Main principle of this report is to analysis Investment of Commercial Bank’s Funds and its Impact on the Economic Development, here focus on Bank Asia Limited. Other objectives are to comply with the entire branch banking procedures and analyze the performance of the branch as well as Bank Asia Limited as a whole. Report also include the Bank Asia Limited’s credit facilities and policy, customer selection, security requirements, sources of funds and investment portfolio performed by Organization.
Objective of the study
The primary objective of this study is to attend the course of Practical Orientation in Banks, which is the subject of W-1-course. But the objective behind this study is something broader. Objective of the study are summarized in the following manner:
- To comply with the entire branch banking procedures,
- To make a bridge between the theories and practical procedures of banking day to day operations,
- To analyze the performance of the branch as well as Bank Asia Limited as a whole,
- To adjust with business environment that will be helpful for my career.
Banking Operation in Bangladesh:
The development process of a country largely depends upon its economic activities. Banking is a powerful medium among other spheres of modern socio-economic activities for bringing about socio-economic changes in a developing country like Bangladesh. Three different sectors like Agricultural, Commerce and Industry provide the bulk of a country’s wealth. The nourishment of these three is only possible through an adequate banking facility. The banking service facilitates these three to be integrated in a concerted way. For a rapid economic growth a fully developed economic system can provide the necessary boost. The whole economy of a country linked up with its banking system.
With the passage of time the functions of a bank, lending is far by the most important. They provide both long–term and short-term credit. The customers come from all walks of life, from a small business of a multi-national corporation having its business activities all around of the world. The banks have to satisfy the requirements of different customers belonging to different social groups.
Banks particularly have a very important role in rising of the financial resources because of their capacity to tap resources from a wider spectrum of people and diversified nature of their operations. The banking business has therefore, become complex and requires specialized skills. They function as a catalytic agent for bringing about social, economical, industrial, and agricultural growth and prosperity of the country.
Banks are the custodians of the society’s economic resources and if they are socialized, the socialistic government can acquire with them a tremendous power of intervention in every type of business enterprise, both large and small and wide spread power of control and planning over the entire economy. In our country where about 80% of the population live below the poverty line, this poverty line can be declined by the success of banks. So bank plays an active role in the economic development, as a result different types of banks have come into existence to suit the specific requirements.
Irregardless the numbers of bank nature of their functions and activities, a central bank exists to regulate the activities of other banks. All the commercial private/ nationalized/ specialized banks perform service related activities within the jurisdiction of the central bank. In our country, Bangladesh, the role of the central bank is entitled to be executed by the Bangladesh Bank.
As different banks are in the field to satisfy the different types of customer of different requirement, we can classify the banks using diagram, which is replicated in the following page.
Overview of Bank Asia:
Bank Asia started it’s journey on the 27th of November 1999 with the inauguration of the bank’s, Corporate office at the Rang’s Bhaban.By a great number of public responses has enabled the bank keep up the plan of expanding its network.The opening of the principal office was the big leap forward and successively the opening of Gulshan and Chittagong branch expanded the horizon of Bank Asia to bring it’s services to the valued clients more effectively.
Within a very short period the bank has opened to more branches in Dhaka and two branches in Sylhet and Kishorgong.In February 2001 Bank Asia took over the Bangladesh operation of the bank of Nova Dilkusha the first acquisition of a foreign bank by a local bank in the history of Bangladesh.Later Bank Asia took over the Bangladesh operation of Muslim commercial bank of Pakistan in December 2001.These courageous moves were possible for some visionary decision maker and also dedicated team of professionals who are constantly putting all their best effort to establish the bank as one of the leading concern in the industry.
Mission of Bank Asia:
- To assist in bringing high quality services to our customers and to participate in the growth and expansion of our national economy.
- To set high standards of integrity and bring total satisfaction to our clients, shareholders and employees.
- To become the most sought after bank in the county, rendering technology driven innovative services by our dedicated team of professionals.
Vision of Bank Asia:
Bank Asia’s vision is to have a poverty free Bangladesh in course of generation in the new millennium, reflecting the national dream. Our vision is to build a society where human dignity and human rights receive the highest consideration along with reduction of poverty.
Product & services of BAL.
The Bank is maintaining diversity in developing its product and services. The product list is diversified and healthy and every year it’s getting more developed as Bank Asia is continued to launch 2 products in every year. Those product lists include the following items:
- SMS Banking
- Mobile Banking
- Internet Banking
- Online banking
- Customized Loan
- Bonus Savings Schemes
- Poverty Alleviation
- ATM Service
- Credit Card
SMS banking allows the client to know the position of their Bank Asia account anytime from anywhere. The options of this service are:
SMS Push service:
When any amount is debited or credited from client’s account than within 5-10 seconds he will get a message including the beginning balance, the amount debited or credited and the last balance. This facility is only available for Grameen Phone and City cell subscribers.
SMS Pull service
Every registered Grameen Phone and City cell subscribers can check their account balance through this service.
THUMBPAY- an M-Banking Product of Bank Asia allows its customers who used AKTEL Network to access their bank accounts from their Mobile Phone. This latest technology driven product is designed to cater for and facilitate real time banking transactions using a mobile phone. This service is available round the clock and real-time basis from anywhere.
Services available under “THUMBPAY” are:
- Account Balance Query
- Pre-paid Refill
- Post paid bill Payment
- Fund Transfer Service
- Changing Password
- Fund collection (Charity or Relief Fund) services through registered mobile phone
All branches under online banking system will be able to do banking practices using a common server (which is centralized) from where only the branches will be able to enter using a common password.
Any one including any client or any branch from any direction will be able to enter in the system to do banking transactions. Internet Banking Services include the following features:
- Check account balance
- Take print out of account statement for a particular period
- Transfer fund within your own account
- Make payment of mobile phone bill
- Recharge your mobile phone as well as others from your account
- Enquire foreign exchange rate
- Enquire currency exchange rates.
- Acquire information on all our products.
- Every transaction report will be sent to client’s e-mail account.
- Can change the password, pin code and respective mobile number (GP & City Cell).
Customized Loan (C.L.):
Bank Asia allows loan against any savings scheme like BSP (Bangladesh Sanchay Patra) etc.
The bank allows the client to pay is merely the interest during the entire currency of his/her loan, and repay the principal in one lump sum in the last month of maturity of the loan. The client may get 80%- 100% of the face value of the instrument depending on the date of purchase.
Repayment of the loan can be completed by 12-48 Installments. Interest Rate of such loan is the most attractive is affordable rate and they ask for the security on the asset that’s due to mature.
Bonus Savings Scheme:
A saving scheme designed to allows the clients to built a reliable financial base for their future.
Another significant delivery channel is its own as well as shared ATM Network. Bank Asia has a network of 25 ATMs out of which 6 it owns. The other 19 ATMs are shared through ETN with eleven other banks.
Credit Card Facility:
Bank Asia Credit Card offers free credit facility up-to 45 days & minimum 15 days without any interest. Customer can also pay 8.33% of your billing amount or current dues every month and thus have the flexibility for their payments.
Bank Asia Credit Card is accepted more than 3,500 merchant outlets around the country. The wide range of merchants include hotels, restaurants, airlines, & travel agents, shopping malls and departmental stores, hospitals & diagnostic centers, jewelers, electronics & computer shops, leather goods mobiles & internet service providers, petrol pumps and many more.
Bank Asia Master Card gives the facility to draw cash up to 50% of the credit limit against the customers local MasterCard and their customer could enjoy this facility by using any ATM’s across the country which shows ‘’MasterCard” logo Beside this their customer can also withdraw cash from any branch of Bank Asia.
Operations of Bank Asia
The asset and liability growth has been remarkable. By Dec 2005 the total asset of the Bank grew to Tk. 23,380 million, increase of almost 31% comparing to 2004. Bank Asia has been actively participating in the local money market as well as foreign currency market without exposing the Bank to vulnerable positions. The Bank’s investment in Treasury Bills and other securities went up noticeably opening up opportunities for enhancing income in the context of a regime of gradual interest rate decline.
At the end of 2004, the total deposit was 13,471 million which increased to Tk 18,500 million at the end of year 2005. This reflects an increase of 37%. This is undoubtedly a remarkable progress considering volatile price for acquiring the deposits.
Loan & Advances
The bank maintained a substantial increase in the percentage of loan disbursed compared to the previous year. In the year 2005, a variety of personal loans has been introduced- Auto loan, Motorbike loan, Housing finance, Emergency Medical support, Professional loan. The total loan increased from BDT 11861.20 million to BDT 17869 million. This is 51 percent higher than that of the previous year. They have formulated the following Loan Schemes:
Local Discounted Bill for Purchase (LDBP) 2. Term Loan Industrial, 3. Term Loan Others, 4. Loan General, 5. Transport Loan, 6. Loan Against Packing Credit, 7. Staff House Building Loan, 8. Staff Loan Against Provident fund, 9. Staff car loan, 10. Loan Against Trust Receipt(LTR), 11. Loan of Money+ Scheme, 12. Demand Loan, 13. Loan Against Import Merchandize, 14. Micro Group Credit, 15. Micro credit Enterprise,16. Loan Against Cash Incentive, 17. Payment Against Document cash, 18. Payment Against Document Force,19. Loan Against Foreign Bill (FDBP).
Syndication loans represent a substantial portion of the commercial and industrial loan portfolios of large banks. A syndicated loan involves two or more banks contracting with a borrower, typically a large or middle market corporation, to provide funds at specified terms under the same credit facility. The average commercial syndicated credit is in excess of TK100 million. Syndicated credits differ from participation loans in that lenders in syndication participate jointly in the origination process, as opposed to one originator selling undivided participation interests to third parties. In a syndicated deal, each financial institution receives a pro rata share of the income based on the level of participation in the credit. There is four phases in loan syndication:
- Post-Launch and
The syndicated market formed to meet basic needs of lenders and borrowers, specifically to raise large amount of money; to enable geographic diversification; satisfying relationship banking; to obtain working capital quickly and efficiently; to spread risk for large credits amongst banks and to gain attractive pricing advantage.
Foreign Exchange Business
International Trade, Remittances
The important business of the bank increased to taka 26352 million in 2005 from taka 18942 million in 2004 and export bills increased to taka 13964 million in 2005 from taka 7104 million in 2004.Inward and outward remittances handled by the bank increased and reached taka 5128 million and taka 317 million respectively in 2005 compared to taka 2441 million and taka 234 million respectively in 2004.The bank has remittance arrangements with placid NK corporation having offices in the USA and UK, Federal Exchange, UAE,UK,TNS Money transfer ltd, UK, Xpress Money Services Ltd, UK, Kuwait Asian international exchange company WLL, Kuwait, and Deshi foreign exchange limited., Canada. It also has agency arrangements with correspondents in Nepal, Bhutan, Srilanka and East European countries. As of in 2005 the bank established correspondence relationship with 310 banks in 95 countries. The bank is using SWIFT communication system for fast and accirate handling foreign trade for a number of years now. The bank is also connected to REUTERS for up to date information on foreign exchange markets.
International Division at the Head office is fully equipped with expertise including computerized operations to deal with foreign trade and foreign exchange operations of all kinds including Letter of Credit, Bills, Travelers Cheques, Foreign Drafts, TTs, Remittances form Bangladeshi expatriates abroad and handling students remittance studying abroad etc. Such operations are conducted through 18 AD (Authorized Dealer) branches throughout the country. Most of these branches are connected with SWIFT.
The operating profit of the bank also shows a substantial increase over that of the previous year. The operating profit was Tk 801 million in 2005 compared to 659 million of the year 2004. This reflects a 22 percent increase.
Total income that is combination of the Interest Income, Commission, and other incomes. This income is also gradually increasing over the year.
|Commission, exchange and brokerage||556,310,067||441,299,947||338,387,296|
Interest Income that’s generated from the Loans and Advances, Deposits with other banks, Interest on Treasury Bills and other Interest income. These incomes also change over the year.
It’s a kind of Expense that is generated from Interest on deposit scheme, Interest on fixed deposit, Interest on saving deposits, Interest on call deposits, Interest on short term deposits, other interest expenses. Changes also observe from 2006 to 2004.
Interest paid on deposits, borrowings, etc
Interest n deposits
2006 2005 2004
Fixed deposits 1,801,250,028 1,097,110,755 722,454,479
Sanchay Plus 32,302,540 – –
Savings deposits 91,263,397 59,919,484 47,465,064
Short-term deposits 71,822,501 36,236,712 31, 3333,647
Other deposits 103,443,392 81,700,810 65,187,789
2,100,081,858 1,274,967,761 866,440,979
Net Interest Expense
The Net Interest Income is the difference between the banks Gross Interest Income and its Interest Expense. The following changes are
|Net Interest Income||2006||2005||2004|
2006 2005 2004
Salary and allowances 225,741,854 153,013,087 113,510,677
Rent, taxes, insurance, electricity, etc 70,903,574 52,438,644 42,946,280
Legal expenses 1,581,942 887,546 915,524
Postage, stamps, telecommunication, etc 22,318,396 17,280,224 14,641,372
Stationery, printing, advertisement, etc 18,789,645 10,297,066 8,275,126
Chief executive’s salary and fees 5,451,370 4,892,500 4,500,000
Directors’ fees 561,655 557,490 453,375
Auditors’ fee 210,000 190,000 173,250
Depreciation and repairs of Bank’s assets 61,125,660 40,247,317 33,964,225
Other expenses 109,314,184 84,769,122 71,074,033
Generally the ratio analysis is the first step of a firm’s financial analysis. Here, I calculate the five years (2001 to 2005) ratios of Bank Asia and based on those ratios all the analysis were made here. To evaluate the true performance of the bank here I am including peer group average. For calculating the peer group average here I select four other third generation banks which are the main competitor of Bank Asia.
Return on Equity (ROE):
This ratio indicates the degree to which the firm able to convert operating income and after tax income that eventually can be claimed by the shareholders. ROE is the measure for the stockholders’ benefit from their investments. In a sense, investors’ cause to place their funds is increasing its value in terms of earning an apposite return.
Formula: ROE= Net income/ Total equity
Bank Asia’s ROE are as below:
|2001||2002||2003||2004||2005||Peer Group Average|
Table: Showing the Return on Equity (ROE) Ratios
The ratio’s of year 2001 to 2003 demonstrate instability towards the Return on Equity (ROE) of the bank From year 2003 to 2005, there is no significant changes in return on equity (ROE) and reflecting consistency in managing the returÿÿon shareholders equity. This stability of return on equity (ROE) will help to attract their investor but the stable ROE of Bank Asia reflects the returning capability to their shareholders has not increasing much from last three years which won’t be acceptable for the shareholders cause they shareholders prefer to have a high return from their investment every year. So, the management should take action to increase the return on equity (ROE). For increasing the return, management should call attention to manage their expenses adequately and need to increase their net income.
The ratio of year 2005 was below Peer Group Average but the difference between peer group averages to year 2005 ratio is only 0.48%. So, it can say that Bank Asia’s performance was competitive at year 2005 and there is a chance for the bank to hold an attractive investment sector for the investor.
Return on Asset (ROA):
Return on Asset (ROA) is particularly an indicator of management efficiency. It indicates how capably the management of the bank has been converting its assets into net income.
Formula: ROA=Net income\Total assets
|2001||2002||2003||2004||2005||Peer Group Average|
Table: Showing the Return on Asset (ROA) Ratios
The Return on Asset (ROA) was lower in 2001 and 2002 compare with rest of the years. This low returns resulting from the lower operating income and above average use of debt. As their income rises and the usages of their own fund increases from year to year consequently the ratio also rises. From the Financial Statement it is evident that there Total Assets & Revenue rises from year to year as well as they able to decrease there operating expenses comparing to previous years. But the total amount of provision for loans increased every year which lessen their net income. So, the ROA of 2004 and 2005 is lower than year 2003.
The Return on Asset (ROA) ratio of Bank Asia is higher than the Peer Group Average which proves that Bank Asia’s performance was better than its competitor banks at year 2005. So, we can say that the management is utilizing there assets in an efficient way to generate more income
During this analysis, I found that the annual report of Bank Asia shows Return on Asset (ROA) ratio of 2.58%, 2.58%, 3.32%, 2.71% and 1.31% respectively for the year 2005,2004,2003,2002 and 2001. But, from above table it is evident that the Return on Asset (ROA) of the bank is much lower than the ratios shown in the annual report of the bank. So, it is clear that Bank Asia is employing “window dressing” technique to make their financial statement look stronger.
Net Operating Margin
The net operating margin, net interest margin, and non-interest margin are efficiency measures as well as profitability measures, indicating how well management and staff have been able to keep the growth of revenues ahead of rising costs.
Net interest margin=Net interest revenue/Total assets
Net Interest revenue=interest income-interest expenses
Net non-interest margin= Non interest revenue/Total assets
Non interest revenue= Non interest revenues-Non interest expenses
Net operating margin=operating income/Total assets
|Year||Net interest margin(1)||Net non interest margin(2)||Net operating margin (1+2)|
|Peer Group Average||2.76%||2.63%||5.39%|
Table: Showing Net Operating Margin Ratios
Compare with 2001 performance it is clear that the net interest margin goes down every year. From the income statement it is evident that their interest income was rising every year and the interest expense also increasing. But, the growth rate of interest expense increasing faster than their interest income. This is the reason for the decreasing trend of their net interest margin which proves that they were not managing their interest expenses properly.
Net operating margin of the bank was highest at year 2003 because of the increase of their net non-interest margin though their net interest margin falls at that year compare with year 2001 and 2002. Net interest margin has fallen from year to year, therefore net operating margin roared back. It proves that they are using more debts which increased there interest expenses. But, the positive trend of net non-interest margin of the bank proves that the management team is quite successful to minimize there non interest expenses as well as increasing non interest income. So, if they want to increase the net operating margin they must have to minimize there interest expenses and maximize interest income. Otherwise it is likely that their net operating margin will fall again.
Peer Group Average ratio of net interest margin and net operating margin are higher than Bank Asia’s net interest margin and net operating margin. On the other hand, net non interest margin of Bank Asia is higher than its Peer Group Average. So, here we also get the same reason behind the declining trend of net operating margin of the bank which also leads ratio turned down below average.
Earning Per Share (EPS)
Earning Per Share (EPS) measures the returns to the banks to the stockholders. Earnings per Share is calculated by the following equation
Formula: EPS=Net income\ Number of Ordinary shares outstanding
|2001||2002||2003||2004||2005||Peer Group Average|
Table: Showing Earning Per Share (EPS)
The table shows that the performance of Bank Asia from the viewpoint of profitability increases hugely over the years. Therefore the performance of the bank is very much satisfactory. Nevertheless, there performance level decline after 2002 because of the slower growth rate of net income due to increase in the provision against loans and advances every yeas. But, still there EPS would able to attract their investor.
Earning Per Share (EPS) of Peer Group Average is lower than Bank Asia’s Earning Per Share (EPS) ratio. So, the investors choice will be positive towards investing at Bank Asia rather than others.
The equity margin reveals the proportion of bank total assets and total equity.
Formula: Equity margin=total assets/total equity
|2001||2002||2003||2004||2005||Peer Group Average|
Table: Showing Equity Margin Ratio
From above table it is clear that Bank Asia is more dependent on their own sources rather than the outside debt. They could use more outside debt to a certain extent for reducing the use of their equity and it will help to increase their equity margin.
Peer Group Ratio is much higher than Bank Asia’s ratio. This mainly happened because of higher uses of their own sources and a lower use of outside debt.
It is a sign of how efficiently banks are managing its operating expenses keeping in mind that employees are satisfied. If this ratio increases it effects net operating margin, net profit margin and ROE in particular.
Formula: Operating efficiency=Total op. expenses/ Total op. revenue
|2001||2002||2003||2004||2005||Peer Group Average|
Table: Showing Operating Efficiency Ratio
From our previous analysis, we find net operating margin, net interest margin and ROE ratios have turned down due to higher interest expenses. But, the decreasing trend of operating ratios proves that they are quite capable of handling their operating expenses as well as increasing the operating revenue.
Compare to the Peer Group Average ratio we can say that bank Asia is managing its operating expenses more effectively and efficiently than its competitor.
Capital adequacy ratio refers to the extent to which net worth (current assets- current liabilities) is satisfactory for safe and sound operation. Capital provides a cushion against unexpected losses. The higher the bank’s capital, the better the prospect for the banks survival in case of adverse conditions. The bank’s capital adequacy is determined by the lending activities the bank, that is, by the assets held.
Formula : Capital adequacy ratio= Total capital / risk- weighted Assets
|2001||2002||2003||2004||2005||Bangladesh Bank Requirement|
Table: Showing capital Adequacy Ratio
From above table we find that Bangladesh Bank Requirement was 9% at year 2005 where Bank Asia’s ratio was 9.53% which is 0.53 percent higher than the required rate. It reveals that the bank has adequate capital which will assist the bank to survive in case of adverse conditions. It also proves that Bank Asia is depending on more inside liabilities rather than outside liabilities. That is obviously a positive sign for Bank Asia because they are quite capable of managing any unexpected loss from their inside liabilities without increasing debts with a high interest rate from outside.
Risk Measurement of Bank Asia
Several types of risk involve in banking business, such as- Liquidity risk, Credit risk, Inflation rate risk, Interest rate risk, Capital risk, Earnings risk, and market risk and so on. Among those, here I have chosen Liquidity risk and Credit risk ratios which plays an important role for risk measurement of Bank Asia Limited.
Bank should be concerned about the danger of not having sufficient cash and borrowing capacity to meet deposit withdrawals, net loan demand and other cash needs. More common is shortage of liquidity due to unexpectedly heavy deposit withdrawal, which forces a bank to borrow funds at a high interest rate.
|Formula||2001||2002||2003||2004||2005||Peer Group Average|
|Net loans/total assets||76%||59.9%||57.6%||65%||68%||67.36%|
Table: Showing Liquidity Risk Ratios
From the close observation of liquidity position, we can state that Bank Asia maintains a minimum 30% liquidity against their all kinds of deposits. Peer Group Average ratio also proving that the liquidity of the bank is strong enough. That means, the bank has no possibility to fall into “cash-out” situation.
The probability of substantial losses on loans and other assets due to borrower default.
|Formula||2001||2002||2003||2004||2005||Peer Group Average|
|Total Loans/Total Deposit||78.28%||77.75%||78.51%||88.05%||96.59%||84.16%|
Table: Showing Credit Risk Ratio
The above ratio is increasing gradually, which indicating that the amount of total loan is increasing. At the same time, the credit risk mounting up with the increasing trend of total loan made by the bank. Peer Group Average is lower than Bank Asia’s ratio of year 2005 which indicates that the bank is in a riskier position than its competitor.
|Formula||2001||2002||2003||2004||2005||Peer Group Average|
|Provision for loan losses/Total Loans||0.64%||0.43%||0.47%||1.66%||1.10%||1.27%|
Table: Showing Credit Risk Ratio
Holding more provision helps to secured the loans made by banks. From above table it is clear that the amount of provision against loans of Bank Asia increasing every year. The increasing trend of loans maximizes the risk of borrower default and for reducing this risk Bank Asia holding more provision against loan every year. But the percentage of provision hold by the bank is not at a satisfactory level and the ratio also staying below Peer Group Average.
Therefore, the management needs rework to distributing the loans. Some percentage of bad loans can push the bank into brink of failure. Holding more provision will also help to reduce the credit risk of Bank Asia.
DuPont analysis breaks down the ROE into several different parts. Actually the company’s managers developed this approach for evaluating performance of the company as well as to find out the reason behind the increase/decrease of a firm’s ROE. We can divide DuPont Analysis by two parts- DuPont Equation and DuPont Chart.
- DuPont Chart: A chart designed to show the relationships among return on investment, asset turnover, the profit margin, and leverage.
- DuPont Equation: A formula that gives the rate of return on assets by multiplying the profit margin by the total assets turnover.
CAMEL rating of Bank Asia Limited (Year 2005)
CAMEL rating is a system that assigns a numerical rating to a bank or thrift based on examiner judgment regarding its capital adequacy, asset condition, management quality, earnings record and liquidity position. Actually, CAMEL rating is a combination of all five dimensions of performance into one overall numerical rating. The letters in CAMEL derived from:
C– Capital adequacy
A– Asset quality
M– Management quality
E– Earnings record
L– Liquidity position
A bank capital adequacy ratio determined by the K/A ratio.
Here, K= Capital
|9% and above||Strong||1|
|8% to 8.99%||Satisfactory||2|
|7% to 7.99%||Fair||3|
|6% to 6.99%||Marginal||4|
|5.99% and lower||Unsatisfactory||5|
Table: Showing Capital Adequacy
According to annual report Bank Asia’s capital adequacy ratio is 9.53%, which indicates the bank is staying at strong position with the ranking of 1. Therefore, banks has more chance to survive in the market because their loss absorb power is very high.
Trend Analysis is the analysis of a firm’s financial ratios over time; used to determine the improvement or deterioration in its financial situation. It mainly provides idea about whether the firm’s financial position is likely to improve or deteriorate in the future. A simple approach of trend analysis is to construct graphs containing both the firm’s ratios and the industry averages for the past five years. Here, I constructed the following trend analysis based on some major ratios of Bank Asia and its peer groups average ratios. Conversely, I included some important figures from Bank Asia’s financial statement which will enhance this analysis as well as provides clear indication about whether the firm’s financial position is more likely to improve or deteriorate in the future.
Return on Equity (ROE)
The trend of ROE of Bank Asia Ltd is stable enough to satisfy its existing share holder, at the same time new investors will be more interested to investment in Bank Asia. From the graph we find that the Return on Equity of Bank Asia reflects the returning capability to their shareholders has not increasing much from last three years. Compare with the Peer Group Average, it is clear that Bank Asia’s position is quite good in competitive market.
Return on Asset (ROA)
From the following figure we find that the Return on Asset (ROA) decreases from year 2003 and that trend continues rest of the years. But, the decrease of ROE from year 2004 to 2005 is only 0.01%. So, we can say that the bank is still in the safe position. In future, if the decreasing trend continues then it will be difficult for the bank to attract their existing shareholders and also face difficulty to attract new investors. The trend also showing that the Return on Asset (ROA) of Bank Asia is much higher than its Peer Group Average which proves that Bank Asia’s performance was much better than its competitor banks at year 2005.
Earning Per Share (EPS)¨
The trend shows the Earning from per share was highest in the years 2002 which declined in 2003. But it was quite capable of increasing its profitability hugely over the year from 2003 to 2005. At year 2005, Earning Per Share (EPS) of Peer Group Average is lower than Bank Asia’s Earning Per Share (EPS). So, it is clear that the investor’s choice will be positive towards investing at Bank Asia rather than others.
Earnings before provision and tax·
This analysis shows that the earning before provision and tax increased each and every year from 2001 to 2005. So, it is clear that the bank has been successful in increasing its net interest income through investments, commissions’ brokerage and the like.
Even though incremental net interest income helped the bank increasing its EBIT, it was not sufficient enough to compensate the increased net operating expenses. This results a slower growth trend of the net income. But, the positive trend of the graph proves that Bank Asia is successful in increasing their net income.
Increased liability is the evidence of the increasing interest expenses of Bank Asia. Net Interest Margin, in addition, experiences a negative impact (as discussed earlier) which affects the return on equity of the bank. However, financial strength, in contrast, is added up to the bank for this increased liability and avail it with more investment opportunities.
Loans and advances·
From these graph we find that the banks loans and advance amount increasing every year which provide positive signal towards the banks regular operation. This trend also gives us an idea about Bank Asia’s every year’s increasing trend of interest revenue. The increasing interest revenue helps to increase their net income as well as it is affecting the EPS and ROE. Though, their increased interest expense causes a decline in their expected net income as well as the ROE.
Total Assets ·
Previous calculation and the following graphs provide considerable evidence that the bank’s increasing its total assets every year. These increase of total assets influencing the ROA and creating a direct negative affect on ROE. We can reason it as follows:
- Increased operating revenue was not up to the level to have a balancing Net Income.
- The increasing total asset was not utilized properly to get the maximum benefit from those assets.
Deposit Collection of BAL
Current Deposit Account
Current account is purely a demand deposit account. Because the bankers are bound to pay the amount to the account holder on demand at any time till it has adequate funds of the customer with it. It is a running account, which may be operated upon any number of times during a working day.
For opening a current deposit account the minimum balance required is Tk.1000.00
It is the interest free and profitable account for the bank because no interest is given under this account.
It is also one kinds of demand deposit account. The banks undertake the obligation of paying all cheques drawn against it by the customer till it has adequate funds of the customer with it.
Minimum daily balance should be Tk. 50000.00
MBL provides the interest on this account is 5% and that will be calculated on daily product basis.
Fixed Deposit Receipt
This is one kinds of term deposit.
These are deposits, which are made with the bank for a fixed period specified in advances. The bank need not maintain cash reserve against these deposit and therefore. These deposits generally constitute more than half of the deposits with the banks.
Period of Scheme
This scheme can be opened for a term of 1 month, 2 months 3 months, 6 months or 1year or above
Any handsome amount can be the installment in FDR.
Period of interest are given below:
|1 month tenor||8.5%|
|2 month tenor||9.0%|
|3 month tenor||11.50%|
|6 month tenor||12.0%|
|1 year and above||12.25%|
Incase of large amount interest rate can be changeable.
These deposits are mostly of small accounts and are accepted by banks to encourage person of small means to make saving. This is an account, designed for the fixed income group like a student, a widow, an employee and an organization to save money and build up a sizable fund with which they can go for some income generating venture to improve the quality of their life and/or meet any future financial obligations.
One can open a Three Stage Savings Scheme with BDT 500 or it’s multiple up to BDT 5000 and can receives high return on maturity. Frequency of withdrawal shall be maximum twice or thrice in a week in that case weeks start from day 1 of current month. Maximum withdrawal in single cheque is 25.00% of balance.
7.0 % interest rate is given on this account in P.A.
Any citizen of Bangladesh can open this scheme. The scheme can be opened in the name of an individual only. To open an account some necessary articles are required as under:
- Introduction of a client of the same bank.
- Nationality certificate / Passport copy etc.
- For an organization needs Trade Licenses etc.
Building up the Savings:
Two ways to build up the savings:
- Build up the Banking Fixed Deposit by acquiring at a time large amount of money with profit after completing the duration.
- Purchasing National Saving Certificate from Bank and achieve profit.
If clients regularly deposit minimum of 3 (Three) years installments then to meet their short term needs the clients are eligible for a loan up to 80% of the total deposited amount.
Monthly Benefit Plus
MB+ is a 5-year scheme that lets the customer earn monthly benefit of Tk. 850/- or its multiple by minimum initial deposit of Tk. 100,000 or its multiple. Features of this product are: MB+ is a 5-year scheme that lets the customer earn monthly benefit of Tk. 850/- or its multiple by minimum initial deposit of Tk. 100,000 or its multiple. Features of this product are:
- One can start with the MB+ deposit scheme by depositing Tk. 100,000 initially or it’s multiple for 5 years and after maturity the deposited principal amount is refundable.
- One can open more than one account for different size of deposit at any branch of the Bank.
- If the holder of the scheme goes for premature liquidation, the applicable interest rate will be savings bank account rate. Premature liquidation before 6 months will not attract any interest.
- Monthly interest is transferred automatically to the Savings Account.
Deposit and monthly payment matrix
|Deposit amount (In Taka)||Monthly interest amount|
|400,000 & onwards||3400 & onwards|
Deposit Pension Scheme
Deposit monthly installment ranging from Tk. 500/- to Tk. 5,000/- and on maturity the holder receives a handsome amount as per table below:
Amount Payable at Maturity
|Monthly Deposit||After 3 years||After 5 years||After 10 years|
Features of this product are:
- In case of premature liquidation, the applicable interest rate is savings Bank account rate.
Installment to be made available in Savings Account in due time.
Double Benefit Plus
DB+ is a 7-year scheme. Depositor’s money doubles in 7 years. Minimum initial deposit for the scheme is Tk. 100,000 or it is multiple. Features of this product are:
- To start with, the DB+ deposit scheme one customer has to put Tk. 100,000 initially or it is multiple for 7 years and after maturity the deposited principal amount will be twice as much due to higher interest rate.
- Drawings will not be available before 7-years. If the customer goes for the premature liquidation, the applicable interest will be savings bank account rate. It may be mentioned that premature liquidation before 6 months will not attract any interest.
Value at maturity
|Tenure||Initial deposit||Value at maturity|
|7-years||Tk. 100,000/=||Tk. 200,000/=|
Bank Asia Sanchay Plus
Recently Bank Asia added an attractive product in its portfolio called
Bank Asia Sanchay plus (BASP).
- An individual can open BASP Account upto TK 50.00 lac in single name and upto TK 1 crore jointly with another person.
- For Tk 1,00,000/ the summary for different tenure under BASP will be like as follows:
|Tenure||Rate of Interest||Amount (In BDT.)|
Institutions are not allowed to open BASP account.
Capital / Shareholders Equity
2006 2005 2004
Paid-up capital 1,116,000,000 930,000,000 744,000,000
Statutory reserve 545,247,108 351,826,300 231,106,109
Proposed issue of bonus shares 279,000,000 186,000,000 186,000,000
Share premium 330 330 330
Proposed cash dividend – 93,000,000 –
Retained earnings 9,493,948 6,155,439 22,364,252
Total Shareholders’ Equity 1,949,741,386 1,566,982,069 1,183,470,691
Another category of the balance sheet is bank capital, the bank’s net worth, which equals the difference between total assets and liabilities. The funds are raised by selling new equity (stock) or from retained earnings. Bank capital is a cushion against a drop in the value of its assets, which could force the bank into insolvency. Capital can be classified into two parts. One is primary or secondary. Primary capital results from issuing common or preferred stock or retained earnings, while secondary capital results from issuing subordinated notes and bonds.
A bank’s capital must be sufficient to absorb operating losses in the event that expenses or losses exceed revenues, regardless of the reason for the losses. Although long-term bonds are sometimes considered as secondary capital, they are a liability to the bank and therefore do not appropriately cushion against operating losses.
The issuance of new stock dilutes the ownership of the bank because the proportion of the bank owned by existing shareholders decreases. In addition, the bank’s reported earnings per share are reduced when additional shares of stock are issued, unless earnings increase by a greater proportion than the increase in outstanding shares. For these reasons banks generally attempt to avoid issuing new stock unless absolutely necessary.
Capital Position of BAL
Authorized Capital* 2006 2005 2004
12,000,000 ordinary shares
of Taka 100 each 1,200,000,000 1,200,000,000 1,200,000,000
*The authorized capital has been increased from Tk.1, 200,000,000 to Tk.4, 450,000,000 from 13/09/2006 subject to the approval of EGM.
The commercial Banks are required to keep certain percentage of reserve with Bangladesh Bank. Bangladesh Bank is legally authorized to rise or lower the minimum reserves that the commercial banks must maintain against their total deposit. Present minimum requirements is 5% in 2005 (4% in 2004) of the total demand and time liabilities. It has got the power to use the variable reserve requirements as an instrument of monetary control.
In addition to this, nationalized commercial banks are also required to maintain Statutory Liquidity Ratio with BB which is 18% in 2005 (16% in 2004) at the moment calculated from cash-in-hand, balance in current with BB and investment in Government Securities, Treasury Bills and also in other securities etc.
Retained Earnings are used as a source of banks fund. RE’s achieved by an organization after given the dividend among the shareholders from the Net profit. Every year banks keep a portion that is used as equity for the next year.
In 2004 Retained Earnings of BAL 22,364,252 as well as Retained Earnings of BAL in 2005 6,155,439
A reserve is an amount of money that is set aside until it is needed for some particular purpose. Reserves are the items of owner’s equity which arise from retention of profits, capital receipts, and upward revaluation of assets. Some reserves are created for some specific purpose and are utilized for these purposes only. The reserves are created for safeguarding the business against unforeseen losses in the future or with a view to planning for further development of the business.
Other reserves include all reserve other than then those classified as capital reserve (capital profit). They include dividend equalization reserve, debenture redemption reserve, contingency reserve etc.
Borrowings from other banks
Borrowing is another source of funds for banks. A banking company may borrow from other institution in order to fulfill the temporary shortage of funds or urgent requirements. Usually these borrowings are for short term, commonly for one day to a few days. The market, adjusting to demand and supply conditions on a daily basis determines the interest rate on this type of loan. This is a source of funds for banks that experience unanticipated shortage of reserves.
BAL Position in Borrowings from other banks
2006 2005 2004
In Bangladesh 370,000,000 1,350,000,000 1, 490,000,000
Outside Bangladesh – – –
370,000,000 1,350,000,000 1,490,000,000
Sonali Bank – – 500,000,000
Uttara Bank Ltd. – 100,000,000 50,000,000
United Commercial Bank Ltd. – 300,000,000 100,000,000
Janata Bank – – 530,000,000
Mutual Trust Bank Ltd. 70,000,000 – –
Agrani Bank – 100,000,000 250,000,000
IFIC Bank – – 60,000,000
The City Bank Ltd. – 240,000,000 –
Prime Bank Ltd. 150,000,000 100,000,000 –
Eastern Bank Ltd. – 190,000,000 –
Standard Bank Ltd. – 70,000,000 –
National Bank Ltd. – 150,000,000 –
Mercantile Bank Ltd. – 50,000,000 –
National Credit &Commerce Bank Ltd.150, 000,000 50,000,000 –
370,000,000 1,350,000,000 1,490,000,000
EDF (Export Development Fund)
Export Development Fund (EDF) is a source of foreign currency loan from Bangladesh Bank initiated originally under co-sponsorship of International Development Association and the Government of the Bangladesh. This fund enables an Authorized Dealer (AD) to issue sight import letter of credit against lien of export letter of credit giving away the need to open usance letter of credit. The Authorized Dealer uses its own fund to pay import bills and claims re-financing under EDF Scheme from Bangladesh Bank. Bangladesh Bank lends to AD at prevailing London Inter Bank Offered Rate (LIBOR) plus 1% as instructed by Bangladesh Bank from time to time. The AD is entitled to spread of 3.5% on financing to new non-traditional exporter and 2.50% on all other financing.
Packing Cash Credit (PCC)/ Export Cash Credit (ECC)
Packing Cash Credit
Pre-shipment finance allowed under the name of “Packing Cash Credit”, is essentially a short term advance granted by the bank to an exporter to enable him to procure, process, manufacture, pack and ship the goods to the buyers abroad in conformity with the terms of Export Letter of Credit.
Packing Cash Credit may be allowed to the garments/export oriented industries to meet their funded requirements for the performance of the export. Generally it does not exceed 90% of the FOB value of the Master LC. In case of RMG industry if BB LC for fabric and accessories had been established PC should not exceed 10% of the FOB value:
a) If the Master LC is on CRF basis, branches shall ascertain the freight component from the agents of the shipping company through a certificate to be issued by them and subtract the freight amount from the said Master LC in order to arrive at the net FOB value of the consignment.
b) All Packing Credit disbursed as above must be adjusted against respective export bills on case to case basis
The interest rate is 7%.
Cash Incentive & Advance against Cash Incentive
Incentive is a form of cash subsidy provided to the export oriented industries under certain rules and regulations. The incentive is provided to the domestic textile, garment, jute, lather, fish, frozen foods and other non-traditional items. Incentive is given as a percentage of the FOB value of Exported goods. The goods are to be manufactured in Bangladesh and have to strictly follow the Rules of origin (ROO) in respect of inputs to the manufactured, processed or reprocessed goods.
Sometimes it takes a long time for exporters to receive cash incentive from the concern disbursing authority. Banks, at this stage usually finance the exporters against incentives receivable at a concessional rate of interest. In such cases, the entire relative shipping documents arc negotiated through the financing bank and all the claims for incentives are routed through the bank for registering the claims with relevant departments or agencies. To ensure that the claims are payable to the bank, a declaration by the exporter authorizing payment to the bank is required to be registered with the concerned department or agency.
Impact on Economic Development
An impressive contribution by the banking sector growth, and the resulting competition, in the past one-decade is the diversion of banking sector resources to the industrial sector. Post liberalization era competition has forced commercial banks to broaden their lending portfolio that has resulted in the expansion of loan extension from the trading sector to the industrial sector. The quality of services offered to all beneficiaries and the contribution of the banking sector to the economy as a whole has seen a quantum leap after the advent of the private banks, thereby opening up larger avenues for all investors, depositors as well as entrepreneurs.
Bank Asia Limited has a vision and mission to improve the financial sector of Bangladesh i.e. economic condition of Bangladesh by providing effective and innovative banking and financial product in financial market. However, in every economy of the world financial sector is highly regulated sector. Therefore, financial products of every bank are almost same as same law & regulations regulate them. However as the Bank Asia has a vision and mission to do something different, therefore, it is trying to be different from other banks and that can be proved by the quality & efficient management of the financial product of The Bank Asia Limited.
BAL’s Participation in the National Economy
Financial sector is the backbone of the economy. Commercial banks have contributed to give the efficiency of that sector. For that purpose Commercial banks invest their funds to make the sectors strong in the economy. BAL formulated its policy to give priority to small and medium organization while financing large-scale enterprises through the formation of a consortium of banks. The bank provided credit for trade and business, import, export, garments, fisheries, real estate and micro credit programs.
BAL is not exception of that motive. The following data table gives us a view that in what amount loans are disbursed in these sectors:
Sector Wise Loan Portfolio of BAL in 2006
|Agriculture and jute industries||18,199,256|
|Ready made garments||1,865,993,352|
|Food and allied||1,745,270,152|
Table: Sector Wise Loan Portfolio of BAL in 2006
Contribution in Foreign Trade:
The Bank Asia Limited provides solutions in the fields of international business and trade finance.
From the very beginning BAL is involved in financing foreign trade apart from financing internal credit requirements in the economy. As banking has become very keenly competitive, banks find it convenient to involve in foreign exchange business as lucrative sources of earning income and profit. Second suitable sectors for investment BAL like to give loans and advances on the Trading sector. From the beginning BAL perform the foreign business as well as internal business. BAL’s provides services under this division:
- Foreign Currency Accounts including Current Accounts and Term Investments as per circular of Bangladesh Bank.
- International Payment and Receipt services i.e. International Fund Remittance: International Money Transfers, Bank Drafts and a range of services for clearing overseas or foreign currency receipts.
- Trade Finance services.
Import Finance: Collections, letters of credit, bonds and guarantees, plus a special package for businesses requiring foreign exchange. PAD, LIM, LTR etc. BAL also financed included capital machinery, electric equipment, garments accessories, chemicals etc. Its growth is 11% and increase $572(million) in 2006.
Export Finance: BAL has made a significant contribution Readymade Garments sector. This sector does not only generated employment of men and women, it has also led to emergence of forward looking entrepreneurs in the country, thus removing a constraint to development efforts. Apart from the Readymade Garments BAL also handle the other export items like; jute goods, leather, plastic scrap, handicrafts etc. Its growth is 21.63% and increase $10,526.16 (million) in 2006.
Contribution in Internal Trade
BAL contributes in the inland trade in two ways.
One of major sources of banks fund is its collected deposit under the head of Current and STD Account from which the holders of this accounts may not get any interest or may get a little but traders can conduct their business transactions safely which is very much important for a business concern.
Another part is through the investment of bank funds like mid, short and long term loan; secured overdraft, CC (Pledge), CC (Hypo), loan general etc. Besides loans a bank can also contribute in the internal trade by various services like, transport loan, house building loan, loan against trust receipt, term loan-Industrial, term loan-Others, payment against document, consumer credit scheme, credit for poverty elevation scheme-micro credit, coverage, staff loan
Contributions in Internal Trade
Contribution in Industrial Development
Industrial sectors play a prominent role in the country’s economy. A large portion GDP’s income is come from these sectors. Like it provides a large-scale employment, ensuring a more equitable distribution of national income and facilitating an effective mobilization of resources of capital and skill. To form the industry, need two categories of capital-one is Fixed capital and another one is Working capital.
- To set up a manufacturing facility i.e. acquisition of land, buildings, installation of plant and machinery, proper maintenance etc.
- To finance for BMRE where “B” means for balancing, “M” modernization, “R” for renovation and “E” for expansion.
Purchasing of adequate inventories, stocking raw materials, inventories of goods and finished goods, retaining of sufficient cash and extending credit to their customers.
For that purpose BAL concentrate on measure designed to improve the competitive strength of these sectors offers short, mid and long-term industrial loan, time loan for both an existing and venture financing. For working capital finance it has its SOD against work orders. CC is also offer for fulfilling the temporary shortage of funds.
From the Pie it is clearly shown BAL favorite sectors for investment garment sector where BAL’s major contribution in garments sectors. BAL emphasize this sector because its believe 74.15% of the total export of the country comes from this sector. Another believes of BAL the garments sector is that its not only create the employment of men and women, but also helps the emergence of forward looking entrepreneurs who has the capability to remove all of the constraints to development efforts.
The following table that express the Industrial loan position of BAL’s excluding the staff loan, housing loan, consumer credit, credit card, other credit scheme.
Contributions in Industrial Development
Contribution Social-development sector:
With a view for the social –development, providing the financial facility by the housing loan and leasing finance. Providing facility could be the direct financing and indirect financing.
Loan made for all categories of borrower through for housing in rural and urban areas qualified as priority sector for the country, is termed as Direct financing.
Assistance given to any governmental agency for the purpose of constructing houses exclusively for the benefits of Scheduled Castes/ Tribes and low-income groups is termed as Indirect Financing.
Contribution in Other Sector
BAL with a view to provide loan to people of fixed income bracket introduced. BAL offer the Special credit facility to the fixed income groups against the security of their income status. So, service holders can take the loan opportunity and can live a standard of living in the society. BAL offers the Loan facility of its staffs at a lower interest rate for that they are appreciated to take this loan.
|Consumer Credit Scheme||643,238,000||339,396,905||244,945,001|
The findings of the study can be summarized based on the performance of BAL compared with some of the contemporary commercial banks.
The following table shows the banking industry Vs BAL position in case of growth rate in different banking business in 2005.
Table: BAL Vs Industry
|Business||BAL Growth||Industry Growth||BAL outperformed by|
The industry’s growth rate is 14% and 19% in 2005 in deposit and advance whereas the BAL growth rate is 37% and 51%. So the BAL outperformed 23% and 32% respectively. In case of import, export business and profit BAL also outperformed by -6%, 6.63% and 0% respectively.
Table: Deposit Mobilizations
Amount in crore
If we separately see to the deposit mobilization data of BAL with some important contemporary banks then it will be seen that the BAL position is not good compare to Prime and Southeast Bank but the rate of growth of Pubali, National and Uttara Bank may not good but it able to reach in a stable position.
Table: Credit Creation
Amount in crore
The credit creation position of Prime and Southeast Bank is very good but BAL position is not good enough but the position of Pubali and National Bank is poor, whereas credit creation of Uttara Bank declines year by year.
Table: Import Businesses
Amount in crore
The Import position of Prime Bank is very good but BAL position is intensifying.
Table: Export Businesses
Amount in crore
The market share of Prime in Export Business is highest. Though the growth rate of BAL is good but the import business of BAL requires gearing up. On the other hand, the position of Uttara is in declining situation. In the above table it shows that the market share of Prime in Export Business is also highest and the BAL also requires gearing up.
Table: Total Incomes
Amount in crore
The growth of BAL income increase in a steady rate but it is seen well in southeast. The income of Pubali, National and Uttara has reaches in a stable growth rate.
Table: Total Expenditure
Amount in crore
BAL expenditure increases year by year with the expansion of the banking activities and the other banks of the industry do not have any exception.
Table: Profit Growths (%)
The variance of BAL is low so the risk is low. On the other hand, variance of other Banks is high thus he risk is high.
Table: Deposit Advance Ratio
Amount in crore
The above table shows that NBL is highly prudent in asset management whereas. BAL can gear up in asset management thereby help achieve profit target.
It is widely accepted that credit is a phenomenon of economic development and the banking system is a vital agent which plays a crucial role in this process. In order that economic development is rapid and meaningful proper utilization of banks funds is required. Financial intermediaries, particularly banks have a very important role in rising of the financial resources because of their capacity to tap resources from a wider spectrum of people and diversified nature of their operations. Banks ability to make a positive contribution in igniting the process growth depends to a great extent on the way the banking funds are invested. It functions as a catalytic agent for bringing about economical, industrial and agricultural growth and prosperity of the country.
The Bank Asia Limited has a vision and mission to improve the financial sector of Bangladesh i.e. economic condition of Bangladesh by providing effective and innovative banking and financial product in financial market. However, in every economy of the world financial sector is highly regulated. Therefore, financial products of every bank are almost same as same law & regulations regulate them. However as the Bank Asia has a vision and mission to do something different, therefore, The Bank Asia people are trying to be different from other banks and that can be proved by the quality & efficient management of the financial product of The Bank Asia Limited.
As from the findings of the study it has been seen that BAL is improving itself in all aspects of banking but this efforts need to be continued for some more years. In the past, BAL performance was not good. For which the BB classified it as problem bank but very soon they able to overcome it by overcoming the capital shortfall and reserve by issuing of right share. They were able to make substantial recovery from classified loan which enhance credit rating from category B to A.
All these achievement of BAL is possible because of the investment of bank funds in the most profitable and potential sector.
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