ADVANCED FINANCIAL MANAGEMENT

FINANCIAL ANALYSIS

INTRODUCTION ........................................................................................................................ 3
Jahangir Siddiqui Bank.......................................................................................................................3 BRANCHES: .......................................................................................................................................5

FINANCE DEPARTMENT OVERVIEW: ......................................................................................... 6

HIERARCHY .......................................................................................................................................6 Management ....................................................................................................................................7 Role of the Financial Department: .....................................................................................................8

JS Bank Ltd. Offers: ................................................................................................................... 9

Retail Banking: ..................................................................................................................................9 Wealth Management ...................................................................................................................... 10 Corporate Banking .......................................................................................................................... 10 Investment Banking ........................................................................................................................ 10 Products and Services...................................................................................................................... 11 JS Bank Treasury ............................................................................................................................. 11

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PEST ANALYSIS: ...................................................................................................................... 12

Political ........................................................................................................................................... 12 Economical ..................................................................................................................................... 12 Social .............................................................................................................................................. 12 Technological .................................................................................................................................. 12

FINANCIAL ANALYSIS: ............................................................................................................. 13

Financial Statement......................................................................................................................... 13 Analysis of Financial Position ........................................................................................................... 15 Advances vs. Investments ........................................................................Error! Bookmark not defined. Analysis of Financial Performance.................................................................................................... 19 Profitability Analysis........................................................................................................................ 20 Market Value .................................................................................................................................. 22

CONCLUSION: .................................................................................Error! Bookmark not defined. RECOMMENDATIONS: ....................................................................Error! Bookmark not defined. REFERNCES: ............................................................................................................................ 23

INTRODUCTION

Jahangir Siddiqui& Co. Ltd. (JSCL) was the first securities company is Pakistan and was incorporated under the Companies Ordinance, 1984 on May 04, 1991.

It was also the first corporate associate of the Karachi Stock Exchange Ltd. It was listed on the Karachi, Lahore and Islamabad stock exchanges in Pakistan on 10 August 1993.

Today JS Group stands as a financial service group in Pakistan. The company has developed and diversified within financial services to include asset management, and to enter the banking sector of insurance, Islamic, investment also has a micro finance and stock brokerage.

JS Groups headquarters are in Karachi. Today the Group continues to strengthen its whole systems and controls. There is continuous challenge for growth of business, while setting standards of excellence and governance.

JahagirSiddiqui& Co. Ltd is the holding company for Jahangir Siddiqui (JS) Bank which is the holding company for JS Global Securities and JS Investments Ltd.

Jahangir SiddiquiBank

JS Bank Limited began work in Pakistan in December 30, 2006 as a fully functioning bank. Formed after the merger and amalgamation of Jahangir Siddiqui Investment Bank Limited and commercial banking operations of American Express Bank Ltd Pakistan. JS Bank is a majorityowned subsidiary of Jahangir Siddiqui& Co. Ltd. While it operates as a commercial bank it also has a Primary Dealer license for government securities from the State Bank of Pakistan.

Jahangir Siddiqui Investment Bank Limited (JSIBL) was formed when Jahangir Siddiqui& Co. Ltd. acquired Citicorp Investment Bank (Pakistan) Limited in 1999. JSIBL principally mobilize

funds through issuance of Certificates of Investment to individual investors, corporate clients, and financial institutions. Short-term financing was provided to corporate clients through these funds. The investment bank was also an active investor in equity, bond markets, and money markets through outright repo and reverse repo transactions.

JS Group is a progressive financial service groups in Pakistan. JS Group has dynamically expanded its business in different sectors and has introduced JS Bank Limited with various standards of banking. JS Bank Limited operates in the Commercial banking sector. It is a scheduled bank engaged in commercial banking and related services.

The activities of JS Bank are categorized into five business units. They are: 1. Retail and Consumer Banking 2. Wealth Management 3. Treasury 4. Corporate Banking 5. Investment Banking

Presently JS Bank has laid its footprint across metropolises of Pakistan with plans to expand its outreach with more branches nationwide this year.

CORPORATE OFFICE: JS Bank Limited Shaheen Commercial Complex Dr. Ziauddin Ahmed Road P.O. Box 4847 Karachi-74200 Pakistan Phone : +92 (21) 111 JS BANK Phone : +92 (21) 111 57 2265 Fax : +92 (21) 263 1803

BRANCHES:

In 2006 the number of branches was 4, which increased to 9 in 2007. In 2008 the number increased to 39 and to 101 in 2009. In 2010, the number of branches were 129. Currently, JS Bank has 185 branches in 100 cities.

CITY Karachi (32)

BRANCH 1 2 3 4 5 6 7 8 9 1 2 3 4 ShaheenComplex Park Towers S.I.T.E. Khi Stock Ex. Defence Cliftion Gulshan-e-Iqbal Shahrah-e-Faisal Dhoraji Upper Mall D.H.A AllamaIqbal Town Shadman Town Blue Area 10 11 12 13 14 15 16 17 18 5 6 7 8 Gulistan-e-Jauhar North Nazimabad Korangi Zamzama Federal B Gulshan Shah Faisal M.A.Jinnah Road Mauripur Faisal Town Chowburji M. M. Alam Road Model Town F-8 Marka

Lahore (21)

Islamabad (7)

Other Main Cities Hyderabad (5) Rawalpindi (6) Multan (2) Sukkur (2) Faislabad (2) Larkana (1)

Quetta (1) Peshawar (3)

FINANCE DEPARTMENT OVERVIEW: HIERARCHY:

FINANCE DEPARTMENT

CHIEF FINANCIAL OFFICER

MANAGER FINANCE

FINANCIAL CONTROL (FINCON)

BUSINESS PERFORMANCE & ANALYTICS

GROUP FINANCIAL REPORTING

STATUTORY/ REGULATORY REPORTING

PRODUCT CONTROL FOR TREASURY

TAXATION

ANALYSIS OF BUSINESS PERFORMANCE

BUSINESS PLANNING

GROUP ACCOUNTS

CAPITAL REPORTING

Management

Board of Directors

Company CEO

Heads of Departments

Jahangir Siddiqui (Chairman) Mr. Mazharul Haq Siddiqui Mr. Maqbool Ahmed Soomro Mr. Ashraf Nawabi

Mr. Khalid Imran

Raja Abdullah Khan Head of Human Resources

Muhammad Yousuf Amanullah Financial Control Raja Abdullah Khan Chief Strategy Officer

Mr. Rafiq R. Bhimjee

Imran Soomro Information Technology

Mr. Syed Amjad Ali

Basir Shamsie Head of Treasury

Mr. Adil Matcheswala

Karim Sultanali Head of Corporate Banking

Kamran Jafar Retail Banking

Consumer Banking

Role of the Financial Department:

The Finance Department is responsible for the financial functions and undertakings/ activities of the Bank. Some main activities of Finance Department are as listed below: Administering financial transactions Recording all financial transactions Preparation of Financial Statements Making Financial portfolio Maintenance of internal control procedures such as Financial Regulations, checking routines Payments of payroll and pensions to employees and staff Collection of income from all sources Business Reviews Planning & Forecasting Responsible for reporting, forecasting and dealing with Taxation. Managing the Company or Banks profit Financial Reporting

JS Bank Ltd. Offers:

Retail Banking: JS Bank offers a variety of products and services for both depositors and borrowers at competitive rates. Some of the products/services offered: CUSTOMER SERVICE PRODUCTS Opening of Account / Amendment in Account records. Cheque book issuance. Closing of account. ATM/Debit Card. Delivery of Account Statement Issuance of balance certificate to customers and/or to Audit Firm. Fix Deposit Setup. Fix Deposit Cancellation. Payment of Cash Cheques Cash Receipt Handling of Check Deposited for clearing / Transfer Issuance of Pay order/Draft by Debit to Customer account. Cancellation of Pay order request. Inward Remittance. Outward remittance. Marking of Lien on Government Securities issued by us and pledged to other banks. Complaint Acknowledgement Complaint Resolution ASSET SERVICES Issuance of E-Form Processing of Advance Payment Processing of Export Bills sent on collection. Realization of export collection document. Issuance of Guarantee. Implementation of Limits. Release of Security.

Wealth Management The Wealth Management Services are for individuals looking to create, preserve and grow their wealth with the right investment solutions customized by a team of professionals. The Wealth Management Services, our product lines are divided into the following: - Bancassurance - Mutual Funds

Corporate Banking Arelationship team is assigned to every corporate customer with an experienced and committed relationship manager.

Through this dedicated relationship team, customers can also approach all areas of the JS Group, enabling them to benefit from a comprehensive package of banking/investment solutions.

Field of expertise include: 1. Treasury 2. Asset Management 3. Corporate Finance 4. Brokerage Services 5. Islamic Banking for shariah-compliant banking services.

Investment Banking Some landmark achievements of JS Banks investment banking group: 1. Pakistans first ever local currency Islamic Sukuk 2. First ever subordinated TFC issue in Pakistan 3. First 10 year corporate bond 4. First TFC issue with a conversion option 5. First perpetual bond First commercial paper

6. First floating rate TFC issue

Products and Services Corporate debt origination and syndication, Underwriting, Coordinating as bankers to the issue Facilitating trusteeship Agency services.

JS Bank Treasury In an exceedingly volatile & dynamic economic environment, JS Banks Treasury has evolved as an active player in the Financial Market. The Bank's client-centric treasury endeavors to partner its customers in ensuring they use the financial markets to optimize their risk profile and enhance value to their stakeholders. The Treasury seeks to do this by becoming the risk solutions provider of choice, offering quality treasury products, and being the leader in product innovation. JS Bank Ltd is a One Stop Solution to all your financial needs, whether it pertains to Foreign Exchange, Fixed Income (GoP, Corporate Debt), Mutual Funds & Money Market (Deposit or Loan) transactions.

PEST ANALYSIS:

Constraints in mobilization of public savings Political Instability Employment practices Political bias. Economical Incident of high taxation Economic crisis Government policies Weak market conditions Inflationary pressure Inadequate resources Social Defaulters lobby Declining education & work ethics human Centralized operations Latest software Technological Customer satisfaction advance technology Staff cost Operating cost Bad debts

through

Heavy investment in technology

FINANCIAL ANALYSIS: To try and understand the strength and profitability of a bank financial analysis is necessary. It encompasses looking at financial statements to define to what extent the bank is doing well. Financial Statements help scrutinize the financial situation of an institute, which provides a process of investigating performance.

Financial Statement
UNCONSOLIDATED STATEMENT FINANCIAL POSITION '000 ASSETS Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments - net Advances - net Operating fixed assets Deferred tax assets - net Other assets 5,138,709 9,680,449 1,764,403 5.4% 2,073,582 6.3% 3,229,839 9.8% 9,535,555 29.0% 11,689,653 35.5% 3,039,329 9.2% 924,907 2.8% 637,652 1.9% 32,894,920 2,298,806 5.8% 917,802 2.3% 3,643,360 9.3% 13,701,699 34.8% 13,978,113 35.5% 2,882,941 7.3% 1,184,613 3.0% 776,313 2.0% 39,383,647 3,880,688 7.2% 136,880 0.3% 4,073,103 7.6% 22,649,824 42.0% 18,018,778 33.4% 3,021,439 5.6% 1,082,466 2.0% 1,057,391 2.0% 53,920,569 5,027,797 6.2% 1,178,265 1.4% 3,940,958 4.8% 46,259,398 56.7% 20,054,921 24.6% 3,165,117 3.9% 699,272 0.9% 1,244,267 1.5% 81,569,995 OF CY09 CY10 CY11 CY12

LIABILITIES Bills payable Borrowings Deposits and other accounts 15,294,273 320,492 1.0% 5,039,635 15.3% 21,313,791 369,620 0.9% 5,524,410 14.0% 26,276,328 1,246,994 2.3% 2,944,495 5.5% 41,487,031 713,747 0.9% 8,222,273 10.1% 62,543,793

Sub-ordinated loans Liabilities against assets subject to finance lease Deferred tax liabilities Other liabilities

64.8% 566,443 1.7% 27,240,361 82.8% 5,654,559 17.2%

66.7% 1,375,003 3.5% 33,545,361 85.2% 5,838,286 14.8%

76.9% 765,019 1.4% 46,443,539 86.1% 7,477,030 13.9%

76.7% 1,134,373 1.4% 72,614,186 89.0% 8,955,809 11.0%

NET ASSETS REPRESENTED BY Share capital Reserves Discount on issue of shares Accumulated losses Surplus / (deficit) on revaluation of assets - net of tax

6,127,605 18,040 (523,192) 5,622,453 32,106 5,654,559

8,149,715 18,040 (1,415,477) (930,671) 5,821,607 16,679 5,838,286

10,002,930 89,978 (1,944,880) (642,918) 7,505,110 (28,080) 7,477,030

10,724,643 231,613 (2,105,401) (76,377) 8,774,478 181,331 8,955,809

CONTINGENCIES AND COMMITMENTS

Analysis of Financial Position Horizontal Analysis five years

CY08 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% CY09 152.1% 185.6% 120.8% 166.6% 139.4% 937.3% 107.6% 107.2% CY10 182.1% 266.6% 144.4% 205.1% 171.8% 1027.5% 143.1% 110.7% CY11 249.3% 440.8% 186.1% 284.0% 271.3% 547.7% 175.6% 141.7% CY12 377.2% 900.2% 207.2% 444.1% 408.9% 1529.3% 188.3% 169.8%

Total Assets Investments Advances Total Liabilities Deposits Borrowings Share Capital Total Equity

JS Bank since inception in 2007 has swiftly improved its position in the banking industry. With numbers presenting exponential growth, in CY12 total assets have soared to 377.2 percent of what they were in CY08. Accordingly deposits have increased to 408.9 percent of their base year figures. JS Bank is currently considered to be one of the fastest growing banks in the industry. Total equity/ net assets have increased by 69.8 percent in five years. The two most important components of Assets on a banks balance sheet include advances and investments. These embody the various assets or securities banks invest in. The investments book consists of Government securities (T-bills, PIBs and IjaraSukuks), Corporate Bonds (TFCs and Sukuks), equity investment in public Ltd and Private Ltd companies, placement in investment companies (Mutual Funds invested in equity, debt and money market products), etc. These investments are low risk in nature, where government securities are virtually risk free, and corporate bonds hold low or moderate risk.

The bank went on to rapidly enhance its investments book where CY12 figures were 900.2 percent of base year figures, this figure was doubled during CY12. Advances are financing facilities given to businesses and various other clients. These generally include loans, cash credit, running finances, leases, etc. Advances symbolize the true role of banks in an economy, which is of a monetary facilitator. For JS Bank, Advances have not grown at the same pace as investments. As we can see the former has only increased 207.2 percent from its base year figures. Deposits are considered the core and cheapest source of banks financing ability higher deposits give banks room to increase lending and investments. Deposits at JS bank have increased by more than 4x their base year value.

This phenomenon was particularly intriguing as to why banks are deviating from their role of finance facilitators to local industries. When questioned about this, it was revealed that JS Bank was not the only bank which had adopted this practice several other private sector banks had achieved the same. Even though spreads in advances are much higher as to what they are in investments. During the global recession of 2008-09 several manufacturing concerns and private businesses specifically those which are positively correlated with economic growth, faltered and could not fulfill their financial obligations. Non-performing loans (NPLs), are financing facilities which are considered bad and chances of recovery against these facilities is considered low however reversals are common. These arise from advances (loans and/or other facilities). Non Performing Loans NPL Growth NPL/ Gross Advances CY09 88.2% 7.3% CY10 122.0% 13.6% CY11 46.0% 15.4% CY12 9.4% 15.1%

The above figures depict how since CY09 YoY growth in NPLs have increased hurriedly. Soon after the 2008-09 recession companies in several sectors such as construction & material and chemicals defaulted on their outstanding debts. Well established groups like Engro, DewanMushtaq and Maple Leaf today are nightmares for bankers, after these multimillion dollar organizations defaulted on their debt. However the recession cannot be entirely blamed for the bankruptcy of these organizations other internal and external factors did play their part, but the timing was of coincidence. It explains how banks are now reluctant to lend to the private sector as in CY11 and CY12 NPL as a percentage of Gross Advances are 15.4 and 15.1 percent respectively. Remarkably JS Bank was fortunate enough to have one of the lowest NPL/Advances ratios, whereas banks like The National Bank of Pakistan had at the time NPLs of 27 percent. Hence now several banks have adopted this

new mechanism of generating earnings through investments, even at JS Bank the Treasury department is paid more magnitude relative to other departments.

Analysis of Financial Performance Horizontal Analysis five years

CY08 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% CY09 128.0% 132.7% 117.5% 68.9% 127.8% 35.8% 87.2% 42.3% -1086.2% CY10 167.1% 165.6% 170.3% 67.6% 189.7% 30.6% 59.1% 22.9% -744.0% CY11 218.3% 189.7% 281.8% 154.8% 339.5% 27.8% 96.0% 115.5% 656.7% CY12 304.9% 276.0% 369.2% 366.9% 547.1% 222.5% 200.2% 387.9% 1293.0%

Mark-up / return / interest earned Mark-up / return / interest expensed Net Interest Income NON MARK-UP / INTEREST INCOME Fee, commission and brokerage income Dividend income Income from dealing in foreign currencies Gain on sale of securities - net PROFIT AFTER TAXATION

Mark-up interest earned is the core earnings point in a banks Income Statement (Sales in a typical IS), remarkable growth is observed in the institutions top line with Mark-up interest earned increasing 304.9 percent in five years. The bank also benefits with Mark-up interest expensed (direct cost) not increasing at the same pace, which has allowed the bank to gain wider spreads. Hence we see Net Interest Income (Gross Profit) increased to 369.2 percent since CY08. Non Mark-Up income are earnings which are not generated from the banks core operations, as we can see the company has gained tremendously in this aspect. Total non mark-up income has increased to 366.9 percent in the five year period. However bottom line income is considered inconsistent and several of these inputs are one-offs. Increased advisory, trustee and other fee commission & charges have propelled the Fee, commission and brokerage income to 547.1 percent of its base year figures. The largest component of Non mark-up income is Gain on Sale of Securities 46 percent of total Non Mark-up income has increased to 387.9 percent in five years, this massive feet was accomplished after the bank sought its treasury department into acceleration. The bank is one of the leading dealers in government securities and with the State Bank of Pakistan reducing the

discount rate from 14 percent in 2008 to 9.5 percent by the end of CY12 the bank realized extraordinary gains in securities it held. With the bank reporting gigantic growth in all divisions it is not surprising that net profits have increased by an unprecedented 1293 percent in five years. During CY09-10 JS Bank managed heavy provisioning for Non performing loans which is why we see a loss in these years.

Profitability Analysis Net Interest Margin Operating Profit Margin PAT Margin Return On Equity Return On Assets CY09 28.5% -40.1% -23.5% -10.5% -1.8% CY10 31.7% -24.3% -12.3% -7.0% -1.0% CY11 40.1% -8.6% 8.3% 4.8% 0.7% CY12 37.6% -4.8% 11.8% 7.9% 0.9%

Net interest margins appear promising for the bank as we can see stable growth in spreads from 28.5 percent in CY09 to 37.6 percent in CY12. This signifies that the bank has successfully kept return on deposits low and enhanced their returns on Mark-up interest earned. Operating profit margin however present a grim picture, Operating profit is Gross profit minus selling, general and administrative expenses. With the operating margin in red throughout the four years, it is a matter of dire concern as to why the management has failed to control these overheads and bring them in line with the banks top line. However given an improving trend in the operating margin and the Banks infancy years we hope to see better management in coming years. Profit after Tax (PAT) margins have gradually improved since CY09, it must also be noted that the initial two years were burdened with heavy provisioning against non performing loans. Even after an operating loss in all four years the Bank has yet managed to procure enough earnings from its bottom line (Non Mark-Up income) to make a profit in CY11 and CY12.

Return on Equity

This ratio indicates how profitable a company is by comparing its net income to its average shareholders' equity. The return on equity ratio (ROE) measures how much the shareholders earned for their investment in the company. The higher the ratio percentage, the more efficient management is in utilizing its equity base and the better return is to investors. JS Bank has consistently been improving in this particular aspect from -10.5 percent in CY08 to 7.9 percent in CY12. Baring in mind the banks youth, management has administered the equity of its stake holders promisingly well. However still low relative to industry standards but we must again stress over the initial growing period of the bank currently in play.

Return on Assets

This ratio indicates how profitable a company is relative to its total assets. The return on assets (ROA) ratio illustrates how well management is employing the company's total assets to make a profit. The higher the return, the more efficient management is in utilizing its asset base. The ROA ratio is calculated by comparing net income to average total assets, and is expressed as a percentage. The ROA for the bank is slowly improving which signifies improvement in management quality and better use of the Banks assets. As a rule of thumb, investment professionals like to see a company's ROA come in at no less than 5%. Of course, there are exceptions to this rule. An important one would apply to banks, which strive to record an ROA of 1.5% or above. JS Bank even though falling short of this has shown consistent growth in ROA and is expected to reach these levels in coming years.

Market Value Market Value Price Outstanding Shares Total Market Value 4.33 1,072,464,262 4,643,770,254

The net asset or book value of the bank for CY12 comes in at PKR 8.955bn, yet the market prices the bank at PKR 4.643bn. Investor sentiments are reflected in the market value which is derived from the price at which the share trades in the market. In this case we can see that the market has undervalued JS Bank at PKR 4.33.

REFERNCES:

References Financial Statements JS Bank > http://www.jsbl.com http://www.kse.com.pk http://www.investopedia.com