## Financial Performance Analysis of Sonali Bank Limited (part-6)

Subject: Economics, Finance | Topics: ,

6.6 Risk Analysis

Interpretation: The business risk is that a bank will not have adequate cash flow to meet its operating expenses. The higher CV posses’ higher business risk. Sonali Bank Limited has negative CV which posses its business risk is lower.

Standard Deviation of Operating Earnings

Mean of Operating Earnings

 Year Operating earnings 2005 208038723 2006 (36275634028) 2007 (1834170743) 2008 1336450387 2009 2244267216 Mean (6864209689) SD 16511852169 CV -2.405499383

Financial Risk:

Debt-Equity Ratio:

Total Long Term Debt

Total Equity

 Year Total Long term liability Total Equity Debt equity ratio 2005 331380917072 6306200000 52.54 2006 381338188590 (28444370219) -13.41 2007 440222504040 21741728899 20.24 2008 468528434181 24417714137 19.18 2009 513493909752 30475358113 16.84

Graph-9: Debt-equity ratio

Interpretation:A high debt/equity ratio generally means that a Bank has been aggressive in financing its growth with debt. The debt equity ratio of Sonali Bank limited indicates that in 2005 it was highest and in 2006 it was lowest which posses that debt used more than equity.

6.7 Sensitivity Analysis

 Particulars Given Data(2009) When Interest income is 10% increased When Interest income is 10% decreased Interest income 17683108223 19451419045 15914797401 Interest paid on deposit (15800026939) (15800026939) (15800026939) Net Interest income 1883081284 35251445984 31714824340 Investment income 7709248980 7709248980 7709248980 Commission, exchange & brokerage 6889922752 6889922752 6889922752 Other operating income 283667424 283667424 283667424 Total Operating Income (A) 16765920440 50134285140 46597663496 Salary and allowance 7374257001 7374257001 7374257001 Rent, Taxes, Insurance, electricity etc. 410285295 410285295 410285295 Legal expenses 38782497 38782497 38782497 Postage, stamp, telecommunication etc. 70943693 70943693 70943693 Stationary, Printing, Advertisement etc. 138374104 138374104 138374104 Chief Executive’s Salary and fees 9600000 9600000 9600000 Director’s fees 1729240 1729240 1729240 Auditor’s fees 855000 855000 855000 Charges on loan losses – – – Depreciation and repair of bank assets 196779376 196779376 196779376 Other Expenses 1213847018 1213847018 1213847018 Total Operating expenses before amortization 9455453224 9455453224 9455453224 Amortization of Intangible Assets 5000000000 5000000000 5000000000 Total operating expenses (B) 14455453224 14455453224 14455453224 Profit/ (Loss) before provision (C=A-B) 2310467216 35678831916 32142210272 Provision for loan – – – Provision for diminution in value of investments (11200000) (11200000) (11200000) Other provision (55000000) (55000000) (55000000) Total Provision (D) 66200000 66200000 66200000 Total Profit/(Loss) before taxes (C-D) 2244267216 35612631916 32076010272 Provision for taxation Current tax (981948567) (981948567) (981948567) Deferred tax 274447959 274447959 274447959 (707500608) (707500608) (707500608) Net Profit after Taxation 1536766608 36320132524 32783510880 Earnings Per Share (EPS) 17.08 403.557028 364.261232

6.8 Scenario Analysis

 Particulars Given Data(2009) Best Case Worse Case Interest income 17683108223 19451419045 15914797401 Interest paid on deposit (15800026939) (15010025592) (16590028286) Net Interest income 1883081284 34461444637 32504825687 Investment income 7709248980 8480173878 6938324082 Commission, exchange & brokerage 6889922752 7578915027 6200930477 Other operating income 283667424 312034166.4 255300681.6 Total Operating Income (A) 16765920440 50832567709 45899380927 Salary and allowance 7374257001 7005544151 7742969851 Rent, Taxes, Insurance, electricity etc. 410285295 389771030.3 430799559.8 Legal expenses 38782497 36843372.15 40721621.85 Postage, stamp, telecommunication etc. 70943693 67396508.35 74490877.65 Stationary, Printing, Advertisement etc. 138374104 131455398.8 145292809.2 Chief Executive’s Salary and fees 9600000 9120000 10080000 Director’s fees 1729240 1642778 1815702 Auditor’s fees 855000 812250 897750 Charges on loan losses – – – Depreciation and repair of bank assets 196779376 186940407.2 206618344.8 Other Expenses 1213847018 1153154667 1274539369 Total Operating expenses before amortization 9455453224 8982680563 9928225885 Amortization of Intangible Assets 5000000000 4750000000 5250000000 Total operating expenses (B) 14455453224 13732680563 15178225885 Profit/ (Loss) before provision (C=A-B) 2310467216 37099887146 30721155042 Provision for loan – – – Provision for diminution in value of investments (11200000) (10640000) (11760000) Other provision (55000000) (52250000) (57750000) Total Provision (D) 66200000 62890000 69510000 Total Profit/(Loss) before taxes (C-D) 2244267216 37036997146 30651645042 Provision for taxation Current tax (981948567) (932851138.7) (1031045995) Deferred tax 274447959 301892754.9 247003163.1 (707500608) (672125577.6) (42875638.4) Net Profit after Taxation 1536766608 37709122724 31394520680 Earnings Per Share (EPS) 17.08 418.9902525 348.8280076

In best case, we considered all the income are calculated as an increasing rate of 10% and all the expenses as decreasing rate of 5%.

In worst case, we considered all the expenses as an increasing rate of 5%and all the income as decreasing rate of 10%.

For the considerable percentages in best case EPS has increased 2453.10% and in worst case the EPS is decreased 2042.31%.

IT Financing:

 Name About Eligibility Loan Limit Debt-equity ratio Period Security Interest Rate Project Financing For growing international markets for software and data processing this scheme provides long term and short term credit facilities on easier terms to set up and run IT based projects. Entrepreneurs, of them at least two with recognized degree diploma in computer science or electrical engineering/ telecommunication/applied physics & electronics, forming a private limited company may apply. Experience in related field will be preferred. Maximum Tk. 1.50 million. In deserving cases, up to Tk. 10.00 million may be considered 80:20 Maximum 6 years including 1 year grace period. In case of project with own land & building no collateral security other than the personal guarantee of the loaners is required. Entrepreneurs offering collateral security will be preferred or loan may be consider with personal guaranty of worthy person(s) (third party). 11% Export  Financing For export of software and processed data short term finance is extended to existing IT projects. Feasibly implemented and properly staffed IT projects with export L/C or firm contract in hand may apply. Export through satellite, BTTB confirmation required. Tk. 1.00 million. For larger contract higher amount may be considered. 90:10 L/C or contract period plus 21 days but not exceeding 180 days from the date of disbursement. No collateral security other than the personal guarantee of the loaners is required. But for loan amount exceeding Tk.1.00 million, collateral will be required. 11%

Findings

As a largest commercial bank and the agent of Bangladesh Bank Sonali Bank has to do various types of work without thinking about the profit. For this reason we have seen that in some cases bank has doing loss, but this loss we directly cannot say that bank failing los, this is happening only for helping the nation.

On the other hand we have seen that the bank profit increasing rate is poor but increasing. The bank is highly liquid and earns much profit on owner’s equity. Bank’s operating efficiency is good. EPS is increasing double per year and earning spread is also increasing.

So after all we can say that as a nationalized bank commercial bank Sonali Bank Limited is a bank which is earning better than other nationalized bank.

Conlusion & Recomendation

Conclusion:

As a bank Sonali Bank Limited has to do a lot of things for the betterment of the country. The Bank is strongly positioned in the market and with its core strengths it can match shareholders’ expectations and thus raise their wealth in future through ethical banking and best pricing. Thus, it has to take initiative so that it can fulfill the desire of the govt. as well as people. It will enhance more public services and build up working teams to provide the best services to its valuable customers. It must be run in organized way and discipline must be ensured in all sphere of its performance. Efficient export team, import team and remittance team must be formed and perform duties properly. More training, computerization, data collection, market analysis and swiftness in servicing are essentially required. To do these the recommended suggestions can be used. Although it is theoretical suggestions, it is not valueless. It has great impact on the banking business and other sectors of the economy. For this, govt. help is essential and it is expected that govt. will broaden its hand for implementing the recommendations for the welfare of the people of Bangladesh.

Recommendation:

•      The Top management of Sonali Bank Limited should be more effective to the employee then current situation. Because they should take care the branch level employee’s benefits, opportunities etc.
•      The bank has highly skilled employee in the branch level. But the bank should be able to utilize these employees at appropriate way to take out the bank’s output.
•      The website design is need to improve. Therefore, the website should be changed and can put more information about the bank. The existing design cannot capture the customer’s attention.
•      The cheque’s design is poor. The good looking cheque design can motivate the customer.
•      The human resource division can be more effective. Because this human resource department should think about the employee benefit much.
•      In the training institute, the training process should be used latest technology to provide to the trainee. The bank should give training about the office package, basic idea on computer and internet.
•      In the branch level when employees could transfer to another department during that time that employee is needed at least ten days training according on the transfer position.
•      The higher management should be more effective about the employee, to take right strategy, right decision making.
•      In the branch level employee is working so many extra time, so management should provide some extra incentives to motivate the employee.
•      On-line banking is coming soon so the responsible employee should be trained effectively.
•      The training evaluation process and form is to be more modernized.
•      Physical and technological facilities should be increased in evaluating credit proposals.
•      Infrastructure should be modernized.
•      The cost of fund needs to be minimized.
•      The gap between employees and customers will be reduced through arranging meetings.

For more parts of this post, click the following links-

Financial Performance Analysis of Sonali Bank Limited.(part-1)

Financial Performance Analysis of Sonali Bank Limited.(part-2)

Financial Performance Analysis of Sonali Bank Limited.(part-3)

Financial Performance Analysis of Sonali Bank Limited.(part-4)

Financial Performance Analysis of Sonali Bank Limited.(part-5)

Financial Performance Analysis of Sonali Bank Limited.(part-6)

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