Performance of Eastern Bank Limited ORIGINIAL

THESIS ON‘PERFORMANC EVALUATION OF EASTERN BANK

LTD. (EBL)’(The dissertation report is submitted for the partial fulfillment of

the degree of Master of Business Administration)

Prepared by

MD. SHAFIQUL ISLAM I.D.NO:- 0272930 Program: - MBA Semester: - summer -2011

Supervised by KAMRUL HASAN Assistant professor Department of business administration Southern university Bangladesh.

Department of business administration Faculty of business administration Southern university Bangladesh

Submission date: - / 01/2012

1

Letter of Submission

To,

The Dean

Faculty of Business Administration.

Southern university Bangladesh

Chittagong.

Sub: - submission of dissertation report.

Dear Sir,

In the processing pages, I have presented a report titled as “performance

Evaluation of Eastern bank ltd” This is the most important requirement of

MBA program. It has been a very positive and uplifting experience, as I have

learnt a lot that would not have been possible otherwise.

Finally, I would like to express my sincere administration and thanks for

your help while preparing the report. I will be glad to answer any queries that

you may have in this regard.

Sincerely Yours

Md.Shafiqul Islam

ID No: 027-29-30

Program: MBA

Semester: Summer-2011

Department Of Business Administration.

Southern University Bangladesh.

2

Student’s Declaration

This thesis on “performance Evaluation of Eastern Bank Ltd” Has been

prepared by me, under the direct supervision of Kamrul Hasan, Assistant

Professor, Department of BusinessAdministration, Southern University

Bangladesh. I have tried to put my utmost sincerity in preparing this report. I

would like to declare that it has not been submitted to any University or any

institute for acquiring any degree or not submitted for publication.

Md.Shafiqul Islam

ID No: 027-29-30

Program: MBA

Semester: Summer-2011

Department Of Business Administration.

Southern University Bangladesh

3

Supervisor’s declaration

This is to certify that the thesis on “financial performance analysis through ratio” – a

study on eastern bank ltd, has been prepared by MD. Shafiqul Islam, a student of

MBA, bearing ID no: - 027-29-30 under my direct supervision and guidance. As per

my knowledge goes it was not submitted to any other university or institute. I would

also like to add that the student made hard work while preparing the dissertation.

I wish him every success in life.

MR.Kamrul Hasan

Assistant professor

Department of Business Administration.

Southern University Bangladesh.

4

Acknowledgement

First of all I pay a special thanks to my almighty that made me able to

complete this report. It is very difficult to express my feelings that helped in

completion of this report. But I think there are no other words except thanks, which can

compliment my sentiments. I pay gratitude to the supervisor of the report Mr. Kamrul

Hassan, Assistant professor, department of business administration, Southern

university Bangladesh, Chittagong. I pay honor to the teachers for their contribution. I

acknowledge with deep gratitude to the department of business administration of

Southern university Bangladesh, Chittagong. I also want to give another special thanks

to Mr. Amran Chy (my class fellow), lipi gosh (class fellow), who gave me support to

finish this report.

MD. Shafiqul Islam

ID no: - 027-29-30

Program: - MBA

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Executive summery

This report name “financial performance analysis through ratio” – A study on eastern

bank ltd is an out come of my knowledge, which I have acquired from this university

in MBA program since last two years .It has been prepared for the partial fulfillment of

master of business administration (MBA) program. There are lots of facilities in EBL

as well as there are also some problems in EBL. But now they are trying to remove the

problem by recruiting more skilled person and efficient management.

The report consist of eleven chapters ,first chapter covers the Introductory topic of the

respective report ,second chapter covers the overview of EBL ,third chapter covers the

different types of techniques of performance evaluation, forth chapter provides the

authority who are responsible for performance evaluation of EBL, 5th chapter covers

the short term position of EBL during the period (2006-2010), 6th chapter shows the

long term solvency of EBL , 7th chapter shows the efficiency position of EBL, 8 th

chapter covers the profitability of EBL ,9th chapter shows the market position of

EBL ,10th chapter shows the overall performance of EBL under balanced score card

model and 11th chapter shows the findings ,recommendation ,conclusion and

bibliography.

The findings of the study are as follows:-i) Deposit trend of EBL Particular 2010 2009 2008 2007 2006deposit 56425 49190 41573 30092 25734Source: - data have been compiled from annual report of EBL Comment: - here we see that, the deposit trend of EBL is going up .its a good sing for the bank.

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ii) Deposit utilization of EBLparticular 2010 2009 2008 2007 2006Deposit utilization or loan and advance of EBL

58607 47668 39662 30962 26008

Source: - data have been compiled from annual report of EBLComment: - this table is also showing an upward trend of deposit utilization or loan and advance of EBL.

iii) According to the calculation of standard deviation of ROA and ROE, we have

realized that the variability of ROE is less risky and the variability of ROA is few risky

than that of ROE. Although the bank is doing well, but it has to try minimize the

variability of that case.

iv) According to the rules of central bank, it is known that every listed commercial

bank has to maintain a legal reserve, which is consist of cash reserve ratio (5.5%) and

statutory liquidity ratio (19%) for meeting the liquidity needs and other unexpected

crisis faced by the bank. but we see that EBL does not maintain the requirement of

central bank, because the bank issues more loan than deposit, so it shows inconsistent

view.

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v). deposit per employee:-Formula 2010 2009 2008 2007 2006Deposit per employee=Total deposit/no of employee

56425973=57.990

49190878=56.025

41573763=54.486

30092690=43.611

25734612=42.049

Source: - data have been compiled from annual report of EBL and calculated by the researcher.Comment: - by this table we also see that the productivity of EBL is showing upward trend.

vi). the RWA to deposit is showing lower liquidity position.

vii). the bank issues more loan than deposit, it implies that the bank carries more risk.

viii). the bank is more depend upon debt in building their capital structure.

ix). the loan recovery position of EBL during the period is outstanding, because the

average of loan recovery of EBL is 96.82% during the period.

x). the ROE and ROA of EBL exists a satisfactory level.

xi). the earning spread of EBL is also positive.

xii). the overall market position of EBL is showing a fluctuating trend it implies the

lacking of condense of the investors.

xiii). the difference between non –performing loans and the provision of loan losses is

large.

xiv). besides, the non –financial performance of EBL is mentionable. Their innovation

side of product and services is time befitting.

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xv. HRM department of EBL also arranges different types of training program to

upgrade the efficiency of the employ

Recommendations of the study are as follows:-

1. First of all, the bank has to raise the equity capital instead of debt for building

capital structure.

2. The bank has to give focus on issuing loan by considering the deposit amount.

3. EBL has to keep more marketable securities as liquid asset for ensuring both

liquidity and profitability.

4. EBL has to give more dividends to the investors for encouraging their

investment.

5. The bank has to keep more provision against the loan losses.

6. The bank to maintain legal liquidity requirement of central bank keep up with

their profitability.

7. The bank has to keep balance between interest sensitive asset and interest

sensitive liabilities.

8. According to the calculation of standard deviation of ROA and ROE, we have

realized that the variability of ROE is less risky and the variability of ROA is few

risky than that of ROE. Although the bank is doing well, but it has to try minimize

the variability of that case.

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TABLE OF CONTENTSSL no particular Page no

Preliminaries: Letter of submission Student’s declarationSupervisor’s declarationAcknowledgementExecutive summeryTable of contents List of table and bar diagram

0102030405-0910-1213

Chapter one Introductory note

1.1 Introduction 14-151.2 Statement of the problem 161.3 Literature review 16-171.4 Objective of the study 181.5 Scope of the study 181.6 Methodology of the study 191.7 Importance of the study 191.8 Limitation of the study 201.9 Plan of the study 20

Chapter –twoOverview of Eastern bank ltd

2.1 Company milestones 21-222.2 Corporate directory 232.3 Strategic priority 242.4 Norms 252.5 Mission 262.6 Vision 262.7 Five years progression report of EBL(2006-2010) 2.8 Structure of fund collection of EBL for the period (2006-

2010)27

2.9 Structure of fund employment of EBL for the period (2006-2010)

28

Chapter –threePerformance evaluation techniques and procedures

3.1 Short term solvency ratios 29-303.2 Long term solvency ratios 30-313.3 Asset management or efficiency measurement ratios 31-323.4 Profitability measurement ratios 32-333.5 Market position measurement ratios 32-33

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Chapter -four Authorities involved in performance evaluation of EBL

4.1 Introduction 344.2 Top-level management committee structure and their

responsibility34

4.3 Executive –level management structure 344.4 Audit committee of EBL and their responsibility 35

Chapter - five Liquidity position of EBL

5.1 Cash position indicator 365.2 Liquid security indicator 375.3 Deposit composition ratio 37-385.4 Liquid asset to deposit ratio 38-395.5 RWA to deposit ratio 39-405.6 Credit to deposit ratio 405.7 Investment to deposit ratio 40-41

Chapter -sixLong term solvency of EBL

6.1 Debt to asset ratio 426.2 Debt to equity ratio 436.3 Time –interest earned or cash coverage ratio 44

Chapter –seven Efficiency position of EBL

7.1 Operating efficiency ratio 457.2 Employee productivity ratio 45-467.3 Credit to deposit ratio 467.4 Loan recovery position of EBL 46-47

Chapter –EightProfitability position of EBL

8.1 Return on equity (ROE) 488.2 Return on asset (ROA) 48-498.3 Net interest margin 49-508.4 Net operating margin 50-518.5 Cost to income ratio 51-528.6 Profit to expenditure ratio 52

Chapter -NINEMarket position of EBL

9.1 Earning per share (EPS) ratio 539.2 Price earning ratio 549.3 Market –book ratio 55

Chapter –TEN Balanced score card ,Risk measurement and SWOT analysis of EBL

10.1 Introduction 5610.2 Distinctive features of balanced score card 56-57

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10.3 Structure of balanced score card 5710.4 Performance evaluation of EBL based on balanced score card 58-6510.5 Different types of risk management procedure of EBL 65-6810.6 Risk measurement of EBL through relevant ratios 6910.7 SWOT analysis of EBL 70

Chapter- Eleven Problems, Recommendations and conclusion

11.1 Problems 7111.2 Recommendation 71-7311.3 Conclusion 74

Bibliography 75

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LIST OF TABLE AND BAR DIAGRAM

SL NO PARTICULAR1 Structure of fund collection of EBL2 Structure of fund employment of EBL3 Cash position indicator4 Liquid security indicator5 Deposit composition ratio6 Liquid asset to deposit ratio7 RWA to deposit ratio8 Credit to deposit ratio9 Investment to deposit ratio10 Debt to asset ratio11 Debt to equity ratio12 Time –interest earned ratio13 Operating efficiency ratio14 Employee productivity ratio15 Credit to deposit ratio16 Loan recovery position of EBL17 Return on equity 18 Return on asset 19 Net interest margin20 Net operating margin21 Cost to income ratio22 Profit to expenditure ratio23 Earning per share24 Price earning ratio25 Market –book ratio26 Non –performing loans to total loans ratio27 Annual provision for loan losses to total loan ratio28 Total loan to total deposit ratio29 Loans to total asset ratio30 Cash and deposit to total asset ratio31 Interest sensitive asset to interest sensitive liability ratio32 Book value of equity to market value of equity ratio33 Standard deviation of ROE34 Standard deviation of ROA35 Deposit trend of EBL36 Deposit utilization of EBL37 Deposit per employee

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Chapter -01 Introductory Note

1.1: INTRODUCTION

The main aim of a performance review is to provide an understanding of the business,

and, together with an analysis of the relevant information, provide an interpretation of

the results. The most effective performance review is provided from a balanced view of

each of the activities of the organization, which necessarily involves the close

cooperation of each role : marketing; research and development; design; engineering;

manufacturing; sales; logistics; finance; human resources management (Davies &

Boczko, 2005,p.149).

The stages of performance review are shown in the following figure.1.

Figure-1: The stages of performance review Source: Davies and Boczko (2005)

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(10) Conclusions

(9) Investment

(8) Management of

financial risk

(7) Financial

(6) Liquidity

(5) Growth

(4) Efficiency

(3) Profitability

(2) Consideration of major features

(1) SWOT analysis

Performance review

Finance always being disregarded in financial decision making since it involves

investment and financing in short-term period. Further also act as a restrain in financial

performance, since it does not contribute to return on equity. A well designed and

implemented financial management is expected to contribute positively to the creation

of a firm’s value. Dilemma in financial management is to achieve desired trade off

between liquidity, solvency and profitability. Management of working capital in terms

of liquidity and profitability management in essential for sound financial recital as it

have a direct effect on the profitability of the company. In this thesis I want to know

about the financial performance of eastern bank limited.

Now the world is very competitive. So everybody has to be expert in both

practical knowledge and theoretical knowledge. To make the dissertation report is a

significant aspect in the direction of accomplishing the god. It is a systematic process

for gathering, recording and analyzing of data about the topic that a student goes to

learn on the program. The aim of preparing the dissertation report is to connect

practical knowledge with the critical aspects. Being a student of MBA during my

report preparing period, I have tried my best to use the opportunity to enrich my

knowledge on financial performance analyzing system on the bank.

My findings were mostly related to evaluation of liquidity, long term solvency, MGT

efficiency, profitability and market position of EBL. As I have been working under this

topic, beside this I come across many others findings which are reflected through this

dissertation report.

During my work I have faced various obstacles by the grace of almighty Allah and by

the help of some related person I have overcome some problems successfully.

Eventually, I want to say that the study will help investors and the students who will be

interested to know the performance of EBL during the study period this report will help

them partially.

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1.2 STATEMENT OF THE PROBLEM

A thesis is highly needed to gain idea, knowledge and experience. This report has been

prepared as a requirement for the “master of business administration” (MBA) program

of southern university Bangladesh, Chittagong.

Southern university Bangladesh, Chittagong one of the reputed private university in

Bangladesh has international designed the curriculum of the (MBA) course such a way

that the international standard semester will be produced. After completing 57 credit

hours. One student needs to go completion a thesis paper, which is belonged further (6)

credit hours.

This report is an Endeavour to evaluate the financial performance of Eastern bank ltd.

1.3 Literature review

Financial performance analysis is vital for triumph of an enterprise. Financial

performance analysis is an appraisal of the feasibility, solidity and fertility of a

business. Financial performance analysis is a process of determining the operating and

financial character of a firm from accounting and financial statement. The goal of such

analysis is to determine the efficiency and performance of the firm’s management as

reflected in the financial records and reports. The analysis attempt to measure the

firm’s liquidity, profitability and other indicators that the business is conducted in a

rational and normal way, ensuring enough return s to the shareholders to maintain at

least its market value.

Generally, the financial performance of banks has been measured using a combination

of financial ratio analysis, bench marking, measuring performance against budget or a

mix of the methodologies.

Simply stated much of the current bank performance literature describes the objective

of financial organizations that of earning acceptable returns and minimizing the risk

taken to earn this return. There is a generally accepted relationship between risk and

return that is the higher the risk the higher the expected return. Therefore the traditional

measures of bank performance have measured both risk and return. The increasing

competition in the national and international banking markets, the changes over

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towards monetary unions and the new technological innovations herald major changes

in banking environment and challenges all banks to make timely preparations in order

to enter into new competitive financial environment. Review of literature is an integral

part of conducting a research. It is necessary to find out the knowledge gap in the field

of the study. All studies are mostly focused on liquidity, solvency and profitability of

different types of commercial bank with their dependent and independent variable.

Choudhuri and Chowdhury (1993):- Have analyzed the performance of PCB’s vis-à-vis

banking sector as a whole. They expressed that the results of denationalized and

privatization in the banking sector of Bangladesh did not indicate clear cut

improvement in the efficiency of the banking system.

Hoque and khan (2001):- have made research on “financial performance of the bank ;a

statistical analysis :the authors argued that nationalized banks are very much desirable

from social point of view , despite the constraint that these banks can not be as

profitable as foreign banks or private commercial banks due to profit seeking motives

of letter.

Ahmed and uddin (1994):- Have made a study on “asset structure and aspects of its

management in the private commercial banks in Bangladesh. The study was limited to

five private commercial banks. Which are pubali bank ltd, uttara bank ltd, national

bank ltd, city bank ltd, united commercial bank ltd, and the study covered a period of

5years from 1987 to 1991. They examined the quantum and a growth of total asset,

quantum and classification of asset, composition of earning asset, credit advanced to

economic purpose etc. they assessed the performance of banks in terms of credit –

deposit ratio. For credit MGT, liquid asset to total asset for liquid asset MGT, return on

asset and return on equity for profitability performance.

The detailed review of the aforesaid research studies reveals that many of the studies

have been done on banks financial performance. But no such study has been on

specifically Eastern bank ltd, during my study period. Basically, I have emphasized on

the financial performance analysis through ratio of EBL for the period of (2006-2010),

keeping that research gap in mind the present study is planned and it would be of

immense help to the policy makers and other decision makers, students and to those

who take interest in this area.

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1.4 OBJECTIVE OF THE STUDY

The main objective of this study is to evaluate the over all performance of eastern bank

limited. To achieve this main objective the study covers the following objectives-

A. To know the performance education techniques and procedures.

B. To know the authorities involve in performance evaluation.

C. To examine the short-term solvency/liquidity position of EBL.

D. To examine the long-term solvency of EBL.

E. To examine the efficiency/asset-MGT ratio of EBL.

F. To examine the profitability of EBL.

G. To examine the market value position of EBL.

H. To examine the balanced score card, Risk measurement of EBL.

I. To find out problem and recommendation in performance evaluation of EBL.

1.5 SCOPE OF THE STUDY:

Eastern bank ltd is one of the modern and digitalized commercial bank in Bangladesh.

The report covers the organization structure, background, milestone functions and

financial performance evaluation. From five point of view this are-

1. Liquidity position

2. Long term solvency

3. asset-mgt position

4. Profitability position

5. Z-score model based position.

To work with these five sections I have acquired the knowledge about the financial

activities execution done by the bank.

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1.6 METHODOLOGY OF THE STUDY :

The data needed for conducting the study has been collected from the secondary

sources. Such as-

1. Bulletin published by the bank.

2. Websites.

3. Different books about financial institutes and banks.

4. Previous case study and journal.

5. Financial study of the bank.

The collected data are properly scrutinized and for analyzing the data different

techniques like z-score, different types of ratios diagram have been used.

1.7 IMPORTANCE OF THE STUDY

After completion of the study, it will help some related parties and various point of

view. It has an importance also. These are depicted below

a. First of all, this analysis will help the top level mgt and decision making.

b. Company will also be informed about their strength and weakness.

c. Borrower, lender, investor, will be beneficial by this report.

d. Foreign investment is influenced by this report.

e. By this report we the market position of the bank.

f. Finally the employee of the bank also benefited by the report.

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1.8 limitation of the study

This report’s accuracy is minimized due to some limitation. The unavoidable

limitations are as follow:-

1. Time: - the execution period of the study was quite short to carryout such and

intensive report.

2. Accuracy of analysis: - the quality of data in this study is limited as the basic of data

is taken from delicate source. All of the data had to be taken from the secondary

sources (annual report and internet).

3. Lack of more practical and contemporary data was another short coming.

4. the most important thing that the lack of my knowledge and efficiency is the prime

limitation of the study.

1.9 plan of the study:-

Chapter- 01: Introductory Note

Chapter- 02: Overview of EBL

Chapter- 03: performance evaluation techniques and procedures

Chapter- 04: Authority involved in performance evaluation of EBL

Chapter- 05: Liquidity position of EBL

Chapter- 06: Long term solvency of EBL

Chapter-07: Efficiency position of EBL

Chapter-08: Profitability position of EBL

Chapter-09: market position of EBL

Chapter-10: Balanced score card, Risk Measurement and SWOT analysis

Chapter-11: Problems, Recommendations and conclusion.

Under the above discussion the next chapter -02 will discuss with the Overview of

EBL.

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Chapter -02

Overview of EBL

2.1: company milestones:-

August 8, 1992:- date of incorporation.

August 16, 1992:- date of commencement of banking operations.

March 20, 1993:- listed with Dhaka stock exchange ltd.

November 12, 1998:- first dividend declared for income year 1997.

January 19, 2002:- centralization of trade services.

July 17, 2003:- first online banking operations across all the branches.

January 25, 2004:- obtained permission from Bangladesh bank for offshore banking

unit, Bangladesh.

May 19, 2004:- commencement of operation of offshore banking unit, Bangladesh.

September 11, 2004:- listed with Chittagong stock exchange ltd.

June 27, 2005:- authorized share capital increased to BDT 3.3 billion.

November 30, 2005:- became partner bank of IFC under global trade finance program

to support EBL handle complex trade transactions.

March 5, 2006:- centralization of liability product processes functions at service

delivery.

June 6, 2006:- launching of SME banking division.

November 9, 2006:- signed agreement with ADB to become ADB’s partner bank under

their trade finance facilitation program supporting guarantee and revolving credit

facility.

July 1, 2007:- launched own managed cards software and production system.

May 25, 2008:- first “right issue” declared @ 2:1 at par.

February 13, 2009:- commencement of investment banks operations.

April 19, 2009:- registration of EBL 1st mutual fund with Securities and Exchange

Commission.

April 26, 2009:- launched “priority banking” for premium customer segment.

April 2009:- awarded “super brand” by super brand inc. for the period 2009-2011.

December 2009:- established “EBL investment limited” a 99.99% owned subsidiary, to

do merchant banking operations.

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March 1, 2010:- acquired 60% shares of a brokerage house “LRK securities limited”

which was renamed afterwards as “EBL security limited”.

April 4, 2010:- first bank in Bangladesh to launch universal banking system, world one

of the renowned core banking solution.

April 2010:- awarded “most active GTFP issuing bank in south Asia” by IFC of World

Bank group.

August 29, 2010:- EBL shares denominated to Tk10 per share with market lot of 200

shares first traded in the DSE.

December 2010:- awarded 2nd position for annual report 2009 in the “best published

accounts” by ICAB and conferred a “certificate of merit “award for “best presented

accounts and corporate governance disclosures awards 2009” by SAFA.

2.2 corporate directory:-

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Name of the company

Eastern bank limited.

Legal form

A public limited company incorporate in Bangladesh with primary objective to carry

out all kinds of banking business in and outside Bangladesh after taking over the

business, asset, liability and losses of erstwhile bank of credit and commerce

international limited as per BCCI reconstruction scheme 1992 of Bangladesh bank.

Date of incorporate of EBL is august 8, 1992 and commencement date of banking

operation is august 16, 1992.

Company registration number

C-22554(961)/92

Bangladesh bank license number

BL/DA/5926/92

Capital (December 31, 2010)

Authorized capital: TK 1200000000(1200000000 ordinary shares of Tk 10 each).

Paid up capital: TK 2920811400(292081140 ordinary shares of TK 10 each).

Accounting year end

December 31.

Stock exchange listing

Ordinary share of the bank is listed with both Dhaka stock exchange and chittagong

stock exchange limited .shares of EBL are categorized as A in the stock

exchange .market lot is 200 each and stock symbol is EBL.

Registered and head office

Jiban bima bhaban

10, dilkusha commercial area

Dhaka -1000, Bangladesh

Telephone: 880-2-9556360

Swift: EBLDBDDH, cable: Eastbank

e-mail:[email protected]

Web; www.ebl.com.bd

2.3 strategic priority:-

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Put all out emphasis on deposit growth

Maintain asset quality with strengthened risk management facing above average

growth projections.

Focus on creating sustainable enterprise value not just making profits.

Lower cost of deposit by strategizing mix and offering innovation products.

Cost championship.

Pursue inorganic growth M&A.

Increase non funded business to further improve return on investment.

Careful penetration in the capital market.

Increase intrinsic value of the company by strengthening internal controls through

installation of clearly laid down policies, procedures, and processes.

Diversify corporate business by leading participation in PPPs.

Increased focus on corporate social responsibility.

Improve quality of human capital by strengthening their competencies.

Continue to maintain world class IT infrastructure to deliver superior service to our

customer.

2.4 Norms:-

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Service excellence we passionately drive customer delight.

We use customer satisfaction to accelerate growth.

We believe in change to bring in timely solution.

Openness we share the business plan.

We encourage two way communications.

We recognize achievements, celebrate results.

Trust we care for each other

We share learning /knowledge.

We empower our people.

Commitment we know our roadmap.

We believe in continuous improvement.

We do not wait to be told.

Integrity we say what we believe in.

We respect every relationship.

We do not abuse information power.

Responsible

Corporate citizen we are tax-abiding citizen.

We promote protection of the environment for our

Children.

We conform to all laws, rules, norms, sentiments and

Values of the land.

2.5: Mission:-

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We will deliver service excellence to all our customers, both internal and external.

We will ensure to maximize shareholders value.

We will constantly challenge our systems, procedures

And training to maintain a cohesive and professional

Team in order to achieve service excellence.

We will create an enabling environment and embrace a

Team based culture where people will excel.

2.6 Vision:-

To became the bank of choice by

Transforming the way we do business and

Developing a truly unique financial

Institution that delivers superior growth

And financial performance and be the

Most recognizable brand in the financial

Services in Bangladesh.

2.8 structure of fund collection of EBLTable:-01

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Fund collection of EBL for the period (2006-2010) Source of fund

2006(%) 2007(%) 2008(%) 2009(5) 2010(%) average

EquityBorrowingsDepositOthers

9.2512.2571.516.99

9.549.28774.456.723

8.718.6776.476.15

12.06312.64470.404.892

14.72611.28868.7665.28

10.8510.81572.3196.087

total 100 100 100 100 100 100

Source: - data have been compiled from annual report (2006-2010)Comment: - IT is revealed from the table that deposit variable consumes highest percentage of fund followed by equity, borrowings and others.

2.9 structure of fund employment of EBL Table:-02 Fund employee of EBL for the period (2006-2010) Uses of fund

2006(%) 2007(%) 2008(%) 2009(%) 2010(%) average

Loans InvestmentOthersasset

72.2816.38911.331

76.988.61414.399

72.549.79617.663

68.2212.6019.18

71.42511.97616.599

72.2911.87515.834

total 100 100 100 100 100 100Source: - data have been compiled from annual report (2006-2010)Comment: - it is revealed that loan variable consumes the highest percentage of fund followed by others assets and investment.

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Under the above discussion the next chapter-03 will discuss with the performance evaluation techniques and procedures.

Chapter -03 Performance evaluation techniques and procedures

Prelude: - generally there are some techniques, which are used in evaluating financial performance of a firm. Basically this study is going to try the evaluation of the financial performance of EBL through ratio. So in this chapter, we will discuss the various financial ratio, those are used in evaluating the performance.These financial ratios are traditionally grouped into following categories –

1. Short term solvency ratio

2. Long term solvency ratio

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3. Efficiency management ratio

4. Profitability ratio

5. Market value ratio

Now, every category is discussed briefly:-

3.1 short term solvency ratios: - short term solvency ratios as a group are intended to

provide information about a firm’s liquidity. The primary concern is the firm’s ability

to pay its bills over the short run without undue stress. Consequently these ratios focus

on current asset and liabilities. For obvious reasons, liquidity ratios are particularly

interesting to short term creditors.

A. current ratio: - one of the best known and most widely used ratios is the current

ratio. The ratio is defined as

Current ratio = current asset/current liability

B. quick or acid test ratio: - inventory is often the least liquid current asset. It’s also the

one for which the book values are least reliable as measures of market value. Because

the quality of the inventory isn’t considered. Some of the inventory may later turn out

to be damaged.

Quick ratio: =current asset –inventory/current liability

C. cash ratio: - a very short term creditor might be interested in the cash ratio. The

formula is

Cash ratio= cash /current liability

D. net working capital to total asset ratio: - net working capital is frequently viewed as

the amount of short term liquidity a firm has.

Net working capital to total asset ratio =net working capital /total asset

E. interval measure ratio= current asset /average daily operating cost

Average daily operating cost is measured by total cost excluding depreciation and

interest, divided by 365days.

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3.2 long term solvency: - long term solvency ratios are intended to address the firm’s

long run ability to meet its obligation. We consider three commonly used measure and

some variations.

A. total debt ratio: - total debt ratio takes into account all debts of all maturities to all

creditors. The formula is:-

Total debt ratio = total asset –total equity /total asset

Debt-equity ratio = total debt/total equity

B. long term debt ratio: - frequently, financial analysis are more concerned with the

firm’s long term debt than its short term debt. Because the short term will constantly be

changing. For these reasons the long term debt ratio is often calculated as:-

Long term debt ratio = long term debt /long term debt+total equity

C. time interest earned:-another common measure of long term solvency is the time

interest earned ratio. The formula is:-

Time interest earned = EBIT /interest

D. cash coverage ratio: - a problem with (tie) ratio is that it is based on (EBIT). This is

not really a measure of cash available to pay interest. The reason is that deprecation, a

non cash expense has been deducted out. Because interest is most definitely a cash

outflow. One way to define the cash coverage ratio is

Cash coverage ratio = EBIT+depreciation /interest

3.3 Asset management measures: - these are intended to describe is how efficiently a

firm uses its assets to generate sales.

a. Inventory turnover = cost of goods sold /inventory

B. receivable turnover: - our inventory measures give some indication of how fast we

can sell product. We now look at how fast we collect on those sales. The formula is:-

Receivable turnover = sales /account receivable

c. Asset turnover ratio: - there are two formulas for fixed asset and total asset.

Total asset turnover = sales /total assets

D. operating efficiency ratio: - the efficiency ratio gives us a measure of how

effectively a bank is operating. It is the cost required to generate each dollar of

revenue. An increase means the company is losing a large percentage of its income to

30

expense. If it is getting lower. It is good for the bank and its shareholder’s. The

equation is

Operating efficiency ratio = operating expense / total revenue

E. employee productivity ratio: - the ratio measures the level of income that each

employee generates. It helps to determine the efficiency of a bank in terms of

employees. The equation is

Employee productivity ratio = operating profit /no of employee

3.4 Profitability ratio:-

A. return on equity: - ROE measures banks profitability by revealing how much profit

a bank generates with the shareholders investment. The formula is

ROE = net income /total equity

It measures the return on the money the investors have put into the company. This is

the ratio potential investors may look at when deciding whether or not to invest in the

company.

B. return on asset: - ROA measures the efficiency with which the company is

managing its investment in asset and utilizing them to generate profit. The higher the

percentage is better, because that means the company is doing a good job using its

assets to generate sales .the formula is

ROA= net income /total asset

C.Net interest margin: - is a measurement of the difference between the interest

incomes generated by banks and the amount of interest paid out to their lenders .it

examines how successfully a firm’s investment decision is compared to its debt

situations. A negative value denotes that the firm did not make an optimal decision.

Because interest expenses were greater than the amount of returns generated by

investment. The equation is

NIM= interest income from loan –interest expense on deposit /total asset

d. Net non interest margin: - it is expressed as a percentage of how much non interest

revenue the bank are earning minus the non interest expense

NNIM= non interest revenue –non interest expenses/total asset

e. Net operating margin: - a measure of how profitability the bank is operating. The

ratio tells how well a company converts revenue from core operation into actual profit.

31

NOM= total operating revenue –total operating expenses /total asset

F. earning per share: - the portion of a company’s profit allocated to each outstanding

share of common stock. EPS serve as an indicator of company profitability. It tells an

investor how much of the company’s profit belongs to each share of stock.

EPS= net income after taxes /no of share outstanding

g. Net profit margin : - it tells investors the percentage of money a company

actually earns per dollar of sales. The higher the net profit margin is the more

effective the company is at converting revenue into actual profit.

NPM= net income /sales

h. Tax management ratio : - it reflects the use of security gains or loss to

minimize tax exposure. It indicates what portion of operating income generates

net income after tax.

i. . Expense control efficiency: - it indicates the portion of revenue after the

operating expense is deducted .its a measure of operating efficiency and expense

control.

j. Asset utilization ratio: - it measures the rate at which a business is able to

turn assets into sales. And hence cash. The higher the ratio the more effectively

assets are used to generate revenue.

(AU)= total operating revenue /total assets

k. Equity multiplier : - the ratio shows a bank total asset per dollar of

stockholders equity. A higher equity multiplier indicates higher financial

leverage .which means the bank is relying more on debt to finance its assets.

EM= total asset/total equity capital

3.5 Market value ratio:-

A. price earning ratio: - it is a measure of the price paid for a share relative to the

Annual profit earned by the firm per share. It gives us an indication of the confidence

that investors have in the future prosperity of the business.

P/E= price per share/earning per share

32

B. market –book ratio: - it measures how much a bank is worth at present in

comparison with the amount of capital invested by current and past stockholders into

it. If the balance sheet assets per share are much larger than the share price, this is

taken to be a buy signal.

Market –book ratio = market value per share/book value per share

All of these are the ratios, which is used in evaluating the performance.

Under the above discussion the next chapter -04 will discuss with the Authorities involved in performance evaluation of EB

Chapter -04 Authorities involved in performance evaluation of EBL

4.1: Introduction:- every bank has specific organizational structure, or manual.

Basically these manual are divided into top level or decision making level, mid level,

and execution level.

33

Top level MGT is responsible for taking decision, determining goal, strategy, budget

etc for future of the bank.

Mid level MGT involves in executing and monitoring of the activities to ensure the

fulfillment of the demand of high command.

Execution level is the main mechanism of a bank. Because this level directly related to

implementation of the plan.

Regarding this study, all of these parties are involved in performance evaluation from

their respective point of view.

4.2 top levels MGT committee structure of EBL is shown below:- MANAGEMENT COMMITTEES

ALMC BORC MANCOM EMT BRMC IC PC BIU

From the table we can see that, different types of committee are existing here in EBL, who are responsible for evaluating the performance of their respective area.

4.3 EXECUTIVE AUTHORITY STRUCTURE:-EXECUTIVE COMMITTEE

EXECUTIVE PRESIDENTS

DEPUTY EX- PRESIDENTS

EXECUTIVE VICE PRESIDENTS

SENIOR VICE PRESIDENTS

VICE- PRESIDENTS

ASST. VICE –PRESIDENTS

PRENCIPAL STAFF

4.4 AUDIT COMMITTEE OF EBL:-

Composition and qualification : - in compliance with the BRPD circular no. 12 dated 23

December 2002 of Bangladesh bank and sec notification

.SEC/CMRRCD/2006-158/ADMIN/02-08 dated 20, February 2006, the audit

34

committee of the board of EBL was formed by the board of directors and was last

reconstituted in April 2010.

Following are the major responsibilities of the audit committee of EBL.

a. To review the activities and organizational structure of the internal audit

function and ensure that no unjustified restrictions are made.

b. Review the efficiency and effectiveness of internal audit function.

c. Review that findings and recommendations made by the internal auditors for

removing the irregularities. If any detected are duly acted upon by the MGT in

running the affairs of the bank.

d. Review the performance of auditing and their audit and MGT reports by the

external auditors.

e. Review the status of report findings of SF Ahmed and co, chartered accountants,

on the issues related to MGT of loan documentation etc.

f. Review the status of classified SME and consumer’s loan.

g. Review the status of the pending guarantee files.

h. Review the annual report and overall financial health of the bank.

i. Review the compliance and related risk level of branches and various

departments.

The united Endeavour of these parties is ensured the performance evaluation of EBL.

Under the above discussion the next chapter -05 will discuss with the Liquidity

position of EBL.

Chapter-05

Liquidity position of EBL

Introduction: - this chapter covers the liquidity position of EBL. Here we discuss the

different types of liquid assets, their management and position in the bank. Generally,

35

liquidity refers to the ability of a bank to raise a certain amount of fund at a certain cost

with in a certain period of time (Burns, 1962).

Liquidity management refers to the maintenance of adequate degree of liquidity for all

the time it faces obvious difficulties. Liquidity management is a very important to a

bank for its smooth running. The bank must ensure adequate amount of liquidity in the

banks asset so as to meet any claims up it in cash on demand. Now we will try to

expose the liquidity position of EBL by using some relevant ratios during the study

period.

5.1 cash position indicator:-Table:-03

Cash position indicator of EBL for the period (2010-2006) In million BDT formula 2010 2009 2008 2007 2006 averageCash position =Cash +deposit/total assets

8234 1018 6924 3894 3094

82053=10.03%

69870=14.57%

54351=12.74%

40131=9.70%

35934=8.61% 11.13%

Source: - data have been compiled from annual report of EBL.

Note: - the calculations have been made by the researcher.

Evaluation: - from this table, it is clear that the cash position of EBL is showing a

fluctuating trend. The reason behind this trend is the interest rates on deposit in other

institutions are moving up and down. It implies that when interest rate is increased,

then the bank is interested to deposit his cash in depository institution and vice-versa.

5.2 liquid security indicators:- Table -04

Liquid security indicator of EBL for the period (2010-2006)

36

In million BDTformula 2010 2009 2008 2007 2006 averageLiquid security=govt.security/total asset 6828 7716 4923 3312 5620

82053=8.32%

69870=11.04%

54351=9.06%

40131=8.25%

35934=15.64% =10.46%

Source: - data have been compiled from annual report of EBL.Note: - the calculations have been made by the researcher.Evaluation: - from the table, it is clear that the liquid security indicator ratio shows a fluctuating trend. Basically it is depend upon the return of the investment.

5.3 deposit composition ratio:-Table -05

Deposit composition ratio of EBL for the period (2010-2006) In million BDTFormula 2010 2009 2008 2007 2006 averageDeposit composition=Demand deposit /time deposit

5522 4917 4393 3280 3257

36947=14.95%

33259=14.78%

29192=15.05%

20201= 16.24%

16992=19.16% =16.04%

Source: - data have been compiled from annual report of EBL. Note: - the calculations have been made by the researcher.

Evaluation: - from the table we are observing a slightly declining trend in the deposit composition ratio. This is a positive liquidity indicator for the bank. It implies that the bank is having greater deposit stability and a lesser demand for liquidity

37

5.4 liquid assets to deposit ratio:- Table -06

Liquid assets to deposit ratio of EBL for the period (2010-2006)

In million BDTFormula 2010 2009 2008 2007 2006 averageLiquid asset to deposit =liquid asset /total deposit

1806

56425=32.01%

1931

49189=39.27%

1294

41564=31.15%

7821

29878=26.17%

8984

25699=34.95%

=32.71%



Evaluation: - from the table, it is evidenced that the liquid asset to deposit ratio of EBL

during the study period is showing a fluctuating trend. This ratio indicates that how

much portion of deposit is occupied by liquid asset. The better the ratio the better the

liquidity position of a bank.

5.5 RWA to deposit ratio:- Table-7

RWA to deposit ratio of EBL for the period (2010-2006) In million BDT

38

Formula 2010 2009 2008 2007 2006 averageRWA to deposit =RWA/total deposit

1044456425=1.85

7331649190=1.49

4131541573=0.99

3068730092=1.01

2572125734=0.999

=1.26

Source: - data have been compiled from annual report of EBL.Note: - the calculations have been made by the researcher.Evaluation: - from the table, it is evidenced that the RWA to deposit ratio of EBL is increasingThe greater the ratio indicates the lower amount of liquidity position of the bank.

5.6 credit to deposit ratio:- Table -8

Credit to deposit ratio of EBL for the period (2010-2006) In million BDT

Formula 2010 2009 2008 2007 2006 averageCredit to deposit=total credit /total deposit

5860756425=103.87%

4766849190=96.91%

3966241573=95.40%

3096230092=102.89%

2600825734=101.06% =100.02%

Source: - data have been compiled from annual report of EBL.Note: - :- the calculations have been made by the researcher.Evaluation: - from the table, we see that in 2010, 2007, 2006, here the amount of loan is greater than deposit. We know that, more loans ensure more profitability, but same time banks fall into the liquidity crisis.

39

5.7 investments to deposit ratio:- Table -9

Investment to deposit ratio of EBL for the period (2010-2006) In million BDT

Formula 2010 2009 2008 2007 2006 averageInvestment to deposit=Investment/total deposit

982756425=17.41%

880649190=17.90%

532441573=12.81%

345630092=11.57%

588925734=22.91% =16.52%

Source: - data have been compiled from annual report of EBL.Note: - the calculations have been made by the researcher.Evaluation: - from the table, we see that in 2006 the investment is higher than other years .EBL constantly invested a little portion of his total deposit.

Conclusion: - after completion this chapter we have found some results. These ratios are showing a declining liquidity position of EBL during the study period. Their loan to deposit ratio is also showing an alarming trend.

40

Under the above discussion the next chapter-06 will discuss with the Long term solvency of EBL. Chapter -06

Long term solvency of EBL

Introduction: - this chapter covers the long term solvency of EBL. Long term solvency

refers to the ability of a bank to meet the obligation in long run. Long term solvency

indicates the strength and weakness of a bank in long run. It implies that how much the

bank is able to meet his debts by his assets.

Now, we will try to find out the long term solvency of EBL by using some relevant

ratios during the study period.

6.1 debts to asset ratio:- Table -10

Debts to asset ratio of EBL for the period (2010-2006) In million BDT

Formula 2010 2009 2008 2007 2006 averageDebt to asset =total Debt/total asset

6997082053=85.27%

6144169870=87.94%

4961854351=91.29%

3630340131=90.46%

3262035934=90.77% =89.15%

41


Note- the calculations have been made by the researcher.

Evaluation: - from the table, we see observing a very slight decreasing trend in this

ratio. EBL has to try minimizing his risk by reducing his debt.

6.2 Debt to Equity ratio:- Table -11

Debts to equity ratio of EBL for the period (2010-2006) In million BDT

Formula 2010 2009 2008 2007 2006 averageDebt to equity =total debt/Total equity

6997012083=5.79

614418429=7.29

496184733=10.48

363033827=9.48

326203314=9.84 =8.57



Evaluation: - from the table, it is clear that the debt to equity ratio of EBL is showing a

decreasing trend. That means leverage and overall risk is decreasing for the bank.

42

6.3 time –interest earned ratio:-Table -12

Time –interest earned ratio of EBL for the period (2010-2006)In million BDT

Formula 2010 2009 2008 2007 2006 averageTime –interest= EBIT/interest

109684003=2.74 times

89163899= 2.27 times

71543675=1.95 times

50932498=2.03 times

39632160=1.83 times

=2.16 times



Evaluation: - from the table, the (TIE) ratio of EBL is showing an increasing trend. It

implies that the interest payment ability of the bank is increasing year to year. It’s a

good sign for the bank.

Conclusion: - after completion this chapter we see that, the bank is trying to reduce his debt by increasing his equity capital. In the mean time the cash coverage ratio of EBL is not enough to fulfill his due.

43

Under the above discussion the next chapter-07 will discuss with the Efficiency position of EBL. Chapter -07

Efficiency position of EBL

Introduction: - this chapter covers the efficiency position of EBL. Generally, efficiency

means the ability of an individual, or an organization how it treats with his work, its

effort ness, actual results which is compared by the standard. An other hand we can

also say that how properly an organization used his resources to generate the profit, this

Also a good indicator of efficiency.

Here we are going to try disclosing the efficiency position of EBL by using some ratios

during the study period.

7.1 operIntroduction:

ating efficiency ratio:-Table -13

44

Operating efficiency ratio of EBL for the period (2010-2006)In million BDT

Formula 2010 2009 2008 2007 2006 averageOperating efficiency =operating cost/operating revenue

20736460=32.10%

16494630=35.62%

13183701=35.60%

9512820=33.72%

7532110=35.67% =34.54%



Evaluation: - from the table, it is shown that, the operating efficiency ratio of EBL is

showing a fluctuating trend. The average is 34.54% during the study period. Here the

MGT has to give more attention to minimize the ratio as much as possible.

7.2 employee productivity ratio:-Table- 14

Employee productivity ratio of EBL for the period (2010-2006)In million BDT

Formula 2010 2009 2008 2007 2006 averageEmployee productivity =operating profit/no of employee

4410973=4.53 million

2980878=3.39 million

2386763=3.13 million

1876690=2.71 million

1358612=2.22 million

=3.12 million



Evaluation: - from the table, we see that every year the number of employee is

increasing, as well as the productivity of the employees is also increasing.

45

7.3 credit to deposit ratio:-Table-15

Credit to deposit ratio of EBL for the period (2010-2006)In million BDT

formula 2010 2009 2008 2007 2006 averageCredit to deposit= total loans/total deposit

5860756425=103.87%

4766849190=96.91%

3966241573=95.40%

3096230092=102.89%

2600825734=101.06% =100.02%



Evaluation: - from the table, we see that ,the efficiency of EBL is outstanding .because

their effort of selling loans is always greater than deposit .it implies that their

employees are more effective in expending their loans and advances activities.

7.4 loan recovery position of EBL:-Table -16

Loan recovery position of EBL for the period (2010-2006)In million BDT

formula 2010 2009 2008 2007 2006 average

46

Total loans-non performing loans/total loans

58607-116958607=98.00%

47668-117247668=97.54%

39662-130939662=96.69%

30962-133430962=95.69%

26008-986

26008=96.20%

=96.82%



Evaluation: - from the table, the recovery position of EBL is outstanding. It implies

that the strategy of loan recovery of EBL is very effective and strong.

Under the above discussion the next chapter-08 will discuss with the profitability position of EBL. Chapter -08 Profitability position of EBLIntroduction: - this chapter covers the profitability position of EBL.profitability is an

important index of operational efficiency of an organization. Analysis of profitability

of an enterprise provides an insight in to effectiveness of utilization of funds in the

enterprise and also managerial efficiency (srivastava, 1977). Strong earnings and

profitability profiles reflects the banks capacity to absorb losses by building the capital

bases and through financing expansion programs and paying adequate dividends to its

shareholders.

8.1 Return on equity:-Table- 17

47

Return on equity of EBL for the period (2010-2006)In million BDT

Formula 2010 2009 2008 2007 2006 averageReturn on equity=net income/total Average equity

242510257=23.64%

14556581=22.10%

7984281=18.64%

4193572=11.73%

5133190=16.07% =18.43%



Evaluation: - from the table, it is shown that, the ROE ratio of EBL is showing an

increasing trend. It implies that, the higher return on investment during the period of

study.

8.2 return on asset:- Table -18

Return on asset of EBL for the period (2010-2006)In million BDT

Formula 2010 2009 2008 2007 2006 averageReturn on asset=net income/totalAverage asset

242575963=3.19%

145562235=2.34%

79847401=1.68%

41938087=1.10%

51331300=1.63% =1.988%



48

Evaluation: - from the table, we see that the ROA ratio of EBL is showing an

increasing trend. It implies that the bank is properly utilizing assets and generating a

good return during the study period.

8.3 net interest margin:-Table -19

Net interest margin of EBL for the period (2010-2006)In million BDT

formula 2010 2009 2008 2007 2006 averageNet interest Margin=net interest income/total Average earning asset

297366942=4.44%

231754478=4.25%

155140768=3.80%

131233728=3.89%

67029100=2.30% =3.74%



Evaluation: - from the table, the NIM ratio of EBL is showing an increasing trend. It

means that the spread between the interest income and interest expense has been

increasing compared to average earning assets.

49

8.4 net operating margin:- Table -20

Net operating margin of EBL for the period (2010-2006) In million BDT

Formula 2010 2009 2008 2007 2006 averageNet operating margin=net Operating income/total asset

441082053=5.37%

298069871=4.26%

238654598=4.37%

187040204=4.65%

135835971=3.77% =4.48%



Evaluation: - from the table, the NOM ratio is showing a consistent trend during the

study period. But in 2010 the ratio is better than other years. MGT has to try

maximizing the ratio.

50

8.5 cost to income ratio:-Table -21

Cost to income ratio of EBL for the period (2010-2006)In million BDT

Formula 2010 2009 2008 2007 2006 averageCost to income=operating Cost/total revenue

20736460=32.10%

16494630=35.62%

13183701=35.60%

9512820=33.72%

7532110=35.67% =34.54%



Evaluation: - from the table, the cost to income ratio of EBL is showing a fluctuating

trend. Because the expenditure of the bank vary from year to year.

8.6 profit to expenditure ratio:-Table -22

Profit to expenditure ratio of EBL for the period (2010-2006) In million BDT

Formula 2010 2009 2008 2007 2006 averageProfit to cost=net profit after tax/total cost

24252073=116.9%

14551649=88.23%

7981318=60.54%

419951=44.05%

513753=68.12% =75.56%



Evaluation: - from the table, the ratio is going up; it implies that the profit is exceeding

the cost. So it’s a good sign for the bank.

51

Conclusion:- after completion this chapter we see that, their ROE,ROA,NIM is showing upward trend and cost to income and profit to cost ratio are showing downward trend. That’s a good sign for the bank. It implies that their profitability is going up, in the mean time their cost trend is going down.

Under the above discussion the next chapter-09 will discuss with the Market position of EBL.

Chapter -09 Market position of EBLIntroduction: - this chapter covers the market position of EBL. Market position refers

to the stability of a company in the market. That means market value of equity of a

company, share value and confidence of the investors on the company’s share is

expressed the market position of a firm.

Here we will try to uncover the market position of EBL by using some relevant ratios

during the study period.

9.1 earning per share:-

Table -23

52

Earning per share of EBL for the period (2010-2006)In million BDT

Formula 2010 2009 2008 2007 2006 averageEPS=net profit after tax/no of share outstanding

2425292=8.30

1455250=5.82

798139=5.74

419104=4.02

51383=6.18 =6.012



Evaluation: - from the table, the EPS ratio of EBL has grown at satisfactory level.

Basically the increase of EPS is the result of raising the faith of shareholders of the

bank.

9.2 price earning ratio:-Table -24

Price earning ratio of EBL for the period (2010-2006) In million BDT

Formula 2010 2009 2008 2007 2006 averageP/E =price per share/earning Per share

129.408.30=15.59

64.435.82=11.07

58.935.74=10.26

107.084.02=26.63

79.256.18=12.82 =15.27



53

Evaluation: - from the table, we see that, in 2007 the P/E ratio was highest. It means

the investors were willing to pay 26.63 taka for 1 taka return. That time the investor’s

confidence on the bank was very high. But in 2008, 2009, the ratio was gone down.

Eventually in 2010 the ratio is raised up.

9.3 markets –book ratio:-Table -25

Market –book ratio of EBL for the period (2010-2006) In million BDT

Formula 2010 2009 2008 2007 2006 averageMarket –book =market value per share/book value per share

129.4041.37=3.127 times

64.4333.76=1.90 times

58.9334.13=1.726 times

107.0836.99=2.894 times

79.2540.04=1.979 times

=2.32 times



Evaluation: - from the table, we see that, there is a fluctuation from 2006 to 2010. It’s

not a good sign for the bank. But in 2010 the ratio is increased, it implies that the

demand for share of EBL is raised.

54

Conclusion: - after completion this chapter, we have found some results, which is

indicates that the market position of EBL during the period is reasonable. Their EPS is

increased in current year, but their P/E ratio is going down in that year. In other hand

their M/B ratio is also increased.

Under the above discussion the next chapter-10 will discuss with the Balanced score card, Risk measurement and SWOT analysis of EBL.

Chapter -10 Balanced score card, Risk measurement and SWOT analysis

10.1introduction : - most companies have a performance measurement system that includes financial measures as well as non financial measures. Financial measures are

55

used primarily by senior mangers to monitor the performance of the firm as a whole and its business units or divisions, non financial measures are employed mainly by operating managers to control short term operations. Till recently, not much effort was made to combine financial and non financial measures in an integrated measurement framework. The balanced score card approach pioneered by Robert Kaplan, David Norton and others seeks to develop an integrated performance measurement system. Balanced score card has been defined as a set of measures that gives top managers a

fast but comprehensive view of the business , combing in a single report the disparate

elements of a company’s competitive agenda while attempting to present sub-

optimization by managers as they must consider all of their organization’s significant

performance areas together.

10.2 distinctive features: - the balanced score card approach claim the following

distinctive features:-

A. the balanced score card is strategy driven. It is a mechanism for implementing the

strategy of a business unit into a comprehensive system of performance measurement

and management as Robert kaplan and David norton say, the balanced score card is

more than a tactical or an operational measurement system. Innovative companies are

using the scorecard as a strategy mgt system to manage their strategy over long run.

B. the balanced score card covers four important perspectives in a business –financial,

consumer, internal business and learning and growth.

C. the balanced score card represents a linked series of objectives and measures. The

linkages capture cause effect relationship obtaining in a business.

10.3 structure of a balanced score card:-

56

Source:-financial Management: theory and practice.

10.4 performance evaluation of EBL based on balanced score card:-now we will try to

present EBL’s balanced score card in terms of the four perspectives as follows:-

A. innovative and learning perspective: - some of the specific measures as follows:-

1. New product and services: - EBL SME banking has been from the start. Introducing

products that would suit the need of the market. This year they developed a new

product “EBL uddom” main feature of which is 50% is EMI based and 50% is over

draft facilities which partially secured.

2. In 2010, EBL have opened (8) new SME centers including above (5) krishi

branches.

3. EBL received the trustee license for mutual funds from SEC in March 2010.

4. Besides, EBL also trying to add the new technology to ensure the quality of the

service and for minimizing the delivery time of the service.

5. EBL also formed a 99.99% owned subsidiary titled “EBL ASSET MGT LTD” in

January 2011.

6. Very recently the bank also introduced pay roll banking with different companies.

B. financial perspective: - as financial perspective this table represents the return on

capital employed of EBL:-

57

FINANCIAL PERSPECTIVE

CUSTOMER PERSPECTIVE

INNOVATION AND LEARNING PERSPECTIVE

INTERNAL PERSPECTIVE

particulars 2010 2009 2008 2007 2006Return on equityReturn on assetYield on advanceEarning per shareLoan recovery position

23.64%3.19%12.75%8.3098.00%

22.10%2.34%13.69%5.0097.54%

18.6%1.68%13.90%3.4596.69%

11.73%1.10%13.76%3.0295.69%

16.07%1.62%12.72%4.9696.20%

From the table we see that, different ratios whose are represent the financial position

and stability of EBL.

Besides, there are some other financial perspectives shown below:-

1. In 2010, credit to deposit ratio of EBL is increased by 6.96% which ensures the

more profitability of the bank.

2. In 2010, net interest margin ratio of EBL is increased by 0.19%.

3. Net operating margin of EBL is also increased.

All of this figure are proofed that, as financial perspective of EBL during the study

period is really satisfactory.

C. customer perspective: - this table represents the customer loyalty on EBL during the

study period.

Particulars 2010 2009 2008 2007 2006No of branchesNo of employeesNo of deposit a/cNo of loan a/cATM’sSME centersNo of bill pay machine

4997319435165656743310

398781760803512555238

347631594453432436185

286901103212147419165

25612907031901612123

From the table, it is clear that, customer loyalty and confidence on EBL is showing

upward trend.

Besides, some other information is given below in favor of customer perspective:-

1. EBL follows the best customer service policy.

2. Their service charge is lower than other bank.

3. The processing period of loan and other services is very short.

4. The environment of office is comfortable for customer.

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5. Eventually, the employee’s behavior is more soft and cordial.

D. internal business perspective: - we can divide the internal business of a firm into

two parts. Such as – their existing service and product, another is employee oriented

program .some is given below:-

1. In EBL there are 4 types of product and services are existed. These are loan

product, deposit product, card product, SME and corporate banking.

2. Basically the total internal business of EBL is conducted by providing these

product and service.

3. Skill development of employee is a significant part of business. In this regard in

2010, HRM division of EBL arranged 165 training programs, 25 trainees were sent

overseas and 1680 were coached and trained locally to upgrade their knowledge

and enhancing the quality.

10.5 different types of risk MGT procedures of EBL:-

Introduction: - like any other commercial bank, EBL is also in the business of

taking risk and mitigate those risks within banks appetite and maximize return.

However risks are by their nature uncertain and the MGT of risk relies on

judgments and predictions about the future. The principal risks and uncertainties

faced by the bank in coming year are set out below:-

a. Capital adequacy risk : - EBL focuses on strengthening and enhancing its risk

MGT culture and internal control environment rather than increasing capital to

cover up weak risk MGT and control practices. Capital adequacy risk is a risk

where the bank does not have sufficient capital reserves to do the business. Or to

absorb unexpected losses arising from credit, market, and operational risks. EBL

has been generating most of its incremental capital from retained profit. To

support incremental growth of risk weighted assets. Therefore, the bank’s capital

adequacy ratio remains consistently within the comfort zone since the parallel run

from 1 Jan, 2009. During the year 2010 the CAR ranges from 9.93% to 10.29%

against minimum requirement of 8% of RWA.

Risk governance: - assessing regulatory capital in relation to overall risk

exposures of a Bank is an integrated and comprehensive process. EBL through its

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SRP team/ BRMC are taking active measures to identify, quantify, manage and

monitor all risks to which the bank is exposed to.

B. credit risk: - credit risk is the risk of loss that may occur from the failure of any

counterparty to make required payment in accordance with agreed terms and

conditions of credit worthiness. Credit risk is managed through a framework set by

policies and procedures established by the board.

Risk governance: - potential credit losses from any given account, customer or

portfolio are mitigated using a range of tools such as collateral, netting agreement,

credit insurance, and other guarantees. The reliance that can be placed on these

mitigates is carefully assessed in light of issues such as legal certainty and

enforceability, market valuation, and counterparty risk of the guarantor. EBL has

special asset MGT division dedicated for MGT of problem credit .major

responsibility of this department is to formulate strategy and action plans for

minimization of risk. Presentation of loss, maximization of recoveries and

restructuring .direct recovery and legal actions.

c. Interest rate risk : - the process of interest rate risk MGT by the bank involves

determination of the business objective, expectation about future macro variables

and understanding the money market and debt market in which it operates.

Risk MGT approaches: - the bank uses the following approach to manage interest

rate risk inherent in the balance sheet:-

1. The approach is the traditional gap analysis of on balance sheet asset liability

MGT. this involves careful balancing of asset and liability based on the

interest rate view of the bank.

2. The bank regularly monitors the duration gap of balance sheet and also the

duration of investment portfolio. These parameters are reviewed by the

ALCO on a monthly basis.

3. while preparing the interest rate sensitive gap analysis , bank takes into

account the following matters :-

volatile and core portions of savings deposit

reprising character of CC and OD account

Prepayment option of loan products.

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d. Market risk : - market risk is recognized as loss resulting from changes in market

prices and rates. Our exposure to market risk arises principally from customer

driven transactions. the primary categories of market risk for the bank are:-

1. Interest rate risk arises from changes in yield curves; credit spread and

implied volatilities on interest rate option.

2. Current exchange rate risk arises from changes in exchange rates and

implied volatilities on foreign exchange options.

3. Commodity price risk arises from changes in commodity prices and implied

volatilities on commodity options.

4. Equity price risk arises from changes in the prices of equity, equity indices,

equity baskets and implied volatilities on related options.

Market risk MGT:- there are some steps are taken by EBL to manage the

market risk .these are as follows :-

1. To manage the interest rate risk, ALCO regularly monitors various ratios

and parameters.

2. ALCO also regularly monitors the interest rate sensitive gap and duration

gap of total portfolio.

3. To manage exchange rate risk, bank always keep its net open position

within the limit set by central bank.

4. To manage exchange rate risk in cross currency, bank always square its

position in cross currency.

E. operational risk: - operational risk is the risk of direct or indirect loss due to an

event or action resulting from the failure of internal process, people and system,

or from external event. We seek to minimize exposure to operational risk, subject

to cost trade –offs. Bank operation risk MGT sits with all these reports and

decides action plans to resolve risk issues by specific individual and group within

an agreed timeline. The committee also escalates high level risk to MANCO and

BRMC.

F. liquidity risk:- liquidity risk is the risk that we either do not have sufficient

financial resources available to meet all our obligation and commitments as they

fall due or can only access these financial resources at excessive cost. The policy

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of EBL is to maintain adequate liquidity at all times. And to leverage the negative

correlation between liquidity and profitability without taking any excessive risk.

1. In the short term the bank’s focus is on ensuring that the cash flow demands can

be met through asset maturities and customer deposits.

2. In the medium term the bank focus is on ensuring the balance sheet remains

structurally sound.

g. legal risk :- legal risk includes the risk of loss arising from a failure to comply

with the laws , regulations or codes applicable to the financial services industry.

The legal risk functions are responsibility of bank’s internal control and

compliance division. This unit is responsible for developing and maintaining an

appropriate framework of regulatory compliance policy and procedures.

H. reputation risk: - reputation risk is that we fail to meet the standards of

performance or behaviors mandated by our board and expected by our

stakeholders in the way in which business is conducted. The set following

statement to protect EBL’s reputation and brand value.

1. Under no circumstance bank’s reputation to be compromised by revenue

generating activities.

2. EBL always avoids potential brand damaging issue.

3. EBL shall avoid anti environment and anti social elements in its business.

All of these are the risk faced by EBL and which they properly overcome by using

the above policy and procedures.

10.6 risk measurement of EBL through relevant ratios:- generally , a bank faces six

types of risk .now we are going to measure these risk of EBL by using some

relevant ratios is given below:-

A. credit risk measurement ratios: - these ratios are calculated by using the

numerical figure of EBL for the period (2010-2006).

1. The ratio of non performing loans to total loans and leases:-Table-26

Non performing loan to total loan ratio of EBL for (2010-2006)In million BDT

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Formula 2010 2009 2008 2007 2006 averageNon performing loan/total loan

116958607=1.99%

117247668=2.46%

130939662=3.30%

133430962=4.31%

986260083.79% =3.17%

Source: - data have been compiled from annual report of EBL.Note: - the calculations have been made by the researcher.

2. The ratio of annual provision for loan losses to total loans:-Table:-27

Annual provision for loan losses to total loan of EBL for (2010-2006)In million BDT

Formula 2010 2009 2008 2007 2006 averageProvision for loan losses/total loans

61158607=1.04%

75647668=1.58%

69239662=1.74%

66030962=2.13%

39426008=1.51% =1.60%


3. The ratio of total loans to total deposit:-Table -28

Total loan to total deposit ratio of EBL for (2010-2006)In million BDT

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Formula 2010 2009 2008 2007 2006 averageTotal loan/total deposit

5860756425=103.78%

4766849190=96.91%

3966241573=95.40%

3096230092=102.67%

2600825734=101.06% =100.02%


B. liquidity risk measurement ratios: - these ratios are calculated by using the numerical figure of EBL for the period (2010-2006).1. Loans to total asset ratio:-

Table -29Loans to total asset ratio of EBL for (2010-2006)

In million BDTFormula 2010 2009 2008 2007 2006 averageTotal loan/total asset

5860782053=71.42%

4766869871=68.22%

3966254598=72.64%

3096240204=77.01%

2600835971=72.30% =72.32%


2. The ratio of cash and deposit held at other banks to total assets:-Table -30

Cash and deposit held at others bank to loans ratio of EBL for (2010-2006)

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In million BDTFormula 2010 2009 2008 2007 2006 averageCash and deposit/total assets

823482053=10.03%

101869871=14.57%

692454351=12.74%

389440131=9.70%

309435934=8.61% =11.13%


C. interest rate risk measurement ratio: - these ratios are calculated by using the numerical figure of EBL for the period (2010-2006).

1. The ratio of interest sensitive asset to interest sensitive liability:-Table-31

Interest sensitive asset to interest sensitive liability ratio of EBL for (2010-2006)In million BDT

Formula 2010 2009 2008 2007 2006 averageInterest sensitive asset/interest sensitive liability

7175965634=1.093

6212558025=1.070

4683146521=1.006

3470633885=1.024

3275130139=1.086 =1.056


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D. market risk measurement ratios: - these ratios are calculated by using the numerical figure of EBL for the period (2010-2006).

1. The ratio of book value of equity to market value of equity:-Table -32

Book value of equity to market value of equity ratio of EBL for (2010-2006)In million BDT

Formula 2010 2009 2008 2007 2006 averageBook value of equity/market value of equity

1208437785=31.98%

842916107=52.32%

47338191=57.78%

382911136=34.38%

33156578=50.39% =45.37%


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E. earning risk measurement ratios: - these ratios are calculated by using the numerical figure of EBL for the period (2010-2006).

1. Standard deviation of ROE:-Table -33

Standard deviation of ROE of EBL for the period (2010-2006).Year ROE(X1) X1-X (X1-X)2

20102009200820072006

.2364

.2210

.1864

.1173

.1607

.2364-.1843=.0521

.2210-.1843=.0367

.1864-.1843=-.0021

.1173-.1843=-.067

.1607-.1843=-.0236

(.0521)=.002714(.0367)=.00135(-.0021)=.00000441(-.067)=.00449(-.0236)=.000557

Σx = .9218x = Σx/N =.1843

Σ(x-x)2

/N=.0091154/5=.00182308


So, standard deviation of ROE= (σ) = √.00182308 = .042697

And C.V of (ROE) = (σ)/x ×100% = .042697/.1842 ×100% = 23.16%

Comment: - the C.V of ROE is 23.16%, which is less variable and it means ROE is more uniform and less earning risk.

2. Standard deviation of ROA:-Table -34

Standard deviation of ROA of EBL for the period (2010-2006).Year ROA(X1) (X1-X) (X1-X)20102009200820072006

.0319

.0234

.0168

.0110

.0162

.0319-.0198=.0121

.0234-.0198=.0036

.0168-.0198=-.003

.0110-.0198=-.0088

.0162-.0198=-.0036

(.0121)=.0001464(.0036)=.0000129(-.003)=.000009(-.0088)=.00007744(-.0036)=.0000129

ΣX1 = .0993X = ΣX/N= .0993/5 =.0198

Σ(X1-X)2

= .0002587/5= .00005174


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So, standard deviation of ROA= (σ) = √ .00005174 = .007193

And (C.V) of ROA = σ/ X ×100% = .007193/.0198×100% = 36.32%

Comment: - the C.V of ROA is 36.32%, which is more variable than that of variable of ROE and it means ROA is insignificant risky.

10.7 SWOT ANALYSIS OF EBL:-

PRELUDE:-SWOT analysis provides a good overview of whether a firm’s business

position is fundamentally healthy or unhealthy. The word is an acronym of strengths,

weakness, opportunities, and threats of a company. SWOT analysis helps the bank to

reconstruct different sorts of shortcoming of the bank. From the SWOT analysis the

present scenario of the bank can be exhibited. In the SWOT analysis two factors act as

prime movers.

- Internal factors, which are prevailing inside the concern that includes strength

and weakness.

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- External factors, which act as opportunity and threat.

In this context, SWOT analysis of EBL has been exhibited overleaf.

SWOT analysis of EBL

Strength

Online banking operation across all the branches.

Partner of IFC under global trade finance program.

The growth of deposit and loan is upward.

Well customer –employee relationship.

Being a huge number of SME banking division.

Member of DSE and CSE.

Friendly working environment.

Own managed cards software and product system.

Strong loan recovery position.

Strong position in camel rating.

Strong MGT and administration.

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Factors of SWOT Analysis

Internal factors:- strength weakness

External factors:- opportunity threat

Good financial position.

weakness

Centralized trade service.

Have a risk for issuing more loan than that of deposit.

Imbalanced with liquidity requirement of central bank.

More debt than that of equity.

The loan processing system is not easy and swift.

opportunity

Introducing loan for specially emigrated person.

Have an opportunity to do business by using the new concept of

government

Like – public private partnership.

To do business through mobile banking, such as –bill payment,

premium payment etc.

threat

A common and continuous threat for bank is the entrance of new bank.

Yet, different types of MLM company are also a threat for a bank,

because they give more return than that of bank.

Macro economic factors are also a threat for the bank.

Under the above discussion the next chapter-11 will discuss with the problems of EB

Chapter-11

Problems, Recommendations and Conclusion11.1 Problems : -

A. According to the calculation of standard deviation of ROA and ROE, we have

realized that the variability of ROE is less risky and the variability of ROA is few risky

than that of ROE. Although the bank is doing well, but it has to try minimize the

variability of that case.

B.According to the rules of central bank, it is known that every listed commercial bank

has to maintain a legal reserve, which is consist of cash reserve ratio (5.5%) and

statutory liquidity ratio (19%) for meeting the liquidity needs and other unexpected

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crisis faced by the bank. but we see that EBL does not maintain the requirement of

central bank, because the bank issues more loan than deposit, so it shows inconsistent

view.

C. the RWA to deposit is showing lower liquidity position.

D. the bank issues more loan than deposit, it implies that the bank carries more risk.

E. the bank is more depend upon debt in building their capital structure.

F. the overall market position of EBL is showing a fluctuating trend it implies the lacking of condense of the investors.

G. the difference between non –performing loans and the provision of loan losses is large.

11.2 Recommendations of the study are as follows:-A. deposit trend of EBL in million BDTParticular 2010 2009 2008 2007 2006deposit 56425 49190 41573 30092 25734Source: - data have been compiled from annual report of EBL

Comment: - here we see that, the deposit trend of EBL is going up .its a good sing for

the bank. Now the bank has to try keeping it up.

B. deposit utilization of EBL in million BDTparticular 2010 2009 2008 2007 2006Deposit utilization or loan and advance of EBL

58607 47668 39662 30962 26008

Source: - data have been compiled from annual report of EBL

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Comment: - this table is also showing an upward trend of deposit utilization or loan

and advance of EBL. Now the bank has to try keeping it up.

C. deposit per employee:- in million BDTFormula 2010 2009 2008 2007 2006Deposit per employee=Total deposit/no of employee

56425973=57.990

49190878=56.025

41573763=54.486

30092690=43.611

25734612=42.049

Source: - data have been compiled from annual report of EBL.Comment: - by this table we also see that the productivity of EBL is showing upward trend. Now the bank has to try keeping it up.

D. the loan recovery position of EBL during the period is outstanding, because the average of loan recovery of EBL is 96.82% during the period. The bank has to try going on it.

E. the ROE and ROA of EBL exists a satisfactory level.

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F. the earning spread of EBL is also positive.

G. besides, the non –financial performance of EBL is mentionable. Their innovation side of product and services is time befitting.

H. HRM department of EBL also arranges different types of training program to upgrade the efficiency of the employee.

I. First of all, the bank has to raise the equity capital instead of debt for building

capital structure.

J. The bank has to give focus on issuing loan by considering the deposit amount.

K. EBL has to keep more marketable securities as liquid asset for ensuring both

liquidity and profitability.

L. EBL has to give more dividends to the investors for encouraging their investment.

M. The bank has to keep more provision against the loan losses.

N. The bank to maintain legal liquidity requirement of central bank keep up with

their profitability.

O. The bank has to keep balance between interest sensitive asset and interest

sensitive liabilities.

11.3: Conclusion : - this report is most important for getting the (MBA) degree. I

have learned a lot of thing by preparing this report. It was a great time for me when I

prepared this report. Because I have never done this before. This report is prepared by

using very common and traditional ratio. But at present many new model and formulas

are used in analyzing a bank’s financial performance for getting an effective and

accurate result. So, I can’t say that this report is 100% perfect in terms of evaluation.

From my point of view, I just say that, I am not an expert in this field. I have just

gathered data from the annual report of EBL and then put it into the various formulas

and finally I have found some relevant outcome from the calculation. Based on this

result, I have just given my opinion as the recommendation of the study. So,

eventually, I want to say that it is a very little Endeavour of me as a student.

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Bibliography 1. ANNUAL REPORT OF EBL2. WEB SITE OF EBL-http://www.eblbd.com3. Commercial bank MGT –peter.s. Rose4. Fundamentals of corporate finance (sixth edition)-Stephen, westerfield, jordon.5. Srivastava, R.M “Bank management” pragoti prakashani, meerut,pp.204.6. Burns, j.E(1962). “Bank liquidity: a straight forward concept but hard to measure”, in john A .haslem (Ed), Bank fund Management, opcit pp .185.

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Documents

Performance of Eastern Bank Limited ORIGINIAL