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Contents
Contents..................................................................................................................... 2 INTRODUCTION .........................................................................................................3 FINANCIAL ANALYSIS:.................................................................................................4 Selecting Key Performance Indicators to Monitor Outcomes...................................9 CONSIDERATIONS BEFORE MAKING INVESTMENT......................................................9 CONCLUSION............................................................................................................13 RECOMMENDATIONS:...............................................................................................14 REFERENCES:............................................................................................................15 BIBILOGRAPHY:......................................................................................................... 16

INTRODUCTION

Silk bank maintains its position as Pakistan's premier bank determined to set higher standards of achievements. It is the major business partner for the Government of Pakistan with special emphasis on fostering Pakistan's economic growth through aggressive and balanced lending policies, technologically oriented products and services offered through its large network of branches locally, internationally and representative offices. Banks new identity Silk bank is a name with a meaning that endorses our values. The name takes its inspiration from Silk, a natural element known for its unique properties. Inspiration also comes from the Silk route which has been a corridor for trade and commerce between Asia and the rest of the world for centuries.

www.silkbank.com.pk

FINANCIAL ANALYSIS:
Half yearly Income Statement H1'09
2009 Mark-up/return/ Interest earned Mark-up/return/ Interest expense 2,789,625 91,637 Provisions against NPL & Advances Provision/reversal against Consumer finance (Reversal) / provision for diminution In the value of investments - net Impairments of available for sale assets Bad debts written of directly 1,598 101,893 378,457 Net markup interest Income after provisions Non markup/interest income Fee commission and brokerage income Dividend income Income from dealing in Foreign currencies Gain on sale of securities-net 71,572 67,045 28,866 16,202 179,367 18,942 76,567 14,127 (286,820) (185,180) 1,011 423,487 (4,827) 279,026 (4,060) 1,902,976 238,307 433,792 (6,489) 2,881,262 2,141,283 2008

Unrealized loss on revaluation On investments held for trading Other income Total non markup noninterest income (2,041) 60,586 395,471 108,651 Non markup interest expense Administrative expense Other (reversals) provisions write off Unrealized loss on revaluation Of investments held for trading Other charges Total non markup interest expense 15,911 1,212,637 (1,103,986) Amortization of deferred costs Extraordinary items Loss before income tax expense (1,103,986) (804,871) 317 798,670 (804,871) 1,196,726 798,353 43,217 178,979 (6,201)

Recent performance 9M09:

Silk Bank's loss after tax stands at Rs 1.33 billion for the 9-month period ending September 2009. The net mark-up income registered a marginal decline of 4.35%; however, the interest expense rose by 1.97% for the same period, resulting in the net mark-up interest to decline. The non-mark-up income registered a sizable growth of 38% (Rs 538.164 million). Dealing in foreign currencies favorably impacted the bank's revenues, so did brokerage charges and sale of securities.
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The bank displays a prudent behavior in its expenses, as strong signs of cost saving and minimizing operational expenses have been seen. Therefore, the loss for the 9-month period ending September 2009 shows a decline of 33%. The sharp rise in total net interest/mark-up income can be attributed to collection of previously declared non-performing loans, which had been offset with sizeable provisioning charges. Therefore, the reversal of these provisions to the tune of Rs 407.2 million (negative growth of 124%) has effectively transformed the net interest income after provisioning. The impairment expenses of available-for-sale securities (Rs 131.38 million) fails to impact the net negative provisioning on the back of collection of doubtful accounts. The non-interest income also shows a healthy growth of 36% to Rs 538.16 million, mainly due to gains on dealing in foreign currencies (growth of 67.03%) in the wake of declining rupee and from gains on sales of securities, which stood at Rs 82.3 million, almost 3 times higher than FY08. Administrative expenses showed a decline in the wake of company's policy to cut costs and achieve operational efficiency, resulting in a net decline of 2.67%. Non-performing loans for the period show a decline of 6% and stood at Rs 12.13 billion. Investments, as a component of earning assets have shown a growth of 33% from the previous year to stand at Rs 19.72 billion. Government securities i.e. Market Treasury Bills and PIBs comprise 90% of the investments. Advances show a modest gain of 6.90% to stand at Rs 33.121 billion but still represent the major chunk of earning assets at 62% of the earning asset during 9M09. Lending to financial institutions declined by a good 40% to stand at Rs 816.65 million representing 2% of the total earning assets. However, the ADR has fallen to 70% for the 9-month period of FY09 as compared to 75.72% in 2008, because the advances rose by 4.90% (to Rs 323.21 billion) and deposits grew by 16.29% (to Rs 47.729 billion) in 9m period of 2009.

Financial performance (FY06-FY08)

In FY08, Silk Bank declared a loss of Rs 2014 million with earnings per share of Rs 2.83, considerably lower (33.76%) than previous year's loss of Rs 3041 million and loss per share of Rs 6.25. Due to the losses, the bank did not pay any dividend. The net interest income of the bank improved by 54.10%, from a loss of Rs 2.773 billion to Rs 1.273 billion. This is mainly because during FY08, the bank's provisioning against the NPLS and Advances declined significantly (47%) to Rs 1.663 billion. The non-mark-up income witnessed a decline of 50.50% to Rs 384.5 million mainly on the back of declining fee commission and brokerage income, which went down 49% to Rs 188.6 million. Other non-mark-up earning items also did not yield any impressive returns in FY08.

Composition of earning assets:

The losses for the past 2 years can partially be explained by the dwindling size of the earning assets, which have shown a decline consistently over the period FY07-FY08. During FY07, the bank's overall earning asset base declined by 10.13% to stand at Rs 44.57 billion, which further slipped modestly by 0.22% to stand at Rs 44.476 billion in FY08. During the same period, lending to financial institutions increased by 63.90% (F08 Rs 1.376 billion), investments registered a decline of 32% to stand at Rs 12.012 billion and advances grew by 20.14% to Rs 31.09 billion. It is worth noticing that the advances grew by a significant amount although the deposits fell by 3.11% during the same period to stand at Rs 41.056 billion against previous year's Rs 42.374 billion. As of 2008, the bank has deposits of Rs 41.056 billion; 3.22% lower than the previous year. The remunerative, interest expense bearing deposits of 2008 are Rs 34.419 billion, representing almost 84% of the total deposit base. This is mainly due to the fact that Pakistani banks are attracting more fixed and term deposits due to banks eagerness for raising longer term deposits to match their assets maturity profiles whereas due to decline in consumer financing, the demand for consumer short to medium term financing has been wary. Earning ratios: Silk Bank's Return on Assets has shown an improvement, from a loss of 3.63% in FY08 to 2% for the 9m FY09. This decrease in loss can be attributed to a significant reduction (33%) of loss after tax for the same period. The total assets of the bank registered a decline of 24% in 9m FY09. This has also impacted the Return on Assets. The return on equity recovered to -40% in 9m FY09 from 45.87% in FY08, due to a decline of about 22% in net equity. This can be attributed to the constant accumulated loss carried forward by the bank for some time. Asset quality: The bank faced non-performing loans of Rs 12.113 billion during the 9m FY09, 6% down against FY08. Provisioning for NPLs, however, declined 47% from previous year to stand at Rs 1,663,314,000. The provisions to NPLs ratio was -3% in the year FY08 as compared to 51% in FY07. The drop in provisioning ratio is attributed to the sharp rise in the net markup income after provisioning for FY09. The issue of rising NPLs can be attributed to the economic downturn, the power crisis and the subsequent industrial crisis, which has rendered many borrowers incapable to meet their financial obligations. However the company is putting in considerable efforts to alleviate the issue of NPLs and has made significant recovery. Liquidity:
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The ratio of earning assets to total assets shows a slight improvement in the 9m FY09, i.e., 81% as compared to 79.83% in FY08. The trend towards earning assets displays a shift from investments and more towards advances. The decline in earning assets is mainly attributed to the 13% decline in investments. As mentioned earlier, this is due to the shift towards consolidating the advances component of the earning assets. The advance to deposit ratio shows a decline over the period 9m FY09 to 70% as compared to 75.72% in FY08. This is mainly because the advances have risen by 20.14% whereas the deposits have fallen by 3.11% because the bank has large amounts of fixed deposits, which enables them to extend advances, particularly in the long term advances, which stood at Rs 17.923 billion, 31.20% higher than previous year's Ra 13.661 billion. Whereas short-term deposits for FY08 stood at Rs 20.26 billion; which grew at a comparatively slower rate of 14.13%. Overall, the figures indicate that the bank is striving to maintain a good ADR by making more and more advances, but the issue of default and non-performing loans remains a challenge. SOLVENCY RATIOS: The solvency position of the bank has improved considerably in 9m FY09 from FY08. The equity to assets ratio stood at 7.89% against 4.06% of FY07. Similarly the equity to deposits ratio improved from FY07's 5.15% to 10.70% in FY07. The improvement in solvency position can be attributed to the improvement in share capital of 80% as a result of new injections in the equity. However it should be noted that the new injections have still not enabled the bank to maintain the Minimum capital requirement of Rs 5 billion and it faces a shortfall of Rs 2.128 billion. The earning asset to deposit ratio has increased marginally to 1.083 in FY08 from 1.05 in FY08. This is because of the un-proportionate variations in the earnings assets and deposits. Also, the shortfall in meeting the MCR has resulted in the bank to make efforts improving its capital adequacy through improving the equity side of its balance sheet.

FUTURE OUTLOOK:
Economic growth of the country is still under stress due to severe power shortages, rising electricity rates, high prices of petroleum products, terrorism and a volatile law and order situation. These factors have affected the economy at both micro and macro-level and had a negative impact on the profitability and growth of almost all businesses. However, there are also signs of gradual economic recovery. The rate of inflation is under control and is expected to continue the downward trend during the remaining part of 2009, with a single digit inflation forecast for 2010. Foreign currency reserves are at a high of US $14.7 billion with remittances from Pakistanis living abroad showing a healthy and rising trend depicting the confidence they have in the future of the economy of Pakistan. The bank has continued to implement its strategy in the third quarter
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of 2009 of recovering non-performing loans. Total cash recovery from NPL parties stood at Rs 1.017 billion by the end of the nine-month period that ended on September 30, 2009. The bank has been assigned a long-term entity rating "A-" (A Minus) and short-term rating of "A-3" (A-Three) by JCR-VIS Credit Rating Agency. The rating has been put under "Rating Watch - Developing" status on account of capital plan to be met by December end 2009, as allowed by the SBP. www.silkbank.com.pk

Selecting Key Performance Indicators to Monitor Outcomes

1. Conducting a Readiness
2. Agreeing on Outcomes to Monitor and Evaluate 3. Selecting Key Indicators to Monitor Outcomes 4. Baseline Data on Indicators Where Are We Today? 5. Planning for Improvement Selecting Results Targets 6. Monitoring for Results 7. The Role of Evaluations 8. Reporting Findings 9. Using Findings 10. Sustaining the M&E System within the Organization.

www.wikipedia.org

CONSIDERATIONS BEFORE MAKING INVESTMENT

The company should make the following considerations before making an investment. 1. Company should see audited versions of the income statement, balance sheet, & cash-flow statement. 2. . Company should see a list of revenues by customer.
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3. Company should understand how company makes money: what do they sell, who they sell to, and how they sell it. What are their gross margins? Are there any production, delivery, support or warranty risks? 4. Company should take interview two or three of their largest customers. Find out why they bought the product(s), if they like them, and if they will continue to buy them in the future. 5. . Look at companies accounts receivables and see what the average time outstanding is for invoices. Be very skeptical if receivable account for more than 3 months of current revenues. 6. Look at companys accounts payables and see if they have any large payments coming up in the next 24-36 months. 7. Company should get an understanding of the competitive market. Who else sells into this market? Does the company you want to invest in have a defensible competitive position through technology, market presence, people, something else? 8. Company should find out if any key employees have left in the last 6 months. Contact them and find out why they left. If possible, interview the current key employees to gauge their understanding of the business and their commitment to stay with the company. 9. Also make absolutely sure there is no outstanding litigation against the company.

10. Hire a good securities lawyer to draw up the terms under which Company will invest. 11. Most importantly: don't invest on a hunch! Does your homework, understand business model, and run away from any company that won't willingly provide you with the data items listed above. 12. When all else fails, invest in a mutual fund or money market. The upside may be lower, but so will the downside. 13. .If you're really smart, invest in your own company. www.en.wikipedia.org

Credit control:
A strategy employed by manufacturers and retailers to promote good credit among the creditworthy and deny it to delinquent borrowers. This will both increase sales and decrease bad debts, thus improving a company's cash flow. Credit control is an important component in the overall profitability of many firms. Importance of credit control in finance department:
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a. Maintain good cash flow b. Reduce the risk of bad debit c. Manage the companys largest asset d. Minimize the costs of granting credit e. Promote good customers relations & prompt payment f. Develop & maintain company Credit Policy & associated procedures g. Liaise with the sales operation, branches & each other encouraging, teamwork. www.bwaresolutions.com DEBT FINANCING: Debt financing is borrowing money for a specific period of time that usually must be paid back with interest. Unlike equity financing, the loan source does not require a piece of ownership in the business. Some typical sources of debt financing are banks, credit unions, savings and loans, finance companies, and the U.S. Small Business Administration. For smaller loan amounts, relatives and friends are also potential sources of capital. www.retail.about.com RAISE FINANCE BY EQUITY FINANCING: The act of raising money for company activities by selling common or preferred stock to individual or institutional investors. In return for the money paid, shareholders receive ownership interests in the corporation. It is also known as "share capital". This is when a company raises money by issuing stock. The other way to raise money is through debt financing, which is when the company borrows money.

Pay back ratio:

A key ratio that is used to determine the time it would take for an investor to double their money in a stock investment. The price-to-earnings growth payback period is the time it would take for a company's earnings to equal the stock price paid by the investor. A company's PEG ratio is used rather than their price-to-earnings ratio because it is assumed that a company's earnings will grow over time. Payback period as a tool of analysis is often used because it is easy to apply and easy to understand
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for most individuals, regardless of academic training or field of endeavour. When used carefully or to compare similar investments, it can be quite useful.

Dividend ratio:
The percentage of earnings paid to shareholders in dividends www.investopedia.com

Cash Flows statement & Balance sheet:

Cash Flows statement explicitly reflect the cash movement (inflows and out flows) during the operations in an accounting period. As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. The balance sheet is a snapshot of a firm's financial resources and obligations at a single point in time. It shows what a company owns and what it owes at a fixed point in time. Cash flow statements show the exchange of money between a company and the outside world also over a period of time. People & groups interested in cash flow statements include:
1. Accounting personnel, who need to know whether the organization will be able to cover

payroll and other immediate expenses?

2. Potential lenders or creditors, who want a clear picture of a company's ability to repay, 3. Potential investors, who need to judge whether the company is financially sound. 4. Potential employees or contractors, who need to know whether the company will be able

to afford compensation. 5. Shareholders of the business. www.sec.gov

Profit & loss account & balance sheet

The P&L measures profitability while balance sheet measures financial health. Ability to pay what you owe out of your current resources. Taken together, they indicate long-term prospects and reveal how could manage business better. It could be that a growing business overstretches itself. A look at the P&L will reveal healthy profit, but will not show you, for example, if you are running out of cash, as you
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build stock. For this you will need to look at your balance sheet. Working with them together allows you to plot growth & avoid financial perils. www.scribd.com

CONCLUSION

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Silk bank maintains its position as Pakistan's premier bank determined to set higher standards of achievements. It is the major business partner for the Government of Pakistan with special emphasis on fostering Pakistan's economic growth through aggressive and balanced lending policies, technologically oriented products and services offered through its large network of branches locally, internationally and representative offices. Banks new identity Silk bank is a name with a meaning that endorses our values It is observed that the Bank like the other public sector industries has not been showing up to mark performance.

RECOMMENDATIONS:
1. Bank should try to get rid of the political influence to be able to compete in the industry with prudent and strong policies.
2. The undue reliance on the public sector be minimized and ventures of private sectors should

be taken as well. 3. Redefining of rules, regulations and policies should be made implemented at all costs. making it more simple and faster to get a better response of the customers.
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4. Efforts of great importance to be made for the over the counter services of general banking

5. The behavior of the employee, especially on the counter has to be strictly monitored and

checked. 6. The still existed bureaucratic approval system has to be demolished. productive work. 8. Better and comprehensive long-term and short-term planning should be made to forecast the future needs. being implemented. 10. The Bank should develop a comprehensive recruitment policy to make only the competent ones to be on the job. 11. There is a still a vast pool of incompetent employees that has to right sized.
12. There is a lack of promotional element in the planning and budgetary decisions of the Bank

7. All advances should be made by getting the maximum security and should focus on

9. There is a possibility of establishing a task force to ascertain the effectiveness of the policies

that has to think seriously.

13. All branches of the Bank should be computerized for increasing the effectiveness and

efficiency of its employees. 14. Efforts should be continued to keep the powers of employees union to the minimum, like the current situation.
15. Promotions must not be delayed and should be made on time to further increase the

commitment and efficiency of the employees.

REFERENCES:

1. www.scribd.com 2. www.quickmba.com 3. www.wikipedia.org 4. www.investopedia.com 15

5. www.silkbank.com.pk 6. www.businessdictionary.com 7. www.pakinvestorsguide.com 8. www. inancial-dictionary.thefreedictionary.com/Debt+Financing 9. www.entrepreneurs.about.com/od/financing/a/debtfinancing.htm 10. www. tutor2u.net/business/finance/finance_sources_equity_introduction.asp 11. www.solutionmatrix.com. 12. www.kba-ips.com/2011/04/accounting-balance-sheet

BIBILOGRAPHY:
1. Van Horne. Financial Management and Policy. 8th edition. Prentice Hall, 1989.
2. Van Horne, James C. and John M. Wachowicz, Jr. Fundamentals of Financial

Management. 10th Ed. NJ: Prentice Hall, 1998.

3. Stern, Joel. The Future of Commercial Banking: A Roundtable Discussion, Midland

Corporate Finance Journal, (Fall 1987): pp. 22-49. 4. Smith, Clifford W. Jr. Risk Management in Banking, in Advanced Strategies in Financial Risk Management, edited by Robert J. Schwartz and Clifford W. Smith, Jr. Englewood Cliffs, NJ: New York Institute of Finance, 1993. 5. Seitz, Neil E. and Mitch Ellison. Capital Budgeting and Long-term Financing Decisions. TX: Dryden Press, 1995.
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6. Shull, Bernard. Federal and State Supervision of Bank Holding Companies, State and Federal Regulation of Commercial Banks. Washington, DC: FDIC, (1980): pp. 271-374. 7. Sinkey, Joseph F. Jr. Bankers Banks: Financial Innovation in Response to Competition, Consolidation in Response to Competition, Consolidation, and Regulation.Working paper. Terry College, Georgia: The University of Georgia, 2001 8. Petty, Keown, Scott, and Martin. Basic Financial Management. 6th edition. Prentice Hall, 1993. 9. Pinches. Essentials of Financial Management. 3rd edition. Harper & Row, 1990. 10. Price-Waterhouse. Bank On-and Off-Balance Sheet Risks. London: PriceWaterhouse, 1994. 11. Rejda, George E. and Michael J. McNamara. Personal Financial Planning. NJ: Prentice Hall, 1998. 12. Ross, Westerfield, and Jordan. Fundamentals of Corporate Finance. Irwin, 1991. 13. Schall and Haley. Introduction to Financial Management. 5th edition. McGraw-hill, 1988.
14. Melicher, Norton. Finance: An Introduction to Institution, Investment & Management. 15. OH: Southwester College, Pub., Ibbotson, and Brinson. Investment Markets: Gaining

the Performance Advantage. McGraw-Hill, 1987.

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