Bank Management Term Paper

Quantitative Factor Analysis : In quantitative factor analysis we will discuss about different
financial ratios which will give us a clear picture of the performance of the 8 banks that we have
chosen.There are several financial ratios .The broad categories are
❖ Liquidity ratios
❖ Solvency Ratios
❖ Efficiency Ratios
❖ Market prospect ratios
❖ Profitability ratios
❖ Financial Leverage Ratios
❖ Coverage ratios Etc.

Liquidity Ratios : Liquidity is the first type of ratio which comes to our mind when we talk about
analyzing a company .Liquidity ratios usually discuss about the ability of a company to pay off their
current liabilities as well as their long term liabilities .This ratio also show us the cash level of a company
& their capability to turn their assets into cash .The most popular liquidity ratios are
➔ Current ratio
➔ Quick ratio
➔ Acid test ratio
➔ Working capital ratio
➔ Times interest earned ratio
We have used the current ratio of all these banks to show their liquidity situation.

1. Current Ratio: We measure a firm's capability to pay off its current liabilities with its current
assets. It is an important measure of liquidity as short term liabilities are due within the upcoming
year.
Formula for current ratio
𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶 =𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶/𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
This ratio tells a firm's current debt in terms of short term assets A current ratio of 3 tells us that a firm
has 3 times more current assets to pay off its short term liabilities .A current ratio of more than 1 is
usually considered good .A higher current ratio is always favorable than a lower current ratio.Here we can
see that all the banks have a current ratio of more than 1 in 2018 which indicates that they are currently in
good liquidity condition .among them brac bank has the highest current ratio of 1.96.

Solvency Ratios: Solvency ratio is also known to us as leverage ratios. By taking help from solvency
ratio we measure a company's ability to sustain operations indefinitely. That is why we compare debt ratio
with equity, earnings & assets. It mainly recognizes the going concern issues and whether a firm will be
able to pay the bills in the longer run. Solvency ratio is different from liquidity ratio because it focuses on
the long-term sustainability of a firm. The most common solvency ratios are
➔ Debt to equity ratio
➔ Debt ratio
➔ Equity ratio
Solvency ratios express a company's capability to make payments and pay off its long-term liabilities to
banks, bondholders and creditors. The companies which have better solvency ratios are more
creditworthy and they are considered financially sound company in the long run.
1. Debt Ratio: It is a solvency ratio which measures a company's total liabilities as a percentage of
its total assets. This ratio indicates financial leverage of a firm. Firms with higher amount of
liabilities in comparison with their assets are considered highly leveraged. This ratio assists the
creditors and investors to measure the overall debt burden of the company as well as its ability to
pay off its debt in the upcoming future in uncertain situation.
Formula for Debt ratio
𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶 = 𝐶𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶/𝐶𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶
We show debt ratio in decimal format A lower debt ratio demonstrates a more stable business .This also
implies that the company has potential longevity .Debt ratio industry varies from industry to industry but
.5 is usually considered as reasonable .Here from the we can see that most of the banks are highly
leveraged and their debt ratio is above 85 percent. Trust bank has the lowest debt ratio which indicates
that they are less dependent on debt.

DEBT RATIO
2018 2017 2016 2015 2014

5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
Bank Asia Eastern Mutual Brac Prime IFIC Trust CIty
Trust

Year/Ba Bank Eastern Mutual Brac Prime IFIC Trust CIty

nk Asia Trust

2018 .92 .918 0.94 0.87 0.93 0.916 .53 .92

2017 .93 .914 0.94 0.93 0.91 0.914 .44 .91

2016 .92 .9019 0.94 0.68 0.90 0.930 .38 .90

2015 .92 .8023 0.94 0.91 0.89 0.933 .94 .88

2014 .91 .8916 0.96 0.87 0.87 0.9310 .38 .87

 2. Debt Equity Ratio: This ratio generally compares the total debt total equities. It shows how
much from the companies financing comes from debt and equity. A higher debt to equity ratio
tells us that most of the financing are from creditors financing than shareholders financing .

Debt to Equity ratio formula

𝐶𝐶𝐶𝐶 𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶 = 𝐶𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶/𝐶𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶
This ratio is considered as a balance sheet ratio because we can easily find out all the elements of this
ratio in the balance sheet.Every industry set a different debt to equity standards of their own.Some
industries take more debt than others .A lower debt to equity ratio is usually considered financially more
sound firm.Firms with higher ratio are considered more risky than their competitor firms with lower debt
to equity ratio.From the table we can say that the banking industry is highly focused on taking debts
which is why the debt to equity ratio is way more than any other industry.Trust bank has the highest debt
to equity ratio compared to the other banks which makes it a more vulnerable bank .on the other hand
prime bank has the lowest debt to equity ratio which makes them financially more stable.

DEBT TO EQUITY RATIO

2018 2017 2016 2015 2014

20
18
16
14
12
10
8
6
4
2
0
Bank Asia Eastern Mutual Brac Prime IFIC Trust CIty
Trust

Year/Ba Bank Eastern Mutual Brac Prime IFIC Trust CIty

nk Asia Trust

2018 12.17 11.21 15.75 7.59 9.78 11.39 18.75 12.29

2017 12.73 10.73 16.15 12.82 9.63 10.61 18.34 10.08

2016 12.3 9.19 15.84 10.3 10.24 13.29 17.81 9.28

2015 10.82 8.23 15.25 9.76 10.96 14.24 17.95 7.42

2014 9.84 7.64 16.01 8.98 9.99 13.68 16.88 6.67

Efficiency ratio: This ratio is usually known as activity ratio because it measures how well a firm is
utilize their assets to generate income.Most of the time this ratio sees the time a firm takes to collect cash
from the customer or the time firm takes to convert their inventory into sales .Efficiency ratio assist the
management to improve the company .They also help investors and creditors in looking at the operations
and profitability of the firm.Themost common efficiency ratios are given below:
 Days sales in Inventory
 Accounts receivables turnover
 Total asset turnover ratio
 Working capital ratio
 Asset turnover ratio
 Inventory turnover ratio
In our report we have shown the total asset turnover of all the 8 banks.

Profitability ratio : This ratio mainly compares income statement accounts to enumerate a
companies capability to produce profits from its operations .To judge a company's return on investment
creditors and investors takes help of this ratio.This ratio is also useful to the concept of solvency & going
concern.There are several profitability ratios .the most important ones are given below
 Gross Profit Margin ratio
 Profit margin Ratio
 Return on Capital employed
 Return on assets
 Return on Equity

Market Prospect ratio :When it comes to comparing publicly traded companies stock prices with
other financial measures like dividends and earning rates they use market prospect ratios.To figure out a
firms current and future value creditors and investors take help of this ratio.Mainly this ratio tells the
investor what they might expect to receive from their investment.The main market prospect ratios are
given below
 Dividend Yield
 Dividend Payout ratio
 Earnings Per Share
 Price earning ratio

Gross Profit Margin Ratio:

It is one of the several types of profitability ratio. We compare the gross margin of a firm with the net
sales when we try to figure out the gross profit margin ratio. Gross margin ratio calculates how profitable
a firm sell its merchandise or inventory. This ratio is simply the percentage markup from its merchandise
to its cost. General people usually confused with gross profit margin ratio with profit margin ratio. Profit
margin ratio is a completely different ratio.
Formula
Gross Margin ratio=Gross margin/Net sales
High gross profit margin ratio can be obtained in two ways. The first way is to buying inventory at a
cheaper price. The second way is when retailers mark their goods higher.
From the table we can see that Trust bank is performing really well. They have the highest gross profit
margin ratio among all the banks. on the other hand, IFIC bank has the lowest gross profit margin ratio.
 GROSS PROFIT MARGIN
2018 2017 2016 2015 2014

90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Bank Asia Eastern Mutual Brac Prime IFIC Trust CIty
Trust

Year/Ba Bank Eastern Mutual Brac Prime IFIC Trust CIty

nk Asia Trust

2018 38% 44% 33.47% 59% 54.72% 24% 77% 59%

2017 34% 51% 35.42% 67% 55.28% 36.80% 73% 55%

2016 27% 52% 34.07% 73% 52.97% 34.84% 66% 62%

2015 20% 42% 26% 85% 45.85% 29.61% 72% 64%

2014 23% 44% 28% 78% 43% 29.61% 68% 63%

Operating Profit Margin Ratio:

The operating profit margin ratio is also familiar to people as operating margin ratio.This ratio measures
what percentage of the total revenue is made up operating income.It is a profitability ratio.By the help of
this ratio we can also learn what percentage of revenue is available to cover non operating costs like
interest expense .This ratio demonstrates how strong and profitable a company is which is why this ratio
is important for the investors and creditors.For example 50 percent of its revenue is from operations.This
means that particular company is running its operations perfectly and this income supports the firm.
Formula
Operating profit margin ratio=Operating income/Net Sales
City bank has the highest operating profit and that is way above the other 7 banks in the table .on the
other hand eastern bank has the lowest operating margin ratio.
 OPERATING PROFIT MARGIN
RATIO
2018 2017 2016 2015 2014

100.00%

80.00%

60.00%

40.00%

20.00%

0.00%
Bank Eastern Mutual Brac Prime IFIC Trust CIty
Asia Trust

Year/Ba Bank Eastern Mutual Brac Prime IFIC Trust CIty

nk Asia Trust

2018 29.71% 21% 33.13% 36.10% 43.30% 45.60% 36% 69%

2017 29.32% 25% 32.20% 39.80% 44% 49.20% 41% 89%

2016 19.70% 27% 29.94% 42.70% 46.20% 44.70% 33% 84%

2015 12.68% 21% 26.04% 37.40% 42% 44.20% 54% 83%

2014 15.70% 25% 22.09% 34.57% 41.10% 40% 48% 75%

Return on Asset:
This ratio is also called return on total assets. It is a profitability ratio. This ratio measures the net income
generated by total assets during a period comparing net income to average total assets. It tells us how
efficiently a firm can manage its assets to produce profit during a period.
Formula
ROA=Net Income/Average Total Assets
If multiply total asset turnover and profit margin the product we will be getting is return on asset. The
higher ROE ratio is favorable to the investors because it tells them that particular company is effectively
managing its asset to produce larger amount of net income. From the table we can see that 7 banks have
more or less similar ROE but trust bank has surprisingly has a huge return on asset. This means that they
are performing exceedingly well.
 RETURN ON ASSET
2018 2017 2016 2015 2014

90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
Bank Asia Eastern Mutual Brac Prime IFIC Trust CIty
Trust
Year/Ba Bank Eastern Mutual Brac Prime IFIC Trust CIty
nk Asia Trust

2018 .76% 1.15% 0.008 1.6% 1% 0.6% 73% .68%

2017 .76% 1.04% 0.011 1.9% 0.4% 0.9% 77% 1.38%

2016 .65% 1.33% 0.009 1.5% 0.8% 0.8% 1.03% 1.71%

2015 1.26% 1.23% 0.012 1.27% 0.8% 0.5% .89% 1.90%

2014 1.28% 1.28% 0.011 1.39% 0.8% 0.12% .85% 1.42%

Profit Margin Ratio

PROFIT MARGIN RATIO

2018 2017 2016 2015 2014

30.00%

25.00%

20.00%

15.00%

10.00%

5.00%

0.00%
Bank Asia Eastern Mutual Brac Prime IFIC Trust CIty
Trust

Year/Ba Bank Eastern Mutual Brac Prime IFIC Trust CIty

nk Asia Trust

2018 8.4% 13.83% 17.6% 18% 16.80% 19% 11.46% 21.54%

2017 9% 13.99% 15.3% 19% 9.60% 24.11% 11.31% 21.60%

2016 7.9% 16.04% 13.63% 19% 18% 18.40% 12.03% 21.30%

2015 7.2% 13.33% 12.05% 11% 12.30% 18.73% 11.08% 23.40%

2014 7.4% 13.07% 13.19% 10% 10.80% 18.20% 10.40% 16.00%

Total Asset Turnover Ratio:

 TOTAL ASSET TURNOVER
RATIO
2018 2017 2016 2015 2014

0.1

0.08

0.06

0.04

0.02

0
Bank Asia Eastern Mutual Brac Prime IFIC Trust CIty
Trust

Year/Ba Bank Eastern Mutual Brac Prime IFIC Trust CIty

nk Asia Trust

2018 .091 .079 0.024 0.044 0.024 0.015 .026 .028

2017 .0841 .070 0.021 0.046 0.015 0.002 .03 .027

2016 .089 .080 0.023 0.044 0.022 0.021 .02 .026

2015 .088 .090 0.019 0.041 0.003 0.018 .04 .026

2014 .086 .094 0.021 0.041 0.011 0.019 .03 .029

Return on Equity:
 RETURN ON EQUITY
2018 2017 2016 2015 2014

30%

25%

20%

15%

10%

5%

0%
Bank Asia Eastern Mutual Brac Prime IFIC Trust CIty
Trust

Year/Ba Bank Eastern Mutual Brac Prime IFIC Trust CIty

nk Asia Trust

2018 10% 13.43% 13.1% 13.6% 14.6% 7.4% 15.14% 8.26%

2017 10% 11.41% 16.8% 26% 4.9% 12.4% 15.27% 14.59%

2016 8% 12.94% 14.9% 17.2% 8.7% 9.9% 17.53% 15.50%

2015 14% 10.95% 13.2% 15.3% 9.1% 8% 16.21% 14.03%

2014 14% 10.93% 11.4% 12.3% 8.7% 15.7% 17.33% 9.50%

Dividend Payout ratio:

DIVIDEND PAYOUT RATIO

2018 2017 2016 2015 2014

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Bank Asia Eastern Mutual Brac Prime IFIC Trust CIty
Trust

Year/Ba Bank Eastern Mutual Brac Prime IFIC Trust CIty

nk Asia Trust

2018 10% 30% 14% 38% 57.34% 47% 11% 43%

2017 12.5% 20% 24% 51% 88.40% 24% 10% 28%

2016 12% 25% 66% 60% 30.27% 21% 16% 27%

2015 20% 35% 67% 50% 42.04% 12% 9.4% 25%

2014 15% 20% 71% 52% 25% 10% 18% 32%

Retention Ratio:

RETENTION RATIO
2018 2017 2016 2015 2014

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Bank Asia Eastern Mutual Brac Prime IFIC Trust CIty
Trust
Year/Ba Bank Eastern Mutual Brac Prime IFIC Trust CIty
nk Asia Trust

2018 90% 70% 86% 63% 42.66% 53% 89% 57%

2017 88% 80% 76% 49% 11.60% 76% 90% 72%

2016 88% 75% 34% 40% 69.73% 79% 84% 73%

2015 80% 65% 33% 50% 57.96% 88% 91% 75%

2014 85% 80% 29% 52% 75% 90% 82% 68%

Price Earnings Ratio:
Price Earnings Ratio
20
18
16
14
12
10
8
6
4
2
0
Bank Asia Eastern Mutual Brac Prime IFIC Trust CIty
Trust

2018 2017 2016 2015 2014

Year/Ba Bank Eastern Mutual Brac Prime IFIC Trust CIty

nk Asia Trust

2018 8.68 8.62 10.89 14.05 9.21 9.29 9.56 14.49

2017 11.14 15.68 10.13 17.65 9.30 8.92 13.72 13.01

2016 11.4 7.67 8.05 16.98 8.31 15.18 7.00 6.05

2015 5.65 7.87 6.33 17.35 8.71 13.48 7.35 4.99

2014 5.74 7.89 7.62 12.28 8.43 8.51 4.76 8.62

Earning Per Share:

EARNINGS PER SHARE

2018 2017 2016 2015 2014

7
6
5
4
3
2
1
0
Bank Asia Eastern Mutual Brac Prime IFIC Trust CIty
Trust

Year/Ba Bank Eastern Mutual Brac Prime IFIC Trust CIty

nk Asia Trust

2018 2.04 4.17 3.03 5.17 1.93 1.17 3.4 2.08

2017 1.84 3.26 3.45 4.55 0.94 1.54 3.11 3.75

2016 1.57 3.78 2.87 6.07 1.94 1.38 3.98 4.49

2015 2.92 3.63 3.08 3.19 1.89 1.57 3.28 4.09

2014 2.64 3.45 3.05 3.13 2.11 3.07 3.05 2.53

Dividend Coverage ratio:

DIVIDEND COVERAGE RATIO

2018 2017 2016 2015 2014

4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
Bank Asia Eastern Mutual Brac Prime IFIC Trust CIty
Trust
Year/Ba Bank Eastern Mutual Brac Prime IFIC Trust CIty
nk Asia Trust

2018 .10 1.39 1.12 1.71 1.60 1.17 2.46 2.23

2017 .13 1.63 1.18 1.55 1.72 1.44 1.42 3.52

2016 .12 1.51 1.63 1.23 1.53 1.79 1.46 3.51

2015 .20 1.04 1.20 1.14 1.50 1.47 2.37 3.98

2014 .15 1.72 1.43 1.48 1.57 2.35 1.96 3.08

NPL Ratio:

NPL RATIO
2018 2017 2016 2015 2014

9.00%
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
Bank Asia Eastern Mutual Brac Prime IFIC Trust CIty
Trust

Year/Ba Bank Eastern Mutual Brac Prime IFIC Trust CIty

nk Asia Trust

2018 4.10% 2% 5.39% 3.10% 6.16% 6.16% 7.90% 3.40%

2017 4.38% 3% 4.3% 3.50% 5.43% 6.40% 3.35% 5.40%

2016 5.41% 3% 4.36% 3.40% 5.96% 5.29% 3.21% 6.00%

2015 4.26% 3.27% 2.08% 5.99% 7.82% 6.46% 2.74% 7.60%

2014 5.31% 4.36% 2.67% 5.72% 7.61% 4.95% 2.45% 7.00%

Net Interest Margin:

NET INTEREST MARGIN

RATIO
2018 2017 2016 2015 2014

5.00%

4.00%

3.00%

2.00%

1.00%

0.00%
Bank Asia Eastern Mutual Brac Prime IFIC Trust CIty
Trust

Year/Ba Bank Eastern Mutual Brac Prime IFIC Trust CIty

nk Asia Trust

2018 4.45% 3.45% 3.34% 3.15% 3.62% 2.0% 2.60% 2.90%

2017 3.71% 3.53% 3.09% 3.28% 2.56% 2.9% 3.10% 2.70%

2016 3.64% 4.14% 3.55% 2.97% 2.02% 2.7% 2.10% 2.60%

2015 3.56% 3.74% 2.94% 3.05% 0.86% 2.6% 2.20% 2.70%

2014 3.49% 4.08% 2.44% 2.77% 1.91% 2.8% 2.10% 2.80%

Cost Income Ratio:

COST TO INCOME RATIO

2018 2017 2016 2015 2014

80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
Bank Asia Eastern Mutual Brac Prime IFIC Trust CIty
Trust
Year/B Bank Eastern Mutual Brac Prime IFIC Trust CIty
ank Asia Trust

2018 42.93% 45.60% 50.31% 64% 55.93% 56.7% 37.52% 58%

2017 44.12% 45.20% 53.86% 60% 55.98% 54.8% 38% 54%

2016 44.35% 46.20% 54.65% 57% 52.11% 59.7% 46% 48%

2015 41.84% 48.41% 57.28% 59% 51.08% 54.6% 48% 48%

2014 40.34% 43.01% 54.22% 57% 48.29% 52.8% 68% 51%

Capital Adequacy Ratio:

CAPITAL ADEQUACY RATIO

2018 2017 2016 2015 2014

20.00%
18.00%
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
Bank Asia Eastern Mutual Brac Prime IFIC Trust CIty
Trust

Year/Ba Bank Eastern Mutual Brac Prime IFIC Trust CIty

nk Asia Trust

2018 15.05% 17.3% 12.86% 12.63% 17.04% 12.63% 13.87% 13.42%

2017 14.88% 16.28% 13.76% 11.24% 14.01% 12.57% 12.45% 14.71%

2016 12.41% 15.26% 12.02% 12.26% 12.45% 11.25% 14.70% 12.52%

2015 12.46% 14.24% 12.19% 12.23% 12.74% 10.07% 10.84% 10.08%

2014 11.32% 13.22% 10.83% 11.31% 12.71% 10.14% 11.93% 9.97%

 I. Letter of Transmittal
05 November 2019
MD Nahid Alam
Lecturer
Department of Business Administration in Finance & Banking
Faculty of Business Studies (FBS)
Bangladesh University of Professionals.

Subject: Submission of Term Paper on Scrutinization of the usage of financial report in assessing
the performance of commercial banks in Bangladesh
Respected Sir,
We wish to report to you that we would like to submit our term paper on “Scrutinization of the
usage of financial report in assessing the performance of commercial banks in Bangladesh” for the
course Bank Management (Course Code- FIN- 4204). We have provided our sincere effort to
create this term paper with all the information we found significant. We tried to comply with all
the prerequisites of making this report.
We earnestly hope that this term paper will meet your specifications.

Sincerely Yours
Tasmiah Binte Noor (ID- 16221005)
Raisa Tabassum (ID- 16221015)
Md. Nasim Mahmud (ID- 16221073)
Nusrat Jahan Mimi (ID- 16221061)
Section-A
Department of Business Administration in Finance & Banking
Faculty of Business Studies
Bangladesh University of Professionals.