Askari Commercial Bank Limited – A Banking Report

Askari Commercial Bank Limited – A Banking Report

Executive Summary


The report is a thorough and comprehensive profile of the Askari Commercial Bank Limited. The report begins with an introduction of the bank, citing its brief history and the objectves of the creation of the bank.


The report then takes an overview of the performance of the bank in its years of operation, exploring whether the bank has been successful in attaining its goals.


The next section of the report examines the phliosophies and the policies that govern the operation of the bank. This section gives an insight into how the bank selects and develops its asset portfolio and how it aims to stay ahead of its competition by offering innovative products and services to its customers.


The report then delves into the corporate strategy of the bank. This section is followed by an examination of the role that information technology is playing in the operations of the bank.


The last section titled “Ratio Analysis” is primarily quantitative and analytical in nature.



Brief Introduction


Askari Commercial Bank was incorporated on October 9th, 1991 as a Public Limited Company and is principally engaged in the business of commercial banking. The Bank obtained business commencement certificate on February 23rd 1992 and started operations from April 1st 1992.


Askari Commercial Bank is a Scheduled Commercial Bank and is principally engaged in the business of Banking as defined by the Banking Companies Ordinance 1962. The bank is listed on the Karachi, Islamabad and Lahore Stock Exchanges.


ACBL was founded by the Army Welfare Trust which is a charitable organization formed to cater to the needs of widows and orphans of Army personnel. The AWT was assisted by two overseas Pakistanis, who hold a significant stake in the bank’s equity.


The Bank’s constitution requires the chairman to be the Adjutant General of the Pakistan Army. Besides the chairman, the 12 directors also include the MD of the AWT (Ex-Army), four other retired senior army officers and two overseas sponsors. Army appointed directors do not influence the daily operations of the bank as their presence is intended to provide a general policy framework. The remaining top management of the bank is sourced out from other Pakistani and foreign banks operating in the country.


ACBL’s Performance at a Glance


Since its inception in 1992, ACBL has had to operate in an economy that has consistently under performed. The turbulent economic and political conditions have dealt serious blows to the Banking Industry. However, ACBL has, despite all environmental uncertainties and adversities, posted operational results that can be easily called impressive. This performance when viewed in the backdrop of the struggling banking industry looks especially outstanding.



All measures of the bank’s performance show that ACBL has successfully outperformed  its competitors. The Bank’s profitability has been rising steadily since the start of its operations. Pre-tax profits rose from Rs. 0.244 billion in 1993 to Rs. 0.755 in 1997, an increase of 209%.



Matching the profitability figures in their spectacularness are the deposit figures. The high rate at which deposits have been increasing at ACBL reflects the trust that the bank enjoys of its depositors. Deposits at the bank have increased more than four fold, from Rs. 4.6 billion to Rs. 19.5 billion, in the brief period from 1993 to 1997.



A large deposit base has enabled the bank to expand its asset base. During the period, 1993 to 1997 ACBL’s assets rose by 282.5% from Rs. 6.3 billion to 24.1 billion.



In order to effectively pursue its corporate objectives and to cater to the needs of its growing clientele the bank has been regularly investing in infrastructure. The strength of the branch network of the bank has increased from 10 in 1993 to 27 in 1998.


ACBL’s Philosophy


The bank strives to maintain the quality of its risk assets portfolio. In 1997 the bank’s total advances at Rs. 9.5 billion recorded  growth of 27% over the previous year and the bank’s prime focus in its lending activities continues to be short term, trade related financing on a secured and self liquidating basis. A major chunk of advances portfolio has a maturity pattern of less than one year.


The credit risk management is among the top priorities at ACBL. For this purpose, the bank has in place a formal credit sanctioning process based on the principles of checks and balances. The credit line proposals are reviewed and approved by qualified officials of the bank. The bigger the credit line proposal, the greater is the care taken in decision making and disbursement. At the head office a team of senior credit executives constantly monitors the bank’s overall credit exposure both industry-wise and group-wise and takes appropriate actions to avert large scale industry and single party exposure. Strong internal control system exists in the bank. This provides timely and effective support to the management in the implementation of the bank’s strategies.


The investment portfolio of the bank stood at Rs. 11.8 billion at the end of 1997, registering an increase of 91% over the last year. The investment portfolio together with other liquid assets forms a major chunk of the bank’s asset base which shows the degree of high liquidity maintained by the bank. The policy of high liquidity however is not maintained at the cost of profitability as is evident from the profit figures. The bank is maintaining optimal balance between liquidity and profitability. As the yield on government securities declined, the bank selectively expanded its advances portfolio in the second half of 97.


ACBL’s emphasis on further broadening core foreign trade business translated into handling higher volume of export and import business of Rs. 26 billion in 1997 registering a growth of 34% over the previous year. This enhanced foreign trade business was secured due to excellent customer services and efficient international settlement arrangements with correspondent banks.


The bank’s strategy to consolidate and expand its network of correspondent international bank continued and presently has reached 171. The increase in number of ACBL’s correspondents further improved their capabilities to undertake greater cross border transactions. ACBL’s strong relationships with correspondents and their confidence in the bank’s capabilities and professionalism can be gauged from the fact that now a small percentage of LOC requires confirmation.


The foreign exchange and money market operations have registered significant increases over the year. To manage effectively the bank foreign exchange operations and investment portfolio in deregulated and free operational environment, the Treasury is equipped with the latest information and communication technologies and has been organized on modern lines. The sophisticated management techniques and multiple control systems are applied for smooth and risk free operation of Treasury.


To remain one step ahead of  competitors, the bank has been consistently bringing new products to its customers including credit cards in the consumer banking sector. ACBL master card was launched toward the end of the first quarter of 1997 with plans to launch Askari VISA shortly.


The whole credit card operations has been carried out prudently and ACBL has been successful in establishing a foundation in which to base future growth. It is a relatively a new product for Pakistan, but has promising growth potential and by entering the market at the right time ACBL may grow as a major market player in the future. After the launch of Askari VISA, ACBL will have a comprehensive array of credit cards excelling the variety of products and service choice.




  • The bank is targeting the middle and upper middle class as its desired retail deposit base. This segment of the population does not wish to bank with the nationalized commercial banks but cannot afford the expensive banking services such as Citibank and ANZ. On the wholesale side, the bank is targeting local companies other than blue chips and some defense related organization. ACBL’s services are not as lavish as those offered by foreign banks but they still meet the needs of its target segments. This helps ACBL to curtail its deposits servicing cost.


  • From the beginning ACBL has concentrated on clients other that MNCs. The bank is extending its loans facilities to medium/large traders and other retail based clientele. This has reduced the per party lending exposure of the bank to a mere Rs. 4.5 million, and has increased the average markup rate to 15% plus, almost 100bp higher than its peers. The higher lending rates with relatively lower increasing deposits servicing cost has placed ACBL’s net margins in the upper range of the banking industry.


  • The bank has a very realistic approach to expanding its branch network. The branch network has been expanding moderately over the years. The bank also has an edge over its competitors such as Faysal Bank owing to its more established presence in the market.


  • The management’s stance with respect to selective innovation in banking services:
  1. The ACBL has entered the credit card market by launching Master card.
  2. The bank has also installed ATMs at several branches. It has plans to install more ATMs gradually in the larger cities. The slow progress in this respect can be attributed to the high installation cost of such machines.
  3. To support it’s business strategies, Askari has made landmark break throughs in terms of technology. Currently, all the major branches of the bank are linked up through a dedicated telephone line. This linkage will soon be transferred to a private satellite, which has been established in the country to cater for private sector consumers. The bank has plans to spend Rs. 10-15 million annually on technical upgrades over the next three years.





To meet the challenges of 21st century ACBL it is paying particular attention to the development of information technology. In this regard, the bank continues its emphasis on employing the latest technological tools to improve its operation and customer services. ACBL is the first bank to have established country wide communication network VSAT and Radio Modem Technology. This communication network has enabled the bank to provide on-line, real time banking facilities top its customers, presently at 11 different cities of the country which is being expanded to cover other cities also. The On-line communication allows the customer the facility of carrying their normal banking transactions through the nearest branch irrespective of  where their account is placed. This on-line banking facility has also been made most sophisticated due to high speed electronic transfer of signatures, for verification purposes, through out the country.


The bank also offers 24 hours self service banking facilities to its customers on country wide bases through deployment of  Automated Teller Machines, allowing customers uninterrupted banking facilities such as cash withdrawals, funds transfer, balance inquiries, account statements etc.


In addition the bank also provides fully automated on-line telephone banking facilities to its customers enabling them to carry out banking transaction, statement requests,  product information and exchange rate inquiries.


In 1997 three new branches were opened; one each in Abbottabad and Bahawalpur and one additional in Islamabad. The strategy of selective expansion of branch network will continue in the year 1998.


Ratio Analysis


YEAR 94 95 96 97
CURRENT 1.0047 1.0023 1.032 1.0073


The current ratio of the bank has remained relatively stable at a level slightly above one. This trend can be explained by the fact that the bank’s asset portfolio consists almost exclusively of highly liquid assets with maturities of less than a year. The bank’s liabilities are also very liquid. As per the State Bank regulations the bank must considers all its deposit accounts as short term liabilities. In 1997 only 4.2% of the bank’s liabilities had maturities of more than a year.


YEAR 94 95 96 97
CA 0.0442 0.039 0.088 0.0736



The most notable feature of the above graph is a sharp jump in the capital adequacy ratio from 0.039 in 1995 to 0.088 in 1996. This jump came about as a result of the bank expanding its capital base from Rs. 893 million in 1995 to Rs. 1581 million in 1996. In 1996 the bank issued 22.5 million ordinary shares as well as 7.425 million fully paid bonus shares at Rs. 10 each.

YEAR 94 95 96 97
ROA 2.318 1.97  3.25 3.13 


Pre-tax profit figures have been used in computing the RoA ratios in the above table and sketch. The bank’s perfermance as shown by the trend in RoA is encouraging. RoA touched its lowest level in 1995 at 1.97. In this year the bank remained unable to make any high interest loans for a period of three months owing to a penalty imposed on it by the State Bank. This loss of revenue resulted in the bank posting its lowest RoA in 1995.

YEAR 94 95 96 97
ROE    52.46 50.4  36.83 42.5 



At first glance the sudden drop in RoE between the years 1995 and 1996 seems alarming. However in this period the bank expanded its capital base by 77%. Therefore even though the Bank’s profits increased by 29.33% in the period the return on equity fell because of an even greater increase in the capital base.



YEAR 94 95 96 97
D/E    21.631 25.56 10.32 12.59



The above graph shows that the debt to equity ratio fell drastically between the years 1995 and 1996. In 1995 the bank had a high advances to deposits ratio. The State Bank of Pakistan found Askari Bank’s state of high credit exposure a cause of concern and intervened by forbidding the bank from making any fresh loans for a period of three months. Two more banks became the target of the same penalty namely ABN AMRO bank and Citibank. Both these factors were responsible for bringing about the sharp fall in debt/equity ratio between the years 1995 and 1996.

YEAR 94 95 96 97
DEBT/TA 0.956 0.961 0.912 0.93 



The graph shows that the ratio debt/total assets fell from 0.961 in 1995 to 0.912 in 1996. During this period the increase in the Bank’s asset base came through an increase in the Capital base and not through increased borrowing. Between 1995 and 96 shareholders equity increased by 77%.


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