Thesis Report

On

Performance analysis of Commercial Bank In

Bangladesh
Supervised by
Md. Shajul Islam
Assistant Professor
Department of Business Administration
Stamford University, Bangladesh

Prepared by
Shanchita Malaker
ID: MBA 056 15916
Department of Accounting
Stamford University Bangladesh

Letter of
Transmittal
Md. Shajul Islam
Assistant Professor
Department of Business Administration
Stamford 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 Malaker
ID No.: MBA 056 15916
Batch: 56
Major in Accounting
Department of Business Administration
Stamford University Bangladesh.

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 Malaker
ID No.: MBA 056 15916
Batch: 56
Major in Accounting
Department of Business Administration
Stamford University, Bangladesh.

Certificatio
n

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.

Acknowled
gement

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.

Executive Summary
Banking industry is an important part of any country. Banking system occupies an important
place in a nations 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.

Chapter: 01

INTRODUCTION
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 nations 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 banks 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 informations 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 Bangladeshs 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. ABs other focus is Corporate Social Responsibility (CSR). Even though CSR is
now a clichs, 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 nations 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 ABs banking infrastructure instead of pursuing their own.

2.1.1 Mission of AB Bank:

AB Bank Rwandas 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 banks loans are primarily based on an
assessment of the borrowers 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 Rwandas 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, thats 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

42110.15

51575.67

67788.53

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

Deposit & others

Accounts

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 its 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 wellorganized 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 banks 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 todays 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 Banks 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 banks
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
Income Statement

2013

2014

Growth %

Interest Income

5636

7171

7466

Interest Expense

4049

5214

5407

Net Interest Income

1587

1958

2060

Non Interest Income

1582

1929

2175

13

Non Interest Expense

1159

1353

1424

Net Non Interest Income

423

576

751

30

Profit Before Tax & Provision

2010

2533

2810

11

Provision for Loans & Assets

479

669

675

1025

1176

15

839

959

14

Provision

for

Tax

(including827

Deferred Tax )
Profit After Tax

704

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:
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

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.

CORE VALUES

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

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

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

2.4.4 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

exercise

by the president and the

CEO

the bank who is also the

of

of the bank is

Managing Director of the

board.

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

2012

2013

2014

Tk in million

Tk in million

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

55928.72

66166.52

87140.11

Particulars

Total asset
Total deposit

49538.35

58033.47

75629.14

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

Chapter: 03
Ratio Analysis

3.1 Current Ratio:

It is liquidity ratio that measures a companys 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 companys 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 companys 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 companys profit allocated to each outstanding share of common stock.
Earnings per share serve as an indicator of a companys 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 thats 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 doesnt 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 companys 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 companys 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 companys financial statement. The level and historical trends of these ratios can
be used to make inferences about a companys financial condition, its operation and
attractiveness as an investment.
Financial ratios are calculated from one or more pieces of information from a companys
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 companys 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 companys
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
companys 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 companys capital structure.
Liquidity ratios which give a picture of a companys 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 companys 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

Source: Annual Report 2013, 2014

=1.052

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.

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 venturecommercial 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
Source: Annual Report 2013, 2014

= 1.19

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

= 0.24

= 0.35

Return on Investment

Return on Equity

= 0.60

= 0.62

= 0.20

= 0.16

= 0.43

= 0.28

Net Profit Margin

Gross Profit Margin

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
Ratio

Profitability

2013

2014

Current

1.12

1.19

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

= 59.01

= 11.86

= 0.17

=0.13

Return on Investment

Return on Equity

Net Profit Margin

=0.23

=0.27

= 0.39

= 0.44

Gross Profit Margin

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
Ratio

Profitability

2013

2014

Current

1.03

1.07

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
AB Bank Limited
Brac Bank Limited
Bank Asia Limited

Web Links
www.abbankbd.com.
www.bracbankbd.com
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

Current Ratio

Current Assets
Current Liabilities

Return on Assets (ROA)

Net Income
Average Total Assets

Return on Common Stockholders Equity

Return on Investment
Net Profit Margin

Net Profit
Cost of Investment

Net Profit
Net Sales

Gross Profit Margin

Net Income
Average common stockholders equity

Gross Profit
Net Sales