 0.077 0.057

HABIB METROPOLITAN BANK

 Return on Equity:
Mar-09 2008 2007 2006
Net income after taxes 1,896,974 3,279,736 2,797,408 2,097,203

Total equity capital 16,904,052 15,096,526 13,519,908 10,869,426

ROE 0.11 0.22 0.21 0.19

HABIB METROPOLITAN BANK

Breakdown Analysis of ROE

Mar-09 2008 2007 2006

Net profit margin 0.34 0.16 0.18 0.23
Assets utilization 0.03 0.11 0.09 0.06
Equity multiplier 11 12 13 14
ROE 0.112 0.217 0.207 0.193

HABIB METROPOLITAN BANK

Solvency Ratios:
Mar-09 2008 2007 2006
Equity to assets 0.089 0.083 0.078 0.073
Equity to deposits 0.142 0.118 0.112 0.106
Earning assets to deposits 1.437 1.262 1.285 1.252
Cash assets and Government 0.052 0.063 0.059 0.076
securities to total assets

HABIB METROPOLITAN BANK

Solvency Ratios:

Earning Assets to deposits

HABIB METROPOLITAN BANK

Debt Management :

Mar-09 2008 2007 2006

Debt to assets 0.911 0.917 0.922 0.927
Debt to equity 10.18 11.06 11.79 12.68
Capital Adequacy Ratio - 0.62% 2.50% 1.88%

HABIB METROPOLITAN BANK

Debt Management :

HABIB METROPOLITAN BANK

 Profitability Ratios:
Mar-09 2008 2007 2006
Net interest Margin 0.93% 2.73% 2.15% 1.93%
Non interest Margin -0.01% 0.56% 0.53% 0.26%
Assets Utilization 3% 11% 9% 6%
Equity Multiplier 11.18 12.06 12.79 13.68
Net Operating Margin 0.75% 2.60% 2.43% 2.12%
Tax Management Efficiency 134.57% 69.14% 66.54% 66.70%
Expense Control efficiency 34.33% 16.28% 18.45% 23.25%
Asset Management efficiency 2.92% 11.06% 8.77% 6.07%
Funds Management efficiency 11.18 12.06 12.79 13.68

HABIB METROPOLITAN BANK

Profitability Ratios:

HABIB METROPOLITAN BANK

Earning Ratios:
Mar-09 2008 2007 2006
Return on deposits 0.008 0.026 0.023 0.020
Return on assets 0.005 0.018 0.016 0.014
Earning spread 0.010 0.029 0.022 0.023

HABIB METROPOLITAN BANK

 Peer Group Analysis

Habib Metropolitan Bank Peer Group

2006 2007 2008 2006 2007 2008
Return on equity
(ROE) 19% 21% 22% 27% 26.18% 20.26%
Return on assets
(ROA) 1.40% 1.60% 1.80% 1.53% 1.56% 1.33%
Net interest margin 1.93% 2.15% 2.73% 3.29% 2.97% 3.72%
Net non-interest
margin 0.26% 0.53% 0.56% -0.93% -0.76% -1.10
Net operating margin 2.12% 2.43% 2.60% 2.34% 2.16% 1.99%
Earnings Per Share 4.92 5.57 5.45 6.59 4.59 4.95
Earning spread 2.90% 2.20% 2.31% 3.38% 3.07% 3.96%

HABIB METROPOLITAN BANK

 RISK MANAGEMENT

2008 2007 2006

Non-performing assets to total loans and lease 0.53% 0.90% 1.00%
Non-performing assets to equity 4.08% 5.95% 7.18%
Loss to total loans 0.001% 0.04% 0.09%
Provision to total loans 0.37% 0.78% 1.00%
Capital adequacy 11.88% 12.50% 10.62%
Total loans to total deposits 81.30% 74.20% 84.49%

HABIB METROPOLITAN BANK

 RISK MANAGEMENT

Credit risk:
The HMB strategy is to minimize credit risk through a strong pre-
disbursement credit analysis, approval and risk measurement process
added with product, geography and customer diversification. The Bank,
as its strategic preference, provides loans only to strong parties. Major
portion of the Bank credit portfolio is Textile industry (54%) which is
highly profitable business in Pakistan but it may riskier and not a good
diversification of portfolio, if textile industry slump then it will crash the
whole bank. The bank has very low rate of Non-performing loans. The
ratios of risks are as under and we can see that they reduce the risk as
per their objective.

HABIB METROPOLITAN BANK

 Market Risk:
Market risk is the possibility that fluctuation in interest rates, foreign
exchange or stock prices will change the market value of financial
products leading to a loss. The HMB has formalized liquidity and
market risk management policies which contain action plans to
strengthen the market risk management system.
Foreign Exchange Risk:
Foreign Exchange Risk is the probability of loss resulting from adverse
movement is exchange rates. The HMB is not in the business of
actively trading and market making activities but a conservative risk
approach and the Bank’s business strategy to work with export
oriented (Textile) client’s gives the ability to meet its foreign exchange
needs.

HABIB METROPOLITAN BANK

 Interest rate risk:
Interest rate risk is the risk that the value of the financial instrument
will fluctuate due to changes in the market interest rates. The HMB’s
interest rate exposure is low due to the short-term nature of the
majority of business transactions. Interest rate risk is also controlled
through flexible credit pricing mechanism and variable deposit rates.
Liquidity risk:
HMB manages the liquidity position on a continuous basis. The Bank’s
liquidity position is based on “self reliance” with a wide branch network
to expand the Bank deposit base. The Bank’s liquidity profile generally
consists of short-term, secured assets, in line with the Bank’s credit
strategy.

HABIB METROPOLITAN BANK

RECOMMENDATIONS
 Diversify the portfolio
 Introduction of new products/services in
the market
 Hire new management
 Give importance to all customers
 Increase the branches all over the country
 Improve standard of banking
 Start advertisement as soon as possible

HABIB METROPOLITAN BANK