INTRODUCTION

1.0 ORIGIN OF THE REPORT

This report is prepared as a requirement of Business Statistics (BUS 511) course of the MBA

Program. The primary goal of this report is to put into application the different theoretical

models, concepts and statistical tools learned in real life situation.

1.1 BACKGROUND

Prime Bank Limited operating as a scheduled bank under the banking license issued by

Bangladesh Bank was incorporated on February 12, 1995. The vision of the bank is to be the

best private commercial bank in Bangladesh in terms of efficiency, capital adequacy, asset

quality, sound management and profitability having strong liquidity. Prime Bank Ltd

provides all kinds of commercial corporate and personal banking services covering all

segments of the society. The bank has always been very concerned about providing top

quality customer service, which has now become one of its distinctive competencies. The

management always takes into account the changes taking place in the market and takes a

proactive stance in design and delivery of customer friendly products and products tailored to

their needs and also to match the different segments served by the network- both urban and

rural, which makes it different from other local commercial banks of the country. The bank

has a total of 54 branches all over Bangladesh to provide better services to its customers.

Profit (the net profit) is the key tool, which is used to rate the performance of the banks in the

banking sector. Through out the project profit means the net profit. Prime Bank Ltd holds the

second position in terms of earning of profit; the first position is always retained by Islami

Bank Bangladesh Ltd. The third and the fourth earners of profit are usually Pubali Bank Ltd

and Southeast Bank Ltd. Prime Bank Ltd always tries to maximize its profit as this will

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enable it to become the best local commercial bank in Bangladesh. For this the bank should

carefully analyze its deposit, loans, export and import to find ways to increase profit.

Profit can be increased through two mechanisms – earning of fee based income (non interest

income) and interest income. Banks encourage export and import to raise their fees income.

Though increased import has a negative implication for the country in terms of negative

balance of payments but for banks it is an attractive source of income, especially fee based

income. Increase in the amount of export and import can significantly increase the amount of

profit. Export and Import have a positive relationship as increase in export leads to an

increase in import and vice versa.

Deposits lead to creation of interest income. At Prime Bank Ltd, total deposits is being kept

in an account where interest is being generated at the rate of 12%, profit is the difference

between the interest received from prime general account and the cost incurred, which

includes the cost of operations and the cost of deposits (the interest given to customers in lieu

to the amount of deposits being kept). Generally, the amount of deposits received is being

passed on to the borrowers in form of loans from where interest is received. Thus profit is

earned by increasing the amount of deposits and disbursement of loans.

Profit in the branch is also derived from the spread between the rate paid for deposit of funds

and the rate at which the branch receives from its borrowers. The ability to pool deposits

from many sources that can be lent to many different borrowers creates the flow of funds.

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1.2 PROBLEM DEFINITION AND STATEMENT

This topic was basically chosen, as it is seen that profitability is slightly on a decreasing trend

in the recent days and the bank need to find ways through which it can increase the profit to

become number one bank operating in the local banking sector in Bangladesh. The study

being undertaken is therefore to investigate whether any relationship exists between deposits,

loans, export and import with the profit earned at Prime Bank Limited. In context to this no

study has been previously being undertaken on this topic. The problem statement therefore is

“Identifying whether deposits, loans, export and import have any influence on the

profitability of Prime Bank Ltd,”

1.3 NEED FOR THE STUDY

The study will help researchers to extend their understanding on the significant relationship

deposits, loans, export and import have with the profit. Moreover it will initiate managers and

employees to drive their effort in those directions, which will ultimately increase the profit of

the branch, and hence the total profit of the organization.

1.4 OBJECTIVE OF THE STUDY

 to present and test a model that identifies the impact of different factors on the total

profitability.

 to estimate the regression equation.

 to test the different hypotheses

 to suggest ways the bank and branch management can take to improving the total

profitability by using solutions and parameters derived from empirical and descriptive

statistics.

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1.5 SCOPE OF THE STUDY

This data collected in this report was limited to the Gulshan branch only and covered a period

of 20 months – December 2005 to July 2007. It will not be possible to provide data before

December 2005 and any development after July 2007 is not being highlighted in this report.

REVIEW OF LITERATURE

In recent years banks have become increasingly aware of the need to measure the

profitability. As financial intermediaries, banks play a crucial role in the operation of

most economies. Recent research, as surveyed by Levine (1996), has shown that the

efficacy of financial intermediation can also affect economic growth. Crucially, banks

take deposits from savers but paying them interest. They pass it to the borrowers,

receiving interest on loans. The ability to pool deposits from many different sources that

can be lent to many different borrowers creates the flow of funds inherent in the banking

sector. The spread between these two returns mirrors the bank interest margins. This

suggests that bank’s interest spread can be interpreted as an indicator of the efficiency of

the banking system. This is basically due to efficient utilization of bank’s deposits and

loans. According to Levine, profit is a function of the bank’s interest margin and

efficiency of the employees. Profit is the dependent variable. Bank’s interest margin and

efficiency of the employees are the independent variables, which are positively related to

the dependent variable.

According to Karim (2000), export is creation of wealth in any country which depends on the

expansion of production and increasing participation in international trade and import is the

flow of goods and services purchased by economic agents located in one country from

economic events of another country. Karim further mentioned that though increased imports

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have negative implications for the country in terms of negative balance of payments but for

banks, it is an attractive source of income. Banks are the main driving forces which can

initiate in increasing the import and export, though the emphasis should more be on export

than on import. He undertook a study on how export and import affect profitability of the

bank. Export and import helps in reducing the burden of interest that has to be given to the

depositors for keeping their money in the bank and in increasing the amount of profit through

earning of non interest and interest income.

Sayeed (2001) in his study mentioned that profit is a function of corporate image, customers’

satisfaction and quality of the products. He, in his study found that, there exists a positive

relationship between profit (dependent variable) and customer satisfaction, quality of the

product and corporate image (independent variables).

PBL (2007): Deposits are the principal input for a bank, upon which it develops its capacity

of business expansion through the mechanism of money creation. Thereby, banks come up

with persuasive deposit schemes to attract a portion of public income in form of savings

which are to feed into the process.

The major depositors of Prime Bank Ltd constitute of high cost depositors (deposit schemes)

and less of no cost (current account) and low cost deposits (general saving account. The

deposit products of the bank are:

 Contributory Savings Scheme  Monthly Benefit Deposit Scheme

 Education Savings Scheme  Fixed Deposit Scheme (FDR)
 Short Term Deposit  Lakhopati Deposit Scheme
 Double Benefit Deposit Scheme  Foreign Currency Account
 Resident Foreign Currency Deposit  Non-resident Foreign Currency

Account Deposit Account

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  Non-resident Taka Account  Non-resident Investors Taka Account
 House Building Deposit Scheme  Prime Millionaire Scheme
Customers mainly prefer FDR, Contributory Saving Scheme and Lakhopati Saving Schemes

as they provide higher interest.

Loans are the principal product of a bank through which it not only maximizes its

shareholders profit but also helps to boost up the economy of the country by channeling them

to the investment gateway. In granting loans the bank basically looks at the borrower’s

integrity, honesty and intention to pay the borrowed money, borrower’s ability of doing

business, financial strength of the borrower and general business conditions. The loans

products of the bank are:

 General Loan Scheme  Consumer Credit Scheme

 Lease Finance  Hire Purchase
 House Building / Apartment Loan Scheme  Advance against Share
 Small and Medium Enterprise (SME)

Prime Bank Ltd also caters to the trade finance market. Manufacturing activity in Bangladesh

is relatively subdued, but there are certain industries such as textiles, where the country has a

competitive advantage. Many textiles manufacturers export their merchandise (garment

exporters for example) and it is this customer segment that the bank mainly caters to. The

bank is involved at all stages of the export cycle: it gives pre-shipment finance and post-

shipment facilities In addition, the bank also undertakes some amount of project financing for

its clients’ plant and machinery or modernization requirements. In case of export the facilities

provided are:

 Back To Back Letter of Credit  Export and Packaging Cash Credit

 Pre-shipment Credit  Post- shipment Finance – Negotiation and

Purchase of Bills

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The import facilities provided are:

 Loan against Trust Receipts (LTR)  Payment against Documents (PAD)

 Loan against Imported Merchandise (LIM)

THE THEROTICAL/ CONCEPTUAL MODEL

A model is an operationalization of a theory, an abstraction of real life phenomenon. The

purpose of a model is to concisely provide a comprehensive representation of the relationship

between the dependent and the independent variables. Theories are basically guidelines used

for the purpose of formulating the theoretical/conceptual model. The objective in multiple

regression is to analyze the relationship between a single dependent (criterion) variable with

several independent (predictor) variables.

Basically four independent variables are taken and shown as the function of the dependent

variable. The four independent variables are deposits, loans, export and import and profit is

the dependent variable. These four independent variables are taken into account as there are

considered to the important elements which affects profitability. The model is give below.

Profit =f [Deposits, Loans, Export, Import]

that is y=f [x1, x2, x3, x4]

where y = profit, the dependent variable.

x1 = deposits, the independent variable 1.

x2 = loans, the independent variable 2

x3 = export, the independent variable 3.

x4 = import, the independent variable 4..

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RESEARCH DESIGN

2.1 RESEARCH QUESTIONS

This study proposed to investigate the following questions:

 Is there any significant relationship between deposits and profit in context of Prime

Bank Ltd.?

 Is there any significant relationship between loans and profit in context of Prime Bank

Ltd.?

 Is there any significant relationship between export and profit in context of Prime

Bank Ltd?

 Is there any significant relationship between import and profit in context of Prime

Bank Ltd?

2.2 RESEARCH HYPOTHESES

Hypotheses 1:

Profit is positively related to deposits, if deposits (x1) increase, profit (y) will increase and

vice versa which means dy/dx1 > 0

Hypotheses 2:

Profit is positively related to loans, if loans (x2) increase, profit (y) will increase and vice

versa which means dy/dx2 > 0

Hypotheses 3:

Profit is positively related to export, if export (x3) increases, profit (y) will increase and vice

versa which means dy/dx3 > 0

Hypotheses 4:

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Profit is positively related to import, if import (x4) increases, profit (y) will increase and vice

versa which means dy/dx4 > 0

DATA COLLECTION AND ANALYSIS PROCEDURE

DATA COLLECTION

Majority of the data was collected from secondary sources, from the internal database of the

branch, especially from the statements, which are being sent to the Financial Administration

Department (FAD) of the bank and Bangladesh Bank (BB) at the end of every month.

Moreover, primary data in form of face-to-face interviews with people working related to the

relevant departments was used to gather information regarding the independent and the

dependent variables. All the variables - independent and dependent are quantitative variables

Time series data (data collected at several successive periods of time) is used in this study, a

period of 20 months is taken from December 2005 to July 2007, and the sample size is

therefore 20. Moreover the amount of deposits, loans, export and import are expressed in

million Tk. Internet was also used to gather information to enhance data collection, especially

for review of literature.

DATA ANALYSIS

To effectively analyze the independent variables and the dependent variable, both descriptive

and empirical statistics were used; the multiple regression model, relationship analysis and

test of hypotheses helped in determining the relationship and extent of relationship between

the dependent and the independent variables. For this research MS-Excel was used as the

statistical data analysis tool.

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TIME FRAME AND COST

The total time that will be taken to completer the study was 6 weeks and cost incurred was

around TK 2000 to finance transportation cost, purchase of secondary research materials, fees

for organizations such as libraries etc.

THE REGRESSION MODEL

Regression method provides a mean of objectively assessing the degree and character of the

relationship between dependent and independent variables. Multiple regression model uses

several independent variables to predict the dependent variable. The least square method is

used

y=β0+ β1x1 + β2x2 + β3 x3 + β4 x4 + є

β0= y intercept of the regression line

β1, β2, β3, β4, = slope parameters

x1, x2, x3, x4= independent variables

є = error term that accounts for variability in y which cannot be explained by the relationship

between dependent and independent variables using the regression model

One of the assumption of the regression model is that the mean or expected value E(Є) = 0

Therefore, expected value of y is

E(y) =β0+ β1x1 + β2x2 + β3 x3 + β4 x4

Hence

y= b0+ b1x1 + b2x2 + b3x3 + b4x4

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In light of our study

y = profit (in million taka)

b0 = profit independent of the deposits, loans, export and import

x1 = deposits (in million taka)

x2 = loans (in million taka)

x3 = export (in million taka)

x4 = import (in million taka)

b1 = change in profit associated with unit change in deposits

b2 = change in profit associated with unit change in loans

b3= change in profit associated with unit change in export

b4= change in profit associated with unit change in import

FINDINGS AND ANALYSIS

2.3 DATA SUMMARY

Table 1: Data Set Representing the Relationship between Dependent and Independent
Variables.

PROFIT DEPOSITS LOANS EXPORT IMPORT

PERIOD (in Million (in Million
(in Million Tk) (in Million Tk) (in Million Tk)
Tk) Tk)
y X1 X2 X3 X4
Dec-05 120.00 23,904.00 15,232.00 1,234.00 3,484.00
Jan-06 150.00 26,468.00 18,323.00 1,568.00 4,304.00
Feb-06 200.00 27,746.00 25,000.00 2,041.00 5,297.00
Mar-06 185.00 24,040.00 22,232.00 1,985.00 4,240.00
Apr-06 302.00 28,849.00 29,323.00 2,679.00 6,200.00
May-06 369.00 29,684.00 25,745.00 4,892.00 7,523.00
Jun-06 440.00 30,528.00 29,232.00 7,232.00 8,168.00
Jul-06 482.00 31,387.00 26,323.00 8,100.00 6,463.00
Aug-06 532.00 32,246.00 27,796.00 8,321.00 6,930.00
Sep-06 580.00 33,126.00 39,232.00 9,213.00 7,520.00
Oct-06 720.00 34,040.00 45,232.00 12,324.00 7,690.00
Nov-06 762.00 35,000.00 49,323.00 15,321.00 8,690.00

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 Dec-06 323.00 24,244.00 12,323.00 5,600.00 4,329.00
Jan-07 425.00 26,673.00 20,232.00 7,623.00 6,230.00
Feb-07 195.00 24,835.00 21,236.00 4,532.00 3,217.00
Mar-07 230.00 28,324.00 15,000.00 6,235.00 4,217.00
Apr-07 392.00 32,222.00 18,323.00 9,323.00 5,239.00
May-07 439.00 36,623.00 29,174.00 6,893.00 4,490.00
Jun-07 422.00 32,323.00 25,000.00 7,123.00 3,217.00
Jul-07 311.00 34,323.00 15,032.00 6,896.00 3,112.00
$7,579.00 $596,585.00 $509,313.00 $129,135.00 $110,560.00

The above table represents the data set used in this study, y is the dependent variable and x0,

x2, x3, x4 are the independent variables, y = profit, x1 = deposits, x2 = loans, x3 = export and x4 =

import. All the above data are quantitative and in million taka.

2.4 DESCRIPTIVE ANALYSIS

Descriptive statistics uses tabular, graphical and numerical methods to analysis the set of

data. This tool is basically used to provide summaries of the information in the data set. The

table below highlights the important information about the dependent and independent

variables.

Table 2: Descriptive Statistics for the Data Set.

PROFIT DEPOSITS LOANS EXPORT IMPORT

(in Million (in Million
(in Million Tk) (in Million Tk) (in Million Tk)
Tk) Tk)

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 Y X1 X2 X3 X4
Mean 378.95 29,829.25 25,465.65 6,456.75 5528
Standard Error 39.996347 882.5698 2,207.94496 810.5488 402.61839
Median 380.5 30,106.00 2,5000.00 6,894.5 5,268.00
Mode - - 18,323 - 3,217
Standard Deviation 178.8691 3,946.972 9,874.23003 3,624.884 1,800.5642
Sample Variance 31,994.155 1,55,78,589 9,75,00,418.8 1,31,39,786 32,42,031.4
Kurtosis -0.0969759 -1.15794 0.90020075 0.571779 -1.29308
Skewness 0.5767167 -0.07911 1.06178516 0.559949 0.2380053
Range 642 12,719 37,000 14,087 5,578
Minimum 120 23,904 12,323 1,234 3,112
Maximum 762 36,623 49,323 15,321 8,690
Sum 7,579 5,96,585 50,9313 1,29,135 1,10,560
Count 20 20 20 20 20

Table 2 provides information about the mean, median, standard deviation, mode, range, etc of

the different variables. - profit, deposits, loans, export and import.

 Mean is the measure of central location for the data set. From the above table it can be

seen that the mean of the profit is Tk. 378.95 million, deposits is Tk 29,829.25 million,

loans is Tk 25,465.65 million, export is Tk. 6,456.75 million and Import is TK 5,528

million.

 Median reflects similar scenario as the mean. In terms all the variables there is not much

differences between the mean and median of the dependent and independent variables,

either one can be taken as a measure of central tendency.

 Mode also a measure of central location is defined as the value of a variable that occurs

most frequently. In this case for loans (x2) and import (x4), the mode is Tk 18,232 million

and Tk 3,217 million which means these two values have occurred more than once in

respective to the variables in the data set.

 Variance is the measure of variability based on the square deviations of the data values

about the mean and standard deviation is also a measure of variability which is computed

by taking the positive square root of the variance. From the above data it can be seen that

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 there is high variability in the data set for all the variables especially in case of loans (x2)

which being Tk 9,874 million.

 Range also measure variability is the difference between the largest value and the smallest

value for each variables in the data. An interesting finding is that in this case the range for

loans(x2) and export(x3) is the highest at Tk 37,000 million and Tk 14,087 million

respectively.

 Scatter diagram, a graphical presentation of the relationship between variables, enables to

comprehend the relationship each independent variable has with the dependent variable.

Below four scattergrams are given which depict the relationship deposits, loans, export and

import have with profit.

800.00
700.00
Profit (in million Tk.)

600.00
500.00

400.00
300.00
200.00
100.00
0.00
0.00 6,000.00 12,000.00 18,000.00 24,000.00 30,000.00 36,000.00 42,000.00
Deposits (in million Tk. )

800.00
Figure 2: Partitioned Scatter Diagram of Profit and Deposits
700.00
Profit (in million Tk.)

600.00
500.00
400.00
300.00
200.00
100.00
0.00
- 8,000.00 16,000.00 24,000.00 32,000.00 40,000.00 48,000.00 56,000.00

Loans (in million Tk.)

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Figure 3: Partitioned Scatter Diagram of Profits and Loans

800.00

700.00
Profit (in million Tk.)

600.00

500.00

400.00

300.00

200.00

100.00

0.00
0.00 2,500.00 5,000.00 7,500.00 10,000.00 12,500.00 15,000.00 17,500.00

Export (in million Tk.)

Figure 4: Partitioned Scatter Diagram of Profit and Export

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 800.00

700.00

Profit (in million Tk.)

600.00

500.00

400.00

300.00

200.00

100.00

0.00
0.00 1,500.00 3,000.00 4,500.00 6,000.00 7,500.00 9,000.00 10,500.00

Import (in million Tk.)

Figure 5: Partitioned Scatter Diagram of Profit and Import

From the above scatter diagrams, it can be depicted that as maximum of the data values falls

in (I) and (III) quadrants, there exists a positive linear association between each of the

independent variables – deposits, loans, export and import with the dependent variable –

profit, if the independent variables increase/decrease, the dependent variable will

increase/decrease in the same direction. An interesting finding is that in case of export and

profit, almost all the data are in the (I) and (III) quadrants, therefore it can be said almost a

perfect positive linear association exists between profit and export. In all the above diagrams,

the horizontal line represents the mean of profit (dependent variable). The vertical line

represents the mean of deposits, loans, export or import (independent variables)

corresponding to each of the variables of the horizontal axis.

2.5 EMPIRICAL ANALYSIS

2.5.1 Regression Analysis

Empirical analysis uses the estimated regression equation, interpretation of the parameter

values, the correlation coefficient and test of hypotheses along with the level of significance

to summarize data.

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Table 3: Output Summary for the Regression Equation.
REGRE SSION ANALYSIS
Multiple R 0.975898947
R Square 0.952378754
Adjusted R Square 0.939679756
Standard E rror 43.93057327
Observations 20

ANOVA
df SS MS F Significance F
Regression 4 578940.521 144735.1302 74.99636517 9.86919E-10
Residual 15 28948.42902 1929.895268
Total 19 607888.95

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0%Upper 95.0%
Intercept- Profit (y) -163.329326 101.9354019 -1.60228265 0.129938078 -380.5996257 53.94097374 -380.5996257 53.94097374
Deposits (x1) 0.005036769 0.002132978 2.361378325 0.021976506 -0.003346181 0.013419719 -0.003346181 0.013419719
Loans (x2) 0.003960151 0.001829186 2.164980071 0.046922093 6.13312E-05 0.007858971 6.13312E-05 0.007858971
Export (x3) 0.029156619 0.004629279 6.298306264 1.42799E -05 0.019289538 0.039023701 0.019289538 0.039023701
Import (x4) 0.018620019 0.00895503 2.079280449 0.055161024 -0.000467188 0.037707225 -0.000467188 0.037707225

The Estimated Regression Line

From the above table the estimated regression equation is as follows:

ŷ = -163.33 + 0.0050x1 + 0.0040x2 + 0.0292x3 + 0.0186x4

Interpretation of Parameter Values

The value of y intercept, b0 = -163.33, which means that if there are no deposits, loans, export

and import, there would be a loss of 163.33 million taka and which is highly possible. Firstly,

these variables are the core determinants which significantly affect the profit. Secondly, even

if no income is generated from these areas, the banks still have to pay the cost of operations

which includes salaries of employees, utilities etc. and the bear the cost of deposits (interest).

In Prime Bank Ltd, also for Gulshan Branch, there is mostly high cost deposits i.e. high

interest bearing deposits.

The value of b1= 0.0050, that is dy/dx1 >0, where dy =per unit change of y and dx1=per unit

change in x1 which means that if the amount of deposits increase by 100 million taka, profit

will increase by 0.50 million taka holding other variables constant.

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The value of b2= 0.0040, that is dy/dx2 >0, where dy =per unit change of y and dx2=per unit

change in x2 which means that if loans increase by 100 million taka, profit will increase by

0.40 million taka holding other variables constant.

The value of b3= 0.0292, that is dy/x3 >0, where dy =per unit change of y and dx3=per unit

change in x3 which means that if export increases by 100 million taka, profit will increase by

2.92 millions other variables constant.

The value of b3= 0.0186, that is dy/dx4 >0, where dy =per unit change of y and dx4=per unit

change in x4 which means that if import increases by 100 million taka, profit will increase by

1.86 million taka holding other variables constant.

Coefficient of Determination:

Coefficient of determination is a measure of the goodness of fit of the estimated regression

equation. It can be interpreted as the proportion of variability in the dependent variable y that

is explained by the estimated regression equation. From table 3, the unadjusted coefficient of

determination, R2 = 0.9523 and adjusted coefficient of determination, R2 = 0.9396, which

means that the variation in deposits, loans, export and import explains 95.23% of the

variation in profit when no adjustment is made for the degree of freedom.

2.5.2 Correlation Analysis

Correlation coefficient is a descriptive measure of the strength of linear association between

two variables. Values of correlation coefficient are always between -1 and +1. A value of +1

indicates that the two variables are perfectly related in a positive linear sense, a value of -1

indicates that the two variables are perfectly related in a negative linear sense. Values of

correlation coefficient close to zero indicate that two variables are not linearly related.

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Sample Correlation Coefficient is

rxy = (sign of b1) √(Coefficient of Determination)

= ± √r2

where, b1 = the slope of estimated regression equation.

If any two independent variables depict correlation greater than 0.90, it creates the problem of

multicollinearity and hence it is suggested to drop one of the dependent variables.

Table 4: Matrix of Correlation Coefficient for the Variables

DEPOSITS(x1 EXPORT(x3 IMPOR

PROFIT (x1) LOANS(x2)
) ) T (x4)
PROFIT (x1) 1
DEPOSITS(x1
) 0.751482 1
LOANS(x2) 0.8245013 0.60627921 1
EXPORT(x3) 0.8285694 0.72887963 0.67024623 1
IMPORT (x4) 0.7466003 0.41144993 0.76010354 0.587712 1

For the above table, it can be seen that none of the two independent variables depict

correlation greater than 0.90, therefore there is no existence of the problem of

multicollinearity between the independent variables and thus the independent variables are

not highly correlated with each other. The maximum correlation is between loans and import

and between deposits and export at 0.76 and 0.72 respectively, which being less than 0.90. It

can be seen that a somewhat high correlation exists between Import and Loans. In Prime

Bank Ltd, in case of import, a loan account is created to make payment to the exporter which

leads to an increase in loans and later on it is adjusted when the customer pays for it from his

own source. Export is related to deposits because after undertaking an export, proceeds are

received against the export and which is usually kept in the account maintained in the bank

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by the client and also a portion of the proceeds received are build up by the bank. These lead

to increase in profit. Moreover the sign of each of the correlation is positive.

2.5.3 Test of Hypotheses

Setting up and testing hypotheses is an essential part of statistical inference. For testing of

hypotheses two point are noted, the sign of relationship and the level of significance. For test

of hypotheses, the t-test has been used. According to the rule if the absolute tcalculated value is

greater than the ttable value, then the variables are said to be significant at α level.

The ttable value is tα , df (degree of freedom = n-k-1, n= sample size, k= number of parameters

in the model). In this model, df = 20 - 4 - 1 =15

After running the regression, it is found that for

Deposits (x1), tcalculated value = 2.36

Loans (x2), tcalculated value = 2.16

Export (x3), tcalculated value = 6.30

Import(x4), tcalculated value = 2.08

At 99% confidence level, where α = 1-0.99 = 0.01, ttable value at t.01, 15=2.602, tcalculated values

for some of the variables are not greater than t table value, hence at this confidence level some

of the independent variables are not statistically significant with the dependent variable.

At 95% confidence level, where α = 1-0.95 = 0.05, ttable value at t.05, 15=1.753. As all the

tcalculated values are greater than ttable value, hence at this confidence level all the independent

variables are statistically significant with the dependent variable.

Deposits (x1), tcalculated value = 2.36 > t.05, 15=1.75

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Loans (x2), tcalculated value = 2.16 > t.05, 15=1.75

Export (x3), tcalculated value = 6.30 > t.05, 15=1.75

Import(x4),, tcalculated value = 2.08 > t.05, 15=1.75

It can also be seen from table 3, that the signs of the coefficient of the variables – deposits,

loans, export and import are all positive.

Therefore, it can be concluded that, at 95% confidence level all the independent variables are

statistically significant with the dependent variables as tcalculated value is greater than ttable value.

Moreover as the slope coefficients are all positive, there exists a statistically significant

relationship between the dependent and the independent variables, especially between profit

and export. Hence it can be concluded that if deposits, loans, export and import increases

profit will also increase and vice versa.

3.0 RECOMMENDATIONS

Based on the findings and analysis, several strategic recommendations have been devised that

can assist in increasing profitability.

 Reducing High Cost Deposits: In Prime Bank Ltd, high cost deposits are more than 65

percent of the total deposits. As high cost deposits carry higher rate of interest, this puts

pressure on the total income earned by increasing the cost of deposits and ultimately the cost

of funds. The bank should try to have a deposit portfolio which has more of no cost low cost

deposits and less of high cost deposits. For this the marketing department of the bank has to

tighten their belts. The bank may also look for cheaper sources of funds that are held by

various government agencies. Thus even if less income is generated the bank will not it have

to take funds from other sources to finance for the depositors interest.

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 Increasing Loans: According to Bangladesh Bank, a bank will be able to use 89% of its

deposits to finance loans to customers, in this case it is only 85%, and hence the bank has

the capacity to increase loans by 4%, which will lead to increase in profit through increase

in interest income.

 Increasing Investments: The bank should increase its investments in sectors like

automobiles, real state, health care etc. in order to make adjustment in its credit portfolio.

Because the present portfolio is somewhat off-balance due to heavy exposure in garments

sector. Though it may have negative impact on its profitability, the bank will find it in

strong foothold in the days to come.

 Increasing Fee Based Income: It is been seen that to maintain excellent clientele

relationship, especially in case export and import, the bank waives some portion of the

commission and other changes to some of its clients. .Instead if charges Tk. 0.90% on

every Tk.1 amount of import, the bank for some of its clients charges only TK 0.25% and

sometimes even TK 0.1%. Also in case of export instead of charging 0.20% on the amount

of export, the bank charges a flat rate of Tk.2000 or Tk. 3000 irrespective of the amount of

export. These all greatly reduce the amount of income generated from export and import.

Thus the bank should try to reduce doing this otherwise profit will not increase and might

even fall.

 Increasing Export: From the analysis it has been seen that export is highly related to

profit. If export increases profit will increase more than increase in other independent

variables. Prime Bank Ltd should try to increase the volume and amount of export by

undertaking various promotional and other activities.

 Arranging for More Workshops and Seminars: The bank should arrange for more

workshops so that the employees and management are equipped and well informed about

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 the ways they can develop a quality portfolio of assets and liabilities, which will increase

profitability.

LIMITATIONS OF THE STUDY

 Prime Bank Ltd maintains strict confidentiality about providing their information

especially in case of quantitative data; therefore it was quite difficult to obtain all the

necessary data that was required to extensively complete the report and to make the report

more analytical.

 Some part of the report is based on the face-to-face interviews, which consists of view

and opinions of those people. As the employees of the bank interviewed were very busy it

was difficult to get time from them to get sufficient information. Moreover some of them

were not able to or were reluctant to provide concrete facts and figures.

 The sample size taken was small, only monthly data of 20 months and that only of the

Gulshan Branch were taken. It was not possible to get data of the previous years as the

bank did not keep any previous records. So the necessary analysis had to be made based

on these 20 months data.

 The nature of information was somewhat confidential and critical to analyze. It was quite

difficult to have the sufficient knowledge and understanding in that particular field, in a

period of 3 months.

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CONCLUSION

Through descriptive and empirical analysis, I have failed to reject the hypotheses and in a

nutshell, it can be said that deposits, loans, export and import have an influence on the

profitability of the bank. These are the core determinants of profit especially export and

should be further studied and scrutinized by the management and respective departments

to see how and the extent to which they affect profit. Other factors which affect

profitability of a bank are government and Bangladesh Bank’s policies and rules..

Various recommendations have been suggested which can be used to increase the amount of

profit such as reducing dependency on high cost deposits, making the maximum use of

deposits by increasing the amount of loans, increasing investments and exports,

increasing fees based income and arranging for more workshops and seminars.

By rigorously improving and developing strategies to reduce its shortcomings it will be

possible for Prime Bank Limited to be one of the best local commercial bank in Bangladesh

in terms of efficiency, capital adequacy, asset quality, sound management and profitability

having strong liquidity and to become the number one bank in future..

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