Financial Ratios of Prime Bank and Lanka Bangla

8/9/2019 Financial Ratios of Prime Bank and Lanka Bangla

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Letter of Transmittal

30th April 2014

Mr. Mokhdum Morshed

Senior Lecturer

North South University

SUBJECT: Submission of group project.

Sir,

Enclosed is a copy of the term paper entitled ―Financial ratio analysis of Prime Bank Ltd andLanka Bangla Finance Ltd.‖ submitted as part of the requirements for the FIN 464 course in

the spring 2014 semester.

We have prepared the report including all the information required to meet the desired

research objectives. We tried our level best to follow the guidelines that you provided us

throughout the semester in preparing the report. Working with such diverse topics armed us

with valuable knowledge, experience; and provides us the opportunity of a lifetime that will

definitely help us in our later professional life. All the information stated in the report is

factual. This task was quite challenging and we enjoy thoroughly enjoyed working on

preparing this report.

Thank you for giving us this analysis-based course work which made the entire course very

creative and enjoyable. We would be extremely delighted if you accept the report.

Sincerely,

1. Md. Sanzid Ahsan 2.Bingqing Xue 3.Sarker Md. Sadman 4. Sharzin Shavina Reza

ID: 103 0315 030 ID: 103 0913 030 ID: 121 0458 030 ID: 111 0773 030


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Acknowledgement

First and foremost, we would like to thank the Almighty for giving us the moral integrity,

devotion, patience, and the ability to carry out this comprehensive research oriented project.

We are greatly indebted to our course instructor, Mr. Mokhdum Morshed for his direction,

assistance, encouragement, and guidance. His suggestions, in particular, have been invaluable

for the improvement of this project.

We are also greatly thankful to the DSE, and Lanka Bangla Finance Ltd., particularly to

Prime Bank Ltd. who was kind enough to share with us important information about their

company. Without them, the completion of this project could not have been possible.


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Table of Contents

Executive Summary ................................................................................................................... 5

Introduction ................................................................................................................................ 6

Objective .................................................................................................................................... 6

Methodology .............................................................................................................................. 6

Limitation ................................................................................................................................... 7

Company overview .................................................................................................................... 7

Prime bank: ............................................................................................................................ 7

Lanka Bangla Finance Ltd.: ................................................................................................... 8

Liquidity ratio ............................................................................................................................ 9

1. Cash Position Indicator: .................................................................................................. 9

2. Liquid Securities Indicator:........................................................................................... 10

3. Capacity Ratio:.............................................................................................................. 12

Profitability Ratio..................................................................................................................... 14

1. Return on Equity (ROE) ............................................................................................... 14

2. Return on Assets (ROA) ............................................................................................... 16

3. Net Interest Margin ....................................................................................................... 18

4. Net Non- Interest Margin .............................................................................................. 20

5. Net Operating Margin ................................................................................................... 22

6. Net Profit Margin .......................................................................................................... 24

7. Earnings per Share ........................................................................................................ 26

8. Retention Ratio ............................................................................................................. 28

Financial Risk Ratio ................................................................................................................. 30

1. Equity Multiplier/ Fund Management Ratio ................................................................. 30

2. Leverage Ratio .............................................................................................................. 32

3. Interest Coverage Ratio (Times Interest Earned Ratio) ................................................ 34

Efficiency Ratio ....................................................................................................................... 36

1. Tax Management Efficiency Ratio ............................................................................... 36

2. Expense Control Efficiency Ratio ................................................................................ 38

3. Asset Utilization Ratio .................................................................................................. 40

4. Operating Efficiency Ratio ........................................................................................... 42

5. Employee Productivity Ratio ........................................................................................ 44

6. Earning Spread Ratio .................................................................................................... 46

Market Ratios ........................................................................................................................... 48

1. Price/Earnings Ratio ..................................................................................................... 48


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Executive Summary

This report contains a short overview of the financial condition and performance of Prime

Bank Ltd. based on the financial ratios of the bank from the year 2008 to 2013.

The report contains five types of ratio analysis and the ratios are liquidity, financial risk,

efficiency, profitability and stock market ratios. These ratios will give a very detailed

presentation of the bank’s financial performance and the conditions. The values and

interpretation of the ratios will give a very clear picture and will also provide information in

which areas the bank needs to improve. These ratios are then compared with the financial

ratios of another Non Bank Financial Institution, Lanka Bangla Finance Ltd. Graphical

representations are also given of each ratios over last six years via two methods – Time series

analysis and Cross-functional analysis.

After all the ratios are calculated and interpreted, recommendations are provided as to where

the bank can improve from how it is performing right now. Net Income was going low owingto a few reasons. The probable reasons are cited in the recommendations part as well. After

that we also included the CAMELS rating of Prime Bank taken from different websites.

Lastly, we have shown all the calculations of the ratios in the appendix part and have added

in text citations and references to avoid plagiarism.


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Introduction

The purpose of this report is to analyze the financial ratios for Prime Bank Ltd. and a non

bank financial institution, which we chose to be Lanka Bangla Finance Ltd. The financial

ratios of the two financial institutions will have to be compared and analysis of their performance will be shown based on the comparison. The analysis using financial ratios are

the oldest tools of analyzing financial position of any organization. Doing analysis of

financial position is difficult for these two financial institutions as the formats of their

financial reports are quite different. This is due to two reasons: first they are service oriented

and second they are highly leveraged. The basic financial statements containing (income

statement, balance sheet, the statement of stockholders` equity and the statement of cash

flow) of quantitative and qualitative information can be used in the analysis of financial and

economic decision making. Financial ratios can be divided into five basic categories:

liquidity, efficiency, debt, profitability, and market ratio. Each type of these ratios has its

unique appeal and is used extensively by the analyst to understand an organization’s position

in a given industry. For example for financial service institution liquidity ratio, and efficiencyratio is tremendously important because of their nature of the service as they are highly

leveraged and hence riskier.

This report would also try to explain what the difference are and why these difference exist

between bank and nonbank financial institution.

ObjectiveThe objective of this study is to highlight the key difference between bank and nonbankfinancial institution. Although bank and nonbank financial institutions provide similar service

they are quite different in structure. These can be understood at least up to a level from the

ratio analysis of these two organizations. Highlighting on these things by ratio analysis and

providing probable explanation is the key purpose of this term paper.

Methodology

Although we tried to use both qualitative and quantitative method in our report as the mixture

of these two would yield the best outcome but due to various constrain it was not possible.

We go for quantitative research method.

Among primary data we use financial statements of these institutions and as a secondary data

we use websites and looked into other media to get our desired data.


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Limitation

Primary limitation was time constraint. Overcoming these hurdles was not an easy task.Especially lack of data gives us much hard time as some of the data were confidential and

some of the data were only available for the insider. Because of these factors, significant

ratios like hot money ratio and several other liquidity ratios could not be found. We found

necessary values for three liquidity ratios only.

Company overview

Prime bank: Started its journey in 17th April 1995 it was a dream coming into existence ofa group of highly successful local entrepreneurs. They conceived an idea of floating a

commercial bank with different outlook.

As a fully licensed commercial bank, Prime Bank Ltd. is being managed by a highly

professional and dedicated team with long experience in banking. They constantly focus on

understanding and anticipating customer needs. As the banking scenario undergoes changesso is the bank and it repositions itself in the changed market condition.

Being a second generation bank in the competitive banking industry of Bangladesh Prime

Bank Ltd. has done excellently well to climb up to the position they are now. Prime Bank

launched ATM on 2008 and started internet banking on the following year. Now Prime Bank

has 116 branches and more than 150 ATM terminals throughout the country.

Prime Bank Ltd. has already made significant progress within a very short period of its

existence. The bank has been graded as a top class bank in the country through internationally

accepted CAMELS rating. The bank has already occupied an enviable position among its

competitors after achieving success in all areas of business operation.

Prime Bank Ltd. offers all kinds of Commercial Corporate and Personal Banking services

covering all segments of society within the framework of Banking Company Act and rules

and regulations laid down by our central bank. Diversification of products and services

include Corporate Banking, Retail Banking and Consumer Banking right from industry to

agriculture, and real state to software (About Us: Prime Bank Ltd., 2014).


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Lanka Bangla Finance Ltd.: Lanka Bangla Finance Limited (LBFL) a joint venturefinancial institution established with multinational collaboration is in operation since 1997

having license from Bangladesh Bank under Financial Institutions Act, 1993. With

institutional shareholding structure, educated & motivated human resources, friendly working

environment & dynamic corporate culture has enabled LBFL to be a diversified financial

services providing institution of the country. Technical support provided by Sampath BankLimited, Sri Lanka has been working as a catalyst to emerge LBFL as most innovative

financial solution provider strictly in compliance with the rules & regulations of Bangladesh

Bank.

In recent time, Lanka Bangla Finance Ltd. has taken a series of growth policy which they

achieved through establishing branches countrywide. They also envisioned green banking

policy to be maintaining more intimate relationship with their customer and stake holder.

Its goal is to be the nation's most sought after facilitator in creating, nurturing and

maximizing value to the stakeholders, the society, the environment, and thereby, GROWING

TOGETHER.

Its mission to lead by example through a committed team of nurtured resources fostering

ownership that motivates thriving towards excellence in knowledge, systems, processes and

procedures, thereby empowering the organization on at every level to deliver the highest

quality of product, customer care, and stakeholder value keeping environmental safety a

priority (Corporate Profile: Lanka Bangla Finance Ltd., 2014).


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Liquidity ratio

1. Cash Position Indicator:

It measures the cash position out of the total assets of a bank or any non-bank financialinstitution. It equals to a fiscal year’s cash deposits divided by its total assets, expressed as a

percentage.

Cash Position Indicator=ℎ

2008 2009 2010 2011 2012 2013

Prime Bank 79.65% 85.58% 80.06% 79.51% 76.44% 82.24%

Lanka Bangla 10.45% 8.10% 9.62% 9.57% 6.62% 7.94%

Time Series Analysis:

Cross Sectional Analysis:

70.00%

72.00%

74.00%

76.00%

78.00%

80.00%

82.00%

84.00%

86.00%

88.00%

2008 2009 2010 2011 2012 2013

Prime bank

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

2008 2009 2010 2011 2012 2013

Prime bank

lanka bangla


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Interpretation:

In 2013 in every TK. 100 worth of assets, there are Tk.82.24worth of cash for Prime Bank

Ltd. For 2008, 2009, 2010, 2011 and 2012 it was Tk.79.65, Tk.85.58, Tk.80.06, Tk.79.51,

Tk.76.44 respectively for every Tk. 100 worth of assets of Prime Bank Ltd.

The cash position indicator for Prime Bank Ltd. was quite stable in these six years from

2008- 2013 with a bit higher in 2009 and 2013. If we look at the time series analysis graph

we can see that for 2009 and 2013 the proportionate increase in cash deposits were more than

that of Total Assets and so the figures in these 2 years were higher. Overall the cash position

is good for Prime Bank Ltd as all of them are more than 70% of the total assets.

If we look at the cross sectional analysis we can see the Lanka Bangla’s cash position

indicator is way lower than that of Prime Bank Ltd. That means Prime Bank has more cash in

their hand which indicates that the cash liquidity for Prime Bank is way higher than the

Lanka Bangla and Prime Bank is in stronger position to handle immediate cash needs.

2. Liquid Securities Indicator:

It measures the proportion of the most marketable securities which is government securities

for the bank or non-bank institutions hold with the overall size of its asset portfolio.It equals

to a fiscal year’s government securities the entity hold divided by its total assets, expressed as

a percentage.

Liquid Securities Indicator= ℎ

2008 2009 2010 2011 2012 2013

Prime Bank6.07% 0.00% 0.15% 2.55% 0.69% 2.14%

Lanka Bangla0.00% 5.46% 6.96% 8.05% 4.38% 3.15%


0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

2008 2009 2010 2011 2012 2013

Prime Bank


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Interpretation:

In 2013 in every TK. 100 worth of assets, there are Tk.2.14worth of government securities

for Prime Bank Ltd. For 2008, 2009, 2010, 2011 and 2012 it was Tk.6.07, Tk.0.00, Tk.0.15,

Tk.2.55, Tk.0.69 respectively for every Tk. 100 worth of assets of Prime Bank Ltd.

The liquid securities indicator for Prime Bank Ltd. was not too stable in these six years from

2008- 2013 with the highest in 2008. If we look at the time series analysis graph we can see

that for 2008, the bank had the most amount of government securities than any other yearsand the total assets at that time was also lower than any other years, so the ratio was the

highest in 2008.

If we look at the cross sectional analysis we can see the Lanka Bangla’s liquid securities

indicator is higher than the Prime Bank’s for all the years except year 2008. This means that

compared to the Prime Bank, Lanka Bangla is in greater position regarding its liquidity in the

usual manner.

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

2008 2009 2010 2011 2012 2013

Prime Bank

Lanka Bangla


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3.

Capacity Ratio:

It measures how much proportion of loans and leases are there in regarding of the total assets

of the banks and any non-bank institutions. It is a negative liquidity indicator because loans

and leases are often the most illiquid assets of an entity. So the greater is the indictor, the

lower liquid is the institution. It equals to a fiscal year’s net loans and leases div ided by ittotal assets, expressed as a percentage.

Capacity Ratio=

2008 2009 2010 2011 2012 2013

Prime Bank68.00% 71.41% 71.48% 70.55% 69.30% 62.56%

Lanka Bangla71.95% 59.97% 49.02% 46.64% 73.54% 77.47%


58.00%

60.00%

62.00%

64.00%

66.00%

68.00%

70.00%

72.00%

74.00%

2008 2009 2010 2011 2012 2013

Prime Bank


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Interpretation:

In 2013 in every TK. 100 worth of assets, there are Tk.62.56 worth of government securities

for Prime Bank Ltd. For 2008, 2009, 2010, 2011 and 2012 it was Tk.68.00, Tk.71.41,

Tk.71.48, Tk.70.55, Tk. 69.30 respectively for every Tk. 100 worth of assets of Prime Bank

Ltd.

The liquid securities indicator for Prime Bank Ltd. was quite stable in these six years from

2008- 2013 with the higher amount in year 2009 and 2010. If we look at the time series

analysis graph we can see that for 2009 and 2010, the proportionate increase in net loans and

leases was more than that of Total Assets and so the figures in these 2 years were higher.

If we look at the cross sectional analysis we can see the Lanka Bangla’s capacity ratio has

more fluctuation than that of Prime Bank’s and for 3 years, Lanka Bangla’s capacity ratio is

higher and for the other 3 years, Prime Bank has higher capacity ratio. Therefore, the

liquidity regarding the net loans and leases for these 2 institutions are not that much

differences and Lanka Bangla’s uncertainty of taking loans and leases are higher than the

Prime Bank.

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

2008 2009 2010 2011 2012 2013

Prime Bank

Lanka Bangla


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Profitability Ratio

1. Return on Equity (ROE)

It measures the rate of return on the ownership interest (shareholders' equity) of the commonstock owners. ROE is viewed as one of the most important financial ratios. It measures a

firm's efficiency at generating profits from every taka of net assets (assets minus liabilities),

and shows how well an organization uses investment taka to generate earnings growth.

ROE is equal to a fiscal year's net income (after preferred stock dividends but before common

stock dividends) divided by total equity (excluding preferred shares), expressed as a

percentage.

Return on Equity (ROE) =Net Income

Total Equity Capital

2008 2009 2010 2011 2012 2013

Prime Bank 18.36% 23.93% 17.76% 19.11% 12.88% 7.83%

Lanka Bangla 40.94% 35.42% 38.40% 15.02% 5.38% 13.96%


0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

2008 2009 2010 2011 2012 2013

Prime Bank

Prime Bank


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Interpretation:

In 2013 every common shareholders have earned Tk. 7.83 for every Tk. 100 invested. For

2008, 2009, 2010, 2011 and 2012 it was Tk. 18.36, Tk. 23.93, Tk. 17.76, Tk. 19.11 and Tk.

12.88 respectively for every Tk. 100 invested in Prime Bank Ltd.

For these six years from 2008- 2013, ROE was highest in 2009 with a 23.93% and lowest in

2013 with 7.83%. If we look at the time series analysis graph we can see that it has been

decreasing after the year 2009. The reason for this decline is that the proportionate increase inTotal Equity Capital was more than the Net Income for the bank after 2009. This is showing

bad performance of the bank after 2009. It is a very important ration in showing if the bank is

profitable or not and bad performance here is not good for the bank.

Compared to Lanka Bangla Finance, which is a Non Bank Financial Institution, Prime Bank

Ltd. showed better performance in the years 2011 and 2012. In the other years, Lanka Bangla

Finance showed way better performance than Prime Bank Ltd. Lanka Bangla had excellent

ROE results except for the years 2008-2010. In the years 2011 and 2012 proportionate

increase in Total Equity Capital was more than the Net Income by a huge margin. So the

ROE came down to 15.02% and 5.38% in 2011 and 2012 respectively.

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

2008 2009 2010 2011 2012 2013

Prime Bank

LankaBangla


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2.

Return on Assets (ROA)

It is a measure of a bank's profitability. It shows how profitable a company's assets are

in generating revenue. It equals to a fiscal year's earnings divided by its total assets,

expressed as a percentage.

Return on Assets (ROA) =Net Income

Total Assets

2008 2009 2010 2011 2012 2013

Prime Bank 1.13% 2.26% 1.99% 1.85% 1.13% 0.75%

Lanka Bangla 4.64% 5.54% 9.52% 3.84% 1.37% 2.98%


0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

2008 2009 2010 2011 2012 2013

Prime Bank

Prime Bank


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Interpretation:

In 2013 ever TK. 100 worth of assets generated a return of Tk. 0.75 for Prime Bank Ltd. For2008, 2009, 2010, 2011 and 2012 it was Tk. 1.13, Tk. 2.26, Tk. 1.99, Tk. 1.85 and Tk. 1.13

respectively for every Tk. 100 worth of assets of Prime Bank Ltd.

The ROA for Prime Bank Ltd. was quite stable in these six years from 2008- 2014 with a bit

higher ROA in 2009 and 2010. For the other years it was almost the same. If we look at the

time series analysis graph we can see that for 2009 and 2010 the proportionate increase in Net

Income was more than that of Total Assets and so the ROA was higher. Overall the ROA is

not good for Prime Bank Ltd. A ROA ratio of .75%- 2.26%% does not show very good

utilization of assets in making profit for the bank. It shows average performance.

If we look at Lanka Bangla Finance, the ROA is better than that of Prime Bank Ltd. if welook at the cross sectional analysis we can see that their asset utilization was way better than

that of Prime Bank Ltd. in making profit. Though Lanka Bangla Finance did a little bad in the

last two years but still their performance was better than Prime Bank Ltd. throughout the

period.

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

2008 2009 2010 2011 2012 2013

Prime Bank

LankaBangla


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3.

Net Interest Margin

It is a measure of the difference between interest income generated by banks or

other financial institutions by lending and interest paid on borrowings (for example,

deposits). It is considered analogous to the gross margin of non-financial companies.

Net Interest Margin =(Interest Income −Interest Expense )

Total Assets

2008 2009 2010 2011 2012 2013

Prime Bank 2.28% 2.95% 4.21% 3.19% 3.61% 2.75%

Lanka Bangla 2.93% 3.06% 3.03% 4.30% 2.09% 2.45%


0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

2008 2009 2010 2011 2012 2013

Prime Bank

Prime Bank


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Interpretation:

In 2013, every Tk. 100 worth of Total Assets generated Tk. 2.75 of Net Income. For 2008,

2009, 2010, 2011 and 2012 it was Tk. 2.28, Tk. 2.95, Tk. 4.21, Tk. 3.19 and Tk. 3.61

respectively for every Tk. 100 worth of assets of Prime Bank Ltd.

In 2010 Prime Bank Ltd. had the highest Net Interest Margin ratio of 4.21%. In the other

years it was in the range of 2.28%-3.61%. In 2010 the Net Interest Income increased proportionately more than Total Assets for Prime Bank Ltd. For the other years the

proportionate change of Net Interest Income and Total Assets were almost same. so the ratios

did not fluctuate much.

Even for Lanka Bangla Finance, NIM ratio is close to that of Prime Bank Ltd. It was within

2.45%- 4.30%. So both the financial institutions performed almost same incase of NIM ratio.

**NB: This ratio does not show proper results since Total Assets do not generate

Interest Income. Only Interest Sensitive Assets (ISA) generate Interest Income.

Miscellaneous Assets do not generate Interest Income.

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

2008 2009 2010 2011 2012 2013

Prime Bank

LankaBangla


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4.

Net Non- Interest Margin

This measure the amount of non-interest revenues stemming from deposit service charges and

other service fees the financial firm has been able to collect(fee income) relative to the

amount of non-interest costs incurred (including salaries and wages, repairs and maintenance

cost of facilities and loan loss expenses). For most of the banks the net non-interest margin isusually negative. This is mainly because of the fact that non-interest costs generally outstrip

the fee income

Net Non-Interest Margin =(Non Interest Income −Non Interest Expense )

Total Assets

2008 2009 2010 2011 2012 2013

Prime Bank 2.17% 2.72% 1.50% 2.12% 1.60% 1.48%

Lanka Bangla4.08% 4.86% 10.75% 1.90% 0.26% 1.69%


0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

2008 2009 2010 2011 2012 2013

Prime Bank

Prime Bank


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Interpretation:

For every Tk. 100 worth of Total Assets the bank generated Tk.1.48 Net Non Interest

Income. For 2008, 2009, 2010, 2011 and 2012 it was Tk. 2.17, Tk. 2.72, Tk. 1.50, Tk. 2.12

and Tk. 1.60 respectively for every Tk. 100 worth of assets of Prime Bank Ltd.

For this ratio as well, Prime Bank’s performance did not vary much over the years. Net Non

Interest Margin was highest in the year 2009 with a 2.72% and lowest in 2013 with a 1.48%.In 2013 the proportionate increase in Net Non Interest Income was less than the increase in

Total Assets.

If we look at the cross sectional analysis we can see that, for Lanka Bangla Finance, the Net

Non Interest Margin ratio is better than that of Prime Bank’s one. Apart from 2011 and 2012,

for all the other years from 2008- 2013, for Net Non Interest Margin Prime Bank Ltd.

performed badly compared to Lanka Bangla Finance.

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

2008 2009 2010 2011 2012 2013

Prime Bank

LankaBangla


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5.

Net Operating Margin

This ratio shows how efficiently the assets of a firm are utilized to enlarge the spread/margin

between operating revenues and operating expenses. Operating revenue is the sum of interest

income and non interest income, and operating expense is the sum of interest expense and

non interest expense.

Net Operating Margin =Total Operating Reveneues −Total Operating Expense

Total Assets

2008 2009 2010 2011 2012 2013

Prime Bank 3.48% 4.26% 4.52% 4.06% 3.71% 3.15%

Lanka Bangla 7.01% 7.92% 13.78% 6.20% 2.35% 4.13%


0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

2008 2009 2010 2011 2012 2013

Prime Bank

Prime Bank


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Interpretation:

For every Tk. 100 worth of Total Assets the bank generated Tk. 3.15 Net Operating Income.

This Net Operating Income is the difference of Operating Revenue and Operating Expense ofa financial institution. For 2008, 2009, 2010, 2011 and 2012 it was Tk. 2.17, Tk. 2.72, Tk.

1.50, Tk. 2.12 and Tk. 1.60 respectively for every Tk. 100 worth of assets of Prime Bank Ltd.

Prime Bank’s performance has been quite constant throughout the six years . The Net

Operating Margin ranged from 3.15%- 4.52%. The highest was in 2010 with a 4.52% and the

lowest being in 2013 with a 3.15%. Possible reason for fluctuation is that proportionate

change in Net Operating Income was less than that of change in Total Assets.

For comparing the Net Operating Margin Ratio of Lanka Bangla Finance and Prime Bank

Ltd. we will have to look at the cross sectional analysis. Lanka Bangla Finance outperformed

Prime Bank Ltd. in this profitability ratio as well. Lanka Bangla Finance had high NetOperating Margin ratio of 13.78%, while Prime Bank Ltd. Just had highest NPM of 4.52%..

Prime Bank Ltd. performed poor here as well compare to Lanka Bangla Finance.

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

2008 2009 2010 2011 2012 2013

Prime Bank

LankaBangla


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6.

Net Profit Margin

It is a measure of profitability. It is calculated using a formula and written as a percentage or

a number. Margin is mostly used for internal comparison.

Net Profit Margin = Net Income After TaxTotal Operating Revenues

2008 2009 2010 2011 2012 2013

Prime Bank 9.54% 16.92% 16.46% 14.42% 8.44% 5.77%

Lanka Bangla 24.48% 30.66% 44.04% 25.19% 9.84% 19.29%


0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

2008 2009 2010 2011 2012 2013

Prime Bank

Prime Bank


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7.

Earnings per Share

It represents the number the number of dollars earned during the period on behalf of each

outstanding share of common stock.

Earnings per Share =Net Income After Tax

Number of Common Shares Outstanding

2008 2009 2010 2011 2012 2013

Prime Bank Tk. 43.92 Tk. 79.43 Tk. 58.77 Tk. 4.79 Tk. 2.86 Tk. 1.98

Lanka Bangla Tk. 10.79 Tk. 21.26 Tk. 34.62 Tk. 10.43 Tk. 1.84 Tk. 4.58


0

10

20

30

40

50

60

70

80

90

2008 2009 2010 2011 2012 2013

Prime Bank

Prime Bank


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Interpretation:

In 2013, for Prime Bank Ltd. common shareholders had earnings of Tk. 1.98/share. For 2008,

2009, 2010, 2011 and 2012 the earnings per share was Tk.43.92, Tk. 79.43, Tk. 58.77, Tk.

4.79 and Tk. 2.86 respectively for every Tk. 100 worth of Total Operating Revenues.

The EPS for Prime Bank Ltd. took a sharp downturn from 2011because Prime Bank Ltd.

undertook new project for which they issued huge number of shares in the share market,named Dhaka Stock Exchange. So, proportionate increase in number of common shares

outstanding increased by a great deal compared to proportionate increase in NI after tax.

Compared to Lanka Bangla Finance, Prime Bank Ltd. performed bad in this particular sector.

Earnings from the common shares were more for Prime Bank than Lanka Bangla till 2010.

But from 2011, since around 250 million new shares were issued in the stock market for

Prime bank, the EPS went down. So for now Lanka Bangla is showing better performance in

EPS than Prime Bank Ltd.

0

10

20

30

40

50

60

70

80

90

2008 2009 2010 2011 2012 2013

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Page | 28

8.

Retention Ratio

The ratio that shows future growth potential of a financial organization is called retention

ratio. Higher is the retention ratio better is the future reinvestment capacity of a bank or any

financial institution.

Retention ratio = 1- Dividend payout ratio

2008 2009 2010 2011 2012 2013

Prime Bank 99.42% 99.27% 99.32% 99.37% 93.07% 92.97%

Lanka Bangla 69.42% 79.17% 91.83% 65.98% 17.70% 56.35%


88.00%

90.00%

92.00%

94.00%

96.00%

98.00%

100.00%

2008 2009 2010 2011 2012 2013

prime bank


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Page | 29


Interpretation:

In 2013 for Prime Bank Ltd. out of total earnings 92.97% was retained for reinvestment. For

2008, 2009, 2010, 2011 and 2012 the retained earnings were 99.42%, 99.27%, 99.32%,

99.37% and 93.07%.

The retention ratio for Prime Bank Ltd. took a sharp downturn from 2012 because from that

year they started retaining more of the Net Income for reinvesting in the new project theyundertook in the year 2011. For that reason retention ratio graph of Prime Bank Ltd. took a

very sharp downturn after 2011.

Compared to Lanka Bangla Finance, Prime Bank Ltd. had better retention ratio. This shows

that Prime Bank had better future investment potentials than Lanka Bangla Finance.

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

2008 2009 2010 2011 2012

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lanka bangla


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Page | 30

Financial Risk Ratio

1. Equity Multiplier/ Fund Management Ratio

Funds management efficiency shows how effectively the management has utilized theshareholders equity towards investing in assets.

Fund Management Ratio =Total Assets

Total Equity Capital

2008 2009 2010 2011 2012 2013

Prime Bank 16.47 times 10.59 times 8.90 times 10.41 times 11.36 times 10.51 times

Lanka Bangla 8.82 times 6.40 times 4.03 times 3.91 times 3.91 times 4.69 times


0

5

10

15

20

2008 2009 2010 2011 2012 2013

Prime Bank

Prime Bank


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Page | 31


Interpretation:

In 2013 for Prime Bank Ltd. Equity Multiplier was 10.51 times means, Total Assets were

financed by liability equal to 10.51 times equity. For 2008, 2009, 2010, 2011 and 2012 debt

financing was 16.47 times, 10.59 times, 8.9 times, 10.41 times and 11.36 times of equity

capital respectively.

This ratio was really high for Prime Bank Ltd. in 2013 which was 16.47 times. 16.47 times of

equity capital financing is debt capital financing. This shows high leverage of the bank and

indicates poor capital structure of the bank. This condition improved a little overtime. In 2013

the EM for Prime Bank Ltd. was 10.51 times.

Comparing Prime Bank Ltd. with Lanka Bangla Finance we can see that Lanka Bangla

Finance had less financial leverage than Prime Bank Ltd. for the all the years. This shows that

Prime Bank Ltd. is riskier of the two and is more leveraged financially. The reason for Prime

Bank Ltd. to have a high EM is that their capital structure has more debt financing than

equity financing.

0

2

4

6

8

10

12

14

16

18

2008 2009 2010 2011 2012 2013

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Page | 32

2.

Leverage Ratio

This describes the amount of equity in comparison to debt or the amount of earnings in

comparison to debt.

Leverage Ratio = Total LibabilitiesTotal Assets

2008 2009 2010 2011 2012 2013

Prime Bank 94% 91% 89% 90% 91% 90%

Lanka Bangla 89% 84% 73% 73% 74% 78%


0.86

0.87

0.88

0.89

0.9

0.91

0.92

0.93

0.94

0.95

2008 2009 2010 2011 2012 2013

Prime Bank

Prime Bank


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Page | 33


Interpretation:

In 2013, for Prime Bank Ltd., 90% of the assets were financed by debt. For 2008, 2009, 2010,

2011 and 2012 debt financing was 94%, 91%, 89%, 90% and 91% respectively in financing

total assets.

Prime Bank Ltd. was highly leveraged financially throughout the period. This also indicates

that the bank is very risky. We know banks are more dependent on debt financing more buthaving 90% of total assets being financed by debt is highly not recommended and very risky

for any type of organization. Debt financing was very high all the six years in financing total

assets.

Compared to Lanka Bangla Finance, Prime Bank Ltd. had more financial leverage. So we can

say that Prime Bank Ltd. was more risky than Lanka Bangla Finance from the perspective of

Leverage ratio.

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

2008 2009 2010 2011 2012 2013

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Page | 34

3.

Interest Coverage Ratio (Times Interest Earned Ratio)

Interest coverage ratio measures a firm’s ability to make contractual interest payments. The

higher its value, the better able the firm is to fulfill its interest obligations.

Times Interest Earned Ratio = Operating IncomeInterest Expense

2008 2009 2010 2011 2012 2013

Prime Bank 0.81times 0.98 times 1.38 times 0.99 times 0.80 times 0.76 times



0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

2008 2009 2010 2011 2012 2013

Prime Bank

Prime Bank


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Page | 35


Interpretation:

In 2012, Operating Income of Prime Bank Ltd. was 0.76 times its interest expense. For 2008,

2009, 2010, 2011 and 2012 the operating income was 0.81 times, 0.98 times, 1.38 times, .99

times and 0.80 times of its interest expense respectively.

The graph from time series analysis shows that Prime Bank Ltd. had Interest Coverage ratioof 0.81times in 2008 then it went upto 1.38 times in 2010 and then again dropped to 0.76

times in 2013. The performance degraded compared to the previous years.

Comparing Lanka Bangla Finance and Prime Bank Ltd. we can see that Lanka Bangla had

better Interest Coverage ratio compared to Prime Bank. This shows poor performance of

Prime Bank Ltd. compared to Lanka Bangla Finance. Higher the Interest Coverage ratio,

better off a financial institution is.

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

2008 2009 2010 2011 2012 2013

Prime Bank

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Page | 36

Efficiency Ratio

1. Tax Management Efficiency Ratio

This is related to the amount of tax paid by the bank. When the tax rate is lower the net profitafter tax will be higher and vice versa. The higher the tax management efficiency the better is

for Prime Bank Ltd.

Tax Management Efficiency Ratio =Net Income After Tax

Net Income before Taxes Securitiesgains (or Losses )

2008 2009 2010 2011 2012 2013

Prime Bank 50.35% 60.99% 56.29% 52.25% 48.96% 55.06%

Lanka Bangla 79.97% 81.94% 78.90% 65.88% 68.20% 95.73%


0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

2008 2009 2010 2011 2012 2013

Prime Bank

Prime Bank


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Page | 37


Interpretation:

In 2013, for Prime Bank, Net Income after tax was 55.06% of Net Income before tax. For

2008, 2009, 2010, 2011 and 2012 the Net Income after taxes were 50.35%, 60.99%, 56.29%,

52.25% and 48.96% of Net Income before taxes respectively.

For Prime Bank Ltd. the ratio fluctuated by a little amount over these six years. The graphfrom the time series analysis reached its peak in the year 2009 and then came down till 2012

and again went up in 2013. The reason behind these fluctuations is that the NI before tax and

NI after tax did no change proportionally.

Comparing Lanka Bangla Finance with Prime Bank Ltd. we can see that, for all the six years

Lanka Bangla Finance had better managed its tax policies than Prime Bank. For this ratio

Prime Bank’s performance is poor compared to Lanka Bangla Finance.

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

2008 2009 2010 2011 2012 2013

Prime Bank

LankaBangla


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Page | 38

2.

Expense Control Efficiency Ratio

This ratio signifies the reliance of the bank on the operating revenue. The less reliant the bank

is on its operating revenue the better it will be as it means that the bank is generating more

income without being very dependent on the operating revenue.

Expense Control Efficiency= Total Operating Income

Total Operating Revenue

2008 2009 2010 2011 2012 2013

Prime Bank 42.94% 56.03% 59.97% 56.78% 39.39% 27.58%

Lanka Bangla 68.31% 71.43% 84.25% 68.87% 42.90% 59.78%


0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

2008 2009 2010 2011 2012 2013

Prime Bank

Prime Bank


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Page | 39


Interpretation:

In 2013, for Prime Bank Ltd., Total Operating Income was 27.58% of Total Operating

Revenue. For 2008, 2009, 2010, 2011 and 2012 the Total Operating Incomes were 50.35%,

60.99%, 56.29%, 52.25% and 48.96% of Total Operating Revenues respectively.

For Prime Bank Ltd. the graph of this ratio went up from where it started in 2008 and came

down after 2010.It declined significantly in 2013. The reason behind this decline is because

Operating expense for 2013 was very high. So after covering operating expense only 27.58%

of the operating revenue contributed to the Operating Income.


Lanka Bangla Finance had better managed its operating expense than Prime Bank Ltd. For

this ratio Prime Bank’s performance is poor compared to Lanka Bangla Finance since its

Expense Control Efficiency ratio was very poor compared to Lanka Bangla Finance

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

2008 2009 2010 2011 2012 2013

Prime Bank

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Page | 40

3.

Asset Utilization Ratio

This emphasizes on the contribution of the bank ’s assets towards generating total operating

revenues

Asset Utilization Ratio =Total Operating RevenuesTotal Assets

2008 2009 2010 2011 2012 2013

Prime Bank 5.23% 6.61% 6.94% 6.23% 5.88% 5.47%

Lanka Bangla 10.26% 11.09% 16.35% 9.00% 5.49% 6.92%


0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

2008 2009 2010 2011 2012 2013

Prime Bank

Prime Bank


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Page | 41


Interpretation:

In 2013, Tk. 100 worth of assets generated Tk. 5.47 operating revenue. For 2008, 2009, 2010,

2011 and 2012 Tk. 100 worth of assets generated Tk. 5.23, Tk. 6.61, Tk. 6.94, Tk. 6.23 and

Tk. 5.88 of operating revenues respectively.

For Prime Bank Ltd. the graph of this ratio went up from where it started in 2008 and camedown after 2010. It declined and reached 5.47% in 2013. The reason behind this decline is

because compared to the previous years the mix and yield of assets was not proper in

generating operating revenues. Asset portfolio was not good enough in 2013 compared to the

previous years.


Lanka Bangla Finance had better managed its asset portfolio than Prime Bank. For this ratio,

Prime Bank’s performance is poor compared to Lank a Bangla Finance since its mix and yield

of assets was not as good as that of Lanka Bangla Finance’s one.

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

2008 2009 2010 2011 2012 2013

Prime Bank

LankaBangla


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Page | 42

4.

Operating Efficiency Ratio

Its purpose is to evaluate the overhead structure of a financial institution. Banking is no

different from any mature industry - the surviving companies are those that keep costs down.

The efficiency ratio gives us a measure of how effectively a bank is operating. It is also

referred to as the "overhead burden" or "overhead efficiency ratio"

Operating Efficiency Ratio =Operating Expense

Operatin Revenue

2008 2009 2010 2011 2012 2013

Prime Bank 33.42% 35.51% 34.93% 34.84% 36.87% 42.39%

Lanka Bangla 31.69% 28.57% 15.75% 31.13% 57.10% 40.22%


0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

2008 2009 2010 2011 2012 2013

Prime Bank

Prime Bank


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Page | 43


Interpretation:

In 2013, 42.39% of the operating revenue was operating expense. For 2008, 2009, 2010, 2011

and 2012 33.42%, 35.51%, 34.93%, 34.84% and 36.87% of operating revenue was operating

expense.

For Prime Bank Ltd. the graph of this ratio went up from where it started in 2008 and reached

42.39% in 2013. The higher is the ratio the worse it is. The reason for this ratio to be thehighest in 2013 is because the interest expense and non interest expense was very high in

2013. Comparatively the interest income and non interest income did not increase

proportionately. So, operating expense was 42.39% of operating revenue.


Lanka Bangla Finance had better managed its interest expense and non interest expense than

Prime Bank Ltd.. For the case of this ratio, Prime Bank Ltd. is showing bad performance

compared to Lanka Bangla Finance since Prime Bank’s operating expenses are going up.

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

2008 2009 2010 2011 2012 2013

Prime Bank

LankaBangla


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Page | 44

5.

Employee Productivity Ratio

This ratio shows how much each full-time employee is contributing to the net operating

income of the company.

Employee Productivity Ratio = Operating IncomeTotal Number of Full Time Employees

2008 2009 2010 2011 2012 2013

Prime Bank Tk.1600577 Tk.2510471 Tk.3025662 Tk.3103818 Tk.2168196 Tk.1366090

Lanka Bangla Tk.2769642 Tk.5168371 Tk.12924202 Tk.6732631 Tk.2894465 Tk.6436082


0

500000

1000000

1500000

2000000

2500000

3000000

3500000

2008 2009 2010 2011 2012 2013

Prime Bank

Prime Bank


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Page | 45


Interpretation:

In 2013, each employee contributed Tk. 1366090 to the operating income of Prime Bank Ltd.

For 2008, 2009, 2010, 2011 and 2012 each employee contributed Tk. 1600577, Tk. 2510471,

Tk. 3025662, Tk, 3103818 and Tk. 2168196.

For Prime Bank Ltd. the graph of this ratio went up from where it started in 2008 and reached

peak in 2011. From there the graph declined significantly and reached the lowest value in

2013. This is a very important ratio for the management of the bank to check the efficiencies

of the employees of the bank. Prime Bank Ltd. started underperforming in this ratio after

2011.


Lanka Bangla Finance’s employees performed better than Prime Bank’s employees. Lanka

Bangla Finance’s employees contributed more to the operating income that that of the

employees of Prime Bank Ltd. So the employees of Prime Bank Ltd. are underperforming

compared to the employees of Lanka Bangla Finance.

0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

2008 2009 2010 2011 2012 2013

Prime Bank

LankaBangla


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Page | 46

6.

Earning Spread Ratio

Earning spread refers to the difference in borrowing and lending rates of financial institutions

(such as banks) in nominal terms. It is considered analogous to the gross margin of non-

financial companies. Net interest spread is expressed as interest yield on earning assets (any

asset, such as a loan, that generates interest income) minus interest rates paid on borrowedfunds.

Earnings Spread Ratio =Interest Income

Interest Sensitive Assets –

Interest Expense

Interest Sensitive Liabilities

2008 2009 2010 2011 2012 2013

Prime Bank 5.03% 4.46% 7.13% 6.20% 7.63% 4.98%

Lanka Bangla 9.49% 9.42% 7.53% 10.35% 6.55% 7.47%


0.00%1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

2008 2009 2010 2011 2012 2013

Prime Bank

Prime Bank


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Page | 47


Interpretation:

In 2013, interest yield on earning assets minus interest rates paid on borrowed funds was

4.98%. For 2008, 2009, 2010, 2011 and 2012 interest yield on earning assets minus interest

rates paid on borrowed funds were 5.03%, 4.46%, 7.13%, 6.2% and 7.63%.

For Prime Bank Ltd. the graph of this ratio shows ups and downs. The ratio was highest in2012 and lowest in 2013. The reason for this ratio to decline from 2012 is because

proportionate increase of interest yield from interest sensitive assets were lower than

proportionate increase in interest rates paid on borrowed funds. This shows that assets are not

being utilized properly to contribute to make profits for Prime Bank Ltd. in 2013


Lanka Bangla Finance’s earnings spread ratio is better than Prime Bank’s one. Lanka Bangla

Finance’s assets are being utilized properly in contributing to make profits whereas; Prime

Bank’s assets are not being utilized properly. So Prime Bank should be more watchful in

utilizing their assets.

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

2008 2009 2010 2011 2012 2013

Prime Bank

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Page | 48

Market Ratios

1.

Price/Earnings Ratio

This ratio measures the amount that investors are willing to pay for each dollar of firm ’searnings. The level of price/earnings ratio indicates the degree of confidence that investors

have in the firm’s future performance

P/E Ratio =Market Price per Share

Earnings per Share

2008 2009 2010 2011 2012 2013

Prime Bank 1.23 0.82 24.28 9.29 12.94 13.08

Lanka Bangla 18.22 14.76 14.38 16.32 32.11 12.89


0

5

10

15

20

25

30

2008 2009 2010 2011 2012 2013

Prime Bank

Prime Bank


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Page | 49


Interpretation:

In 2013 the shareholders of Prime Bank Ltd. were willing to pay Tk. 13.08 for every Tk. 1 of

reported earnings. For 2008, 2009, 2010, 2011 and 2012 shareholders were willing to pay Tk.

1.23, Tk. 0.82, Tk. 24.28, Tk. 9.29 and Tk. 12.94 respectively.

This ratio for Prime Bank was very low for the first two years. In 2010 the ratio went up

24.28 since in that year proportionate increase in market price of Prime Bank’s share was

more than that of the earnings per share. Moreover for the next three years the EPS went

down since a lot of new shares were issued in the market.

Compared to Lanka Bangla Finance, Prime Bank showed better PE ratio only in the year

2010. For the rest years Lanka Bangla showed better performance in PE ratio. So Prime Bank

performed badly compared to Lanka Bangla Finance.

0

5

10

15

20

25

30

35

2008 2009 2010 2011 2012 2013

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Page | 50

2.

Market to Book Ratio

This ratio provides an assessment of how investors view the firm’s performance. It relates the

market value of the firm’s share to their book value.

Market to Book Ratio = Market Price per ShareBook value per Share

2008 2009 2010 2011 2012 2013

Prime Bank 0.23times 0.20 times 0.33 times 1.81 times 1.67 times 1.16 times



0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

2008 2009 2010 2011 2012 2013

Prime Bank

Prime Bank


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Page | 51


Interpretation:

In 2013 the market value per share was 1.16 times the book value. For 2008, 2009, 2010,

2011 and 2012 the market value per share was .23times, .20times, .33times, 1.81times and

1.67times.

This ratio for Prime Bank was very low for the three two years. In 2011 the ratio went up

1.81times. Since, in 2011 Prime Bank undertook a new project; they issued millions of new

shares. So the Book value per share went down. As a result, from 2011 to 2013 the Market to

Book ratio went up for Prime Bank.

Compared to Lanka Bangla Finance, Prime Bank showed better Market to Book ratio for all

these six years. Even in this volatile market conditions, Lanka Bangla Finance did a good job

in keeping their market share prices quite good. Prime Bank did not perform well compared

to Lanka Bangla Finance.

0

1

2

3

4

5

6

7

8

2008 2009 2010 2011 2012 2013

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Page | 52

3.

Dividend per Share

This ratio implies how much dividend a shareholder is getting for every share s/he has

invested in.

Dividend per Share=

Total Dividend to ordinary shareholders

Number of common shares outstanding

2008 2009 2010 2011 2012 2013

Prime Bank Tk0.25/

share

Tk0.40/

share

Tk0.40/

share

Tk0.30/

share

Tk0.20/

share

Tk0.13/

share

Lanka Bangla Tk3.30/

share

Tk4.43/

share

Tk2.83/

share

Tk3.55/

share

Tk1.51/

share

Tk2.00/

share


0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

2008 2009 2010 2011 2012 2013

Prime Bank

Prime Bank


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Page | 53


Interpretation:

In 2013 the common shareholder got a dividend of Tk. 0.13/share. For 2008, 2009, 2010,

2011 and 2012 the dividend per share was 0.25times, 0.40times, 0.40times, 0.30times and

0.13times.

This ratio for Prime Bank was low inh 2008. It went up in 2009 and 2010. Since, in 2011

Prime Bank undertook a new project; they issued millions of new shares. So the bank was

underperforming

Compared to Lanka Bangla Finance, Prime Bank showed better Dividend per share ratio for

all these six years. Even in this volatile market conditions, Lanka Bangla Finance did a good

job in giving dividends to the common shareholders than Prime Bank. Prime Bank did not perform well compared to Lanka Bangla Finance.

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

2008 2009 2010 2011 2012 2013

Prime Bank

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Page | 54

4.

Dividend Yield

It is a financial ratio that shows how much a company pays out in dividends each year

relative to its share price. It is one of the important ratios the investors will look into before

they decide which stock to invest. It equals to one fiscal year’s dividends per share divided by

its price per share of that year, expressed in percentage.

Dividend Yield=Dividend per Share

Current market price of Share

2008 2009 2010 2011 2012 2013

Prime Bank 0.463% 0.613% 0.423% 0.674% 0.541% 0.483%

Lanka Bangla 1.68% 1.41% 0.57% 2.08% 2.56% 3.39%


0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

0.80%

2008 2009 2010 2011 2012 2013

Prime Bank


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Page | 55


Interpretation:

In 2013 in every TK. 100 worth of price per share provided Tk.0.48 worth of dividends for

Prime Bank Ltd for their investors. For 2008, 2009, 2010, 2011 and 2012 it was Tk. 0.46, Tk.

0.88, Tk. 0.42, Tk. 0.07, Tk. 0.54 respectively for every Tk. 100 worth of price per Prime

Bank Ltd stock share.

The dividend yield ratio for Prime Bank Ltd. was not stable for the past 6 years from 2008-

2013 with the highest amount of 0.88% and the lowest amount of 0.07%. However, the

overall amount of the ratio was really minor.

If we look at the cross sectional analysis we can see the Lanka Bangla’s dividend yield ratio

is way higher than that of Prime Bank’s, even it also did fluctuate a lot over the past 6 years

from 2008-2013. It indicated that the investors in Lanka Bangla were able to earn more than

the investors in Prime Bank in the form of dividends in related to the money they have

invested. So as a result, the investors are probably more into investing in Lanka Bangla than

Prime Bank regarding this ratio.

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

2008 2009 2010 2011 2012 2013

Prime Bank

LankaBangla


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Page | 56

5.

Dividend Payout Ratio

It indicates how well the earnings of the institution support its dividend payments. More

mature companies tend to have a higher payout ratio. It equals to a fiscal year’s total

dividends a bank or any non-bank institution pay to their shareholders divided by its total net

income after tax of that year, expressed as a percentage.

Dividend Payout Ratio=Dividends Paid

Net Income

2008 2009 2010 2011 2012 2013

Prime Bank 0.57% 0.73% 0.68% 0.63% 6.93% 7.03%

Lanka Bangla 30.58% 20.83% 8.17% 34.02% 82.30% 43.65%


0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

2008 2009 2010 2011 2012 2013

Prime Bank

Prime Bank


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Page | 57


Interpretation:

In 2013 in every TK. 100 worth of net income after tax, there are Tk.7.03 worth of dividend

for Prime Bank Ltd paid to their shareholders. For 2008, 2009, 2010, 2011 and 2012 it was

Tk. 0.58, Tk. 0.73, Tk. 0.68, Tk. 0.63, Tk. 6.93 respectively for every Tk. 100 worth of assets

of Prime Bank Ltd.

The dividend payout ratio for Prime Bank Ltd. was quite stable in those 4 years from 2008-

2011 and increased drastically at 2012 and remained almost same in the year 2013. The

reason for this is that if we look at the table from which we calculated the value, we can see

that the proportionate increase in dividends in 2012 has increased drastically higher than the

proportionate increase in net income after tax of that year and the same logic for 2013.

If we look at the cross sectional analysis we can see the Lanka Bangla’s dividend payout ratio

is way higher than that of Prime Bank’s, even it also did fluctuate a lot over the past 6 years

from 2008-2013. It indicate that the shareholders in Lanka Bangla were able to earn more

than the shareholders in Prime Bank in the form of dividends, and Lanka Bangla was in the better shape than Prime Bank to earn the net income every year in the past 6 years.

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

2008 2009 2010 2011 2012 2013

Prime Bank

LankaBangla


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Page | 58

CAMELS Rating

―CAMELS‖ is an international bank rating system in which bank supervisory authorities rate

institutions according to six factors. The six areas examined are represented by the acronym

―CAMELS‖. The six factors are:

Capital Adequacy

Asset Quality

Management

Earnings

Liquidity

Sensitivity to Market

Performance of the banking sector under CAMELS involves analysis and evaluation of these

six crucial dimensions of banking operations. The CAMELS methodology was originally

adopted by North American bank regulators to evaluate the financial and managerial

soundness of U.S. commercial lending institutions.

In Bangladesh, since the early nineties, the same 5 components of CAMEL have been used to

evaluate the five crucial dimensions of a bank’s operations that reflect in a comprehensive

fashion an institution’s financial condition, compliance with banking regulations and statuses

and overall operating soundness. Recently, Bangladesh Bank has upgraded the CAMEL into

CAMELS effective from June, 2006. After inserting ―S‖ or Sensitivity to market ris k, it is

presumed that this off-site supervision technique of central bank would make it a more

effective tool in rating banks. The present system requires that a bank’s condition and

performance be regularly appraised according to predetermined stress testing on asset and

liability and foreign exchange exposures, procedures, rules and criteria and on the basis of the

results obtained through risk-based audits under core risk management guidelines. A single

CAMELS rating for each bank is the result of both off-site monitoring, which uses monthly

financial statement information, and an on-site examination, from which bank supervisors

gather further private information not reflected in the financial reports. These examinations

results in the development of ―Credit Points‖ ranging from 0 to 100. As noted above, the sixkey performance dimensions- Capital adequacy, asset quality, management, earnings,

liquidity and sensitive to market risk — are to be evaluated on a scale of 1 to 5 in ascending

order. Following is a description of the graduations of rating:

Rating 1 indicates strong performance: BEST rating.

Rating 2 reflects satisfactory performance.

Rating 3 represents performance that is flawed to some degree.

Rating 4 refers to marginal performance and is significantly below average.

Rating 5 is considered unsatisfactory: WORST raring.


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Page | 59

According to CAMELS rating Prime Bank Ltd. is rated 1 (one) or this bank falls under

A-class or Strong Banks, which shows the stability and growth it has managed over the

small time frame. There are only seven banks under this class and Prime Bank is one of

them and it is indeed one of their greatest achievements. The bank has already occupied

an enviable position among its competitors after achieving success in all areas of

business operation (ReportBd, 2011).

Recommendations and conclusions

A few recommendations for Prime Bank

The Net Income decreased in the years after 2012. The bank’s finance department

should look into this issue and try to increase the Net Income as early as possible.

The Operating Expense also went up after 2011. If this expense can be kept in controlthen Net Profit will also go up automatically.

The Bank is under high financial leverage. This shows greater risk as a financial

institution. If this financial leverage can be decreased then the risk factor for the bank

would go down

The assets of the bank are not properly utilized to generate enough revenue. So net

Income is less as a result.

**NB: These above stated recommendations are given keeping in mind the types of

ratios analyzed in this report. If the industry average was available a better analysis and

a better recommendation of for the bank to improve could have been given. These

recommendations are purely based on the financial ratio analysis of Prime Bank Ltd.

from 2008 to 2013.

To conclude we can say that there are a lot of sectors for Prime Bank to improve upon. TheFinance department of this bank should look closely into these issues and try to sort it out.

These ratios partially reflect the condition of the bank. To know the actual financial condition

of the bank we can apply other tools for analyzing financial condition of financial institution.


60/108

Page | 60

Bibliography About Us: Prime Bank Ltd. (2014). Retrieved April 29, 2014, from Prime Bank Ltd. website:

https://www.primebank.com.bd/index.php/home/about_prime_bank

Blogs: Report Bd . (2014). Retrieved April 22, 2014, from Report Bd web site:http://www.reportbd.com/blogs/448/Bangladesh-Bank-CAMELS-Rating-2011.html

Corporate Profile: Lanka Bangla Finance Ltd. (2014). Retrieved April 22, 2014, from Lanka

Bangla Finance Ltd. website: http://www.lankabangla.com/corporate_profile.php

Investopedia. (2014). Retrieved April 2014, from www.investopedia.com

Islam, S. (2013, March 22). First Page: The financial express bd . Retrieved April 22, 2014,

from the financial express bd website: http://www.thefinancialexpress-

bd.com/old/index.php?ref=MjBfMDNfMjJfMTNfMV8xXzE2NDA1Nw%3D%3D


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Page | 61

Appendix

Calculations

Prime Bank Ratio Calculations

liquidity ratios:

1. cash position

indicator2008 2009 2010 2011 2012 2013

formula: cash deposits/total

assets

cash deposits

88,02

1,000

,000

106,9

56,00

0,000

124,5

19,00

0,000

159,8

16,00

0,000

182,0

53,00

0,000

201,9

07,00

0,000

total assets

110,5

16,61

8,171

124,9

84,70

2,326

155,5

32,78

9,526

200,9

95,68

0,436

238,1

69,04

9,276

245,5

22,64

5,636

79.65

%

85.58

%

80.06

%

79.51

%

76.44

%

82.24

%

2. liquid securities

indicator

formula:

BD govt.

securities/total

assets

BD govt. securities 6704

3649

0 238,8

85,68

5,124

,479,

1,635

,648,

5,246

,989,


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Page | 62

34 9 346 489 603

total assets

110,5

16,61

8,171

124,9

84,70

2,326

155,5

32,78

9,526

200,9

95,68

0,436

238,1

69,04

9,276

245,5

22,64

5,636

6.07

%

0.00

%

0.15

%

2.55

%

0.69

%

2.14

%

3. capacity ratio

formula:

net

loans&leases/total

assets

net loans&leases

75,15

6,206

,817

89,25

2,222

,489

111,1

67,38

8,892

141,8

01,64

8,964

165,0

42,32

7,369

153,5

88,76

0,229

total assets

110,5

16,61

8,171

124,9

84,70

2,326

155,5

32,78

9,526

200,9

95,68

0,436

238,1

69,04

9,276

245,5

22,64

5,636

68.00

%

71.41

%

71.48

%

70.55

%

69.30

%

62.56

%

profitability ratio:

1. return on

equity(ROE)

formula:net income after

tax/total equity

NI after tax1,231 2,823 3,101 3,688 2,698 1,829


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Page | 63

,832,

174

,473,

302

,398,

900

,952,

436

,992,

305

,495,

239

total equity

6,708

,227,

542

11,79

6,677

,214

17,46

6,599

,365

19,30

6,395

,169

20,96

1,807

,176

23,35

8,519

,326

18.36

%

23.93

%

17.76

%

19.11

%

12.88

%

7.83

%

2. return on asset


tax/total assets

NI after tax

1,231

,832,

174

2,823

,473,

302

3,101

,398,

900

3,688

,952,

436

2,698

,992,

305

1,829

,495,

239

total assets

110,5

16,61

8,171

124,9

84,70

2,326

155,5

32,78

9,526

200,9

95,68

0,436

238,1

69,04

9,276

245,5

22,64

5,636

1.11

%

2.26

%

1.99

%

1.84

%

1.13

%

0.75

%

3. net interest margin

formula:

(interest income-

interest

expense)/total

assets

interest income 9,095

,891,

10,85

6,114

12,69

5,374

17,57

4,814

23,80

7,748

22,61

5,648


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Page | 64

683 ,605 ,976 ,286 ,522 ,865

interest expense

7,129

,596,

990

8,428

,698,

978

8,047

,100,

451

13,04

6,539

,824

17,98

7,629

,591

18,27

6,343

,701

total assets

110,5

16,61

8,171

124,9

84,70

2,326

155,5

32,78

9,526

200,9

95,68

0,436

238,1

69,04

9,276

245,5

22,64

5,636

1.78

%

1.94

%

2.99

%

2.25

%

2.44

%

1.77

%

4. net non interest

margin

formula:

(non-interest

income-non-

interest

expense)/total

assets

non interest income

3,808

,000,

000

5765

0000

00

5472

0000

00

7556

0000

00

8182

0627

48

9081

8606

95

non interest expense

1,931

,000,

000

2,907

,000,

000

3,618

,000,

000

4,190

,000,

000

5,162

,220,

245

5,689

,098,

440

total assets

110,5

16,61

8,171

124,9

84,70

2,326

155,5

32,78

9,526

200,9

95,68

0,436

238,1

69,04

9,276

245,5

22,64

5,636

1.70 2.29 1.19 1.67 1.27 1.38


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Page | 65

% % % % % %

5. net operating margin

formula:

net operating

income/total

assets

net operating income

3,846

,854,

496

5,328

,807,

974

7,022

,938,

721

8,164

,891,

533

8,839

,961,

434

7,732

,067,

419

total assets

110,5

16,61

8,171

124,9

84,70

2,326

155,5

32,78

9,526

200,9

95,68

0,436

238,1

69,04

9,276

245,5

22,64

5,636

3.48

%

4.26

%

4.52

%

4.06

%

3.71

%

3.15

%

6.net profit margin


tax/total revenue

NI after tax

1,231

,832,

174

2,823

,473,

302

3,101

,398,

900

3,688

,952,

436

2,698

,992,

305

1,829

,495,

239

total revenue

12,90

7,407

,287

1669

1558

400

1883

9706

584

2557

6409

679

3198

9811

270

3169

7509

560

9.54

%

16.92

%

16.46

%

14.42

%

8.44

%

5.77

%


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Page | 66

7. earnings per share

formula:

net income after

tax/no. of c.s.outstanding

NI after tax

1,231

,832,

174

2,823

,473,

302

3,101

,398,

900

3,688

,952,

436

2,698

,992,

305

1,829

,495,

239

no. of c.s. outstanding28,43

7,500

35,54

6,875

52,77

4,028

779,8

09,55

8

935,7

71,46

9

1,029

,348,

616

43.32 79.43 58.77 4.73 2.88 1.78

8. dividend payout ratio

formula:

dividends/NI after

tax

dividends7109

375

2048

5008

2110

9611

2339

4287

1871

5429

4

1286

6857

7

NI after tax

1231

8321

74

2823

4733

02

3101

3989

00

3688

9524

36

2698

9923

05

1829

4952

39

0.58

%

0.73

%

0.68

%

0.63

%

6.93

%

7.03

%

9. retention ratio


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Page | 67

formula:1-dividend payout

ratio

dividend payout ratio 0.58%

0.73%

0.68%

0.63%

6.93%

7.03%

99.42

%

99.27

%

99.32

%

99.37

%

93.07

%

92.97

%

10. dividend per share

formula:

total

dividends/no.of

shares outstanding

total dividends7,109

,375

20,48

5,008

21,10

9,611

23,39

4,287

187,1

54,29

4

128,6

68,57

7

no. of shares

outstanding

28,43

7,500

35,54

6,875

52,77

4,028

779,8

09,55

8

935,7

71,46

9

1,029

,348,

616

0.25 0.58 0.40 0.03 0.20 0.13

11. dividend yield ratio

formula:

dividends per

share/price per

share

dividends per share 0.25 0.58 0.40 0.03 0.20 0.13

price per share 53.98 65.30 94.45 44.50 37.00 25.90


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Page | 68

0.46

%

0.88

%

0.42

%

0.07

%

0.54

%

0.48

%

financial risk ratio:

1. equity multiplier

formula:total assets/total

equity capital

total assets

110,5

16,61

8,171

124,9

84,70

2,326

155,5

32,78

9,526

200,9

95,68

0,436

238,1

69,04

9,276

245,5

22,64

5,636

total equity

6708

2275

42

1179

6677

214

1746

6599

365

1930

6395

169

2096

1807

176

2335

8519

326

16.47 10.59 8.90 10.41 11.36 10.51

2. leverage ratio

formula:total liability/total

assets

total liability

7,214

,122,

131

11,34

1,578

,659

1418

9045

611

1628

8099

826

1867

2073

402

2503

5397

623

total assets

110,5

16,61

8,171

124,9

84,70

2,326

155,5

32,78

9,526

200,9

95,68

0,436

238,1

69,04

9,276

245,5

22,64

5,636

0.07 0.09 0.09 0.08 0.08 0.10


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Page | 69

3. Interest Coverage

Ratio

formula:operating

revenue/interest

expense

operating revenue

5,777

,810,

297

8,262

,859,

422

10,79

2,606

,133

12,52

9,869

,855

14,00

2,181

,679

13,42

1,165

,859

interest expense

7,129

,596,

990

8,428

,698,

978

8,047

,100,

451

13,04

6,539

,824

17,98

7,629

,591

18,27

6,343

,701

0.81 0.98 1.34 0.96 0.78 0.73

efficiency ratio:

1. Tax Management

Efficiency Ratio

formula:

NI after tax/NI

before

tax&securities

gains or losses

NI after tax

1,231

,832,

174

2,823

,473,

302

3,101

,398,

900

3,688

,952,

436

2,698

,992,

305

1,829

,495,

239

NI before

tax&securities gains or

losses

2,480

,893,

665

4,629

,307,

974

6,471

,891,

167

7,113

,950,

267

5,515

,889,

483

3,702

,103,

053


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Page | 70

49.65

%

60.99

%

47.92

%

51.86

%

48.93

%

49.42

%

2. Expense ControlEfficiency Ratio

formula:

total operating

income/total

operating revenue

total operating income

3,846

,854,

496

5,328

,807,

974

7,022

,938,

721

8,164

,891,

533

8,839

,961,

434

7,732

,067,

419

total operating revenue

5,777

,810,

297

8,262

,859,

422

10,79

2,606

,133

12,52

9,869

,855

14,00

2,181

,679

13,42

1,165

,859

66.58

%

64.49

Documents

Financial Ratios of Prime Bank and Lanka Bangla