Economics
Finance

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

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

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.

Business Risk:

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

Capture

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 FinancingFor 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  FinancingFor 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)