WELCOME TO PRESENTATION

PROFESSOR ABU TALEBDepartment of BankingUniversity of Dhaka

MD. ALIM ABDULLAHRoll No: 51019022, Department of BankingEMBA, 19th Batch

Financial analysis & controlFinancial performance evaluation

(Ratio Analysis)

Course Title: Financial Analysis & ControlCourse Code: 603

Ratio Analysis

A ratio is defined as the indicated quotient of two mathematical impressions and as the relationship between two or more things. In financial analysis, a ratio is used as benchmark for evaluating the financial position and performance of a firm.

Profitability Ratio

Profitability ratios are used to assess a business' ability to generate earnings as compared to expenses over a specified time period.

Return on Equity (ROE)

ROE indicates the rate of return on equity capital. It is possible, however, that an increase in ROE indicates increased bank’s equityratio.

Return on Equity (%) = Net Income/Total Equity Capital*100

ROE of NBL were Changes in the year, 2006, 2007, 2008 & 2009 respectively. ROE has been increased as Net Income of the Bank has been increased over the years.

Year Net Income after Tax

Total Equity Capital

ROE (%) Changes (%)

2005 271.67 2734.61 9.93% ----------

2006 507.49 3274.25 15.50% 5.57%

2007 1238.11 4568.39 27.10% 11.6%

2008 1517.43 6126.27 24.77% (2.33%)

2009 2070.47 8916.76 27.22% 2.45%

Return on AssetThe rate of return on assets (ROA) measures the ability of management to utilize the real and financial resources of the bank to generate returns.

Return on Asset = Net Income/Total Asset*100From the table we can see that ROA of NBL has been increased over the year from 2005 to 2009. Both ROA and TA of NBL over the last five years.

Year Net income after tax

Total assets ROA (%) Changes (%)

2005 271.67 38400.37 0.71% ---------

2006 507.49 46796.04 1.08% 0.37%

2007 1238.11 56526.96 2.19% 1.11%

2008 1517.43 72205.50 2.10% (0.09%)

2009 2070.47 92084.03 2.25% 0.15%

Net Profit Margin Net profit margin ratio establishes a relationship between net income and operating income that indicates management efficiency in providing services, administrating and selling the product.

Net Profit Margin = Net Income/ Operating Revenues*100Cost of Deposit has been increased due to the tough competition between private banks

Year Interest income-interest expense

Total assets Net interest margin (%)

Changes (%)

2005 2512.17-1897.83 38400.37 1.60% -------

2006 3674.32-2449.76 46796.04 2.62% 1.02%

2007 4288.80-2833.45 56526.96 2.57% (0.05%)

2008 5786.71-3594.84 72205.50 3.04% 0.47%

2009 6821.40-4490.34 92084.03 2.51% (0.53%)

Net Interest MarginNet interest margin (NIM) is a measure of the difference between the interest income generated by banks and the amount of interest paid out to their lenders

Net Non-Interest Margin= (Non Interest Income-Operating Expense)/Total Asset*100

Year Non Interest Income-Operating Expense

Total Assets

Net Non-Interest Margin

(%)

Changes (%)

2005 1690.32-1453.34 38400.37 0.62% -------

2006 2054.48-2132.26 46796.04 (0.17%) (0.45%)

2007 2893.83-2134.08 56526.96 1.34% 1.17%

2008 3106.36-2174.40 72205.50 1.29% (0.05%)

2009 4184.75-3118.11 92084.03 1.16% (0.13%)

Net Non-Interest Margin The net non-interest income margin (NOM) as the difference between non-interest income received (OR) and non-interest income paid.

Net Non-Interest Margin= (Non Interest Income-Operating Expense)/Total Asset*100

Year Non Interest Income-Operating Expense

Total Assets

Net Non-Interest Margin

(%)

Changes (%)

2005 1690.32-1453.34 38400.37 0.62% -------

2006 2054.48-2132.26 46796.04 (0.17%) (0.45%)

2007 2893.83-2134.08 56526.96 1.34% 1.17%

2008 3106.36-2174.40 72205.50 1.29% (0.05%)

2009 4184.75-3118.11 92084.03 1.16% (0.13%)

EPS-Earning per share 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

EPS (Earning per share) = Net Income after tax/ No. Of shares outstandingWe can see from the table that EPS of NBL has increasing since 2006 and. EPS indicates profit of the bank.

Year Net Income After Tax

No. of Share Outstanding

EPS Changes (%)

2005 271.67 6.20 43.82 -------

2006 507.49 8.05 63.04 19.22

2007 1238.11 12.08 102.49 39.45

2008 1517.43 18.73 81.02 (21.47)

2009 2070.47 28.47 72.73 (8.29)

Asset UtilizationThe asset utilization ratio represents the ability of management to employ asset effectively to generate revenue. The more income generated per Taka of assets, the more profitable is the bank.

Asset Utilization = Total Operating Income/ Total Asset*100

The bank has shown a very slight decrease in its ability to use its assets for generating income. The decrease is too small to influence the bank's financial performance

Year Total Operating Income

Total Assets Asset Utilization

(%)

Changes (%)

2007 4358.43 56526.96 2.40% -------

2008 5296.18 72205.50 7.33% 4.93%

2009 6492.49 92084.03 7.05% (0.28%)

Liquidity RatioA liquid asset is one that can be easily converted to cash without significant loss of its original value. Liquidity risk is the risk that a given security or asset cannot be traded quickly enough in the market to prevent a loss (or make the required profit)

Liquidity Risk= (Net Loan/Total Asset)*100

Year Net Loan Total Asset Total Loan Risk (%)

Changes (%)

2005 27020.21 38400.37 71.30 -

2006 32709.68 46796.04 69.90 (.46%)

2007 36475.74 56526.96 64.53 (5.37%)

2008 50665.07 72205.50 70.03 (5.5%)

2009 65129.29 92084.03 76.73 (0.7%)

Current Ratio

The formula of current ratio is: Current Ratio =Current Assets/Current Liability

Year Current Assets Current Liabilities Current Ratio

2005 670000000 27762117033 0.024

2006 66500000 28973387115 0.022

2007 760000000 32984053891 0.023

2008 700000000 40350868324 0.017

2009 1610000000 47961226399 0.033

Credit Risk Ratio

Credit risk ratio is the percentage or the likelihood that lenders will lose because of a borrower's inability to pay on time. Or, in other words, it is the odds that banks, lending institutions,

Credit Risk= Classified Loan/Total Loan*100

Every year the credit risk was decrease

Year Classified Loan Total Loan Credit Risk (%)

Changes (%)

2005190.64

27020.217.06%

---------

2006196.72

32709.686.01%

(1.05%)

2007165.11

36475.744.53%

(1.48%)

2008272.93

50665.075.49%

0.96%

2009388.03

65129.295.96%

0.47%

Total Loan Risk

The loan ratio indicates the extent to which assets are devoted to loan as opposed to other assets.

Total Loan Risk= Total Loan/Total Deposit*100

From the table we can see that Loans and Advances Ratio of the bank has been increasing and decreasing. As bank generate its major portion of income from interest income. So, bank generates its major portion of income from interest income.

Year Total Loan Total Deposit Total Loan Risk (%)

Changes (%)

2005 27020.21 32984.05 81.92% ---------

2006 32709.68 40350.87 81.06% (0.86%)

2007 36475.74 47961.22 76.05% (5.01%)

2008 50665.07 60187.89 84.18% 8.13%

2009 65129.29 76838.64 84.76% (0.58%)

Deposit to capital Ratio:

This ratio measures Taka of deposit of per Taka capital.

Deposit to Capital Ratio = Deposit/ Total CapitalDeposit to capital ratio of NBL has been decreasing over the years. It was 19.97 times in the year 2004 and 11.37 times in the year 2008. That means the deposit of the bank has been decreasing much more than its equity capital.

Year Total Deposit Total Shareholders Equity Ratio (times)

2004 33969424086 1700906389 19.97

2005 33264984261 1862318021 17.86

2006 35665758135 2734619968 13.04

2007 43521784803 3274256431 13.29

2008 51958572827 4568391288 11.37

 

Recommendations:

 

 The existing financial performance position is good enough to run the bank. But as the competition is increasing day by day the bank should take some measures so that they can distinguish it from the others. To attain its goals more successfully NBL Bank Ltd. can follow the following suggestion to improve their performance and distinguish from others.

Branches may give suggestion regarding the features of lending products and regular revision for its products with more competitive advantage and local demand.

The bank management can give permission to its branches to design or change lending products on the basis of local demand.

Recommendations:

The bank management can reduce the interest rate. Because of high interest rate, the net profit of NBL is increasing over the years. Though the net profit is increasing but some good loan may turn to bad loan. So if the interest rate decreases then the default loan may decrease.

To grade the credit risk, the bank can follow other appropriate models besides the credit risk grading model, because the credit risk grading models yardsticks are static which do not take into account the flexibility in economic or business or financial condition.

.

Recommendations

The bank management should follow the changes in policy, system, procedure, product, technology and compliance in the banking industry, so that NBL can take appropriate measure to adapt her with the changes.

Sanction procedure should be evaluated more effectively. Loan recovery system should be monitored more strictly.

Interest rate for loan providing to marginal farmer should be in somewhat lower rate. Sometimes loan can be provided as collateral free

National Bank Limited can follow the above mentioned suggestion to improve their performance so that they can be competitive in the market and can gain some competitive advantage.

Although the bank is making a huge amount of profit and gencratil1g a large volume of deposit, based on my working experience at Nationa1 Bank limited, I would like to put up the following recommendations

THANKING YOU