The abbreviation SABB Bank stands for the Saudi Arabian British Bank which is a joint stock company that was established in the year 1978. The bank officially took over the operations of the British Bank which had established itself in the Kingdom of Saudi Arabia in the same year, 1978 after which it changed it gained the name SABB Bank (Sabb.com, 2010). The bank is an associated member of the HSBC Group which is a banking institution based in Saudi Arabia that offers financial services and products to over 100 banking institutions in the Middle East. The services offered by SABB Bank are divided into two segments which include business banking and personal banking. The services that are offered under the personal banking segment include cash deposits, wealth planning, specialist advisory services, SABB Direct, investment services, Al Ruwaad, SABB Tadawul and Al Imtiaz. The services that fall under the banking division include business accounts, cash service payments and management, credit cards, institutional banking and treasury services (Corporate Information, 2010).
Apart from personal and business banking services, the bank also offers a wide range of insurance plans for both commercial and individual use which are offered under the SABB Takaful Company. The bank also owns a stock brokerage and securities company known as SABB Securities Limited. The bank has an employee base of 3,000 workers who are employed in the bank’s 96 branches based in Saudi Arabia. The bank’s sales as of the year ended January 2010 amounted to over 6 billion Saudi Riyals which shows that the bank was performing well in the Middle East. The main currency that is traded by the bank is in Saudi Riyals which means that its market cap amounted to 30 billion Saudi Riyals (Corporate Information, 2010).
SABB Bank has been at the forefront of banking in Saudi Arabia for the last 30 years which means that it has established itself as an integral player of the Saudi Arabian community. The company has developed a vision that focuses on providing financial services to Saudi Arabian clients, employees and shareholders of the bank. This vision has also been used in developing the corporate social responsibility objectives for the bank one of which involves being an active corporate citizen of the Saudi Arabian community. To meet this objective, SABB Bank takes part in various social events that are of national and local interest such as the SABB blood campaign, Eid gifts to needy families, supporting the Down Syndrome Charitable Association, the INSAN Orphans school bag scheme, the Prince Salman Disability Research center, and the Al-Masrafi program (Sabb, 2010).
The bank has also invested in the education field in the Kingdom of Saudi Arabia where it has offered training and scholarships to students who have graduated from banking. The bank offers these training programs in association with other universities and institutes in the Saudi Arabia Kingdom. Examples of these programs include the COOP Program, the SABB scholarship scheme program and the Chevening Scholarship Program. The bank is also involved in environmental conservation activities within the kingdom of Saudi Arabia where it has introduced various initiatives to control the day-to-day operations of the bank that are related to the environment. To ensure that the impact of the bank to the environment has been reduced, SABB has incorporated the technical and international standards in environmental conservation in the expansion of the bank’s headquarters. The bank has installed floors that have been produced from recycled materials to ensure that it meets the environmental standards of the kingdom. Other environmental aspects that the bank has incorporated in the development of its offices include the incorporation of insulation properties to reduce heat exchange within the bank’s offices, incorporation of timed lighting systems to conserve electricity, the re-use of marble cladding from the old headquarter offices of SABB to the new office, utilization of motion detector systems to conserve water and the use of fresh AHUs to pump cold air into the head quarter building during the winter season so as to conserve power (Sabb, 2010).
To reduce paper waste from its various bank branches and to fast track the development of the bank to a more paper-less environment, SABB has incorporated activities such as the use of double printing printers, the discontinuation of irrelevant printing processes and the introduction of dry and wet waste bins to improve paper recycling. It has also incorporated the use of motion detectors in its water systems to conserve water. SABB Bank has also been involved in environmental activities that have been directed towards managing climate change by reducing the business travel of its employees. It has instead introduced video conferencing for most of its business meetings to ensure that it employees do not have to travel for business meetings. It has also implemented a no smoking policy in most of its business premises in the Saudi Arabian Kingdom (Sabb, 2010).
Ratios in ratio analysis are the tools that are used by a company to conduct a quantitative analysis of its financial statements such as balance sheets, income statements or cash flow statements. The quantitative analysis of the ratios involves using the company’s numbers for the current year and comparing them with numbers for the previous year to determine the financial performance of the company. Ratios in finances of a company is one vital thing as it assists in calculating numerical values that come from financial statements of a company. Ratio analysis is mostly used in accounting activities to determine the financial condition of the organization and they are used by a company’s managers, shareholders, creditors of the company and potential investors (Williams et al, 2008)
The statements that are used in conducting ratio analysis include the balance sheet of the company, cash flows, the income statement and the statement of retained earnings. The ratios derived from the financial statements are used to reflect the relationship that exists between different variables. Ratio analysis allows financial analysts and the managers of a business enterprise to draw up a conclusion of the company’s financial operations by comparing the ratios with absolute figures so as to ascertain the genuine financial position of the company. There are four types of comparisons that are used in comparing ratios. These include trend ratios, interfirm comparisons, financial statement ratio comparison and standards comparison (Khan & Khan, 2007).
Trend ratios involve comparing the past financial performance of the company with the present company performance. Interfirm ratios comparisons involve comparing the ratios of the firm with those of other companies in the same industry while the financial statement and standard ratio comparisons involve comparing the items included within the financial statements of a company and its standard strategic plans. There are many types of ratios that are used to calculate the performance of a company with regards to the financial statement. These ratios are divided into five categories which include liquidity ratios, capital structure or leverage, efficiency/activity ratios, profitability and integrated analysis (Williams et al, 2008).
Types of Ratio Analysis
Under the liquidity ratio analysis, the performance of the company is determined with regards to its ability to meet its short-term obligations. The most commonly used liquidity ratios is the net working capital where the current assets of the company are calculated over the current liabilities of the company. Current assets involve the assets of a company which are converted into cash during the operation of the business over a short period of time while current liabilities are liabilities that need to be paid within a short period of time that is less than a year (Khan & Khan, 2007). The current assets of SABB Bank as September 2010 amounted to 118 million Saudi Riyals while the current liabilities of the bank as at September 2010 amounted to 100 million Saudi Riyals. The working capital ratio of the bank will therefore be 118 million/100 million Saudi Riyals which amount to a 1.18: 1 working capital ratio (Sabb Financial, 2010).
The capital structure ratios of a company which are also known as leverage ratios are used to determine the financial strength of a firm by measuring the ability of the firm to pay its interest on a regular basis. The long-term solvency of a firm is usually determined by the leverage or capital structure ratios of the company based on the periodic payments of interest that the firm makes on its periodic loans and on the repayment of principals on maturity. Capital structure ratios are of various types with the most common being debt asset, debt equity and equity assets ratios. Debt equity ratios are used to measure the company’s long-term debt as well as the shareholders equity. It reflects the relationship that exists between the creditors and shareholders of a company against the assets that are held by the company (Khan & Khan, 2007).
The shareholders equity of SABB Bank as at September 2010 amounted to 14 million riyals while the total debt of the company amounted to 94 million riyals as at the year ended September 2010 (Sabb Financial, 2010). The debt equity ratio for SABB Bank will therefore amount to a ratio of 6.7: 1. The debt asset ratio on the other hand measures the company’s assets as well as the total debt that the company has. The total debt of SABB Bank is 94 million Riyals while the total assets of the bank amount to 123 million Riyals. The debt asset ratio for the company will therefore be 94 million / 123 million which amounts to 0.76: 1 debt asset ratio (Sabb Financial, 2010).
Efficiency ratios which are also known as activity ratios are commonly used to measure the efficiency of a company when it uses its assets. The items that are used to calculate efficiency or activity ratios include fixed assets turnover, the total assets turnover of the company and the inventory turnover of the company. In calculating the total assets turnover of a company, the cost of goods sold by the company has to be measured against the average total assets of the company (Lee et al, 2010). The total assets turnover of SABB Bank will be its cost of goods sold and its average total assets. The total cost of goods sold by the bank as at the year ended January 2010 amounted to 6 billion Riyals while the average total assets of the company amounted to 131 million Riyals as at the year ended January 2010. The total assets turnover will therefore be 6 billion/131 million which amounts to total asset turnover ratio 45:1(Tolani, 2010).
Profitability ratios are the ratios that are used by a company to provide answers to the profit that has been earned by the firm as well as the rate of the return of the company’s investments. Profitability ratios also measure the profitability of the various business units and segments that exist within a company to assist managers in determining whether they should continue supporting these segments or they should shut them down to safeguard the survival of the company. The types of profitability ratios that are used to measure profitability within a company include shareholder’s equity, return on assets, company expenses and return on investment. The most commonly used profitability ratio is the profit margin ratio which measures the relationship between the profit and sales of a company (Nikolai et al, 2010).
The profitability ratio of SABB Bank measured by a profit margin will involve a ratio analysis of the bank’s net sales and profit. The net profit of the bank as at January 2010 amounted to 165 million while the net sales for the company amounted to 137 million as at January 2010. The profitability ratio of the company therefore amounts to 165 million/137 million which is a profitability ratio of 1.2: 1 (Arabian Business, 2010). As indicated by Sabb Financial (2010), “the integrated ratio analysis which is also referred to as the market ration measures the response of a company’s investors to the company stock that has been put up for sale”. It also measures the expenses that the company will incur when issuing stock to investors and stakeholders. The most commonly used ratio in measuring integrated ratios is the earnings per share which measures the profit available for distribution to the equity shareholders of a company on a per share basis. Earnings per share are usually measured by dividing the available profits to equity shareholders by the outstanding shares that the company owns. The earnings per share ratio of SABB Bank will be calculated by dividing the net income of the bank as at September 2010 which amounts to 1.5 million Riyals and equity holders of the company which amounts to 750 million as at September 2010. The integrated ratio will therefore be 1.5 million/750million which is a ratio of 0.002:1 (Sabb Financial, 2010). The graph below represents the combined ratio analysis for the bank for the last five years.
Financial Performance of SABB Bank in the Last Five Years
The performance of the bank in the past five years contributed to a national profit before tax amount of $285 million for all the banks in the banking sector in the Kingdom of Saudi Arabia. The bank, which is one of the major banks in Saudi Arabia contributed to $36 million of personal financial services in the year 2010 and it also contributed to the total amount of $189 that was gained from corporate banking. While the bank boasts of having a large customer in Saudi Arabia, 17 lady branches and lounges and major stake holdings in the form of HSBC Saudi Arabia and SABB Takaful, the financial performance of the bank has somewhat declined in the past five years (Arabian Business, 2010).
The first quarter earnings of the bank recorded an 18 percent drop during the first quarter of the year 2009 as a result of the financial crisis and the bad loans that were made during the same year. This was in sharp contrast with the bank’s performance in previous years which was recorded to be high as a result of the net income and profit made by the bank and its various subsidiaries. In the last two years, the lending income of the bank fell by 12 percent to amount to $205 million after loans held by the bank fell down to 4.5 percent amounting to 75.7 billion Saudi Riyals. The deposits of the bank also dropped by 6.8 percent during the same period which amounted to 90 billion of the bank’s deposits. The reason for this fall in cash deposits and loans was mostly attributed to the global financial recession that affected the various financial markets around the world in 2007/2008 (Arabian Business, 2010).
The financial performance of the bank has continued to decline in certain business segments over the past five years. A comparison of the bank’s consolidated cash flows for the year 2009 and 2010 shows that net income for the bank has declined by 1 million Riyals while the operating assets of the company have increased to 178 million Riyals in 2010. The operating liabilities of the company increased to 9 billion riyals in 2010 up from 5.9 billion in the year 2009 while the investment activities of SABB amounted to 22 billion Riyals as at September 2010 (Sabb Financial, 2010). The table below represents the five-year financial performance and highlights of SABB Bank. A comparison between 2008 and 2009 shows that the bank experienced a decline in its customer deposits activities, net investments, net loans and advances as well as the total assets of the company in 2009. The only segment of the bank that experienced some growth was the amount of shareholders equity.
Five Year Financial Performance of SABB Bank
|Saudi Riyal (millions)||2009||2008||2007||2006||2005|
|Net loans and advances||76,382||80,237||62,001||42,450||40,847|
(Source: SABB Bank, 2009)
The above analysis of the financial performance of SABB Bank has revealed that the bank is a strong financial institution in the Kingdom of Saudi Arabia as a result of its various stock holdings such as HBSC and SABB Takaful. The ratios analysis and a review of the bank’s financial performance have however demonstrated that the bank is not a suitable investment option for investors and stakeholders. This is based on its declining financial performance during the last five years in its various business segments such as customer deposits, net loans and net investments. This downfall in the bank’s financial performance can be attributed to the 2007/2008 global financial recession that affected the financial performance of many institutions around the world.
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