Report on Budget & Financial Statement Analysis of the City Bank Limited (Part-2) - Assignment Point
Report on Budget & Financial Statement Analysis of the City Bank Limited (Part-2)
Subject: Economics | Topics:

4.1 Budget analysis on financial statement

A Budget is a plan that outlines an organization’s financial and operational goals. So a budget may be thought of as an action plan; planning a budget helps a business allocate resources, evaluate performance, and formulate plans. While planning a budget can occur at any time, for many businesses, planning a budget is an annual task, where the past year’s budget is reviewed and budget projections are made for the next three or even five years. The basic process of planning a budget involves listing the business’s fixed and variable costs on a monthly basis and then deciding on an allocation of funds to reflect the business’s goals. Every financial organization has financial projection or business plan for the fiscal year. The City Bank also formulated a business plan for the year 2008.

Table: 02 Interest Incomes

Interest Income

2006

2007

2008

Budget 2008

Bud Grow

Achieved

Loans (General)/ Musharaka

7894629

4280786

2953119

-31.014561

Loans against Imported/Murabha

65199468

90847158

31196453

65.660508

Loans against trust receipts

428359970

434098326

531905006

22.5309968

Packing credit

35347191

34661086

17091792

-50.688816

Interest on EDF

1158620

154465

House building loan

45004246

55921839

33694650

-39.746885

Industrial credit

801612877

1194078099

1517222761

27.0622719

Transport loan

35323309

34625773

65841013

90.1503051

Lease finance/Izara

24349133

34354995

28942397

-15.754908

Demand loan

72482084

121300149

202085213

66.5993114

Payment against documents

217825218

92550629

54347021

-41.278604

cash credit/Bai-Muajjal

892130104

860059080

820188537

-4.6357912

Hire purchase shirkatul melk

1371806

35023005

47863604

36.6633274

Fully and partly secured overdraft

275362698

299696442

359159125

19.8409706

Consumer credit Scheme

6827980

7372803

5620237

-23.770688

Interest on SME

36054147

84625415

83779832

-0.9992069

Staff loan

24096045

33492273

46037035

37.4556902

Documentary bills purchased

454471022

312475397

253318311

-18.931758

Interest income from credit card

40629994

38017789

84082652

121.166602

Interest on cash incentive

13490968

15410109

4679112

-69.636088

Other loans and advances/Invest.

3722477

7363879

73122128

892.983834

Total interest/profit on loans& ad.
Interest/profit on b/l With other banks

78670768

280840887

368624725

31.2574992

Interest on call loans

188656571

83146162

30244151

-63.625319

Interest received from foreign banks

22027994

29028631

7217035

-75.138218

Total Interest Income

3772069319

4183270712

4669370374

4350570000

3.999

11.62

The City Bank Ltd. Projected 4% interest earnings on their loans & advances over the actual earnings on 2007. But due to some good management of credit department they achieved 11.62% in the year 2008.

We see here in profit & loss a/c. interest income achieved well over what is projected/expected due to less income growth in Interest received from foreign banks, Loans against Imported/Murabha, Packing credit, House building loan, Lease finance/Izara, Payment against documents, cash credit/Bai-Muajjal, Consumer credit Scheme, Interest on SME, Documentary bills purchased Interest on cash incentive, Interest on call loans, Loans (General)/ Musharaka.

Though the city bank ltd. Have earned more interest on loans & advances than that of their projection, but if they want to increase their growth they have to focus on earnings from, Interest received from foreign banks, Loans against Imported/Murabha, Packing credit, House building loan, Lease finance/Izara, Payment against documents, cash credit/Bai-Muajjal, Consumer credit Scheme, Interest on SME, Documentary bills purchased Interest on cash incentive, Interest on call loans, Loans (General)/ Musharaka.

Table: 03 Interest/profit paid on deposits

Interest/profit paid on deposits

2006

2007

2008

Budget 2008

Bud Grow

Achieved

Savings bank

262454676

295575493

365353584

23.607536

Mudaraba savings deposits

22298489

34536648

5603223

-83.776008

Short term deposits

88137461

99248148

220725861

122.397965

Mudaraba short notice deposits

3564819

5695138

2096300

-63.19141

Fixed deposits

1600798664

2166124348

1733597747

-19.967764

Mudaraba Term Deposits

24928695

37121430

51017214

37.4333209

Deposits under scheme

563892875

570924660

601980070

5.43949354

Mudaraba monthly benefit scheme

38950

138700

182400

31.5068493

Repurchase agreement

11838351

97462844

723.280573

Others

576971

2739757

1360629

-50.337603

Interest Paid to local Bank

580185

11419982

68220220

497.375898

Interest Paid to Bangladesh Bank

15285278

Total Interest Paid on deposits

2567271785

3235362655

3162885370

3133250000

-3.16

-2.24

On the other hand the expected interest expenses to reduce by 3.16%, but they afford to less by 2.24%. It may cause of heavy inflation during the year 2008. But as we know inflation is a systematic risk for any financial institution. So, to avoid these they have to more professionalism in making their decisions.

As we see the city bank ltd. wanted to reduce their cost on interest/profit paid on deposits by 3.16%. But they are enabled to make it at 2.24%, because of more cost on Savings bank deposits, Short term deposits, Interest Paid to local Bank, Mudaraba monthly benefit scheme, Repurchase agreement, Mudaraba Term Deposits, Deposits under scheme

In fact the city bank ltd. Had more deposit & scheme comparing to the year of 2007. In 2007 total deposit was 40539.63 but in 2008 it increases largely and it was 45034.33.  This is the main reason for not achieving the projected rate.

Table: 04 Deposits for the year of 2007 & 2008

Sl. No.

Types of Deposit

2008

2007

Amount

Share(%)

Amount

Share(%)

1

Current & Others

7,167

15.91%

7625.59

18.81%

2

Savings

8,770

19.47%

7761.12

19.14%

3

Short Term

4300.17

9.55%

3229.63

7.97%

4

Fixed Deposit

19152.20

42.53%

16308.43

40.23%

5

Scheme

5645.11

12.54%

5614.86

13.85%

Total Deposit

45034.33

100.00%

40539.63

100%

Graphs/Charts: 01 various deposits

Capture

Table: 05 Net Interest Incomes

Here the actual net interest of the bank and budgeted growth have compared,

2006

2007

2008

Budget 2008

Bud Grow

Achieved

Net Interest Income(A)

1204797534

947908057

1506485004

1217320000

28.4

58.93

So, the net interest earnings of the city bank ltd. settled by increasing 58.93% what was projected at 28.43%, it happened due to large earnings on loans & advances in the year of 2008.

The city bank ltd. achieved above double of net interest income what is projected for the year 2008.This is because they had more income on loans & advances in the year of 2008 comparing to the year 2007. So they are well over what is expected in their budget planning. As they earned a large amount from interest earning their net interest earning also increases. So this position should retain in future.

Table: 06 Investment Incomes

Here the actual Investment of the bank and budgeted growth have compared,

Investment Income

2006

2007

2008

Budget 2008Bud Grow

Achieved

Interest on treasury bills

384614003

791255111

907922669

14.7446198

Interest on debentures

33316000

59863055

4293586

-92.827653

Dividend on share

13518402

9152956

83873488

816.354105

Gain on Government securities

129163

124766936

96496.499

Gain on revaluation of HFT securities

28805365

Gain on sale of shares and debentures

22005717

Total Investment Income

431448405

860400285

1171667761

1085000000

26.1

36.18

In the projection for the year of 2008 the city bank ltd. Assumed 26.10% growth over 2007, but they achieved 36.18% on Investment Income.

The city bank ltd. Achieved higher income on their investment. Increased income of Interest on treasury bills, Dividend on share, Gain on Government securities contributed much to achieve this success.

There income from investment is well over their expectation and they have to retain this position.

Table: 07 Commission & Exch. Earning

Here the actual Commission & Exch. Earning of the bank and budgeted growth have compared,

Commission & Exch. Earning

2006

2007

2008

Budget 2008

Bud Grow

Achieved

Commission on L/Cs

152536272

104106971

112253458

7.82511192

Commission on L/Gs

35690152

26321987

41451928

57.4802389

Commission on export bills

28018181

28625585

23771831

-16.955999

Commission on bills purchased

6542335

5701070

3218384

-43.54772

Commission on accepted bills

72920230

56918980

50327156

-11.581065

Commission on OBC, IBC

8733732

6149637

5620698

-8.6011418

Commission on PO,DD,TT,TC

37341784

35881317

31215787

-13.002672

Other Commission

6434801

3936410

7806177

98.3070107

Exchange Gain

408514219

264604487

217355686

-17.856387

Total Commission Exchange Earning

756731706

532246444

493021105

687314021

29.13

(7.37)

In the projection for the year of 2008 the city bank ltd. Assumed 29.13% growth over 2007, but they couldn’t achieve what they expected rather they earn 7.37% less comparing to 2007.Total commission & exchange earning is below their expectation. There assumed that they will be able to earn 29.13% more than the year 2007.

But they earned 7.37% less than the year 2007.They earned 16.96% less on Commission on export bills, 43.55% less on Commission on bills purchased, 11.58% less on Commission on accepted bills, 8.60% less on Commission on OBC, IBC, 13% less on Commission on PO, DD, TT, TC and 17.86% less on Exchange Gain which ultimately largely contributed to this.

They have to focus on to income from Exchange Gain, Commission on export bills, Commission on bills purchased, and Commission on accepted bills, Commission on OBC, IBC, and Commission on PO, DD, TT, and TC.

Table: 08 Other Operating Incomes

Here the actual Other Operating Income of the bank and budgeted growth have compared,

Other Operating Income

2006

2007

2008

Budget 2008

Bud Grow

Achieved

Rental Income

5604770

4315737

5712664

32.3682143

Postage/ Telex/Fax/ SWIFT

40177056

32127062

26235088

-18.339598

Incidental charges

37004368

29294060

30348758

3.60038178

Service and other charges

54888538

61762456

78676766

27.3860709

Profit from sale of fixed assets

2245951

1045899

2564313

145.17788

Gain from sale of Treasury

129163

Legal Charges recoveries

446828

962223

2102852

118.541024

Credit card income

43484112

41457321

95046727

129.264035

Rebate received from foreign banks

8138736

6702798

7602445

13.421962

Underwriting commission

13400

78671

413890

426.102376

Miscellaneous earnings

65172253

53901707

90389564

67.6933237

Total Other operating Income

257176012

231777097

339093067

448036305

93.3

46.3

Again, in the projection for the year of 2008 the city bank ltd. Assumed 93.30% growth on other Operating Income over 2007, but they achieved only 46.30% which is about half of their expectation.

Total operating income growth was estimated at 93.30% but actually they achieved only 46.30%. Here 2 things are mentionable that in 2007 Gain from sale of Treasury was 129163 but in 2008 it was nil & it was expected that other operating income with Postage/ Telex/Fax/ SWIFT will rise but it even lower than 2007. So these things contributed much on that type of situation.

So they have to focus more on Gain from sale of Treasury and earning from Postage/ Telex/Fax/ SWIFT etc.

Table: 09 Totals Income from Investment Exchange & Commissions

Here the actual revenue, Operating expenses, and total operating income of the bank and budgeted growth have compared,

2006

2007

2008

Budget 2008

Bud Grow

Achieved

Total Inc from Invst.Exchang&Com(B)

1445356123

1624423826

2003781933

2220350326

36.69

23.35

Revenue (C) = (A+B)

2650153657

2572331883

3510266937

3437670326

33.64

36.46

Operating Expenses(D)

1155456768

1316315576

1755346344

1724096949

30.98

33.35

Total operating Income (C-D)

1494696889

1256016307

1754920593

1713573377

36.43

39.72

Here we see in the projection for the year of 2008 the city bank ltd. Assumed 36.69% growth on Total Inc from Investment, Exchange & Commission earning over 2007, but they achieved only 23.35% which is not up to their expectation.

But they achieved 36.46% growth revenue over 2007, which was expecting to grow by 33.64%. So overall they have success over revenue earning.

On the other hand they expected that their operating expenses will not go over 30.98%, but actually they had to cost 33.35%. Which ultimately effect on the total operating income. Though they have achieved well over their expectation on total operating income. Here the total operating income expected to have 36.43% growth over 2007, but they achieved 39.72%.

They have to focus more on other operating income & Commission & Exch. Earning.

Though they have achieved tk. 379358107 more on Total Inc from Investment Exchange & Commissions comparing to 2007, but they have to focus more on Total Income from Investment Exchange & Commission as they expected more than that growth rate.

In this regard they have to choose right investment decisions and at the same time they should accept those projects to invest which are quite profitable.

Capture

Here, we see total budgeted interest income was estimated at 4%, but they achieved 11.60%. That means they achieved more growth than their projected interest income. But they haven’t achieved actually what they expected; because of in 2008 they successfully collected more deposit than the year 2007.

That is why they can’t able to achieve their projection. But it is a good sign in the sense of deposit collection. On the other hand their net interest income and total investment income achieved quite successfully.

But they have negative growth on commission and exchange earning.

Capture

Here, we see their other operating income growth was 46.30%, in fact they couldn’t achieve the expected growth to a large extent.

The bank also far behind from their budgeted growth, though they achieved 23.35% growth over 2007. On the other hand they achieved their expected growth over revenue as well as from total operating income.

But they were expecting during the year their operating expenses will no more than 31%, but actually they have to pay 33.35%. The reason behind that they were focusing more on expansion of their banking service. Moreover high inflation rate during the year 2008 may another reason behind that.

4.2 Operating Performance of the city bank ltd.

Table: 10 Operating Performance Ratio

Operating Performance Ratio

2004

2005

2006

2007

2008

Growth over 2007

Return on Equity

34.34%

32.05%

10.69%

12.71%

11.23%

-1.48%

Return on Assets

1.52%

1.75%

0.58%

0.71%

0.75%

0.04%

Yield on Loans and Advances

13.23%

12.67%

13.30%

13.15%

13.93%

0.78%

Return on equity for the year 2007 was 12.71%, on the other hand in 2008 it was 11.23%. This means Return on Equity (ROE) fall less by 1.48%, because of higher closing balance for the year 2008.

Return on Assets:                      PAT/Avg. Assets {(Opening + Closing b/s)/2}

(2008)                       =398110184/ {(48755403018+57114576058)/2}

=0.75%

Return on Assets:                      PAT/Avg. Assets {(Opening + Closing b/s)/2}

(2007)                       = 343463026/ {(47445751884+ 48755403018)/2}

=0.71%

Capture

Return on Assets (ROA) in 2007 was 0.71% & in 2008 it was0.75%. This means Return on Assets (ROA) increased by 0.04%, Profit after tax in 2007 is lower than 2008.

Yield on Loan & Advances      Interest Income from loans/Avg.loans & Adv.

(2008)                      =4263284463/ {(26788466138+34420944980)/2}

=13.93%

Capture

Table: 11 Provision for loans

 

RATE OF PROVISION

Particulars

Short Term
Agri. Credit  and Micro -Credit

Consumer Financing

 Small Enterprise
Financing (SEF)

All other
credit

Other than
HF & LP

HF

LP

UC

Standard

5%

5%

2%

2%

2%

1%

SMA

0%

5%

5%

5%

5%

5%

Classified

SS

5%

20%

20%

20%

20%

20%

DF

5%

50%

50%

50%

50%

50%

B/L

100%

100%

100%

100%

100%

100%

5.1 Learning Point:

In the internship period at the city bank Ltd. Head office-Finance division, I have learned lots of things. These are listed below:

Finding revenue expenditure for each division

Writing cash debit voucher.

Writing credit Voucher.

Writing pay-slip

Using the Finacale bank Software

Checking balance in Finacale bank Software.

Showing Statement in a Finacale bank Software.

Writing advice.

Analytical ability improves as did this report

Learn more about the cost center and business center.

Learnt more how to  response on a corporate environment.

Banking activities needs more accuracy and professionalism.

Routine work/ Punctuality is must for being successful in this banking industry.

Learnt more about the financial projection and financial analysis of a financial institution like bank.

The organization hierarchy.

Duties and responsibilities of employees of finance division.

Working hour of the organization.

Use of IBC and OBD.

The use of software.

Communication and coordination between different division.

5.2 Findings:

01. We see in the profit & loss a/c. growth on interest income achieved what was projected/expected. But there are less income growth in Interest received from foreign banks, Loans against Imported/Murabha, Packing credit, House building loan, Lease finance/Izara, Payment against documents, cash credit/Bai-Muajjal, Consumer credit Scheme, Interest on SME, Documentary bills purchased Interest on cash incentive, Interest on call loans, Loans (General)/ Musharaka which reduced the more growth.

02. As we see the city bank ltd. wanted to reduce their cost on interest/profit paid on deposits by 3.16%. But they are enabled to make it at 2.24%, because of more cost on Savings bank deposits, Short term deposits, Interest Paid to local Bank, Mudaraba monthly benefit scheme, Repurchase agreement, Mudaraba Term Deposits, Deposits under scheme.

In fact the city bank ltd. collected more deposit & scheme comparing to the year of 2007. In 2007 total deposit was 40539.63 but in 2008 it increases largely and it was 45034.33.  This is a reason  not for achieving the projected/expected rate.

03. The city bank ltd. achieved above double of net interest income what is projected for the year 2008.This is because, they had more income on loans & advances in the year of 2008 comparing to the year 2007. So they are well over what is expected in their budget planning.

04. In the projection for the year of 2008 the city bank ltd. Assumed 26.10% growth over 2007, but they achieved 36.18% on Investment Income. The city bank ltd. Achieved higher income on their investment. Increased income of Interest on treasury bills, Dividend on share, Gain on Government securities contributed much to achieve this success.

05. In the projection for the year of 2008 the city bank ltd. Assumed 29.13% growth on Total commission & exchange earning over 2007, but they couldn’t achieve what they expected, rather they earn 7.37% less comparing to 2007.Total commission & exchange earning is below their expectation..They earned 16.96% less on Commission on export bills, 43.55% less on Commission on bills purchased, 11.58% less on Commission on accepted bills, 8.60% less on Commission on OBC, IBC, 13% less on Commission on PO, DD, TT, TC and 17.86% less on Exchange Gain which ultimately largely contributed to this.

06. Again, in the projection for the year of 2008 the city bank ltd. Assumed 93.30% growth on other Operating Income over 2007, but they achieved only 46.30% which is  about half below of their expectation. Total operating income growth was estimated at 93.30% but actually they achieved only 46.30%. Here 2 things are mentionable that in 2007 Gain from sale of Treasury was 129163 but in 2008 it was nil & it was expected that other operating income with Postage/ Telex/Fax/ SWIFT will rise but it even lower than 2007. So these things contributed much on that type of situation.

07. We see in the projection for the year of 2008 the city bank ltd. Assumed 36.69% growth on Total Inc from Investment, Exchange & Commission earning over 2007, but they achieved only 23.35% which is not up to their expectation.

But they achieved 36.46% growth revenue over 2007, which was expecting to grow by 33.64%. So overall they have success over the expected growth on revenue earning.

On the other hand they expected that their operating expenses will not go over 30.98%, but actually they had to cost 33.35%. Which ultimately effect on the total operating income. Though they achieved well over their expectation on total operating income. Here the total operating income expected to have 36.43% growth over 2007, but they achieved 39.72%.

6.1 Conclusion:

 In Bangladesh banking sector has a significant role to our economy. As the city bank is one of the largest participants in this industry, it is contributing to our national economy.

The services encompass wide diversified areas of trade, commerce & industry which tailored to the specific needs of the customers and are distinguished by an exceptional level of prompt and personal attention. Over the years the Bank has expanded the spectrums of Its Services. The extensive and ever growing domestic network provides and carries various products and services to the doorsteps of millions.

Almost all the divisions are working to hold this position an to go ahead, especially finance division is providing more efforts. Some highly qualified and professional are members of the organization who have a vast experience in this industry are performing their duties.

But they have to dedicate more in their working area. During the time of analyzing this report on Budget & Financial Statement Analysis of the city bank ltd. I faced various problems as they didn’t make a proper budget during the year 2007.

Apart from that the city bank ltd. Performance was better than many other banks. But during the year 2008 they earned large amount revenue.  The financial performance of CBL is better any other banks in the in this industry. So this position should be retained.

6.2 Recommendations:

01. Though the city bank ltd. Have earned more interest on loans & advances than that of their projection, but if they want to increase their growth they have to focus on earnings Interest received from foreign banks, Loans against Imported/Murabha, Packing credit, House building loan, Lease finance/Izara, Payment against documents, cash credit/Bai-Muajjal, Consumer credit Scheme, Interest on SME, Documentary bills purchased Interest on cash incentive, Interest on call loans, Loans (General)/ Musharaka.

02. They should focus on income from Exchange Gain, Commission on export bills, Commission on bills purchased, and Commission on accepted bills, Commission on OBC, IBC, and Commission on PO, DD, TT, and TC.

03. They should focus more on Gain from sale of Treasury and earning from Postage/ Telex/Fax/ SWIFT etc.

04. They have to focus more on other operating income & Commission & Exch. Earning.

Though they have achieved tk. 379358107 more on Total Inc from Investment Exchange & Commissions comparing to 2007.

05. But they have to focus more on Total Income from Investment Exchange & Commission as they expected more than that growth rate. In this regard they have to choose right investment decisions and at the same time they should accept those projects to invest which are quite profitable.

 

Some More Parts-

Report on Budget & Financial Statement Analysis of the City Bank Limited (Part-1)

Report on Budget & Financial Statement Analysis of the City Bank Limited (Part-2)

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