Performance Analysis of Mutual Trust Bank Limited
Performance Analysis of Mutual Trust Bank Limited
Performance Analysis of Mutual Trust Bank Limited
Guide Teacher :
.
Department of Finance
University of Dhaka
Submitted by :
Tamanna Tanvir Haque
BBA program,16 th Batch
ID No.
Date of submission:
Date.
To
The Director
Department of Finance
Faculty of Business Studies
University of Dhaka
Subject: Submission of the dissertation paper on Performance analysis
of Mutual Trust Bank Limited
Dear Madam
With due respect, I am submitting herewith mi dissertation paper on
the above mentioned title for the partial fulfillment of the
requirements of BBA program.
I have toiled hard in preparing this dissertation and tried to make the
report clear and comprehensive within the constraints. I sincerely
believe that it will serve the required purposes. I shall always be
obliged to furnish any clarification regarding the dissertation, if
required.
Sincerely yours,
.
..
Bank
Declaration
The work I have presented does not breach any existing copyright and no
portion of this report is copied from any work done earlier for a degree or
otherwise.
Acknowledgement
First, I would like to express my gratitude to almighty ALLAH to give
me the strength to complete the report within the stipulated time.
I would like to thank the Higher Authority of University of Dhaka for
giving me every facility & opportunity to complete all necessary tasks to
prepare the report on such a wonderful and learning issue.
I am deeply indebted to my guide teacher .
, professor, Department of finance, University of Dhaka for his wholehearted advice and guidance. Without his suggestions, comments and
lucid discussion from time to time and also giving valuable instructions
and suggestions to complete this paper in an appropriate manner, it would
have never been possible on my part to make the report a good one.
Actually he acted as a great source of spirit.
It will be very ungrateful if I dont say my gratitude to the Staff Member
of Department of Finance, who helped me a lot during my whole research
period.
Lastly, I would like to give many special thanks and inexpressible greets
to Mr. head of Branch, Mutual Trust Bank, Branch,Dhaka,MR
Financial administration Devision,Dhaka and othes for giving me advice,
inspiration and support.
Thanks for all from the core of my heart.
Executive summary
CHAPTER ONE
Introduction
Introduction
1.1. Prelude
Banks are very old form of financial institution that channel excess funds from
surplus unit to deficit unit in consideration of a price called Interest. Banking
business definitely established on a relationship of Debtor-Creditor between
the surplus unit called depositors and the bank and between the deficit unit
called borrowers and the bank. Here, opportunity cost of money works as
interest is considered the price of the credit. For the development of an
economy, bank furnishes a huge contribution and modern economy can not be
imagined without the service of bank. Economic development of a country
requires a well organized, smooth, easy to reach and efficient savinginvestment process. The function of a single bank is not limited to its
geographical region only rather it has reached beyond the border of the
country. So, banking business has been shaped as global business and the rest
other business greatly depends on the strength of banking business
performance.
In a view of IMF, the recent financial crisis showed many weakness within
the on hand financial system across the world, which triggers many issues
linking to the protection of banking institutions against probable future nonexpected risks associated with periods of insecurity.
Banks regulatory authority are directly liable to evaluate the performance of
each banking business to find out any flaw, regulatory authority should have to
sense any upcoming difficulties regarding the performance of all banks. For
this purpose, regulatory authority asked for specific statements highlighting
the performance of financial operation on which the evaluation of
performance is done. Regulatory required statements supplies most of the
information reflecting the performance. Despite, onsite inspection is also
required to find out the accuracy and to judge qualitative performance of the
banking company. Banks soundness and performance can be summarized by
the financial ratios.
detailed study has yet been done for the ordinary people, students, researcher to
confer the overall knowledge of CAMELS rating systems in the context of
Bangladesh. This study use financial ratio and due to security aspect we can not
find the weight of each components of CAMEL and qualitative measures
depends on analyst so that we use here financial ratio to evaluate financial
performance of the bank.
Mutual Trust Bank Limited made adequate provision against classified loans.
Specific provision made is significantly higher than last year. Adequate
provision made the bank stronger than before. Tier- 1 Capital stood at BDT .
Million at the end of 2011 compared to that of BDT million at the end of
2010. Tier-2 Capital reached to BDT ..million at the end of December 2011 as
compares to that of BDT ... million at the end of 2010. Return on Assets (ROA)
was % as on December 31,2011 and Return on Equity (ROE) was % as on
December 31,2011. Consolidated Capital Adequacy Ratio (CAR) of the bank
stood at % against minimum requirement of % as per Basel II capital Accord in
December 2011. Net Interest Margin (NIM) stood at % at the end of 2011
suggesting a healthy growth in Net Interest Income.
Financial ratio. All the ratios will be summarized so that anyone can have the
clear concept about each component of CAMELS. Since CAMELS rating
result is kept confidential, stakeholders of a bank are not aware about the
actual performance of a banking company. So, a detailed discussion of
financial ratio is required for the mass people.
The performance of Mutual Trust Bank Limited need to be analysed to focus
the strength and weakness which are to be done in this study. It will help the
regulatory authority, stakeholders and mass people to think and to concentrate
about the required strategy to safe guard their interest.
1.4.Objectives
The study will help to show how financial ratio is applied by bank to assess
the performance of Mutual Trust Bank Limited in a complete format. Specific
objectives of the study are:
To measure the performance of bank based on financial ratios.
To find the strength and weakness of the bank in financial aspect in
particulars.
To recommend some measure for better functioning of financial system
of the bank.
1.5.Methodology
Collection of Data :
This study has been undertaken on the basis of secondary data (i.e., published
data or processed data). For this purposes, a good number of sources have
been used.
The sources include:
CHAPTER ONE
Provision coverage :=
Reserveadepuacy ratio :=
Loan writeoffs
Average loan portfolio
Loan writeoffs
Net interest income
Non performingloan(NPLs)
Totalloans
2.3 Earnings:
Bank earnings provide capital formation, and they are needed to attract new
investor capital, which is essential if the institution is to grow. They serve both
as a demonstration of managements effectiveness and as a barometer of the
effects of macro-financial policies on banking institutions. Healthy profits are
needed to absorb loan losses and to build adequate provisions. A consistent
earnings performance builds public confidence in the bank.
1.Net interest income:
Net interest margin=
2.Other income:
Ratio=
Other income(D)
Total operating income ( E)
overheads( F )
Total operating income( E)
Ratio 2=
Ratio 3=
Ratio 4=
Ratio 1=
Ratio 2=
6. Net income:
Ratio 1=
net income( K )
Average total asseets
Ratio 2=
net income( K )
Average stockholders equity
2.4 Liquidity:
Liquidity in bank management is needed for two reasons:
1.To satisfy demand for new loans without having to recall existing loans or
realizing term investments such as bond holdings, and
2. to meet both daily and seasonal swings in deposits so that withdrawals can
be met in a timely and orderly fashion.
Ratio 1=
Liquid assets
Total assets
Ratio 2=
Liquid assets
Total deposits
Ratio 3=
Loans
deposits
Ratio 4=
Loans
deposits +borrowed funds
Ratio5=
Loans
Total assets
CHAPTER FOUR
effectively, while high capital does tend to impede high profits, the best
capitalized banks are among the most profitable worldwide.
Two approaches help determine the adequate level of capital. One is the
market approach, where the markets decide whether a bank has sound capital
base; for example, requiring banks to be rated by a prominent rating agency;
with low ratings (the result of low capital among other factors) the result
additional risk premiums in the market. The second is the regulatory approach,
whereby the central bank or bank supervisory authorities stipulate the level of
capital. In view of concern by the authorities, the latter approach receives the
most attention.
Capital adequacy: Principal ratios
With either approach, capital ratios are the main technique for analyzing capital
adequacy. Deviations of capital ratios for individual banks from national
averages provide a warning signal to both management and analysts that a
closer look at capital adequacy is required.
Market approach
Significance: This ratio is easy to use science it requires only a cursory glance at
the banks balance sheet. Equity is simply assets minus liabilities, or the
stockholders equity section of the balance sheet, which includes:
Non-redeemable preferred stock;
Common stock or sharp capital;
Capital surplus (premium paid over stock par value);
Permanent and statutory reserves; and
Retained earnings.
Total assets equal the total balance sheet. An average figure is technically
preferable but not terribly important to arrive at a rough estimate of capital
adequacy.
Weakness: A ratio below the 5 per cent rule of thumb is not necessarily a sign of
inadequate capital. Many state-owned banks exhibit low levels of capital but
generally have back-up support from the Government, a Government agency, or
even the central bank.
This simplistic approach also ignores other sources of permanent funds a bank
may have, such as subordinated debt, which generally is not listed among
shareholder funds.