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Trends in Pakistani Banking Sector

Trends in Pakistani Banking Sector. Sector transformation  lower systemic risk.

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Trends in Pakistani Banking Sector

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  1. Trends in Pakistani Banking Sector

  2. Sector transformation  lower systemic risk • In the past 8 years, Pakistan’s banking sector has undergone transformation from a loss generating, state dominated, under-capitalized, poor asset quality and inefficient sector to a predominated privately owned, highly profitable, fast growing, leaner, well capitalized and cleaner balance sheet holding sector. • However, the sector is NOT insulated from weakening in the real economy.

  3. Aggregate Post-tax Profits

  4. Return on Equity (ROE)

  5. Return on Assets (ROA)

  6. Banking Deposit Growth CAGR: 12.6% pa

  7. Advances (Loans) Growth CAGR: 15.3% pa

  8. Higher interest rates  higher spreads

  9. Net NPLs as % of Net Loans

  10. Analyzing a Bank – Concepts & Application

  11. Quantitative Analysis • FINANCIAL SOUNDNESS • Profitability • Solvency • GROWTH and FUNDING MIX • Deposits • Borrowings • Loans • Investments • RISK ASSESSMENT • Credit Risk • Market Risk • Liquidity Risk

  12. Risk Assessment • CREDIT RISK • Concentration in fewer sectors. • How much of banks’ lending is to pro-cyclical sectors. • LIQUIDITY RISK • GAP Analysis: Difference between a bank’s liabilities and assets as both mature over time. • MARKET RISK • Exposure to equities, derivatives and bonds.

  13. Non-Quantitative Factors • Ownership • Market Positioning & Strategy • Product Mix & Delivery Channels • Human Resource Quality • Internal Control Systems • IT Platform (Core Banking Solution, ATM Network, On-line networks, Internet banking, etc. ) • Investor Relations

  14. Profit & Loss Statement

  15. Balance Sheet

  16. Return on Assets (ROA)

  17. Return on Equity (ROE)

  18. Revenue Analysis

  19. Net Interest Margin (NIM)

  20. Non-Interest Income

  21. Balance Sheet Growth - Liabilities

  22. Balance Sheet Growth - Assets

  23. Loan Book

  24. Efficiency Ratio

  25. Building a financial model

  26. Key Assumptions – Macro/Sector • Translate economic/sector analysis in forecasts for: • M2 growth • Interest rates • Deposit growth • Advances growth • Sources of economic forecasts • Multilaterals: IMF/WB/ADB • State Bank of Pakistan • Consensus forecasts maintained by data services such as Reuters, Bloomberg, etc.

  27. Key Assumptions – Bank Specific • Balance Sheet – Develop forecasts for: • Deposit Growth • Deposit Mix • Borrowing • Advances Growth • Non-Performing Loans (NPLs) • Investment Portfolio Mix • Cash/FI lending • Net Interest Margin (NIM) – Forecast based on: • Interest Yield = f (interest rates, portfolio mix) • Cost of Funds = f (interest rates, deposit/borrowing mix)

  28. Key Assumptions – Bank Specific • Non-Interest Income • Fee income = f (trade, guarantees, advisory, etc) • FX income = f (exchange rate, trade, remittances) • Dividend/Capital Gains = f (equity portfolio) • NPL provisioning • NPL charge = f (credit risk) • Administrative Cost • Taxation Rate (35%)

  29. Allied Bank – Key Assumptions

  30. Allied Bank – P&L Statement

  31. Allied Bank – Balance Sheet

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