A Comparative Study of Financial Performance …7] Velnampy and Anojan (2014) compare the financial performance of the state and private sector banks during war and post war scenarios

Imperial Journal of Interdisciplinary Research (IJIR) Vol-2, Issue-9, 2016 ISSN: 2454-1362, http://www.onlinejournal.in

Imperial Journal of Interdisciplinary Research (IJIR) Page 1608

A Comparative Study of Financial Performance Stability of Public and Private Commercial Banks

and Their Subsidiary Companies in Pakistan

Kamran Raiysat Preston University Islamabad, Pakistan

Abstract: Banks have been playing important role in the financial system of Pakistan. State banks of Pakistan is controlling and monitoring the 46 banks working in the Pakistan. Out of these 46 banks, only 21 commercial banks i.e., 5 public sector commercial banks and 16 private commercial banks have been selected for the study. Four null and alternative hypotheses have been developed to check the profitability/efficiency, liquidity, assets quality and leverage. Different ratios of profitability/efficiency, liquidity, assets quality and leverage have been used to analyze the performance and stability over a period of five years and banks are ranked 1 or 2, accordingly to their performance stability in each group of ratio to find the overall performance of the banks in each group and to test the hypothesis. All the null hypothesis have been rejected and alternate hypotheses have been accepted which shows that the private banks are more stable in terms of efficiency/profitability, liquidity, assets quality and leverage.

KEYWORDS: PUBLIC COMMERCIAL BANKS; PRIVATE COMMERCIAL BANKS; FINANCIAL PERFORMANCE STABILITY;

1. Introduction

1.1 Banking in Pakistan

Banks have been playing a vital role in the economy of any country because they are considered backbone of the economic system. Likewise banks are playing an important role in the economy of Pakistan. The Banking started in Pakistan with its independence in 1947 with five commercial Banks. The State Bank of Pakistan was also established to control and monitor the banking system in Pakistan and it has been trying with the help of Security and Exchange Commission to improve the banking industry in Pakistan. In 1974 the Government of Pakistan took a decision to nationalize all the institutions. This decision badly effect the performance and growth of the banking in Pakistan but with the privatization in 1992and introduction of foreign banks in Pakistan, the industry started growing and now it is divided into Private and public commercial banks, foreign banks,

Islamic banks, microfinance banks and specialized banks.

1.2 Banks Operating in Pakistan

[1] According to the State Bank of Pakistan, there are total 46 banks working in the Pakistan as public commercial banks, private commercial Banks, Islamic banks, foreign banks, microfinance banks and specialized banks.

1.3 Research Problem and Objective:

Commercial banks play an important role in the economy of any country. It is therefore important to monitor their performance over the period. In this research, I will try to find the performance stability of the commercial banks with respect to their sector i.e., public or private in terms of efficiency/profitability, liquidity, assets quality and leverage.

2. Literature Review

[2] Faisal, Tariq and Jan (2015) analyzed and compare the financial performance of the Muslim Commercial Bank Ltd., and National Bank of Pakistan by applying common size and ratio analysis during the year 2005 – 2006. Both the banks have shown improvement in the financial performance but they need to work on the current ratio, return on equity and operating profit.

[3] In 2015 Helhel compared the financial performance of the foreign and domestic banks between 2009 and 2013 and their performance before and after Jan 01, 2012 in Georgia. There have been nine foreign banks and six domestic banks used for Profitability Ratio analysis purpose. There wasn’t any significance difference in ROA, ROE, NIM and PEM (Profit Expense Margin) between the foreign and domestic banks but for the overall banks there was significant difference in ROA, ROE and NIM except PEM. Similarly there have been found significant difference in terms of ROA and NIM and not in terms of ROE and PEM for Pre and Post January 01, 2012 analysis.

[4] Ibrahim (2015) conducted a comparative study of financial performance of conventional and Islamic Banking in United Arab Emirates. He used data of

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Dubai Islamic Bank and Bank of Sharjah. During this study, different financial ratios were used to compare the financial performance. Descriptive statistics was used to rank the performance and overall performance stability. The findings showed that the Bank of Sharjah was having overall high degree of liquidity, profitability, management capacity and capital structure while Dubai Islamic Bank was better in Share performance and overall stability.

[5] Kousar and Irum (2012) compare the financial performance of the conventional, mixed and pure Islamic Banks in Pakistan. They used word mixed for those conventional banks that have also Islamic branches. CAMEL model ratios are analyzed using ANOVA test to investigate any significant difference with the help of SPSS. Islamic Banks have adequate capital and good assets quality than the conventional banks and Islamic branches of conventional banks. Moreover Islamic banks have good management competencies than the conventional banks. The earnings of the Islamic branches of the conventional banks is more than the full fledge conventional banks and Islamic banks.

[6] In 2012 Shah, Naseem, Gul, Nisar, Naqvi, Hussain and Aisha compare the financial performance of Public and Private Banks in Pakistan. They analyze the performance of public sector banks (four banks) and private sector banks (twenty five banks) using banks size and four types of ratios i.e., efficiency/profitability ratios, liquidity ratios, leverage ratios and assets quality ratios during a period of 2007 - 2011. They found that that public sector banks are better in terms of investment to total assets, total liabilities to total assets, advances to total assets, net interest margin ratio, spread ratio, interest expenses to total income and capital ratio while private banks are ahead in terms of Return on Equity ratio return on assets, break-up value per share, cash and cash equivalent deposit to total assets, NPLS to gross advances and NPLS to equity ratio.

[7] Velnampy and Anojan (2014) compare the financial performance of the state and private sector banks during war and post war scenarios of Sri Lanka. A comparative study is done for a period of six years i.e., 2007 – 2012 using different ratios, descriptive and independent sample t – test analysis. The findings indicated that the private sector banks performance was better than the state owned commercial banks during and after war scenarios.

[8] In 2015 Waleed, Shah and Mughal in their study “Comparison of Private and Public Sector Banks’ Performance” use bank size and financial ratios such as liquidity ratios and profitability ratios during a period of 2011 – 2014 to compare the performance. According to their study, debt ratio, debt to equity ratio, return on equity and earnings per share of the

private banks is higher than the public sector banks while only return on assets is high of public sector banks than private banks.

[9] Habib (2015) in his study “A Comparison of Financial Performance of Banking Industry in Pakistan” evaluated the financial performance of the Banking industry in Pakistan during a period of 2009 – 2013. He chose this period to evaluate the performance after end of military regime and to focus on how banks are using their total assets and operational assets for growth and returns, growth in shareholders equity and rate of return by each sector and overall growth in fixed assets and equity in entire banking industry. On the basis of this research, private banks are the top performers followed by specialized banks, public banks and foreign banks in a sequence.

[10] Moin (2013) examined the financial performance of first Islamic bank i.e., Meezan Bank ltd., in comparison with other 5 conventional banks. Total 12 financial ratios have been used in the study to find the profitability, liquidity, risk and solvency and efficiency for a period of 2003 – 2007. The study found that Meezan Bank Ltd. is less profitable, more solvent and less efficient as compared to the average of other five conventional banks but there wasn’t any significant difference in the liquidity position.

[11] Alam, Akram and Raza in their study “A Financial Performance Comparison of Public VS Private Banks: The Case of Commercial Banking Sector of Pakistan” compare the financial performance using financial ratios and bank size for a period of 2006 – 2009. For bank size private banks are at first ranking but for ratios the ranking of the banks differ as the ratio changes.

3. Methodology

3.1 Study Sample

[1] There are 46 banks categorized as public commercial banks, private commercial Banks, Islamic banks, foreign banks, microfinance banks and specialized banks. Out of these 46 banks, only 21 banks i.e.,5 public sector banks and 16 private sector banks are selected as study sample.

3.2 Hypothesis

In order to test our findings, the following null and alternate hypotheses are being developed:

H0: Public Sector Banks and their subsidiary companies are more stable than private sector Banks in terms of Profitability/Efficiency

HA: Public Sector Banks and their subsidiary companies are not more stable than private sector Banks in terms of Profitability/Efficiency





H0: Public Sector Banks and their subsidiary companies are more stable than private sector Banks in terms of Liquidity

HA: Public Sector Banks and their subsidiary companies are not more stable than private sector Banks in terms of Liquidity

H0: Public Sector Banks are and their subsidiary companies more stable than private sector Banks in terms of Assets Quality

HA: Public Sector Banks and their subsidiary companies are not more stable than private sector Banks in terms of Assets Quality

H0: Public Sector Banks and their subsidiary companies are more stable than private sector Banks in terms of Leverage

HA: Public Sector Banks and their subsidiary companies are not more stable than private sector Banks in terms of Leverage

3.3 Data Collection

There have been one hundred and five consolidated annual audited accounts of the 21 commercial banks and their subsidiary companies with few exceptions of banks without subsidiary companies and without unaudited consolidated accounts. All the audited accounts have been downloaded from the websites of the respective banks and state bank of Pakistan.

3.4 Analysis Tools

[14] For Analysis purpose, different rations have been used. The following ratios have been used in order to find the performance of the banks over a five years’ time:

Profitability / Efficiency Ratios

1. Spread Ratio 2. Return On Equity 3. Return on Assets 4. Non Mark-up Income to Total Income 5. Earnings per Share

Liquidity Ratios

1. Cash and Cash Equivalent to Total Assets 2. Investment to Total Assets 3. Deposits To Total Assets 4. Total Liabilities to Total Assets 5. Advances to Deposits

Assets Quality Ratios

4. Non-Performing Loans to Gross Advances 4. Provision Against NPLs to Gross Advances 4. NPLs to Total Equity 4. Provision Against NPLs to NPLs

Capital /Leverage Ratios

1. Capital Ratio 2. Total Deposit to Total Equity Ratio

In order to analyze the stability of the performance, MS Excel and SPSS are being used to find the mean, Standard Deviation and coefficient of variation over the five years’ time and then the banks are ranked according to their performance and stability in each group for hypothesis test.

4. Analysis of the Financial Performance

In order to analyze the performance of the banks and their subsidiary companies, the table 4.0.1(Annexure) is used to calculate the ratios over a period of five years.

4.1 Efficiency/Profitability Ratio

According to the readyratios.com Profitability ratios are used to measure the ability of a company to generate earnings relative to sales, assets and equity whereas Investopedia.com states that efficiency ratios are measure of a company’s ability to use its assets and manage its liabilities effectively. It also measure the ability of a company to generate revenue using its assets and the ability how effectively it is managing its assets [12][13].

4.1.1 Spread Ratio (D3/D1) Spread Ratio is used to calculate the Rate of Net interest Income generated by divided the Net Mark-up with the Total Mark-up Income. The higher the ratio, the better the performance. Table 4.1.1 and Figure 4.1.1.2 clearly shows that the private banks are performing better than the public banks because there mean spread ratio is 46.47% and co. variance 6.42% against 39.09% mean and 9.18 co-efficient of variance of public sector banks and therefore private banks are rank 1st in the table.

Table 4.1.1 Bank/Year Public Private

2011 39.93 47.37

2012 36.97 43.67

2013 35.22 44.09

2014 38.39 46.14

2015 44.63 51.07

Mean 39.09 46.47

Std. Dev. 3.58 2.99

Co. Variance 9.18 6.42

Rank 2 1





Figure 4.1.1.1 Figure 4.1.1.2

4.1.2 Return on Equity (D10/A) From an investment point of view, return on equity is considered best measure of performance because investor is more interested in knowing the rate of turn on its investment [3]. It is calculated by dividing equity capital from profit before tax. The higher the ratio, the better the performance. According to the table 4.1.2, ROE of the private sector commercial banks in better (Mean 18.14%) as compared to the public sector banks which is 12.76%. It is also clear from the table that the Coefficient of variance of private banks is better than the public sector banks which mean that the private banks are less risky in terms of return on equity.


2011 14.3 17.23

2012 13.62 17.57

2013 6.2 16.63

2014 13.21 19.31

2015 16.45 19.94

Mean 12.76 18.14

Std. Dev. 3.87 1.42


Rank 2 1


4.1.3 Return on Assets (D10/C)

The return on assets is measured to know how efficiently the company’s assets are being used to generate revenue. The higher the ratio, the better the performance. The table 4.1.3 and figure 4.1.3.4 clearly indicates the average rate of return on assets of private commercial banks (1.43% and 5.56%) is

better than the public commercial banks (0.97%and 32.03%). Similarly, private banks are less risky than the public banks and therefore private banks are rank 1st as compared to the public banks.


2011 1.27 1.46

2012 1.05 1.37

2013 0.46 1.32

2014 0.93 1.52

2015 1.12 1.46

Mean 0.97 1.43

Std. Dev. 0.31 0.08


Rank 2 1


4.1.4 Non mark-up interest to total income (D7/D1+D6)

This is another management ratio which is calculated by dividing non mark-up income to total income. It shows how management has used its resources to earn non mark-up income. Table 4.1.4 and figure 4.1.4.1 shows that both the public sector and private sector commercial banks have same almost same mean ratio i.e., 27.20% and 27.52% but private sector commercial banks are more stable in terms of variability (Risk) with co. Variance 3.39% as compared to public sector commercial banks 3.39%. Private sector banks are ranked 1st in this table.


2011 25.02 26.63

2012 26.31 26.52

2013 28.58 28.74

2014 28.40 27.81

2015 27.89 27.88

Mean 27.20 27.52

Std. Dev. 1.51 0.93


Rank 2 1






4.1.5 Earnings Per Share (D10/F1)

From an investment point of view, the earning per share is also very important measure because it calculates how much earning is generated on each share. This is simply calculated by divided profit after tax with outstanding shares. The higher ratio shows better performance. Although the Table 4.1.5 shows that the public sector banks are better in earning per share i.e., 3.80% but their EPS is not consistent which makes them more risker than the private commercial banks which indicates that the public banks performance in terms of EPS has not been consistent or stable over the five years’ time with a co. variance of 34.22% against 16.41% and therefore public sector banks are rank as second.


2011 4.81 2.84

2012 4.39 3.13

2013 1.66 3.22

2014 3.51 4.13

2015 4.66 4.01

Mean 3.80 3.46

Std. Dev. 1.30 0.57


Rank 2 1


4.2 Liquidity Ratios

Liquidity ratios are used to measure the institution’s ability to meet its short term debt obligations.

Generally the higher the liquidity ratio, the larger the margin of safety to pay off the short term debt [15].

4.2.1 Cash and Cash Equivalent to Total Assets (C1+C2)/C

Cash and cash equivalent to total assets are used to calculate how much liquid assets a banks owns out of its total assets in order to meet its short term obligations. It is calculated by using dividing cash and cash equivalent assets to total assets. Table 4.2.1 indicates that the average ratio of public banks is 10.11 % against 8.98% but it fall down dramatically from 11.31% in 2013 to 6.72% in 2014 and then increased to 8.63% leaving an inconsistency with a coefficient of variance of 23.10% against 14.12%, making public sector banks more risky than the private sector banks and therefore ranked second.


2011 11.99 10.01

2012 11.89 10.10

2013 11.31 9.55

2014 6.72 7.36

2015 8.63 7.89

Mean 10.11 8.98

Std. Dev. 2.34 1.27


Rank 2 1

Figure 4.2.1 Figure 4.2.1.1

4.2.2 Investment to Total Assets (C4/C)

Investment to total assets is used to measure the amount of funds employed for investment purpose out of total assets. Table 4.2.2 and figure 4.2.2.1 shows that the private commercial banks have high portion of funds for investment i.e., 45.15% as compared to public commercial banks 35.95% with more stability i.e., 10.21% against 19.14%, so private banks are ranked first in the table.






2011 30.59 39.04

2012 31.87 43.81

2013 32.04 44.00

2014 38.21 47.52

2015 47.06 51.39

Mean 35.95 45.15

Std. Dev. 6.88 4.6


Rank 2 1


4.2.3 Advance net of Provisions to Total Assets (C8/C) Advances net of provisions to total assets shows how much of the total assets consist net advance. It is calculated by dividing Advance net of Provision to total assets. The given below table 4.2.3 and figure 4.2.3.1 shows that public commercial banks have employed more in the net advance with a high coefficient of variance whereas private commercial banks have 37.1% share of assets with better consistency as compared to public sector banks are ranked first in the table.


2011 44.18 41.04

2012 46.74 37.49

2013 44.00 37.93

2014 39.74 36.37

2015 35.68 32.67

Mean 42.07 37.10

Std. Dev. 4.36 3.02

Co. Var 10.36 8.15

Rank 2 1


4.2.4 Deposits to Total Assets (B3/C) Deposits to total assets shows how much of the assets are financed through deposits and it is calculated by dividing deposits to total assets. Table 4.2.4 and figure 4.2.4.1 shows that the public commercial banks with 79.15% are more financed through deposits than private commercial banks with 76.68%. Although the coefficient of variance is a little more of private commercial banks but the ratio of private banks have always been less than the public commercial banks, therefore, private commercial banks are ranked first.


2011 79.64 76.73

2012 76.61 75.67

2013 80.34 80.37

2014 77.88 77.74

2015 81.28 72.88

Mean 79.15 76.68

Std. Dev. 1.89 2.75


Rank 2 1


4.2.5 Total Liabilities to Total Assets (B/C) Total liabilities to total assets are calculated by dividing total liabilities to total assets of the company and it is used to measure how much of the total liabilities are of total assets. Table 4.2.5 and figure 4.2.5.1 shows that there isn’t any much difference between the average ratios and coefficient of variance of both the public and private banks, therefore, public





commercial banks with a mean ratio of 89.95% and coefficient of variance 0.61% is ranked as first in the table.


2011 89.55 90.63

2012 90.13 91.09

2013 89.65 91.07

2014 89.59 90.43

2015 90.84 91.12

Mean 89.95 90.87

Std. Dev. 0.55 0.32


Rank 1 2


4.3 Assets Quality Ratios 4.3.1 Non-Performing loan to Gross Advances (C6/C5) This ratio is used to measure the portion of the non-performing loans out of gross advances and it is calculated by dividing non-performing loans to gross advances. High ratio shows bad performance of the advances. Table 4.3.1 ranks private commercial banks’ assets quality better than the public commercial banks with a mean of 11.55 % against mean of 18.68%. Although coefficient of variance is more than the public commercial banks i.e., 11.84% against 7.80% which is due to the fact that the ratio has been continuously declining over the five years period and hence private sector banks are ranked first in the table.

Table 4.3.1

Bank/Year Public Private

2011 21.09 13.16

2012 17.23 12.78

2013 18.62 11.07

2014 17.94 10.82

2014 18.51 9.94

Mean 18.68 11.55

Std. Dev. 1.46 1.37


Rank 2 1


4.3.2 Provision against NPLs to Gross Advances (C7/C5) Provision against NPLs to gross advances is calculated by dividing provision with the gross advances and it shows how much of the provision is been made against Gross advances. It is for the benefit of the banks that the provision should remain minimum. Table 4.3.2 shows that the private sector banks are better with a mean of 9.18% and 5.12% Coefficient of variance against public sector mean 12.68% and coefficient of variance 12.68% and 10.80% respectively.


2011 12.29 9.83

2012 10.88 9.5

2013 12.56 8.8

2014 12.98 9.04

2015 14.68 8.74

Mean 12.68 9.18

Std. Dev. 1.37 0.47


Rank 2 1


4.3.3 NPLs to Total Equity (C6/A) Non-performing loans to total equity is also calculated by dividing non-performing loans to total





equity and it is used to measure how much of equity is there to withstand against non-performing loans. Banks with lower ratio are considered. Table 4.3.3 shows that the mean ratio of the Public sector banks is 118.75% as compared with the private sector banks mean ratio of 59.97%. On the other hand private sectors are showing more inconsistency with a coefficient of variance 15.14 % against 4.2% but since private sector ratio has always been far lower over five years’ time, therefore, private banks are ranked first in the table.


2011 119.66 70.61

2012 116.93 67.74

2013 126.86 57.91

2014 116.54 54.86

2015 113.79 48.75

Mean 118.75 59.97

Std. Dev. 4.99 9.08


Rank 2 1


4.3.4 Provision against NPLs to NPLs (C7/C6) This ratio is used to calculate the provision made against the non-performing loans and it is calculated by dividing provision against NPL to NPL. Lower ratio is considered good. Table 4.3.4 and figure 4.3.4.1 indicate that the public sector commercial banks are better because their average mean is 68.10% against 80.02% of private sector banks. Although the public sector coefficient of variance is 11.95% against 7.3% but still it is ranked second in the table.


2011 58.28 74.70

2012 63.13 74.35

2013 67.44 79.52

2014 72.36 83.50

2015 79.30 88.00

Mean 68.10 80.02

Std. Dev. 8.14 5.84


Rank 1 2


4.4 Capital /Leverage Ratio The leverage ratios measure the overall debt burden of the company and compare it with the assets or equity. This shows how much of the assets belong to the shareholders and how much to the creditor. If the ratio is high, the company is said to have high leverage which means that majority of the assets belong to the creditors and vice versa. It is therefore important for the investors to know how much risky is the capital structure of the company [16].

4.4.1 Capital/Equity Ratio (A/C) Equity ratio is used to calculate how much assets of a company are financed by the owners and it is calculated by dividing total shareholders’ equity to total assets [17]. According to the Table 4.4.1 and figure 4.4.1.2, the private banks are more stable than the public sector banks with the coefficient of variance of 5.37% against 10.76%, hence ranked first in the table.


2011 8.88 8.49

2012 7.73 7.81

2013 7.38 7.95

2014 7.03 7.89

2015 6.80 7.30

Mean 7.56 7.89

Std. Dev. 0.81 0.42


Rank 2 1






4.4.2 Total Deposit to Total Equity Ratio (B3/A)(Times) Total deposits to total assets ratio is used to assess how many times the total deposits of a bank to its total equity. It is calculated by dividing total deposits to total equity. Table 4.4.2 and figure 4.4.2.2 shows that average total deposits to the total equity is 10.56 times for public and 9.74 times for private banks whereas coefficient of variance is 10.84% of public and 4.31% of private commercial banks which means the financial performance of private banks is more stable than the public sector banks.


2011 8.97 9.04

2012 9.91 9.69

2013 10.88 10.11

2014 11.08 9.86

2015 11.95 9.99

Mean 10.56 9.74

Std. Dev. 1.15 0.42


Rank 2 1


4.5 Hypothesis testing

With the help of the above mentioned ratio analysis, we can test our null hypotheses as fellows

4.5.1 Ranking as per Efficiency/Profitability Ratios

Table 4.5.1 clearly states that the private sector banks are more stable in terms of efficiency/profitability as

compared to public sector banks. So the first null hypothesis i.e., H0 is been rejected and first alternate hypothesis i.e., HA: Public Sector Banks and their subsidiary companies are not more stable than private sector Banks in terms of Profitability/Efficiency is accepted.

Table 4.5.1

S. No Ratio Public Private

1 Spread Ratio 2 1

2 Return on Equity 2 1

3 Return on Assets 2 1

4 Non Mark-up income to total income 2 1

5 Earnings Per Share 2 1

Overall Ranking 2 1

4.5.2 Ranking as per Liquidity Ratios

Table 4.5.2 shows that the private sector banks are more stable in terms of liquid position as compared to public sector banks. So the second null hypothesis i.e., H0 is also rejected and second alternate hypothesis i.e., HA: Public Sector Banks and their subsidiary companies are not more stable than private sector Banks in terms of Liquidity is accepted.

Table 4.5.2

S. No Ratio Public Private

1 Cash and Cash Equivalent to Total Assets 2 1

2 Investment to Total Assets 2 1

3 Advances Net of Provision to Total Assets 2 1

4 Deposits to Total Assets 2 1

5 Total Liabilities to Total Assets 1 2

Overall Ranking 2 1

4.5.3 Ranking as per Assets Quality Ratios

Table 4.5.3 also shows that the private sector banks are more stable in terms of assets quality as compared to public sector banks. So the third null hypothesis (H0) is rejected and third alternate hypothesis i.e., HA: Public Sector Banks and their subsidiary companies are not more stable than private sector Banks in terms of assets quality is accepted.

Table 4.5.3 S. No Ratio

Public

Private

1 Non-Performing loan to Gross Advances(C6/C5) 2 1

2 Provision against NPLs to Gross Advances(C7/C5) 2 1





3 NPLs to Total Equity(C6/A) 2 1

4 Provision Against NPLs to NPLs (C7/C6) 1 2

Overall Ranking 2 1

4.5.4 Ranking as per Leverage Ratios

Table 4.5.4 again proves that the private sector banks are more stable in terms of leverage ratio as compared to public sector banks. So the fourth null hypothesis i.e., H0 is also rejected and fourth alternate hypothesis i.e., HA: Public Sector Banks and their subsidiary companies are not more stable than private sector Banks in terms of Leverage is accepted.

Table 4.5.4 S. No Ratio

Public

Private

1 Capital Ratio 2 1

2 Total Deposits to Total Equity Ratio 2 1

Overall Ranking 2 1 5. Conclusion

In order to draw conclusion from the above analysis, we can say that banks have been playing important role in the economy of Pakistan and their performance has been fluctuating over the period of time but private commercial banks performance is observed more stable in terms of variability as compared to the public sector banks because all the four null hypothesis developed which states that the public sector banks and their subsidiary companies are more stable as compared to the private sector banks in terms of efficiency/profitability, liquidity, assets quality and leverage are been rejected and their respective alternate hypothesis are accepted. So the private sector banks are clearly showing that their performance is more stable than the public sector banks.

6. References [1] State Bank of Pakistan, Addresses of Banks/Development Institutions being regulated by State Bank of Pakistan (n.d). Retrieved from http://www.sbp.org.pk/f_links/index.asp.

[2] Faisal, Tariq, M., Jan, F., A. “Financial Performance of Banks in Pakistan: A Comparative Analysis of Public and Private Sectors”, VFAST Transactions on Education and Social Sciences Vol. 6 No. 2 pp. 57-71 2015.

[3] Helhel, Y. “Comparative Analysis of the Financial Performance of foreign and Domestic Banks in Georgia”,

International Journal of Finance and Accounting Vol. 4 No. 1, pp. 52-59 2015.

[4] Ibrahim, M. “A Comparative Study of Financial Performance between Conventional and Islamic Banking in United Arab Emirates”, International Journal of Economics and Financial Issues Vol. 5 No. 4 2015, pp. 868-874.

[5] Kousar, R., and Saba, I. “Gauging the Financial Performance of Banking Sector Using CAMEL Model: Comparison of Conventional, Mixed and Pure Islamic Banks in Pakistan”, International Research Journal of Finance and Economics Vol. 1 No. 82 2012, pp. 67-88.

[6] Shah, S., Q., Naseem, I., Gul, S., Nisar, S., Naqvi, T., Z., Hussain, M., Aisha. “Financial Performance of Public and Private Banks in Pakistan: A Comparative Analysis”, Science Series Data Report Vol. 4 No. 9 2012, pp. 112-130.

[7] Velnamph, T., Anojan, V. “Financial Performance of State and Private Commercial Banks: A Comparative Study of During War and Post War Scenarios in Sri Lanka”, European Journal of Business and Innovation Research Vol. 2 No. 1 2014, pp. 93-105.

[8] Waleed, A., Shah, M.S., and Mughal, M.K. “Comparison of Private and Public Banks Performance”, IOSR Journal of Business and Management Vol. 17 No. 7 2015, pp. 32-38.

[9] Habib, A. “A comparison of Financial Performance of banking Industry in Pakistan”, Journal of Poverty, Investment and Development Vol. 13 2015, pp. 1-11.

[10] Moin, M.,S. “Financial Performance of Islamic Banking and Conventional Banking in Pakistan: A Comparative Study”, International Journal of Innovation and Applied Finance Vol. 1 No. 1 2013, pp. 1-22.

[11] Alam, H., M., Raza, A., Akram, M. “A Financial Performance Comparison of Public Vs Private Banks: The Case of Commercial Banking Sector of Pakistan”, International Journal of Business and Social Sciences Vol. 2 No. 11 2011, pp. 56-64.

12] Profitability Ratios (n.d). Retrieved from http://www.readyratios.com/reference/profitability/

[13] N. Steven (April 7, 2015). What Do Efficiency Ratios Measure? Retrieved from http://www.investopedia.com/ask/answers/040715/what-do-efficiency-ratios-measure.asp

[14] Banking Account and Ratio Service. Moody’s Investors Service: February 2011. Retrieved from https://www.moodys.com/sites/products/ProductAttachments/Banking%20Account%20and%20Ratio%20Definitions.pdf

[15] Liquidity Ratios(n.d). Retrieved from http://www.investopedia.com/terms/l/liquidityratios.asp

[16] Financial Leverage Ratios (n.d), Retrieved from http://www.myaccountingcourse.com/financial-ratios/financial-leverage-ratios



http://www.sbp.org.pk/f_links/index.asp

http://www.investopedia.com/terms/l/liquidityratios.asp



Table Used for Ratio Analysis

Table 4.0.1

('000,000')

Year /Particulars 2011 2012 2013 2014 2015

Public Private Public Private Public Private Public Private Public Private

A Total Equity (A1 - A5) 139,138 496,145 142,595 549,195 142,425 605,191 157,504 685,773 169,285 751,208

1 Share Capital 41,414 300,904 44,284 308,827 53,320 316,642 59,323 326,919 59,723 379,792

2 Discount on Issue - (62,001

) - (62,161

) (263) (62,161

) (263) (62,161

) (263) (105,443

)

3 Share Deposit Money 17,000 - 17,000 - 12,000 - 7,000 9,507 7,000 9,007

4 Reserves 29,285 147,565 33,052 168,076 37,003 185,343 37,479 196,049 50,541 218,166

5 Un Appropriate Profit 51,439 109,677 48,259 134,453 40,365 165,367 53,965 215,458 52,285 249,687

6 Others 24,573 51,863 39,469 77,375 57,214 74,666 75,649 147,009 58,572 162,702

B Total Liabilities (B1 - B4)

1,403,586

5,298,581

1,663,371

6,403,120

1,729,248

6,934,187

2,006,640

7,864,625

2,260,910

9,380,858

1 Bills Payables 10,375 65,447 17,151 84,098 16,437 100,662 13,838 106,613 11,956 119,215

2 Borrowing from F.Institutions 76,091 492,251 152,938 735,596 78,027 489,964 145,723 725,152 124,745

1,461,750

3 Deposits and Other Accounts

1,248,188

4,486,204

1,413,811

5,319,019

1,549,718

6,119,133

1,744,292

6,761,502

2,022,873

7,503,270

4 Other/Misc. Liabilities 68,932 254,679 79,471 264,408 85,067 224,428 102,788 271,358 101,337 296,623

C Total Assets (C1 - C4 + C8 - C10)

1,567,297

5,846,589

1,845,435

7,029,691

1,928,888

7,614,044

2,239,794

8,697,406

2,488,767

10,294,768

1

Cash and balance with treasury banks 153,974 471,118 182,782 574,068 190,785 576,974 132,242 513,087 189,293 674,908

2 Balances with Other banks 34,010 113,931 36,706 135,986 27,361 150,259 18,339 127,300 32,921 137,736

3

Lending to Financial Institutions 65,733 112,477 20,184 106,710 75,925 135,543 159,308 127,372 31,407 216,871

4 Investments 479,431 2,282,5

15 588,083 3,079,4

88 617,993 3,349,8

50 855,841 4,132,8

84 1,171,3

34 5,290,31

1

5 Gross Advances 789,529 2,661,0

70 967,793 2,911,7

09 970,531 3,166,8

68 1,022,9

50 3,477,0

10 1,040,7

83 3,685,47

0

6

Advances Non Performing/Classified 166,497 350,304 166,731 372,030 180,676 350,449 183,552 376,248 192,621 366,202

7 Provision Against Advances 97,030 261,688 105,265 276,596 121,849 278,664 132,821 314,182 152,740 322,269

8 Advances Net of Provision(C5-7) 692,499

2,399,382 862,529

2,635,114 848,681

2,888,204 890,129

3,162,828 888,043

3,363,200

9 Fixed Assets 34,777 161,031 36,343 170,360 41,742 182,030 42,680 203,551 43,949 220,900

10

Other / Misc. Assets 106,872 306,135 118,807 327,965 126,401 331,183 141,255 430,384 131,820 390,841

D Profit and Loss Account





1 Markup/Interest Earned 129,208 545,279 140,933 575,485 139,957 562,572 165,251 668,537 168,164 719,670

2 Markup/Interest Expenses 77,610 286,978 88,827 324,193 90,666 314,564 101,813 360,080 93,106 352,130

3

Net Markup/Interest Income 51,598 258,302 52,105 251,292 49,291 248,007 63,438 308,457 75,058 367,540

4 Provisions and Write offs 7,041 38,127 10,190 27,052 19,189 16,646 11,379 12,602 16,799 25,162

5

Net Markup/Interest Income after Provisions 44,557 220,175 41,915 224,240 30,103 231,361 52,060 295,855 58,258 342,378

6

Non Markup/Interest Income 22,934 76,166 29,592 101,501 31,234 105,036 35,210 124,577 48,406 152,266

7

Non Markup/Interest Expenses 38,064 165,516 44,856 179,537 48,930 191,864 56,926 220,547 59,957 243,063

8 Administrative Expenses 37,488 158,645 44,001 174,477 47,818 187,383 53,682 214,450 58,249 234,522

9 Profit/Loss Before Tax 29,427 130,825 26,652 146,205 12,407 144,533 30,343 199,885 46,707 251,581

10

Profit/Loss After Tax 19,900 85,473 19,424 96,515 8,835 100,633 20,802 132,450 27,849 149,763

E Others

1

Cash generated from Operating Activities 107,777 588,605 132,675 909,203 18,189 336,926 170,371 611,178 408,807

1,419,712

F Number of Shares

1 No. of Ord. Shares 4,141 30,090 4,428 30,883 5,332 31,229 5,932 32,106 5,972 37,394



A Comparative Study of Financial Performance …7] Velnampy and Anojan (2014) compare the financial performance of the state and private sector banks during war and post war scenarios

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