“Financial Performance Comparison of Top Rated

Commercials Banks of Bangladesh”

Asif Ahmed
BBA Student
Department of Accounting & Information Systems
Faculty of Business Studies
University of Dhaka, Bangladesh

E-mail; asif.ahmed0001@yahoo.com
Website; http://ssrn.com/author=1447219
http://works.bepress.com/asif_ahmed

July 10, 2010

 Abstracts:
The objective of preparing this paper is to find out the best performing commercial banks of Bangladesh.
For find out the best performing commercials banks primarily banks with higher credit rating, at least
AA3, are selected. Through out the paper these banks are analyzed based on some key financial ratios,
like - Credit Deposit Ratio (CDR), Ratio of Classified Loan against Total Loan, Cost of Fund (COF), Return
on Investment (ROI), Return on Asset (ROA), Return on Equity (ROE), Earnings per Share (EPS), Net
Income (NI) Ratio and Credit Rating (CR). Based on the performance on the each ratios banks are scored.
Finally the raking of the banks is done by adding all the score on each ratio.

Methodology:
For preparing this paper information are mainly collected from the annual report of the respective banks,
credit rating report, banks website. The various ratio analysis that are used in the paper are collected
form the banks annual reports and financial statements and the ratios that are not found in the annual
report directly are calculated form the information provided in the annual reports. Eight ratios are
selected to judged the various aspects of efficiency of the banks, like – ‘Credit Deposit Ratio’ to judge the
efficiency of using money, ‘Ratio of Classified Loan against Total Loan’ to judge the efficiency of loan
collection, ‘Cost of Fund’ to measure the efficiency of marinating fund cost, ‘Return on Investment (ROI)’
to measure the investment efficiency, ‘Return on Asset (ROA)’ to measure the efficiency of using banks’
assets, ‘Return on Equity (ROE)’ to measure the efficiency of using equity, ‘Earnings per Share (EPS)’ to
measure the earnings per share capital and ‘Net Income Ratio’ to measure the efficiency of operating cost
to generate revenue. Another thing also counted that is credit rating.

For ranking the banks score are provided according to the performance of the banks in the above
mentioned ratio. The information counted for the ranking is of last five years. But the emphases are given
more on the current year performance by multiplying the score with the year. The detail of the score is
given in the table – 1 (page - 16). And the system of scoring are provided with the segment of analysis.

2 Financial Performance Comparison of Top Rated Commercials Banks of Bangladesh (Asif Ahmed)
 Introduction:
The bloodstream of any country is its economy. And the commercial banks are one of the main players of
the economy. In Bangladesh there are 43 commercial banks where 4 are governmentally owned, 30 are
privately owned and others are foreign commercial banks. Out of the 30 privately owned Bangladeshi
commercial banks AB Bank Limited, BRAC Bank Limited, Dutch Bangla Bank Limited (DBBL) and Bank
Asia Limited are hold credit rating of AA3 or higher according to the Credit Rating Agency of Bangladesh
(CRAB). For financial year 2009 credit rating of AB Bank Limited and Dutch Bangla Bank Limited was
‘AA3’ and BRAC Bank Limited and Bank Asia hold AA2.

Findings of Analysis of Financial Performance:

The analyses of the financial performance of the four selected Bangladeshi commercial banks of last 6
years and 5 years are presented below with their average performance.

Credit Deposit Ratio (CDR):

Credit Deposit Ratio (CDR) is an important ratio, especially for banks. By the CDR it is founded a bank
could invest how much of the money that it collected form the depositors or peoples. The CDR of the
selected four banks in the last 6 years is given in the following chart along with the average (AVG) CDR in
those 6 years.

3 Financial Performance Comparison of Top Rated Commercials Banks of Bangladesh (Asif Ahmed)
 100%
94.84% AB
96.59% 94.20%
Bank
91.67%
90.81%
90% 88.04% 88.00%
87.94% Bank
86.87% 87.14%
85.02% 85.28% Asia
86.41%
85.31%
82.05% 82.71%
82.93% 80.83%
83.50% DBBL
80%
78.16% 75.93% 76.66% 80.85%
74.07%
BRAC
74.36%
70% 71.74%
69.82%
AVG

60.10%
60%
2004 2005 2006 2007 2008 2009

Fig; CDR in Last 6 Years

From the above mentioned figure it is found that Bank Asia always on the top with 88.04%, 96.59%, 88%,
94.84%, 94.20% and 91.64% form 2004 to 2009 respectively. BRAC bank also performed above the
average of these four banks where DBBL perform below average for the last 5 years and AB Bank
perform below average in first 5 years and came above average in the last year. For this segment of
analysis higher score will be provided to the banks with higher percentage in every year, as the higher
percentage dictates higher efficiency in using money. And the detail score are presented at the following
table –

Banks 2009 2008 2007 2006 2005 Total

AB Bank 15 8 6 2 1 32
Bank Asia 20 16 12 8 4 60
DBBL 5 4 3 4 2 18
BRAC 10 12 9 6 3 40

4 Financial Performance Comparison of Top Rated Commercials Banks of Bangladesh (Asif Ahmed)
 Ratio of classified loan against total loan:
Ratio of classified loan against total loan dictates the percentage of bad loans to total loans. This ratio is
very much useful to measure the efficiency in collecting money. Under this ratio higher the percentage,
lower the efficiency of bank. This ratio for the selected banks in the last 6 years is as follows –

Ratio of Classified Loan against Total Loan

12%
11.36%

10%

8% 8.21%

7.33%
6% 6.04%
4.69%
4.45%
4.02% 4.31%
4% 3.70% 3.62% 3.41%
3.30%
3.04% 3.27%
2.77% 3.00% 2.99% 3.21%
3.26% 2.75%
2.68%
2% 2.25% 2.44% 2.68% 2.46%
2.27% 1.58%
1.58%

0%
2004 2005 2006 2007 2008 2009
AB Bank Bank Asia DBBL BRAC AVG

This figure shows that bad loan of AB bank was very high with 11.36%, 8.21%, and 4.02% in 2004, 2005
and 2006 respectively. In 2008 and 2009 it came under the average. BRAC Bank has the highest bad loan
in last three years with 4.45%, 4.69% and 6.04% respectively. And the Bank Asia and DBBL performed
better and were under average. For this ratio higher score will be given to bank with lower percentage as
lower percentage dictates higher efficiency.

5 Financial Performance Comparison of Top Rated Commercials Banks of Bangladesh (Asif Ahmed)
 Banks 2009 2008 2007 2006 2005 Total
AB Bank 10 12 6 2 1 31
Bank Asia 20 16 12 8 2 58
DBBL 15 8 9 6 4 42
BRAC 5 4 3 4 3 19

Cost of Fund (COF):

Another ratio to judge the efficiency is the cost of fund. The percentage of this ratio indicate amount of
cost required to incur by the bank to collect a certain amount of money, higher the cost of fund, lower the
efficiency of the organization. The cost of collection of money of the selected four banks for the last 6 and
5 years are presented in the following chart –

Cost of Fund
12%

11.09%
10.54%
10.04% 10.34%
10% 9.84%
9.51%
9.09% 9.44%
8.90%
8.60% 8.91%
8.53% 8.80% 8.47% 8.49%
8.47% 8.44% 8.38%
8% 7.82% 7.81% 8.15%
8.27%
7.58% 7.66%
7.48%
7.58%
7.11%
6.53%
6%
2004 2005 2006 2007 2008 2009

AB Bank Bank Asia DBBL BRAC AVG

6 Financial Performance Comparison of Top Rated Commercials Banks of Bangladesh (Asif Ahmed)
 The above chart shows that the cost of fund of AB Bank was always higher with 8.53%, 8.60%, 10.04%,
11.09% and 10.34% from 2004 to 2009 respectively. The cost of BRAC Bank almost always with the
average and cost of DBBL are always below the average where the cost of Bank Asia was sometime higher
and sometime lower than the average. For this ratio higher score will be provided to the lower
percentage holder. The sore of the banks under this ratio are as follows –

Banks 2009 2008 2007 2006 2005 Total

AB Bank 5 4 3 2 1 15
Bank Asia 15 8 9 8 2.5 42.5
DBBL 20 16 12 6 4 58
BRAC 10 12 6 4 2.5 34.5
Bank Asia and BRAC Bank are in the joint position in 2005. That why the score of 2nd and 3rd position are
equally divided among them by adding the two score.

Return on Investment (ROI):

Return on Investment (ROI) is the ratio of money gained or lost (whether realized or unrealized) on an
investment relative to the amount of money invested. The amount of money gained or lost may be
referred to as interest, profit/loss, gain/loss, or net income/loss. By this ratio we can measure the
efficiency of the firms in investment decision making to earn the highest return. For this ratio, higher the
return on investment, higher the efficiency of the organization on investment decision making. The ROI of
the four selected banks are presented in the following figure –

7 Financial Performance Comparison of Top Rated Commercials Banks of Bangladesh (Asif Ahmed)
 Return on Investment (ROI)
25%
22.87%
23.89%
21.06%
20%
18.81% 18.61%
15.02% 16.65%
15% 13.77% 14.64%
13.88%
10.81% 11.64% 12.30%
12.61%
11.09%
9.15%
10%
8.54% 9.69% 9.48% 9.69%
6.26% 7.36% 7.45%
5.87% 7.30%
5% 4.15% 5.88%

2.03%
0%
2004 2005 2006 2007 2008 2009

AB Bank Bank Asia DBBL BRAC AVG

From the above mentioned chart it is found that AB Bank had the higher investment efficiency with
18.81%, 22.87%, 23.89% and 21.06% in the last four years respectively. And the other three banks were
under the average for the maximum times, though Bank Asia performs above average in 2005 and 2009.
For this ratio higher score will be provided to the organization with higher performance as higher
percentage means higher efficiency of the organization on investment decision making. The score sheet
of the banks are provided below –

Banks 2009 2008 2007 2006 2005 Total

AB Bank 20 16 12 8 2 58
Bank Asia 15 12 6 4 4 41
DBBL 10 4 3 2 1 20
BRAC 5 8 9 6 3 31

8 Financial Performance Comparison of Top Rated Commercials Banks of Bangladesh (Asif Ahmed)
 Return on Assets (ROA):
The return on assets (ROA) percentage shows how profitable a company's assets are in generating
revenue. Higher the percentage of return, higher the efficiency of assets. The ROA of the selected banks
are as follows –

Return on Assets (ROA)

4.00%
3.55%
3.52%
3.50%
3.17% 3.17%
3.41%
3.00%
2.58% 2.58%

2.50% 2.40%
2.22%
2.04% 2.18%
2.00%
1.71% 1.87%
1.62% 1.64% 1.60%
1.49% 1.45%
1.43%
1.50%
1.43% 1.31% 1.49% 1.56%
1.29%
1.00%
1.01%
0.93%
0.50%
0.50%
0.39%
0.00%
2004 2005 2006 2007 2008 2009
AB Bank Bank Asia DBBL BRAC AVG

Form the above chart it can be said that Bank Asia lost its efficiency in the recent year and the AB Bank
gained efficiency in using assets in recent years. In 2004, 2005, 2006 and 2007 Bank Asia was in the
highest position with 2.58%, 2.58%, 3.17% and 3.55% respectively where in 2008 and 2009 AB bank
hold the highest position with 3.17% and 3.52% respectively. The efficiency of BRAC bank remained
constant below average in these years and DBBL also in the same position of BRAC in recent years. For
this ratio higher score will be provided to the organization with higher performance as higher percentage

9 Financial Performance Comparison of Top Rated Commercials Banks of Bangladesh (Asif Ahmed)
 means higher efficiency of the organization in using assets. The score sheet of the banks are provided
below –

Banks 2009 2008 2007 2006 2005 Total

AB Bank 20 16 9 4 1 50
Bank Asia 15 12 12 8 4 51
DBBL 10 4 3 2 2 21
BRAC 5 8 6 6 3 28

Earnings per Share (EPS):

Earning per Share (EPS), one of the major concern for investor, indicate the earnings of the firm against
its’ each share or stock. This ratio usually used to find out the operating efficiency of the firm against its’
total number of share. The EPS of the banks in the last 6 years are as follows –
Earnings Per Share (EPS)
300
256.1
250
237.37

200
181.97 179.18

150 145.77
131.13
89.72
100 93.08
73.25 86.07 82.46
59.71 75.85
47.3 62.3 61.88
39.48 41.24 42.63
50 54.78 60.98
28.84 38.54 42.29
31.26 29.38 32.02
18.19
0
2004 2005 2006 2007 2008 2009
AB Bank Bank Asia DBBL BRAC AVG

10 Financial Performance Comparison of Top Rated Commercials Banks of Bangladesh (Asif Ahmed)
 The chart shows that AB Bank lead this ratio among four banks in 2007, 2008 and 2009 with tk. 256.10,
tk. 89.72 and tk.131.13 respectively where in 2005 and 2006 it was leaded by DBBL with tk. 181.97 and
tk. 179.18 respectively. And the EPS of BRAC Bank and Bank Asia were below average. For this ratio
higher score will be provided to the organization with higher percentage as higher percentage means
higher efficiency of the organization. The score sheet of the banks are provided below –

Banks 2009 2008 2007 2006 2005 Total

AB Bank 20 16 12 6 1 55
Bank Asia 10 4 6 4 3 27
DBBL 15 8 9 8 4 44
BRAC 5 12 3 2 2 24

Net Income (NI) Ratio:

Net Income Ratio measure the efficiency of the operating cost to generate profit or net income. The
higher the percentage of net income higher the efficiency of the operating expenses. In this paper this
ratio is calculated by dividing income after tax by total income. The net income ratio of the banks is as
follows –

60%
Net Income Ratio
54.51% 52.58%
49.46% 50.56% 51.18%
50%
40.88%
40% 37.51% 40.81%

31.28% 34.22%
30% 32.14%
22.56% 29.06%
21.42%
23.74%
20% 15.19%
20.08%
15.73% 12.61% 13.30%
10.95% 10.30% 12.76%
10% 11.29%
6.17% 10.71%
6.99% 7.54%
0%
2004 2005 2006 2007 2008 2009
AB Bank Bank Asia DBBL BRAC Series 5

11 Financial Performance Comparison of Top Rated Commercials Banks of Bangladesh (Asif Ahmed)
 Form the information it is found that BRAC Bank got the highest ratio in the last 5 years with 49.46%,
50.56%, 54.51%, 52.58% and 51.18% respectively and the AB Bank gain some better efficiency in the last
3 years where the ratio is quiet lower in case of Bank Asia and DBBL. Also For this ratio higher score will
be provided to the organization with higher percentage as higher percentage means higher efficiency of
the organization. The score sheet of the banks are provided below –

Banks 2009 2008 2007 2006 2005 Total

AB Bank 15 12 9 6 1 43
Bank Asia 10 8 6 4 3 31
DBBL 5 4 3 2 2 16
BRAC 20 16 12 8 4 60

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. Higher percentage of ROE refers higher
efficiency in using equity fund. The ROE of the banks are presented in the following chart –

12 Financial Performance Comparison of Top Rated Commercials Banks of Bangladesh (Asif Ahmed)
 Return on Equity (ROE)

45%
42.19%
40%

35% 34.21%
33.43%
31.01% 29.89%
30% 30.28%
28.06% 25.60%
24.82% 24.40% 26.79%
25% 24.07% 24.02% 22.88%
24.47% 23.05% 23.83%
20% 20.61%
19.19%
20.60%
15%

10% 10.64%

7.24%
5%
2004 2005 2006 2007 2008 2009
AB Bank Bank Asia DBBL BRAC

The information shows that AB Banks ROE was much higher in the last three years with 42.19%, 34.21%
and 33.43% respectively though it was the lowest in 2004, 2005 and 2006. In 2005 DBBL was in top with
31.01% and in 2006 Bank Asia was in top with 24.04%. And the other three banks ROE was much
constant in the last 5 years. For this ratio higher score will be provided to the organization with higher
percentage as higher percentage means higher efficiency of the organization. The score sheet of the banks
are provided below –

Banks 2009 2008 2007 2006 2005 Total

AB Bank 20 16 12 2 1 51
Bank Asia 10 4 9 8 2 33
DBBL 15 12 6 6 4 43
BRAC 5 8 3 4 3 23

13 Financial Performance Comparison of Top Rated Commercials Banks of Bangladesh (Asif Ahmed)
 Credit Rating (CR):
The credit rating (CR) also needs to judge, because CR indicates the total financial health, capability and
future prospects of the organization. The credit rating of the banks are presented in the following table –

Banks CR in 2009 Score Given

AB Bank AA3 7.5
Bank Asia AA2 17.5
DBBL AA3 7.5
BRAC AA2 17.5

Here, Bank Asia and BRAC Bank hold highest position with AA2 rating, so the score of 1st and 2nd position
divided among them and so is done for AB Bank and DBBL.

Total Scoring and Ranking:

According to the analysis the total score of the each bank and ranking of the bank according to the score
are provided in the following chart –

Banks CDR Classified Loan COF ROI ROA EPS NI Ratio ROE CR Total Ranking
AB Bank 32 31 15 58 50 55 43 51 7.5 342.5 2
Bank Asia 60 58 42.5 41 51 27 31 33 17.5 361 1
DBBL 18 42 58 20 21 44 16 43 7.5 269.5 4
BRAC 40 19 34.5 31 28 24 60 23 17.5 277 3

According to the analysis it is found that Bank Asia Limited achieve the highest score and the best ranking
followed by AB Bank Limited, BRAC Bank Limited and Dutch Bangla Bank Limited respectively.

14 Financial Performance Comparison of Top Rated Commercials Banks of Bangladesh (Asif Ahmed)
 Conclusion:
The ranking of this paper are done based on the 8 key ratios and credit rating, but there are other factors
that are also need to be considered to analysis the banks surveillance, like – contingent liabilities, asset
base analysis etc. but according to the analysis of key ratio and credit rating it is found that Bank Asia is
the best bank among the Bangladeshi Commercials banks followed by AB Bank Limited, BRAC Bank
Limited and Dutch Bangla Bank Limited respectively.

References:
1. Financial Statement of AB Bank Limited, 2009.
2. Financial Statement of AB Bank Limited, 2007.
3. Financial Statement of AB Bank Limited, 2005.
4. Credit rating report of AB Bank Limited, 2009.
5. Annual Report of Bank Asia Limited, 2009.
6. Annual Report of Bank Asia Limited, 2007.
7. Annual Report of Bank Asia Limited, 2005.
8. Credit rating report of Bank Asia Limited, 2009.
9. Annual Report of Dutch Bangla Bank Limited, 2009.
10. Credit Rating Report of Dutch Bangla Bank Limited, 2009.
11. Annual Report of BRAC Bank Limited, 2009.
12. Annual Report of BRAC Bank Limited, 2007.
13. Annual Report of BRAC Bank Limited, 2005.

15 Financial Performance Comparison of Top Rated Commercials Banks of Bangladesh (Asif Ahmed)
 Tables:
Table – 1: Score provided in different years.
Position 2009 2008 2007 2006 2005
1st 20 16 12 8 4
2nd 15 12 9 6 3
3rd 10 8 6 4 2
4th 5 4 3 2 1

2006 = Score of 2005’s position * 2

2007 = Score of 2005’s position * 3
2008 = Score of 2005’s position * 4
2009 = Score of 2005’s position * 5

16 Financial Performance Comparison of Top Rated Commercials Banks of Bangladesh (Asif Ahmed)