CHAPTER 1 (Introduction)

1.0 Introduction
It was a hard task for all of us selecting the BANK as our industry, because bank is not operated according to usual corporations. However, we all agreed to do something advanced as most of us, did similar kind of a project on the corporations required for FIN 254 on the manufacturing industry. After Submitting the 1st assignment we were preparing for the 2nd assignment and then we actually sense the challenge that we have taken. However, it was our firm challenge that we would finish a successful project because it would help us learn something new. At the end of the semester when we were sitting for the preparation of the report we found that we actually have covered two courses FIN 440 (Corporate Finance) as well as FIN 464 (Bank Management). As none of us done the Bank Management course before we have to take the information from different books and web sites. Now when we have completed the project we do not know whether it will be successful one or not. But we must say that it was a hard decision by us to take BANK industry. It is true that we were in pressure but truly we enjoyed that very much and we can say that we learned many things new doing and completing the project.

CHAPTER 2 (Statements Analysis)

2.1 Analysis of Consolidated Income Statement
Consolidated income statement gives us a precise sight of any industry. The consolidated income statement of the Banking sector of Bangladesh gives us a very important idea about this Industry at a glance. Industry investment income of this sector is almost 9,798,508,908 taka which is a big sum, which is contributing to the economy. Both Islami Bank and Uttara Bank have an investment income above the industry average. Dhaka Bank, Southeast Bank and Islami Bank has a remarkable EBIT above industry average and finally their net income was also above industry. Dhaka banks EBIT was the peak one but the net income amount was significantly less then their EBIT. The reason was they had a big interest payment. Though banks are financed mostly by debt but their interest payment was very high in compare to the industry average, which indicates that it is the riskier one.

2.2 Analysis of Consolidated Balance Sheet

Current Asset of Islami Banks followed by Uttara Bank was very high compare to the industry average, which indicated the liquidity position of the bank. If too much money is shucked in current asset especially in cash it means they might have a current asset management problem. Islami Banks total asset figure was a enormous one compared to other banks, which indicates the size of the bank. Islami Bank and Uttara Bank have a large amount in current liabilities. It was probably because this two companies want to avoid risk.

CHAPTER 3 (Ratio Analysis)

3.1 Liquidity Ratio
3.1.1 Arab Bangladesh Bank: The current Ratio of the bank has a negative growth and decreased gradually over the period 1999 to 2003. The cash against the current liability has also a negative growth rate. However, the good thing is, that the total deposit against the total liability has increased which is good for any bank. Though the short term deposit increased and long deposit decreased against the total deposit. The banks average liability cost grown at 4% over the years. So, we can conclude that the liquidity condition of Arab Bangladesh Bank LTD. is bad. 3.1.2 Islami Bank Bangladesh: The current ratio of Islami Bank has a high fluctuation with negative growth. Though in average the bank has ability to meet maturing liabilities, in 2003 we can see a negative balance, which may create a negative impression between the short-term depositor as well as creditor. Their short-term deposit is a bit low in compare to long term. They have maintained a fixed amount of cash with respect to their current liabilities, which is a bit low. So the liquidity position of Islami Bank is not that good. 3.1.3 Uttara Bank: Current ratio shows an increasing trend till 2002 but in 2003 it has decreased a bit. Other than that over the time the bank had a greater ability to meet the current liabilities. The bank has less short-term deposits than the long-term deposits, which may be a reason of high liquidity. Their cash in hand position is moderate and has a decreasing trend in recent years. So we can conclude that liquidity of Uttara Bank Ltd. is in good position. 3.1.4 South East Bank: The current Ratio of the bank has a positive growth and increased over the period 1999 to 2003. The cash against the current liability has also a

positive growth rate, which is good. The total deposit against the total liability has increased but the growth rate is very low. The short-term deposit decreased and long-term deposit increased against the total deposit. The banks average liability cost grown at 1% over the years. So, we can conclude that the liquidity condition of South East Bank LTD. is not bad. 3.1.5 Dhaka Bank: The current Ratio of the bank has a very high negative growth rate 31% and decreased gradually over the period 1999 to 2003. The cash against the current liability has also a negative growth rate. However, the good thing is, that the total deposit against the total liability has increased which is good for any bank. Though the short term deposit increased and long deposit decreased against the total deposit. The banks average liability cost grown at 4% over the years. So, we can conclude that the liquidity condition of Dhaka Bank LTD. is bad. Industry Analysis (Liquidity Ratio)
Dhaka Southeast Bank
0.9800 0.0800 0.9200 0.2400 0.8100 0.0900

Arab BdBank 0.8700 0.4300 0.5700 0.0400 0.7800 0.0700

Industry Average 1.0700 0.3780 0.6220 0.1000 0.7660 0.1100

Name of the Ratio

Current Ratio S/T Deposit to Total Deposit L/T Deposit to Total Deposit Cash to Current Liabilities Total Deposit Turnover Ratio Average Liability Cost

Islami Bank Uttora Bank 1.0900 1.5400 0.5600 0.3900 0.4400 0.6100 0.0200 0.1600 0.7200 0.7400 0.0700 0.2500

Bank 0.8700 0.4300 0.5700 0.0400 0.7800 0.0700

The current ratio of Islami Bank and Uttara Bank is above the industry average; the current position of other banks is not that good. In compare to other bank, Islami bank prefers short-term debts rather than long term debts that indicated they are risk averse. Average liability cost of the entire bank except Uttara Bank is very low which is very good. Uttara Banks Liability cost is very high which should be a matter of consideration.

3.2 Efficiency Ratio

3.2.1 Arab Bangladesh Bank: The net investment margin of the bank is in the lower side but the good thing is that it has a positive growth rate which means the things are improving. The burden ratio is in satisfactory level. The efficiency is also increasing over the years. Earning spread ratio are in the negative but the positive growth rate means the scenario is improving. The asset utilization ratio is also increasing over the year that means the bank is using its assets more effectively which is good. So, the efficiency of the bank is satisfactory. 3.2.2 Islami Bank Bangladesh: Their average net investment margin is fairly lower but the good thing is it has an increasing trend over the period with a very high growth rate. Their burden ratio is lower which means almost all of their non-interest expenses are covered by non-interest income, which is good. Their efficiency ratio is below the standard, which is also a good indication. It indicated a greater ability to generate noninterest income and control non-interest expenses. Their earning spread ratio indicates that they are able to manage interest rate risk. They have a modest return on both earning asset and total asset. They are utilizing their asset moderately but is should be increased. It can be concluded that they are moderately efficient in producing return. 3.2.3 Uttara Bank: The banks Net Investment Margin is quite low and recent years it has a decreasing trend, which is not a good indication. At present a significant portion of their total asset are current asset. May be the short term investment and the bills are not earning that much, which may cause a lower net investment margin. They have negative burden ratio, which is very good. The ability to control non-interest expenses is a bit low as their efficiency ratio is high. Their earning spread was negative over the last five years, which is terrible for any company. Uttara banks asset utilization is reasonable. Finally it can be concluded that there is a lack of efficiency in earning asset management. 3.2.4 South East Bank: The net investment margin of the bank is in the lower side but the good thing is that it has a positive growth rate which means the things are improving.

The burden ratio is in satisfactory level, but the alarm is that it is growing at 40%. The efficiency is having a negative growth rate. Earning spread ratio are in the negative but the positive growth rate means the scenario is improving. The asset utilization ratio is also increasing over the year that means the bank is using its assets more effectively which is good. So, the efficiency of the bank is satisfactory. 3.2.5 Dhaka Bank: The net investment margin of the bank is in the lower side but the good thing is that it has a positive growth rate which means the things are improving. The burden ratio is at satisfactory level. The efficiency is also increasing over the years. Earning spread ratio are in the negative but the positive growth rate means the scenario is improving. The asset utilization ratio is also increasing over the year that means the bank is using its assets more effectively which is good. So, the efficiency of the bank is satisfactory. 3.2.6 Industry Analysis (Efficiency Ratio)
Islami Name of the Ratio Net Interest Margin Burden ratio Efficiency Ratio (EFF) Earning Spread Average Interest ROA Average Non Interest ROA Asset Utilization Ratio Bank 0.0200 0.0003 0.4400 0.0700 0.0600 0.0200 0.0800 Uttara Bank 0.0200 (0.0100) 0.4200 (0.1800) 0.0600 0.0400 0.1000 Dhaka Bank 0.0100 (0.0100) 0.5600 (0.0600) 0.0500 0.0400 0.0900 Southeast Bank 0.0300 (0.0100) 0.3100 (0.0400) 0.0900 0.0200 0.1100 A B Bank 0.0100 (0.0100) 0.5600 (0.0600) 0.0500 0.0400 0.0900 Industry Average 0.0180 (0.0079) 0.4580 (0.0540) 0.0620 0.0320 0.0940

In the efficiency ratio it is noticed that every bank is operating with approximately same efficiency level. The efficiency ratio industry average is about 46% that can be considered as a satisfactory for any industry in our country. The asset utilization of all the banks of our consideration is 9% or so. So we can conclude that the banks are operating their operations at about same efficiency level.

3.3 Debt Management Ratio

3.3.1 Arab Bangladesh Bank: Debt ratio of AB Bank is very high. It means the creditors finance the bank. But we have to remember in the case of bank they include all the deposits. So higher the debt it is a good indication for the bank. In the case of AB bank it is also higher though the growth rate is zero. The TIE ratio is increasing. The growth rate is in the positive side, which is good. Because the creditors should be much more eager to issue the loan to the bank. The Bank had a negative growth rate also in cash coverage ratio. It means the bank's cash coverage is getting poorer over the years. 3.3.2 Islami Bank Bangladesh: Average debt ratio of Islami Bank is very high which is usual for banks. TIE Ratio is abnormally high. It is because they their interest structure is bit different from other banks. According to them they follow profit sharing rather dealing with interest. Long term Debt Ratio has an increasing trend, which will make the company bit riskier. 3.3.3 Uttara Bank: Here according to the debt ratio we see that Uttara bank is debt financed. The trend of the debt ratio shows that in 2000 and 2001 it dropped from 2000 and from 2001 it has maintained almost a constant figure though the change in figure is not very significant to have an effect. In the TIE ratio we see that there in 2003 it concludes a relatively greater figure. Moreover it has a nice positive growth figure which can be treated as good sign. Similarly in cash coverage ratio concludes a higher figure in 2003 and the average growth rate is positive which is also good for the bank. In long-term debt ratio in average there is good figure though in 2003 it came to a relatively lower figure. In debt equity ratio we see that in every year it is decreasing from the previous year. Moreover in average it shows that the debt that is financed for the bank is much higher than that of equity.

3.3.4 South East Bank: Debt ratio of the bank is high as it should be for a bank. TIE ratio has also an increasing trend. Debt equity ratio is very high, which indicate that the Bank is very risky and it is becoming more risky recent days. 3.3.5 Dhaka Bank: Debt ratio of Dhaka Bank is very high. It means the creditors finance the bank. But we have to remember in the case of bank they include all the deposits. So higher the debt it is a good indication for the bank. In the case of Dhaka bank it is also higher though the growth rate is zero. The TIE ratio was increasing with a positive growth rate that is good. Because it means bank is becoming more efficient to pay the interest. The Bank had also a positive growth rate in cash coverage ratio. It means the bank's cash coverage is getting better over the years. 3.3.6 Industry Analysis (Debt Management Ratio)
Islami Dhaka Bank 0.9600 2.2900 3.2900 0.5429 22.9600 Southeast Bank 0.9353 0.4769 0.4953 0.7231 16.94 Arab BdBank 0.9600 4.0300 5.1600 0.6000 25.2800 Industry Average 0.9531 374.0414 414.1031 0.5233 22.5620

Name of the Ratio

Debt Ratio TIE Ratio Cash Coverage Ratio Long Term Debt Ratio Debt Equity Ratio

Bank Uttora Bank 0.9400 0.9700 1468.9300 394.4800 1635.1300 426.4400 0.3200 0.4500 17.0100 30.6200

As the banks are mainly debt financed so it is quite expected that the debt ratio is at 95% and all the banks of our consideration have maintained that more or less. It is impossible to interpret the tie ratio because the different bank is following different structure like Islami Bank dont give interest directly they rather use the rate of return and profit sharing. The industry debt equity ratio is 23% that means that the risk is low in the banks so the expected return from the banks is also low.

3.4 Profit Margin Ratio

3.4.1 Arab Bangladesh Bank: The profit margin is increasing but the growth rate is negative. The profit margin was high during the years 2000 and 2001. Though it was very low in the year 2002. The basic earning power is also declining. ROA is also very poor. It has a very high negative growth rate. ROE is also going down over the years. The growth in equity was satisfactory up to 2001 but then on it is decreasing. Average asset yield is growing over the years average liability cost is also growing. Analyzing the ratios it can easily be said that, the AB Bank's profitability condition is alarming. 3.4.2 Islami Bank Bangladesh: The profit margin had an increasing trend till 2001 then it decreased a bit with a average growth of five percent. Return on asset, as an increasing trend but the average return is not that high. Till 2002return on equity had increasing trend then in 2003 it decreased again. 3.4.3 Uttara Bank: The profit margin has an increasing trend up to 2001 but after 2001 it tends to be decreased though it has a positive growth rate. The BEP has a decreasing trend up to 2001 but after 2001 it has decreased and the growth rate of BEP is positive. Similarly ROA has an increasing trend up to 2001 and after 2001 the trend became decreasing. ROE has an increasing trend up to 2001 and after that it has a decreasing trend. So, based on these ratio analysis it can be said that the overall condition of Uttara Bank is not bad. 3.4.4 South East Bank Profit margin of southeast bank is not that a high and in recent days has a decreasing trend. Return on asset is very low and in a signaling position. Return on equity is increasing and is very good position. Growth in equity has a decreasing trend with negative growth.

3.4.5 Dhaka Bank: Dhaka Bank the profit margin of the bank is going down every year and the growth rate is also very highly negative. The BEP increased up to the year 2001 but in 2002 and 2003 it has significantly gone down. ROA is also not very good. ROE in first two year was in the higher side but it has declined significantly and ended up with a growth rate of negative 20.10%. The growth in equity is going down every year. The average asset yield is going up with a growth rate of 16.56 %. The average liability cost is going down which is a good sign.

3.4.6 Industry Analysis (Profit Margin Ratio) Name of the ratio

Dhaka Islami Bank Profit Margin Basic Earning Power ROA ROE Plowback Ratio Growth in Equity Avg. Assets Yield Uttara Bank 0.0960 0.0100 0.0060 0.1130 0.5990 0.0690 0.0650 Bank 0.1060 0.0140 0.0070 0.1960 0.9490 0.1900 0.0610 Southea st Bank 0.4600 0.0100 0.0202 0.8863 0.8690 0.8766 0.0198 Industry AB Bank Average

0.0203 0.0317 0.0017 0.2388 -5.6666 -0.5862 0.0874

0.0875 0.0100 0.0044 0.1070 0.6993 0.0604 0.0544

0.1540 0.0151 0.0079 0.3082 (0.5101) 0.1220 0.0575

Industry average of profit margin is 15%. All the banks are below industry average except Dhaka bank. Profit margin of Dhaka bank is abnormally high; it is because of high interest income. Only Dhaka Bank has a high return on asset. All other banks dont have a sound ROA. Return on equity of Dhaka bank is also very far above the ground. So it can be concluded that Dhaka Bank is the most profitable one.

10

CHAPTER 4: CAMEL Rating

4.1 Capital Adequacy Ratios
Name
AB Bank Dhaka Bank Islami Bank Uttara Bank Southeast Bank

1999
3.22 13.00 8.90 0.29 9.52

2000
2.80 9.97 10.59 0.38 8.40

2001
3.14 9.19 9.24 0.16 8.77

2002
3.01 8.57 8.64 0.73 8.23

2003
3.42 10.58 9.43 0.74 8.73

Average
3.12 10.29 9.36 0.55 8.73

Rating
5 1 1 5 2

The capital adequacy portion of Dhaka Bank and Islamic Bank is very strong. Southeast Banks position is also satisfactory. On the other hand the position of AB Bank Uttara Bank is very unsatisfactory.

4.2 Asset Quality Rating

Name
AB Bank Dhaka Bank Islami Bank Uttara Bank Southeast Bank

1999
0.3461 0.3725 0.2168 0.3347 0.3600

2000
0.3124 0.3466 0.2349 0.3051 0.3921

2001
0.2927 0.2853 0.1967 0.2927 0.3469

2002
0.3613 0.2391 0.1648 0.3069 0.3175

2003
0.2971 0.1929 0.2041 0.2162 0.2957

Average
0.2804 0.2873 0.2065 0.3031 0.3400

Rating
5 5 5 5 5

11

4.3 Management Rating

Name AB Bank Dhaka Bank Islami Bank Uttara Bank Southeast Bank Management Rating 3.75 2.75 2.75 3.75 3.5 Comments 4 (Marginal) 3 (Fair) 3 (Fair) 4 (Marginal) 4 (Marginal)

Dhaka and Islami Bank is good enough in management activities, the other Banks have a marginal competency.

4.4 Earning Ratio (ROA)

Name AB Bank Dhaka Bank Islami Bank Uttara Bank Southeast Bank 1999
0.41 0.023 0.004 0.001 0.003

2000
0.63 0.019 0.006 0.007 0.003

2001
1.04 0.020 0.008 0.014 0.002

2002
0.07 0.020 0.009 0.007 0.0018

2003
0.05 0.019 0.005 0.005 0.0013

Average
0.44 0.02 0.010 0.01 0.0017

Rating
3 (Fair) 4 (Marginal) 4 (Marginal) 4 (Marginal) 5 (Unsatisfactory)

AB Bank has a fair ROA. Dhaka Bank, Islami Bank and Uttara Bank has a marginal return on asset. Southeasts ROA is the poorest among all the banks.

4.5 Liquidity Rating

Name 1999 2000 2001 2002 2003 Average Rating

12

Dhaka Bank Uttara Bank Southeast Bank AB Bank Islami Bank

1.11 1.60 0.29 0.28 1.18

0.99 1.62 0.31 0.37 1.10

0.62 1.58 0.23 0.20 1.08

0.49 1.57 0.23 0.17 1.02

0.42 1.87 0.17 0.16 0.46

0.72 1.65 0.24 0.24 0.97

1 (Strong) 1 (Strong) 2 (Satisfactory 2 (Satisfactory) 1 (Strong)

In liquidity rating Dhaka Bank, Islami Bank and Uttara Bank has a very strong position. The others have satisfactory liquidity position.

4.6 Composite Rating

Name AB Bank Dhaka Bank Islami Bank Uttara Bank Southeast Bank Management Rating 3.8 2.8 2.8 3.8 3.6 Comments 4 (Marginal) 3 (Fair) 3 (Fair) 4 (Marginal) 4 (Marginal)

Finally we can conclude that in our composite rating analysis, according to the international standard none of the banks that we have analyzed has strong rating. Islami Bank and Dhaka Bank is in the peak position, other banks have also a marginal position.

13

CHAPTER 5 (Interest Sensitivity)

5.0 Interest Sensitive Gap
Dhaka Bank Islami Bank Uttora Bank AB Bank Southeast Bank 1999 (3,198,733,101) 8,706,582,931 (7,409,978,438) (5,525,610,703) (1,475,658,643) 2000 2001 (3,119,820,490) (5,227,283,643) 13,083,889,141 17,274,507,206 (9,719,382,953) (10,835,956,431) (9,150,051,856) (6,613,504,742) (2,714,122,410) (2,798,794,100) 2002 (3,277,573,004) 17,842,983,762 (10,973,025,630) (8,117,635,779) (2,656,841,849) 2003 (2,283,741,837) 21,909,860,004 (9,923,003,799) (8,062,364,665) (3,755,023,816) Average (3,421,430,415) 15,763,564,609 (9,772,269,450) (7,493,833,549) (2,680,088,164)

All the Banks Have a negative interest sensitive gap except Dhaka Bank. Uttara and AB Bank have a very high negative interest sensitive gap. So if the interest rate rises the Net interest margin of Islami Bank will increase. On the other hand, Uttara and Dhaka Banks Net interest margin will go down. So according to Interest sensitive analysis, only Islami Bank has a better performance.

14

CHAPTER 6 (EVA And MVA)

6.1 EVA [Economic Value Added]
EVA Islami Bank 35,835,506 Uttora Bank (472,072,690) Dhaka Bank 35,835,506 Southeast Bank 144,673,948,247 AB Bank 106,853,964

Southeast Bank has added the highest economic value following AB bank. Islami Bank and Dhaka bank has also a higher EVA but Uttara Bank has a negative EVA that is not a good indication.

6.2 MVA [Market Value Added]

Islami Bank Uttara Bank Dhaka Bank Southeast Bank AB Bank MVA 10,431,032,379 26,266,597,564 10,431,032,379 (27,124,338,622) 12,418,512,807

However the good news for the Uttara bank that they has the greatest MVA that will be very much appreciated by the shareholders.

6.3 Z-Score
As Banks are mostly financed by debts, Z score does not imply for the banks.

15

CHAPTER 7 (Conclusion)
7.0 Conclusion
After using several financial analysis tools it can finally be concluded that none of the bank has achieved the international standard. None of them has got a strong command on their financial management system. Sometimes we found that they are over or underreporting the data that has affected the reports in some parts, some times we found no clue what so ever. In spite of all these we try give our best effort ever in this paper, the foremost reason behind that we all really enjoyed preparing the report (including the assignments) that has given us a real life practical experience of dealing with such complex interpretation.

16