Business and Financial Performance of Bank Al Habib

An Analysis of Business and Financial Performance of Bank Al Habib



I have chosen the topic “The business and financial performance of an organisation over a three year period” for my research project in order to fulfill the requirements of ACCA leading to a B.Sc. (Hons.) from Oxford Brookes University. I selected BANK AL HABIB LIMITED as the organization for my analysis.


There were a majority of reasons why I choose a bank for my analysis which have been described in detail below:

My desire to practically apply ratio analysis and comparative analysis tools in real-life led me to choose this topic as it would provide me with an opportunity to compare organizations with real data.

Information regarding the bank’s operations and its competitors is available easily for the banking sector of Pakistan.

The banking sector of Pakistan has contributed significantly to the growth and development of the economy.

Bank AL Habib is one of the biggest financial institutions of Pakistan with a rich history of ownership, business and sustainability. The bank has one of the largest ATM networks in Pakistan and boasts of a rich mix of products and services targeted at families, senior citizens, students and youngsters – in short the bank covers a great proportion of the banked population of Pakistan (Bloomberg Businessweek, 2010).

The research on Bank AL Habib will allow me to get an understanding of the liquidity issues which are a significant source of concern from macroeconomic perspectives.


The foremost objective of this research is to analyze the direction and business performance of Bank AL Habib with respect to its competitors. However, it is more appropriate to break the research objectives into smaller distinctive goals which are defined as follows:

The basic understanding of the banking industry of Pakistan, its growth and performance over the past few years and its relative importance to the growth and development of the economy of Pakistan.

A relative comparison of Bank AL Habib’s growth and competitiveness in the highly adrenalized banking sector of Pakistan.

Analysis of BAHL in terms of profitability i.e. to assess a firm’s ability to create economic value in excess of value expended, to grow, remain solvent and repay debt (Ross, Westerfield & Jaffe, 2008).

Analyzing the liquidity position of BAHL and commenting on ability to repay short-term creditors out of its total cash with a comment on the relationship between the bank’s current assets and current liabilities.

The relative efficiency of the bank’s operations and the degree to which its operations can be termed effective.

A check on the long-term solvency of the bank including an analysis of the capital structure, its stability and vulnerabilities.

Investigation of the relative strengths, weaknesses, opportunities and threats that is currently relevant to the Bank and the direction that the management should steer in to capitalize on the positive aspects of the market opportunities and retain its lead in the industry. Also included is the strategic direction that Bank AL Habib should adopt to combat the threats and weaknesses that it faces (Bloomberg Profile: BAHL, 2010).

A Porter’s five force model analysis for evaluating the intensity of competition in the industry

A conclusion regarding the performance of the company and suitable recommendations for the bank to step up ahead of its competition and lead the way for its customers.

One of the most challenging tasks of a research project is to pen down the most relevant and appropriate research questions. Even more challenging is that the research questions should serve a broader research perspective for other researchers. Some of the significant research questions that are relevant to this research are as follows:

Does the performance of Bank AL Habib significantly outdo that of the banking industry in general?

Does the data collected for the research present an unbiased picture of Bank AL Habib’s performance?

Are tools such as SWOT, Porter’s five forces reliable in estimating the current position of the bank viz-a-viz its competitors?

Which factors affect the profitability, liquidity and capital and debt structure of the company?

What are the major strengths and weaknesses, opportunities and threats faced by Bank AL Habib?

Does the Bank possess sufficient resources and capabilities to compete in today’s competitive environment?


It is of paramount importance to plan and coordinate a research activity by dividing it into smaller steps of activities that can be individually achieved. In order to utilize my time and resources efficiently and focus greatly on the analysis (rather than the data) I chalked out the following research approach:

My first step was to create an outline (schedule) governing my meetings with my mentor, Mr. Laeeq ur Rehman (MBA, ACCA).

I shortlisted the tools and techniques including the ratios that I would be using in my analysis.

I divided my time between data gathering and analysis with a further sub-division of the former group into: primary and secondary data gathering.

The task of secondary data gathering was conducted first which was closely followed by primary data gathering.

I focused on conducting the ratio analysis portion before the SWOT or the Porter’s matrix. This enabled me to understand the financial performance of the bank before I could comment on its competitiveness (Seshadri, 2010).

A discussion with my mentor on the quality, scope and focus of the ratio analysis was conducted and appropriate changes were made.

I used SWOT and Porter’s five forces model to establish my opinion of the research project.

A thorough review of the entire project including proofreading, reliability of the data and the extent to which the findings were unbiased (or biased) was evaluated following which a discussion with my mentor was held.

My final recommendations based on my interpretation of the data were added after the conclusion.



The quality of any research project is directly dependent on the quality of the data gathered. There were two different subsets of the data: primary and secondary. Whilst streaming secondary data was comparatively easier, primary data had to be steered from the right person for it to be countable at research level.

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My family has been a customer of Bank AL Habib for the past fifteen years owing to which my father has had a wide acquaintance of bankers who have progressed on into the upper management. This allowed me to get an exclusive interview with a senior branch manager of one of the biggest branches of Bank AL Habib (Shahra-e-Faisal, Karachi), a Provincial Area Manager (Sindh) and the Head of the IT Division of the Bank (a Senior Vice President). The combined meeting with the three gentlemen allowed me to put together a session which covered the insider opinion about the bank, its operations, strengths and weaknesses and the road ahead for growth and opportunity. A variety of secondary sources, all referenced, were used for the purpose of this research which includes:

Annual financial statements of Bank AL Habib and NIB Limited (for comparison purposes).

News announcements, bulletins and important financial data already available on the Bank AL Habib online portal.

A variety of course books (ACCA) for the purpose of ratio analysis definitions, interpretations and guidelines.

Important newspaper publications in DAWN and other related articles of in magazines have provided me a broader scope of both the market and the bank. It helped me to arrive at the relevant information which helped me to perform my analysis project in an enhanced way. Significant contribution by the ex-President of the State Bank of Pakistan, Dr. Ishrat Husain immensely aided my efforts (SBP Ordinances, 2010).

The student accountant magazine issued by ACCA was an excellent guide in helping me understand the presentation of my work.

A variety of online journal articles and book chapters supplemented and aided my research work greatly.


The information I had gathered cannot be said to be complete or be determined to be free from bias:

The interview was comprehensive and allowed for an interactive session and the data collected was abundant to form basic assumptions. However, the time constraints associated with a personal meeting reduced the extent to which maximum information could be extracted.

There was not very authentic material available on the Internet on Bank AL Habib’s performance and growth. Blogs and online forums are not research-useful information sources and presented me a difficult task of searching for newspaper articles amidst a vast mix of random content. Thus, it was wiser to use more published sources of secondary information than rely on informal sources of data.


I made it a point throughout the entire project to uphold the academic integrity standards professed by ACCA, UK and maintain honesty with the guidelines set by Oxfords Brookes University. I have used data from a variety of sources and have credited it by using a citation. Presenting it as my own ideas would amount to plagiarism which is not the trait of an honest student and thus I have refrained from it (Kaplan & Norton, 2001). The information shared by the three gentlemen with me was used solely for this research and has not been shared with any third party whatsoever. Regardless of the fact whether the Bank would have had regarded this information as confidential or not I exercised my best judgment in keeping it within the boundaries of the purpose for what it was intended by the information providers.


My research comprises of a Ratio Analysis, SWOT Analysis and Porter’s five forces analysis to form my research and analysis report:


Ratios provide a means of systematically analyzing financial statements. These can be grouped under headings profitability, liquidity, gearing and shareholder’s investment (Ross, Westerfield & Jaffe, 2008). An important and highly reliable tool to measure and judge the performance of a company, but at the same time, it requires extraordinary judgment for interpretation and decision-making. Ratios have been calculated from the items extracted from the balance sheet and the income statement published in the annual reports of Bank AL Habib Limited for the years 2007, 2008 and 2009. A comparison with NIB Limited was included as part of the extended analysis. As the focus of this research is a bank, hence most ratios appropriate for the banking industry have been included in the list. There are however, limitations that can be associated with ratio analysis, some of which are as follows:

Banks are often not comparable even if they belong to the same country owing to their stark differences in the target market and related belt of financial services being offered eg: insurance

Financial statements are based on historical costs and do not take inflation into account.

Management may hedge or exaggerate their financial figures; thus, certain ratios will not be accurate indicators.

A ratio does not describe the quality of its components.

Ratios are static and do not consider future trends.


A SWOT analysis is a useful tool to identify the various strengths, weaknesses, opportunities and threats to an organization. This includes a 360-degree view of the different competitive strengths and weaknesses too and provides an analysis of the organizational fit in the environment (Ibrahim, 2003). The associated limitations of a SWOT analysis are as follows:

SWOT analysis often produces lengthy lists which are each accorded the same weighting, when in fact not all strengths and weaknesses facing the company will be weighted the same.

Strengths and weaknesses may not be readily translated into opportunities and treats.

There is a lot of ambiguity in SWOT analysis; the same factor can simultaneously be characterized as both strength and a weakness, and opportunities can be classified as a weakness.


This tool was used to analyze the competitive positioning of the banking sector. Porter explains that in any industry there are five forces that influence what happens within the industry:


This model focuses on the composition of the industry – whether it is monopolistic, oligopolistic etc. The limitation of this model however, is that it can provide the number of competitors, their relative sizes but it is difficult to judge the individual competition between two banks.

Potential for new companies

This business model identifies the extent to which new entrants in the market can pose as a threat – whether now or in the future. The limitation of the model is that it cannot identify whether any change in rules will possibly pave the way for new entrants or not. In short, the model explores only the status quo of the problem ignoring the possible future implications.

Substitutes for products offered

Close substitutes are one of the most important source of concern for any business. This is due to the fact that most banks try to distinguish their products by reducing the substitutability of their offer. The limitation of this model is that it is often difficult to deduce whether a non-substitutable product can become a potential substitutable product in the near future due to product modifications or not (Ibrahim, 2003).

The suppliers

This model assists in analyzing the dependencies of an organization and the extent to which its suppliers can control its output and offers. In addition to this, the model tells us about the degree to which organizations can control the market through their suppliers. In this case, it would be difficult to associate a particular entity with the position of a supplier due to the nature of the product (Brealey, Myers & Allen, 2006).

The customers

The customer analysis model provides information about the purchasing power and influence of the customer with respect to a business. However, it is impossible to deduce the reason behind this influence or to propose changes that would favor the organization in reducing the influence of the customer (Porter, 2006).

The related limitation of this model is that the model assumes relatively static market structures. Modern development and technology has reduced barriers making markets more efficient and evolving and it is no longer safe to assume that customer choice remains stagnant over time.



Bank AL Habib Limited is Pakistan-based scheduled bank principally engaged in the business of commercial banking with a network of 273 branches, including a wholesale branch in the Kingdom of Bahrain and a branch in Karachi Export Processing Zone. Registered in Multan, the bank came into existence in the year 1991 but has since then progressed steadily and is now a gigantic financial institution in Pakistan. The bank also operates seven Islamic Banking branches and offers Internet banking, consumer banking and commercial banking (Annual Reports, 2009).

The asset base of the bank grew to PKR 250 billion by the end of year 2009 which was made up of nearly 75% deposits (Annual Reports, 2009). The growth of Bank AL Habib has been phenomenal in the last five years and the number of branches has grown steadily – and so has its customer base.


The following table displays historical economic growth of Pakistan over the period 2002 to 2007:

The outlook of the economy shows continued GDP growth coupled with further reduction in inflationary pressures which had reached worrying levels in 2005 (SBP & IGI Research, 2009). The principal concern is the widening trade deficit which is expected to worsen in the coming years owing to rising imports. Most economists in Pakistan are of the view that this issue coupled with the changing geo-political scenario remains the two principal risks to the performance of the country (Khan, 2009).


The banking sector of Pakistan can be divided into distinctive groups based on their ownership, charter and functions. During the past decade, the average growth rate in the bank industry has remained double-digit owing to a rapid deployment of technology-based services (Khan, 2009). “Among the commercial banks, 12 foreign and 20 domestic banks together hold 80% of the banking system assets. The overall size of the banking industry in Pakistan is PKR 6-6.5 trillion with nearly PKR 5 trillion in deposits (Kiani, 2010)”.

The minimum capital reserve requirement schedule has been defined by the State Bank of Pakistan in a bid to improve the liquidity of the industry and ensure maximum consumer protection. These measures were deemed to be important in order to improve the quality of banking in Pakistan (SBP Ordinances, 2010).


The ratios have been calculated from the data taken from the Annual Reports of Bank AL Habib for FY2009 (financial year ended December 31, 2009) FY2008 and FY2007. To facilitate comparison figures of NIB Limited have been used for FY2009 and FY2009 (Annual Reports, 2006-9).


The growth rate of the interest earned from the borrowers, interest expensed on the depositors and the net interest earned as net income is measured below. (Amounts are in PKR 000s)







Mark-up /Return/Interest Earned






Mark-up/Return/Interest Expensed






Net Mark-up/return/Interest Income






(Annual Reports, 2006-9)





Mark-up /Return/Interest Earned




Mark-up/Return/Interest Expensed




Net Mark-up/return/Interest Income




(Annual Reports, 2007-9)

Interest Earned:

It can be seen that the interest earned by Bank AL Habib Limited (BAHL) has increased by almost half since the last two years. It was around Rs 9.9 Billion in 2007 but increased by 47% to reach Rs 14.6 billion in 2008 and further rose by 52% to peak at Rs 22 billion. However it must be noted that this was the period of financial crisis in which the majority of banks in the world faced decline. But BAHL’s interest earned increased; the major reason for this increase could be the high level of interest rate prevailing in Pakistan. Banks set themselves a proportionately higher rate than the prevailing discount rate of around 12% – 13% during the period. The commercial bank rate in Pakistan is usually more than 5% above the discount rate on loans and other types of borrowings (Kiani, 2010).

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BAHL beats NIB in this area, although in 2008, NIB’s earnings (Rs 15.2 billion) were a bit higher than BAHL’s (Rs 14.6 billion), the increase of 52% for BAHL in 2009 was way above the increase of only 20.2% for NIB which saw it reaching Rs 18.2 billion as compared to BAHL’s Rs 22.1 Billion (Annual Reports, 2006-9).

Interest Expenses:

For BAHL, interest expenses rose by 38.9% from Rs 5.8 billion to Rs 8 billion in 2008 and then further increased by a staggering 63% in 2009 to Rs 13 billion. This may be a major concern for the bank because in 2009 interest earned rose by 52% whereas interest expenses rose by 63%. Hence the net effect is much lower. It may be termed as a positive sign as the deposit base is also rising during this period as shown in the balance sheet of the bank.

As compared to BAHL, NIB’s interest expensed just rose from Rs 10.8 billion to Rs 12.9 billion recording the increase of only 19.2%. but it is lower than the growth of interest earned of 20.2%. So the net increase would be positive but still lower than that of BAHL’s.

Net Interest Income:

BAHL’s growth rate in net interest income has fallen from 57% in 2008 to 37.8% in 2009. This is mainly due to the fact that the interest expensed saw a sharp increase in the growth rate from 38.9% to 63.1% but the interest earned faced a steady increase in the growth rate from 46.7% to 51.6% in the same period. However, in two years’ time the net income has more than doubled from Rs 4.2 billion to Rs 9.1 billion (Annual Reports, 2006-9).

For NIB, the growth rate in 2009 was only 22.7% as compared to 37.8% for BAHL. Also the net income just rose from Rs 4.4 billion to Rs 5.4 billion in 2009 thus recording an increase by Rs 1 billion only as compared to Rs 2.5 billion for BAHL. Hence, BAHL is much better off in this regard from at least NIB. The growth of BAHL as compared to NIB was better during the past three years.





GP Margin ((Net Interest Income (after Prov) Margin))




NP Margin (After Tax)




(Annual Reports, 2006-9)





GP Margin ((Net Interest Income (after Prov) Margin))



NP Margin (After Tax)



(Annual Reports, 2007-9)


Gross Profit Margin:

BAHL’s margins have been slightly dropping during the past 3 years: 41.1% in 2007, it dropped to 37.25% in 2008 and 35.64% in 2009. But our previous results show that the interest earned has been rising and so is the net interest income. NIB had a negative margin in 2008 mainly because it was in huge losses even at the gross level, however, things improved in 2009 and the gross “profit” margin rose from -34.6% to 23%. BAHL is much more profitable than NIB throughout this period.

(Annual Reports, 2006-9)

Net Profit Margin:

The NPN is declining for BAHL as it dropped from 22.2% in 2007 to 16.6% in 2008 and further down to 12.9% in 2009. Some effect has been generated at the gross level; however the increase in non interest based expenses and other administrative expenses have further deteriorated the margins. However, these margins were much better than the competitor NIB as it had negative 49.2% in 2008 indicating huge losses after tax and a mere positive 3.8% in 2009. Although, likewise the GP Margins, there has been tremendous improvement for the profitability of NIB, but still it has to go a long way to reach other profitable banks such as BAHL.

(Annual Reports, 2006-9)

Return on Equity:

The ROE for Bank AL Habib has been falling as all other profitability ratios are during the last three years, 2007 to 2009. It dropped from 60.1% to 50.7% in 2008 and then further declined to 46.8%. This means that in 2009, the return of the bank stood at 46.8% of the share capital they have invested. BAHL’s performance on this ratio was far superior to NIB. However, the increase in the profitability is really commendable as huge losses turned into mild profits for NIB; but during the period growth of NIB is much better.




















(Annual Reports, 2006-9)

Return on Assets:

Considering the huge value of total assets owned by the bank including all the loans and advancements given out to the borrowers, this return is much lower than the return on equity. For BAHL, the ROA is 1.14% in 2009 having fallen from 1.37% in 2008 which was even lower than 1.57% in 2007. This means that on the basis of total assets employed in the bank, it is giving out 1.14% of that as net return.


The methodology being used to calculate the efficiency is the non-interest expense approach where other expenses are divided by net income before accounting for provision (Brealey, Myers & Allen, 2006).








Efficiency Ratio






(Annual Reports, 2006-9)

For BAHL, the ratio is decreasing thus indicating that the bank is getting more efficient with time. In 2007, expenses were around 75.7% of the income before falling to 65.5% in 2008 and further down to 57.4% in 2009. Even if the expenses were increasing, the income was increasing at a better speed thus generating a positive result for the bank. For NIB, the expenses were around double of its income in 2008 eventually showing the bank in huge losses. Even in 2009, these other expenses were almost as much as the main income of the bank, thus again contributing to such low profits before appropriations.










Current Ratio






Advances to Deposits






Cash Ratio






(Annual Reports, 2006-9)

(Annual Reports, 2006-9)

(Annual Reports, 2006-9)

(Annual Reports, 2006-9)

Current Ratio:

BAHL’s current ratio does not indicate any severe problems in terms of liquidity for the bank. The ratio is around 1.27 in 2009 as compared to 1.2 in 2008 and 1.21 in 2007. This means that for every rupee in liability can be covered by around 1.27 rupees of current assets. But when compared to NIB, BAHL’s current ratio is much less. NIB’s current ratio in 2009 is 2.14 and was 1.67 in 2008. This means that NIB’s liquidity is far much better than that of BAHL. NIB can cover its every rupee in short term liability by 2.14 rupees of current assets. It was still better even when NIB was in losses in 2008.

Advances to Deposits (Loans to Deposits) Ratio:

BAHL’s LDR ratio was 0.69 for two consecutive years 2007 and 2008. However, it reduced to 0.56 in 2009 meaning that the total loans given out were 56% of the available deposits (Annual Reports, 2006-9). For NIB, the ratio is much higher, thus showing that the majority of the payable deposits can be paid off from the receivable loans. However, it would be unjustified if we look at the advances to deposits ratio only and not look at the cash ratio in order to analyze the liquidity position of a bank.

Cash Ratio:

The cash ratio results for BAHL show some worrisome results as the cash ratio is being declining since the past three years at least (based on only three years’ data analysis). It was 0.12 in 2007, then it fell to 0.083 in 2008 and it further reduced to 0.076 in 2009. This means that only 7.6% of the payable deposits are available as cash with the bank. But the cash ratio for NIB was relatively better in 2009 at 0.094 meaning that 9.4% of its deposits can be covered by cash. However, it must be noted that it is “relatively” better to BAHL and still faces the risk of insolvency in case of “a run on the bank”. The liquidity of BAHL is relatively worse than that of NIB at least (Annual Reports, 2006-9).


Earnings per Share

The EPS for Bank AL Habib has been declining over the past three years. It declined from Rs 6.01 in 2007 to Rs 5.07 in 2008 and further reduced to Rs 4.68 in 2009. Either the share issue is increasing or the profitability is reducing or the both. It may get difficult for the company to raise equity on the basis of share capital in the future.



Investor Ratios












MV per Share






Earning Yield






(Annual Reports, 2006-9)

(Annual Reports, 2006-9)

NIB’s EPS have risen from a negative Rs 2.63 to positive Rs 0.17. This means that the profitability is rising for the bank as the number of shares issued rarely falls. However, the investors would be wary of the fact that NIB’s EPS is still very low and close to 0 and it could go back to negative zone easily. Hence, it would be better to wait and see the EPS to go away from zero before investing in NIB. So, it is not easy to choose from BAHL and NIB solely in terms of EPS. Therefore we’ll look at other indicators as well.

Market Value per share

BAHL’s market value is way higher than NIB’s, however it must be noted that there was a major dip in the price in 2008 because of the stock market crash in Pakistan (Kiani, 2010). It went down from Rs 77.2 to Rs 24.87 in 2008. However, when the market started regaining, it increased to Rs 32.76 in 2009. Hence, there may be a positive trend in the market price of BAHL’s share. For NIB, it was Rs 4.67 at year end of 2008 and increased to just Rs 4.80 at year end 2009. Thus the market price is said to be steadied for NIB. Many investors might go for NIB’s share over BAHL as it is steadier. Also, the other attractive point may be a cheaper share price for NIB. However, if the investors decided solely on the basis of EPS or the market value of the share, they are hugely mistaken. A more sensible approach is to look at the Earnings Yield (Talha, 2004).

(Annual Reports, 2006-9)

For BAHL, there is a mixed result. It first increased from 7.8% in 2007 to 20.4% in 2008 and then fell to 14.3% in 2009. There is not much of a trend here. The investor can earn around 14% on its investment in the shares of BAHL. However, this is not the cash earned. That is measured by the dividend yield. Although NIB’s share price is much lower than that of BAHL, the too low EPS dragged down the earnings yield. Hence, the investors who may be thinking of investing in NIB’s shares may rethink as its yield is only 3.5% as compared to BAHL’s 14.3%. Hence, from an investor’s point of view, investing in BAHL is at least better than investing in NIB.

(Annual Reports, 2006-9)


SWOT Analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involve


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