Capital Adequacy Ratios Analysis

ANALYSIS

CAPITAL ADEQUACY RATIOS YEARS 2004-2008 YEARS 2004 2005 2006 2007 2008

NATIONAL BANK OF PAKISTAN

BANK ALFALAH LTD

CAPITAL ADEQUACY RATIO 23.19% 15.31% 14.81% 14.35% 8.01%

CAPITAL ADEQUACY RATIO 22.71% 7.73% 9.79% 12.15% 12.97%

Capital adequacy of both the banks has been plotted on the graph:

National bank and bank alfalah ltd both have different sets of operations due to which their capital adequacy differs from each other. Both the banks have invested in numerous companies

and they both have lended money and borrow money from different other foreign and pakistani banks, due to which their reserves and some what liabilities have increased. In 2004 both banks has shown the same ratio of capital adequacy with little difference. But in 2005 the bank alfalah has shown a drastic change in capital adequacy ratio of 7.73% as compared of the NBP whose capital adequacy ratio is 15.31% in 2005. As well as there is again a high difference in the capital adequacy ratio of both the banks in 2006 but in 2008 the NBP has a ratio of 8.01% whereas the bank alfalah has a ratio of 12.97%, which shows that the NBP has shown a change in its capital adequacy ratio as compared to other years. NATIONAL BANK OF PAKISTAN: The capital adequacy of national bank of pakistan from 2004 to 2008 are totally different from each other because of the following reasons: 1. In 2004, the balances of NBP with other banks in pakistan is less as compared to other years. 2. The bank has invested in provincial and federal government securities in different

amounts every year as well as it has also invested in NIT units, certificate of investments and also invested outside pakistan. Due to which the amount of investment is fluctuating every year. 3. It has given advances and loans in numerous numbers to its customers and to other banks

as well. 4. The operations in foreign banks is going quite well and because of which they are

investing more and more with the National Bank of Pakistan. 5. NBP also has a facility of money to call lendings due to which it lends large amount of

money when ever the scheduled banks calls for the money and they are providing this service very gently. So the banks has shown large amount of money to call in every financial year. 6. Besides this, the NBP is adding large amount of money in the reserves which shows that the bank is working effectively and efficiently even during the recession period.

The capital adequacy of NBP from 2004 to 2005 are shown in the following graph:

BANK ALFALAH LTD: The capital adequacy of national bank of pakistan from 2004 to 2008 are totally different from each other because of the following reasons: 1. In 2004,the bank has no balances with other central banks due to which the ratio has

effected a little bit than any other years because in later years, the bank has shown some balance with other central banks. 2. The bank alfalah has balances with other banks outside pakistan which has the positive

effect on the bank overall performance. 3. The bank has invested less amount of money in the preference shares due to which the hybrid equity has effected a lot in calculating the capital adequacy ratio. 4. The bank has given large amount of advances and loans to the scheduled bank as well as to its customers as compared to the NBP. 5. The bank has invested much in the Federel Government Securities rather than Provincial Government Securities.

The capital adequacy ratio of bank alfalah ltd has been shown in the graph below: