impact of change in interest rate on banks b/s
TRANSCRIPT
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Submitted to; Sir Safdar Hussain
Tahir
Submitted by; Adnan Manzoor
8232
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Topic of Presentation
Impact of Interest rate change on Banks’s Balance Sheet
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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
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“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
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“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
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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
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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
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ISG = Interest Sensitive Assets − Interest Sensitive Liabilities
Interest Sensitive Gap
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2009 = 91101122 − 91988655
= 887533 -ve
2010 = 86041752 −91637620
= 5595868 -ve
Calculation of Interest Sensitive Gap
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2011= 111598549 − 134167254
= 22568705-ve
2012= 174930691 − 193907613
= 18976922-ve
Calculation of Interest Sensitive Gap
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Interest Sensitive Ratio
sLiabilitie SensitiveInterest
Asset SensitiveInterest ISR
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2009= 91101122 / 91988655
= 0.99
2010= 86041752 / 91637620
= 0.93
Interest Sensitive Ratio
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2011= 111598549 / 134167254
= 0.83
2012= 174930691 / 193907613
= 0.90
Interest Sensitive Ratio
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Assets Earnings Total
ExpensesInterest - IncomeInterest NIM
Net Interest Margin
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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
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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
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Net Interest Margin
× 100
= 4.45%
× 100
= 4.24%
2009= 10102060 – 4969916 115442940
2010= 12290549 – 6606474134039388
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2011= 18032152-8665622 156074951
= 6.00%
2012=21836972-11384534 220591967
=4.73%
Net Interest Margin
100×
100×
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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
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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
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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
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Thank you