Thesis ReportOn

“Performance analysis of Commercial Bank In Bangladesh”

Supervised by

Md. Shajul IslamAssistant Professor

Department of Business AdministrationStamford University, Bangladesh

Prepared by

Shanchita MalakerID: MBA 056 15916

Department of AccountingStamford University Bangladesh

Md. Shajul IslamAssistant ProfessorDepartment of Business AdministrationStamford University, Bangladesh.

Subject: Letter of Transmittal.

Dear Sir,

With due respect and humble submission I would like to inform you that as per your instruction I have completed the thesis on “Performance analysis of Commercial Banks in Bangladesh.” The report was assigned to me as a requirement for the completion of MBA.

I have tried my best to prepare this report with as much information as I could gather during the short time span.

So, I hope you would be kind enough to accept this report.

Sincerely yours,

------------------------------Shanchita MalakerID No.: MBA 056 15916Batch: 56Major in AccountingDepartment of Business AdministrationStamford University Bangladesh.

Letter of TransmittalLetter of Transmittal

Declaration

I am Shanchita Malaker, bearing ID # MBA – 056 15916, a Student of the Department of

Business Administration (MBA Program) of Stamford University Bangladesh; hereby declare

that the thesis report entitled “Performance analysis of Commercial Banks in Bangladesh.” is

prepared by me. I did not submit the report before for any degree, diploma or recognition.

I also declare that the report is prepared for academic purpose only.

------------------------------Shanchita MalakerID No.: MBA 056 15916Batch: 56Major in AccountingDepartment of Business AdministrationStamford University, Bangladesh.

This is to certify that the thesis Report on “Performance analysis of Commercial Banks in Bangladesh” has been prepared by Shanchita Malaker undersigned the student of Master of Business Administration (MBA) 56th batch bearing ID No.: MBA 056 15916 under my supervision as a part of completion of the MBA program major in Accounting from Stamford University Bangladesh. The report or the information will not be used for any other purposes and it is accepted by me.

---------------------------

Mr. Md. Shajul Islam

Assistant Professor

Department of Business Administration

Stamford University Bangladesh.

Certification

Certification

At first I desire to express my deepest sense of gratitude to almighty God giving me energy

& capabilities to preparing this assignment.

Then I would like to remember the contribution and keen interest of my parents that make

me able to come to this stage.

Then I would like to express my sincere gratitude, thanks and with profound regard to my

Honorable program supervisor Md. Shajul Islam, Assistant Professor, Department of

Business Administration of Stamford University Bangladesh for his brilliant and excellent

guidance, assistance and supervision to complete this thesis report during the completion of

survey.

All after that I like to give thanks especially to my friends & many individuals, for their

enthusiastic encouragements and helps during the preparation of this report and for their

proofreading this manuscript.

Acknowledgement

Acknowledgement

Banking industry is an important part of any country. Banking system occupies an important

place in a nation’s economy because of its intermediary role; it ensures allocation and relocation

of resources and keeps up the momentum of economic activities. The business of a bank is to

borrow money at a low rate of interest & advance or lend this money at a higher rate of interest.

The gap between the rates of borrowing and lending is the banks income. Banking sector is

expanding its hand in different financial events every day. At the same time the banking process

is becoming faster, easier and the banking arena is becoming wider. As the demand for better

service increases day by day, they are coming with different innovative ideas & products.

1st chapter of the report is the introductory part.

Executive Summary

Chapter: 01INTRODUCTION

Chapter Contains:

Introduction of the Report

Origin of the Study

Objectives of the Study

Research Methodology

Scope of the Study

Limitations of the Study

1.1: Introduction of the Report

Banking sector is an important sector of any country. Banking system occupies an important

place in a nation’s economy because of its intermediary role; it ensures allocation and relocation

of resources and keeps up the momentum of economic activities. A banking institution is

indispensable in modern society. They play a significant role to the meet the needs of society

such as capital formation, large scale production, industrialization, growth of trade and economy

etc.

The two main functions of a bank are borrowing money from the public by accepting deposits

and lending to them for development of trade, commerce, industry and agriculture. The

commercial banking system dominates Bangladesh's financial sector. Bangladesh Bank (BB) is

the Central Bank of Bangladesh and the chief regulatory authority in the sector. It regulates and

supervises the activities of all banks. BB is now carrying out a reform program to ensure quality

services by the banks. 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 banking system

is composed of four state-owned commercial banks, four specialized development banks, thirty

private commercial Banks and Ten foreign commercial banks. Generally by the word “Bank” we

can easily understand that the financial institution deals with money. But there are different types

of banks from various perspectives such as; Central Banks, Commercial Banks, Nationalized

Banks, Specialized Banks, Foreign commercial Banks, Schedule Banks, Non-schedule Banks

etc. The banking sector of Bangladesh is continuously growing with new banks coming in every

now andthen. Considering the year of establishment the banking sector of Bangladesh is

classified in three generations.

Banks who have started its’ operation

period of 1971-1990 are classified as first generation banks. Banks incorporated from the period

of 1991-2000 are classified as second generation banks. All banksgetting license from 2000 till

now are classified as third generation banks. As such this study has taken samplefrom all the

three generations to get an overall idea about the financial performance of commercial banks of

Bangladesh.As discussed banking industry is a vital part of the financial system in Bangladesh.

Thus, its successesor failure strongly affect the growth of the economy as well as its future

prospect. In view of the above, a studyof financial performance of banks in Bangladesh is useful

to various interest groups such as the government,central bank and the community.The study has

been designed to measure the financial performance of some selected privatecommercial banks

in Bangladesh through financial rations and trend analysis for the period 2006-2011. Theselected

banks have been evaluated from four dimensions: 1) Profitability, 2) Liquidity, 3) Credit

Risk,4)Efficiency. The trend analysis has been undertaken to identify whether these banks are

moving forward and howeffectively these banks are coping up with the overall growth of other

players in the industry. Moreover, thesample has been taken from different generations of banks

to determine whether there exists any relationship

between a bank’s years of operation and its financial performance

Banking sector is expanding its hand in different financial events every day. At the same time the

banking process is becoming faster, easier and the banking arena is becoming wider. As the

demand for better service increases day by day, they are coming with different innovative ideas

& products. In order to survive in the competitive field of the banking sector, all banking

organizations are looking for better service opportunities to provide their fellow clients. As a

result, it has become essential for every person to have some idea on the bank and banking

procedure.

1.2: Background of the Study

I have been assigned to do my thesis report on the topics of “Financial Performance Evaluation

of Listed Private Commercial Banks in Bangladesh” as a partial requirement of MBA program

offered by the Stamford University of Bangladesh. According to the requirement.

1.3: Objectives of the Study

Each and every thesis report has some objectives and my thesis report objective is to bridge the

gap between textbook knowledge and real life practices.

To Know the financial performance of commercial Bank

To compare financial performance among commercial Bank

1.4: Research Methodology Research approaches and techniques to be applied to conduct systematic and smooth completion of the whole assignment up to submission of research report along with the suggestion were as follows:

The report has been prepare based on secondary sources of information. Secondary sources are following:

Annual Report

Paper & Document

Also take some data from internet.

1.5: Scope of the Study

The report is prepared based on ten commercial bank in Bangladesh. This project is only for

academic purpose to fulfill the requirement of thesis paper. The study made “Financial

Performance Evaluation of Listed Private Commercial Banks in Bangladesh”

1.6: Limitations of the Study

The present study was not free from limitations. It is important to note that these limitations have

somehow contributed in developing a dazzling and outstanding report. These limitations are

discussed briefly below:

Inadequacy of Data: The interview was the main source of information that was not

enough to complete the assignment and provide the reader a clear idea about the

organization.

Limitation of Time: The time is not enough to be making an assignment outstanding. It

was one of the main constraints that hindered to cover all aspects of the study.

All information’s are very much confidential for a bank.

To analyzing data there is little change in year to year, so very difficult to understand.

Here decision made on some particular ratios.

A company category often difficult to identify.

Chapter -2 OVERVIEWOF THE COMPANY

Chapter Contains:

Background of the company

Mission

Vision

Objectives

Board of Directors

Financial Highlights

Arab Bangladesh Bank Limited (AB Bank), Bangladesh

2.1 Background of AB Bank Limited.

Arab Bangladesh Bank started operation is Bangladesh’s first joint venture bank. The bank was

an effort by local shareholders spearheaded by M.Wahidul Haque (Founder chairman) and the

AB company FMO.

It is the largest bank in Bangladesh by market capital. AB was established under the Bank

Companies Act 1981 and incorporated as a public limited company under the Companies Act

1982 in Bangladesh with the primary objective to carry on all kinds of banking business in

Bangladesh. AB commenced formal operation from 12TH April, 1982. The Bank is listed with the

Dhaka Stock Exchange Limited and Chittagong Stock Exchange Limited.

From the onset, the focus of the bank has been financing high-growth manufacturing industries

in Bangladesh. The rationale being that the manufacturing sector exports Bangladeshi products

worldwide. Thereby financing and concentrating on this sector allows Bangladesh to achieve the

desired growth. AB’s other focus is Corporate Social Responsibility (CSR). Even though CSR is

now a clichés, AB is the pioneer in this sector and termed the contribution simply as ‘social

responsibility’. Due to its investment in this sector, AB has become one of the largest donors and

the largest bank donor in Bangladesh. The bank has won numerous international awards because

of its unique approach as a socially conscious bank.

AB was the first bank in Bangladesh to be fully automated. The Electronic- Banking Division

was established in 1984 to undertake rapid automation and bring modern banking services into

this field. Full automation was completed in 2003 and hereby introduced plastic money to the

Bangladeshi masses. AB also operates the nation’s largest ATM fleet and in the process

drastically cut consumer costs and fees by 80%. Moreover, AB choosing the low profitability

route for this sector has surprised many critics. AB had pursued the mass automation in Banking

as a CSR activity and never intended profitability from this sector. As a result it now provides

unrivaled banking technology offerings to all its customers. Because of this mindset, most local

banks have joined AB’s banking infrastructure instead of pursuing their own.

2.1.1 Mission of AB Bank:

AB Bank Rwanda’s mission is to be a socially responsible bank for the lower and middle income

clients in Rwanda. It aims to be the one-stop bank of choice for micro and small enterprises. ABR

builds-up long term business relationships with customers based on responsibility and mutual

respect. By doing so it promotes a savings culture, provides payment and account services and

supports borrowers to build-up a credit history. The bank’s loans are primarily based on an

assessment of the borrower’s repayment capacity. Consumer loans are not a core product of the

bank. Our commitment is the development of financial systems that support social progress by

rendering services to all people with the same ambition for excellence and quality. 

2.1.2 Vision of AB Bank:

AB Bank Rwanda’s vision is to be the leading provider of financial services to the micro, small and medium-sized Entrepreneurs and their families in Rwanda and to set industry standards in terms of customer service, professionalism and efficiency. 

AB Bank Rwanda strives to be the “House Bank” for micro, small and medium Enterprises, offering them all necessary financial services.

2.1.3 Objectives of AB:

tasks and services of AB Bank Ltd. Banking plays an important role in the commercial and economic development of a country. Now- a- days banks are using different modern technologies, which influence the managerial activities, that’s why I decided to do my internship training in the bank.

”

To earn and maintain CAMEL Rating ‘Strong’

To establish relationship banking and improve service quality through development of Strategic

Marketing Plans.

To remain one of the best banks in Bangladesh in terms of profitability and assets quality.

To introduce fully automated systems through integration of information technology.

To ensure an adequate rate of return on investment

To keep risk position at an acceptable range (including any off balance sheet risk)

2.1.4 Board of Directors:

The board is comprised of directors having diverse skills, experience and expertise to add value

towards better corporate governance of the bank and maximizing value for all stakeholders. The

board discharges its responsibilities itself or through various committees. The Board meets on a

regular basis to discharge its responsibilities.

The Board is made up of 12 (twelve) Directors including a Chairman and five Directors

representing shareholders, two independent Director, three Directors from depositors and the

Managing Director.

Principal Activities:

The principle activity of the bank is banking. The banking business includes obtain deposits

through account opening, offer credit to corporate organizations, as well as retail and small &

medium enterprise, trade financing, project financing, lease and hire purchase financing. The

modes of banking include conventional banking. It also performs merchant banking function

under the license by Securities and Exchange Commission, Dhaka, Bangladesh.

2.1.5 Financial Highlight:                                                                                         

(Tk. in million)                                                                                 

Particulars 2012 2013 2014

Authorized Capital 400 1000 4000

Paid-up-Capital 201.14 1000 1500

Reserve 842.31 1197.52 2000

Deposit &  others 42110.15 51575.67 67788.53

Accounts 10271 10894 11922

Loans & Advances 29403.12 41698.32 48410.99

Export 34060.27 40083.14 41162.51

Import 35667.74 43999.43 53088.66

Particulars 2012 2013 2014

Book Value per share(Taka) 323.91 379.27 394.21

Market Value Per share(Taka) 402.11 437.99 827.26

Earning Per share(Taka) 237.37 54.78 75.85

Dividend per share(Taka) 395 50 33.33**

Return on Equity(Average) 9.48 9.69 14.64

Return on Assets(Average) 1.01 1.49 1.60

Classified loan as a %of .loan 3.26 3.27 2.46

Capital Adequacy Ratio 11.76 10.89 11.59

Cost income Ratio 8.44 7.66 6.63

Net interest Margin 2.11 3.49 3.88

Number of Branches 49 64 79

Number of Employees 789 1229 1785

2.2 Background of BRAC Bank Limited:

BRAC BANK LIMITED was incorporated as a public limited Company on 6 th JUNE 1991under

the company act. 1984 and started it’s commercial operation on June 05, 1993 as a private sector

bank. The bank started its journey with an authorized capital of Tk. 1,000.00 million and paid up

capital of Tk. 100.00 million.

The strength of a bank depends on its management team. The Employer in Brac Bank is proud

to have a team of highly motivated, well-educated and experienced executives who have been

contributing substantially in the continued progress of the bank.

The marketing activities at the Brac Bank are very implicit and vast comparing to that of other

bank in the country today. The Philosophy of the bank is “EXCELENCE IN BANKING”. Brac

Bank is always willing to offer new product features to the client. Besides the applications of

these products or services are prepared in a very modern way so that the service can be provided

in least time required.

The Credit facilities approved by Brac Bank are increasing day by day because of its well-

organized and trained management and also well-equipped facilities. In recent time banking

sector becomes very competitive and without giving good and attractive facilities and service no

bank can survive in this time. Brac Bank is also trying to provide good service to keep going

with this competition.

2.2.1 Mission Statement:

To be the premier financial institution in the country providing high quality products & services

backed by latest technology and a team of highly motivated personnel to deliver Excellence in

Banking.

2.2.2 Vision Statement:

At Brac Bank, we draw our inspiration from the distant stars. Our term is committed to assure a

standard that7 makes every banking transaction a pleasurable experience. Our endeavor is to

offer you razor sharp sparkle through accuracy, reliability, timely delivery, cutting edge

technology, and tailored solution for business needs, global reach in trade and commerce and

high yield on your investments.

Our people, products and processes are aligned to meet the demand of our discerning customers.

Our goal is to achieve a distinction like the luminaries in the sky. Our prime objective is to

deliver a quality that demonstrates a true reflection of our vision- Excellence in Banking.

2.2.3 Objectives of the Bank:

The motto or the philosophy of the Bank is “Excellence in Banking”. Whether in Personal,

Corporate, Treasury or Trade transactions of Brac Bank Limited is committed to provide the

best. Meeting the demand of the bank’s discerning customers is not the sole objective. The Bank

endeavor to deliver a quality that makes every transaction a pleasurable experience. Brac Bank

feels that, if they can meet maximum clientele requirements in less time with efficiency, then

they will be able to accomplish a successful business in the world of banking. Their main

objective is – they want to provide every single customer service available in today’s banking

procedure for their clientele. Thus they can guarantee the excellence in banking to their valuable

customers.

2.3.4 Board of Directors:

Mr. Mahmudulla Hai Sarker

Chairman

Mrs. Rokshana Zaman

Vice Chairperson

Mr. Mirza Abbas Uddin Ahmed

Director

Mr. Reshadur Rahman

Director

Mr. Altaf Hossain Sarker

Director

Mr. Abdullah Al Ahsan

Director

Mr. Mirza Yasser Abbas

Director

2.3.4 Functions in Brief:

A strong deposit base is critical for success of a bank. During the years the Bank has mobilized a

substantial amount in deposits in transactional and savings account. The deposit base of the bank

continued to register a steady growth and stood at Tk. 48,731 million excluding call as of 31

December 2011 compared to Tk. 41,554 million of the previous year registered a 17% growth.

Dhaka Bank has diversified its investment portfolio through Lease Financing, Hire Purchase, and

Capital Market Operations besides the investment in treasury bills and Prize Bonds. The

emphasis on high quality investment has ensured the bank to maximize its profit. Brac Bank

Limited is a member of the Dhaka Stock Exchange and Chittagong Stock Exchange. A

specialized unit of the Bank, the Investment Division manages the Bank’s portfolio and actively

participates in the screen-based on-line trading of both the Stock Exchanges.

Brac Bank has opened already 54 branches in different Cities, Places and areas in Dhaka and

also in Chittagong, Sylhet, Narayangonj, Norshingdi and Savar etc. This shows the bank’s

commitment to provide services to their valued customers through extensive branch network at

all commercially important places across the country. They also have planned to open more

branches in the sort coming year. These branches are well decorated and well secured with the

new technologies.

2.3.5 Financial Highlights:Figure in Million

  2012 2013 2014 Growth %

Income Statement

Interest Income 5636 7171 7466 4

Interest Expense 4049 5214 5407 4

Net Interest Income 1587 1958 2060 5

Non Interest Income 1582 1929 2175 13

Non Interest Expense 1159 1353 1424 5

Net Non Interest Income 423 576 751 30

Profit Before Tax & Provision 2010 2533 2810 11

Provision for Loans & Assets 479 669 675 1

Provision for Tax (including

Deferred Tax )

827 1025 1176 15

Profit After Tax 704 839 959 14

 

2.4 Background of Bank Asia

Bank Asia limited emerged as a new commercial bank to provide efficient banking services and

to contribute socio-economic development of the country. Bank Asia Limited is a scheduled

Bank under the private sector in Bangladesh formed with the bank company act 1991, the rules

and regulation issued by the Bangladesh Bank, the company Act1994, the securities and

exchange rules 1987 and other applicable laws and regulations in 1999. The Bank commenced

its operation on June 2, 1998. The first branch was opened at 61, Dilkusha Commercial Area in

Dhaka on the inauguration day of the Bank. The number of branches of the bank stood at 35 at

the end of 2005 of which 30 branches are located at major trade centers of the country while

remaining 8 branches are at the rural areas of the country with more than 600 employees. During

this short span of time, the Bank has been successful in positioning itself as a progressive and

dynamic institution in our country. The Bank provides a board range of financial services to its

customers and corporate clients. About 30 famous and renowned Industrialists came forward to

establish this bank. The Board of Directors consists of eminent personalities from the realm of

commerce and industries of the country.

2.4.1 Mission:

2.4.2Vision:      

Bank Asia's vision is to have a poverty free Bangladesh in course of a generation in the new

millennium, reflecting the national dream. Our vision is to build a society where human dignity

and human rights receive the highest consideration along with reduction of poverty.

To assist in bringing high quality service to our customers and to participate in

the growth and expansion of our national economy

To set high standards of integrity and bring total satisfaction to our clients,

shareholders and employees

To become the most sought after bank in the country, rendering technology

driven innovative services by our dedicated team of professionals

CORE VALUES

2.4.3 Objectives:

Bank Asia Agent Banking success depends on meeting the following objectives:

Place customer interest and satisfaction as first priority and provide customized

banking products and services

Value addition to the stakeholders through attaining excellence in banking

operations

Maintain high ethical standard and transparency in dealings

Be a compliant institution through adhering to all regulatory requirements

Contribute significantly for the betterment of the society

Ensure higher degree of motivation and dignified working environment for our

human capital and respect optimal work-life balance

Committed to protect the environment and go green

2.4.4 Board of Directors:

The management of the Bank Asia Limited is vested on a board of Directors, for overall

supervision and directions on policy matters. The power of general supervision and control of

the affairs of the bank is

exercise by the president and the

CEO of the bank who is also the

Managing Director of the

board.

Provide secured banking services to the unbanked people throughout the country

Build agent booths all over the country and create financial service entrepreneurs

Setting up District/ Upazila Level back office throughout the country

Provide foreign inward remittance services to the families of expatriate Bangladeshis

Provide facilities for utility bill payment, Passport fee payment, social safety net payment services, etc.

Process Agricultural, SME & Retail loan from the agent points

Enable e-Commerce services through the agent points

Promote school banking in the locality

Train and Develop the prospective SME entrepreneurs

Financing solar home system and renewable energy sectors as a green banking initiative

2.4.5 Function in Brief:

General banking of any commercial bank deals primarily with accumulating the deposits which

are recognized as the heat of banks. Along with fund accumulation, banks do invest the funds in

different sectors of the economy and ensure the circulation of the same from the surplus unit to

the deficit unit of the economy. General Banking is the heart of Banking. Most of the important

task is done here. Here money collection procedure occurs.

1) Account opening.

2) Cheque book issuing

3) Signature Scanning

4) Demand draft issue.

5) Pay order issue

6) Telephonic Transfer

7) Account enquiry

8) Providing Accounts Statements.

9) Solvency certificate issuing

10) Account transfer

11) Account closing

12) Dispatch

13) Return of Bangladesh Bank and Head office statements

• Advance for deferred payment export

• Advance against bills for collection

• Sale and encashment of foreign currency notes

• Non-residence accounts

2.4.6 Financial Highlights:

                           

                  years                      

Particulars

 

2012

Tk in million

 

2013

Tk in million

 

2014

Tk in million

Paid up capital 1798.08

 

2158.42

 

4072.21

Total Loans & Advances 43419.36 48295.55 66377.70

Price earning ratio 10 times 11 times 14 time

Earning per share 28.53 30.67 41.04

Income from investment 520.33 696.66 919.45

Total asset 55928.72 66166.52 87140.11

Total deposit 49538.35 58033.47 75629.14

Keys to Success

To achieve its objectives, Bank Asia Agent Banking will follow these principles:

Chapter: 03Ratio Analysis

Deployment of the state-of-art technology for agent banking

Remain independent of direct affiliate ties to any specific agents

Think of each client's needs holistically for potential financial inclusion

Maintain reputation of Banking services with security

Establish a strong monitoring system for offsite and onsite supervision

3.1 Current Ratio:

It is liquidity ratio that measures a company’s ability to pay short- term obligations. It also

known as “liquidity ratio”, “cash assets ratio” and cash ratio”.

The ratio is mainly used to give an idea of the company’s ability to pay back its short term

liabilities with its short term assets (cash, inventory, receivable). The higher the current ratio, the

more capable the company is of paying its obligation. A ratio under 1 suggests that the company

would be unable to pay off its obligation if they came due at that point. While this shows the

company is not is good financial health it does not necessarily mean that it will go bankrupt – as

there are many ways to access financial but it is definitely not a good sign.

The current ratio can give a sense of the efficiency of a company’s operating cycle or its ability

to turn its product into cash. Companies that have trouble getting paid on their receivable or have

long inventory turnover can run into liquidity problems because they are unable to alleviate their

obligation. Because business operation differ in each industry it is always more useful to

compare companies within the same industry.

3.2 Earnings per Share (EPS):

The portion of a company’s profit allocated to each outstanding share of common stock.

Earnings per share serve as an indicator of a company’s profitability.

When calculating it is more accurate to use a weighted average number of share outstanding over

the reporting term, because the number of share outstanding can change over time. However,

data source sometimes simplify the calculation by using the number of share outstanding at the

end of the period.

Diluted EPS expands on basic EPS by including the share of convertibles or warrants

outstanding in the outstanding shares number.

Earnings per share are generally considered to be the single most important variable in

determining a shares price. It is also a major component used to calculate the price- to- earnings

valuation ratio.

For example, assume that a company has a net income of $25 million. If the company pays out

$1 million in preferred dividends and has 10 million shares for half of the year and 15 million

shares for the other half, the EPS would be $ 1.92 (24/12.5). First, the $ 1 million is deducted

from the net income to get $ 24 million, then a weighted average is taken to fine the number of

share outstanding (0.5 x 10M + 0.5 x15M = 12.5M).

An important aspect of EPS that’s often ignored is the capital that is required to generate the

earnings (net income) in the calculation. Two companies could generate the same EPS number,

but one could do so with less equity (investment) – that company would be more efficient at

using its capital to generate income and all other things being equal would be a better company.

Investors also need to be aware of earnings manipulation that will affect the quality of the

earnings number. It is important not to rely on any one financial measure, but to use it in

conjunction with statement analysis and other measures.

3.3 Profit Margin:

A ratio of profitability calculated as net income divided by revenues, or net profit divided by

sales. It measures how much out of every dollar of sales a company actually keeps in earnings. It

is also known as Net Profit Margin.

Profit margin is very useful when comparing companies in similar industries. A higher profit

margin indicates a more profitable company that has better control over its costs compared to its

competitors. Profit margin is displayed as a 20% profit margin, for example, means the company

has a net income of $ 0.20 for each dollar of sales.

Looking at the earnings of a company often doesn’t tell the entire story. Increased earnings are

good, but an increase does not mean that the profit margin of a company is improving. For

instance, if a company has costs that have increased at a greater rate than sales, it leads to a lower

profit margin. This is an indication that costs need to be under better control.

Imaging a company has a net income of $10 million from sales of $ 100 million, giving it a profit

margin of 10% ( $10 million/ $100 million). If in the next year net income rises to $ 15 million

on sales of $200 million, the company’s profit margin would fall to 7.5%. So while the company

increased its net income, it has done so with diminishing profit margins.

3.4 Assets Turnover Ratio:

Assets are used to generate sales. A firm can compute net asset turnover by dividing sales by

average total assets. So assets turnover will be:

Calculated as:

Total Assets Turnover

3.5 Return on Assets (ROA):

An overall measure of profitability is Return on Assets. An indicator of how profitable a

company is relative to its total assets. ROA gives an idea as to how efficient management is at

using its assets to generate earnings. Calculated by dividing a company’s net income by its

average assets, ROA is displayed as a percentage. Sometimes this is referred to as “Return on

Investment”.

Rate of return assets-

3.6 Return on Equity (ROE):

Return on equity (ROE) measures the rate of return on the ownership interest (shareholders' equity) of

the common stock owners. It measures a firm's efficiency at generating profits from every unit of

shareholders' equity (also known as net assets or assets minus liabilities). ROE shows how well a

company uses investment funds to generate earnings growth.

ROE is equal to a fiscal year's net income (after preferred stock dividends but before common

stock dividends) divided by total equity (excluding preferred shares), expressed as a percentage.

3.7 Net operating margin (NOM):

In business, operating margin, operating income margin, operating profit margin or return on

sales (ROS) is the ratio of operating income divided by net sales, usually presented in percent.

It is a measurement of what proportion of a company's revenue is left over, before taxes and

other indirect costs (such as rent, bonus, interest, etc.), after paying for variable costs of

production as wages, raw materials, etc. A good operating margin is needed for a company to be

able to pay for its fixed costs, such as interest on debt. A higher operating margin means that the

company has less financial risk.

3.8Growth Rates Ratio:

The amount of increase that a specific variable has gained within a specific period and context. For investors, this typically represents the compounded annualized rate of growth of a company's revenues, earnings, dividends and even macro concepts - such as the economy as a whole.

Expected forward-looking or trailing growth rates are two common kinds of growth rates used for analysis.

3.9 Net interest margin (NIM):

Net interest margin (NIM) is a measure of the difference between the interest income generated

by banks or other financial institutions and the amount of interest paid out to their lenders(for

example, deposits), relative to the amount of their (interest-earning) assets. It is similar to the

gross margin of non-financial companies.

It is usually expressed as a percentage of what the financial institution earns on loans in a time

period and other assets minus the interest paid on borrowed funds divided by the average amount

of the assets on which it earned income in that time period (the average earning assets).

Net interest margin is similar in concept to net interest spread, but the net interest spread is the

nominal average difference between the borrowing and the lending rates, without compensating

for the fact that the earning assets and the borrowed funds may be different instruments and

differ in volume. The net interest margin can therefore be higher (or occasionally lower) than the

net interest spread

Net Interest Margin = × 100

3.10 Loans to deposits (LTD):

The amount of a bank's loans divided by the amount of its deposits at any given time. The higher

the ratio, the more the bank is relying on borrowed funds, which are generally more costly than

most types of deposits.

Loan to Deposit Ratio = × 100

3.11Cash to assets (CTA):

Total dollar value of cash and marketable securities divided by current liabilities. For a bank this

is the cash held by the bank as a proportion of deposits in the bank. The cash asset ratio measures

the extent to which a corporation or other entity can quickly liquidate assets and cover short-term

liabilities, and therefore is of interest to short-term creditors. also called liquidity ratio or cash

ratio.

Cash to Asset = × 100

3.12 Financial ratio analysis:

Financial ratio analysis is the calculation and comparison of ratios which are derived from the

information in a company’s financial statement. The level and historical trends of these ratios

can be used to make inferences about a company’s financial condition, its operation and

attractiveness as an investment.

Financial ratios are calculated from one or more pieces of information from a company’s

financial statement. For example, the “gross margin” is the gross profit from operations divided

by the total sales or revenues of a company, expressed in percentage terms. In isolation, a

financial ratio is a useless piece of information. In context however, a financial ratio can give a

financial analyst an excellent picture of a company’s situation and the trend are developing.

A ratio gains utility by comparison to other data and standards. Taking over example, a gross

profit margin for a company of 25% is meaningless by itself. If we know that this company’s

competitors have profit margins of 10%, we know that it is more profitable than its Industry

peers which are quite favorable. If we also know that the historical trend is upward, for example

has been increasing steadily for the last few years, this would also be a favorable sign that

management is implementing effective business polices and strategies.

Financial ratio analysis group the ratio into categories which tell us about different facts of a

company’s finance and operations. An overview of some of the categories of ratio is given

below.

Leverage ratios which show the extent that debt is used in a company’s capital structure.

Liquidity ratios which give a picture of a company’s short term financial situation or

solvency.

Operational ratios which use turnover measures to show how efficient a company is in

operations and use of assets.

Profitability ratios which use margin analysis and show the return on sales and capital

employed.

Solvency ratios which give a picture of a company’s ability to generate cash flow and pay

it financial obligations.

However, it is important to realize this fact: the ratios have no financial theory behind

them. In other words, we have no way to identify a “theoretically best” value for any of

the ratios. In fact, financial ratios are nothing more than common sense measure that have

been developed and evolved overtime. As such they are imperfect measures and should

be treated as such.

Chapter – Four

4. Ratio Analysis

4.1 Ratio analysis of AB Bank.

4.2Ratio analysis of Brac Bank.

4.3Ratio analysis of Bank Asia.

This chapter contains the calculation of main financial ratios for

Commercial Banks which are below:

AB Bank

Overview of the Bank:AB Bank has been launched by a group of successful entrepreneurs

with recognized standing in the society. The management of the Bank consists of a team led

by senior bankers with decades of experience in national and international markets. The

senior management team is ably supported by a group of professionals many of whom have

exposure in the international market.

It set milestone by acquiring the business operations of the Bank of Nova Scotia in Dhaka,

first in the banking history of Bangladesh. It again repeated the performance by acquiring the

Bangladesh operations of Muslim Commercial Bank Ltd. (MCB).

In the year 2003 the Bank again came to the limelight with over-subscription of the Initial

Public Offering of the shares of the Bank, which was a record (55 times) in our capital

market's history and its shares commands respectable premium.

The asset and liability growth has been remarkable.AB Bank has been actively participating

in the local money market as well as foreign currency market without exposing the Bank to

vulnerable positions. The Bank's investment in Treasury Bills and other securities went up

noticeably opening up opportunities for enhancing income in the context of a regime of

gradual interest rate decline.

ABBank Limited started its service with a vision to serve people with modern and

innovative banking products and services at affordable charge. Being parallel to the cutting

edge technology the Bank is offering online banking with added delivery channels like

ATM, Tele-banking, SMS and Net Banking. And as part of the bank's commitment to

provide all modern and value added banking service in keeping with the very best standard in

a globalize world.

4.1 Ratio analysis of AB Bank:

Ratios Years

2013 2014

Current

=1.046 =1.052

Source: Annual Report 2013, 2014

Explanation: From the above table according to the ratio of AB Bank we can see that,

current ratio had been increased from year 2013 to 2014 that means current ratio was higher

in the year of 2014 than 2013. in the year of 2013 than 2012.

4.2 Ratio Analysis of AB Bank :

Ratios Years

2013 2014

Return on Assets

=0.012 =0.010

Return on Investment

= 9.65 = 12.69

Return on Equity

= 0.27 = 0.23

Net Profit Margin

= 0.12 = 0.17

Gross Profit Margin

= 0.35 = 0.41

Source: Annual Report 2013, 2014

Explanation:From the above table according to the ratio we can see that, higher

return on assets was in the year of 2013 than 2014. The higher return on investment

was in the year of 2014 than 2013. The higher return on equity was in the year of 2013

than 2014. The higher net profit margin was in the year of 2014 than 2013. And higher

gross profit margin was in the year of 2014 than 2013.Both of these ratios indicate the

profitability position of the Brac Bank.

AB Bank (Combined Table)

Ratios 2013 2014

Ratio Current 1.046 1.052

Profit

margin

0.36 0.42

Profitability ROA 0.012 0.010

ROI 9.65 12.69

ROE 0.27 0.23

NPM 0.12 0.17

GPM 0.35 0.41

Explanation:From the above combination table of Ratio and profitability ratios we can see

that sometimes ratios are increased and decreased from one year to another year. On the

other hand most of the profitability ratios are increased from one year to another year without

return on equity. So, here the relationship between ratio and profitability is not totally

negative, most of the time it is positive. But we know that if the ratio position is increased,

then the profitability position will be decreased. So, relationship between ratio and

profitability ratios are negative in most of the time.

Brac Bank Ltd.

Overview of the Bank: Brac Bank Limited is a scheduled joint venture commercial bank

between local Bangladeshi parties spearheaded by M Sahabuddin Ahmed (Founder &

Chairman) and the Brac company FMO. Brac was established under the Bank Companies

Act 1991 and incorporated as a public limited company under the Companies Act 1994 in

Bangladesh with the primary objective to carry on all kinds of banking business in

Bangladesh. Brac commenced formal operation from June 3, 1996. The Bank is listed with

the Dhaka Stock Exchange Limited and Chittagong Stock Exchange Limited.Brac bank is

most widely recognized for its donations to social causes and its IT investment (largest ATM

network). However it has recentlystated that it will stop expansion on its ATM network as

the current numbers have exceeded demand and hence diminishing returns (if any). Although

it is widely believed it is a loss-making subsidized unit which Brac bank rationalizes as

quasi CSR.The bank is often colloquially referred to as "BRAC".

After instability and frequent management changes in its initial years, Brac bank overcame

these obstacles to establish rapid growth since the year 2000. The bank grew its reputation

through social work rather than profits. The bank's conservative nature, long-term strategies,

hefty social donations and technology investments have always led to modest but steady

profits. Brac bank has been known to be overly conservative in its banking practices. Much

of the success and strategy has been attributed to the leadership of the founder chairman, M

Sahabuddin Ahmed.

Despite being the largest corporate donor in Bangladesh, investor confidence was

unhindered. In March 2008, Brac bank share prices reached Tk. 14325.80 in the Dhaka Stock

Exchange, setting the record for the highest stock price in the history of Bangladesh. It is

also one of the few banks that does not participate in merchant/investment banking (which

can lead to sporadic growth).

Brac Bank is noted to be the first and only local bank in Bangladesh to have an automated

banking system. The bank has spent over BDT 2 Billion in automation upgrades (first bank

in Bangladesh to do so). This automation took place in 2003 whereby services of the bank

were available uniformly though any branch, ATM and internet. Banking was a paper based

until BRAC, with its wide local network, delivered banking automation and modern banking

services to the masses. This effectively introduced the 'plastic money' concept into the

Bangladeshi society. The entire automation system was imported and is the most expensive

banking related IT project in Bangladesh.The ATM count stood at 140 eclipsing other

networks by a large margin. This rapid increase in BRAC's ATM network has led the

majority of other banks to sign sharing agreements instead of pursuing their own ATM

network.

4.3 Ratio analysis of BRAC bank :

Ratios Years

2013 2014

Current

= 1.12 = 1.19

Source: Annual Report 2013, 2014

Explanation: From the above table according to the ratios we can see that, higher current

ratio was in the year of 2014 than 2013. For the Brac Bank Limited, ratios had been higher

from one year to another year.

4.4 Profitability Ratio Analysis of BRAC Bank:

Ratios Years

2013 204

Return on Assets

= 0.041 = 0.043

Return on Investment

= 0.24 = 0.35

Return on Equity

= 0.60 = 0.62

Net Profit Margin

= 0.20 = 0.16

Gross Profit Margin

= 0.43 = 0.28

Source: Annual Report 2013, 2014

Explanation: From the above table according to the ratios for the BRAC Bank Limited we

can see that, higher return on assets was in the year of 2014 than 2013. The higher return on

investment was 2014 than 2013. Higher return on equity was in the year of 2014 than 2013.

Higher net profit margin was in the year of 2014 than 2013. Higher gross profit margin was

in the year 2014 than 2013.

BRAC Bank Ltd. (Combined Table)

Ratios 2013 2014

Ratio Current 1.12 1.19

Profitability ROA 0.041 0.043

ROI 23.81 34.92

ROE 0.60 0.62

NPM 0.20 0.16

GPM 0.43 0.28

Explanation: From the above combined table of Ratio and profitability ratios we can see

that, liquidity ratios is increased in from time period from one year to another year.

Profitability ratios are also increased from one year to another year but, sometimes decreased

according to the ratios that means here net profit margin and gross profit margin was

decreased in the year of 2014 than 2013. So, we can say that here is the positive relationship

between ratio and profitability ratios in sometimes. The relationship between ratio and

profitability are negative in most of the time.We know that if the ratios are increased then

the profitability ratios will be decreased.

Bank ASIA Ltd.

Overview of the Bank: Bank Asia Limited was incorporated in Bangladesh as a public

limited company under the Bank Company Act, 1991, on May 20, 1999. After obtaining

license from Bangladesh Bank to carry on banking business, the bank commenced its

operation on June 2, 1999 with an authorized capital of Tk 800 million divided into 8 million

ordinary shares of Tk. 100 each. On 31 December 2001, its paid up capital was Tk. 596.5

million

Bank Asia Limited went for public issue of shares on October 21, 2003.Bank Asia Limited

has been incorporated on May 20th, 1999 in Dhaka, Bangladesh as a public limited company

with the permission of the Bangladesh Bank; Bank Asia commenced formal commercial

banking operation from the June 02, 1999. The bank stood 50 branches all over the country

up to 2009.

There are 30 sponsors involved in creating Bank Asia Limited; the sponsors of the bank

have a long heritage of trade, commerce and industry. They are highly regarded for their

entrepreneurial competence. The sponsors happen to be members of different professional

groups among whom are also renowned banking professionals having vast range of banking

knowledge. There are also members who are associated with other financial institutions

insurance Companies, leasing companies etc.

The bank provides a broad range of financial services to its customers and corporate clients.

The Board of Directors consists of eminent personalities from the realm of commerce and

industries of the country.

4.5 Ratio Analysis of Bank ASIA:

Ratios Years

2013 2014

Current

= 1.03 = 1.07

Source: Annual Report 2013, 2014

Explanation: From the above table of the ratios we can see that, higher current ratio was in

the year of 2014 than 2013.

4.6 Ratio Analysis of Private Commercial bank Bank ASIA:

Ratios Years

2013 2014

Return on Assets

= 0.013 = 0.010

Return on Investment

= 59.01 = 11.86

Return on Equity

= 0.17 =0.13

Net Profit Margin

=0.23 =0.27

Gross Profit Margin

= 0.39 = 0.44

Source: Annual Report 2013, 2014

Explanation:From the above table ratios we can see that, the higher return on assets was in

the year of 2014 than 2013. Higher return on investment was also in the year of 2014 than

2013. Return on equity was also in the year of 2014 than 2013. Higher net profit margin was

in the year of 2014 than 2013. Higher gross profit margin was also in the year of 2014 than

2013.

Bank Asia Ltd. (Combined Table)

Ratios 2013 2014

Ratio Current 1.03 1.07

Profitability ROA 0.013 0.010

ROI 59.01 11.86

ROE 0.17 0.13

NPM 0.23 0.27

GPM 0.39 0.44

Explanation: From the combined table of ratios we can see that, the ratios are increased in

sometime and decreased in sometime from one year to another year. Profitability ratios are

decreased in time period from one year to another year in most of the time but sometimes

profitability ratios are increased from one year to next year. We know that relationship

between Ratio and profitability ratios will be negative. Here the relationship between ratio

and profitability is not totally negative. Both of them relationship is sometimes negative and

sometimes positive.

4.7 Comparative scenery of selected commercial Banks as average:

Ratio AB Bank Brac Bank Bank ASIA

Ratio Current 1.049 1.155 1.05

Profitability ROA 0.011 0.042 0.012

ROI 11.17 29.37 35.44

ROE 0.25 0.61 0.15

NPM 0.145 0.18 0.25

GPM 0.38 0.36 0.42

Explanation:According to the above table of average profitability and ratios we can see that, sometimes the ratios are increased and sometimes decreased in time period from one year to another year. Similarly sometimes profitability ratios are increased and sometimes decreased in the time period from one year to another year. In this table, it is clear to us that these ratios are totally not inverse related from one year to another year. We know that both ratios and profitability ratios are negatively related that means if the liquidity ratios increase

then the profitability ratios will decrease .

CHAPTOR05

Findings & Conclusion

5.1Findings of the study

Based on the analysis done in the foregoing section, the following findings can be cited:

Paid up Capital is excellent in the case of AB Bank Ltd & Brac Bank ltd.

Return on Assets & Return on Equity is excellent in the case of Brac Bank Ltd.

Earnings Per share for each selected bank are very good though Brac Bank Ltd

has higher EPS. EPS is a vital issue for the capital market. So EPS is a tool by

which the investors can generated a guideline.

Annual Growth rate of deposit is not satisfactory for Bank Asia ltd.

Cost fund of each selected bank is very good. There is not much difference

between the selected banks.

Cost Income ratio is also similar for each selected bank though AB Bank Ltd has

higher cost income ratio.

Profit Margin is superior for Brac Bank ltd.

Current ratio is very good for AB Bank but very poor for Bank Asia.

5.2: Conclusion

Here the analysis of Three commercial bank in Bangladesh though ratio analysis. After

analyzing we found that the over all performance of Brac bank Ltd is higher than the

other bank. Here there is calculation of Three ratios & most of the then the performance

of Brac bank Ltd is higher than the other bank.

Finally, strengthening the securities market will have a positive impact on the overall

development of the banking sector by increasing the competitiveness in the financial

sector. In a developed capital market the range of portfolio selection is wide and people

can compare the return and security of their investment among the banks and the

securities market operators. As a result banks remain under some pressure to improve

their financial soundness. However, developing a strong capital market remains at this

stage of our development a very challenging task.

Bibliography

1) Banks websites: These are many information has been collected from web sites of

listed private commercial banks in Bangladesh. These websites are given below:

Organizations Web Links

AB Bank Limited www.abbankbd.com.

Brac Bank Limited www.bracbankbd.com

Bank Asia Limited www.bankasiabd.com

2) Listed commercial banks annual reports from year 2013-2014 are used to

complete this thesis.

3) Others websites: www.google.com, www.wikipedia.org, www.dsebd.

5.2 Appendix:

State Commercial Bank – Brac Bank

Specialized Commercial Bank – AB Bank

Private Commercial Bank – Bank Asia