07 August 2007 Md.

Mahfuzur Rahman 2003-2-10-187 BBA East West University Dear Mahfuz: As the students of business administration are supposed to prepare a Report and submit that at the end of the semester, you are authorized to choose an interesting issue and construct a formal report on that. The issue should be the Analysis of Basel Agreement and Its influence on Banks of Bangladesh. The report should include some key steps such as Executive summary, introduction, conclusion, sources of information and the analysis. The title should be a statement which will describe the report precisely. I will appreciate if you prepare the report according to the instruction given. Thanks

Nikhil Chandra Shil Senior Lecturer & Assistant Proctor East West University

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07 August, 2007 Nikhil Chandra Shil Senior Lecturer & Assistant Proctor Department of Business Administration 43 Mohakhali C/A Dhaka, Bangladesh Dear Sir: Here is the report on the Analysis of Basel Agreement and Its influence on Banks of Bangladesh. As you will find that I have conducted an in-depth investigation and analysis of different types ratio and tried to analyze certain circumstances and displayed our results of analysis and findings in this report. I will really appreciate if you go through the report and express your feedback on that. Thanks

Sincerely

Md. Mahfuzur Rahman 2003-2-10-187

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Acknowledgement
The report is based on the performance analysis of different bank in Bangladesh. While any an all errors of fact, omission, and emphasis are solely our responsibility. I would remiss, if I did not acknowledge those who helped me to prepare this report. First of all I must humbly acknowledge the contribution of Nikhil Chandra Shil for the time and effort to help me. I have had the good fortunate of meeting him in personally and share his views and ideas. Next I must thank the University for offering us this project (BUS 498) course and our course instructor for his encouragement and cooperation. I believe it will help us in understanding and identifying different types of risk in the banking sector. Finally, I would like to acknowledge the contributions of my parents. Although they didn't write a single word of this report or any artworks, but their imprint can be found on everything I do. They support me, encourage me, and inspire me. They give my work - and my live -meaning. It is my Mother who provides me all the love and affection.

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Chapter 1
1.1 1.2 1.3 1.4 1.5 1.6 2.1 2.2 2.3 2.4 2.5 3.1 3.2 3.3 3.4 3.5 4.1 4.2 4.3 4.4 4.5 5.1 5.2 5.3 5.4 5.5 6.1 6.2 6.3 6.4 6.5 7.1 7.2 7.3 7.4 7.5 Origin of the Report, Objective Methodology, Scope, Limitations Executive Summary Introduction Banking Industry Overview Credit Rating Status

04-16
06 08 09 11 12 16

Chapter 2
Key Profitability Ratios In Banking Earning Per Share Liquidity Risk Credit Risk Capital Risk Key Profitability Ratios In Banking Earning Per Share Liquidity Risk Credit Risk Capital Risk Key Profitability Ratios In Banking Earning Per Share Liquidity Risk Credit Risk Capital Risk Key Profitability Ratios In Banking Earning Per Share Liquidity Risk Credit Risk Capital Risk Key Profitability Ratios In Banking Earning Per Share Liquidity Risk Credit Risk Capital Risk Key Profitability Ratios In Banking Earning Per Share Liquidity Risk Credit Risk Capital Risk 4

17-22
17 18 20 20 21 23 24 26 26 27 29 30 32 33 34 35 36 38 38 39 41 42 44 45 45

Chapter 7: City Bank

47-52
47 48 50 51 51

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Chapter 8: Uttara Bank

8.1 8.2 8.3 8.4 8.5 9.1 9.2 9.3 9.4 9.5 10.1 10.2 10.3 10.4 10.5 Key Profitability Ratios In Banking Earning Per Share Liquidity Risk Credit Risk Capital Risk Key Profitability Ratios In Banking Earning Per Share Liquidity Risk Credit Risk Capital Risk Key Profitability Ratios In Banking Earning Per Share Liquidity Risk Credit Risk Capital Risk

53-58
53 54 55 56 57

Chapter 9: Prime Bank

59-64
59 60 62 63 63

Chapter 10: Southeast Bank

65-70
65 66 68 68 67

Chapter 11: Conclusion

11.1 Conclusion 11.2 Bibliography

71-73
71 73

Chapter-1 Introduction
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ORIGIN OF THE REPORT

This report has been prepared as a requirement for the completion of the BBA program of the Department of Business Administration, at East West University, Dhaka.

OBJECTIVE
The main objective of the report is to illuminate on the different ratio analysis of some major private bank in Bangladesh and its Comparative Analysis with other Banks prevailing in the market. I will also try to find out how the performance of the bank is improving over the years and how it is contributing to the growth of the banking sector. The following specific objectives can be identified:

1. To make a comparative study on nine major private bank in Bangladesh.

2. To suggest suitable measures to remove the existing problems (if any) & improve the present condition.

DATA
Data used in this project are derived from the published financial statements of nine banks operating in Bangladesh as of 31 December 2001, 31 to December 2005 from 48 banks operating in Bangladesh. There are some banks whose financial statements either are not available or contain some incomplete or missing accounts, or are contradictory hence they are deleted from observation. Banks are chosen by their status of operation. I have chosen some Liquidated Banks, some Problem Banks, and some Normal Banks for my research.

INITIAL VARIABLES
There are some basic financial performance and structural characteristics to evaluate a bank, namely profitability, efficiency or productivity, quality of assets, growth and aggressiveness, liquidity, size, capital adequacy, income diversification, and dependence on affiliates. There is, certainly, no single variable which could measure and represent each characteristic perfectly. There are, typically, several variables that proximate to a characteristic of interest. Based on literature review on banking and financial institutions and initial judgment, I chose the following variables to represent each characteristic as listed below.

Earning and profitability:

Return on Assets (ROA) = Net Income / Assets (NI/A) 6

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Return on Equity (ROE) = Net Income / Equity (NI/E) Return on Earning Assets (ROEA) = Net Income / Earning Assets (NI/EA) Return on Loans (ROL) = Interest Income / Loans (II/L) Interest Income / Earning Assets (II/EA) Net Interest Income / Earning Assets (NII/EA) Interest Margin (IM) = Return on Fund - Cost of Fund (IM)

Productivity and Efficiency:

Operating Expense / Operating Income (OE/OI) Profit Margin (PM) = Earning Before Taxes / Operating Income (EBT/OI) Sta. Expense / Assets (SE/A) Non-interest Expense / Assets (NonIE/A)

Quality of Assets:
Write-offs / Loans (W/L) Provision for Loan Losses / Loans (PLL/L) Provision for Loan Losses / Equity (PLL/E)

Capital Adequacy:
Equity / Assets (E/A) Equity / Earning Assets (E/EA) Equity / Loans (E/L)

Growth and Aggressiveness:

Loans Growth Rate (LGR) Loans-Market-Share Increment (LMSI) Deposit Growth Rate (DGR) Deposit-Market-Share Increment (DMSI)

Equity Growth Rate (EGR)

Loans to Deposit Ratio = Loans / Deposit (L/D)

Credibility or Cost of Fund:

Interest Expense / Deposit (IE/D) Interest Expense / Third Party Fund (IE/TPF)

Size:
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ln (Assets) (lnA)

Income and Sources of Fund Diversification:

Non-interest Income / Operating Income (NonII/OI) Deposit / Third Party Fund (D/TPF)

Liquidity:
Liquid Assets / Deposit (LA/D)

METHODOLOGY
The study required information regarding the past & present condition of different Bank in Bangladesh. Necessary data and information were gathered, secondary data, and annual report. a) Sources of Data: The following sources had been used for the purpose the purpose of collecting data as required for this report: Primary sources: I) Observation, ii) Personal communication with course instructor Secondary Sources: I) Annual and other periodical reports of different Bank in Bangladesh ii) Various manuals (conditions of use guides) and brochures, iii) Service Rules & IV) Miscellaneous Publications.

SCOPE
The report is limited to the understanding of credit risk, capital risk, liquidity risk analysis, and find out the key profitability ratio, and a comparative interpretation to that analysis. It was really difficult for me to gather all the necessary information because the managers were not cooperative at all. As a result, we have chosen the following nine banks based on the availability of information we get.

LIMITATIONS

1. As a student of business administration, analyzing of different sorts of risk and ratio is

new for me so it took some time to understand. Besides three months time is inadequate to prepare such a robust report. 2. It was very difficult to get the actual information from the annual report; some of the information is not given the annual report. 8

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3. Sufficient records, publications were not available. The constraints narrowed the scope of real analysis. 4. Most of the time I have faced the problem with the annual report which is prepared before 2000.

5. Accounting practice is different for the different bank.

6. Credit Worthiness: At present, we do not have any credit rating company in our country and information on the customer from the third party is also not always reliable. Therefore, we need to make our own scoring system. Since it will be a very difficult to prepare a standard scoring system to assess everybodys credit worthiness so we shall also have top substantially depend on judgmental analysis to make decision on every individual cases. Every individual case shall be unique and separate from others.

EXECUTIVE SUMMARY
Bank Dhaka Bank NCC Bank National Bank Al-Arafah Bank Eastern Bank City Bank Uttara Bank Prime Bank Southeast Bank Profitability Average High Average Average High* High High High** Average Liquidity Risk Low High Low High Low Low High Average High Credit Risk Low Low Average High Average Average Low Low Average Capital Risk Average Average High High Low Average Average Low Average

TABLE: Summery of Risk Categories

Risk Type
Country Risk

Definition

Comment Country risk is often confused with

sovereign risk, which is the counter party credit risk of the government.

The risk that a counter party is

unable to meet its foreign currency obligations as a result of adverse economic conditions or actions taken by governments in the relevant country. 9

Country Risk is also often referred

to as transfer risk or cross border risk.

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Country related events such as

economic downturn, political changes; devaluation etc. will often have significant impact on the other risks that SCB must manage.

Credit Risk

The risk that a counter party will

not settle its obligations in accordance within agreed terms

Assessing this risk requires an

understanding of the customers ability and willingness to pay but also its understanding of the risks it faces and how well it manages them e.g. environmental risks

Liquidity Risk

The risk that funds will not be

available to meet liabilities as they fall due

Includes the management of cash

flow under business as usual and stress conditions together with setting of targets for balance sheet ratios.

Market Risk

The risk of loss generated by

adverse changes in the price of assets or contracts currently held by the company (this risk is also known as price risk).

Does not include the risk of price

movements in other markets e.g. stocks and shares, property, commodities. Does include basis risk.

Capital Risk

The risk that a bank capital might Equity Capital/Total Assets has
be undergone been increased but Purchased Funds/Total Liabilities

Business Risk

The risk of failing to achieve

business targets due to inappropriate strategies, inadequate resources or changes in the economic or competitive environment

Includes decisions on the markets

we operate in, products offered, and customers targeted and the terms and conditions of conducting business.

Legal and Regulatory Risk

The risk of non compliance with

legal or regulatory requirements.

Includes banking specific

legislation and regulations but also all applicable laws. In extreme cases could lead to loss of banking license(s).

Source: Bank Management & Financial Services (6th Edition) Pages: 161, 162, 164, 328, 472.

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INTRODUCTION
The overall objective of my project report is to clearly identify and briefly discuss about the performance analysis of different bank in Bangladesh. To analyze the performance of different bank I have analyzed different ratio and provided some interpretation of them. I have taken a total nine bank to evaluate the performance of them. And try to make a comparison among all of the following. 1. Dhaka Bank Ltd 2. National Credit & Commerce Bank Ltd. 3. National Bank Ltd. 4. Al-Arafah Islami Bank Limited (Al-Arafah) 5. Eastern Bank Ltd. 6. The City Bank Ltd. 7. Uttara Bank 8. Prime Bank Ltd. 9. South East Bank Ltd Customer satisfaction is one of the core objectives of different bank. Taking decision to provide credit facility to a corporate customer is not easy in this fast changing global environment especially in Bangladesh. To smooth the whole process the work is divided. So, before making a decision the every necessary information should be carefully analyzed by different departments and different people who have gained expertise in their related field. Thus it helps both in making correct decision and smoothen the process to satisfy the customer need quickly. A bank is an organization that engages in the business of banking. Banks perform three functions: 1. Provide the means of payment through administering the checking account system. 2. Intermediate between depositors and borrowers by offering savings and time deposit- to depositors and providing all types of loans to borrowers. 3. Provide a variety of financial services, encompassing fiduciary services, investment banking and off-balance sheet risk taking.

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Commercial banks are private profit seeking enterprises, balancing risk and return to their portfolio management with the goal of maximizing shareholder wealth. Share holders wealth depends on three factors: 1. The volume of cash flows resulting from portfolio decisions. 2. The timing of those cash flows 3. The risk and volatility of the cash flows. Commercial banks face six risks: 1. Credit or Default risk 2. Interest-rate risk 3. Liquidity risk 4. Operational risk 5. Capital. Risk 6. Fraud risk The Modern definition of a bank is, "An institution that provides all financial services" (Source: SCB Handbook) and the core activity of a bank is to collect money from the people who has surplus with them and lend those money to people who has deficit, known as credit facility. Customers sought different kind of credit facility from banks and the banks try to provide as many as they can within their limited scope. Every bank follows a predefined structured procedure in providing credit facilities to their customers.

BANKING INDUSTRY OVERVIEW

The banking industry in Bangladesh is more than 600 years old. The first commercial bank was ANZ Grindlays Bank which opened in1905. The central bank of the country, Bangladesh Bank controls and monitors the banking industry. At present there are 52 commercial (nationalized, foreign and local) banks. Currently, the major financial institutions under the banking system include: Bangladesh Bank Commercial Banks Islamic Banks Leasing Companies 12

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Finance Companies Merchant Banks

Generally, the commercial banks and finance companies provide a myriad of banking products/services to cater to the needs of their customers. However, the Bangladeshi banking industry is characterized by the tight banking rules and regulation s set by the Bangladesh Bank. All banks and financial institutions are highly governed and controlled under the Banking Companies Act-1993. The range of banking products and financial services is also limited in scope. All local banks must maintain a 4% Cash Reserve Requirement (CRR), which is non-interest bearing and a 16% Secondary Liquidity Requirement (SLR). With the liberalization of markets, competition among the banking products and financial services seems to be growing more intense each day. In addition, the banking products offered in Bangladesh are fairly homogeneous in nature due to the tight regulations imposed by the central bank. Competing through differentiation is increasingly difficult and other banks quickly duplicate any innovative banking service.

Bangladesh Bank
Bangladesh Bank (BB) has been working as the central bank since the country's independence. Its prime jobs include issuing of currency, maintaining foreign exchange reserve and providing transaction facilities of all public monetary matters. BB is also responsible for planning the government's monetary policy and implementing it thereby. The BB has a governing body comprising of nine members with the Governor as its chief. Apart from the head office in Dhaka, it has nine more branches, of which two in Dhaka and one each in Chittagong, Rajshahi, Khulna, Bogra, Sylhet, Rangpur and Barisal.

Nationalized Commercial Banks (NCBs)

1. Sunali Bank 2. Rupali bank 3. Janata Bank 4. Agrani Bank

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Private Commercial Banks (PCBs)

1. Pubali Bank 2. Uttara Bank 3. National Bank 4. The City Bank Ltd. 5. United Commercial Bank Ltd. 6. Arab Bangladesh Bank Ltd. 7. IFIC Bank Ltd. 8. Eastern Bank Ltd. 9. National Credit & Comerce Bank Ltd. 10. Prime Bank Ltd. 11. South East bank Ltd. 12. Dhaka Bank Ltd 13. Dutch-Bangla Bank Ltd. 14. Mercantile Bank Ltd. 15. Standard Bank Ltd. 16. One Bank Ltd. 17. EXIM Bank 18. Bangladesh Commerce Bank Ltd. 19. Mutual Trust Bank Ltd. 20. First Security Bank Ltd. 21. The Premier Bank Ltd. 22. Bank Asia Ltd. 23. The Trust Bank Ltd. 24. Brac Bank Ltd.

Islamic Banks
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1.

Islami Bank Bangladesh Limited (IBBL)

Al Baraka Bank Bangladesh Limited (AL-Baraka) Al-Arafah Islamic Bank Ltd. (Al-Arafah) Social Investment Bank Limited (SIBL) Faysal Islamic Bank of Bahrain EC (FIBB) 6. Shah Jalal Bank Limited (Based on Islamic Shariah)

Foreign / Multinational Banks

1. Habib Bank Ltd. 2. State Bank Of India 3. Credit Agricole Indosuez (The Bank) 4. National Bank of Pakistan 5. Muslim Commercial Bank Ltd. 6. City Bank NA 7. Hanvit Bank Ltd. 8. HSBC Ltd. 9. Shamil Islami Bank Of Bahrain EC 10. Standard Chartered Bank

Development Banks
1. Bangladesh Krishi Bank 2. Rajshahi Krishi Unnayan Bank 3. Bangladesh Shilpa Bank 4. Bangladesh Shilpa Rin Sangstha 5. Bank of Small Industries & Commerce Bangladesh Ltd.

Other Banks
1. Ansar VDP Unnayan Bank 2. Bangladesh Samabai Bank Ltd. (BSBL) 3. Grameen Bank 4. Karmasansthan Bank

Credit Rating Status of Researching Banks Operating in Bangladesh

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SL. NO.

Name of Bank Dhaka Bank Ltd NCC Bank Ltd National Bank Ltd Al-Arafah Islami Bank Ltd Eastern Bank Ltd The City Bank Ltd Uttara Bank Ltd Prime Bank Ltd South East Bank Ltd

Credit Rating Report Long Short Term A A AAA A Term ST-2 ST-3 ST-3 ST-2 ST-3

Rating as of 31.12.06

Name of the Agency CRAB CRAB CRAB CRISL CRISL CRISL CRISL CRISL CRAB

Remarks Expected to complete by May' 07 Expected to complete by May ' 07 Expected to complete Expected to complete by 30.06.07 CR report based on Dec'06,

01. 02. 03. 04. 05. 06. 07. 08. 09.

31/12/06 31.12.06 30/06/06 31/12/06 31.12.06 31/12/06 22/06/06

Source: Bangladesh Bank (www.bangladesh-bank.org)

Chapter-2 Dhaka Bank Limited

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Key Profitability Ratios in Banking

2001
Return on equity Capital Return on Asset( ROA) Net interest Margin Net non-interest Margin Net Bank Operating Margin 0.439 0.015 0.019 0.024 0.349

2002
0.262 0.012 0.021 0.030 0.243

2003
0.222 0.013 0.019 0.022 0.285

2004
0.240 0.013 0.022 0.020 0.282

2005
0.209 0.014 0.023 0.019 0.311

Return on Equity:
Return on equity capital is a measure of the rate of return flowing to the banks shareholder. It approximates the net benefit that the shareholders have received from investing their capital in the bank. During the period of 2001-2005 the average return on the equity was 0.274 which means 27.4%. But if we look at every individual year we can say that it has decreased year by year. The ratio was decreased because of the bank has increased the equity capital over the year and declared the bonus share as a dividend.

Return on Assets:
The Return on the asset is primarily indicator of managerial efficiency. It indicates how capably the management of the bank has been converting the institutions assets into net earning. From the above analysis we can see that during the period of 2001-2005 the average ratio was 1.3%. Return on assets has increased over time. That means the bank was able to increase the efficiency in managing asset from 2001-2005. 17

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Net Interest Margin:

The net interest margin measures how large a spread between interest revenues and interest costs. Management has been able to achieve of close control over the banks earning assets and the pursuits of the cheapest source of funding. The average net bank interest margin for Dhaka bank was 2.1% during 2001-2005. By looking at the table we can say that it has increased period by period accept 2003, which indicates a good signal for the Bank.

Net Non Interest Margin:

The non-interest margin measures the amount of non interest revenue streaming from deposits charges and other service fees the bank has been able to collect relative to the amount of non interest cost incurred (including salaries and wages, repair and maintenance cost on bank facilities and loan loss expense). The net non interest margin was 2.30% during the period of 2001-2005. It has decline over the periods accept 2001. The income from the non interest source, like Treasury bill, commission on brokerage, and commission from the letter of credit has been declined over the years.

Earning Per Share:

2001
Earning Per Share 41.255

2002
42.635

2003
39.024

2004
46.894

2005
53.864

Grap hical P resentatio n of E arn in g s P er S hare

120 100 Amount in Taka 80 60 40 20 0 2001 2002 2003 Ye a r 2004 2005 E arnings P er S hare

Earning per share measures the earning against per share. During the period 2001-2005, the average earning per share was Tk 44.73. Though it is not so attractive figure for Dhaka Bank, but positive fact is it has increased over times. 18

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Breaking Down OF ROE

2001
Net profit Margin Banks degree of asset utilization The banks equity multiplier 0.349 0.043 29.02

2002
0.243 0.050 21.33

2003
0.285 0.045 17.20

2004
0.282 0.045 18.94

2005
0.311 0.045 14.92

Net Profit Margin:

Net profit margin has fluctuated over time. But if we look at the average which was 29.39% with the past five years, we can say that last five years net profit margin was better.

Banks Degree of Assets Utilization:

Banks Degree of Assets Utilization was 4.5% during 2001-2005 which was not bad as compare to other banks.

Equity Multiplier:
T h e B a n k s E q u ity M u ltip lie r
35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 1 2 3 Ye a r 4 5 The bank s equity m ultiplier

During the period of 2001-2005 the average equity multiplier was 20.283. By the equity multiplier ratio we can say that it is highest in 2001 which was 09.02%. that means the risk of the failure was also highest for that period. As the risk was higher, we can say that the banks profit margin also was higher for that period.

Liquidity Risk
2001
Purchased Funds/Total Assets 0.015 19

2002
0.010

2003
0.012

2004
0.012

2005
0.023

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Cash and Due from Banks/Total Assets Cash and Government Securities/Total Assets

0.152 0.062

0.122 0.076

0.093 0.098

0.071 0.137

0.079 0.155

Grap hical P resen tation of Liq uidity R isk

0.180 0.160 0.140 0.120 0.100 0.080 0.060 0.040 0.020 0.000 2001 2002 2003 2004 Ye a r 2005

P urc has ed Funds /Total A s s ets Cas h and Due from B ank s/Total A ss ets Cas h and G overnm ent S ec urities/Total A s s ets

Purchased Funds/Total Assets:

If the use of purchased is more that increases the chance of liquidity crunch in the event of withdrawals rises or the loan quality declines. During 2001-2005, as the average ratio was 1.44%, we can say that the liquidity risk for the bank is lower for the Bank.

Cash and Government Securities/Total Assets:

Cash and Government securities was 10.54% of the total assets on an average which was not so much good for the Bank because cash and government securities are the most liquid assets for a bank. So bank may face liquidity problem in the future.

Credit Risk
2001
Provision for Loan Losses/Total Loans Total Loans/Total Deposits 0.01 0.56

Risk

2002
0.01 0.67

2003
0.00 0.70

2004
0.01 0.74

2005
0.00 0.82

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Grapgical Presentation of Credit R isk
0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 2001 2002 2003 Year 2004 2005

Risk

Provision for Loan Losses/Total Loans Total Loans/Total Deposits

Provision for Loan Losses/Total Loans:

Provision for Loan Losses/Total Loans indicates the amount which should be kept as provision for loan losses from the total loan. During the period (2001-2005) the average amount of provision for the loan loses was 0.6%. This indicates a very good signal for the bank. That means Banks credit risk is very low because the bank has been able to collect the loan very efficiently.

Total Loans/Total Deposits

Total Loans/Total Deposits indicates the total loan amount that goes from the total deposit. During (2001-2005), on an average 68.86% of the total deposit distribute as loan. This indicates they have distributed a big portion of their deposited amount as loan. That is some what risky but as their provision for loan losses was very low they will have no problems with this.

Capital Risk
2001
Equity Capital/Total Assets Purchased Funds/Total Liabilities 0.034 0.016

2002
0.047 0.011

2003
0.058 0.012

2004
0.053 0.012

2005
0.067 0.025

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Graphical Presentation of Capital Risk
0.080 0.070 0.060 0.050 Risk 0.040 0.030 0.020 0.010 0.000 2001 2002 2003 Ye a r 2004 2005 Equity Capital/Total Assets Purchased Funds/Total Liabilities

Equity Capital/Total Assets:

Equity Capital/Total Assets indicates that the amount of equity capital invested in the total assets. During the period of 2001-2005 their equity capital was on an average 5.20% of their total assets, which indicates they have financed very few of their investment by equity and it is gradually increased over the period.

Purchased Funds/Total Liabilities:

Purchased Funds/Total Liabilities indicates that the amount of non deposit liability in the total liability structure. If the purchased fund increases that means the capital risk are also increases. During the period of 2001-2005 1.52% of the liability was financed by the purchased fund that means non deposit sources which is not the core area of the business. That means the capital risk for the bank is low for the Bank.

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Chapter-3 NCC Bank Limited

Key Profitability Ratios In Banking
2001
Return on equity Capital Return on Asset( ROA) Net interest Margin Net non-interest Margin Net Bank Operating Margin 0.244 0.014 0.024 0.028 0.280

2002
0.233 0.011 0.024 0.027 0.230

2003
0.084 0.044 0.232 0.195 0.080

2004
0.232 0.013 0.020 0.032 0.255

2005
0.189 0.013 0.023 0.346 0.240

G ra p h ic a l Pr e s e n ta tio n o f Pr o fita b ility R a tio

0 .40 0 0 .35 0 0 .30 0 0 .25 0 0 .20 0 0 .15 0 0 .10 0 0 .05 0 0 .00 0 2 0 01 2 0 02 2003 Ye a r 2 00 4 2005 R e turn o n e q uity C a pita l R e ttu rn o n As s e t( R OA) N e t in te re s t Ma rg in N e t n o n -inte res t Ma arg in N e t Ban k Op era tin g Ma rg in

Return on Equity:
Return on equity capital is a measure of the rate of return flowing to the banks shareholder. It approximates the net benefit that the shareholders have received from investing their capital in the bank. During the period of 2001-2005 the average return on the equity was to 19.6%. If we compare it to the Dhaka Bank we can say that it is not good. The ratio was low because the bank has increased the equity capital over the year and declared the bonus share as a dividend.

Return on Assets:
The Return on the asset is primarily indicator of managerial efficiency. It indicates how proficiently the management of the bank has been converting the institutions assets into net earning. From the above analysis we can see that for the period of 2001-2005 the average ratio 23

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was 1.9%. which was some what better than Dhaka Bank. That means the bank was able to increase the efficiency in managing asset from 2001-2005.

Net Interest Margin:

The net interest margin measures how large a spread between interest revenues and interest costs. Management has been able to achieve of close control over the banks earning assets and the pursuits of the cheapest source of funding. The net bank interest margin for Dhaka bank was 2.1% during the year of 2001-2005. But the net margin of NCC Bank was 6.46%. that means the banks was able to increase the cheapest source of funding from 2001-2005.

Net Non Interest Margin:

The non-interest margin measures the amount of non interest revenue streaming from deposits charges and other service fees the bank has been able to collect relative to the amount of non interest cost incurred (including salaries and wages, repair and maintenance cost on bank facilities and loan loss expense). The average net non interest margin was 12.5% during the period of 2001-2005. That means the bank was able to collect more income from the non interest source and it has increases over time. They have been able to generate more income from the non interest source like Treasury bill, commission on brokerage, and commission from the letter of credit.

Earning Per Share:

2001
Earnings Per Share 54.14

2002
44.47

2003
30.99

2004
46.91

2005
36.11

Graphical R epresentation of E arnings Per S hare

60 50 Amount in Taka 40 30 20 10 0 2001 2002 2003 Ye a r 2004 2005 E arnings P er Share

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Earning per share measures the earning against per share. During the period of 2001-2005, the average earning per share was Tk 42.524. Their earning per share has reduced over time and if we compare with other bank we can say that it is not sufficient.

Breaking Down of ROE

2001
Net profit Margin Banks degree of asset utilization The banks equity multiplier 0.280 0.052 16.91

2002
0.230 0.050 20.33

2003
0.080 0.544 1.92

2004
0.255 0.052 17.46

2005
0.240 0.056 14.04

Net Profit Margin:

During 2001-2005 the average the net bank operating margin was 21.7%. If we look at the individual data it is not good because it has fluctuated over time.

Banks Degree of Assets Utilization:

They have earned 15.08% operating revenue in 2001-2005 by using their total assets. Over the period it was consistent accept 2003.

Equity Multiplier:
T h e b a n k s e q u ity m u ltip lie r
2 5 .0 0 2 0 .0 0 Value 1 5 .0 0 1 0 .0 0 5 .0 0 0 .0 0 2001 2002 2003 Ye a r 2004 2005 T h e b a n k s e q u ity m u ltip lie r

During the period of 2001-2005, the average equity multiplier was 14.32. By the equity multiplier ratio we can say that it is substantially higher, that means the risk of the failure is also high for the period. As the risk is higher so the banks profit margin is also higher. 25

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Liquidity risk
2001
Purchased Funds/Total Assets Cash and Due from Banks/Total Assets Cash and Government Securities/Total Assets 0.035 0.158 0.100

2002
0.046 0.067 0.148

2003
0.541 0.499 0.166

2004
0.045 0.042 0.208

2005
0.054 0.052 0.110

Liquidity R isk
0.600 0.500 0.400 Risk 0.300 0.200 0.100 0.000 2001 2002 2003 Ye a r 2004 2005 Purchased Funds/Total Assets Cash and Due from Banks/Total Assets Cash and Governm ent Securities/Total Assets

Purchased Funds/Total Assets:

If the use of purchased funds are more that increases the chance of liquidity crunch in the event of withdrawals rises or the loan quality declines. During the period of 2001-2005, as the average ratio was 1.44%, we can say that the liquidity risk for the bank was low.

Cash and Government Securities/Total Assets:

Average Cash and Government Securities/Total Assets in 2001-2005 was 44.48%. The total assets have come from the cash and government securities.

Credit Risk
2001
Provision for Loan Losses/Total Loans Total Loans/Total Deposits 0.02 0.84

2002
0.02 0.82

2003
0.02 0.81

2004
0.02 0.89

2005
0.02 0.96

26

BUS 498
Credit R isk Measure
1.20 1.00 0.80 Risk 0.60 0.40 0.20 0.00 2001 2002 2003 Ye a r 2004 2005 Provision for Loan Losses/Total Loans Total Loans/Total Deposits

Provision for Loan Losses/Total Loans:

Provision for Loan Losses/Total Loans indicates the amount which should be kept as provision for loan losses from the total loan. During the period of 2001-2005 the average amount of provision for the loan loss was 1.9% of the total loans. As the provision for the loan loss was very low, we can say that the credit risk for the bank was lower for the Bank and the bank has been able to collect the loan more efficiently.

Total Loans/Total Deposits:

Total Loans/Total Deposits indicates the total loan amount that goes from the total deposit. If we look at the graph we will see that the Total loan/Total Deposits gradually has increased over time. That means the Bank has increased the loan as well as credit risk. But historical data say that their loan collection is pretty impressive. On an average they have distributed 86.19% of their deposits as loan.

Capital Risk
2001
Equity Capital/Total Assets Purchased Funds/Total Liabilities 0.059 0.037

2002
0.049 0.048

2003
0.522 0.057

2004
0.057 0.048

2005
0.071 0.818

27

BUS 498
C ap ital R isk
0.900 0.800 0.700 0.600 0.500 0.400 0.300 0.200 0.100 0.000 2001 2002 2003 Ye a r 2004 2005

Risk

E quity Capital/Total A s sets P urc has ed Funds /Total Liabilities

Equity Capital/Total Assets:

Equity Capital/Total Assets indicates that the amount of equity capital invested in the total assets. During the period of 2001-2005, on an average 15.17% total asset was financed by the equity. If we think about the risk of the Bank, it is high. Because a huge amount of money they have financed by debt equity.

Purchased Funds/Total Liabilities:

Purchased Funds/Total Liabilities indicates that the amount of non deposit liability in the total liability structure. If the purchased fund increases that means the capital risk are also increases. During the period of 2001-2005, 20.16% of the liability was financed by the purchased fund that means non deposit sources which is not the core area of the business.

28

BUS 498

Chapter-4 National Bank

Key Profitability Ratios In Banking
2001
Return on equity Capital Return on Asset( ROA) Net interest Margin Net non-interest Margin Net Bank Operating Margin 0.174 0.006 0.012 0.025 0.224

2002
0.087 0.003 0.011 0.026 0.083

2003
0.052 0.002 0.011 0.027 0.048

2004
0.091 0.004 0.012 0.029 0.087

2005
0.099 0.005 0.011 0.031 0.118

Graphical Presentation of P rofittability R atio

0.250 0.200 Risk 0.150 0.100 0.050 0.000 2001 2002 2003 Ye a r 2004 2005 Return on equity Capital Retturn on A ss et( ROA ) Net interes t M argin Net non-interest M aargin Net B ank Operating M argin

Return on Equity:
Return on equity capital is a measure of the rate of return flowing to the banks shareholder. It approximates the net benefit that the shareholders have received from investing their capital in the bank. During the period of 2001-2005 the average return on the equity was 10.1%. The ratio was not attractive because of the bank has increased the equity capital over the year and declared the bonus share as a dividend.

The Return on Assets:

The Return on the asset is primarily indicator of managerial efficiency. It indicates how capably the management of the bank has been converting the institutions assets into net earning. From the above analysis we can say that during the period of 2001-2005 the average ratio 0.4%. It is not so attractive. The bank was not able to increase the efficiency in managing asset from 2001 to 2005. 29

BUS 498

The net interest Margin:

The net interest margin measures how large a spread between interest revenues and interest costs. Management has been able to achieve of close control over the banks earning assets and the pursuits of the cheapest source of funding. The net bank interest margin for Dhaka bank was 12% during 2001-2005. But the average net interest margin for National bank was 1.14%. That means the banks was able to increase the cheapest source of funding from 2001 to 2005 but that is not substantial for the bank.

The Non-interest Margin:

The non-interest margin measures the amount of non interest revenue streaming from deposits charges and other service fees the bank has been able to collect relative to the amount of non interest cost incurred (including salaries and wages, repair and maintenance cost on bank facilities and loan loss expense). The average net non interest margin was 2.8% for 2001-2005. Though it has increased over period, they were not able to generate more income from the non interest source like Treasury bill, commission on brokerage, and commission from the letter of credit. The performance of the bank is stable over the years.

Earning Per Share:

2001
Earnings Per Share 63.78

2002
33.98

2003
33.09

2004
27.44

2005
43.85

Earnings Per Share

70 60 Amoun in Taka 50 40 30 20 10 0 2001 2002 2003 Ye a r 2004 2005 Earnings Per Share

30

BUS 498

Earning per share measures the earning against per share. During the period of 2001-2005, the average earning per share was Tk 40.420. Their earning per share has reduced over time and if we compare with other bank we can say that it is not sufficient. In the cases of National Bank if we look after the key profitability ratio then we can say that return on equity capital(ROE), and non interest margin, Return on asset (ROA) Net Bank Operating Margin, and Earning per share, ratio has been decreased for the period of 2001-2005. But, only the net bank operating margin has been increased. Return on equity capital (ROE) has been decreases because the bank has increased the equity capital for the years and given the bonus share as a dividend so the amount of equity increases during the period of 2001-2005. The earning per share also has been decreased for the period of 2001-2005.

Breaking Down of ROE

2001
Net profit margin Banks degree of asset utilization The banks equity multiplier 0.224 0.025 30.99

2002
0.083 0.038 28.07

2003
0.048 0.038 28.18

2004
0.087 0.041 25.79

2005
0.118 0.042 20.13

The net bank operating Margin:

During the period of 2001-2005 the average the net bank operating margin was 11.18% of the total assets. It was not stable over the period which is not a good sign for the bank.

Bank Degree of Assets Utilization:

Banks degree of the asset utilization has been increased during the period of 2001-2005. So return of asset has been also decreased for the same period. Net profit margin has been decreased substantially because the ratio of the equity multiplier was higher.

Equity Multiplier:
During the period of 2001-2005 the average equity multiplier was 26.63. By the equity multiplier ratio we can say that it has substantially reduced over time, which means the risk of the failure has gradually increased over time.

31

BUS 498

T he b an ks eq uity m ultip lier

35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 2001 2002 2003 Ye a r 2004 2005 The bank s equity m ultiplier

Liquidity Risk
2001
Purchased Funds/Total Assets Cash and Due from Banks/Total Assets Cash and Government Securities/Total Assets
Liquidity Risk
0.100 0.090 0.080 0.070 0.060 0.050 0.040 0.030 0.020 0.010 0.000 2001 2002 2003 Year 2004 2005

2002
0.029 0.053 0.088

2003
0.024 0.054 0.087

2004
0.026 0.054 0.068

2005
0.038 0.055 0.038

0.039 0.043 0.060

Purchased Funds/Total Assets Cash and Due from Banks/Total Assets Cash and Government Securities/Total Assets

Purchased Funds/Total Assets:

Purchased Funds/Total Assets if the use of purchased more that increases the chance of liquidity crunch in the event of withdrawals rises or the loan quality declines. During the period of 2001-

Risk

32

BUS 498

2005 the average ratio for the bank was 3.12%. We can say that the liquidity risk for the bank was not very high also stable by the year

Cash and Government Securities/Total Assets:

Cash and Government Securities/Total Assets in 2001-2005 was 6.82% of the total assets which has come from the cash and government security. Banks/Total Assets and Cash and Government Securities/Total Assets are also remains almost same for over the period so the liquidity risk for the bank has been remains low and same for the period.

Credit Risk:
2001
Provision for Loan Losses/Total Loans Total Loans/Total Deposits 0.02 0.84

2002
0.02 0.82

2003
0.02 0.81

2004
0.02 0.89

2005
0.02 0.96

Credit Risk Measure

0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 2001 2002 2003 Ye a r 2004 2005

Risk

Provision for Loan Losses/Total Loans Total Loans/Total Deposits

Provision for Loan Losses/Total Loans:

Provision for Loan Losses/Total Loans indicates the amount which should be kept as provision for loan losses from the total loan. During the period of 2001-2005 the average amount of provision for the loan loss was 2.09%. That means only 2.09% of the funds were in risk to be uncollected. As the provision for the loan losses was low, we can say that the credit risk for the bank was not very high for the recent period.

Total Loans/Total Deposits:

33

BUS 498

Total Loans/Total Deposits indicates the total loan amount that goes from the total deposit. During 2001-2005 on an average 81.11% of the total deposit they have distributed as loan. This is a very big portion and indicating a great change of credit risk for the bank.

Capital Risk:
2001
Equity Capital/Total Assets Purchased Funds/Total Liabilities 0.032 0.617

2002
0.036 0.042

2003
0.035 0.033

2004
0.039 0.037

2005
0.050 0.591

C apital R isk
0.700 0.600 0.500 Risk 0.400 0.300 0.200 0.100 0.000 2001 2002 2003 Ye a r 2004 2005 E quity Capital/Total A s sets P urc has ed F unds /Total Liabilities

Equity Capital/Total Assets:

Equity Capital/Total Assets indicates that the amount of equity capital invested in the total assets. During the period of 2001-2005 on an average 3.83% of the total asset was financed by the equity. That is indicating a very bad signal for the bank. Because they mostly they have financed their investment by debt capital which was very risky.

Purchased Funds/Total Liabilities:

Purchased Funds/Total Liabilities indicates that the amount of non deposit liability in the total liability structure. If the purchased fund increases that means the capital risk are also increases. During the period of 2001-2005 the ratio was drastically high for 2001 and 2005 and average ratio was 26.39%. That means the capital risk for the bank was high for the bank.

34

BUS 498

Chapter-5 Al Arafah Islami Bank Limited

Key Profitability Ratios In Banking
2001
Return on equity Capital Return on Asset( ROA) Net interest Margin Net non-interest Margin Net Bank Operating Margin 0.053 0.002 0.015 0.017 0.067

2002
0.124 0.006 0.026 0.015 0.141

2003
0.172 0.012 0.030 0.018 0.242

2004
0.162 0.012 0.030 0.018 0.252

2005
0.215 0.017 0.038 0.022 0.292

G r a p h ic a l Pr e s e n ta tio n o f Pr o fita b ility R a tio

0 .3 5 0 0 .3 0 0 0 .2 5 0 Profitability 0 .2 0 0 0 .1 5 0 0 .1 0 0 0 .0 5 0 0 .0 0 0 2001 2002 2003 2004 2005 Ye a r N e t B a n k O p e ra tin g Ma rg in R e tu rn o n e q u ity C a p ita l R e ttu rn o n As s e t( R O A) N e t in te re s t Ma rg in N e t n o n -in te re s t Ma a rg in

Return on Equity:
Return on equity capital is a measure of the rate of return flowing to the banks shareholder. It approximates the net benefit that the shareholders have received from investing their capital in the bank. During the period of 2001-2005 the average return on the equity was 14.5% which was not attractive, but the good signal is that it has increased over time.

Return on Assets:
The Return on the asset is primarily indicator of managerial efficiency. It indicates how capably the management of the bank has been converting the institutions assets into net earning. 35

BUS 498

From the above analysis we can say that during the period of 2001-2005 the return on asset was only 1.00%. That means the bank was able to increase the efficiency in managing asset from 2001 to 2005.

Net Interest margin:

The net interest margin measures how large a spread between interest revenues and interest costs. Management has been able to achieve of close control over the banks earning assets and the pursuits of the cheapest source of funding. The average net bank interest margin for the bank was 2.78% during the period of 2001-2005 which is also not so attractive.

Non-interest Margin:
The non-interest margin measures the amount of non interest revenue streaming from deposits charges and other service fees the bank has been able to collect relative to the amount of non interest cost incurred (including salaries and wages, repair and maintenance cost on bank facilities and loan loss expense). The net non interest margin was 1.8% in 2001-2005. They wasnt been able to generate more income from the non interest source like Treasury bill, commission on brokerage, and commission from the letter of credit.

Earning Per Share:

2001
Earnings Per Share 101.43

2002
312.420

2003
251.1

2004
263.67

2005
387.8

Graphical Presentation of Earnings Per Share

450 400 350 300 250 200 150 100 50 0 2001 2002 2003 Ye a r 2004 2005

Amount in Taka

Earnings Per Share

36

BUS 498

Earning per share measures the earning against per share. During the period of 2001-2005, the earning per share was Tk 263.18. If we compare with other bank we will see that their earning per share was very good.

Breaking Down of ROE:

2001
Net profit Margin Banks degree of asset utilization The banks equity multiplier 0.067 0.032 24.968

2002
0.141 0.041 21.447

2003
0.242 0.048 14.754

2004
0.252 0.048 13.449

2005
0.292 0.059 12.564

Graphical Presentation of Equity Multiplier

30.000 25.000 20.000 15.000 10.000 5.000 0.000 2001 2002 2003 Ye a r 2004 2005 The bank s equity m ultiplier

The Net Bank Operating Margin:

During the period of 2001-2005 the average the net bank operating margin was 19.87%. If we compare with other banks it was good. Another important thing is that it has increased over time.

Degree of Operating Margin:

On an average they have earned 4.55% operating revenue during the period of 2001-2005 by using total asset. It was not so good. This indicates that they ware unable to utilize their assets.

Equity Multiplier:
During the period of 2001-2005 the equity multiplier was 17.467. By analyzing the equity multiplier ratio we can say that it is substantially higher, that means the risk of the failure is also high for the period of 2001-2005. As the risk is higher so the banks profit margin is also higher.

Liquidity Risk:
37

BUS 498

2001
Purchased Funds/Total Assets Cash and Due from Banks/Total Assets 0.048 0.080

2002
0.054 0.090

2003
0.055 0.089

2004
0.109 0.093

2005
0.105 0.201

L iq u id ity R isk
0.250 0.200 Risk 0.150 0.100 0.050 0.000 2001 2002 2003 2004 Ye a r 2005 P urc hased Funds /Total A ss ets Cas h and Due from B ank s/Total A ss ets Cas h and Governm ent S ec urities/Total A ss ets

Purchased Funds/Total Assets:

Purchased Funds/Total Assets if the use of purchased more that increases the chance of liquidity crunch in the event of withdrawals rises or the loan quality declines. During the period of 20012005 the average ratio was 7.4%. Because of lower percentage we can say that the liquidity risk for the bank is also lower for the bank.

Cash and Due from Banks/Total Assets:

During the period of 2001-2005 on an average the bank had only 7.42% cash and due from bank against their total assets. This indicates a very bad signal for the bank. Liquidity risk for the bank was very high for that period.

Credit Risk:
2001
Total Loan/Total Deposit Provision for Loan Losses/Total Loans 0.644 0.016

2002
0.893 0.033

2003
0.876 0.024

2004
0.806 0.048

2005
0.985 0.011

38

BUS 498

Credit Risk Measure

1.2 1 0.8 Risk 0.6 0.4 0.2 0 2001 2002 2003 Ye ar 2004 2005 Total Loan/Total Deposit Provision for Loan Losses/Total Loans

Total Loans/Total Deposits:

Total Loans/Total Deposits indicates the total loan amount that goes from the total deposit. During the period of 2001-2005, 84.13% of the total deposit distribute as loan. They have distributed a big portion of their deposits as loan it could increase credit risk for the bank.

Provision for Loan Losses/Total Loans:

Provision for Loan Losses/Total Loans indicates the amount which should be kept as provision for loan losses from the total loan. During the period of 2001-2005 the average amount of provision for the loan loss was 2.64%. As the provision for the loan losses was lower so we can say that the credit risk for the bank was also lower for the bank in that period, and the bank has been able to collect the loan more efficiently.

Capital Risk
2001
Equity Capital/Total Assets Purchased Funds/Total Liabilities 0.040 0.050

2002
0.047 0.056

2003
0.068 0.059

2004
0.074 0.117

2005
0.080 0.114

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BUS 498

C apital R isk Measure

0.140 0.120 0.100 Risk 0.080 0.060 0.040 0.020 0.000 2001 2002 2003 Ye a r 2004 2005 Equity Capital/Total Assets Purchased Funds/Total Liabilities

Equity Capital/Total Assets:

Equity Capital/Total Assets indicates that the amount of equity capital invested in the total assets. During the period of 2001-2005, on an average 6.17% of the total asset was financed by the equity and it is gradually increased over the year and for the period.

Purchased Funds/Total Liabilities:

Purchased Funds/Total Liabilities indicates that the amount of non deposit liability in the total liability structure. If the purchased fund increases that means the capital risk are also increases. During the period of 2001-2005 they were able to maintain the ratio within 8.00%. That means the capital risk for the bank was lower for the period. Though the bank is able to reduce the nondeposit source of funding but still they are exposed to a higher capital risk.

40

BUS 498

Chapter-6 Eastern Bank Limited

Key Profitability Ratios In Banking
2001
Return on equity Capital Return on Asset( ROA) Net interest Margin Net non-interest Margin Net Bank Operating Margin 0.17 0.02 0.03 0.02 0.16

2002
0.18 0.02 0.03 0.02 0.19

2003
0.15 0.02 0.02 0.03 0.18

2004
0.18 0.02 0.03 0.03 0.22

2005
0.18 0.02 0.03 0.03 0.18

Graphical Presentation of Profitability Ratio

0.25 0.20 Profitability 0.15 0.10 0.05 0.00 2001 2002 2003 Year 2004 2005 Return on equity Capital Retturn on Asset( ROA) Net interest Margin Net non-interest Maargin Net Bank Operating Margin

Return on Equity:
Return on equity capital is a measure of the rate of return flowing to the banks shareholder. It approximates the net benefit that the shareholders have received from investing their capital in the bank. During the period of 2001-2005 the average return on the equity was 17.2%. The ratio was stable over the period. The bank has able to maintain the stability of income.

Return on Assets:
The Return on the asset is primarily indicator of managerial efficiency. It indicates how capably the management of the bank has been converting the institutions assets into net earning. 41

BUS 498

During the period of 2001-2005 the average ratio was 2.00%. It was not so attractive but good thing is that it was also stable over the period.

Net Interest margin:

The net interest margin measures how large a spread between interest revenues and interest costs. Management has been able to achieve of close control over the banks earning assets and the pursuits of the cheapest source of funding. The net bank interest margin for the bank was 2.9% during the period of 2001-2005. It is not so attractive. Bank has the problem with either the interest income decrease or the interest expenses increases over the year.

The Non-interest Margin:

The non-interest margin measures the amount of non interest revenue streaming from deposits charges and other service fees the bank has been able to collect relative to the amount of non interest cost incurred. The net non interest margin was 2.7% in 2001-2005 which is very low. The income from the non interest source, like Treasury bill, commission on brokerage, and commission from the letter of credit has been declined over the years.

The Net Bank operating Margin:

During the period of 2001-2005 the average the net bank operating margin was 18.58% of the total assets. It was stable over the period.

Banks Degree of Operating Margin:

During the period of 2001-2005 average degree of operating margin of the bank was 10.59%. They were not able to increase the efficiency in case of the asst utilization.

Earning Per Share:

2001
Earnings Per Share 45

2002
51

2003
43

2004
58

2005
66

42

BUS 498
Graphical Presentation of Earnings Per Share
70 60 Amoun in Taka 50 40 30 20 10 0 2001 2002 2003 Ye a r 2004 2005 Earnings Per Share

Earning per share measures the earning against per share. During the period of 2001-2005, the earning per share was Tk 52.6. If we compare with other bank we will see that their earning per share was not so good.

Breaking Down of ROE:

2001
Net profit Margin Banks degree of asset utilization The banks equity multiplier 0.16 0.11 9.54

2002
0.19 0.11 8.74

2003
0.18 0.11 8.06

2004
0.22 0.10 8.76

2005
0.18 0.11 8.92

The banks E quity Multiplier

10.00 9.50 9.00 8.50 8.00 7.50 7.00 2001 2002 2003 Ye a r 2004 2005 The bank s equity m ultiplier

Net Profit Margin:

43

BUS 498

During 2001-2005 the average the net profit margin was 18.60% of the total assets. It was not stable over the period which is not a good sign for the bank.

Bank Degree of Assets Utilization:

On an average they have earned 10.80% operating revenue in 2001-2005 by using total asset. Banks degree of assets utilization of the bank was stale over the period.

Equity Multiplier:
During the period of 2001-2005 the equity multiplier was 8.802. By analyzing the equity multiplier ratio we can say that it is not so high, that means the risk of the failure is also not so high for the period of 2001-2005. As the risk is lower so the banks profit margin is also lower. Banks degree of the asset utilization was good during the period of 2001-2005. So return of asset also god for the same period. Net profit margin was also good because the ratio of the equity multiplier is lower.

Liquidity Risk:
2001
Purchased Funds/Total Assets Cash and Due from Banks/Total Assets Cash and Government Securities/Total Assets
Liquidity Risk
0.20 0.15 Risk 0.10 0.05 0.00 2001 2002 2003 Ye ar 2004 2005 Purchased Funds/Total Assets Cash and Due from Banks/Total Assets Cash and Government Securities/Total Assets

2002
0.01 0.06 0.11

2003
0.02 0.06 0.18

2004
0.04 0.05 0.18

2005
0.02 0.05 0.17

0.03 0.04 0.05

Purchased Funds/Total Assets:

44

BUS 498

Purchased Funds/Total Assets if the use of purchased more that increases the chance of liquidity crunch in the event of withdrawals rises or the loan quality declines. During the period of 20012005 the average ratio for the bank was 1.67%. So we can say that the liquidity risk for the bank was low for the bank for that period.

Cash and Due from Banks/Total Assets:

During the period of 2001-2005 on an average the bank had only 5.20% cash and due from bank against their total assets. This indicates a very bad signal for the bank. Liquidity risk for the bank was very high for that period.

Cash and Government Securities/Total Assets:

Cash and Government Securities/Total Assets in 2001-2005 was, 13.60% of the total asset that came from the cash and government security.

Credit Risk:
2001
Total Loan /Total Deposits Provision for Loan Losses/Total Loans 0.749 0.002

2002
0.797 0.002

2003
0.944 0.001

2004
0.945 0.001

2005
0.915 0.001

Graphical Presentation of Credit Risk

1 0.8 Risk 0.6 0.4 0.2 0 2001 2002 2003 Ye a r 2004 2005 Total Loan /Total Deposits P rovision for Loan Losses/Total Loans

Total Loans/Total Deposits:

Total Loans/Total Deposits indicates the total loan amount that goes from the total deposit. During 2001-2005the on average, 87.03% of the total deposit distribute as loan.

Provision for Loan Losses/Total Loans:

45

BUS 498

Provision for Loan Losses/Total Loans indicates the amount which should be kept as provision for loan losses from the total loan. During the period of 2001-2005 the amount of provision for the loan loss was 0.09%. As the provision for the loan losses was lower so we can say that the credit risk for the bank was also lower for that period, and the bank has been able to collect the loan more efficiently.

Capital Risk:
2001
Equity Capital/Total Assets Purchased Funds/Total Liabilities 0.10 0.03

2002
0.11 0.02

2003
0.12 0.02

2004
0.11 0.00

2005
0.11 0.02

C apital R isk
0.14 0.12 0.10 Risk 0.08 0.06 0.04 0.02 0.00 2001 2002 2003 Ye a r 2004 2005 Equity Capital/Total Assets Purchased Funds/Total Liabilities

Equity Capital/Total Assets:

Equity Capital/Total Assets indicates that the amount of equity capital invested in the total assets. During the period of 2001-2005 11.39% of the total asset was financed by the equity. It was stable over the period.

Purchased Funds/Total Liabilities:

Purchased Funds/Total Liabilities indicates that the amount of non deposit liability in the total liability structure. If the purchased fund increases that means the capital risk are also increases. During the period of 2001-2005 the average ratio was 1.88%. That means the capital risk for the bank was lower for the bank at that period.

46

BUS 498

Chapter-7 The City Bank Ltd

Key Profitability Ratios In Banking
2001
Return on equity Capital Return on Asset( ROA) Net interest Margin Net non-interest Margin Net Bank Operating Margin 0.159 0.004 0.018 0.021 0.046

2002
0.017 0.001 0.022 0.022 0.004

2003
0.017 0.001 0.024 0.031 0.010

2004
0.268 0.014 0.027 0.034 0.238

2005
0.276 0.015 0.031 0.029 0.256

Graphical Presentation of Profitability R atio

0.300 0.250 Profitability 0.200 0.150 0.100 0.050 0.000 2001 2002 2003 Ye a r 2004 2005 Return on equity Capital Retturn on Asset( ROA) Net interest Margin Net non-interest Maargin Net Bank Operating M argin

Return on Equity:
47

BUS 498

Return on equity capital is a measure of the rate of return flowing to the banks shareholder. It approximates the net benefit that the shareholders have received from investing their capital in the bank. During the period of 2001-2005 the average return on the equity was 14.7%. The ratio was low because of the bank has increased the equity capital over the year and declared the bonus share as a dividend.

Return on Assets:
The Return on the asset is primarily indicator of managerial efficiency. It indicates how capably the management of the bank has been converting the institutions assets into net earning. During the period of 2001-2005 the average ratio for the bank was only 0.70%. That means the bank was able to increase the efficiency in managing asset from 2001-2005.

Net Interest Margin:

The net interest margin measures how large a spread between interest revenues and interest costs. Management has been able to achieve of close control over the banks earning assets and the pursuits of the cheapest source of funding. The net bank interest margin for City bank was 2.44% during the year 2001-2005. That means the banks was able to increase the cheapest source of funding from 2001-2005.

Non-interest margin:
The non-interest margin measures the amount of non interest revenue streaming from deposits charges and other service fees the bank has been able to collect relative to the amount of non interest cost incurred (including salaries and wages, repair and maintenance cost on bank facilities and loan loss expense). The net non interest margin was 2.70% in 2001-2005. The income from the non interest source like Treasury bill, commission on brokerage, and commission from the letter of credit has been stable over the time.

Net Bank operating Margin:

During the period of 201-2005 the average the net bank operating margin was 11.09% of the total asset. Compare to previous three years last two years it was very high.

Earning Per Share:

2001 2002
48

2003

2004

2005

BUS 498

Earnings Per Share

50

5.55

5.61

79.22

75.13

Grap hical P resentatio n of E arn in g s P er S h are

90 80 70 60 50 40 30 20 10 0 2001 2002 2003 Ye a r 2004 2005

Amount in Taka

E arnings P er S hare

Earning per share measures the earning against per share. During the period of 2001-2005, the earning per share was Tk 43.78. If we compare with other bank we will see that their earning per share was not so good.

Breaking Down of ROE:

2001
Net profit Margin Banks degree of asset utilization The banks equity multiplier 0.05 0.08 41.20

2002
0.01 0.13 31.24

2003
0.01 0.05 29.73

2004
0.24 0.06 18.61

2005
0.26 0.06 18.03

Graphical Presentation of Equity Multiplier

45.00 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 2001 2002 2003 Y e ar 2004 2005

The banks equity multiplier

49

BUS 498

Net Profit Margin:

During 2001-2005 the average the net profit margin was 11.40% of the total assets. It has fluctuated over the period which is not a good sign for the bank.

Bank Degree of Assets Utilization:

They have earned 7.87% operating revenue in 2001-2005 by using total asset. It was stable over time except 2002.

Equity Multiplier:
During the period of 2001-2005 the equity multiplier was 27.759. By the equity multiplier ratio we can say that it is substantially higher that means the risk of the failure is also high for the period of 2001-2005. As the risk is higher so the banks profit margin is also higher.

Liquidity Risk:
2001
Purchased Funds/Total Assets Cash and Due from Banks/Total Assets Cash and Government Securities/Total Assets 0.03 0.07 0.08

2002
0.03 0.06 0.09

2003
0.00 0.06 0.13

2004
0.07 0.06 0.17

2005
0.09 0.07 0.16

Graphical Presentation of Liquidity Risk

0.18 0.16 0.14 0.12 0.10 0.08 0.06 0.04 0.02 0.00 2001 2002 2003 Yea r 2004 2005

Series1 Series2 Series3

Purchased Funds/Total Assets:

50

BUS 498

If the use of purchased more that increases the chance of liquidity crunch in the event of withdrawals rises or the loan quality declines. During 2001-2005 the average ratio for the bank was 2 4.5%. So we can say that the liquidity risk for the bank was high for the bank.

Cash and Due from Banks/Total Assets:

During the period of 2001-2005 on an average the bank had only 6.00% cash and due from bank against their total assets. This indicates a very bad signal for the bank. Liquidity risk for the bank was very high for that period.

Cash and Government Securities/Total Assets:

Cash and Government Securities/Total Assets in 2001-2005 was, 12.70% of the total asset that came from the cash and government security.

Credit Risk:
2001
Total Loans/Total Deposits Provision for Loan Losses/Total Loans 0.740 0.03

2002
0.705 0.03

2003
0.737 0.01

2004
0.765 0.02

2005
0.761 0.01

Graphical Presentation of C redit R isk Measure

0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2001 2002 2003 Ye ar 2004 2005

Risk

Total Loans/Total Deposits Provision for Loan Losses/Total Loans

Total Loans/Total Deposits:

Total Loans/Total Deposits indicates the total loan amount that goes from the total deposit. During the period of 2001-2005 the on average 74.56% of the total deposit distributed as loan. 51

BUS 498

Provision for Loan Losses/Total Loans:

Provision for Loan Losses/Total Loans indicates the amount which should be kept as provision for loan losses from the total loan. During the period of 2001-2005 the amount of provision for the loan loses is decreased to 1.9%. As the provision for the loan loss was very low, we can say that the credit risk for the bank was also lower for that period and the bank has been able to collect the loan more efficiently.

Capital Risk:
2001
Equity Capital/Total Assets Purchased Funds/Total Liabilities 0.02 0.03

2002
0.03 0.04

2003
0.03 0.00

2004
0.05 0.07

2005
0.06 0.10

Graphical Presentation of Capital Risk Measure

0.12 0.10 0.08 Risk 0.06 0.04 0.02 0.00 2001 2002 2003 Yea r 2004 2005 Equity Capital/Total Assets Purchased Funds/Total Liabilities

Equity Capital/Total Assets:

Equity Capital/Total Assets indicates that the amount of equity capital invested in the total assets. During the period of 2001-2005, 3.98% of the total asset was financed by the equity. That is very low. Most of their investment was financed by debt financing, which was very risky.

Purchased Funds/Total Liabilities:

Purchased Funds/Total Liabilities indicates that the amount of non deposit liability in the total liability structure. If the purchased fund increases that means the capital risk are also increases. During the period of 2001-2005, 4.75% of the liability was financed by the purchased fund that means non deposit sources which is not the core area of the business. 52

BUS 498

Chapter-8 Uttara Bank

Key Profitability Ratios In Banking
2001
Return on equity Capital Return on Asset( ROA) Net interest Margin Net non-interest Margin Net Bank Operating Margin 0.674 0.0141 0.028 0.043 0.320

2002
0.378 0.0067 0.013 0.051 0.190

2003
0.347 0.0054 0.010 0.053 0.177

2004
0.128 0.0025 0.005 0.052 0.075

2005
0.187 0.0034 0.012 0.054 0.088

Graphical Presentation of Profitability Ratio

0.800 0.700 0.600 Profitability 0.500 0.400 0.300 0.200 0.100 0.000 2001 2002 2003 Ye a r 2004 2005 Return on equity Capital Retturn on Asset( ROA) Net interest Margin Net non-interest Maargin Net Bank Operating Margin

Return on Equity:
53

BUS 498

Return on equity capital is a measure of the rate of return flowing to the banks shareholder. It approximates the net benefit that the shareholders have received from investing their capital in the bank. During 2001-2005, the average return on the equity was 34.3%. The ratio was good because dramatically the bank was able to increase the net income over the period of 2001-2005.

Return on Assets:
The Return on the asset is primarily indicator of managerial efficiency. It indicates how capably the management of the bank has been converting the institutions assets into net earning. During the period of 2001-2005 the ratio was only 0.6%. That means the bank was not able to increase the efficiency in managing asset from 2001-2005.

Net Interest Margin:

The net interest margin measures how large a spread between interest revenues and interest costs. Management hasnt been able to achieve of close control over the banks earning assets and the pursuits of the cheapest source of funding. The net bank interest margin for Uttatra Bank was only 1.4% during the year 2001-2005. That means the banks was not able to increase the cheapest source of funding from 2001-2005.

Non-interest margin:
The non-interest margin measures the amount of non interest revenue streaming from deposits charges and other service fees the bank has been able to collect relative to the amount of non interest cost incurred (including salaries and wages, repair and maintenance cost on bank facilities and loan loss expense). The net non interest margin was 5.1% for the period of 20012005. That means the bank was not able to collect more income from the non interest source. They havent been able to generate more income from the non interest source like Treasury bill, commission on brokerage, and commission from the letter of credit.

Net bank Operating Margin:

During the period of 2001-2005 the average the net bank operating margin was 17% of the total assets. It has decreased over time.

Earning Per Share:

2001 2002
54

2003

2004

2005

BUS 498

Earnings Per Share

459.4

225.7

189.6

100.2

142.3

Graphical Presentation of Earnings Per S hare

500 400 Amount in taka 300 E arnings P er S hare 200 100 0 2001 2002 2003 Ye a r 2004 2005

During the period of 2001-2005 the average earning per share for the bank was Tk 233.44. It is good but the thing is that earning per share has decreased over time.

Breaking Down of ROE:

2001
Net profit Margin Banks degree of asset utilization The banks equity multiplier 0.320 0.044 47.75

2002
0.190 0.035 56.05

2003
0.177 0.030 64.58

2004
0.075 0.034 50.32

2005
0.088 0.038 55.12

Graphical Presentation of Equity Multiplier

70.00 60.00 50.00 Multiplier 40.00 30.00 20.00 10.00 0.00 2001 2002 2003 Ye a r 2004 2005 The banks equity multiplier

Net profit Margin: During 2001-2005 the average the net profit margin was 17.00% of the
total assets. It has fluctuated over the period which is not a good sign for the bank.

Banks Degree of Assets Utilization:

They have earned 3.64% operating revenue by using total asset. It was highest in 2003. 55

BUS 498

Equity Multiplier:
During the period of 2001-2005 the equity multiplier was 54.765. By analyzing the equity multiplier ratio we can say that it is substantially higher that means the risk of the failure is also high for the period of 2001-2005. As the risk is higher so the banks profit margin is also higher.

Liquidity Risk:
2001
Purchased Funds/Total Assets Cash and Due from Banks/Total Assets Cash and Government Securities/Total Assets 0.087 0.083 0.100

2002
0.078 0.086 0.087

2003
0.070 0.091 0.125

2004
0.045 0.088 0.124

2005
0.048 0.093 0.157

Graphical P resentation of Liquidity Risk

0.180 0.160 0.140 0.120 0.100 0.080 0.060 0.040 0.020 0.000 2001 2002 2003 ye a r 2004 2005

Purchased Funds/Total Assets Cash and Due from Banks/Total Assets Cash and Government Securities/Total Assets

Purchased Funds/Total Assets:

If the use of purchased more that increases the chance of liquidity crunch in the event of withdrawals rises or the loan quality declines. During 2001-2005, the average ratio for the bank was 6.55%. So we can say that the liquidity risk for the bank was lower for the bank.

Cash and Due from Banks/Total Assets:

During the period of 2001-2005 on an average the bank had only 8.82% cash and due from bank against their total assets. This indicates a very bad signal for the bank. Liquidity risk for the bank was very high for that period.

Cash and Government Securities/Total Assets:

56

risk

BUS 498

During the period of 2001-2005, 11.88% of the total assets had come from the cash and government securities. It is indicating the existing of liquidity risk.

Credit Risk:
2001
Total Loan/Total Deposits Provision for loan losses/ Total Loan 0.524 0.032

2002
0.538 0.051

2003
0.660 0.034

2004
0.486 0.236

2005
0.537 0.060

Graphical P resentation o f C redit R isk

0.7 0.6 0.5 Risk 0.4 0.3 0.2 0.1 0 2001 2002 2003 Ye a r 2004 2005 P roviosion for loan los s es / Total Loan Total Loa/Total Deposits

Total Loans/Total Deposits:

Total Loans/Total Deposits indicates the total loan amount that goes from the total deposit. During 2001-2005 on an average, 54.94% of the total deposit distribute as loan. If we compare with other bank it is not sufficient.

Provision for Loan Losses/Total Loans:

Provision for Loan Losses/Total Loans indicates the amount which should be kept as provision for loan losses from the total loan. During the period of 2001-2005 the amount of provision for the loan loss was 3.59%. If we compare with other bank we will see that it higher than others.

57

BUS 498

Capital Risk:
2001
Equity Capital/Total Assets Purchased Funds/Total Liabilities 0.021 0.093

2002
0.018 0.084

2003
0.015 0.074

2004
0.020 0.047

2005
0.018 0.050

Graphical Presentation of Capital Risk

0.100 0.080 Risk 0.060 0.040 0.020 0.000 2001 2002 2003 Year 2004 2005 Equity Capital/Total Assets Purchased Funds/Total Liabilities

Equity Capital/Total Assets:

Equity Capital/Total Assets indicates that the amount of equity capital invested in the total assets. During the period of 2001-20005 1.85% of the total asset was financed by the equity. This is very small portion of the Capital structures.

Purchased Funds/Total Liabilities:

Purchased Funds/Total Liabilities indicates that the amount of non deposit liability in the total liability structure. If the purchased fund increases that means the capital risk are also increases. During the period of 2001-2005 the average ratio of the bank was 6.95%. That means the capital risk for the bank was lower as compare to other risk.

58

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Though the bank was able to reduce the non-deposit source of funding but still they have exposed to a higher capital risk.

Chapter-9 Prime Bank Limited

Key Profitability Ratios In Banking
2005
Return on equity Capital Return on Asset( ROA) Net interest Margin Net non-interest Margin Net Bank Operating Margin 0.202 0.014 0.028 0.030 0.236

2004
0.273 0.019 0.032 0.029 0.311

2003
0.211 0.015 0.032 0.034 0.236

2002
0.274 0.021 0.028 0.031 0.350

2001
0.383 0.031 0.032 0.038 0.439

Graphical Presentation of Profitability Ratio

0.500 0.400 Risk 0.300 0.200 0.100 0.000 2005 2004 2003 Year 2002 2001 Return on equity Capital Retturn on Asset( ROA) Net interest Margin Net noninterest Maargin Net Bank Operating Margin

Return on Equity:
59

BUS 498

Return on equity capital is a measure of the rate of return flowing to the banks shareholder. It approximates the net benefit that the shareholders have received from investing their capital in the bank. During 2001-2005, the average return on the equity was 26.9%. The ratio was lower because the bank has increased the equity capital over the year and declared the bonus share as a dividend.

Return on Assets:
The Return on the asset is primarily indicator of managerial efficiency. It indicates how capably the management of the bank has been converting the institutions assets into net earning. During the period of 2001-2005 the ratio was 5.70%. Though it was very low, it has increased over time.

Net Interest Margin:

The net interest margin measures how large a spread between interest revenues and interest costs. Management has been able to achieve of close control over the banks earning assets and the pursuits of the cheapest source of funding. The net bank interest margin for Prime bank was 8.00% during the period of 2001-2005. That means the banks was able to increase the cheapest source of funding from 2001-2005.

Non-interest margin:
The non-interest margin measures the amount of non interest revenue streaming from deposits charges and other service fees the bank has been able to collect relative to the amount of non interest cost incurred (including salaries and wages, repair and maintenance cost on bank facilities and loan loss expense). The net non interest margin was 8.88% for the period of 20012005. As compare to other banks it was lower.

Net Bank Operating Margin:

During the period of 2001-2005 the average the net bank operating margin was 31.42% of the total assets. It has increased over time.

Earning Per Share:

2005
Earning per Share 56.819

2004
61.193 60

2003
37.545

2002
41.8144

2001
48.298

BUS 498
P ro vision for L oan Lo sses/To tal L oans
0.014 0.012 0.010 0.008 0.006 0.004 0.002 0.000 2005 2004 2003 Ye a r 2002 2001 P rovision for Loan Los ses /Total Loans

Earning per share measures the earning against per share. During the period of 2001-2005, the earning per share was Tk 59.39. If we compare with other bank we will see that their earning per share was not so good.

Breaking Down of ROE:

2005
Net profit Margin Banks degree of asset utilization The banks equity multiplier 0.236 0.058 14.78

2004
0.311 0.061 14.45

2003
0.236 0.066 13.61

2002
0.350 0.060 13.13

2001
0.439 0.070 12.47

The banks equity multiplier

15.00 14.50 14.00 13.50 13.00 12.50 12.00 11.50 11.00 2001 2002 2003 Ye a r 2004 2005 The banks equity multiplier

Net Profit Margin:

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BUS 498

During 2001-2005 the average the net profit margin was 31.44% of the total assets. It has fluctuated over the period which is not a good sign for the bank.

Bank Degree of Assets Utilization:

During the period of 2001-2005 they have earned 16.8.8% operating revenue by using total asset. If has increased over time, so we can say that efficiency of the bank has increased in utilize the asset by the bank.

Equity Multiplier:
During the period of 2001-2005 the equity multiplier was 13.68. By analyzing the equity multiplier ratio we can say that it is substantially lower that means the risk of the failure is also lower for the period of 2001-2005. As the risk is lower so the banks profit margin is also lower.

Liquidity Risk:
2005
Purchased Funds/Total Assets Cash and Due from Banks/Total Assets Cash and Government Securities/Total Assets 0.030 0.081 0.173

2004
0.060 0.069 0.161

2003
0.079 0.047 0.155

2002
0.072 0.177 0.096

2001
0.117 0.214 0.102

Graphical Presentation of Liquidity R isk

0.250 0.200 Risk 0.150 0.100 0.050 0.000 2005 2004 2003 Ye a r 2002 2001 Purchased Funds/Total Assets Cash and Due from Banks/Total Assets Cash and Governm ent Securities/Total Assets

Purchased Funds/Total Assets:

Purchased Funds/Total Assets if the use of purchased more that increases the chance of liquidity crunch in the event of withdrawals rises or the loan quality declines. During the period of 200162

BUS 498

2005 the average ratio for the bank was 19.18%. So we can say that the liquidity risk for the bank high for the bank for that period

Cash and Due from Banks/Total Assets:

During the period of 2001-2005 on an average the bank had only 11.76% cash and due from bank against their total assets. This is not very much attractive figure for the bank. Liquidity risk for the bank was very high for that period.

Cash and Government Securities/Total Assets:

During the period of 2001-2005, 30.70% of the total assets had come from the cash and government securities. If we compare with other bank it is good, but bank should maintain more liquid assets.

Credit Risk:
2005
Provision for Loan Losses/Total Loans Total Loa/Total Deposits 0.016 0.804

2004
0.001 0.770

2003
0.010 0.725

2002
0.013 0.070

2001
0.026 0.684

Graphical Presentation of C redit R isk

0.900 0.800 0.700 0.600 0.500 0.400 0.300 0.200 0.100 0.000 2001 2002 2003 Ye a r 2004 2005

P rovision for Loan Losses /Total Loans Total Loa/Total Deposits

Provision for Loan Losses/Total Loans:

Provision for Loan Losses/Total Loans indicates the amount which should be kept as provision for loan losses from the total loan. During the period of 2001-2005 the average provision that the bank kept was 1.32% of the total loan as provision for the loan losses. The amount of provision is low as compare to the other bank. 63

BUS 498

Total Loans/Total Deposits:

Total Loans/Total Deposits indicates the total loan amount that goes from the total deposit. During the period of 2001-2005 on average, 61.1% of the total deposit distribute as loan. They were able to use the deposit fund to provide loan to the customer. So we can say that the credit risk has been decreased for the period of 2001-2005.

Capital Risk:
2005
Equity Capital/Total Assets Purchased Funds/Total Liabilities 0.068 0.053

2004
0.069 0.064

2003
0.073 0.086

2002
0.076 0.081

2001
0.080 0.127

Grap h ical P resen tatio n o f C ap ityal R isk Measu re

0.140 0.120 0.100 Risk 0.080 0.060 0.040 0.020 0.000 2005 2004 2003 Ye a r 2002 2001 E quity Capital/Total A s sets P urc has ed Funds /Total Liabilities

Equity Capital/Total Assets:

Equity Capital/Total Assets indicates that the amount of equity capital invested in the total assets. During the period of 2001-2005, 7.32% of the total asset was financed by the equity and it has gradually decreased over time.

Purchased Funds/Total Liabilities:

Purchased Funds/Total Liabilities indicates that the amount of non deposit liability in the total liability structure. If the purchased fund increases that means the capital risk are also increases. During the period of 2001-2005, 8.22% of the liability was financed by the purchased fund that 64

BUS 498

means non deposit sources which is not the core area of the business. This ratio has decreased gradually over the period. That means their performance has increased gradually. So capital risk for the bank was within limit.

Chapter-10 Southeast Bank

Key Profitability Ratios In Banking
2005
Return on equity Capital Return on Asset( ROA) Net interest Margin Net non-interest Margin Net Bank Operating Margin Earning per Share 0.184 0.009 0.021 0.026 0.183 42.508

2004
0.206 0.009 0.017 0.022 0.228 43.518

2003
0.204 0.011 0.021 0.024 0.245 45.376

2002
0.277 0.013 0.023 0.019 0.322 69.852

2001
0.354 0.019 0.034 0.038 0.260 82.041

Graphical Presentation of Profitability Ratio

0.400 0.350 0.300 Profitability 0.250 0.200 0.150 0.100 0.050 0.000 2005 2004 2003 Year 2002 2001 Return on equity Capital Retturn on Asset( ROA) Net interest Margin Net non-interest Maargin Net Bank Operating Margin

Return on Equity:

65

BUS 498

Return on equity capital is a measure of the rate of return flowing to the banks shareholder. It approximates the net benefit that the shareholders have received from investing their capital in the bank. During the period of 2001-2005 the average return on the equity was 24.5%. The ratio was lower because the bank has increased the equity capital over the year and declared the bonus share as a dividend.

Return on Assets:
The Return on the asset is primarily indicator of managerial efficiency. It indicates how capably the management of the bank has been converting the institutions assets into net earning. During the period of 2001-2005 the average ratio was 1.2%. That means the bank was not able to increase the efficiency in managing asset in the period of 2001-2005.

Net Interest Margin:

The net interest margin measures how large a spread between interest revenues and interest costs. Management has been able to achieve of close control over the banks earning assets and the pursuits of the cheapest source of funding. The net bank interest margin for Southeast bank was 2.32% during the period of 2001-2005 which was also lower.

Net Non-interest Margin:

The non-interest margin measures the amount of non interest revenue streaming from deposits charges and other service fees the bank has been able to collect relative to the amount of non interest cost incurred. The net non interest margin was 2.58% in 2001-2005. That means the bank was not able to collect more income from the non interest source. They were not able to generate more income from the non interest source like Treasury bill, commission on brokerage, and commission from the letter of credit for the period of 2001-2005.

Net Bank operating margin:

During the period of 2001-2005 the average the net bank operating margin was 24.74% of the total assets. It has decreased over time. But as compare to Eastern Bank it was good.

Earning Per Share:

Earnings Per Share 2005 42.51 2004 43.52 66 2003 45.38 2002 69.85 2001 82.04

BUS 498
Graphical Presentation of Earnings Per Share
90 80 70 60 50 40 30 20 10 0 2005 2004 2003 Year 2002 2001

Earnings Per Share

Earning per share measures the earning against per share. During the period of 2001-2005, the earning per share was Tk 56.66. If we compare with Eastern bank we will see that their earning per share was slight higher than Eastern Bank.

Breaking Down of ROE:

2005
Net profit Margin Banks degree of asset utilization The banks equity multiplier
Graphical Presentation of Equity Multiplier
25.00 20.00 Multiplier 15.00 10.00 5.00 0.00 2005 2004 2003 Year 2002 2001

2004
0.23 0.04 23.61

2003
0.25 0.05 18.40

2002
0.32 0.04 20.60

2001
0.26 0.07 11.50

0.18 0.05 21.26

The banks equity m ultiplier

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BUS 498

Net Profit Margin:

During 2001-2005 the average the net profit margin was 24.88% of the total assets. It has decreased over the period except 2001which is not a good sign for the bank.

Banks Degree of Assets Utilization:

They have earned 5.00% operating revenue in 2001-2005 by using total assets. Efficiency was not so attractive in the case of utilize the asset. Because of lower Banks degree of the asset utilization return of asset has been also lower for the same period.

Equity Multiplier:
During the period of 2001-2005 the average banks equity multiplier was 19.07 that mean BDT 19.07 is supported by BDT 1 of the equity capital. By the equity multiplier ratio we can say that it is substantially lower that means the risk of the failure also lower for the period of 2001-2005.

Liquidity Risk:
2005
Purchased Funds/Total Assets Cash and Due from Banks/Total Assets Cash and Government Securities/Total Assets 0.069 0.053 0.106

2004
0.052 0.036 0.086

2003
0.135 0.644 0.047

2002
0.013 0.670 0.041

2001
0.017 0.624 0.041

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BUS 498

Purchased Funds/Total Assets:

Purchased Funds/Total Assets if the use of purchased more that increases the chance of liquidity crunch in the event of withdrawals rises or the loan quality declines. During the period of 20012005 the average ratio for the bank was 5.72% which was very lower portion of the total Assets.

Cash and Government Securities/Total Assets:

Cash and Government Securities/Total Assets in 2001-2005 was 40.54% of the total asset which has come from the cash and government securities. Their liquidity risk was little bit lower as compare to other banks.

Credit Risk:
2005
Provision for Loan Losses/Total Loans Total Loan/Total Deposits
Credit Risk Measure
1.000 0.800 0.600 0.400 0.200 0.000 2005 2004 2003 Ye a r 2002 2001 Provision for Loan Losses/Total Loans Total Loa/Total Deposits

2004
0.013 0.733

2003
0.007 0.769

2002
0.003 0.835

2001
0.010 0.862

0.018 0.780

Provision for Loan Losses/Total Loans:

Provision for Loan Losses/Total Loans indicates the amount which should be kept as provision for loan losses from the total loan. During the period of 2001-2005 the average provision that the bank kept 1.02% of the total loan as provision for the loan losses. As the provision for the loan loss was very low, we can say that the credit risk for the bank was also lower for that period, and the bank has been able to collect the loan more efficiently.

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BUS 498

Total Loans/Total Deposits:

Total Loans/Total Deposits indicates the total loan amount that goes from the total deposit. During the period of 2001-2005 on average 86.21% of the total deposit distribute as loan. It proves that they have maintained their deposited fund an efficient way.

Capital Risk:
2005
Equity Capital/Total Assets Purchased Funds/Total Liabilities 0.047 0.073

2004
0.042 0.054

2003
0.054 0.142

2002
0.049 0.014

2001
0.087 0.018

Graphical Presentation of C apital rsk

0.160 0.140 0.120 0.100 Risk 0.080 0.060 0.040 0.020 0.000 2005 2004 2003 Ye a r 2002 2001 P urchas ed Funds/Total Liabilities E quity Capital/Total A s sets

Equity Capital/Total Assets:

Equity Capital/Total Assets indicates that the amount of equity capital invested in the total assets. During the period of 2001-2005 on an average 4.26% of the total asset was financed by the equity and it has gradually decreased over period.

Purchased Funds/Total Liabilities:

Purchased Funds/Total Liabilities indicates that the amount of non deposit liability in the total liability structure. If the purchased fund increases that means the capital risk are also increases. During the period of 2001-2005, only 2.3% of the liability was financed by the purchased fund that means non deposit sources which is not the core area of the business. That means the capital risk for the bank was lower for the period. Though the bank was able to reduce the non-deposit source of fund but still they are exposed to a higher capital risk. 70

BUS 498

Chapter-11
Conclusion:
Liquidity Credit Risk Risk Average Low Low Dhaka Bank High High Low NCC Bank Average Low Average National Bank Average High High Al-Arafah Bank High* Low Average Eastern Bank High Low Average City Bank High High Low Uttara Bank High** Average Low Prime Bank Average High Average Southeast Bank Figure: Average position in different ratio for the period of 2001-2005. Bank Profitability Capital Risk Average Average High High Low Average Average Low Average Rating

BB A B C AA AA A AAA BB

From the above table we can see that in case of Dhaka Bank, the profitability ratio has been remains average for the period of 2001-2005. Liquidity risk and credit risk was lower over the period. Capital risk average during the period of 2001-2005. On the whole we can say that Dhaka Bank is in the average position in banking sector. From the above table we can see that in case of NCC Bank, the profitability and liquidity risk ratio was good for the period of 2001-2005. Capital risk for the bank was low over the period. On the other hand credit risk was average during the period of 2001-2005. So we can say that NCC bank is holding a very strong position in banking sector. By analysis the data of National Bank we can say that the profitability and credit risk ratio was average for the period of 2001-2005. Liquidity risk was low over the period. But the capital risk was high during the period of 2001-2005. Nation al bank is on an average position. Al-Arafah Islami Banks profitability credit and ratio has been increased from the period of 1996-2000 to 2001-2005. Liquidity, capital and credit risk was high over the period; at the same time, Profitability ration was not so attractive. So we can say that Al-Arafah Islami Banks position is not so strong in banking sector.

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Eastern Banks profitability ratio was very high for the period of 2001-2005. Liquidity and
credit risk was low. Capital risk was average. So we can say that the performance of the bank was very satisfactory over the years. From the above table we can see that City Banks profitability ratio was also very good, at the same time their credit and capital risk was undercontroled. Liquidity risk was very low during the period of 2001-2005. So we can say that City Bank is also holding very good position. From the above table we can see that Uttara Banks profitability and liquidity ratio was high for the period of 2001-2005, at the same time their capital and credit risk ratio ware also under controlled. So we can say that the overall performance of the bank was good. Prime Bank is the mast strong bank from the nine banks those we have observed for this report profitability ratio was very good as compare to other banks. At the same time their liquidity, capital and credit risk ratio were lower for the period of 2001-2005. So we can say that the performance of the bank was very satisfactory.
In case of Southeast Bank, we can say that the profitability, capital and credit ratio were on an

average position for the period of 2001-2005. Liquidity risk of the bank was somewhat high. So we can say that the overall performance of the bank was on an average position.

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BIBLIOGRAPHY
Web Search:
www.bangladeshbank.org.bd www.bangladesh-bank.org

Book:
Bank Management & Financial Services (2007-2008) Perter S. Rose -Taxes A & M University Sylvia C. Hudgins Old Dominion University SCB Handbook (2005-2006)

Annual Report:
Dhaka Bank (2001-2005) NCC Bank (2001-2005) National Bank (2001-2005) Al-Arafah Islami Bank (2001-2005) Eastern Bank (2001-2005) City Bank (2001-2005) Uttara Bank (2001-2005) Prime Bank (2001-2005) Southeast Bank (2001-2005)

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