Submitted to; Sir Safdar Hussain

Tahir

Submitted by; Adnan Manzoor

8232

Topic of Presentation

Impact of Interest rate change on Banks’s Balance Sheet

Meezan, the Arabic word for 'Balance' has been taken from Surah-e-Rahman.

Incorporation of the Bank January 27, 1997. Commencement of business of the Bank September 29,

1997. Issuance of Scheduled Islamic Commercial Bank

license January 31, 2002. Commencement of operations as Scheduled Islamic

Commercial Bank March 20, 2002.

History

“Establish Islamic banking as banking of first choice to facilitate the implementation of an equitable economic system, providing a strong foundation for establishing a fair and just society for mankind”.

Our vision

“To be a Premier Islamic bank offering a one stop-shop for innovative value added products and services to our customers within the bound of Shariah, while optimizing the stakeholders’ value through organizational culture based on learning, fairness, respect for individual enterprise and performance.”

Our Mission

Calculation of Interest Sensitive Gap. Calculation of interest sensitive ratio. Calculation of Net Interest Margin (NIM) Determination of bank either assets sensitive or

liability sensitive. What impact would be due to change in interest

rates?

PURPOSE OF PRESENTATION

INTEREST SENSITIVE ASSETS AND LIABILITIESINTEREST SENSITIVE ASSETS 2009 2010 2011 2012

Rupees in Millions

Balance with other banks 16,224 7,367,731 431 2,153,769

Investments -net 14,809,668 24,370,190 50,519,386 98,488,574

Due from financial institutions (excluding non performing loans) 34,486,875 10,511,855 4,118,541 543,064

Islamic financing and related assets - net 39,528,731 41,709,656 53,995,163 70,377,481

Profit accrued on Deposits 2,259,624 2,082,320 2,965,028 3,367,803

TOTAL INTEREST SENSITIVE ASSETS 91,101,122 86,041,752 111,598,549 174,930,691

INTEREST SENSITIVE LIABILITIES

Bill Payable 1,249,210 1,767,370 2,282,045 3,058,503

Due to financial institution 8,468,425 5,829,296 9,235,960 18,461,347

Deposits and other accounts 81,270,565 83,294,556 121,469,485 170,587,229

Return on Deposits 1,000,455 746,398 1,179,764 1,800,534

Total interest sensitive liabilities 91,988,655 91,637,620 134,167,254 193,907,613

ISG = Interest Sensitive Assets − Interest Sensitive Liabilities

Interest Sensitive Gap

2009 = 91101122 − 91988655

= 887533 -ve

2010 = 86041752 −91637620

= 5595868 -ve

Calculation of Interest Sensitive Gap

2011= 111598549 − 134167254

= 22568705-ve

2012= 174930691 − 193907613

= 18976922-ve

Calculation of Interest Sensitive Gap

Interest Sensitive Ratio

sLiabilitie SensitiveInterest

Asset SensitiveInterest ISR

2009= 91101122 / 91988655

= 0.99

2010= 86041752 / 91637620

= 0.93

Interest Sensitive Ratio

2011= 111598549 / 134167254

= 0.83

2012= 174930691 / 193907613

= 0.90

Interest Sensitive Ratio

Assets Earnings Total

ExpensesInterest - IncomeInterest NIM

Net Interest Margin

Interest income

Detail 2009 2010 2011 2012

Interest income

10,102,060 12,290,549 18,032,152 21,836,972

Interest expenses

4,969,916 6,606,474 8,665,622 11,384,534

Interest income and expense

Detail 2009 2010 2011 2012

Total Assets 124169096 154752425 200550394 274436510

Deferred tax (134314) (241746) (801391) (545961)

Other assets (8713652) (17707256) (3843058) (4377827)

Security deposit

14126 16968 21487 61655

Total fixed assets

(2416375) (3066100) (3985248I) (48982410)

Total earning assets

115442940 134039388 156074951 220591967

Calculation of Earning Assets

Net Interest Margin

× 100

= 4.45%

× 100

= 4.24%

2009= 10102060 – 4969916 115442940

2010= 12290549 – 6606474134039388

2011= 18032152-8665622 156074951

= 6.00%

2012=21836972-11384534 220591967

=4.73%

Net Interest Margin

100×

100×

Meezan bank is “Liability Sensitive” because interest sensitive assets are less than the interest sensitive liabilities or it has a “Negative Gap”.

If interest rate changes definitely it would impact upon assets and liabilities of banks which are interest sensitive.

Interest sensitive ratio which is less than 1 indicate that bank is liability sensitive.

Impact of interest sensitivity

If interest rate increases and bank is Liability sensitive it will decrease the “Net Interest Margin”.

Because interest revenue on assets will decrease and cost of funds will increase and NIM will decrease.

If market interest rate falls then interest income will increase and bank have to pay low cost of deposits and ultimately NIM will increase.

Impact of Interest Rate on Liability Sensitive bank / Meezan bank

Meezan bank should focus on Net Interest Margin

which is declining gradually, it shows that cost of funds

is inclining bank should increase its financing to

increase its interest income and get loan from multiple

low cost bearing sources.

RECOMMENDATIONS

Thank you