Financial analysis

Introduction

This financial analysis relates to Bank Albilad. Bank Albilad is one of the leading financial companies in Saudi Arabia. It was formed in the year 2004 via a Royal decree as the second Islamic bank. As a consequence, the bank operates under the Sharia law in all its operations. The bank mainly provides consumer, corporate and investment banking.

The bank offers a variety of banking and financing services to its customers depending on their needs. Some of the basic retail banking services and products that it offers include deposits, Albilad account, Ithmar account, Islamic financing, auto financing and other investment services. The bank does also provide international banking and financing services such as international share dealing services. The corporate and private banking services provided include deposits, Islamic banking, Murabaha financing, letters of credit, Finance by Musharaka and other investment packages. Other services offered include treasury, investment management, and asset management. The bank offers its services through a variety of products such as, Albilad Net, Albilad 24, and Albilad hone banking and real estate financing. Some of the investment services include Akar, Al-Murabih, unit-prices, Asayel and Amwal.

Bank Albilad operates its main business through six lines of business. They include, retail banking, corporate banking, remittances section, treasury, corporate banking. There are also other lines of business that I have not included in the list above. The bank is widespread with it network spreading all the country. The bank prides itself with around 67 branches spread all over Saudi Arabia. It also has approximately 450 ATMs and about 95 exchange and remittance centers. The parent company’s headquarters of Bank Albilad are based in Riyadh in Saudi Arabia.

BANK ALBILAD

CONSOLIDATED FINANCIAL STATEMENTS OF FINANCIAL POSITION FOR 2008, 2009 & 2010.

	2008	2009	2010
	SAR '000	SAR '000	SAR '000
ASSETS
Cash and balances with SAMA	1,125,142	1,297,241	2,497,282
Due from banks and other financial institutions	3,894,328	2,826,483	4,032,405
Investments	1,882,529	1,534,439	1,610,918
Financing, net	8,276,084	11,014,115	12,289,826
Property and equipment, net	537,392	394,502	341,890
Other assets	336,314	344,412	344,365
Total assets	16,051,789	17,411,192	21,116,686
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Due to SAMA	825,000	150,000	-
Due to banks and other financial institutions	639,098	48,327	382,429
Customer deposits	10,971,045	13,720,627	16,932,415
Other liabilities	403,806	490,056	698,881
Total liabilities	12,838,949	14,409,010	18,013,725
Shareholders' equity
Share capital	3,000,000	3,000,000	3,000,000
Employee share plan	(41,974)	(42,128)	-42,136
Statutory reserve	93,911	29,166	52,246
Other reserve	(22,741)	15,144	23,611
Retained earnings	183,644	-	69,240
Total shareholders' equity	3,212,840	3,002,182	3,102,961
Total liabilities and shareholders' equity	16,051,789	17,411,192	21,116,686

Current analysis

A study of the figures as they are currently, it is evident that the business sound in the long run with the going on concern being confirmed.  Current assets include cash and balances with SAMA, debts and balances owed by other banks and financial institutions. The current balances on the accounts are as follows;

	2008	2009	2010
	SAR '000	SAR '000	SAR '000
Cash and balances with SAMA	1,125,142	1,297,241	2,497,282
Due from banks and other financial institutions	3,894,328	2,826,483	4,032,405
Investments	1,882,529	1,534,439	1,610,918
Financing, net	8,276,084	11,014,115	12,289,826
Property and equipment, net	537,392	394,502	341,890
Other assets	336,314	344,412	344,365
Total assets	16,051,789	17,411,192	21,116,686

The amount of assets in the company has increased substantially for the last 3 years. In 2008, the balance was SAR 16,051,789,000 and it increased to SAR 17,411,192,000 in 2009. The figure hit a record high of SAR 21,116,686,000 in 2010. This was a sign good business in the company. The number of accounts in the bank had also increased substantially. Individually, the cash balances in the bank had increased substantially as well. This can be seen in the table below.

	2008	2009	2010
	SAR '000	SAR '000	SAR '000
Cash and balances with SAMA	1,125,142	1,297,241	2,497,282
Due from banks and other financial institutions	3,894,328	2,826,483	4,032,405

In 2008, the figure stood at SAR 1,125,142000 and increased in 2009, SAR 1,297,241,000 through to 2010 standing at SAR 2,497,282,000. An increase in the cash balances held by SAMA could indicate an increase in the operations of the company. The amount of debts and cash balances owed to Bank Albilad by other banks and financial institutions stood at SAR 3,894,328,000 in 2008. The figure dropped in 2009 to SAR 2,826,483,000 before picking up in 2010 recording a record high of SAR 4,032,405. Cash owed to the bank acts as an asset in the day-to-day running of the business.

Current liabilities

With increase in business, the amount of liabilities has increased over the years as shown below in the table of figures. The figures run through the years 2008 up to the most recent being the year 2010.

	2008	2009	2010
	SAR '000	SAR '000	SAR '000
Liabilities
Due to SAMA	825,000	150,000	-
Due to banks and other financial institutions	639,098	48,327	382,429
Customer deposits	10,971,045	13,720,627	16,932,415
Other liabilities	403,806	490,056	698,881
Total liabilities	12,838,949	14,409,010	18,013,725

Due to good business management and increased returns, the business does not have any cash balances owed to SAMA in the year 2010. Previously, in 2008 we had a substantial amount owed to SAMA in the sum of SAR 825,000, 000, followed by a substantial decrease in 2009 to SAR 150,000. However, there are still balances owed to other banks and financial institutions in the year 2010 the figure standing at SAR 382,429000 up from SAR 48,327,000 in the year 2009. The figure however, was higher in 2008 standing at staggering SAR 639,098,000.

The number of customer deposits has increased steadily over the years. This is due to an increase in the number of accounts opened each year. The numbers of branches that have been opened in the country have much to do with the increase in the customer deposits. The figure stood at SAR 16,932,415,000 in the year 2010 up from SAR 13,720,627 in 2009 and SAR 10,971,045, 000 in the year 2008. The total liabilities of the company have increased with the latest figures being SAR 18,013,725,000 in 2010. In 2009, the figure was SAR 14,409,010, 000 up from SAR 12,838,949,000 in 2008.

Shareholders’ equity

Changes in the shareholders equity are as shown in the table below;

	2008	2009	2010
	SAR '000	SAR '000	SAR '000
Shareholders' equity
Share capital	3,000,000	3,000,000	3,000,000
Employee share plan	(41,974)	(42,128)	-42,136
Statutory reserve	93,911	29,166	52,246
Other reserve	(22,741)	15,144	23,611
Retained earnings	183,644	-	69,240
Total shareholders' equity	3,212,840	3,002,182	3,102,961
Total liabilities and shareholders' equity	16,051,789	17,411,192	21,116,686

The share capital has remained constant throughout the period with no increases whatsoever. The employee share plan has also remained relatively constant during the period with only slight decreases being recorded each year. On the other hand, the statutory reserve has fluctuated heavily over the period. In 2008, the amount of statutory reserve was quite high at SAR 93, 911,000 before taking a nosedive in 2009 to finish at SAR 29,166,000 and then going up by almost twice the figure to SAR 52,246,000 in 2010. This may have been as a result of changes in banking policies adopted by the central bank or the government.

Overall, the shareholders equity has been fluctuating over the period thus resulting in changes in the earnings per share offered by the bank. In 2008, the amount stood at SAR 3,212,840,000 in 2008, followed by a decline I 2009 to SAR 3,002,182,000. The figure went up to SAR 3,102,961,000 in 2010.

Future analysis

Taking into consideration the current business growth projections in terms of amounts of cash balances in invested as well as the increases in the cash deposits in the bank, the picture looks bright for the institution. Following the same business model, let us assume that the business growth rate is 3% per annum. Assuming that the study is for up to the year 2013, then the predictions will be as follows;

Prediction on assets

            Taking into consideration the recent increases in the recent increases in the assets, it would not be that off if we expect the total assets to continue to increase. The number of branches increases along with the amount invested on the business. The current rate of increase in assets is approximately 0.03 % annually. If the trend were to continue, over the next three years, the value of the assets would have gone up by about 1%. The figure should stand at SAR 6, 98, 000. 000 by the year 2013. The cash at hand and that owed to by banks or other financial institutions will also have increased by approximately 0.01%

Prediction of future liabilities

Taking into consideration the manner in which the business has been expanding rapidly over the last 5 years, it is expected that the liabilities of the company will increase as well. The trend has been increasing at 0.001% per annum on average an if this holds true, then the current liabilities will have increased by approximately 0.01% by the year 2013. The liabilities will total about SAR 25,000,000 per annum in the year 2013. This will generally be due to an increase in the number of accounts opened in the bank. The deposits by customers through the bank and its subsidiaries would have increased by about 2%. Though good for the business, this will be recorded as a liability to the business. This should the company in collecting loan able fund to help push its business forward.

Prediction on owner’s equity

The owner’s equity is bound to increase by the year 2013. The amount should have increased by about 3% following the recent trend. The owner’s equity should be valued at around SAR 320,000,000. This figure though cannot be accepted with certainty if the fluctuations become part and parcel in the line of business.

One blemish though, is that the amount of share equity would have gone down if the recent trend were to be followed. Over the last 5 years, the price of the company share has been going down due to a decrease in the amount of share paid out to the shareholders. The trend can be seen as a result of the decreased amount of earnings per share paid out by the company. The results are that the share price of the company’s equity will continue to drop as time goes by.

Conclusion

Taking the current and future predictions of the Bank’s activities, it is quite evident that, it is a soundly laid business. Bank Albilad operates its main business through six lines of business. They include, retail banking, corporate banking, remittances section, treasury, corporate banking. There are also other lines of business that I have not included in the list above. The bank is widespread with its network spreading throughout the country.

Through its networks, the business has been able to grow over the years. Over the last 5 years the price of the has been going down due to a decrease in the amount of share paid out to the shareholders. The trend can be seen as a result of the decreased amount of earnings per share paid out by the company. The results are that the share price of the company’s equity will continue to drop as time goes by. The number of branches increases along with the amount invested on the business. The current rate of increase in assets is approximately 0.03 % annually. If the trend were to continue, over the next three years, the value of the assets would have gone up by about 1%.

For a company that prides itself in being very much customer oriented; catering for personal customer needs in operation with the Sharia law, the company is living up to its billing. It is for this reason that the business has steadily grown over the last 3 years. Despite its relatively young age, the company has already grown to be one of the leading commercial banks in Saudi Arabia.

Recommendation

In general, the business is on sound ground for the next few years. However, once the company is sure that the business has settled, they should revise their earnings per share in order to attract more buyers to their stock. Currently, the return on equity for the company is quite low thus putting off the prospective investors. In order to be able to attract such investors, especially long term ones, the share price should not only be favorable but also worth the risk.

In diversifying its businesses to suite a range of customers, the business can be able to gain a lot. The company should concentrate on creating business with the rural areas if it is to make the best possible profits. In addition, being a business out there to make profits in the absence of interest due to operation of Sharia law, the most profitable avenue for such a bank would be to have as many accounts opened as possible.

References

Commercial banks: Bank Albilad. Bloomberg Businessweek.com Retrieved from http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=21866734