[Type the document title]

Executive Summary

The aim of this report was to analyze the performance of Premier Bank Ltd over a period of three
years (2011-2013). To analyze the performance we have calculated liquidity ratio, efficiency
ratio, profitability ratio, market position and investors view point. In this paper we have also
emphasized on risks that are associated with the bank.
After finding out the ratios, we have seen that the liquidity portion of the bank is in need of much
scrutiny. Their core deposit is rising and their cash position is falling as well. Under these
circumstances the bank may be subject to serious problems related to liquidity. The only good
indicator of the bank is that they have a good Return on assets and return on equity which seems
to be increasing. Other than that Premier Bank has had a negative net-interest margin for the last
three years. The only good thing about this is that the amount is slowly recovering.
Their market position ratios show very fragile performance in terms the market and its investors.
The PE ratio has fallen drastically as well as their book-value per share. Also, a falling marketto-book ratio shows that the perception of the market is not well for the bank. They have also
been paying lower dividends. These facts point that this banks equity may not be a good and
profitable investment for the time being.

Table of Contents
FIN464
Page 1

[Type the document title]

Introduction
Banking industry is important for economic development for a country like Bangladesh. After
independence, the banking industry of Bangladesh started its journey with only 6 nationalized
banks and over the years the numbers of banks have increased to 56 banks. Most of which are
privatized. Banking industry is very attractive industry with allot of potentials however banks are
very highly leveraged. Banks are also associated with them several form of risk those investors
and internal managers of the banks should be well aware of in order to determine the potentials
and performance of each of the banks.
Premiere Bank is one of the latest generation banks of Bangladesh. It was established in 1999
under the company act 1994. They provide all the banking services and offer Banking products.
It is one of the fastest growing banks in the country.

Objective of the project

Analyze the performance of Premier with the help of liquidity ratio, investors ratio,

market price ratios, profitability ratios, efficiency ratios.

Compare the time series analysis performance of Premier Bank
Provide some suggestions for Premier Bank in order to improve their performance.

FIN464
Page 2

[Type the document title]

Methodology
For the purpose of this project, secondary data was used from the website of
Premier Bank. The annual reports were collected from there and later the
figures were taken from them to identify each ratio. .
The analysis was made for the year 2011-2013 for Premier Bank.
In addition to that, the book, notes, and class lectures have been used during
the analysis of each of the ratios, anal and for the purpose of providing the
final conclusion.

Limitations
1 The accounting practices may differ, and so do some of the terms used
for the items in their financial statements. There is every possibility of
a figure or two to be mistaken for something else.
2 We could not find the annual report of 2014 in the website so we have had to start with
3

2013.
We did not find few relevant information in the annual reports due to which we had to

skip few ratio.

Information of financial statements was not arranged the same way as it is in the book.
Or mentioned during the class.

FIN464
Page 3

[Type the document title]

Overview of the Bank

Mission:

To be the most caring and customer friendly provider of financial services, creating opportunities

for more people in more places.

To ensure stability and sound growth whilst enhancing the value of shareholders investments.
To aggressively adopt technology at all levels of operations to improve efficiency and reduce cost

per transaction.
To ensure a high level of transparency and ethical standards in all business transacted by the

Bank.
To provide congenial atmosphere which will attract competent work force who will be proud and

eager to work for the Bank.

To be socially responsible and strive to uplift the quality of life by making effective contribution
to national development.

Vision:
The Bank has clear vision towards its ultimate destiny to be the best amongst the top financial
institution.

Findings and Analysis

Liquidity Ratios
FIN464
Page 4

[Type the document title]

Cash position indicator

0.13

0.12
0.12

0.12
0.12
0.12
0.12
0.12

0.11

0.11
0.11
0.11
0.11

2011

2012

2013

We can see that the cash position of Premier Bank has been falling over the last three years. This means
they are holding lesser and lesser cash in relation to other assets. This can have several implications to the
liquidity status of the bank as cash in vault and in other depository institutions is the first line of defense
against unforeseen liquidity needs.

FIN464
Page 5

[Type the document title]

Liquid securities indicator
0.18

0.16

0.16
0.14

0.13

0.12

0.11

0.1
0.08
0.06
0.04
0.02
0

2011

2012

2013

This ratio measures the amount of liquid securities in the form of government securities such as treasury
bills the bank holds in relation to other assets. It fell slightly in 2012 but rose considerably in 2013
showing that the bank has improved in terms of their liquidity as in case of urgent needs the securities can
be converted to cash to meet the needs. This is the second line of defense for meeting liquidity needs.

Capacity ratio
0.7
0.68

0.68
0.65

0.66
0.64
0.62

0.6

0.6
0.58
0.56
0.54

2011

2012

2013

The capacity ratio has been falling and this shows that the bank is improving in its overall liquidity. Loans
are the most illiquid asset and since there is a declining trend over the last three years we can safely say
that the bank is in a better position as far as liquidity is concerned.
FIN464
Page 6

[Type the document title]

Deposit composition ratio

0.45

0.39

0.4
0.35

0.42

0.33

0.3
0.25
0.2
0.15
0.1
0.05
0

2011

2012

2013

This ratio tells us the composition of demand deposits to the term deposits. Since demand deposits are
more prone to immediate withdrawal, the more the ratio the more the need for liquidity. The ratio has
been increasing since 2011. So Premier Bank will likely be in need of greater amount of readily available
liquid assets to meet the withdrawals of customers.

Core deposit ratio

0.05
0.05

0.05

0.05

2012

2013

0.05
0.05
0.05

0.05

0.05
0.05
0.05

2011

Core deposits are very unlikely to be withdrawn in the short term period so the more the ratio the better.
This ratio has sharply increased in 2012 and only fell by very little in 2013. So we can say that the bank is
safer in terms of liquidity needs as far as this ratio indicates.

FIN464
Page 7

[Type the document title]

Financial Risk Ratios

Equity multiplier
11.5

11.43

11.45
11.4
11.35
11.3
11.25

11.26

11.23

11.2
11.15
11.1

2011

2012

2013

The more the equity multiplier the more the bank is financially leveraged and is dependent on debt. Their
ratio increased in 2012 but again fell to the levels of 2011 in 2013. For a bank an equity multiplier of
11.26 is healthy as banks are usually very much financially leveraged.

Debt-Equity ratio
10.5

10.43

10.45
10.4
10.35
10.3
10.25

10.26

10.23

10.2
10.15
10.1

2011

2012

FIN464
Page 8

2013

[Type the document title]

Here, we can observe that the ratio increased and then again fell back to 10.257. We can say that the bank
is much better in terms of overall risk in 2013 as the proportion of equity has increased in terms of debt.

Interest coverage ratio

14.00%

11.70%

12.00%
10.00%

9.00%

9.14%

2011

2012

8.00%
6.00%
4.00%
2.00%
0.00%

2013

This ratio indicated how well the bank is able to cover its interest obligations through its earnings. The
ratio has been increasing indicating that the bank has been having healthy growth in its income in relation
to interest obligations on outstanding debt.

Leverage ratio
91.30%

91.25%

91.25%
91.20%
91.15%
91.10%

91.12%

91.10%

91.05%
91.00%

2011

2012

2013

The leverage ratio indicates the extent to which the business relies on debt financing. A high
leverage ratio indicates possible difficulty in paying interest and principal while obtaining more
funding. Too much debt can be dangerous for a company and its investors. Uncontrolled debt
FIN464
Page 9

[Type the document title]

levels can lead to credit downgrades or worse. On the other hand, too few debts can also raise
questions. There was an increase and it fell back to 91.12% in 2013. This means around 91.12%
of the assets come from assets.

Efficiency Ratio

Operating efficiency ratio

1

0.81

0.8

0.79

0.66

0.6
0.4
0.2
0

2011

2012

2013

The ratio has remained stable over the three years but have marginally been falling. This shows improved
efficiency and management of costs as the expense has been falling in relation to the revenues of the
bank.

Employee productivity ratio

4500000
4000000

3871446.56

3500000

3094875.79

3456653.68

3000000
2500000
2000000
1500000
1000000
500000
0

2011

2012

2013

Employee productivity has fallen drastically in 2012 but we can see that it improved by a lot in 2013. This
may be nothing to worry about as we can see that improvements have taken place immediately after the
sharp decline.
FIN464
Page 10

[Type the document title]

Earnings spread
0
2011
0

2012

2013

0 0
-0.01

-0.01

-0.01
-0.01
-0.01
-0.01

-0.01

This is the most important piece of evidence that the bank has been deteriorating in terms of performance.
They have been having a negative earnings spread for the last three years and it has been falling at a
growing rate. Even if the non-interest earnings are very strong it cannot justify a bank having a negative
spread for three consecutive years. Management should be concerned with the rates deposit and loan rates
charged as well as the maturity and diversity of the loan and deposit portfolios.

Profitability Ratios

Return on equity
12.00%

9.84%

10.00%
8.00%

7.66%

8.44%

6.00%
4.00%
2.00%
0.00%

2011

2012

FIN464
Page 11

2013

[Type the document title]

One of the most important ratios of any corporation is the return on equity. For premier Bank, the ratio
has been increasing and this is indeed a very good sign indicating that the shareholders are getting a
greater return on their investments.

Return on asset
1.00%
0.80%

0.87%
0.68%

0.74%

0.60%
0.40%
0.20%
0.00%

2011

2012

2013

The return on asset has also been rising for the bank showing that the banks asset base is generating a
greater return. So we can assume that there is a greater amount of efficiency from management in
utilizing the assets to generate greater returns. However, the figures are quite poor overall as an ROA of at
least 4% is considered to be an appropriate stock.

Net interest margin

2.50%

2.32%

2.13%

2.00%

1.76%

1.50%
1.00%
0.50%
0.00%

2011

2012

2013

A falling interest margin in complacent of the negative spread which is also declining rapidly. The bank
has to make amends in its loan and funding policies to have changed in this ratio.

FIN464
Page 12

[Type the document title]

Net non-interest margin

0.00%
-0.20%

2011

2012

2013

-0.12%

-0.40%
-0.60%
-0.80%
-1.00%

-1.09%

-1.20%
-1.40%

-1.26%

The non-interest margin for the bank is negative implying that the expenses are higher than the revenues.
But the good thing is that we can see improvement taking place and maybe appropriate measures has been
taken that will take some time to get to the positive side.

Net operating margin

7.00%
6.00%

5.77%

5.00%

4.77%

4.93%

2012

2013

4.00%
3.00%
2.00%
1.00%
0.00%

2011

The operating margin of the bank has fallen during 2012 but again increased to 4.93% in 2013. We can
assume that the bank has been having troubles with their non-interest margin and hence there are
fluctuations in their operating margin.

FIN464
Page 13

[Type the document title]

Earnings per share

1.53

1.55
1.5
1.45
1.4
1.35

1.34

1.3

1.3

1.25
1.2
1.15

2011

2012

2013

The earnings per share have shown an improving trend in 2013 and has reached 1.53. It gives us the
earning that each shareholders gets from each dollar that he or she has invested in the stock. An
improvement in EPS is a very good indicator for the overall profitability of a bank.

Net profit margin

0.2
0.18
0.16
0.14
0.12
0.1
0.08
0.06
0.04
0.02
0

0.18
0.15
0.12

2011

2012

2013

Net profit margin is one of the most closely followed numbers in finance. Shareholders look at net profit
margin closely because it shows how good a company is at converting revenue into profits available for
FIN464
Page 14

[Type the document title]

shareholders. The margin has been steadily increasing over the last three years which is a very good sign
for profitability.

Asset utilization ratio

7.00%
6.00%

5.77%

5.00%

4.77%

4.93%

2012

2013

4.00%
3.00%
2.00%
1.00%
0.00%

2011

The asset utilization ratio calculates the total revenue earned for every dollar of assets a company owns. It
fell in 2012 but again reached 4.93% in 2013. Asset utilization ratio has important implications for the
banks efficiency and generation of revenue. A falling ratio may indicate inefficient use of assets.

Tax management efficiency

67.00%
66.00%
65.00%
64.00%
63.00%
62.00%
61.00%
60.00%
59.00%
58.00%
57.00%

65.57%

60.35%

2011

59.98%

2012

FIN464
Page 15

2013

[Type the document title]

The ratio for Premier Bank increased to 65.57% in 2012 and again fell to 59.98% in 2013. The higher the
ratio the better the management of tax. A low ratio would indicate high tax expenditure due to
mismanagement of taxable and tax-deductible securities.

Expense control efficiency

35.00%

29.54%

30.00%
25.00%
20.00%

23.62%
19.58%

15.00%
10.00%
5.00%
0.00%

2011

2012

2013

This ratio gives us a picture of how well expenses are being managed before taking tax in to the equation.
The ratio has been constantly rising for Premier Bank and has accelerated in 2013 to 29.54% indicating
proper management of expenses in generating revenues.

Dividend per share

2.5

2.2

2
1.5
1

2012

2013

0.5
0

2011

FIN464
Page 16

[Type the document title]

The dividend per share has declined considerably during 2012 and 2013 and we can assume that this is
because Premier Bank is reinvesting their retained earnings because of desired growth. However this may
even show a lower profitability.

Dividend payout
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0

1.64

0.77

2011

2012

0.65

2013

Consistent with the DPS the dividend payout ratio has also declined from 1.64 to 0.77 between 2011 and
2012. In 2013 it fell further to 0.65. This would have an adverse effect on the stock price.

Market Position

Price earnings ratio

25

22.98

20
15

12.23

10

7.12

5
0

2011

2012

FIN464
Page 17

2013

[Type the document title]

The price-earnings ratio fell dramatically from 22.98 to 12.23 from 2011 to 2012. It further fell to 7.12 in
2013. This reflects falling investor confidence in the bank and lower growth potential. We can see that
this is also consistent from the fact that Premier bank is giving out lesser dividend as well.

Market to book ratio

2
1.8

1.81

1.6
1.4
1.2

1.04

0.7

0.8
0.6
0.4
0.2
0

2011

2012

2013

The market to book ratio has also fallen by quite a large amount. The markets perception of the bank has
been getting worse each year. In 2013 it fell to almost 0.7 from 1.8 in 2011. Indeed the institution is not in
a good condition from the investors point of view.

Book value per share

17.5
17

16.99

16.5
16

15.34

15.5

15.59

15
14.5

2011

2012

FIN464
Page 18

2013

[Type the document title]

Should the company decide to dissolve, the book value per common indicates the dollar value remaining
for common shareholders after all assets are liquidated and all debtors are paid. The book value per share
was 16.99 in 2011 and fell to 15.34 in 2012. In 2013 it increased to 15.59.

Recommendation
After calculating and analyzing of the ratios, following recommendations can be made,

The bank needs to improve its liquidity ratio. Especially its cash position indicator. Bank
also needs to work on its core deposit ratio as it fell in 2013.
Premiere bank has mixed performance in their profitability ratios. Bank needs to improve
on its net interest margin. It further needs to work on its non interest activity in order to
have a better profitability.
Premiere bank has a highly fluctuating tax efficiency ratio. Thus the bank needs to focus
on tax management tax to minimize the tax expense.
The dividend paid by the bank is decreasing gradually. As a result the market
performance of the bank is decreasing. They need to improve their dividend policy and
improve their stock performance in the market hence or otherwise it may result in further
decline in public confidence or become a subject of takeover.

Conclusion
Banking industry in Bangladesh is becoming more and more competitive. One of the most
important aspect that they need to look in to is their net-interest margin and their earnings spread
as they are quite weak. In order to survive in the market a bank needs to be highly liquid and
efficient enough to create superior service to its customer and clients. Bank also needs to
increase its dividend payment in order to boost the confidence among the stockholder and protect
itself from any attempt of hostile takeover.

FIN464
Page 19

[Type the document title]

Bibliography

Rose, S & Hudgins, S.C. (2010). Bank Management & Financial Services, 8 th
Edition. McGraw Hill production, Singapore.

Dhaka Stock Exchange. (n.d.). Retrieved January 2014, from www.dsebd.org:

http://www.dsebd.org/companylistbyindustry.php?industryno=13

Three years of annual report of Premier Bank.

http://premierbankltd.com/newpbl/vision-mission/

Appendix:
LIQUIDITY POSITION
Cash Position Indicator:
Cashdeposits due

other banks
Total Assests
Liquid Securities indicator:
FIN464
Page 20

[Type the document title]

Government Securities
Total Assests

Capacity Ratio:

Net Loansleases
Total Assests

Core deposit ratio = Core deposit/Total Asset

Deposit composition ratio = Demand deposit/time deposit

EFFICIENCY RATIO
Tax Management ratio:

Net Income
Net income before Tax

Expense Control Efficiency:

Income before Tax

Total operating revenue

Asset Utilization Ratio:

Total operating revenues

Total Assets

Funds Management Efficiency:

Total asset
Total Equity Capital

Operating Efficiency ratio:

FIN464
Page 21

[Type the document title]

TotalOperating Expense
Total Operating Revenue

PROFITABILITY RATIOS
Return on Equity (ROE):

Net income
Shareholders' Equity

Return on Assets (ROA):

Net income
Total Asset

:Net interest Margin:

Interest revenueInterest expense

Total Assets

Net Non Interest Margin:

Non Interest revenueNon Interest expense

Total Assets

Net Operating Margin:

Total operating revenuesTotalOperating expense

Total Assets

Earnings Per share (EPS):

Net Income
Common equity shares outstanding

Net profit margin:

Net income
Total Operating Revenues

MARKET POSITION RATIO

FIN464
Page 22

[Type the document title]

Price Earnings Ratio (P/E):

Market Value Per share

Earning per share

Market-Book Ratio:

Market Value Per share

Earning per share

LEVERAGE RATIO
Debt Ratio:

Total Debt
Total Asset

Debt to equity capital ratio:

Total Debt
Total Equity

Liquidity Ratios
Cash position indicator
Liquid securities indicator
Capacity ratio
Deposit composition ratio
Core deposit ratio

Financial Risk Ratio

2011

2012

2013

0.124574754
0.125319004
0.675094956
0.328828937
0.048291939

0.122948646
0.108671889
0.650105408
0.387495859
0.051766281

0.11461651
0.155757086
0.596707849
0.418346422
0.051629219

2011

2012

2013

FIN464
Page 23

[Type the document title]

Equity multiplier
Debt-Equity ratio
Interest coverage ratio
Leverage ratio

Efficiency Ratio
Operating efficiency ratio
Employee productivity ratio
Earnings spread

Profitability Ratio
ROE
ROA
Net interest margin
Net non-interest margin
Net operating margin
EPS
Net profit margin
Asset utilization ratio
Tax management efficiency
Expense control efficiency
Dividend per share
Dividend payout

Market Position
Price earnings ratio
Market to book ratio
BVPS

11.23131231
10.23131231
9.00%
91.10%

11.43392375
10.43392375
9.14%
91.25%

11.25776976
10.25776976
11.70%
91.12%

2011

2012

2013

0.811003067
3871446.565
-0.004421641

0.788659574
3094875.793
-0.006486069

0.656520335
3456653.68
-0.013017376

2011

2012

2013

7.66%
0.68%
2.32%
-1.26%
5.77%
1.34
0.11814313
5.77%
60.35%
19.58%
2.200000001
1.641791046

8.44%
0.74%
2.13%
-1.09%
4.77%
1.3
0.154860738
4.77%
65.57%
23.62%
1.000000003
0.769230771

9.84%
0.87%
1.76%
-0.12%
4.93%
1.53
0.17717539
4.93%
59.98%
29.54%
1.000000002
0.653594773

2011

2012

2013

22.98
1.812242496
16.99

12.23
1.036440678
15.34

7.12
0.698524695
15.59

FIN464
Page 24