Term paper

On

Ratio analysis of Eastern Bank Limited

Prepared for:
Dr. Mostafa Kamal
Registrar
Daffodil International University

Prepared by:
MD.Jalish Mahmud
ID. No: 041-18-243
Department: B.Com (Hon’s)
Batch: 3rd

102,Shukrabad, Mirpur Road, Dhanmondi, Dhaka- 1207

Date of Submission: 25 December 2006

December 25, 2006
Dr. Mostafa Kamal
Registrar
Daffodil International University

Subject: Regarding the submission of Ratio Analysis on Eastern Bank Limited.

Dear Sir:

This term paper on Eastern Bank Limited about ratio analysis that you have gave me
to prepare on this prestigious bank. It can be said that by doing this assignment I have
learned a lot of excellent information about banking sector. I thinking in real life this
report will be helpful for me.

I tried to accommodate and suggestion in my term paper. I will be glad to clarify the
queries regarding this report.

Sincerely yours

Md.Jalish Mahmud
I.D.No-041-18-290
3rd Batch
Daffodil International University
 Acknowledgement

At first I want to give thanks to our course teacher Dr.Mostafa Kamal Islam who has
given these kinds of excellent report. By doing this I get an excellent chance to
increase my knowledge about bank sector which is the most important field for
business students. I would like to acknowledge great fully to Mr. Md. Asraf Hossain,
Assistant Vice President of Eastern Bank Limited.
 Origin of the Report

The world is going with globalization in where the business is facing new challenge in
every day market. In economy new dimensions are coming. So to keep consistence
with this kind of environment each company needs some skill person who have
suitable knowledge to take the new challenge in business criteria. So this kind of
assignment will help to prepare the students to make their selves as a smart executive
in future. As a requirement from business faculty of D.I.U preparing this term paper is
really useful for me. Because of doing this, I have gained some practical knowledge
which is needed for my real life.
 EXECUTIVE SUMMARY

The Eastern Bank Limited was formed as a public limited company incorporated in
Bangladesh with primary objective to carryon all kinds of business in and out side
Bangladesh. EBL has taken over the business, asset, and liability losses of erstwhile
Bank of credit and commerce international (overseas) limited, hereinafter called
BCCI. Branches in Bangladesh with effect from 16th August 1992, as they stood after
reduction or adjustments in accordance with the provisions of the bank of credit and
commerce international (overseas) limited. Reconstruction scheme, 1992, hereinafter
called scheme. The bank is also listed on the Dhaka Stock Exchange Limited. At the
present they (EBL) are operating 24 branches located in main commercial areas of our
country their increasing activities call for expansion of network and line with demand
they hope to open few more branches in the days to come. To meets the growing
market demand they introduce Debit Card and Internet Banking. They are also
committed to provide Credit Card, Mobile Banking, Home Banking, etc under it form
in the near future. It has only few branches all over the country. It has no enough ATM
booths and not provide over night banking facilities, which is the disadvantage of this
bank.

EBL has great opportunity in the banking sector in Bangladesh. Within a few years it
becomes the one of the finest bank in Bangladesh for its goods and services. It can
introduce mobile banking, home banking and 24 hours banking facilities.
 OBJECTIVE

The objectives of the report are………………….

1. To apply theoretical knowledge in the practical field.
2. To know the organizational framework of EBL.
3. To learn about banking operation system.
4. To forecast their policy of EBL.
5. To examine sectored allocation of deposits.
6. To evaluate credit standard of EBL.
7. TO highlight the difference of EBL with other public and private banks.

Scope of the study

The present study is an attempt to evaluate the overall system of Eastern Bank
Limited. The study was kept to overall division of Eastern Bank Limited, Gulshan
branch, Gulshan. This brunch deals in all kind of banking business under the overall
control of Bangladesh bank and this flow the regulations set by Bangladesh.

Overview of the Organization

Eastern Bank Limited incorporated on 16 August 1992 as a public limited company
with the primary objective of carrying out all kinds of banking business in and outside
Bangladesh. It was formed by taking over the business, assets, liabilities and losses if
the erstwhile Bank of Credit and Commerce International (overseas) Limited (BCCI).
Eastern Bank Commenced business with four branches and an authorize capital of Tk.
1,000 million divided into 10 million share of Tk. 100 each. Tk 600 million has been
subscribed and paid up by three different classes of shareholders, namely KA< KHA
and GA. The KA-type shares (1.2 million) are those, which are fully subscribed by
the government of Bangladesh. The KHA-type shares (1.90 million) are subscribed by
the financial institution and GA-type shares (2.9 million) are subscribed by the
depositors of the previous BCCI brunches. THE bank is listed with the Dhaka Stock
Exchange.

The management of the bank is vested in board of directors. In 2004, the bank has
total of 561 employee and 22 branches in different places in the country.

VISION OF EBL
To become the bank of choice by transforming the way we do business and
developing a truly unique financial institution that delivers superior growth and
financial performance and are the most recognizable brand in the financial services in
Bangladesh.

MISSION OF EBL

• They will deliver service excellence to all their customers, both internal and
external.
• They will constantly challenge their systems, procedures and training to
marinating a cohesive and professional term in order to achieve service
excellence.
• They will create an enabling environment and embrace a term-based culture
where people will excel.
• They will ensure to maximize shareholders, value.

OBJECTIVES
•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 introduces 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 off balance sheet risk)
•To maintain adequate liquidity to meet maturing obligations and commitments.
•To maintain a healthy growth of business with desired image.
•To maintain adequate control systems and transparency in procedures.
•To develop and retain a quality work-force through an effective human Resources
Management System.
•To ensure optimum utilization of all available resources
•To pursue an effective system of management by ensuring compliance to ethical
norms, transparency and accounts at all levels.

ORGANIZATIONAL STRUCTURE OF EBL

 Chairman

Chairman

Chairman

Consume Corporate Human Credit Audit Finance Operation Brand

r Banking Resource Risk Mgt. & & Division Mgt.
Banking Accounts Accounts

Credit
Administration
Area Head Area Head
(Dhaka) (Agra bad)

Trade Service International IT Division Brand Mgt.

Division Division Division

[Figure: Organization Structure]

PRPODUCT AND SERVICE OFFERED BY EBL
 Eastern Bank Limited has verity of products offered for the retail customers as well
as for corporate client are given below:

Product for retail client

The existing products that are offered by EBL are:

1. High performance account
2. Monthly income plan,
3. Monthly deposit plan
4. Fast cash
5. Fast loan
6. Fixed deposit
7. Auto loan
8. Consumer loan
9. Loans for professional
10. Fest- loan
11. Executive’s loan.

Service for retail clients

Service for retail clients’ are-

1. Sale of Bangladesh Sanchaya patra, Pratirakkya patra, ICB certificate etc.
2. Encashment of different Sanchaya patra, ICB certificate etc.
3. EBL Q-cash ATM card.
4. Money Gram
5. Equity services bill collection
6. Tuition fees
7. Student file

Product for Corporate Clients

1. Payment against document (PAD)

2. Loan against trust receipt (LTR)
3. Accept against ULC
4. Local bill purchase documentary (LBPD)
5. Foreign bill purchase documentary (FBPD)
6. Sight letter of credit (SLC)
7. Letter of guarantee (LG)
8. Secured overdraft (SOD)
9. Demand loan
10. Time loan
11. Term loan
LENDING PROCEDURE OF EBL
Request for credit from the client to a branch

Credit application from filled up by the customer

and collection of documents

Scrutinizing the documents

Preparing the product

The proposal goes to the board of directors through

other necessary steps

Sanctioning the credit

Informing the client, loan disbursement, supervision

and monitoring

Growth of Loans and advances of EBL

Year Amount (Tk. in million)

2000 8,141
2001 9,946
2002 10,891
2003 11,288
2004 11,861
 BALANCE SHEET
Eastern Bank LTD.
As at December 31, 2005
Property and Assets Year-2004 Year-2003
Taka Taka
Cash:
In hand ( including foreign currency) 174602762 105061815
Balance With BangladeshBank & SonaliBank 933456347 964873108
1108059109 1069934923

Balance with other Banks & Financial Institutions:

In Bangladesh 576747351 1398808073
Outside Bangladesh 182129196 147621767
758876547 1546429840

Money at call and short notice 1067500000 255000000

Investments:
Government 4041035400 3331354100
others 35785600 279856600
4398892000 3611210700

Loan and advances:

Loans, cash credit, overdrafts etc 14922947120 10953543437
Bills discounted and purchased 50308281 334587230
1497325541 11288130667

Land, building, Furniture and fixtures(including leased assets) 270953019 176468588

Other assets 470131832 768507680
Non-banking assets - ----------
Total Assets 23047667908 18715682398
========== ==========
Liabilities and Shareholders Equity

Liabilities:
Borrowings from other banks, FI's and agents 3015000000 2850000000

Deposits and other accounts:

Current deposits and other accounts 3198966923 2242949052
Bills payable 210908606 238596438
Savings bank deposits 2686380434 1927170395
Fixed deposits 9530063915 7521479399
Bearer certificates of deposits 22250000 22250000
15648569878 11952445284

Other liabilities 1753264495 1592338946

Total liabilities 20416834373 16394784230

Shareholders' equity
Share capital: Issued, subscribed and fully paid up capital 828000000 828000000
Statutory reserve 828000000 760422003
Dividend equalization reserve 190440000 ----
Reserve against pre-takeover loss 1554759750 1554759750
Reserve for building fund 60000000 60000000
general reserve 100000000 185000000
Retain earnings brought forward from profit &loss 2935255 48628013
Pre- takeover loss -1289341459 -1298071598
Proposed dividend 356040000 165600000
Dividend distribution tax on dividend --- 16560000
Total Shareholders' equity 2630833535 2320898168
Total Liabilities & Shareholders' equity 23047667908 18715682398
========== =========
 Off- Balance Sheet Items
As at 31 December 2004
Off- Balance Sheet Items: Year-2004 Year-2003
Taka Taka

Contingent liabilities:

Acceptances and endorsements 3119901803 1481410394

Irrevocable letters of credit 6278451308 3654872334
Letters of Guarantees 1917160210 1960112830
Bills for collection 275271499 673258467
Value of travelers' cheques on hand 80457527 38380250
Value of Bangladesh Sanchya Patras on hand 190567100 190680100
11861809447 7998714375
Other Commitments:

Documentory Credits and short term ---

Trade-related transactions
Forward assets purchased and Forward deposits placed 58610996 1298170
Undrawn note issuance and revolving facilities
Undrawn formal standby facilities, credit
Lines and other commitments
Claims against the bank not acknowledged as debt
Total off balance sheet items 11920420443 8000012545
=========== =========
 INCOME
STATEMENT
Eastern Bank LTD
 For the period ended December 31, 2004
Year-2004(Tk) Ye
Interest income 1628352434 1383351107
Interest paid on deposits, borrowings etc 949203013 928450655
Net interest income 679149421 454900452

Income from Investment 265899688 299200576

Commission, exchange and brokerage 263566577 225456764
Other operating income 83485997 76814492
612952262 601471831
Total Operating Income 1292101683 1056372284

Salaries and allowances 184202947 145207852

Rent, taxes, insurance, electricity etc 46089026 39804463
Legal expenses 5005210 4089313
Postage, stamp, telephone 14999594 10355653
Stationery, Printing, Advertisements etc. 25032969 22576163
Managing director’s salary & allowances 5294400 4588000
Directors’ fees & others 814065 878053
Auditors fee 115000 115500
Depreciation and Repair, maintenance of Bank’s assets 44573270 22990421
Other expenses 73544278 46994922
Total Operating Expenses 3990670759 297600339
Profit / (loss) before provision against loans and advances 892430924 758771944

Provision before against loans and advances

Specific provisions 117729113
General provisions 41159553 3270887
Total provisions 41159553 121000000
Profit for the year before taxation 851271371 637771944
Provisions for taxation for the year -370000000 -280000000
Deferred tax income 2093857 -
Net profit after tax for the year 483365228 357771944

retained earning brought forward from previous year 48628013 251970458

Transferred from general reserve 85000000 15000000
133628013 266970458
616993241 624742402
Appropriations
Statutory reserve -67577997 -127554389
Payment of 2002 dividend @ 35% of Tk 720,000,000 -252000000
Payment of dividend distribution tax on 2002 cash -
Dividend [ @10% of 20% of Tk 720,000,000 -14400000
Dividend equalization reserve -190440000
Proposed dividend -356040000 -165600000
Dividend distribution tax on dividend 0 -165560000
Balance of retained earnings transferred to balance sheet 2935244 48628013
 =========
Earning per share 58.38 43.21
'=========

Ratio Analysis
(All amounts are Taka)
 **ROE=Net income after tax / Total equity
ROE (2004) =483156465 / 2630624772 = 18.36%
ROE (2003) =357771944 / 2320898168 = 15.41%

ROE

15.41% x
18.36% y

Analysis: From the figure we found that Return on Equity (ROE) in year 2003 is
15.41% and in year 2004 it is 18.36%. ROE measures the net benefit that the
stockholders have received from investing their capital in the company. So the figure
indicates that in 2004, shareholders are got more return to investing their capital
which is greater than 2003.

**ROA=Net income after tax / Total Asset

ROA (2004) = 483156465 / 23043468479 = 2.09%

ROA (2003) =357771944 / 18715682398 = 1.91%

ROA

2.20%
2.10%
2.00% Series1
2.09%
1.90%
1.91%
1.80%
Year 2003 Year 2004
Analysis: From the figure we found that Return On Assets (ROA) in year 2003 is
1.91% and in year 2004 it is 2.09%. ROA provides an idea of the overall return on
investment earned by the firm. It is primary indicator of managerial efficiency
indicating how capably the management of a bank converting the bank’s assets into
net earnings. So we can say that management efficiency of EBL Bank’s increasing
day by day.

** NIM=Interest income – Interest expense /Total Asset

NIM (2004) = (1628259498 – 399666143) / 23043468479 = 5.33 %

NIM (2003) = (1383351107 - 297600339) / 18715682398 = 5.80%

NIM

6.00%
5.80%
5.60%
Series1
5.40% 5.80%
5.20% 5.33%
5.00%
Year 2003 Year 2004

Analysis: From the figure we found that Net interest Margin (NIM) in year 2003 is
5.80% and in year 2004 it is 5.33%. NIM measures how large a spread between
interest revenues and interest costs management has been able to achieve by close
control over the bank’s earning assets and the pursuit of cheapest source of funding.
So we can say that EBL Bank’s interest income not increasing.

EPS:
 EPS (2004) = 58.38
EPS (2003) = 43.21

EPS

80.00%
60.00%
40.00% Series1
58.38%
20.00% 43.21%
0.00%
Year 2003 Year 2004

Analysis: From the figure we found that Earning per share (EPS) in year 2003 is
43.21% and in year 2004 it is 58.38%. If we divide net income after tax by the
number stock outstanding than we get EPS. This figure indicates that Income of per
share increasing day by day.

**Profit Margin Ratio = Net income / Total Net sales

Profit Margin Ratio (2004) = 483365228 / 1628352434 = 29.6 %

Profit Margin Ratio (2003) = 357771944 / 1383351107 = 25.86 %
 PROFIT MARGIN RATIO

30.00%
28.00%
26.00% 29.60% Series1
24.00% 25.86%
22.00%
Year 2003 Year 2004

Analysis: From the figure we found that Profit Margin Ratio in year 2003 is 25.86%
and in year 2004 it is 29.60%. It is indicates an idea of how much a bank makes from
each dollars of loans. This figure indicates that Profit Margin Ratio is increasing day
by day.

**Return on assets =Net income / Average assets

Return on assets (2004) = 483365228 / {(23047667908 + 18715682398) / 2} =2.3%

Return on assets (2003) =357771944 / {(23047667908 + 18715682398) / 2} =2.87%

Return on assets

4.00%
3.00%
2.00% Series1
2.87% 2.30%
1.00%
0.00%
Year 2003 Year 2004

Analysis: From the figure we found that Return on assets in year 2003 is 2.87% and
in year 2004 it is 2.30%. It measures overall profitability of assets .This figure
indicates that profitability of assets not increasing.
**Time Interest earned = Income before interest & tax / Interest expense

Time Interest earned (2004) = 1432359478 / 37000000 = 3.87

Time Interest earned (2003) = (928450655+758771944) / 280000000 = 6.025

Time Interest earned

8.00%
6.00%
4.00% Series1
6.03%
2.00% 3.87%
0.00%
Year 2003 Year 2004

Analysis: From the figure we found that time interest earned in year 2003 is
6.025times and in year 2004 it is 3.87 times. It measures ability to meet interest
payments as they come due.

**Capital Adequacy:

Capital Adequacy (2004) = 14.88%

Capital Adequacy (2003) = 18.27%
 Capital Adequacy:

100%

18.27% 14.88%
50% Series1

0%
Year 2003 Year 2004

Analysis: From the figure we found that capital adequacy in year 2003 is 18.27% and
in year 2004 it is 14.88%. It measures to evaluate the risk position of a bank. The
above graph shows that there is a declining trend. The trend asserts that the bank
possesses less adequate capital to meet its requirement. It has a good sign that the
bank uses the capital effectively. But sometimes the bank may fall in shortage of
capital.

**Operating profit per employee:

Operating profit per employee (2004) =1.71million

Operating profit per employee (2003) = 1.53 million
 Operating profit Per employee:
Value in million
180.00%
170.00%
160.00% Series1
150.00%
140.00%
Year 2003 Year 2004
Year

Analysis: From the figure we found that Operating profit Per employee in year 2003
is Tk.1.53 million and in year 2004 it is Tk. 1.71 million. It shows that the EBL bank’s
employees are doing their job effectively and they effectively control the bank risks.
 FINDING

EBL is one of the potential leading banks in the banking sector. The Gulshan Branch
of EBL is a big branch. Therefore, it is not an easy job to find so many things during
the very short period. Now, I would like to present my findings and give my opinion
to improve the banking service and make the customers more satisfied.

1. The general banking activities of EBL are designed in a fashion to facilitate

the customers with sophisticated and prompt financial service.
2. Customer’s dissatisfaction with the incremental hidden charges and service
charges while dealing with ‘EBL”.
3. Customer’s loose temper because of taking long time for serving their
purpose. Sometime it happens because of the insincerity of the ‘EBL’ officers.
4. EBL officers sometimes can’t provide services within the given time to the
customers because of the dependency on other department. Personnel of
related department do not realize the emergency.
5. Communication gap with the clients while dealing with EBL.
6. Facing a huge competition incase of introducing new product in the market.
7. The employees are not professionally trained and skilled enough.
8. The great problem of EBL is the absence of credit card.
9. EBL does not provide evening banking.
10. Service charges of EBL are comparatively higher than other bank.

Therefore, from the above findings it has been identified that the Eastern Bank
Limited has some problems. That task of this research is to identify the problems that
are responsible for the decline of the credit level of EBL. The problem can be solved
easily through proper steps and management needs to rethink and change the strategy.
 CONCLUSION

Eastern Bank is one of the pioneer private banks in the country. It is one of the front
line banks due to its specialized and sophisticated banking services rendered to its
customers. In order to remain competitive in the market, it constantly looks for ways
and means to improve productivity. Use of information technology remains its
mainstay.
EBL is playing significant role in various field of economy such as industry,
agriculture, trade and commerce, transportation and many other fields. It is playing a
crucial role in human resource development and in creating new employment
opportunities. It is also undertaking various welfare activities for the betterment of the
society.
The reliability of the customers on EBL is increased promptly day by day. In EBL all
the staffs are performing sands serving the customers untiringly. EBL keeps it self
busy to serve the society, to improve the lifestyle of the people, to develop the
business environment.
The overall performance of EBL solid revenue growth together with strict discipline
on expenses and a culture of sound risk management have upgraded the bank to a
level of excellence, the bank constantly reviews its systems, policies, processes and
price of its products and service in line with the changing market reality.
 Bibliography

**Annual Report 2004&2005

**Fundamental of Investment, by Body