TESTING THE HEALTH OF STOCK MARKET
LISTED COMMERCIAL BANKS
PROF. DR. KHAWAJA AMJAD SAEED*
Apr 20 - 26, 2009
This piece will focus on the performance of commercial banks listed on Karachi Stock Exchange (KSE). The data relates to September 11, 2008 and have been taken from Daily Quotations Sheet of the Karachi Stock Exchange (Guarantee) Ltd.
EFFICIENCY TEST MODEL
The following nine points have been used to test the performance of listed Commercial Banks in Pakistan:
1. Market Share
2. Paid up Capital
3. Par Value
4. Historical Growth
6. Market Capitalization
7. Share in GDP of Pakistan
8. Market Price Compared to Par Value
9. Distribution as Return
1. MARKET SHARE
Total number of companies listed on KSE was 657 against 25 number of commercial banks listed on KSE. This represents only 4%. If commercial banks are to be popularized as one of important Instrument of Finance, it is advisable to increase its share through strategic move by stakeholders.
2. PAID UP CAPITAL
Listed paid up capital of KSE was Rs. 719 billion. Out of this, a sum of Rs. 211 billion related to listed commercial banks. Based on this, its share in the KSE total paid up capital was 29%. Concerted efforts are needed to increase paid up capital by establishing more and more listed commercial banks in Pakistan.
3. PAR VALUE
Par value of each listed Commercial Bank was Rs. 10. This, in today's time, is too small. In future, par value may be raised to at least Rs. 100 per share.
4. HISTORICAL GROWTH
The following box captures the position relating to historical growth of listed commercial banks in Pakistan:
BOX NO. 1
HISTORICAL GROWTH OF LISTED COMMERCIAL BANKS ON KSE YEAR NUMBER % 1991-1995 11 44 1996-2000 01 04 Total 12 48 2001-2008 13 52 Total 25 100
From the above box, it would appear that the development of listed commercial bank has been very slow-around 1.47% Commercial Bank per annum.
During January-August, 2008 (8 months) KSE had a total turnover of Rs. 31 billion. Against this, share of listed commercial banks was only Rs. 7.8 billion. This represents 25.2%. This shows high level of activity.
6. MARKET CAPITALIZATION
KSE market capitalization was Rs. 2,894 billion. Against this, total market capitalization of commercial banks was Rs. 766 billion-representing a share of 27%. This represents a good number.
7. SHARE IN GDP
Total GDP of Pakistan was US $ 160 billion. Share of KSE listed companies was $ 38 billion and the share of listed commercial banks was 6.3% only.
8. MARKET PRICE COMPARED TO PAR VALUE
One of the Acid Test for checking the financial health of a company is to compare the par value with the ruling market price. Based on this, 93% listed commercial banks were above their par value. Accordingly, this represents healthy position which needs to be developed on sustainable basis in future also. Only 8% commercial banks were quoted below par.
9. DISTRIBUTION AS RETURN
Distribution to shareholders is another important indicator. Based on our analysis, Box No. 2 presents the position:
BOX NO. 2 ANALYSIS OF DISTRIBUTION AS RETURN PARTICULARS 2008 % No Distribution as Dividend 21 91 Distribution as Dividend 02 09 Total 23 100
Four listed commercial banks declared bonus shares. Five announced right shares to existing shareholders.
All commercial banks were not in a position for full distribution as 91% of these did not announce any dividend to the shareholders.
CONCLUSIONS & SUGGESTIONS
Based on foregoing analysis, the following conclusions emerge alongwith suggestions for consideration by stakeholders:
1. A Policy Statement is needed whether we wish to promote listed commercial banks as financial instrument or not. If the answer is in the positive, then, under the Bankers Association of Pakistan, a workshop is suggested to be held to help develop a strategy to introduce more listed commercial banks.
2. Sickness in 8% of existing listed commercial banks be diagnosed and corrective action be initiated to turn sick listed commercial banks into healthy ones.
3. Some suggestions have been offered during the review of the performance of listed commercial banks in this article. These may be considered by stakeholders.