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Overview of the pperformance of the Palestinian Economy and analysis of the Palestinian and Jordanian Banking Sector.

Extracts from this document...

Introduction

Faculty of Graduate Studies Executive MBA Program Financial Management 632 Project Financial Analysis Banking Sector Instructor: Dr. Munther Nijim Students: Ayman Alsabbah (1075119) Students: Raed Massis (1075245) Students: Diana Eideh (1075064) Students: Nancy Tamimi (1075143) Students: Mohamed AlAwaer (1075091) Table of Contents Page I. Palestinian Macro Economic overview 4 a) Background 4 b) Economic Indicators 6 1. National Accounts 6 2. Unemployment Rate 7 3. Consumer Price Index & Inflation Rate 8 II. Jordanian Macro Economic Overview 9 Background & Macro Economic Indicators 9 III. Palestinian Banking sector 13 a) Background 13 b) Economic Indicators for 2007 18 1. The relative importance of the assets 18 2. The relative importance of liabilities 19 3. The general direction of customer deposits 20 4. The general direction of credit facilities 20 IV. Jordanian Banking sector 22 Background & Economic Indicators for 2007 22 V. Bank of Palestine P,L,C 25 a) Background 25 b) Bank Strategy 26 c) Balance Sheet 2006, 2007 27 d) Income Statement 2006,2007 28 e) Financial Indicators 29 f) Trading Indicators 30 VI. Jordan Kuwaiti Bank 31 a) Background 31 b) Bank Strategy 33 c) Balance Sheet 2006, 2007 35 d) Income Statement 2006,2007 36 e) Financial Indicators 37 f) Trading Indicators 42 VII. Valuation & Recommendations 43 VIII. Bibliography List 44 Palestinian Macro Economic Overview Background Suffocated by strict closures and battered by violence during the recent intifada , the Palestinian economy and the situation of the Palestinian people have been in steady decline for the last several years . Per capita GDP is estimated to have fallen by nearly 30.0 percent from its height of USD 1610 in 1999 to around USD 1130 in 2006 . Except for a short period between 2003 and 2005, when the economy was recovering from the worst of the Intifada's violence and incursions, growth has been negative every year since 2000. During the last two years, the collapse has accelerated .GDP contracted by nearly 8.8 percent in 2006 and by 4.2 percent in the first quarter of 2007. ...read more.

Middle

Jordanian Banking sector Background & Economic Indicators for 2007 The banking sector plays a major role in the Jordanian economy, as it lies in the heart of the financial system and dominates it. According to the Department of Statistics (DoS), the finance, insurance, real estate and business services sector was the largest contributor to GDP growth in 2007, representing 1.5% of the overall 6% increase. The sector comprises 23 banks, of which 15 are listed on the ASE, representing 54% of the bourse's total market capitalization. By the end of 2007, total assets of listed banks reached JD44,221.295 million, of which direct credit facilities were approximately JD 21,239.689 million. Situated in a region that officially received a high risk assessment by the Heritage Foundation & The Wall Street Journal , the Jordanian banking sector currently faces many challenges, Jordan scored 60% in the Financial Freedom category, while the economy's overall ranking placed Jordan 5th out of 17 on a regional basis. Nevertheless, Jordan's small but promising economy continues to offer improving opportunities for the banking sector, which has faced many developments in recent years, as the Central Bank of Jordan (CBJ) has been pushing to bring its regulatory and supervisory standards into line with international standards. As of January 2008, the CBJ's guidelines for the establishment and operation of commercial and Islamic banks are in compliance with Basel II requirements. The CBJ has been regulating the banking sector's code of conduct since 1964. In 2003, CBJ decided to increase the minimum capital requirement for local banks from JD 20 million to JD 40 million by the end of 2007. The adequate capital of JD 40 million was set with an ultimate objective to reach JD 100 million by 2010. Currently, there are 8 listed Jordanian banks which do not yet meet the JD 100 million paid up capital requirement. The increase in required capital was set so that banks would always be ready to meet up to their obligations and insure capital adequacy. ...read more.

Conclusion

The Bank has recorded high EPS ratio due to its excellent performance and continuously growing earnings. The average EPS of JKB for the past five years was 0.53. The highest EPS was recorded in 2005 when it reached 0.64. In 2007, EPS reached 0.592. Valuation & Recommendation JOKB We have used a peer group multiples comparison in our valuation, including the price-to-book value (P/BV) and price-to-earnings (P/E) multiples. Valuation Method Wight Fair Value - JD P/BV 60% 3.99 P/E 40% 3.12 Price to earning ratio which was given a weight of 40% gave a value of JD 7.80 as the forward average Price to Earnings ratio for the Bank's peers group is approximately 15 times. Price to book multiple for the Bank's peers is estimated to be 2.96 times. Thus, book value for JKB share price is JD 2.25 which generates a final value of JD 6.66 for the stock using this valuation method with a weight of 60% allocated to it. Based on multiples valuation the fair value of JOKB is 7.11JDs. So, we recommend holding this stock on current market price 7.30JDs. BOP We have used a peer group multiples comparison in our valuation, including the price-to-book value (P/BV) and price-to-earnings (P/E) multiples. Valuation Method Wight Fair Value - $ P/BV 60% 2.06 P/E 40% 1.80 Price to earning ratio which was given a weight of 40% gave a value of $ 4.50 as the forward average Price to Earnings ratio for the Bank's peers group is approximately 15 times. Price to book multiple for the Bank's peer is estimated to be 2.96 times. Thus, book value for BOP share price is $ 1.16 which generates a final value of $ 3.43 for the stock using this valuation method with a weight of 60% allocated to it. Based on multiples valuation the fair value of BOP is $ 3.86. So, we recommend holding this stock on current market price $ 3.80. ...read more.

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