Chapter – Ι
This Chapter covers the followings:
1. Introduction
2. Origin of the report
3. Purpose of the report
4. Scope of the report
5. Methodology of the report
6. Limitations of the report
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Introduction
The banking system at independence consisted of two branch offices of the former State Bank of Pakistan and seventeen large commercial banks, two of which were controlled by Bangladeshi interests and three by foreigners other than West Pakistanis. There were fourteen smaller commercial banks. Virtually all banking services were concentrated in urban areas. The newly independent government immediately designated the Dhaka branch of the State Bank of Pakistan as the central bank and renamed it the Bangladesh Bank. The bank was responsible for regulating currency, controlling credit and monetary policy, and administering exchange control and the official foreign exchange reserves. The Bangladesh government initially nationalized the entire domestic banking system and proceeded to reorganize and rename the various banks. Foreign-owned banks were permitted to continue doing business in Bangladesh.
Origin of the report
I am lucky to say that our honorable teacher Mr. Md. Mamunur Rashid, Lecturer, Department of Business Administration, Stamford University, Bangladesh, assigned me the report on “Liquidity and Profitability Analysis of Private Banks in Bangladesh”. The data required for preparing this report has been collected from the annual reports of most recent years.
Purpose of the Report
The main objective of the report is to measure the Liquidity and Profitability of Private Banks in Bangladesh measure the adequacy of the liquidity and profit maximization. The major objectives of this study are specified as follows:
● To fulfill academic requirement.
● To measure and evaluate the liquidity position of Private Banks in Bangladesh.
● To identify major strengths and weaknesses of the private banks in Bangladesh and
● To offer humble suggestions based on the above study.
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Scope of the report
This study has focused upon the liquidity and profitability of private banks in Bangladesh. I hope this study will help me to know more clearly about the liquidity and profitability of private banks in Bangladesh.
Methodology of the Report
The report is done based on secondary information. The major source of data for preparing the report is based on secondary information like annual reports, Journals.
Data processing and analysis:
The collect data from the secondary sources were analyzed to reveal the nature of
financial statement analysis. Ratio analysis technique is used in analysis. Computer
generated Word Processing programs, such as; MS Word was used to generate the
report. The main analysis of data was done with the following computer programs
1. The Powerful Spreadsheet Analyzer MS Excel
2. Word Processor MS Word.
Limitations of the Report
As a student Business Administration, this is my initiative for making the report on “Liquidity and Profitability Analysis of Private Banks in Bangladesh” through using the Annual Reports of the organizations. Beside this I have faced the following hindrances in preparing this report:
● The main limitation while preparing this report was time. So it was not possible to focus everything deeply.● Lack of Information’s source.● Lack of sufficient privileges.
This is my truthful declaration that the report is prepared only on secondary data. But in some cases, I found the problem of shortage of necessary data and in that cases I took hypothetical data, so there is a little chance of misappropriation.
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Chapter – ΙΙ
This Chapter covers the followings:
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1. History of Bank in Bangladesh
2. Various Banks in Bangladesh
3. Various Schemes and Banking Products of Formal Banking
History of Bank in Bangladesh
Bank:
Banks are the most financial institution of the economy. They are the principal source
of credit (loan able fund) for millions of households (individuals and families) and for
most local units of the government. Moreover, for small business ranging from grocery
stores to automobile dealers, banks are often the major source of credit to stock the
shelves with merchandise or to fill dealer’s showroom with new goods. When the
business and consumers need financial information and financial planning, it is the
bankers to whom they turn most frequently for advice and council.
Worldwide, banks grant more installments loans to consumers than any other financial
institution. Banks are among the most important source of short term working capital
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for business and have become increasingly active in recent years in making long term
business loans for new plant and equipment.
Bank is financial intermediaries that offers the widest range of financial services-
especially credit, savings and payment services and perform the widest range of
financial function of any business firm in the economy. The multiplicity of bank
services and function has led to banks being labeled “financial department stores”.
Origin of The Word The
name bank derives from the Italian word banco "desk/bench", used during the
Renaissance by Florentine bankers, who used to make their transactions above a desk
covered by a green tablecloth. However, traces of banking activity can found even in
ancient times.
In fact, the word traces its origins back to the Ancient Roman Empire, where
moneylenders would set up their stalls in the middle of enclosed courtyards called
macella on a long bench called a bancu, from which the words banco and bank are
derived.
What Is the Economic Function of a Bank?
Commercial banks play an important role in the financial system and the economy. As a
key component of the financial system, banks allocate funds from savers to borrowers
in an efficient manner. They provide specialized financial services, which reduce the
cost of obtaining information about both savings and borrowing opportunities. These
financial services help to make the overall economy more efficient.
How Banks Work
Banks operate by borrowing funds-usually by accepting deposits or by borrowing in
the money markets. Banks borrow from individuals, businesses, financial institutions,
and governments with surplus funds (savings). They then use those deposits and
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borrowed funds (liabilities of the bank) to make loans or to purchase securities (assets
of the bank). Banks make these loans to businesses, other financial institutions,
individuals, and governments (that need the funds for investments or other purposes).
Interest rates provide the price signals for borrowers, lenders, and banks.
Through the process of taking deposits, making loans, and responding to interest rate
signals, the banking system helps channel funds from savers to borrowers in an
efficient manner. Savers range from an individual with a $1,000 certificate of deposit to
a corporation with millions of dollars in temporary savings. Banks also service a wide
array of borrowers, from an individual who takes a loan of $100 on a credit card to a
major corporation financing a billion-dollar corporate merger.
The table below provides a June 2001 snapshot of the balance sheet for the entire U.S.
commercial banking industry. It shows that the bulk of banks' sources of funds comes
from deposits - checking, savings, money market deposit accounts, and time
certificates. The most common uses of these funds are to make real estate and
commercial and industrial loans. Individual banks' asset and liability composition may
vary widely from the industry figures, because some institutions provide specialized or
limited banking services.
Functions of a Bank
1. Recognition of Right to Credit:
The view thus given of bank credit in general furnishes the key to the view which
should be taken of the bank itself. It is, as we have already seen, a credit institution - an
institution for the investigation, discussion, and recording of credits. It is not, in this
aspect, what some have described it, an enterprise for "manufacturing" credit. The
"manufacture" of credit, as clearly appears from what has already been said, is
impossible. A basis of credit is automatically created whenever real buying' power or
value is in process of being brought into existence. Such power is created during the
expenditure of labor and capital, but the real worth or value is often intimately
associated with the other elements that appear in the general operations of his
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concern. The basis only appears when it is dissociated from the other elements in the
aggregate of goods and expert means are needed to recognize it. The first function of a
bank, then, is that of recognizing through scientific analysis the real nature and amount
of the values which are presented. Fundamentally, therefore, the credit department of a
bank is the basic element in its organization. It is true that in the past many banks have
been able to do without credit departments and that at the present time there are not a
few of them - chiefly the smaller and less advanced types of institution - which have no
credit departments, or only very rudimentary organizations of the sort. These,
however, usually accept the work of credit departments operated by their city
correspondents. The true work of a bank credit department is done whenever any loan
is made. It may be that the work of credit analysis is incidentally performed by the
president or a vice-president of the bank or by some other officer who happens to have
charge of the work of lending, but the function is there.
2. Guaranteeing of Values:
Secondly, the bank, after recognizing or analyzing credit, guarantees it. It does this by
substituting its own credit for that of the "borrower" or owner of wealth. If A, for
example, is producing steel from pig iron, the bank ascertains the value of the products
which he has in process, which, we may say, is $25 per ton. It undertakes to loan, say,
$10 per ton, and in order to carry out its part of the agreement it obligates itself to pay
$10 on demand to anyone who may be designated by the owner of the plant. The
owner leaves with the bank his own note, which may be secured or may be simply a
claim upon his general assets. In either case, however, the loan is made on the strength
of existing value. It represents that part of the value of the product which the bank is
willing to guarantee. The bank does not expect to be called upon to meet this obligation
for $10 per ton. On the contrary, it expects to offset the obligation against other claims,
and as a net result it believes that it will not be called upon to reduce its holding of
specie. That, however, is to be determined at a later time. The bargain which the bank
makes when it enters into relationships with the borrower involves the substitution of
its own obligation for that of the owner of the goods, and this is the essential point in
the whole operation.
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3. Transferring of Titles:
Thirdly, the bank not only undertakes to put its obligation in place of that of the
borrower, but it undertakes to keep this obligation steadily redeemable on demand in
money, or in lieu of such redemption, to shift the "credit" from A to B and from B to any
other that the latter may indicate, through a process of bookkeeping which involves the
receiving, recording, and paying of claims drawn against the total credit which has
been allowed. Closely connected with this function are the subordinate duties of
exchange and remittance, which, as will be seen at a later point, are variants of the
same general function.
Overview of Banking Environment in Bangladesh:
The banking industry in Bangladesh is more than 600 years old. In Bangladesh 1970’s
banking sector in Bangladesh entered into new era when the entire commercial banks
and financial institution were nationalized after the emergence of Bangladesh as an
independent nation in 1970’s (except foreign banks) with fixed landing and deposit
rates .
History of Banking Sector of Bangladesh:
The banking system at independence consisted of two branch offices of the former State
Bank of Pakistan and seventeen large commercial banks, two of which were controlled by
Bangladeshi interests and three by foreigners other than West Pakistanis. There were
fourteen smaller commercial banks. Virtually all banking services were concentrated in
urban areas. The newly independent government immediately designated the Dhaka
branch of the State Bank of Pakistan as the central bank and renamed it the Bangladesh
Bank. The bank was responsible for regulating currency, controlling credit and monetary
policy, and administering exchange control and the official foreign exchange reserves. The
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Bangladesh government initially nationalized the entire domestic banking system and
proceeded to reorganize and rename the various banks. Foreign-owned banks were
permitted to continue doing business in Bangladesh. The insurance business was also
nationalized and became a source of potential investment funds. Cooperative credit
systems and postal savings offices handled service to small individual and rural accounts.
The new banking system succeeded in establishing reasonably efficient procedures for
managing credit and foreign exchange. The primary function of the credit system
throughout the 1970s was to finance trade and the public sector, which together absorbed
75 percent of total advances.
The government's encouragement during the late 1970s and early 1980s of
agricultural development and private industry brought changes in lending
strategies. Managed by the Bangladesh Krishi Bank, a specialized agricultural
banking institution, lending to farmers and fishermen dramatically expanded. The
number of rural bank branches doubled between 1977 and 1985, to more than
3,330. Denationalization and private industrial growth led the Bangladesh Bank and
the World Bank to focus their lending on the emerging private manufacturing
sector. Scheduled bank advances to private agriculture, as a percentage of sectored
GDP, rose from 2 percent in FY 1979 to 11 percent in FY 1987, while advances to
private manufacturing rose from 13 percent to 53 percent.
The transformation of finance priorities has brought with it problems in
administration. No sound project-appraisal system was in place to identify viable
borrowers and projects. Lending institutions did not have adequate autonomy to
choose borrowers and projects and were often instructed by the political
authorities. In addition, the incentive system for the banks stressed disbursements
rather than recoveries, and the accounting and debt collection systems were
inadequate to deal with the problems of loan recovery. It became more common for
borrowers to default on loans than to repay them; the lending system was simply
disbursing grant assistance to private individuals who qualified for loans more for
political than for economic reasons. The rate of recovery on agricultural loans was
only 27 percent in FY 1986, and the rate on industrial loans was even worse. As a
result of this poor showing, major donors applied pressure to induce the
government and banks to take firmer action to strengthen internal bank
management and credit discipline. As a consequence, recovery rates began to
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improve in 1987. The National Commission on Money, Credit, and Banking
recommended broad structural changes in Bangladesh's system of financial
intermediation early in 1987, many of which were built into a three-year
compensatory financing facility signed by Bangladesh with the IMF in February
1987.
One major exception to the management problems of Bangladeshi banks was the
Grameen Bank, begun as a government project in 1976 and established in 1983 as
an independent bank. In the late 1980s, the bank continued to provide financial
resources to the poor on reasonable terms and to generate productive self-
employment without external assistance. Its customers were landless persons who
took small loans for all types of economic activities, including housing. About 70
percent of the borrowers were women, who were otherwise not much represented
in institutional finance. Collective rural enterprises also could borrow from the
Grameen Bank for investments in tube wells, rice and oil mills, and power looms
and for leasing land for joint cultivation. The average loan by the Grameen Bank in
the mid-1980s was around Tk2,000 (US$65), and the maximum was just Tk18,000
(for construction of a tin-roof house). Repayment terms were 4 percent for rural
housing and 8.5 percent for normal lending operations.
The Grameen Bank extended collateral-free loans to 200,000 landless people in its
first 10 years. Most of its customers had never dealt with formal lending institutions
before. The most remarkable accomplishment was the phenomenal recovery rate;
amid the prevailing pattern of bad debts throughout the Bangladeshi banking
system, only 4 percent of Grameen Bank loans were overdue. The bank had from
the outset applied a specialized system of intensive credit supervision that set it
apart from others. Its success, though still on a rather small scale, provided hope
that it could continue to grow and that it could be replicated or adapted to other
development-related priorities. The Grameen Bank was expanding rapidly,
planning to have 500 branches throughout the country by the late 1980s.
Beginning in late 1985, the government pursued a tight monetary policy aimed at
limiting the growth of domestic private credit and government borrowing from the
banking system. The policy was largely successful in reducing the growth of the
money supply and total domestic credit. Net credit to the government actually
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declined in FY 1986. The problem of credit recovery remained a threat to monetary
stability, responsible for serious resource misallocation and harsh inequities.
Although the government had begun effective measures to improve financial
discipline, the draconian contraction of credit availability contained the risk of
inadvertently discouraging new economic activity.
Foreign exchange reserves at the end of FY 1986 were US$476 million, equivalent
to slightly more than 2 months worth of imports. This represented a 20-percent
increase of reserves over the previous year, largely the result of higher remittances
by Bangladeshi workers abroad. The country also reduced imports by about 10
percent to US$2.4 billion. Because of Bangladesh's status as a least developed
country receiving concessional loans, private creditors accounted for only about 6
percent of outstanding public debt. The external public debt was US$6.4 billion, and
annual debt service payments were US$467 million at the end of FY 1986.
Various Banks in BangladeshThe commercial banking system dominates Bangladesh's financial sector. Bangladesh Bank is
the Central Bank of Bangladesh and the chief regulatory authority in the sector. The banking
system is composed of four state-owned commercial banks, five specialized development banks,
thirty private commercial Banks and nine foreign commercial banks. The Nobel-prize winning
Grameen Bank is a specialized micro-finance institution, which revolutionized the concept of
micro-credit and contributed greatly towards poverty reduction and the empowerment of women
in Bangladesh. There are basically four types of Banks:-
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Bangladesh Bank
Bangladesh Bank
Bangladesh Bank Monogram
Headquarters Dhaka, Bangladesh
Established 16 December 1971
Governor Dr. Atiur Rahman
Central Bank of Bangladesh
Currency Taka
ISO 4217 Code BDT
Reserves 10 Billion US $
Website http://www.bangladeshbank.org.bd
Bangladesh Bank is the Central bank of Bangladesh. It is the monetary authority of the
country. It came into existence under the Bangladesh Bank Order 1972 (Presidential Order
No. 127 of 1972) which took effect on 16 December 1971. Through this order, the entire
operation of the former State Bank of Pakistan in the eastern wing was transferred to
Bangladesh Bank.
Bangladesh Bank has 9 branch offices, two in Dhaka city (sadarghat and Motijheel), and one
each in Chittagong, Khulna, Rajshahi, Sylhet, Bogra, Rangpur and Barisal. The head office
discharges its duties with 28 departments.
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History
After the liberation war, and the eventual independence of Bangladesh, the Government of
Bangladesh reorganized the Dhaka branch of the State Bank of Pakistan as the central bank
of the country, and named it Bangladesh Bank. This reorganization was done pursuant to
Bangladesh Bank Order, 1972, and the Bangladesh Bank came into existence with
retrospective effect from 16 December 1971.
Objectives
As the central Bank of Bangladesh, the broad objectives of the Bank are :
To regulate currency issuance and to keep foreign exchange reserves.
To manage the monetary and credit system of Bangladesh with a view to stabilizing
domestic monetary value.
To preserve the par value of the Bangladeshi Taka.
To promote and maintain a high level of production, employment and real income in
Bangladesh; and to foster growth and development of the country's productive resources.
To reserve all the rights of the bank.
Functions
Bangladesh Bank performs all the functions that a central bank of any country is expected
to perform, and such functions include maintaining the price stability through economic
and monetary policy measures, managing the country’s foreign exchange and the gold
reserve and regulating the banking sector of the country. Like all other central banks
across the globe, Bangladesh Bank is both the Government’s banker and the banker’s bank,
a “Lender of the Last Resort”. Bangladesh Bank, like most of the central banks of different
countries, exercises monopoly over the issue of currency and the banknotes. Except for the
1 and 2 taka notes, it issues all other denominations of Bangladeshi Taka.
Bangladesh Bank is empowered to act as the watchdog of the country's banking system,
and all scheduled banks are accountable to Bangladesh Bank, which has extensive powers
to ensure soundness of the banking system. No bank can commence banking business in
Bangladesh and no existing bank can open a new branch in or outside the country or shift
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any branch from one place to another without obtaining a license/permission from the
Bangladesh Bank.
Organization
The highest official in the bank is the Governor (currently Dr. Atiur Rahman). The Governor chairs the Board of Director. The Executive Staff, also headed by the Governor, are responsible for the day to day affairs.
Current Board of Directors
Chairman
Dr. Atiur Rahman
Director
Md. Nazrul Huda
Dr. Wahid Uddin Mahmud
Dr.Momtaz Uddin Ahmed
Dr.Sufia Ahmed
Dr. Hossain Zillur Rahman
Dr.Mohammad Tareque
Mr.Jafar Ahmad Chowdhury
Mr. Muhammad Abdul Mazid
Current Executive Staff
Governor
Dr. Atiur Rahman
Deputy Governor
Md. Nazrul Huda
Ziaul Hasan Siddiqui
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Md. Murshid Kuli Khan
Economic Advisor
Habib Ullah Bahar
Executive Director
Khandakar Muzharul Haque
Md. Abul Quasem
A.T.M. Nasiruddin
Chowdhury Mohidul Haque
Mir Abdur Rahim
Md. Harunur Rashid Chowdhury
Md. Mofiz Uddin Chowdhury
Nazneen Sultana
Md. Mofizuddin Chowdhury
Devaki Kumar Saha
A. H. M. Kai Khasru
Former Governors
A.N.M. Hamidullah 1972-1974
A.K.N. Ahmed 1974-1976
M. Nurul Islam 1976-1987
Shegufta Bakht Chaudhuri 1987-1992
Khorshed Alam 1992-1996
Lutfar Rahman Sarkar 1996-1998
Dr. Mohammed Farashuddin 1998-2001
Dr. Fakhruddin Ahmed 2001-2005
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Dr. Salehuddin Ahmed 2005-2009
Dr. Atiur Rahman 2009-Present
The new governor of Bangladesh Bank will be Kamrul Hasan Zoardar.
Commercial Banks
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State-owned Commercial Banks
The banking system of Bangladesh is dominated by the 4 Nationalized Commercial Banks,
which together controlled more than 54% of deposits and operated 3388 branches (54%
of the total) as of December 31, 2004 The nationalized commercial banks are:
Sonali Bank
Janata Bank
Agrani Bank
Rupali Bank
Private Commercial Banks
Private Banks are the highest growth sector due to the dismal performances of government banks
(above). They tend to offer better service and products.
AB Bank Ltd
BRAC Bank Limited
Eastern Bank Limited
Dutch Bangla Bank Limited
Dhaka Bank Limited
Islami Bank Bangladesh Ltd
Pubali Bank Limited
Uttara Bank Limited
IFIC Bank Limited
National Bank Limited
The City Bank Limited
United Commercial Bank Limited
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NCC Bank Limited
Prime Bank Limited
SouthEast Bank Limited
Al-Arafah Islami Bank Limited
Social Islami Bank Limited
Standard Bank Limited
One Bank Limited
Exim Bank Limited
Mercantile Bank Limited
Bangladesh Commerce Bank Limited
Mutual Trust Bank Limited
First Security Islami Bank Limited
The Premier Bank Limited
Bank Asia Limited
Trust Bank Limited
Shahjalal Islami Bank Limited
Jamuna Bank Limited
ICB Islami Bank
Moon Bank Limited
United Bank Limited
Foreign Commercial Banks
Citibank
HSBC
Standard Chartered Bank
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Commercial Bank of Ceylon
State Bank of India
Habib Bank
National Bank of Pakistan
Wori Bank
Bank Alfalah
Specialized Banks and Credit Agencies
Out of the specialized banks, two (Bangladesh Krishi Bank and Rajshahi Krishi Unnayan
Bank) were created to meet the credit needs of the agricultural sector while the other two
( Bangladesh Shilpa Bank (BSB) & Bangladesh Shilpa Rin Sangtha (BSRS) are for extending
term loans to the industrial sector. The Specialized banks are:
Grameen Bank
Bangladesh Krishi Bank
Bangladesh Development Bank Ltd
Rajshahi Krishi Unnayan Bank
Basic Bank Ltd (Bank of Small Industries and Commerce)
Ansar VDP Unnyan Bank
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Various Schemes and Banking Products of Formal Banking
Product & Services:
Deposit Products:
1. Current A/C
2. Savings Bank Deposit A/C
3. Short Term Deposit A/C
4. Term Deposit A/C
5. Premium Term Deposit A/C
6. Instant Earnings Term Deposit A/C
7. Special Savings Scheme
8. Special Fixed Deposit Scheme
9. NFCD
10. RFCD
11. Money Double Program
Loans and Advance Products
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Working Capital Financing
Commercial and Trade Financing
Long Term (Capital) Financing
House Building Financing
Retail and Consumer Financing
SME Financing
Agricultural Financing
Import and Export Financing
Cards
ATM Card
Credit Card (Local, International and Dual)
Remittance Products
Special Interest rate on Savings and Term Deposits
Wage Earners Welfare Deposit Pension Scheme
Loans for Real Estate (Land purchase and House construction/renovation)
Advance against Regular Remittance
Services
Brokerage House
Member, Dhaka Stock Exchange Ltd.
Full Service Depository Participant
Treasury Service
Primary Dealer of Govt. Approved Securities
Remittance Service
Correspondence arrangement with more than 330 Financial Institutions all over the World
For Wage Earners Remittance we have Agency arrangement with 12 reputed Exchange
Houses covering major Locations of our Expatriate
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Categories of Overall Banking Activities:
Banks activities can be divided into three categories. These are as follows:-
General Banking Activities
Credit or loan activities
Foreign exchange activities
What is General banking Activities:
General Banking (GB): It is the starting point of all the banking operation. It does the most
important and basic works of the bank. It also plays a vital role in deposit mobilization. A bank
starts its operation providing services to the customers by its general banking activities. The
efficiency of general banking activity that provided by each bank reflects the whole service given
by that bank. With the increasing competition customers are mostly impressed by the efficiency of
this department. The whole general banking activity is consisted of receiving deposit, remitting
fund, and meeting the demand of customers.
General Banking Section:
1. To maintain different types of deposit account
2. Local Remittance
3. To operate clearing house activities
4. To maintains safety deposit lockers
5. Cash Section
6. Capital Market operation
7. Online Banking
8. ATM and Credit Card Services
Account Opening Section:
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The relationship between banker and customer begins with the opening of an account by the
customer. Opening of an account binds the customer into a contractual relationship under a legal
framework of the “Contract Act -1872”. But selection of a customer for opening an account is very
crucial for a bank. So Banks takes the highest caution in this regard.
Banks opens the following accounts for its customers
Current Account:
A current deposit account may be operated in several times during a working day. There is no
restriction on the number and the amount of withdraws from a current account and the banker
does not allow any interest on the current account. There are two facilities for the people who open
a current account. They are:-
Over draft facility
Collection of check transfer of money rendering agency, general utility service.
A person can open a current a/c or any entity. The entity can be a partnership firm, limited
company, proprietorship firm, association, clubs etc. For opening a current account of the above,
the requirements and steps, which are followed by this branch, are like: -
For a person: There is an individual application form for opening personal current a/c. The person, who wants to
open this type of a/c, is said to fulfill the following requirement:
a) Name/ Father’s Name/ Husband’s Name:
b) Present and Permanent Address:
c) Occupation:
d) Mandate in Writing:
e) Declaration of Nominee:
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f) Letter of Introduction:
g) Specimen Signature:
h) Passport Size Photograph:
i) Initial deposit.
FOR JOIN STOCK COMPANIES, ASSOCIATION, CLUBS ETC:
In case of opening a current a/c of join stock companies, association, clubs etc. the following
requirements are said to fulfill:
a) True copies of certificate of incorporation or registration (in case of companies and registered
bodies).
b) True copies of certificate of commencement of business (in case of limited company).
c) True copies of memorandum and articles of association (in case of limited company). The rules
of regulation by laws (in case of associations, clubs etc.)
d) True copy of resolution of the Board of Directors of Managing committee / Governing Body,
regarding conduct of account.
e) Certificate list containing names and signature of the Board of Directors/ Officer Bearers.
FOR PARTNERSHIP / PROPRIETORSHIP COMPANY:
To open a current a/c on the name of any partnership or proprietorship company, the following
document are required:
a) Filled up application form stating about the name and address of the firm.
b) Partnership deed.
c) Trade License.
d) Two copies of photographs.
e) Endorsement of an a/c holder of the same branch. (for partnership companies).
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f) Undertaking / declaration about the partnership is taken by the bank in a white paper (for
proprietorship firm)
FOR PRIVATE & PUBLIC LIMITED COMPANY:
The document are required by the bank to open a current a/c be:
a) Copy of the certificate of incorporation or registration.
b) Copy of the certificate of business.
c) True copy of memorandum of association and articles of association abide by laws.
d) True copy of resolution of the Board of Directors / Managing Committee /Governing Body
regarding conduct of the account.
In order to open an account, the customer is first of all asked to fill up the application form given
from the bank. The bank requires few documents of the client due to the producers, such as
proposal for opening an a/c, name and full address (both present and permanent).
Savings Account:
A saving a/c is meant for the person of the lower and middle classes who wishes to save
a part of their income to meet their future needs and intend to earn an income from their
saving.
All the feature are like CD a/c except some restrictions imposed by the bank.
The bank offers a reasonable rate of interest.
The number of withdrawals over period of times is limited. Only two withdrawals are
permitted per week. But more than that no interest will be paid on rest of the amount for
that month.
The total amount of one or more withdrawals on any date should not exceed 25% of the
balance in the a/c unless 7 days advance notice is given.
Short-term Deposit Account:
Etries PassedA deposit slip shall be prepared crediting the STD a/c with the amount of the deposit.
Cash-------------Dr.
STD a/c (Party)---------Cr.
If the amount shall be deposited by check or transfer of a/c, the following entries shall be
passed—
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Party C/D, S/D a/c----------Dr.
STD a/c--------------------------------Cr.
The a/c opening form shall be pasted in the passing file in numerical order. The credit
voucher shall be passed in the STD a/c of the party. In case of letter of authority to debit
the STD a/c of the customer, voucher will be prepared and the following entries shall be
passed:-
STD a/c (Party)---------------Dr.
C/D (Party)------------------------Cr.
Minimum 7 days notice period is required for withdrawal of any sum of money from STD
a/c. Banker is not legally liable to the customer, if the check is dishonored under the
following conditions, although the check is properly drawn:
If the fund is insufficient.
If the payment is stopped by the drawer.
If payment is stopped by the court by issuing garnishee order.
Any competent authority issues Attached order.
Check is presented after the death of the customer.
Notice of assignment.
Check presented after the business/banking hour as declared earlier.
Letter of IntroductionThis is a letter of certification, from a person, who is a valid customer of that particular
branch and maintaining any kind of a/c. usually a customer from other branch is not
allowed to be the introducer, but it is permitted. The process of introducing a new client
can be done on the form itself. There is a space in the application where the introducer will
write his/her a/c no. and sign his/her specimen signature. It always advisable on the part
of the banker to allow the prospective customer to open an a/c only with a proper
introduction from a responsible person, known to both the parties.
A letter of introduction always protects a banker in the following ways Protection against fraud
Protection against invariant overdraft
Page 27
Protection against undiscouraged bankrupt
Protection against negligence under sec. 131 of NI Act
Protection against giving incorrect information follow the banker
Declaration of NomineeThe person who wants to open an a/c can mention one or two nominee. The application
will give a declaration in the space given on the a/c opening form, stating the name and
father’s name, age address, relation and percentage of share (if more than one). The a/c
holder can change the nominee any time and it will be valid, only after the of the a/c
holder.
Specimen SignatureThe applicant will sign on the application and he will be provided with an extra paper
where he will sign three or more signatures, which he has to maintain all through the
duration of the account.
InterviewAt the time of the opening of a new a/c, this concerned branched always takes an interview
with prospective customer so as to obviate the chances of preparation of any fraud at the
letter stage.
Initial DepositIt is always a common practice among the bankers to allow a new customer to open an a/c
only in cash.
Operation InstructionIf any party wants his/her a/c to be operated by some body else, s/he will provide the
banker in writing statement about the operator.
Verification of Document
The banker should verify some of the important documents, like the Memorandum of
Association, Article Association by laws Copy etc. In verification of certain other
Page 28
documents like, trust Deed Probate, Letter of Administration etc. may be needed.
Conversant with the provision of special acts, since a banker is to deal with different
classes of customers, s/he has to be thoroughly conversant with certain laws.
Pay in Slip, Check Book and Pass Book
The customer is supplied with a pay in slip book to use for depositing cash or check of bill
into a/c. The customer is also supplied with a checkbook for drawing money as and when
the customer wishes, which normally contains 10 to 50 bank forms. If the customer does
not like to have a checkbook, then s/he can make use of withdrawal form for withdrawing
money. But there is no use of such kind of form in this branch. In addition to the above, a
customer is given a passbook, which reflects the customer’s a/c in the banker’s ledger. It
usually contains the rules and regulations of the bank and terms and conditions of
deposits.
Fixed Deposit Account
A fixed deposit a/c is repayable after the expiry of a predetermined period fixed by the
customer himself. The period varies from three months to five years. The customer may
open his/her a/c for different time periods, which may be for three months, six months,
one year, two years, three years, four years, five years.
Though FDR is an a/c, it is something different from other a/c. FDR is a long-term deposit.
Usually customers are allowed to open this a/c for a certain period. The rate of interest
varies in accordance with the terms of deposit.
The amount of FDR is payable once at a time. After the term for which the a/c was opened,
the FDR gets its maturity. Paying the principle amount plus interest less income tax then
fulfills the claim.
MONTHLY SAVING DEPOSIT ACCOUNT
Page 29
It is a new project, which is a scheme like DPS. The installment payment is to be made to
the bank within the first 10 days of each month. It can be opened for 5years and 10 years
maturity for Tk. 500 and 10000.
Special Fixed Deposit Scheme:
Any amount of TK. 1,00,000/= or multiple may be deposited under this scheme.
Duration of the scheme is 3 (Three) years.
Monthly interest will be given to the depositor against the deposited amount.
Like ‘Deposit Pension Scheme’ this scheme includes the following features for the
convenience of clients.
The monthly installments of TK. 500.00 to 2,500.00 may be deposited every month during
the entire period of scheme.
The duration of the scheme is 5 years or 10 years.
Local Remittance:
Cash handling from one place to another is risky. So, bank remits funds on behalf of the customers
to save them from any mishaps through the network of their branches. There are four modes of
remitting money from one place to another. These are –
Pay order (PO)
Demand Draft (DD)
Telegraphic Transfer (TT)
Mail Transfer (MT)
Clearing Activities:
Outward Bill for Collection:
The instrument of the Bank includes checks; pay order, demand draft etc. The Bank
collects its own instrument from other banks through Clearing House as the clients with no
Page 30
charges or commissions required to perform this service submit them in different
locations.
Inward Bill for Collection:
The Bank provides the instruments to other banks through Clearing House, which have
been collected from different clients. It performs this kind of service for its clients without
requiring any charges or commission.
Locker Service:
Locker services are available for the clients in exchange of fees. In this context the client
gets a locker in Bank with a key and the permission to keep goods or documents with the
consent of the Bank.
Online Banking:
Coputerization of the Branches and Head Office as well is underway with a view to
providing guality and prompt service to the customers. Now the Bank starts, On Line
Banking.
ATM Service & Credit Card:
The Bank to extend modern banking faciliy to the customers allowing 24 hrs accesses to
any ATM dispenser situated . The network will be expanded phase by phase in other parts
of the country. Recently they also established alots of ATM BOOTH as well.
Page 31
Types of loans granted by commercial banks:
1. Secured loan
A secured loan is a loan in which the borrower pledges some asset (e.g., a car or property)
as collateral (i.e., security) for the loan.
2. Mortgage loan
A mortgage loan is a very common type of debt instrument, used to purchase real estate.
Under this arrangement, the money is used to purchase the property. Commercial banks,
however, are given security - a lien on the title to the house - until the mortgage is paid off
in full. If the borrower defaults on the loan, the bank would have the legal right to
repossess the house and sell it, to recover sums owing to it.
In the past, commercial banks have not been greatly interested in real estate loans and
have placed only a relatively small percentage of their assets in mortgages. As their name
implies, such financial institutions secured their earning primarily from commercial and
consumer loans and left the major task of home financing to others. However, due to
changes in banking laws and policies, commercial banks are increasingly active in home
financing.
Changes in banking laws now allow commercial banks to make home mortgage loans on a
more liberal basis than ever before. In acquiring mortgages on real estate, these
institutions follow two main practices. First, some of the banks maintain active and well-
organized departments whose primary function is to compete actively for real estate loans.
In areas lacking specialized real estate financial institutions, these banks become the
source for residential and farm mortgage loans. Second, the banks acquire mortgages by
simply purchasing them from mortgage bankers or dealers.
In addition, dealer service companies, which were originally used to obtain car loans for
permanent lenders such as commercial banks, wanted to broaden their activity beyond
their local area. In recent years, however, such companies have concentrated on acquiring
mobile home loans in volume for both commercial banks and savings and loan
Page 32
associations. Service companies obtain these loans from retail dealers, usually on a no
recourse basis. Almost all bank/service company agreements contain a credit insurance
policy that protects the lender if the consumer defaults.
3. Unsecured loan
Unsecured loans are monetary loans that are not secured against the borrowers assets (i.e.,
no collateral is involved). These may be available from financial institutions under many
different guises or marketing packages:
Bank Overdrafts
Corporate Bonds
Credit card Debt
Credit Facilities or Lines of Credit
Personal loans
Chapter – ΙΙΙ
This Chapter covers the followings:
1. Theoretical Aspect of Financial Statement Analysis
Page 33
2. Calculation of Financial Ratios and Graphically Presentation of The Ratios of Private Banks in Bangladesh
Theoretical Aspect of Financial Statement Analysis
Liquidity Ratio:
Liquidity ratio measures the ability of a firm to meet the current obligation .A firm
should ensure that it does not suffer from lack of liquidity and also does not have
execs liquidity, will result in a poor creditworthiness, loss of creditors confidence.
Page 34
The most common ratios which indicate the extent of liquidity or lack of it are as
follows:
Current Ratio It is the relationship between the current assets and current liabilities and shows the proportion of current assets available per unit of current liability. It is worked out using the following formula-
A worthwhile target for the current ratio is 2:1. Firms with inventories which are easily realized, such as food retailers can manage with significantly lower ratios, but there is no excuse of going mush below unless, a firm sees liquid investments as a sound home for its resources. The current ratio cannot be judge except in relation to the needs of a particular commercial situation. Anything between 1:1 and 4:1 could be acceptable. Comparison must be made with industry norms and those competitors whom one respects. In the absence of other data, 2:1 is not unreasonable.
acid-Test Ratio
The Acid-Test or quick ratio establishes the relationship between quick or liquid assets and current liabilities. Quick assets mean current assets excluding inventory. The exclusion of inventory is for the reason that it is not easily and readily convertible into cash. A high quick ratio is an indication that the firm has liquidity and easiness to meet the current obligations. On the other hand, if the quick ratio is low, it is a clear indicator of illiquidity. The quick ratio is a more rigorous and penetrating test of the liquidity position when compared to the current ratio. It is calculated as follows—
Quick Assets Refers to Cash, Short-term investments, Net receivables etc. Normally a quick ratio of 1:1 is considered satisfactory.
current Cash Debt Coverage Ratio
Current cash debt coverage ratio is calculated by dividing Net cash provided by operating
activities by Average current liabilities.
Page 35
So we can ratio these: Net cash provided by operating activities
Average current liabilities
Activity Ratio
Activity ratios are employed to evaluate the efficiency with which the firm managers
and utilizes its assets. This ratio indicates the speed with which assets are being
converted or turned over into sales thus activity ratio involve a relationship between
sales and assets.
assets Turnover Ratio
Assets are used to generate sales. A firm can compute net asset turnover by dividing
sales by average total assets. So assets turnover will be:
Assets Turnover = Net Sales
Average total assets
receivable turnover
Receivable turnover ratio is calculated by dividing Net sales by Average trade
receivable.
So we can ratio these: Net sales
Average trade receivable
Profitability Ratio
A company should earn and grow over a period of time profit is the difference between
revenue and expenses over a period of time. It is the ultimate outcome of a company
Page 36
and the company will have no future if fails to make sufficient profit. The profitability
ratios are calculated to measures the operating efficiency of a company.
profit Margin on Sales
Profitability ratio in relation to sales is the profit margin or gross margin. It is calculate
in the following way:
Profit margin on sales = Net Income
Net sales
return On Assets (ROA)
An overall measure of profitability is Return on Assets. An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's net income by its average assets, ROA is displayed as a percentage. Sometimes this is referred to as "return on investment".
Rate of return on assets = Net Income
Average total assets
return On Common Stockholders Equity
Another widely used profitability ratio is return on common stockholders equity. It measures profitability from the common stockholders viewpoint. This ratio shows how many dollars of net income the company earned for each dollar invested by the owners. We compute it by dividing net income by average common stockholders equity.
Rate of return on common Stockholders equity = Net Income
Average common stockholders equity
earnings Per Share (EPS)
Earnings Per Share (EPS) is a measure of the net
Page 37
income earned on each share of common stock. It is computed by dividing net income by the number of weighted average common shares outstanding during the year. A measure of net income earned on a per share basis provides a useful perspective for determining profitability. Earnings per share is computed by
EPS = Net Income
Weighted average common shares outstanding
price Earnings Ratio
The Price earnings (PE) ratio is an oft-quoted measure of the ratio of the market price of each share of common stock to the earning per share. The price earnings (PE) ratio reflects investor’s assessments of a company’s future earnings. We compute it by dividing the market price per share of the stock by earning per share.The formula is Market price per share of stock Price earnings ratio = Earning per share
payout Ratio
The Payout ratio measures the percentage of earnings distributed in the form of cash dividends. We compute it by dividing cash dividends by net income. Companies that have high growth rates generally have low payout ratios because they reinvest most of their net income into the business.The formula is
Cash DividendsPayout ratio = Net Income
Coverage Ratio
Page 38
The ratio helps to cover the interest obligation. This ratio is used to get the firms debt
servicing capacity. This ratio can be explained in the following:
debt to Total Assets
Debt to total assets calculated by dividing total debt by total assets. So we can calculate
this by:
Total Debt
Total Assets
cash debt Coverage Ratio
These ratios calculate by dividing net cash provided by operating activities by Average
total liabilities.
Calculated by = Net cash provided by operating activities
Total Liabilities
Calculation of Financial Ratios and Graphically Presentation
This chapter contains the calculation of main financial ratios for evaluating
performance of various private Banks in Bangladesh.
Dhaka Bank Ltd.
Current Ratio: (Current assets/Current liabilities)
Page 39
Year Calculations Ratio
2008 1713207622 / 1863290529 0.91%
2009 1908509664 / 1658260845 1.15%
So Current ratio is
Ratio
0
0.2
0.4
0.6
0.8
1
1.2
1.4
2008 2009
Ratio
Fig: Current Ratio
Acid Test Ratio: (Cash, Short-term Investments & Receivable / Current Liabilities)
Year Calculations Ratio
2008 991157752 / 1863290529 0.53 %
2009 1109515637 / 1658260845 0.66%
So Acid test ratio is
Year Ratio
2008 0.91
2009 1.15
Year Ratio
2008 0.53
2009 0.66
Page 40
Ratio
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
2008 2009
Ratio
Fig: Acid Test Ratio
Return on Assets (ROA): (Net Income/Average Assets)
Year Ratio
2008 1.18
2009 1.29
Page 41
Ratio
1.12
1.14
1.16
1.18
1.2
1.22
1.24
1.26
1.28
1.3
2008 2009
Ratio
Fig: Return on Assets
Return on Investment (ROI): (Gain from investment – Cost of investment / Cost of
Investment)
Year Ratio
2008 9.18
2009 11.58
Page 42
Ratio
0
2
4
6
8
10
12
14
2008 2009
Ratio
Fig: Return on Investment
Return on Common Stockholders Equity: (Net Income/Average common stockholders
equity)
Year Calculations Ratio
2008 465985098 / 356250000 1.30
2009 532284207 / 448300000 1.18
Page 43
So the ratio is:
Ratio
1.12
1.14
1.16
1.18
1.2
1.22
1.24
1.26
1.28
1.3
1.32
2008 2009
Ratio
Fig: Return on Common Stock Holders Equity
Earning Per Share (EPS): (Net income/ Weighted average common shares outstanding)
Year Ratio
2008 1.30
2009 1.18
Year Ratio
2008 39.42
2009 45.09
Page 44
Ratio
36
37
38
39
40
41
42
43
44
45
46
2008 2009
Ratio
Fig: Earning per Share
Price Earning (P-E) Ratio: (Market price per share/ Earning per share EPS)
Year Ratio
2008 9.15
2009 10.72
Page 45
Ratio
8
8.5
9
9.5
10
10.5
11
2008 2009
Ratio
Fig: Price Earning Ratio
Payout Ratio: (Cash dividends/Net income)
Year Calculations Ratio
2008 1500000 / 465985098 0.03
2009 0 / 532284207 0
So the ratio is:
Year Ratio
2008 0.03
2009 0
Page 46
Ratio
0
0.005
0.01
0.015
0.02
0.025
0.03
0.035
2008 2009
Ratio
Fig: Payout Ratio
Exim Bank Ltd.
Current Ratio: (Current assets/Current liabilities)
Year Calculations Ratio
2008 11674760381 / 7864522314 1.48%
2009 12935569186 / 9077534456 1.42%
So Current ratio is
Year Ratio
2008 1.48%
2009 1.42%
Page 47
Ratio
1.39%
1.40%
1.41%
1.42%
1.43%
1.44%
1.45%
1.46%
1.47%
1.48%
1.49%
2008 2009
Ratio
Fig: Current Ratio
Acid Test Ratio: (Cash, Short-term Investments & Receivable / Current Liabilities)
Year Calculations Ratio
2008 6587914223 / 7864522314 0.83%
2009 9216163321 / 9077534456 1.01%
So Acid test ratio is
Year Ratio
2008 0.83%
2009 1.01%Page 48
Ratio
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
2008 2009
Ratio
Fig: Acid Test Ratio
Return on Assets (ROA): (Net Income/Average Assets)
Year Ratio
2008 1.83%
2009 2.19%
Page 49
Ratio
1.60%
1.70%
1.80%
1.90%
2.00%
2.10%
2.20%
2.30%
2008 2009
Ratio
Fig: Return on Assets
Return on Investment (ROI): (Gain from investment – Cost of investment / Cost of
Investment)
Year Ratio
2008 2.03%
2009 9.38%
Page 50
Ratio
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
10.00%
2008 2009
Ratio
Fig: Return on Investment
Return on Common Stockholders Equity: (Net Income/Average common stockholders
equity)
Year Calculations Ratio
2008 930843607 / 479582457 1.9
2009 11096627046 / 5853206814 1.8
So the ratio is:
Year Ratio
2008 1.9
2009 1.8Page 51
Ratio
1.74
1.76
1.78
1.8
1.82
1.84
1.86
1.88
1.9
1.92
2008 2009
Ratio
Fig: Return on Common Stockholdres Equity
Earning Per Share (EPS): (Net income/ Weighted average common shares outstanding)
Year Ratio
2008 32.50
2009 50.21
Page 52
Ratio
0
10
20
30
40
50
60
2008 2009
Ratio
Fig: Earing per Share
Price Earning (P-E) Ratio: (Market price per share/ Earning per share EPS)
Year Ratio
2008 12.06
2009 7.52
Page 53
Ratio
0
2
4
6
8
10
12
14
2008 2009
Ratio
Fig: Price Eraning Ratio
Payout Ratio: (Cash dividends/Net income)
Year Calculations Ratio
2008 0 / 930843607 0
2009 0 / 11096627046 0
So the ratio is:
Page 54
One Bank Ltd.
Current Ratio: (Current assets/Current liabilities)
Year Calculations Ratio
2008 26238721229 / 8767809844 2.99%
2009 4674839087 / 4012831533 1.16 %
So Current ratio is
Year Ratio
2008 0
2009 0
Year Ratio
2008 2.99%
2009 1.16 %
Page 55
Ratio
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
2008 2009
Ratio
Fig: Current Ratio
Acid Test Ratio: (Cash, Short-term Investments & Receivable / Current Liabilities)
Year Calculations Ratio
2008 3738020432 / 8767809844 0.42%
2009 2590016049 / 4012831533 0.64%
So Acid test ratio is
Year Ratio
2008 0.42%
2009 0.64%Page 56
Ratio
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
2008 2009
Ratio
Fig: Acid Test Ratio
Return on Assets (ROA): (Net Income/Average Assets)
Year Ratio
2008 3.74%
2009 4.37%
Page 57
Ratio
3.40%3.50%3.60%3.70%3.80%3.90%4.00%4.10%4.20%4.30%4.40%4.50%
2008 2009
Ratio
Fig: Return on Assets
Return on Investment (ROI): (Gain from investment – Cost of investment / Cost of
Investment)
Year Ratio
2008 13.46%
2009 12.63%
Page 58
Ratio
12.20%
12.40%
12.60%
12.80%
13.00%
13.20%
13.40%
13.60%
2008 2009
Ratio
Fig: Return on Investment
Return on Common Stockholders Equity: (Net Income/Average common stockholders
equity)
Year Calculations Ratio
2008 421962412 / 2314881865 0.18
2009 726700936 / 4698139314 0.15
So the ratio is:
Year Ratio
2008 0.18
2009 0.15Page 59
Ratio
0.135
0.14
0.145
0.15
0.155
0.16
0.165
0.17
0.175
0.18
0.185
2008 2009
Ratio
Fig: Return on Common Stockholdres Equity
Earning Per Share (EPS): (Net income/ Weighted average common shares outstanding)
Year Ratio
2008 27.08
2009 46.63
Page 60
Ratio
0
5
10
15
20
25
30
35
40
45
50
2008 2009
Ratio
Fig: Earnig per Share
Price Earning (P-E) Ratio: (Market price per share/ Earning per share EPS)
Year Ratio
2008 12.09
2009 9.82
Page 61
Ratio
0
2
4
6
8
10
12
14
2008 2009
Ratio
Fig: Price Earning Ratio
Payout Ratio: (Cash dividends/Net income)
Year Calculations Ratio
2008 259748700 / 421962412 0.61
2009 498717600 / 726700936 0.68
So the ratio is:
Year Ratio
2008 0.61
2009 0.68 Page 62
Fig: Payout Ratio
Prime Bank Ltd.
Current Ratio: (Current assets/Current liabilities)
Year Calculations Ratio
2008 10980130 / 8488570 1.2%
2009 18069415 / 9388190 1.9%
So Current ratio is Year Ratio
2008 1.2%
2009 1.9%
Page 63
Ratio
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
1.80%
2.00%
2008 2009
Ratio
Fig: Current Ratio
Acid Test Ratio: (Cash, Short-term Investments & Receivable / Current Liabilities)
Year Calculations Ratio
2008 10980130 / 8488570 1.29%
2009 18069415 / 9388190 1.92%
So Acid test ratio is
Year Ratio
2008 1.29%
2009 1.92%
Page 64
Ratio
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
2008 2009
Ratio
Fig: Acid Test Ratio
Retune on Assets (ROA): (Net Income/Average Assets)
Year Ratio
2008 1.30%
2009 2.37%
Page 65
Ratio
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
2008 2009
Ratio
Fig: Return on Assets
Return on Investment (ROI): (Gain from investment – Cost of investment / Cost of
Investment)
Year Ratio
2008 9.74%
2009 15.67%
Page 66
Ratio
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
2008 2009
Ratio
Fig: Return on Investment
Return on Common Stockholders Equity: (Net Income/Average common stockholders
equity)
Year Calculations Ratio
2008 1,232000000 / 6806290500 0.18
2009 2,784000000 / 9648474000 0.28
So the ratio is:
Year Ratio
2008 0.18
2009 0.28
Page 67
Ratio
0
0.05
0.1
0.15
0.2
0.25
0.3
2008 2009
Ratio
Fig: Return on Common Stockholders Equity
Earning Per Share (EPS): (Net income/ Weighted average common shares outstanding)
Year Ratio
2008 34.65
2009 78.33
Page 68
Ratio
0
10
20
30
40
50
60
70
80
90
2008 2009
Ratio
Fig: Earning per Share
Price Earning (P-E) Ratio: (Market price per share/ Earning per share EPS)
Year Ratio
2008 12.46
2009 8.34
Page 69
Ratio
0
2
4
6
8
10
12
14
2008 2009
Ratio
Fig: Price Earning Ratio
Payout Ratio: (Cash dividends/Net income)
Year Calculations Ratio
2008 25000000 / 1,232000000 0.02
2009 40000000 / 2,784000000 0.01
So the ratio is:
Year Ratio
2008 0.02
2009 0.01
Page 70
Ratio
0
0.005
0.01
0.015
0.02
0.025
2008 2009
Ratio
Fig: Payout Ratio
Islami Bank Bangladesh Ltd.
Current Ratio: (Current assets/Current liabilities)
Year Calculations Ratio
2008 36953501596 / 100536611990 0.36%
2009 45164041819 / 121421636487 0.37%
So Current ratio is
Year Ratio
2008 0.36%
2009 0.37%Page 71
Ratio
0.35%
0.36%
0.36%
0.36%
0.36%
0.36%
0.37%
0.37%
0.37%
0.37%
2008 2009
Ratio
Fig: Current Ratio
Acid Test Ratio: (Cash, Short-term Investments & Receivable / Current Liabilities)
Year Calculations Ratio
2008 43161296147 / 100536611990 0.42%
2009 74865512827 / 121421636487 0.61%
So Acid test ratio is
Year Ratio
2008 0.42%
2009 0.61%
Page 72
Ratio
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
2008 2009
Ratio
Fig: Acid Test Ratio
Return on Assets (ROA): (Net Income/Average Assets)
Year Ratio
2008 1.27%
2009 1.34%
Page 73
Ratio
1.22%
1.24%
1.26%
1.28%
1.30%
1.32%
1.34%
1.36%
2008 2009
Ratio
Fig: Return on Assets
Return on Investment (ROI): (Gain from investment – Cost of investment / Cost of
Investment)
Year Ratio
2008 11.31%
2009 10.40%
Page 74
Ratio
9.80%
10.00%
10.20%
10.40%
10.60%
10.80%
11.00%
11.20%
11.40%
2008 2009
Ratio
Fig: Return on Investment
Return on Common Stockholders Equity: (Net Income/Average common stockholders
equity)
Year Calculations Ratio
2008 2674796768 / 119376000000 0.02
2009 3403551874 / 150169650000 0.02
So the ratio is:
Year Ratio
2008 0.02
2009 0.02
Page 75
Ratio
0
0.005
0.01
0.015
0.02
0.025
2008 2009
Ratio
Fig: Return on Common Stockholders Equity
Earning Per Share (EPS): (Net income/ Weighted average common shares outstanding)
Year Ratio
2008 43.30
2009 55.10
Page 76
Ratio
0
10
20
30
40
50
60
2008 2009
Ratio
Fig: Earning per Share
Price Earning (P-E) Ratio: (Market price per share/ Earning per share EPS)
Year Ratio
2008 10.78
2009 10.73
Page 77
Ratio
10.7
10.71
10.72
10.73
10.74
10.75
10.76
10.77
10.78
10.79
2008 2009
Ratio
Fig: Price Earning Ratio
Payout Ratio: (Cash dividends/Net income)
Year Calculations Ratio
2008 1425600000 / 2674796768 0.53
2009 1853280000 / 3403551874 0.54
So the ratio is:
Year Ratio
2008 0.53
2009 0.54 Page 78
Ratio
0.524
0.526
0.528
0.53
0.532
0.534
0.536
0.538
0.54
0.542
2008 2009
Ratio
Fig: Payout Ratio
Brac Bank Ltd.
Current Ratio: (Current assets/Current liabilities)
Year Calculations Ratio
2008 7510859113 / 14984145195 0.50%
2009 13512935603 / 40497163804 0.33%
So Current ratio is
Year Ratio
2008 0.50%
2009 0.33%
Page 79
Ratio
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
2008 2009
Ratio
Fig: Current Ratio
Acid Test Ratio: (Cash, Short-term Investments & Receivable / Current Liabilities)
Year Calculations Ratio
2008 12561261273 / 14984145195 0.83%
2009 17663206149 / 40497163804 0.43%
So Acid test ratio is
Year Ratio
2008 0.83%
2009 0.43%
Page 80
Ratio
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
0.80%
0.90%
2008 2009
Ratio
Fig: Acid Test Ratio
Return on Assets (ROA): (Net Income/Average Assets)
Year Ratio
2008 1.64%
2009 1.56%
Page 81
Ratio
1.52%
1.54%
1.56%
1.58%
1.60%
1.62%
1.64%
1.66%
2008 2009
Ratio
Fig: Return on Assets
Return on Investment (ROI): (Gain from investment – Cost of investment / Cost of
Investment)
Year Ratio
2008 12.61%
2009 12.30%
Page 82
Ratio
12.10%12.15%12.20%12.25%12.30%12.35%12.40%12.45%12.50%12.55%12.60%12.65%
2008 2009
Ratio
Fig: Return on Investment
Return on Common Stockholders Equity: (Net Income/Average common stockholders
equity)
Year Calculations Ratio
2008 973450830 / 5061944316 0.52
2009 1303588940 / 8734045898 0.67
So the ratio is:
Year Ratio
2008 0.52
2009 0.67 Page 83
Ratio
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
2008 2009
Ratio
Fig: Return on Common Stockholders Equity
Earning Per Share (EPS): (Net income/ Weighted average common shares outstanding)
Year Ratio
2008 58.50
2009 60.98
Page 84
Ratio
57
57.5
58
58.5
59
59.5
60
60.5
61
61.5
2008 2009
Ratio
Fig: Earning per Share
Price Earning (P-E) Ratio: (Market price per share/ Earning per share EPS)
Year Ratio
2008 17.52
2009 13.88
Page 85
Ratio
0
2
4
6
8
10
12
14
16
18
20
2008 2009
Ratio
Fig: Price Earning Ratio
Payout Ratio: (Cash dividends/Net income)
Year Calculations Ratio
2008 0 / 973450830 0
2009 0 / 1303588940 0
So the ratio is:
Year Ratio
2008 0
2009 0
Page 86
Chapter – IV
Findings, Recommendations, and Conclusions
Page 87
Conclusion
Liquidity and profitability is an attribute that signifies the capacity to meet financial obligations as and when required. The importance of liquidity to meet the current obligations as and when they become due for payment can hardly be over emphasized.
A firm should maintain adequate level of working capital to meet the current obligations and maintain business operations. The effective management of working capital requires both medium-term planning and immediate reactions to the fast changes taking in the present business environment.
Working capital management is the functional area of finance that covers all the current accounts of the firm. It is concerned with the adequacy of current assets as well the level of risk posed by current liabilities.
Efficient handling of company liquidity and profitability provides goodwill about the company as well as success of the company.
Page 88
Bibliography
Financial Decision Making Concepts, Problems and Cases, 4th edition
- John J Hampton
An introduction to effective working capital (liquidity) management,
-Michael Lembach.
Financial Statement Analysis
Theory Application and Interpretation
- By Leopard A Bernstrein
Fundamental of Financial Management
Page 89
- By E.F. Brigham
Financial Management
- By I M. Pandey
Intermediate Accounting
- By Donald E. Kieso
Jerry J. Weygandt
Internet Annual Reports.
Page 90