Financial Performance Comparison of Public and Private Banks

FINANCIAL PERFORMANCE COMPARISON
OF PUBLIC AND PRIVATE BANKS:

AN EMPERICAL STUDY
A CASE STUDY OF PAKISTAN BANKING INDUSTRY
BY
ALI MUBEEN
ROLL NO: AM552787
REGISTRATION NO: 11-PLE-16065
SUBMITTED THROUGH
MR. RIZWAN HAMID
ALLAMA IQBAL OPEN UNIVERSITY
TABLE OF CONTENTS:
1 Introduction and Importance of Topic
1.1 Objectives of the Study
1.2 Significance of the Study
2 Literature Review
3 Research Methodology
3.1 Sample of the Study
3.1.1 Period of Analysis
3.1.2 Sources of Data
4 Analysis And Interpretations
4.1 Descriptive Analysis
4.2 Financial Ratio Analysis
4.3 Ranking of Banks on Financial Performance Basis
5 Conclusion, Limitation And

Recommendation
5.1 Conclusion
5.2 Limitations of Study
5.3 Recommendations for Future Studies
References
1. INTRODUCTION:
Financial system is serving as back-bone in a country and a
good facilitator for financial institutions. Ahmad, Raza,
Amjad, & Akram, (2011) said that institutions are components
of a good financial system and they assist the investors for
investment to attain an efficient capital and money market in a
country. State Bank of Pakistan (SBP) as well as Securities
and Exchange Commission of Pakistan (SECP) is also
working for the development of a good financial system
(Alam, Raza, AND Akram, 2011).
Therefore, Commercial banking sector as a major component
of financial system has an ample share in the financial and
economic growth of a country. Aburime, (2009) said that a
lucrative and profitable commercial banking sector is capable
to tolerate the adverse distress and adds the strength and
power in the economic system.
Several research studies (MC Known 1973, Levine 1997) have

reported efficiencies of financial system to reduce information
and transaction cost which play an important role in
determining the rate of savings, decisions for investment
technological innovations and hence the rate of economic
growth.
Therefore, information on bank efficiency when compared
across nations is important, as this will enable policy makers
to formulate appropriate and suitable policies to direct their
banking industry. The cross country comparison of bank
efficiency in developing countries is relatively lacking in the
literature and there hasn't been any intensive work being done
on cross country comparison for banks in the developing
countries.
1.1 Objectives:
1 The main objective of this study is to investigate the
financial performance comparison of the banking industry of
Pakistan from 2009 to 2013.
2 To study the Ranking of Banks on the basis of Financial
Ratio Analysis.
1.2 Significance of Study:

Financial ratios analysis using financial ratios is the most important and
used for banking industry analysis. Financial ratios analysis is used to
evaluate the performance of the banks. It aims to determine the strong
and weak points of banking Industry. A large number of standards and
various financial ratios can be used when analyzing the credit and
financial position of banks. This study fills up the research gap by doing
the cross section analysis.
2. Literature Review
The operating efficiency has an affect on the bank size. Pilloff
and Rhoades (2002) said a positive relationship exist between
the profitability and bank size. Sufian (2009); Molyneux and
Seth (1998); Ramlall (2009) also found an affirmative relation
of bank size and examine the dependence of bank size upon
economies of scale because smaller banks were less profitable
than larger banks. Whereas Koasmidou, (2008); Spathis,
Koasmidou & Doumpos, (2002) found empirically a negative
relation exist between bank size and profitability.
Bank size and financial ratios such as efficiency / profitability
ratios, liquidity ratios, capital / leverage ratios and asset
quality ratios are effective tool to classify the public and
private banks and these ratios are also suggested by SBP
statistical bulletin to evaluate the financial performance of
Financial measures such as return on assets (ROA), interest

margins (IM), and capital adequacy (CA) has positive relation
with customer service quality (Elizabeth & Elliot 2004). Raza,
Farhan, & Akram, (2011) classified the investment banks in
his study using return on total assets (ROA) and return on
owners equity (ROE). Effectiveness and effeciency are the
independent factors (Tarawneh, 2006); (Raza, Farhan, &
Akram, 2011). There is no boundness that efficient bank also
has effectiveness always.
According to Alam, Ali and Akram found affirmative relation
of bank size and examine the relationship of bank size upon
economies of scale because smaller banks were less profitable
then larger banks (2011, alam, ali and akram)
3. Research Methodology:
3.1 Sample of the study:
In this study Banking Sector of Pakistan were taken as a
sample for the purpose of Investigation of financial
performance comparison from 2009 to 2013 for the purpose of
this research study. There were five public banks and twenty
two private banks and seven foreign banks which were
working and all banks are selected for analyses.
3.1.1 Period of Analysis:
This study investigates the financial performance of the
banking sector of Pakistan Between 2009 to 2013.
3.1.2 Sources of data:
Data has been collected from Financial Statement Analysis of
Financial Sector 2009-2013 issued by the State Bank of
Pakistan, Annual reports and from Published data.
4. Analysis and Interpretations:

4.1 Descriptive Analysis
4.2 Financial Ratio Analysis:
These financial ratios are divided in four categories.
4.2.1 Efficiency / Profitability Ratios
i. Spread Ratio
ii. Net Interest Margin Ratio
iii. Return on Owners Equity Ratio
iv. Return on Total Assets Ratio
v. Non Interest Expense to Total Income Ratio
4.2.2 Liquidity Ratios

i. Cash and Cash Equivalents to Total Assets Ratio
ii. Investment to Total Assets Ratio
iii. Advances to Total Assets Ratio
iv. Total Liabilities to Total Assets Ratio
4.2.3 Capital / Leverage Ratios
i. Capital Ratio
ii. Break up value per share
iii. Deposits to Equity Ratio
4.2.4 Asset Quality Ratios
i. NPLs to Gross Advances
ii. NPLs to Equity Ratio
4.3 Ranking of Banks on Financial Performance Basis:
5.CONCLUSION, LIMITATION AND

RECOMMENDATION
5.1 Conclusion
5.2 Limitations of Study
5.3 Recommendations for Future Studies
References:
1 Ahmad, H. K., Raza, A., Amjad, W., & Akram, M. (2011).
Financial Performance of Non Banking Finance Companies in
Pakistan. Interdisciplinary Journal of Contemporary Research
in Business, 2 (12), 732-744.
2. Akhtar, M.H (2002) X efficiency analysis of commercial
banks in Pakistan .a preliminary investigation the Pakistan
development review, 41,567-568.
3 Raza, A., Farhan, M., & Akram, M. (Special Issu-May
2011). A Comparison of Financial Performance in Investment
Banking Sector in Pakistan. International Journal of Business
and Social Science, 2 (9), 72-81.
THANK YOU

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FINANCIAL PERFORMANCE COMPARISON

OF PUBLIC AND PRIVATE BANKS:

5 Conclusion, Limitation And

Several research studies (MC Known 1973, Levine 1997) have

1.2 Significance of Study:

Financial measures such as return on assets (ROA), interest

4. Analysis and Interpretations:

4.2.2 Liquidity Ratios

4.3 Ranking of Banks on Financial Performance Basis:

5.CONCLUSION, LIMITATION AND

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