financial analysis of Al-Arafah Islami bank limited and its comparison.

1. Welcome to my presentation

2. Performance evaluation and comparison of
Al-Arafah islami Bank LTD

3. Introductory part
 Objectives of the study:
 To evaluate of the last five years financial performance of AIBL
 To identify the risks AIBL exposed to and what extent
 To justify its financial performance comparing with the industry average
 Methodology
 The concept of this study is based on the Bank Management Book Ross and
Hudgings 9th edition, 6th chapter.
 My supervisor suggestion played an effective role in the preparation of
this study
 Data mainly collected from annual reports of AIBL that was secondary data
 The observation during internship also help me to add something to this
report

4. 1.The performance evaluation of AIBL
 Profitability Analysis
 Risk measurement
2. Comparison with average Islamic and
conventional banks individually
Analysis part

5. Profitability analysis
Return on equity analysis through Du-point approach
year asset utilization of
Assets MGT
efficiency= Total
operating revenue /
total assets
equity multiplier or Fin.
Leverage ratio= total assets
/ total equity capital
tax management
efficiency= Net income /
pretax net operating
income
expense control
efficiency= pretax net
operating income /
Total operating
revenue
ROE
2012 11% 10.63 49% 24% 14%
2013 11% 10.76 52% 22% 16%
2014 11% 11.59 52% 20% 14%
2015 9% 11.91 54% 22% 14%
2016 8% 12.79 56% 28% 16%

6. 2012 2013 2014 2015 2016
ROA 1.30% 1.31% 1.10% 1.08% 1.23%
1.30% 1.31%
1.10% 1.08%
1.23%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
ROA

7. 3.8%
3.6%
3.5%
3.4%
3.5%
3.1%
3.2%
3.3%
3.4%
3.5%
3.6%
3.7%
3.8%
3.9%
2012 2013 2014 2015 2016
Net interest margin

8. -0.92% -0.93%
-1.43% -1.48%
-1.16%
-1.60%
-1.40%
-1.20%
-1.00%
-0.80%
-0.60%
-0.40%
-0.20%
0.00%
Net noninterest margin
2012 2013 2014 2015 2016

9. 0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
2012 2013 2014 2015 2016
2.64% 2.52%
2.13% 1.99% 2.19%
NET OPERATING MARGIN

10. 2.1%
2.6%
3.2%
2.8%
2.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
2012 2013 2014 2015 2016
EARNINGS SPREAD

11. 27.9% 29.9%
24.2% 24.6%
28.7%
2012 2013 2014 2015 2016
NET PROFIT MARGIN

12. 76%
78%
80%
78%
72%
68%
70%
72%
74%
76%
78%
80%
82%
2012 2013 2014 2015 2016
operating efficiency ratio

13. 1.7%
12.7%
2.9%
22.4%
4.8%
38.5%
4.7%
40.1%
4.6%
42.2%
Non-performing assets/Total loans Non-performing assets/equity capital
credit risk
2012 2013 2014 2015 2016
Risk measurement
- credit risk

14. Liquidity risk
14.6% 14.4%
13.2% 13.3%
11.3%
2012 2013 2014 2015 2016
CASH ASSETS & GOVT SECURITIES/ TOTAL ASSETS

15. Market Risk
0.98
0.81
1.00 1.011.02
1.29
1.02
1.38
1.02
1.35
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
Book value of assets to market value Book value of equity to market value
price risk
2012 2013 2014 2015 2016

16. Market Risk
-Interest rate risk
Estimate interest sensitive gap
year (interest-sensitive assets-interest
sensitive liabilities)
positive/negative gap risk arise when
2012 (106650.42-118683.39) -12032.97 interest rate increase
2013 (125715.39-140980.55) -15265.16 interest rate increase
2014 (146740.37-166851.17) -20110.80 interest rate increase
2015 (162503.14-169887.08) -7383.94 interest rate increase
2016 (196519.38-199703.91) -3184.53 interest rate increase

17. Correlation among the factors in the income statement:
Pearson Correlations
Net profits interest
income
interest
expense
investment
income
Total
operating
expense
Total
provisions
Net profits
1.000 .422 -.096 .810 -.782 -.477
interest income
.422 1.000 -.303 .796 -.688 -.898
interest expense
-.096 -.303 1.000 -.310 .613 .591
investment income
.810 .796 -.310 1.000 -.886 -.875
Total operating
expense -.782 -.688 .613 -.886 1.000 .851
Total provisions
-.477 -.898 .591 -.875 .851 1.000

18. Comparison with average of different industry
ROE ROA
Net Interest
Income Growth
Annual
Operating Profit
Growth
Loans/Total
Deposits
Expense Ratio
profitability growth liquidity efficiency
ALARABANK 18% 1.3% 18% 18% 98% 53%
average of IB 11% 0.9% 13% 15% 88% 66%
average of CB 0.12 3.4% 27% 9% 87% 68%
0%
20%
40%
60%
80%
100%
120%

19. Findings
 AIBL use more leverage in its capital structure
 Noninterest margin remained negative in the last five years due to increase in loan
loss provision
 Because of poor condition in banking industry, the performance of AIBL was affected
in the last few years
 The Islami Banking concept is not fully followed by AIBL in its operation
 Comparing to the Islami Banks industry average, AIBL’s performance was good in the
last year
 And AIBL is even ahead of average conventional banks in many aspects.

20. Recommendation
 The capital structure of AIBL should be examined to concise the debt potion and enhance
equity portion to tackle risk.
 AIBL can increase interest rate that influence Net Interest margin positively by building
strong confidence level of customers.
 As an Islami bank, AIBL must follow the Islami shariah properly not partly.
 AIBL has to be careful enough to protect itself from the very common risk of NPL by proper
credit rating.
 To enhance financial performance, importance should be given in all aspects that has direct
impacts like, interest and noninterest expense, provisions and other income statement
items.
 Banking industry is more dynamic than ever. So AIBL should pay more attention to cope up
with modern facility to face the dynamic challenges in this industry.

21. Thank You so much