The document provides an overview of asset liability management, sources and uses of funds, and similarities and dissimilarities between Islamic and conventional banking systems. It discusses how Islamic banks manage assets and liabilities, the main sources and uses of funds, and the core similarities and differences between Islamic and conventional banks.

1. A Comparison of Islamic and
Conventional Banking system
Asset liability management
Sources and uses of funds
Similarities & dissimilarities
Qazi waqas, Zulqarnain , Nouman 1

2. Qazi waqas, Zulqarnain , Nouman 2

3. GROUP # 7
QAZI MUHAMMAD WAQAS
ZULQARNAIN HAIDER
SYED NOUMAN ATHER
PIONEER BATCH
RCIB MBA (IBF)
RIPHAH INTERNATIONAL UNIVERSITY
Qazi waqas, Zulqarnain , Nouman
3

4. Outlines:
• Introduction of this Project
• Objective of the Project
• Companies selected for study
• Faysal Bank
• MEEZAN BANK LTD
• Conceptual Framework for Islamic Asset Liability
Management Deposits
• Uses of funds
• Similarities & dissimilarities
Qazi waqas, Zulqarnain , Nouman 4

5. Holy Quran:
• “We have created the night as
covering and we have created the
day for the economic activities.”
Qazi waqas, Zulqarnain , Nouman 5

6. Hazrat Umar R.A.”, said:
“Every system can prevail in this
world but not the one which is
unjust.”
Qazi waqas, Zulqarnain , Nouman 6

7. Introduction of this Project
• In this Project our main focus on three main
things regarding Islamic Banking system.
• We will discuss the “Comparison of
Conventional & Islamic Banking Systems“
• According to these things:
• Asset Liability Management,
• Sources & Uses of Funds,
• Similarities & Dissimilarities
Qazi waqas, Zulqarnain , Nouman 7

8. Objective of the Project
• The main objective of our project is to clear the basic
differences between Islamic and conventional system
• We will try to discuss the real face of both systems in
depth.
• That’s why our discussion will around these things:
– How Islamic Banks manage their assets and liabilities
– what is the main sources and uses of funds
– what are the main and core similarities & dissimilarities
between Islamic bank and conventional bank.
Qazi waqas, Zulqarnain , Nouman 8

9. Companies selected for study
• We selected two banks first is Faysal banks
taken as the conventional banks
representative and
• Second one is Meezan bank as representative
of Islamic banks,
Qazi waqas, Zulqarnain , Nouman 9

10. Faysal Bank
• Faysal Bank Limited was incorporated in Pakistan
on October 3, 1994, as a public limited company
under the Companies Ordinance, 1984.
• Currently, the Bank's shares are listed on the
Karachi, Lahore and Islamabad Stock Exchanges
• Faysal Bank is engaged in Commercial, Consumer,
Corporate and Islamic Banking activities
Qazi waqas, Zulqarnain , Nouman 10

11. Faysal Bank cont…
• The bank is principally engaged in providing
consumer, corporate and investment banking
services to its customers.
• The bank offers a wide range of consumer
banking products and services which include
deposit accounts, car loans, home loans and
other consumer loans.
Qazi waqas, Zulqarnain , Nouman 11

12. Faysal Bank cont…
• It also provides treasury and capital market
services and cash management services to its
customers.
• Balance Sheet of Bank
Assets Liabilities
Loans and advances to customers Customers’ deposits
Cash and cash balances with other banks Due to banks and other financial institutions
Investments in associates, subsidiaries and
Other liabilities
joint ventures
Financial assets held for trading Sundry creditors
Cash and cash balances with the central
Equity and reserves 12
bank

13. MEEZAN BANK LTD
• MEEZAN was established as an Islamic
Investment Bank in 1997 as “AL MEEZAN
INVESTMENT BANK LTD”.
• First Islamic Commercial Bank’s license was
awarded to Al Meezan Investment Bank in year
2002,
• They bought the local operations of “Socite
General” (French Bank) 03 branches
Qazi waqas, Zulqarnain , Nouman 13

14. MEEZAN BANK LTD cont…
• In 2009, Branch network of six dedicated Islamic banks
increases to 480 branches (including sub-branches)
• Meezan Bank having a 42% share of the Islamic Banking
branch network in the country .
• 201branches in 54 cities across the country.
• Over 5.5% of the total Banking industry.
Qazi waqas, Zulqarnain , Nouman 14

15. PRINCIPLES
BASIS OF ISLAMIC FINANCE
• Prohibition of RIBA
• Alkharaj-o-bildhaman (entitlement to profit is associated
with corresponding risk)-Risk Sharing, i.e. No Risk, No
Gain.
• Prohibition of sale of goods before acquiring ownership
• Prohibition of sale of food stuff before possession
• Prohibition of debt for debt
• Avoidance of Gharar (uncertainty)
• Time value measured only through Price or Rent.
• Debt contracts can be made / traded but without discount.
• Risk can be distributed through forward Trading /
Contracts by way of Salam & Istisn’a. 15
Qazi waqas, Zulqarnain , Nouman

16. Asset Liability Management
• Assets liability management is very important
phenomena in banks earning strategy even in
Islamic banking system, all the investments
contributions to this effects to be used even on
and off-balance sheet components in ALM.
The risk taking is the key determinant for the
banks either conventional or Islamic to
portfolio or ALM.
Qazi waqas, Zulqarnain , Nouman 16

17. BALANCE SHEET STRUCTURE OF ISLAMIC BANK.
17
Qazi waqas, Zulqarnain , Nouman

18. Objectives of ALM
 To manage the portfolio in a manner consistent with the
banks investment policy.
 To obtain the desired earning while holding risk at
acceptable levels.
 To maintain adequate liquidity at a cost consistent with
earnings goals.
 On and Off-balance sheet investments are considered in
ALM.
Qazi waqas, Zulqarnain , Nouman 18

19. Techniques of ALM.
• Matching Techniques.
• Swap Techniques.
• Futures as a Hedging Technique.
• Options as Hedging Techniques.
• Effective Portfolio Management.
Qazi waqas, Zulqarnain , Nouman 19

20. ALM - Pillars
• ALM Information Systems.
– MIS
– Information availability
– Accuracy
– Adequacy
– Expediency
• ALM Organization.
– Structure and responsibilities
– Level of top management involvement
• ALM Process.
– Risk Parameters
– Risk Identification
– Risk Measurement
– Risk Management
Qazi waqas, Zulqarnain , Nouman 20

21. Current Ratio:
• The current ratio highlights Faysal Bank Meezan Bank
the firm ability to cover short
term liabilities with its current Particulars 2007 2008 2009 2007 2008 2009
assets. Current
Assets
138,762,4
62
135,594,
508
176,797,8
78
66,145,5
96
83,395,5
55
121,561,1
87
• Current Ratio = Current Current 58,877,32 65,763,5 108,009,0 36,967,0 51,844,2 77,699,05
Liabilities 0 83 79 02 28 8
Assets / Current Liabilities
Current
• Interpretation: Ratio 2.36 2.06 1.64 1.79 1.61 1.56
• The current ratio of Faysal bank Current Ratio
& Meezan Bank for the year
2007, 2008 & 2009 is, 2.36, 2.50 2.36
2.06 & 1.64, 1.79, 1.61 & 1.56 2.00 1.79
2.06
1.64 1.56
respectively, compared to 1.61
Faysal Bank
1.50
Ratio
standard ratio 2:1 this of Mezaan Bank
1.00
Meezan Bank ratio is then
0.50
Faysal Bank 0.00
2007 2008 2009 21
Qazi waqas, Zulqarnain , Nouman

22. Sales to Working Capital = Sales / Working Capital
• In this ratio we compare the Faysal Bank Meezan Bank
working capital or net current
assets with sales which are part of Particulars 2007 2008 2009 2007 2008 2009
the revenue. Sales
11,610,
781
13,404,
132
16,957,
875
4,573,7
52
6,803,2
13
10,102,
060
• Interpretation:
Working 79,885, 69,830, 68,788, 29,178, 31,551, 43,862,
Capital 142 925 799 594 327 129
Sales To
• The average turnover in working Working
Capital 0.15 0.19 0.25 0.16 0.22 0.23
capital of Faysal Bank is 19% &
Meezan Bank have 20% this Sales To Working Capital Ratio
shows the profitability of working
capital of Meezan Bank is slightly 0.30
0.25
0.25 0.22 0.23
high then Faysal Bank. 0.20
0.19
0.150.16 Faysal Bank
Ratio
0.15 Mezaan Bank
0.10
0.05
0.00
2007 2008 2009
22
Qazi waqas, Zulqarnain , Nouman

23. Working Capital = Current Assets –
Current Liabilities
• Arithmetically it is the Faysal Bank Meezan Bank
difference of Current Assets Particula
rs 2007 2008 2009 2007 2008 2009
and Current Liabilities. Current
Assets
138,762, 135,594, 176,797, 66,145, 83,395, 121,561,
462 508 878 596 555 187
• Interpretation: Current
Liabilities
58,877,3
20
65,763,5
83
108,009,
079
36,967,
002
51,844,
228
77,699,0
58
• The working capital ratio of Working
Capital
7988514
2
6983092
5
6878879
9
291785
94
315513
27
4386212
9
Faysal Bank limited is higher
which indicates that Faysal Working Capital Ratio
bank has have sufficient
100000000.00
resources to meets its current 80000000.00
obligations as compare to 60000000.00 Faysal Bank
Ratio
Mezaan Bank
40000000.00
Meezan Bank Limited.
20000000.00
0.00
2007 2008 2009
23
Qazi waqas, Zulqarnain , Nouman

24. Qazi waqas, Zulqarnain , Nouman
Balance Sheet Meezan Bank Limited
Horizontal Analysis
2007 2008 2009 2007 2008 2009
ASSETS Rs.In ,000 Rs.In ,000
Cash and balances with treasury
banks 5,644,028 5,763,710 8,387,432 100 102.12 148.61
Balances with other banks 3,729,549 1,344,974 5,260,467 100 36.06 141.05
Due from financial institutions 8,850,000 18,108,000 34,499,500 100 204.61 389.82
Investments 10,535,186 14,286,949 23,290,309 100 135.61 221.07
Financings 34,576,339 39,768,481 44,188,066 100 115.02 127.80
Operating fixed assets 1,032,963 1,880,515 2,416,375 100 182.05 233.93
Deferred tax asset - - 204,172 - - #DIV/0!
Other assets 2,810,494 4,123,441 5,935,413 100 146.72 211.19
67,178,559 85,276,070 124,181,734 100 126.94 184.85
LIABILITIES
Bills payable 1,192,160 1,057,017 1,249,210 100 88.66 104.79
Due to financial institutions 2,415,606 4,008,496 8,468,425 100 165.94 350.57
Deposits and other accounts 54,582,353 70,233,875 100,333,051 100 128.68 183.82
Sub-ordinate loan - - - - - -
Liabilities against assets subject to
finance leases - - - - - -
Deferred tax liabilities 430,377 453,038 - 100 105.27 -
Other liabilities 2,851,407 3,548,666 4,946,589 100 124.45 173.48
61,471,903 79,301,092 114,997,275 100 129.00 187.07
24
NET ASSETS 5,706,656 5,974,978 9,184,459 100 104.70 160.94

25. REPRESENTED BY
Share capital 3,779,897 4,925,961 6,650,048 100 130.32 175.93
Reserves 720,785 845,022 1,050,092 100 117.24 145.69
Unappropriated profit 1,219,228 570,114 1,390,395 100 46.76 114.04
5,719,910 6,341,097 9,090,535 100 110.86 158.93
Deficit on revaluation of
investments (13,254) (366,119) 93,924 100 2,762.33 (708.65)
5,706,656 5,974,978 9,184,459 100 104.70 160.94
Qazi waqas, Zulqarnain , Nouman 25

26. Balance Sheet Faysal Bank Limited Horizontal Analysis
2007 2008 2009 2007 2008 2009
ASSETS Rs.In ,000
Cash and balances with treasury
banks 6,872,032 8,927,524 8,427,202 100 129.91 122.63
Balances with other banks 3,708,451 876,780 508,795 100 23.64 13.72
Lending's to financial institutions 7,078,102 2,861,401 15,017,826 100 40.43 212.17
Investments 31,553,108 30,186,168 56,531,338 100 95.67 179.16
Advances 87,346,401 89,758,789 91,346,001 100 102.76 104.58
Operating fixed assets 2,514,959 2,646,978 2,787,617 100 105.25 110.84
Deferred tax assets - net - - 1,279,918 - - 100.00
Other assets 2,204,368 2,983,846 4,966,716 100 135.36 225.31
141,277,421 138,241,486 180,865,413 100 97.85 128.02
LIABILITIES
Bills payable 2,406,927 1,536,517 1,465,451 100 63.84 60.88
Borrowings from financial
institutions 9,995,855 13,027,468 34,985,766 100 130.33 350.00
Deposits and other accounts 102,067,422 102,776,793 123,655,188 100 100.70 121.15
Sub-ordinated loans 1,000,000 999,600 999,200 100 99.96 99.92
Liabilities against assets subject to
finance lease 7,827 4,103 - 100 52.42 -
Deferred tax liabilities - net 2,691,466 2,483,355 - 100 92.27 -
Other liabilities 6,951,421 6,641,542 6,977,069 100 95.54 100.37
125,120,918 127,469,378 168,082,674 100 101.88 134.34
26
Qazi waqas, Zulqarnain , Nouman

27. 16,156,50 10,772,10 12,782,73
NET ASSETS 3 8 9 100 66.67 79.12
REPRESENTED
BY
Share capital 5,296,445 5,296,445 6,090,911 100 100.00 115.00
Reserves 3,567,033 3,790,023 4,030,056 100 106.25 112.98
Unappropriated
profit 1,481,668 1,049,519 1,215,179 100 70.83 82.01
10,345,14 10,135,98 11,336,14
6 7 6 100 97.98 109.58
Surplus on
revaluation of assets 5,811,357 636,121 1,446,593 100 10.95 24.89
16,156,50 10,772,10 12,782,73
3 8 9 100 66.67 79.12
Qazi waqas, Zulqarnain , Nouman 27

28. Conclusion/Findings
• Liquidity position of Faysal Bank Limited is higher then
Meezan Bank Limited this indicates that Meezan Bank
Limited has higher leverage. Both financial institutes should
improve their current ratio & working capital position in
financial year 2011. The analysis shows that its lower down
gradually.
• Net profit margin of Meezan Bank Limited is higher then
Faysal Bank Limited.
• Gross profit margin of Meezan Bank Limited is higher then
Faysal Bank Limited so we would like to suggest Faysal Bank
should improve its Gross Profit margin to meet the expenses
efficiently and set a sight profit for shares holders.
Qazi waqas, Zulqarnain , Nouman 28

29. Conclusion/Findings
The Operating income margin of Faysal Bank Limited is higher
then Meezan Bank Limited which indicates that Faysal Bank
Limited generates higher income by its own operation as compare
to Meezan Bank Limited.
The Long Term debt to long term liabilities ratio of Meezan Bank
Limited is higher then Faysal Bank Limited because Faysal bank
limited employed its funds in short term activities more then
Meezan Bank Limited
Meezan Bank Limited has a good market perception due to
continuous declaration of dividends but on the other hand Faysal
Bank limited did not declared dividend in financial year 2009.
The three years average price / earning ratio of Meezan Bank
Limited 13.97 while the Faysal Bank Limited has 7.78 % this
indicates the Meezan Bank Limited has much potential in stock as
compare to Faysal Bank Limited.
The operating cash flow to total debt ratio of Meezan
Bank Limited is little higher then Faysal Bank Limited
29
Qazi waqas, Zulqarnain , Nouman

30. Recommendations
With the assistance analyses of financial reports we would like to
recommend both financial institutes should over come their pit
falls, flaws and deficiencies. Meezan Bank limited should
improve its current ratio. The Meezan Bank Limited Net Profit
Margin is higher then Faysal Bank Limited. The Faysal Bank
Limited should improve its profitability ratio by efficiently use its
resources. Similarly the price earning ratio & dividend payout
ratio of Meezan Bank Limited is higher then Faysal Bank this
highlights good return on investment as well good market
perception. Faysal should also pay dividend consistently through
generate the profit by improving its operation. We would also like
to recommend that financial institute should much promote the
business activities and provide financial assistance to industry
which will be reduce the un employment, inflation and increase
productivity of Pakistan
Qazi waqas, Zulqarnain , Nouman 30

31. SIMILARITIES & DISSIMILARITIES
• There are two major difference between Islamic Banking and
Conventional Banking:
• Conventional banking practices are concerned with
"elimination of risk" where as Islamic banks "bear the risk"
when involve in any transaction.
• When Conventional banks involve in transaction with
consumer they do not take the liability only get the benefit
from consumer in form of interest whereas Islamic banks bear
all the liability when involve in transaction with consumer.
Getting out any benefit without bearing its liability is declared
Haram in Islam. Qazi waqas, Zulqarnain , Nouman 31

32. Differences between Islamic and Banking System
Conventional System Islamic System
Money is a product besides medium of exchange and store Real Asset is a product. Money is just a
of value. medium of exchange.
Time value is the basis for charging interest on capital. Profit on exchange of goods & services is
the basis for earning profit.
Interest is charged even in case, the organization suffers Loss is shared when the organization
losses. Thus no concept of sharing loss. suffers loss.
While disbursing cash finance, running finance or working The execution of agreements for the
capital finance, no agreement for exchange of goods & exchange of goods & services is must,
services is made. while disbursing funds under Murabaha,
Salam & Istisna contracts.
Due to non existence of goods & services behind the Due to existence of goods & services no
money while disbursing funds, the expansion of money expansion of money takes place and thus
takes place, which creates inflation. no inflation is created.
Due to inflation the entrepreneur increases prices of his Due to control over inflation, no extra
goods & services, due to incorporating inflationary effect price is charged by the entrepreneur.
into cost of product.
Bridge financing and long term loans lending is not made Musharakah & Diminishing Musharakah
on the basis of existence of capital goods. Rather, they are agreements are made after making sure
disbursed on the basis of Windo Dressed project feasibility the existence of capital good before
and credibility of the entrepreneur. disbursing funds for a capital project. 32

33. Qazi waqas, Zulqarnain , Nouman 33