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THE PROFITABILITY DETERMINANTS OF PRIVATE
COMMERCIAL BANKS IN BANGLADESH
by
Md. Sohel Saklain
A project submitted in partial fulfillment of the requirements for the
degree of Professional Master in Banking and Finance
Examination Committee: Dr. Sundar Venkatesh (Chairperson)
Dr. Juthathip Jongwanich
Dr. Sununta Siengthai
Nationality: Bangladeshi
Previous Degree: Master of Business Administration
Islamic University
Kushtia, Bangladesh
Scholarship Donor: Central Bank of Bangladesh
Asian Institute of Technology
School of Management
Thailand
May 2012
ii
Acknowledgement
I would like to express my gratitude to my advisor Dr. Sundar Venkatesh who supported and
guided me throughout my research.
I am thankful to the Asian Institute of Technology for arranging a professional master’s
program for the working executives.
I am much obliged to Bangladesh Bank (Central Bank of Bangladesh) for granting me the
scholarship for the entire period of my study.
My colleague Md. Rashed and other friends are acknowledged who helped me with their
support, interest and valuable hints.
I would like to give my thanks to my wife and daughter who agreed to stay apart during my
study period. Special thanks to my 2.5 year old daughter Simin Samreen who needed to
sacrifice her father’s touch and love during the study period.
Finally, I would like to express my gratitude to my parents. It is their love and care which
make all my success.
iii
Abstract
At present private commercial banks are dominant in respect of market share and profitability
in the banking industry of Bangladesh. The profit growth of these banks seems to be very
high. This paper seeks to examine the profitability determinants of Private Commercial
Banks of Bangladesh in recent years. The study employs annual data for all the 30 Private
Commercial Banks of Bangladesh for the year 2009 and 2010. Multiple regression analyses
were run for each of the year to capture the significant determinants of profitability and to test
some hypothesis.
The empirical findings from this study suggest that that asset size and NIM (Net Interest
Margin) ratio does not have significant effect on the profitability. But the impact of non-
interest income on profitability was observed as the most significant among various variables.
Furthermore, investment activities, mainly in shares and debentures (quoted and unquoted) of
private sectors also has a significant positive impact on ROA. The findings suggest that
diversified banking activities including the investment activities make these banks more
profitable.
Diversified banking activities are welcomed but if these activities include higher proportion
of volatile trading activity rather than low risk income streams like fees and commission, the
risk may become higher. The policy direction should be directed in such a way which will
enhance the resilience and efficiency of the financial institutions with the aim of intensifying
the robustness as well as stability of the banking sector.
iv
Table of Contents
Acknowledgement ……………………………………………………………………………… ii
Abstract ………………………………………………………………………………………... iii
Table of Contents ……………………………………………………………………………… iv
List of Tables …………………………………………………………………………………... vi
List of Figures ………………………………………………………………………………… vii
List of Abbreviation …………………………………………………………………………. viii
1. Chapter 1: Introduction …………………………………………………………………… 1
1.1. Background ………………………………………………………………………………1
1.2. Chapter An Overview of Banking Sector in Bangladesh ………………………………. 2
1.2.1. Banking System in Pre-independent Bangladesh ……………………………….. 2
1.2.2. Banking System in Bangladesh after the Independence ………………………… 2
1.2.2.1. Nationalization of the Banking System in Bangladesh ………………...... 2
1.2.2.2. Privatization of the Banking System in Bangladesh ……………………...3
1.2.3. The Current Structure of Financial System in Bangladesh ……………………… 5
1.2.4. Current Banking System Structure …………………………………………….....7
1.2.5. Market Share of the Banks in Deposits and Advances in Bangladesh ………….. 9
1.2.6. Profitability Trend of Scheduled Banks in Bangladesh ………………………... 11
1.2.7. Conclusion ……………………………………………………………………... 14
2. Chapter 2: Analysis of Profitability: The Case of One Commercial Bank..................... 15
2.1. AB Bank Limited ……………………………………………………………………... 15
2.2. Market Share and asset size of ABBL4.3 Profitability of ABBL ……………………... 17
2.3. Profitability of ABBL …………………………………………………………………. 18
2.3.1. Net Profit ……………………………………………………………………….. 18
2.3.2. ROA and ROE …………………………………………………………………. 19
2.4. Capital Adequacy of ABBL …………………………………………………………… 21
2.5. Loans and Deposits of ABBL ………………………………………………………… 22
2.6. Asset Quality of ABBL ……………………………………………………………….. 23
2.7. Income-Expenditure Structure of ABBL ……………………………………………… 24
2.8. Conclusion …………………………………………………………………………….. 25
3. Chapter 3: Literature Review ……………………………………………………………..26
4. Chapter 4: Problem Statement, Objective and Research Methodology of the Study….28
4.1. Problem Statement …………………………………………………………………….. 28
4.2. Objective of the Study ………………………………………………………………… 28
4.3. Research Methodology ………………………………………………………………... 28
4.3.1. Data and Research Method …………………………………………………….. 28
4.3.2. Variables ……………………………………………………………………….. 29
4.3.3. Hypothesis ……………………………………………………………………… 32
4.4. Limitation of the Study ………………………………………………………………... 32
5. Chapter 5: Analysis of The Profitability Determinants of Private Commercial Banks in
Bangladesh ……………………………………………………………………. 33
5.1. Descriptive Statistics ………………………………………………………………….. 33
5.2. Correlation Matrix amongst independent variables …………………………………… 34
5.3. Regression Results and Hypothesis Test ……………………………………………… 35
5.3.1. Hypothesis H1a ………………………………………………………………… 37
5.3.2. Hypothesis H2a ………………………………………………………………… 37
v
5.3.3. Hypothesis H3a ………………………………………………………………… 37
5.3.4. Hypothesis H4a ………………………………………………………………… 37
6. Conclusion and Recommendations for Policy Implications …………………………… 38
References ………………………………………………………………………………….. 40
Appendices ……………………………………………………………………………... 43-48
vi
List of Tables
Table Title Page
1.1 Number of Banks in Bangladesh from 1975 to 2010
……………………………..
4
1.2 Banking System Structure
…………………………………………………….......
7
1.3 Trend of Net Profit of Scheduled Banks by Type
………………………………...
11
2.1 Market Share of ABBL
…………………………………………………………...
17
2.2 Total Equity and Capital Adequacy Ratio of ABBL
……………………...............
21
2.3 Total Loans and Deposits of ABBL
……………………………………................
22
2.4 Total Classified Loan and NPL Ratio of ABBL
………………………………….
23
4.1 Definitions and Notation of the Variables
………………………………………..
31
5.1 Descriptive Statistics
……………………………………………….......................
33
5.2 Correlation Matrix between Independent Variables in the Year 2009
…................
34
5.3 Correlation Matrix between Independent Variables in the Year 2010
…................
34
5.4 Regression Results for the Year 2009
……………………………………………
35
5.5 Regression Results for the Year 2010
….................................................................
36
vii
List of Figures
Figure Title Page
1.1 Number of Banks in Bangladesh (by Type) from 1975 to 2010 ……………….. 4
1.2 Financial System of Bangladesh ………………………………………………... 6
1.3 Number of Scheduled Banks (by Type) in Bangladesh (as on June, 2010) ……. 8
1.4 Number of Bank Branches by Type(as on June, 2010) ………………………… 8
1.5 Share of Industry Assets by Type(as on June, 2010) …………………………… 8
1.6 Deposit of Scheduled Banks by Types …………………………………………. 9
1.7 Advances of Scheduled Banks by Types ……………………………………….. 10
1.8 Trend of Net Profit of Scheduled Banks by Type ……………………………… 12
1.9 Trend of ROA of Scheduled Banks by Type …………………………………… 13
2.1 Total Assets of AB Bank Ltd. …………………………………………………... 17
2.2 Net Profit of AB Bank Ltd. ……………………………………………………... 18
2.3 Comparative Trend of ROA ……………………………………………………. 19
2.4 Comparative Trend of ROE …………………………………………………….. 20
2.5 Capital Adequacy Ratio of ABBL ……………………………………………… 21
2.6 LA and DP Ratio of ABBL …………………………………………………….. 22
2.7 NPL Ratio of ABBL ……………………………………………………………. 23
2.8 Income Mix of ABBL …………………………………………………………... 24
viii
List of Abbreviation
ABBL AB Bank Ltd.
CA Capital Adequacy
DFIs Development Financial Institutions
DP Deposit to Total Assets
FCBs Foreign Commercial Banks
IGSEC Investment in Government Securities
IIOSBD Investment Income from the Investment in Shares, Bonds and Debenture
LA Loan to Total Assets
NBFIs Non Bank Financial Institutes
NII Non Interest Income
NIM Net Interest Margin
NPL Non Performing Loan
OI Other Investment
PCBs Private Commercial Banks
ROA Return on Assets
ROE Return on Equity
SCBs State Owned Commercial Banks
Tk. Taka (Bangladeshi Currency)
1
CHAPTER 1
INTRODUCTION
1.1 Background
It is widely believed that financial system plays a vital role in the economic growth and
development of a country. The importance of an efficient financial sector lies in the fact that,
it ensures domestic resources mobilization, generation of savings, and investments in
productive sectors. In fact, it is the system by which a country directs its most profitable and
efficient sectors to most productive sources of future growth. The main role of a financial
system is not only to transfer funds from savers to investors but also to ensure that funds are
being transferred to the sectors which are most important for an economy. Banks are the most
crucial financial intermediaries in the most economies that render a bundle of different
services. Economies that have a profitable banking sector are better able to withstand
negative shocks and contribute to the stability of the financial system (Athanasoglou,
Brissimisand Delis, 2005). On the other hand banks insolvencies can result in systemic crisis.
Therefore, it is important to understand the factors which really affect the banking sector’s
profitability.
The Financial sector of Bangladesh, like most in developing countries, is dominated by
banking industry. After the independence of Bangladesh in 1971, all the domestic banks were
merged and grouped into few state owned commercial banks. The aim of the government was
to channel funds to the public sector and to prioritize credit to those sectors that sought to
reconstruct the war-affected country – mainly industries and agricultural sectors. However,
their performance was not satisfactory in terms of profitability, customer service and overall
performance. To set up a proper regulatory system that would diagnose such problems and
correct them was also tough while the government intervention were in existence
everywhere. Therefore, banking concept like profitability, liquidity and capital adequacy
were alien to bank managers. Some private banks were allowed to operate in the market in
1980s, they begun to perform satisfactorily. Later more private commercial banks were
allowed to play in the market. At present private commercial banks are dominant in respect of
market share and profitability in the banking sector of Bangladesh.
1.2 An Overview of the Banking Sector in Bangladesh
1.2.1 Banking System in Pre-independent Bangladesh
The branch banking system of Bangladesh is inherited from the British colonial regime.
There were 44 banks and financial institutions in operation in erstwhile Pakistan before the
partition of Indo-Pak sub-continent in 1947. After the emergence of Pakistan in 1947, State
Bank of Pakistan became the Central Bank of Pakistan in July 1948. In the whole Pakistan
there were 36 scheduled commercial banks in operation until 1971. The ownership pattern of
the commercial banks shows that most of the commercial banks were owned by the West
Pakistanis. Only three commercial banks namely, Habib Bank Ltd, National Bank of
Pakistan, and the Australasia Bank Ltd. had one branch of each in East Pakistan until 1949.
Subsequently during 1950-58 three other Pakistani-owned banks (Premier Bank Ltd., Muslim
Commercial Bank and Bank of Bahwalpur Ltd.) had opened their branches in East Pakistan.
Another four banks (the United Bank Ltd., Union Bank Ltd., Standard Bank Ltd. and the
Commerce Bank Ltd.) also commenced their operation in the East Pakistan during 1959-
1965. However, all of those banks had their head office in West Pakistan. Local business
2
groups of East Pakistan owned only two banks, Eastern Mercantile Bank Ltd. (presently
Pubali Bank Ltd.) and Eastern Banking Corporation Ltd. (presently Uttara Bank Ltd.)
established in 1959 with headquarters in Dhaka.
1.2.2 Banking System in Bangladesh after the Independence
1.2.2.1 Nationalization of the Banking System in Bangladesh
In East Pakistan, there were 12 banks with a total number of 1130 branches in operation in
the beginning of 1971. After the independence of Bangladesh, the Government of Bangladesh
declared the Dhaka branch of the State Bank of Pakistan as the central bank of the country,
and it was renamed as Bangladesh Bank. This was done through the Presidential Order No.
127of 1972 and the Bangladesh Bank came into existence with retrospective effect from 16
December 1971. The Bangladesh government decided to nationalize all banks except foreign
banks and renamed the various banks in 1972. All the domestic banks were merged and
grouped into six commercial banks. The aim of the government was to channel funds to the
public sector and to prioritize credit to those sectors that sought to reconstruct the war-
affected country – mainly industries and agricultural sectors. However, these banks were
unable to function well because of the government control at the wrong sectors. The situation
was worsened by the fact that loans were provided to the public sector without taking account
of the commercial viability. At that period banks had poor capital lease, poor customer
services and lacked any market-based monetary instruments. But mostly, as credits were
given out without commercial viability, and because it took a long time to call a loan non-
performing, and when it was called so, recovery was so abjectly expensive under the
erstwhile laws, the loan recovery rate was also extremely poor. To set up a proper regulatory
system that would diagnose such problems and correct them was also tough while the
government intervention were in existence everywhere. Therefore, banking concept like
profitability, liquidity and capital adequacy were alien to bank managers.
1.2.2.2 Privatization of the Banking System in Bangladesh
There were no domestic private commercial banks in operation until 1982; When the Arab-
Bangladesh Bank Ltd. (currently AB bank Ltd.) started its business as private commercial
bank in the country. To adopt with more market based system as well as to increase
competition, in early 1980 the government encouraged some private banks to flourish in the
country. Accordingly, licenses were given to six new private banks to operate in the country
till 1983. With the good performance of the new private banks and keeping in view the poor
performance of nationalized commercial banks government privatized two state owned banks
namely the Uttara Bank and the Pubali Bank during 1984-85. Another state owned bank, The
Rupali Bank Ltd. has also been transferred to the private sector in 1986. More commercial
banks were permitted to operate in the private sector during the mid 1990s.
Often people categorize private commercial banks into three group like first, second or third
generation private banks. But interestingly there is no thumb rule for this categorization.
Generally private commercial banks which got license from the central bank at the initial
stage i.e. early 1980s are called first generation banks, the bank which got license at the late
1980s and the early 1990s are called as second generation private banks. Finally the bank
which got license at late 1990s and onward are called as third generation private banks.
Besides privatization, in November 2007 three government banks namely Sonali Bank,
Agrani Bank and Janta Bank were also converted to a Public Limited Company with 100%
3
ownership of the government. It was done aiming to make these banks competitive, profitable
and also to make them able to run their business autonomously.
Table 1.1 and figure 1.1 shows the number of banks from the year 1975 to 2010. Then
number of Nationalized and Specialized Banks remained almost the same with only a little
change. The number of Foreign Banks grew up a little but decreased to 9 after the year 2000.
However, the number of private banks had a rising trend up to the year 2005. The number of
private banks increased substantially in the period from 1995 to 2000. 14 new private banks
were allowed to come into operation in this period. After the year 2000, only 3 more private
banks came into the market. The number of private banks remain unchanged after the year
2005 i.e. 30.
Table 1.1 Number of Banks in Bangladesh from 1975 to 2010
1975 1980 1985 1990 1995 2000 2005 2010
Total Number of banks 12 14 21 24 31 49 48 47
Nationalized banks 6 6 4 4 4 4 4 4
Specialized banks 2 2 2 3 5 5 5 4
Private banks 8 10 13 27 30 30
Foreign banks 4 6 7 7 9 13 9 9
Number of bank branches 1611 3820 4943 5539 5813 6065 6412 7246 Source: Annual Reports and Monthly Economic Trends of Bangladesh Bank for several years.
Figure 1.1
4
1.2.3 The Current Structure of Financial System in Bangladesh
At present the financial system in Bangladesh is mainly comprised of two types of
institutions like banks and non-bank financial institution (NBFIs). The formal financial sector
in Bangladesh includes: (a) Bangladesh Bank as the central bank, (b) 47 commercial banks,
including 4 Government owned commercial banks, 30 domestic private banks (PCBs) 9
foreign banks (FCBs); and 4 government-owned specialized banks (DFIs); (c) 30 non-bank
financial institutions (NBFIs) – licensed by the Bangladesh Bank); (d) A total of 62 insurance
companies have been operating in Bangladesh, of which 18 provide life insurance and 44 are
in the general insurance field. Among them there are 2 large government- owned insurance
companies (life and general) and rest of them are private.(e) 2 stock exchanges and, (f) some
co-operative banks. Besides, a good number of semi-formal micro finance institutions (MFIs)
also are operating in Bangladesh.1
1 ( http://www.bangladesh-bank.org; http://boi.gov.bd)
5
Figure 1.2 Financial System of Bangladesh
Financial System
of Bangladesh
6
1.2.4 Current Banking System Structure
Table 1.2 shows the current banking structure and market share of various types of banks in
Bangladesh. It is found that there are only four SCBs2 in the country but they have 3394
branches which is the highest among the bank types. Currently 30 PCBs3 are operating in the
country but they have 2427 branches which is less than the SCBs. However, PCBs occupy
57.55% of the total industry assets even having less number of bank branches than SCBs.
SCBs have only 28.85% of industry assets which is almost half of the PCBs. Four DFIs4 have
1366 bank branches which is quite significant in number but they have the least percentage of
market share i.e. 6.60% in the industry assets. Nine FCBs5 have only 59 bank branches which
is the least among bank types but still they have more percentage (7%) of industry assets than
the DFIs.
Table 1.2 : Banking System Structure
In billion Taka
Bank Types 2010 (June)
Number of
Banks
Number of
branches
Total assets % of
industry
Deposits % of
deposits
assets
SCBs 4 3394 1272.64 28.85 952.72 28.62
DFIs 4 1366 291.37 6.60 177.90 5.34
PCBs 30 2427 2539.27 57.55 1967.78 59.11
FCBs 9 59 308.70 7.00 230.68 6.93
Total 47 7246 4411.98 100.00 3329.08 100.00
Source: Bangladesh Bank’s Annual Report of 2009-2010
2 SCBs : State Owned Commercial Banks
3 PCBs : Private Commercial Banks
4 DFIs : Government-owned Specialized Banks
5 FCBs : Foreign Commercial Banks
7
It is obvious from
the figure 1.3 that
the PCBs are the
highest in number
in the banking
sector of
Bangladesh.
Data Source: Bangladesh Bank’s Annual Report of 2009-2010
Figure 1.3
Figure 1.4 shows
that the SCBs have
the highest number
of branches
despite the fact
that they have only
4 banks.
Data Source: Bangladesh Bank’s Annual Report of 2009-2010
Figure 1.4
Figure 1.5 exhibits that
the PCBs are currently
dominating in terms of
market share in
Bangladesh.
Data Source: Bangladesh Bank’s Annual Report of 2009-2010
Figure 1.5
8
1.2.5 Market Share of the Banks in Deposits and Advances in Bangladesh
Figure 1.6 compares the trend of market shares in deposits among the four types of banks
from 1980 to 2010. SCBs occupied 89.45% of the total deposit of the banking industry in
1980. Afterwards the market share of SCBs begun to fall sharply and in the year 2010 it
became only 27.83%. On the other hand the market share of PCBs rose dramatically during
the entire period. The market share of PCBs was surprisingly high between the year 2000 to
2010 and it took over the market share of SCBs in that period. In 2010 the PCBs occupied the
highest percentage of market share (60.81%) in the deposit of banking industry. FCBs market
share remain stable maintaining a level around 7% with a little fluctuation. DFIs also had a
low level of market share with a little fluctuation from 4% to 6% over the period.
Data Source: Statistics Department, Bangladesh Bank
Figure 1.6
From the Figure 1.7 it can be observed that in case of advances the SCBs and PCBs also
followed the same trend like deposit. The market share of SCBs was 80.2% in the year 1980
but it reduced to only 21.8% in the year 2010. The market share of PCBs rose in a high rate
and it occupied 60.81% of the total advances in the year 2010. The market share of DFIs was
16.16% in the year 1980, it increased to 22.94% in 1985 but in the subsequent years it begun
to decrease and it became 6.95% in the year 2010. The market share of FCBs was only 3.65%
in the year 1980 and in the subsequent years it increased a little and it became 5.86 in the year
2010.
9
Data Source: Statistics Department, Bangladesh Bank
Figure 1.7
1.2.6 Profitability Trend of Scheduled Banks in Bangladesh
Table 1.3 and figure 1.8 shows the trend of net profit of 4 types of scheduled banks in
Bangladesh for the period from 1993 to 2009. The net profit trends of FCBs and PCBs were
always rising in the entire period. The profit of PCBs was only 32.30 million in the year 1993
and it became 1314.90 million in the year 1996 which was the highest among the bank types.
In the subsequent years it always maintained the highest level of profit. From the year 2006
the profit of PCBs begun to rise in the rocket high rate and it ended with 36,555.90 million in
the year 2009. The profit of FCBs was 543.60 million in the year 1993 and it increased
considerably in the subsequent years and ended with 9440.30 million in the year 2009.
The trend of profit for SCBs was very much fluctuating. In many years they incurred losses.
The profit dropped hugely from the year 2003 to 2006. They made a profit of 682.10 million
in the year 2003 but incurred a huge loss of 44,159.20 million in the year 2006. But SCBs
made dramatic recovery in the year 2007 and 2008. From a loss of 44,159.20 million in the
year 2006 they made a profit of 8,976.80 million in the year 2008 and they ended up with a
slight decrease in 2009.
10
DFIs incurred losses in every year except in the year 2000 and 2008 when they made profit of
798.10 million and 401.60 million respectively. DFIs incurred huge loss amounting 5323.70
million which is the highest for them in the entire period.
Table 1.3 Trend of Net Profit of Scheduled Banks by Type
(Taka in million)
Period SCBs FCBs PCBs DFIs
1993 -319.00 543.60 32.30 -3306.90
1994 188.20 683.20 148.00 -3071.00
1995 1123.70 907.60 565.60 -2920.70
1996 281.10 987.20 1314.90 -2045.00
1997 167.70 1342.10 1444.80 -2610.20
1998 -59.80 1494.30 1583.50 -2967.00
1999 -166.60 1497.00 1784.40 -5323.70
2000 245.80 2204.60 3099.70 798.10
2001 382.40 2598.10 5144.80 -1146.40
2002 198.80 2240.80 4587.90 -243.20
2003 682.10 2764.40 4755.90 -878.90
2004 -19047.20 3920.10 7364.90 -2406.80
2005 -12094.10 4701.80 9547.10 -1230.00
2006 -44159.20 6241.20 9315.40 -1436.20
2007 -8091.00 7233.30 19957.50 -1671.70
2008 8976.80 11384.20 28186.60 401.60
2009(p)
7295.60 9440.30 36555.90 Source: Bangladesh Bank’s Monthly Economic Trend, September 2011
p = Provisional
11
Figure 1.8
12
Figure 1.9 shows the trend of ROA of four types of scheduled banks in Bangladesh for the
period from 2002 to 2010. It is obvious from the table and graph that the FCBs always stayed
at the top in respect of profitability. On the other hand PCBs always maintained the second
level of ROA in the industry for the entire period. It shows an increasing trend with a little
fluctuation only. From the year 2009 to 2010 the ROA of PCBs rose remarkably, it reached to
2.0% in this year. In contrast, the ROA of SCBs and DFIs remained negative in most of the
years. There was a surge in the ROA of SCBs from the year 2007 to 2008; it rose from 0.0%
to 0.7% in this year. Though the ROA of SCBs remained positive in the subsequent years, it
was far behind form the ROA of PCBs and SCBs. The ROA of DFIs was the worst in the
industry. It had a negative ROA in most of the years. Though DFIs had a positive ROA in
few years it remained below the level of 0.5%.
Data Source: Bangladesh Bank’s Annual Report of 2009-2010
Figure 1.9
13
1.2.7 Conclusion
There were only few state owned commercial banks in operation after the independence of
Bangladesh. Their performance was not satisfactory in terms of profitability and customer
service. Some private banks were allowed to operate in the market in 1980s, they begun to
perform satisfactorily. Later more private commercial banks were allowed to play in the
market. At present private commercial banks are dominant in respect of market share and
profitability in the banking sector of Bangladesh. Nevertheless, state owned commercial
banks are still playing a major role to provide banking service to the mass people as they
have large number of bank branches in both rural and urban areas of the country. Recent
corporatization of the three state owned banks put some positive impacts in modernization of
those banks but still they may need some more time to be profitable and financially sound.
On the other hand foreign banks are more proactive in doing business in the international
trade finance and foreign exchange rather than the conventional banking business and they
are earning handsome amount of profit in this way. Specialized commercial banks are only
fulfilling some government agenda to finance in the priority sectors of the economy but they
are far behind regarding the profitability and financial soundness.
14
CHAPTER 2
ANALYSIS OF PROFITABILITY: THE CASE OF ONE
COMMERCIAL BANK
2.1 AB Bank Limited
AB Bank Limited is one of the leading private commercial bank in Bangladesh. It is the first
private sector bank which was incorporated in Bangladesh as on 31st December 1981. It was
incorporated as Arab Bangladesh Bank Limited and commenced its operation with effect
from April 12, 1982. Later it has been renamed as AB bank Ltd with effect from November
14, 2007.
Currently, AB Bank Limited has 82 Branches in different Business Centers of the Bangladesh
and one foreign Branch in Mumbai, India also.
The bank has four subsidiary companies, AB Investment Limited, AB Securities Limited,
Cashlink Bangladesh Limited, incorporated in Bangladesh and AB International Finance
Limited, incorporated in Hong Kong.6
AB Investment Limited (ABIL) and AB Securities Limited (ABSL) are recently incorporated
as subsidiary companies following the approval of Bangladesh Bank and following
instructions from Securities and Exchange Commission. These two subsidiaries are being put
into operations to cater the merchant banking and brokerage business which were previously
done by the Bank itself.
The Bank also has correspondent relationship with more than 220 international reputed banks
across 58 countries of the world to facilitate its cross border trade and payment related
services.7
AB Bank Ltd. also has an Islamic banking branch to provide the Islamic banking services to
its customers.
Bangladesh Bank approved AB Bank Ltd to act as Primary Dealer (PD) in connection with
dealing of Govt. Securities as on 08 December 2009.8
To perform some philanthropic activities The Bank also has a Foundation named Arab
Bangladesh Bank Foundation (ABBF) established in 2002.
In the year 2008 AB Bank's merchant banking wing was fined Tk 10 crore (100 million) for
disbursing excess margin loans in violation of securities rules. The investigation found that
by disbursing excess loans the bank created a liquidity glut, leading abnormal price hike of
shares in some companies.9
6 Source: AB Bank Ltd’s Annual Report of 2010
7 Source: Link: http://www.abbank.com.bd/background-of-abbl.html (accessed as on 07/10/2011)
8 Source: The Daily Financial Express, dated 08/12/2009, link: http://www.thefinancialexpress-
bd.com/2009/12/08/86246.html (accessed as on 07/10/2011) 9 Source: The Daily Star, Bangladesh, dated 18-02-2008, link: http://www.thedailystar.net/story.php?nid=23861
(accessed as on 07/10/2011)
15
AB Bank Ltd. has been chosen for the profitability analysis because it has significant market
share in the banking industry, diversified business in nature and it has the longest banking
experience as a private commercial bank in the country.
2.2 Market Share and asset size of ABBL10
Table 2.1 shows that ABBL occupied 2.70 % market share in the total banking industry of
Bangladesh in the year 2009. Among the PCBs11
it shared 4.71% of market share; the
percentage was quite significant if the number of total PCBs i.e. 30 is considered.
Table 2.1 Market Share of ABBL
Total Assets (billion taka) as on 2009 Market Share of ABBL
Banking Industry PCBs ABBL in Banking Industry in the PCBs
3965.8 2275.7 107.09 2.70% 4.71%
Source: Author’s compilation from the annual reports of ABBL and Bangladesh Bank’s
Annual Report of 2010
Figure 2.1 shows that Total Assets of ABBL grew smoothly with a very high rate over the
period from 2005 to 2010. It indicates that the bank extended its operation and maximized its
value significantly during this period.
Source: Author’s compilation from the annual reports of ABBL
Figure 2.1
10
ABBL: AB Bank Ltd. 11
PCBs : Private Commercial Banks
16
2.3 Profitability of ABBL
2.3.1 Net Profit
Figure 2.2 shows that the Net Profit of AB Bank Ltd. increased in a very high rate from the
year 2005 to 2010 with a little fluctuation. It was only 162.45 million in the year 2005 but it
became 3,989.52 million in the year 2010 which is almost 25 times increment. But whether
this astonishing growth of profit is due to the assets growth or some other reasons is a subject
of investigation.
Source: Author’s compilation from the annual reports of ABBL
Figure 2.2
2.3.2 ROA and ROE:
Figure 2.3 indicates that The Return on Assets (ROA12
) of ABBL was lower than the ROA of
Private Commercial Banks (PCBs) and the banking industry as a whole in the year 2005.
Afterwards the bank made a tremendous improvement; in the year 2006 the ROA of ABBL
became 1.1% which was higher than the banking industry and equivalent to the PCBs. In the
next year i.e. 2007 the ROA of ABBL increased dramatically to 3.0% which was much
higher than that of PCBs and the banking industry. In the subsequent years the bank also
maintained the same level of higher ROA with a little fluctuation.
12
ROA= Net Profit/Total Assets
17
Source: Author’s compilation from the annual reports of ABBL and Bangladesh Bank’s Annual Report of 2010
* up to June, 2010 for PCBs and Banking Industry
Figure 2.3
Figure 2.4 shows that the ROE13
of ABBL was 10.6% in 2005 which was lower than the
ROE of the banking industry and PCBs. But in the year 2006 the ROE level of ABBL crossed
the ROE level of banking industry and PCBs. The ROE of ABBL reached its peak in the year
2007. In that year the ROE of ABBL was 42.2% whereas the ROE of banking industry and
PCBs were only 13.8% and 16.7% respectively. The reason might be the surge in Net Profit
of ABBL in this year. In the subsequent years the ROE of ABBL declined continuously but it
remained above the ROE of banking industry and PCBs.
Source: Author’s compilation from the annual reports of ABBL and Bangladesh Bank’s Annual Report of 2010
* up to June, 2010 for PCBs and Banking Industry
Figure 2.4
13
ROE : Return on Equity = Net Profit/Total Assets
18
2.4 Capital Adequacy of ABBL
Table 2.2 shows that the total equity of ABBL increased continuously from the year 2005 to
2010. The figure 2.5 shows that the capital adequacy ratio of the bank also had an increasing
trend. Possibly, the bank raised its equity base to meet up the Basel II requirements as per the
Bangladesh Bank’s instruction.
Table 2.2 Total Equity and Capital Adequacy Ratio of ABBL
Year
Total Asset Total Equity
(million taka) CA (Equity/Total
Assets)
2005 33,065.40 886.09 4.62%
2006 47,989.34 2,034.66 5.38%
2007 63,549.86 3,217.30 7.10%
2008 84,053.61 4,118.33 8.00%
2009 107,093.01 5,409.91 9.61%
2010 134,003.88 7,919.74 10.56% Source: Author’s compilation from the annual reports of ABBL
Figure 2.5
19
2.5 Loans and Deposits of ABBL
Table 2.3 exhibits that both the Total Loan and Total Deposit of ABBL increased over the
period from 2005 to 2010 continuously. This increase in loan and deposit may be the one
reason of rising trend of asset size of ABBL.
Table 2.3 Total Loans and Deposits of ABBL
Year
Total Loan
(million taka)
Total Deposit
(million taka) LA DP
2005 21,384.63 27,361.44 64.7% 82.7%
2006 31,289.25 42,077.00 65.2% 87.7%
2007 40,915.35 53,375.35 64.4% 84.0%
2008 56,708.77 68,560.47 67.5% 81.6%
2009 72,063.26 83,082.63 67.3% 77.6%
2010 96,730.29 94,780.20 72.2% 70.7% Source: Author’s compilation from the annual reports of ABBL
From the figure 2.6 it can be seen that the LA14 ratio of the bank remain almost constant
during this period but DP15 ratio decreased slightly from the year 2006 to 2010. The trend of
these two ratios indicates that the increase in Loans and Deposits might not be the main
reason of higher ROA of ABBL
Figure 2.6
14
LA = Total Loan/Total Assets 15
DP = Total Deposit/ Total Assets
20
2.6 Asset Quality of ABBL
Table 2.4 indicates that the total classified loan of ABBL did not decrease too much; it
remained almost in the same level with some fluctuations. But then NPL16
ratio declined
sharply over the period from the year 2005 to 2010.
The reason of decrease in the NPL ratio seems not to be the decrease in the total classified
loan rather it is because of the high growth in the total assets of the bank and no significant
growth in the total classified loan. The decreasing trend of NPL ratio seems to have some
positive impact on the profitability of the bank.
Table 2.4 Total Classified Loan and NPL Ratio of ABBL
Year
Total Loan Total Classified Loan (million taka) NPL
2005 21,384.63 1,755.95 8.2%
2006 31,289.25 1,258.52 4.0%
2007 40,915.35 1,762.64 4.3%
2008 56,708.77 1,695.38 3.0%
2009 72,063.26 1,949.17 2.7%
2010 96,730.29 1,852.48 1.9% Source: Author’s compilation from the annual reports of ABBL
Figure 2.7 shows that The NPL ratio dramatically dropped from 8.2% to 1.9% in the year
2006. In the subsequent years the NPL ratio dropped steadily except in the year 2007. The
ratio ended with only 1.9% in the year 2010.
Figure 2.7
16
NPL: Non Performing Loan Ratio = Total Classified Loan/ Total Loan
21
2.7 Income-Expenditure Structure of ABBL
Figure 2.8 shows that the Net Interest Income (NIM17
) ratio increased slowly over the six
year period except in the year 2006 while it fell to 1.28% from 2.09%. The Non Interest
Income Ratio (NII18
) was always higher than that of NIM. It can be observed from the graph
that the NII line always stayed above the NIM line. It indicates that the greater proportion of
bank’s earnings came from the non interest income.
The Investment Income from the Investment in Shares, Bonds and Debenture (IIOSBD19
)
also occupied a significant proportion of the non interest income. The IIOSBD line has the
same shape as NII line which indicates that the IIOSBD had a great influence on the NII.
Source: Author’s compilation from the annual reports of ABBL
Figure 2.8
2.8 Conclusion
From the above analysis it can be said that ABBL outperformed in all respect during the year
2005 to 2010. The asset size and the profitability of the bank rose dramatically. The bank
maintained the ROA and ROE above the industry average and the average of private
commercial banks. It also reduced the NPL ratio sharply. But which determinant helped the
bank mostly to maintain such a high profitability is not so easy to trace out. It calls for some
advance statistical analysis like regression. From the ratio and trend analysis it seemed that
the non interest income played a vital role in the bank’s profitability. It can be also assumed
that the investment income in Shares, Bonds and Debenture (other than the government
17
NIM = Net Interest Income/Total Assets 18
NII = Non Interest Income/Total Assets 19
IIOSBD = Investment Income from the Investment in Shares, Bonds and Debenture/Total Assets
22
securities) also influenced the noninterest income significantly. But the influence of the asset
size and the interest income which is usually considered the main source of bank’s earning
cannot be ignored also.
This is the case of one private commercial bank in Bangladesh but most of the private
commercial banks also maintain the higher level of profitability than the industry average.
Which determinants really make the private commercial banks to maintain such a high
profitability level is a subject of advance analysis.
23
CHAPTER 3
LITERATURE REVIEW
In recent literature, profitability determinant of bank is defined as a function of internal and
external determinants. Internal determinants are termed micro or bank specific determinants
of profitability and related to bank management. The external determinants are the economic
and legal environment which affects the operation and performance of banks. According to
the nature and objective of each study, different variables could be used. Bank specific
financial ratios representing capital adequacy, cost efficiency, liquidity, asset quality, and size
are mostly used internal determinants. On the other hand economic growth, inflation, market
interest rates, ownership etc. are commonly treated as external determinants that affect bank
profitability.
There are numerous studies which deal with bank profitability though those studies vary to a
great extent. Some studies on the bank profitability were carried out focusing on a single
country, while others on a panel of countries. Many studies also have been done in the Asian
region. To make this current research project more meaningful some references of previous
studies are presented here.
N. Jahangir, S. Shill, & M. A. J. Haque (2007) examined the profitability in the context of
Bangladeshi banking industry. The study was carried out on the data from the year 2000 to
2005 of only the listed commercial banks in DSE (Dhaka Stock Exchange). It was found that
there is a strong and significant relationship between market size and bank's return on equity.
It seemed that capital adequacy is an important factor for a bank to be profitable.
S. Chantapong (2005) made a comparative cost efficiency analysis between the domestic
and foreign banks in Thailand. This study also examined the effect on banking efficiency due
to the foreign bank entry in Thailand after the 1997 financial crisis. The foreign banks
seemed to be more efficient than domestic banks in terms of better capitalization and lower
levels of nonperforming loans. The increased competition arising from the foreign bank entry
through acquisition forced the domestic banks to improve their cost efficiency. As the
profitability gap between foreign and domestic bank became narrow, it can be assumed that
the financial restructuring program has yielded some positive results.
Bank Specific and macroeconomic determinants of commercial bank profitability in Turkey
was examined by D. Alpher & A. Anbar (2011). In this study, panel data method (fixed
effects model) was applied to data of 10 banks’ financial statements from 2002 to 2010. It
seemed that asset size has a positive and significant effect on profitability and larger banks
achieve a higher ROA and ROE. Though bank loans have a positive impact on bank
performance as it is expected to be the main source of income, a negative relationship was
found between loans and profitability. The study found that non-interest income/assets ratio
has a positive and significant effect on ROA which indicates that greater diversification in
bank’s activity positively influence returns. Some macroeconomic factors like real GDP
growth rate and inflation rate do not have significant effect on bank profitability.
S. S. Debashis, & N. C. Shil (2011) tried to find out the key discriminators of bank
profitability in India. The study was pursued with the help of data of 93 commercial banks for
a period about 8 years from 2001 to 2009. To identify the most critical profitability ratios the
technique of multiple discriminant analysis (MDA) was used as an important methodology.
The analysis identified only five variables namely Priority Sector Advance / Net Advances,
24
Interest Income/ Total Assets, Net interest Spread/ Total Assets, Net interest Spread/ Total
Assets, Wage Bills/ Total Expenses as the significant discriminators of bank profitability
(ROA- the dependent variable) among the total 13 variables.
In China case, F. Sufian & M. S. Habibullah (2009) studied the bank specific and
macroeconomic determinants of bank profitability for the post-reform period of 2000–2005.
It was found that the determinants variables do not have uniform impacts on profitability
across bank types. Liquidity, credit risk, and Capitalization are found to have positive impacts
on the state owned commercial banks (SOCBs) profitability, while joint stock commercial
banks (JSCB) with higher credit risk tend to be more profitable. On the other hand diversified
and relatively better capitalized city commercial banks (CITY) seems to exhibit higher
profitability levels. The effect of economic growth is positive on banks’ profitability.
The research in Switzerland, Dietrich and Wanzenried (2009) find that there are significant
differences in profitability among commercial banks and these differences can be explained
to a large extent by the factors included in analysis. Better capitalized banks found to be more
profitable in the study. Also, where a bank’s loan volume is growing faster than the market,
positive impact on bank profitability was found. Banks with a higher interest income share
seemed to be less profitable. GDP growth variable was one of the most important factors
which affects the bank profitability positively. The effective tax rate and the market
concentration rate also have a significantly negative impact on bank profitability in
Switzerland.
In the other multi-country studies, Hassan and Bashir (2003) investigate profitability for a
sample of Islamic banks from 21 countries. It was found that a higher loan ratio actually
affects profits negatively.
Due to the variation of the environment and data included in the analysis the results of
various studies differ significantly. However, several researchers identified that there are
some common factors which influence profitability of a bank. Summarizing the results from
numerous studies, larger bank size, good asset quality, higher proportion of equity capital to
asset, greater GDP growth have generally been associated with greater profitability. Various
measures of costs are usually negatively correlated with profits. Greater provisions for loan
losses, higher liquidity, and more reliance on debt have been lower indicative of lower bank
profits (Olson and Zoubi, 2011).
Though numerous studies have been carried out all over the world and some woks also have
been done in Bangladesh regarding the profitability of the banking sector, no significant work
have been found specifically focused on the hefty profit growth of private commercial banks
in Bangladesh.
25
CHAPTER 4
PROBLEM STATEMENT, OBJECTIVE AND RESEARCH METHODOLOGY OF
THE STUDY
4.1 Problem Statement
From the overview of the Banking Sector in Bangladesh it has been seen that in recent years
private commercial banks in Bangladesh are continuously making a huge chunk of profit. The
profit growth seems to be astonishingly high. Though growing trend of profitability is a good
sign for an economy but there is a scope to investigate whether this profitability is sustainable
and justified with the economic growth and other indicators. Furthermore, nowadays banks
are not doing business not only limiting itself in deposit and lending activities but also
involving itself in the wide array of other activities. Some of these profit seeking activities
may lead banks to take very high exposures to the risk. Therefore, this research study tries to
address the determinants of profitability of private commercial banks in Bangladesh. In other
words, this research study tries to figure out why these banks are so profitable.
4.2 Objective of the Study
This research study tries to focus on the Private Commercial Banks (PCB) category only
because of its hefty profit growth. It aims at giving an in-depth look into the private
commercial banks’ profitability in Bangladesh by using the quantitative method to analyze
accounting data. The objectives are as follows:
1. To identify the major determinants of the profitability of Private Commercial
Banks in Bangladesh in recent years.
2. To address some policy implications and suggest for further study.
4.3 Research Methodology
4.3.1 Data and Research Method
This study employs annual data for all the 30 Private Commercial Banks of Bangladesh for
the year 2009 and 2010. The total sample consisted of 60 (30 × 2) bank-year observations.
The main source of data is the annual report of each bank. It is worth noting here that all the
30 private commercial banks are listed in the Dhaka Stock Exchange.
To capture the recent year’s profitability determinants less emphasis has been given to the
time series analysis. On the other hand no sampling has been made to select the banks. As the
profitability of private commercial banks seems to be at the highest point in the recent years
our approach is assumed to be very much logical to explain the high profitability of these
banks.
In our model, we present one dependent and nine explanatory variables that may influence
the profitability of a bank. Our objective of choosing the proxies is to capture the significant
determinants of profitability.
Two multiple regression analyses are run for the year 2009 and 2010 to explain the
relationship between ROA and independent variables.
26
4.3.2 Variables
To analyze the determinants of the profitability of private commercial banks 10 variables are
included in this study, one of them are the dependent and the others are as explanatory or
independent variables.
Dependent Variables
In most of the literature, bank’s profitability, usually measured by return on asset (ROA) and
return on equity (ROE).
In this study, Return on Assets (ROA) is used as measures of bank’s profitability. ROA is
determined as net profit divided by total assets and is expressed in percent. ROA shows the
profit earned per dollar of assets and most importantly, reflects the management ability to
utilize the bank’s financial and real investment resources to generate profits (Hassan and
Bashir, 2003).
Independent Variables
By reviewing several literatures it is found that several researchers identified some common
factors which influence profitability of a bank. Summarizing the results from numerous
studies, bank specific financial ratios representing capital adequacy, cost efficiency, Income
Expenditure mix, asset quality, and size are mostly used internal variables. So we included
the following bank specific variables to capture the determinants of profitability:
Asset size
In many finance literature, total assets of the banks are used as to capture the possible effect
of bank’s size on profitability. Generally natural logarithm of total asset (log A) is used to
represent bank size. The effect of bank size on profitability is generally expected to be
positive (Smirlock, 1985). Eichengreen and Gibson (2001) suggest that the effect of a
growing bank’s size on profitability may be positive up to a certain limit. Beyond this point
the effect of size could be negative due to bureaucratic and other reasons. Hence, the size
profitability relationship may be expected to be non-linear.
Capital adequacy
The ratio of equity to total assets (CA) is generally used to represent the basic ratios for
capital strength. It is likely that the higher this ratio, the lower the need for external funding
and thus leads to the higher profitability of the bank. Equity to total assets ratio is expected to
have positive relation with performance that well-capitalized banks face lower costs of going
bankrupt which reduces their costs of funding and risks (Berger, 1995; Bourke, 1989; Hassan
and Bashir, 2003).
Asset quality
To address the asset quality two ratios are used in this study: loans to total assets (LA) and
non-performing loans to total loans (NPL). As loans is one of the main source of income of a
bank, the ratio loans to total assets is expected to affect profitability positively unless an
unacceptable level of risk is taken by a bank. Non-performing loans (loans which are
considered not to generate earnings) to total loans ratio measures the asset quality of bank. In
27
other words it reflects the health of bank’s loan portfolio that affects performance of bank
negatively. The higher the NPL ratio the poorer the quality of loan portfolio and therefore it
leads to lower profitability.
Deposits
Deposits are considered as banks’ main source of funding and are the lowest cost of funds.
The more deposits are transformed into loans, the higher the interest margin and profit.
Hence, deposits generally have positive impact on profitability of the banks. But if a bank
can’t transform its deposits into loans efficiently it may bring negative impact on profitability
also.
Income-expenditure structure
In this study, net interest margin (NIM) and non-interest income (NII) ratios are used to
reflect the income-expenditure structure. Net interest margin is measured by net interest
income (net interest spread) to total assets. Net interest margin is an important measure of
bank efficiency which basically focuses on the profit earned on interest activities of a bank.
On the other hand, non-interest income is measured by non-interest income to total assets.
Non-interest income consists of commission, fees, investment income from government or
private securities, other operating income.
Both the variables are expected to show positive relationship with bank profitability.
Investment Activities
Banks are not engaged in the deposit and lending activities only they also invest significant
amount of their assets in Government securities, shares and debentures. To capture the
influence of investment activities on profitability two ratios are used in this study: investment
in government securities to total assets (IGSEC) and other investment to total assets (OI).
Investment in government securities mainly includes government treasury bills, bonds,
debenture etc. To maintain the statutory liquidity requirement of central bank commercial
banks need to investment certain percentage of their assets to government securities. This
investment are always considered to be a safe investment, but it may or may not have positive
influence on profitability as the return from government securities is not always competitive
with the market. On the other hand, all the investment other than the government securities is
included in the ‘Other Investment’ category. Other investment of a bank mainly includes
investment in quoted and unquoted shares and debentures of private sectors. Besides shares
and debentures investment in subsidiaries and miscellaneous investment are also included in
this category. Other investment is expected to have a positive impact on the profitability but it
is not unusual to have a negative impact on the profitability when there is a downturn in the
economy.
28
Table 4.1 Definitions and Notation of the Variables
Variable Measure Notation
Dep
end
ent
Vari
ab
les
Profitability
Return on Assets (ROA) =
Net Profit/Total Assets
ROA
Ind
epen
den
t V
aria
ble
s
Asset Size
Natural Logarithm of Total Assets
logA
Capital Adequacy Equity / Total Assets CA
Asset Quality
Loans / Total Assets
Non-Performing Loans
/ Total Loans
LA
NPL
Deposit Deposits/Total Assets DP
Income-Expenditure
Structure
Net Interest Margin = Net
Interest Income/ Total Assets
Non-Interest Income =
Non-Interest Income /Total
Assets
NIM
NII
Investment
Activities
Investment in Govt. securities/Total Assets
Other Investment/Total Assets
IGSEC
OI
So, our profitability model would be as follows:
ROA = β0 + β 1LogA + β 2CA + β 3LA + β 4NPL + β 5DP + β 6NIM + β 7NII + β 8IGSEC+ β9OI + ε
29
4.3.3 Hypothesis
The previous discussion in the overview of the banking sector of Bangladesh and the case
study of AB bank Ltd. sections lead us to predict the following hypothesized relationships
with respect to the profitability:
Hypothesis H1a: Asset size measured by natural logarithm of total assets (logA) has a
significant positive impact on ROA
Hypothesis H2a: Net Interest Margin (NIM) has a significant positive impact on ROA
Hypothesis H3a: Banks with more diversified income measured by Non-Interest Income
(NII) tend to be more profitable
Hypothesis H4a: : Investment activities mainly in quoted and unquoted shares and
debentures of private sectors measured by Other Investment (OI) have a significant positive
impact on ROA
4.4 Limitation of the Study
Due to limited data availability and time constraints some external variables such as annual
real gross domestic product growth rate (GDP), annual inflation rate (INF) and real interest
rate (RI) have not been included in this study. The linkage between the bank’s profitability
and their exposure with the capital market also has not been analyzed in detail. Another
limitation is that only two year’s data have been used to identify the major determinants of
profitability. To have a deeper look at panel data set can be more useful.
30
CHAPTER 5
ANALYSIS OF THE PROFITABILITY DETERMINANTS OF PRIVATE
COMMERCIAL BANKS IN BANGLADESH
5.1. Descriptive Statistics20
The basic descriptive statistics of the variables are presented in Table 5.1. For each variable,
Table 5.1 shows mean, standard deviation, minimum and maximum value for the year 2009
and 2010 of 30 private commercial banks of Bangladesh. On average, those banks have a
return on assets (ROA) of 1.27% and 1.86% in the year 2009 and 2010 respectively. The
ROA varies greatly across banks and periods, the standard deviation of ROA is 2.35%,
minimum and maximum values are -10.85% and 3.19% in the year 2009. The standard
deviation, minimum and maximum values of ROA in the year 2010 are 1.93%, -07.29% and
5.10% respectively. Asset size has been determined by the natural logarithm of total asset
(Log A), the mean of which in the year 2009(2010) is 24.96 (25.21) and standard deviation
0.47 (0.48). The maximum and minimum values of Log A in the year 2009 (2010) are 26.35
(26.52) and 23.67 (23.65) respectively. When the mean of capital adequacy ratio (CA) in the
year 2009 (2010) is 8.10% (8.21%), minimum value is -6.36% (-31.14%) and maximum
value is 23.36% (14.86%). Averages of loans/assets ratio (LA) and deposits/assets (DP) are
approximately 69.03% (71.68%) and 82.18% (79.76%) respectively. The average NPL ratio
is 6.42% (5.13%), but it varies greatly between 0.94% (1.14%) to 80.99% (61.60%) in the
year 2009 (2010). The standard deviation of NPL is 14.54% (10.88). The net interest margin
(NIM) amounts to 2.39% (2.75%) on average and non-interest income/assets ratio (NII)
amounts to 3.13% (3.70%) on average, for private commercial banks in our study. The higher
average ratio of NII than that of NIM indicates that non-interest income plays a vital role in
the profitability. The average investment in government securities/assets ratio (IGSEC) is
10.86% (8.99%) whereas the average investment in other securities/assets (OI) ratio is 1.40%
(2.12%) in the year 2009 (2010).
Table 5.1 Descriptive Statistics
Year ROA Log A CA LA NPL DP NIM NII IGSEC OI
2009
Mean 1.27% 24.9649 8.10% 69.03% 6.42% 82.18% 2.39% 3.13% 10.86% 1.40%
Max 3.19% 26.3520 23.36% 82.35% 80.99% 89.41% 3.99% 5.05% 31.06% 6.25%
Min -10.85% 23.6677 -6.36% 54.83% 0.94% 68.66% 1.25% 0.54% 1.87% 0.00%
Std. Dev. 2.35% 0.4653 4.17% 6.87% 14.54% 4.93% 0.61% 1.10% 6.10% 1.52%
2010
Mean 1.86% 25.2067 8.21% 71.68% 5.13% 79.76% 2.75% 3.70% 8.99% 2.12%
Max 5.10% 26.5247 14.86% 83.75% 61.60% 88.57% 4.19% 6.72% 22.63% 7.40%
Min -7.29% 23.6487 -31.14% 53.08% 1.14% 68.02% 1.36% 0.42% 0.02% 0.05%
Std. Dev. 1.93% 0.4832 7.81% 6.11% 10.88% 5.76% 0.70% 1.36% 4.68% 1.59% Source: Author’s calculation
5.2 Correlation Matrix amongst independent variables
Correlation matrix between independent variables is presented in Table 5.2 and 5.3. The
matrixes show that there are few strong correlations between independent variables. The
20
The figure in the bracket represents the value for the year 2010.
31
absolute values of correlation are greater than 0.5 in some occasions. But prima facie
evidence suggests that multicollinearity problem is not extremely severe for both the year.
Table 5.2
Correlation Matrix among Independent Variables in the Year 2009
Log A CA LA NPL DP NIM NII IGSEC OI
Log A 1 CA -0.3717 1
LA 0.0046 0.2166 1 NPL -0.4868 0.5290 -0.0696 1
DP 0.3612 -0.5227 0.1807 -0.5012 1 NIM 0.4200 -0.0270 0.0978 -0.2761 -0.1599 1
NII 0.3241 -0.1218 -0.3255 -0.4217 0.0347 0.0154 1 IGSEC 0.1151 -0.2025 -0.5984 -0.1426 0.1240 -0.2921 0.6073 1
OI 0.0981 0.0324 -0.0340 -0.1762 -0.0513 0.1661 0.3159 -0.1398 1 Source: Author’s calculation
Table 5.3
Correlation Matrix among Independent Variables in the Year 2010
Log A CA LA NPL DP NIM NII IGSEC OI
Log A 1 CA 0.6172 1
LA 0.0195 -0.1567 1 NPL -0.5994 -0.9245 -0.0598 1
DP 0.0669 0.0348 0.4133 -0.2797 1 NIM 0.3247 0.1383 0.0737 -0.1456 -0.1585 1
NII 0.2360 0.5665 -0.2162 -0.4488 -0.3031 0.1568 1 IGSEC 0.1545 0.3870 -0.5135 -0.3128 0.1042 -0.0580 0.4293 1
OI 0.1606 0.3405 -0.1891 -0.2250 -0.2494 0.4684 0.5737 0.0979 1 Source: Author’s calculation
32
5.3 Regression Results and Hypothesis Test21
Table 5.3 and 5.4 show that the value of R Square is 0.9772 (0.9711) in the year 2009 (2010)
which reflects that the regression model explains 97.22% (97.11%) of the variation in ROA.
F-statistic is very much significant. F=95.15 (74.73), Significance F≈0.000 (0.000) at 95
percent confidence interval suggesting that both the model for the year 2009 and 2010 are
useful to determine the determinants of ROA.
Table 5.3
Regression Results for the Year 2009
Regression Statistics Multiple R 0.9885 R Square 0.9772 Adjusted R Square 0.9669 Standard Error 0.0043 Observations 30
ANOVA df SS MS F Significance F
Regression 9 0.0156 0.0017 95.1505 0.0000 Residual 20 0.0004 0.0000
Total 29 0.0160
Coefficients Standard Error t Stat P-value Intercept -0.0191 0.0538 -0.3554 0.7260
Log A 0.0015 0.0023 0.6225 0.5406 CA -0.1704 0.0271 -6.2757 0.0000 LA 0.0471 0.0171 2.7490 0.0124 NPL -0.1113 0.0088 -12.5910 0.0000 DP -0.0471 0.0246 -1.9188 0.0694 NIM 0.1751 0.1784 0.9814 0.3381 NII 0.4152 0.1271 3.2677 0.0039 IGSEC 0.0309 0.0243 1.2741 0.2172 OI 0.1373 0.0632 2.1722 0.0420 Source: Author’s calculation
21
The figure in the bracket represents the value for the year 2010.
33
Table 5.4
Regression Results for the Year 2010
Regression Statistics Multiple R 0.9855 R Square 0.9711 Adjusted R Square 0.9581 Standard Error 0.0039 Observations 30
ANOVA Df SS MS F Significance F
Regression 9 0.0104 0.0012 74.7313 0.0000 Residual 20 0.0003 0.0000
Total 29 0.0108
Coefficients Standard Error t Stat P-value Intercept -0.0488 0.0545 -0.8944 0.3817
Log A -0.0004 0.0021 -0.1684 0.8679 CA 0.1305 0.0375 3.4777 0.0024 LA 0.0167 0.0190 0.8786 0.3901 NPL -0.0406 0.0262 -1.5478 0.1373 DP 0.0447 0.0216 2.0676 0.0519 NIM 0.1245 0.1374 0.9062 0.3756 NII 0.4540 0.0955 4.7546 0.0001 IGSEC -0.0323 0.0251 -1.2864 0.2130 OI 0.1331 0.0706 1.8856 0.0740 Source: Author’s calculation
5.3.1 Hypothesis H1a (Asset size measured by natural logarithm of total assets (logA) has
a significant positive impact on ROA):
In our model, it seems that asset size of a bank is not significant indicating that banks with
higher ROA need not to be big in size. The coefficients of ‘Log A’ is only 0.0015 (-0.0004); t
= 0.6225 (-0.1684) and p= 0.5406 (0.8679). The lower coefficient value and higher p value of
Log A implies that asset size is not significantly related to ROA. Based on this regression
result we can reject the hypotheses H1a. However, we must carefully interpret this finding
due to the fact that ROA reflects the profitability not the gross amount of profit and market
share of a bank.
5.3.2 Hypothesis H2a (Net Interest Margin (NIM) has a significant positive impact ROA):
In our study, it is found that NIM has insignificant positive relation with ROA indicating that
banks with higher net interest margin may not achieve higher profitability. In the regression
result it is found that the coefficient of NIM is 0.1751 (0.1245), t value is 0.9814 (0.9062) and
34
‘p’ value is 0.3381 (0.3756). Lower t value and higher ‘p’ value reflects that the NIM is not
significantly related to ROA. Based on this result we can reject the hypotheses H2a.
5.3.3 Hypothesis H3a (Banks with more diversified income measured by Non-Interest
Income (NII) tend to be more profitable):
Concerning the impact of diversification strategy, the coefficient of NII/TA entered the
regression model and is found statistically very much significant at the 5% level of
significance. The results imply that banks which derived a higher proportion of its income
from non-interest sources such as fee based services tend to report a higher level of
profitability. The coefficient of NII ratio is 0.4152 (0.4540) which is very much high in our
regression model. t value is 3.2677 (4.7546) which is very significant. The ‘p’ value is 0.0039
(0.0001) for the year 2009 (2010) which is very low. Based on these findings we can accept
the hypothesis H3a.
5.3.4 Hypothesis H4a (Investment activities mainly in quoted and unquoted shares and
debentures of private sectors measured by Other Investment (OI) have a significant positive
impact on ROA):
Referring to the impact of investment activities (other than the govt. securities) of banks
mainly in quoted and unquoted shares and debentures of private sectors (OI/TA) on ROA, we
find that the coefficient of the variable is positive and statistically significant. The coefficient
value of OI ratio is 0.1373 (0.1331) which can be considered as high. t value is 2.1722
(1.8856) and ‘p’ value is 0.0420 (0.0740). The considerably higher coefficient value of the OI
variable, moderately higher t value and lower ‘p’ value supports our hypothesis H4a. Based
on these statistical findings we can accept the hypothesis H4a.
35
CHAPTER 6
CONCLUSION AND RECOMMENDATIONS FOR
POLICY IMPLICATIONS
The banking sector of Bangladesh has undergone noteworthy financial reforms, which has
significantly transformed the sector. At present private commercial banks are dominant in
respect of market share and profitability in this sector. Profitability is always an important
criterion to measure the performance of banks. This study seeks to examine the determinants
of private commercial bank’s profitability in Bangladesh by using the data obtained from the
financial statements of all the private commercial banks (30 commercial banks) for the year
2009 and 2010. The study identified that asset size does not have a significant effect on
profitability. It suggests that to achieve a higher level of ROA it is not always necessary to be
a larger bank. Interest income is always considered to be the main source of income of a
bank, but in our study it is found that NIM/assets ratio does not have a significant impact on
profitability. But the most significant variable which affects the profitability was found to be
the non-interest income/assets ratio. This indicates that greater diversification in banking
activities positively influence profitability. It is also identified that investment activities,
mainly in shares and debentures (quoted and unquoted) of private sectors has a significant
positive impact on ROA. It suggests that banks which are more exposed to the capital market
or invest higher proportion of funds in unquoted shares and debenture may achieve higher
profitability.
The findings of this study have considerable policy relevance. It could be argued that the
more profitable bank will be able to offer more new products and services. To this end, the
role of diversified banking activities is particularly important, given that a bank with
relatively more innovative ideas and better fund management capability may have added
advantage over its peers. As per the portfolio theory diversification reduces risks, so various
sources of earning should be welcomed. But if this earning includes higher proportion of
volatile trading activity rather than low risk income streams like fees and commission, the
risk may become higher. In our study it is observed that higher proportion of investment
activities (other than the government securities) may help to achieve higher level of
profitability, so a bank may have tendency to increase its exposure to the capital market.
More exposure in the capital market may bring more risk to a bank as the investment decision
in the developing capital market like Bangladesh depends mostly on speculation rather than
the real financial indicators. It suggests that non-traditional activates of banks (other than
deposit taking and lending) may lead banks to higher exposure to the risk. So the ability to
maximize risk adjusted returns and sustaining stable and competitive returns is an important
element in the banking business. Thus, from the regulatory perspective, risk management
should be the key focus.
The policy direction should be directed in such a way which will enhance the resilience and
efficiency of the financial institutions with the aim of intensifying the robustness as well as
stability of the banking sector. In this regard, capital adequacy should be emphasized so that
banks are able to withstand any negative shock. Ring-fencing traditional banking from
investment banking and putting limit on the exposure to risk taking investment activities can
be one of the way to minimize the risk. The risk taking investment activities also should be
monitored very closely by the supervisor.
Banks profitability is expected to be sensitive to macroeconomic variables such as Gross
Domestic Product rate (GDP), inflation rate (INF) and real interest rate (RI). Due to limited
36
data availability and time constraints, those external variables have not been included in this
study. There is also scope to analyze the linkage between the bank’s profitability and their
exposure to the capital market more intensively. Another potential important aspect is to
analyze the determinants of profitability by a panel data set. These are the few ways to extend
this research in future.
37
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39
WEB LINKS
AB Bank Limited http://www.abbank.com.bd
Al-Arafah Islami Bank Limited http://www.al-arafahbank.com/
Bangladesh Bank http://www.bangladesh-bank.org
Bangladesh Commerce Bank Limited http://www.bcbl-bd.com
Bank Asia Limited http://www.bankasia-bd.com
Board of Investment http://boi.gov.bd
BRAC Bank Limited http://www.bracbank.com
Dhaka Bank Limited http://www.dhakabank.com.bd
Dhaka Stock Exchange Ltd. http://www.dsebd.org
Dutch-Bangla Bank Limited http://www.dutchbanglabank.com
Eastern Bank Limited http://www.ebl-bd.com
EXIM Bank Limited http://www.eximbankbd.com
First Security Islami Bank Limited http://www.fsblbd.com
ICB Islamic Bank Ltd. http://www.icbislamic-bd.com/
IFIC Bank Limited http://www.ificbankbd.com
Islami Bank Bangladesh Ltd http://www.islamibankbd.com
Jamuna Bank Ltd http://www.jamunabankbd.com
Mercantile Bank Limited http://www.mblbd.com
Mutual Trust Bank Limited http://www.mutualtrustbank.com
National Bank Limited http://www.nblbd.com
National Credit & Commerce Bank Ltd http://www.nccbank.com.bd
One Bank Limited http://www.onebankbd.com
Premier Bank Limited http://www.premierbankltd.com
Prime Bank Ltd http://www.prime-bank.com
Pubali Bank Limited http://www.pubalibangla.com
Shahjalal Bank Limited http://www.shahjalalbank.com.bd
Social Islami Bank Ltd. http://www.siblbd.com
Southeast Bank Limited http://www.sebankbd.com
Standard Bank Limited http://www.standardbankbd.com
The City Bank Ltd. http://www.thecitybank.com
Trust Bank Limited http://www.trustbank.com.bd
United Commercial Bank Limited http://www.ucbl.com
Uttara Bank Limited http://www.uttarabank-bd.com
40
Appendix 1: Financial Data of the Private Commercial Banks of Bangladesh (Year-2009)
(Taka in million)
Bank Name Total Asset Total Equity Total Loan
Total Classified
Loan Total Deposit Net Profit
Net Interest Income
Total Non Interest Income
Investment in Govt. Securities
Investment other than Govt. Securities
1 AB Bank Limited 107,093.01 10,291.90 72,063.26 1,949.17 83,082.63 3,417.19 2,964.37 5,409.91 9,675.47 6,693.84
2 Al-Arafah Islami Bank Ltd. 48,515.79 3,564.73 36,134.08 608.14 38,355.50 858.99 1,337.20 1,301.10 1,500.00 2.00
3 Bank Asia Ltd. 68,663.20 4,954.14 50,267.92 785.07 54,832.82 1,327.18 1,749.48 2,380.03 8,902.78 760.31
4 BRAC Bank Ltd. 95,161.26 8,831.24 64,150.84 3,877.66 74,455.68 1,373.36 3,433.31 3,971.31 10,257.68 125.63
5 City Bank Ltd. 76,466.80 5,864.23 43,486.42 2,116.96 62,384.28 818.72 2,070.83 2,297.05 8,468.75 2,117.70
6 Dhaka Bank Ltd. 77,767.41 4,965.68 52,909.81 2,946.14 60,918.37 959.37 1,910.79 2,174.98 8,440.48 219.08
7 Dutch-Bangla Bank Ltd. 81,788.41 4,351.80 48,410.99 1,193.32 67,788.53 1,137.70 2,066.83 2,751.69 9,669.88 16.00
8 Eastern Bank Ltd. 69,870.74 8,429.15 47,667.99 1,171.68 49,189.54 1,454.54 2,317.13 2,313.02 7,716.88 1,089.43
9 Export Import (Exim) Bank Ltd. of Bangladesh 83,319.90 6,706.11 68,609.91 1,839.69 73,835.46 1,682.99 2,204.25 2,239.50 2,003.00 166.44
10 First Security Islami Bank Ltd. 47,978.55 2,865.41 38,725.87 830.52 42,423.09 326.84 1,014.87 312.76 1,610.67 241.35
11 ICB Islamic Bank Ltd. 19,000.57 4,439.29 13,419.64 10,868.93 13,046.15 -2,062.21 290.90 102.16 696.19 4.00
12 IFIC Bank Ltd. 62,901.86 4,197.46 37,793.89 2,320.31 50,017.96 899.52 1,102.18 2,622.18 7,848.54 831.39
13 Islami Bank Bangladesh Ltd. 278,302.84 20,105.54 214,615.80 5,063.40 244,292.14 3,403.55 8,293.54 4,033.33 11,112.00 24.61
14 Jamuna Bank Ltd.) 48,730.95 3,980.88 32,287.66 710.86 42,356.20 923.12 900.15 2,027.83 8,475.24 3.20
15 Mercantile Bank Ltd. 66,166.52 4,296.25 48,295.55 1,252.05 55,553.08 807.52 1,310.27 2,181.64 9,175.73 488.99
16 Mutual Trust Bank Ltd. 52,774.77 3,684.51 33,883.92 952.76 42,354.07 820.61 870.15 1,673.87 8,961.99 575.98
17 National Bank Ltd. 91,965.77 8,918.25 65,129.29 3,880.31 76,834.13 2,082.23 2,516.29 4,033.82 8,589.55 3,725.66
18 National Credti and Commerce Bank Ltd. 65,937.49 6,034.45 50,387.68 1,420.57 53,900.15 1,719.50 1,527.03 2,845.26 9,188.18 483.35
19 One Bank Ltd. 45,163.17 3,068.57 32,532.70 1,755.72 39,364.89 726.70 1,034.60 1,594.28 4,912.51 1,876.21
20 The Premier Bank Ltd. 47,343.24 4,638.04 33,664.59 617.55 37,381.96 1,088.32 934.12 1,519.28 5,872.65 640.36
21 Prime Bank Ltd. 124,984.70 11,796.68 89,945.99 1,149.10 107,077.27 2,823.47 2,452.45 5,810.41 19,017.34 916.59
22 Pubali Bank Ltd. 107,579.60 9,509.25 74,203.33 2,197.40 88,466.46 2,092.23 4,291.10 2,607.18 9,344.39 2,824.26
41
Appendix 1: Financial Data of the Private Commercial Banks of Bangladesh (Year-2009)
(Taka in million)
Bank Name Total Asset Total Equity Total Loan
Total Classified
Loan Total Deposit Net Profit
Net Interest Income
Total Non Interest Income
Investment in Govt. Securities
Investment other than Govt. Securities
23 Rupali Bank Ltd. 87,791.45 -5,581.77 52,344.17 10,944.13 73,803.44 1,668.49 1,739.79 2,281.21 13,633.83 669.17
24 Shahjalal Islami Bank Ltd. 58,920.90 4,926.63 43,958.26 413.23 47,459.23 1,070.57 1,330.60 1,586.16 1,100.00 2,383.15
25 Social Islami Bank Ltd. 39,980.82 3,555.75 26,580.58 848.94 31,588.16 431.52 1,015.36 702.28 750.00 560.66
26 Southeast Bank Ltd. 112,676.98 11,329.18 77,497.57 2,893.00 96,669.05 1,870.19 1,406.09 4,453.12 19,407.61 1,942.63
27 Standard Bank Ltd. 49,000.90 4,221.72 38,055.75 696.52 42,555.51 764.25 1,082.57 1,111.70 4,714.07 626.27
28 The Trust Bank Ltd. 54,206.65 3,754.87 32,663.11 860.72 48,464.64 610.91 914.38 1,553.29 8,032.95 672.66
29 United Commercial Bank Ltd.) 90,483.78 5,705.47 61,692.22 1,622.31 77,730.40 932.90 2,617.09 2,574.97 7,849.87 1,496.52
30 Uttara Bank Ltd. 71,946.00 6,206.95 39,451.36 2,842.00 59,387.26 1,105.23 1,702.01 3,162.01 22,344.07 158.41
Source: Author’s compilation from the annual reports of all the private commercial banks of Bangladesh
42
Appendix 2: Financial Data of the Private Commercial Banks of Bangladesh (Year-2010)
(Taka in million)
Bank Name Total Asset Total Equity Total Loan
Total Classified
Loan Total Deposit Net Profit
Net Interest Income
Total Non
Interest Income
Investment in Govt.
Securities
Investment other than
Govt. Securities
1 AB Bank Limited 134,003.88 14,146.88 96,730.29 1,852.48 94,780.20 3,989.52 4,084.94 7,919.74 10,925.59 4,122.95
2 Al-Arafah Islami Bank Ltd. 74,005.01 9,647.45 53,582.96 610.48 52,973.97 1,816.14 1,009.61 3,378.95 2,000.00 178.83
3 Bank Asia Ltd. 105,198.05 7,059.94 79,504.23 1,284.25 83,601.26 1,929.58 2,960.77 3,729.64 10,405.64 1,670.06
4 BRAC Bank Ltd. 122,801.15 10,551.32 86,573.91 4,929.56 88,154.87 2,073.06 5,141.63 5,257.85 9,667.94 3,457.56
5 City Bank Ltd. 90,685.13 11,539.97 60,543.45 2,668.70 66,836.85 1,870.23 3,581.70 3,779.74 8,976.87 3,499.28
6 Dhaka Bank Ltd. 90,140.87 6,579.73 63,591.39 2,908.59 67,742.52 1,678.98 2,460.46 3,094.72 7,099.58 1,343.62
7 Dutch-Bangla Bank Ltd. 101,181.64 7,000.99 67,657.67 1,665.67 83,244.77 2,002.32 3,726.85 3,432.24 9,738.60 1,263.01
8 Eastern Bank Ltd. 82,488.58 12,256.98 58,607.09 1,168.74 56,105.41 2,514.20 2,984.47 3,616.97 6,828.14 2,999.06
9 Export Import (Exim) Bank Ltd. of Bangladesh 113,047.47 12,445.85 94,674.60 1,855.25 94,951.57 3,458.02 3,586.13 4,131.17 2,756.00 1,766.04
10 First Security Islami Bank Ltd. 63,619.80 3,920.01 52,123.90 1,362.06 56,344.96 548.60 1,421.22 663.99 2,331.13 528.22
11 ICB Islamic Bank Ltd. 18,641.60 -5,804.74 13,904.84 8,565.98 13,594.55 -1,358.24 427.47 78.68 4.42 9.00
12 IFIC Bank Ltd. 70,840.26 5,765.44 48,826.26 2,264.28 55,918.50 1,664.09 2,092.76 4,280.25 6,896.03 2,320.64
13 Islami Bank Bangladesh Ltd. 330,785.17 23,516.28 261,725.13 4,655.63 291,937.49 4,485.48 10,294.37 5,417.57 11,668.67 1,802.53
14 Jamuna Bank Ltd.) 71,063.77 6,408.19 49,734.80 905.52 60,673.56 1,066.01 1,481.00 2,265.24 10,581.30 284.73
15 Mercantile Bank Ltd. 87,140.11 7,185.69 66,377.70 1,187.81 73,739.39 1,425.34 1,661.90 3,113.91 9,565.35 1,371.86
16 Mutual Trust Bank Ltd. 58,246.03 4,378.81 39,676.12 903.97 45,846.31 988.36 1,166.67 2,231.97 8,070.96 1,145.38
17 National Bank Ltd. 134,748.04 19,118.30 92,003.56 3,642.57 102,471.83 6,871.56 4,039.05 9,053.44 15,016.88 9,976.44
18 National Credti and Commerce Bank Ltd. 83,554.18 9,357.11 63,230.14 1,425.28 67,961.24 2,371.68 2,486.47 3,187.98 10,262.31 718.50
19 One Bank Ltd. 58,704.87 4,864.29 42,190.40 1,565.58 50,873.71 1,887.45 1,862.47 2,605.29 5,776.96 1,713.91
20 The Premier Bank Ltd. 68,240.35 6,277.12 46,400.57 2,160.98 54,691.47 1,772.02 1,504.77 3,271.69 7,289.20 2,905.80
43
Appendix 2: Financial Data of the Private Commercial Banks of Bangladesh (Year-2010)
(Taka in million)
Bank Name Total Asset Total Equity Total Loan
Total Classified
Loan Total Deposit Net Profit
Net Interest Income
Total Non
Interest Income
Investment in Govt.
Securities
Investment other than
Govt. Securities
21 Prime Bank Ltd. 155,532.79 17,466.60 118,837.29 1,367.69 124,799.31 3,642.84 4,648.27 6,144.33 19,368.12 2,830.42
22 Pubali Bank Ltd. 128,462.65 14,379.87 89,106.21 1,818.57 98,850.50 3,233.09 5,213.32 3,825.02 10,807.10 5,709.28
23 Rupali Bank Ltd. 124,434.50 14,151.48 66,048.97 7,902.71 91,123.76 600.29 2,088.80 2,701.02 14,449.70 1,267.49
24 Shahjalal Islami Bank Ltd. 78,800.40 6,748.35 61,440.08 1,173.13 62,964.95 2,072.34 1,758.86 3,092.10 1,400.00 828.85
25 Social Islami Bank Ltd. 54,665.81 4,195.86 36,680.29 1,745.57 44,350.89 640.10 1,451.17 1,181.92 1,050.00 1,499.73
26 Southeast Bank Ltd. 131,784.27 17,146.00 93,981.20 3,938.49 107,253.19 2,763.93 2,681.36 5,825.65 16,603.46 2,265.61
27 Standard Bank Ltd. 66,596.01 5,625.06 51,757.69 1,016.67 58,344.44 1,369.07 1,723.77 1,945.26 6,528.76 1,078.38
28 The Trust Bank Ltd. 58,360.67 5,045.02 42,760.43 960.02 50,357.90 1,294.44 1,525.63 2,244.41 6,714.01 1,845.93
29 United Commercial Bank Ltd.) 129,774.43 7,814.63 93,560.70 1,120.80 112,970.78 2,179.80 3,835.41 4,020.33 12,408.11 2,763.27
30 Uttara Bank Ltd. 81,451.84 8,610.84 48,672.69 2,678.68 65,868.03 1,551.88 1,881.95 3,926.36 18,429.30 161.83
Source: Author’s compilation from the annual reports of all the private commercial banks of Bangladesh
44
Appendix 3: Some Selected Ratios of the Private Commercial Banks of Bangladesh (Year-2009)
Bank Name ROA Log A CA LA NPL DP NIM NII IGSEC OI
1 AB Bank Limited 0.0319 25.3970 0.0961 0.6729 0.0270 0.7758 0.0277 0.0505 0.0903 0.0625
2 Al-Arafah Islami Bank Ltd. 0.0177 24.6052 0.0735 0.7448 0.0168 0.7906 0.0276 0.0268 0.0309 0.0000
3 Bank Asia Ltd. 0.0193 24.9525 0.0722 0.7321 0.0156 0.7986 0.0255 0.0347 0.1297 0.0111
4 BRAC Bank Ltd. 0.0144 25.2788 0.0928 0.6741 0.0604 0.7824 0.0361 0.0417 0.1078 0.0013
5 City Bank Ltd. 0.0107 25.0601 0.0767 0.5687 0.0487 0.8158 0.0271 0.0300 0.1108 0.0277
6 Dhaka Bank Ltd. 0.0123 25.0770 0.0639 0.6804 0.0557 0.7833 0.0246 0.0280 0.1085 0.0028
7 Dutch-Bangla Bank Ltd. 0.0139 25.1274 0.0532 0.5919 0.0246 0.8288 0.0253 0.0336 0.1182 0.0002
8 Eastern Bank Ltd. 0.0208 24.9699 0.1206 0.6822 0.0246 0.7040 0.0332 0.0331 0.1104 0.0156
9 Export Import (Exim) Bank Ltd. of Bangladesh 0.0202 25.1460 0.0805 0.8235 0.0268 0.8862 0.0265 0.0269 0.0240 0.0020
10 First Security Islami Bank Ltd. 0.0068 24.5940 0.0597 0.8071 0.0214 0.8842 0.0212 0.0065 0.0336 0.0050
11 ICB Islamic Bank Ltd. -0.1085 23.6677 0.2336 0.7063 0.8099 0.6866 0.0153 0.0054 0.0366 0.0002
12 IFIC Bank Ltd. 0.0143 24.8648 0.0667 0.6008 0.0614 0.7952 0.0175 0.0417 0.1248 0.0132
13 Islami Bank Bangladesh Ltd. 0.0122 26.3520 0.0722 0.7712 0.0236 0.8778 0.0298 0.0145 0.0399 0.0001
14 Jamuna Bank Ltd.) 0.0189 24.6096 0.0817 0.6626 0.0220 0.8692 0.0185 0.0416 0.1739 0.0001
15 Mercantile Bank Ltd. 0.0122 24.9154 0.0649 0.7299 0.0259 0.8396 0.0198 0.0330 0.1387 0.0074
16 Mutual Trust Bank Ltd. 0.0155 24.6893 0.0698 0.6420 0.0281 0.8025 0.0165 0.0317 0.1698 0.0109
17 National Bank Ltd. 0.0226 25.2447 0.0970 0.7082 0.0596 0.8355 0.0274 0.0439 0.0934 0.0405
18 National Credti and Commerce Bank Ltd. 0.0261 24.9120 0.0915 0.7642 0.0282 0.8174 0.0232 0.0432 0.1393 0.0073
19 One Bank Ltd. 0.0161 24.5335 0.0679 0.7203 0.0540 0.8716 0.0229 0.0353 0.1088 0.0415
20 The Premier Bank Ltd. 0.0230 24.5807 0.0980 0.7111 0.0183 0.7896 0.0197 0.0321 0.1240 0.0135
21 Prime Bank Ltd. 0.0226 25.5515 0.0944 0.7197 0.0128 0.8567 0.0196 0.0465 0.1522 0.0073
22 Pubali Bank Ltd. 0.0194 25.4015 0.0884 0.6898 0.0296 0.8223 0.0399 0.0242 0.0869 0.0263
23 Rupali Bank Ltd. 0.0190 25.1982 -0.0636 0.5962 0.2091 0.8407 0.0198 0.0260 0.1553 0.0076
24 Shahjalal Islami Bank Ltd. 0.0182 24.7995 0.0836 0.7461 0.0094 0.8055 0.0226 0.0269 0.0187 0.0404
25 Social Islami Bank Ltd. 0.0108 24.4117 0.0889 0.6648 0.0319 0.7901 0.0254 0.0176 0.0188 0.0140
26 Southeast Bank Ltd. 0.0166 25.4478 0.1005 0.6878 0.0373 0.8579 0.0125 0.0395 0.1722 0.0172
27 Standard Bank Ltd. 0.0156 24.6151 0.0862 0.7766 0.0183 0.8685 0.0221 0.0227 0.0962 0.0128
28 The Trust Bank Ltd. 0.0113 24.7161 0.0693 0.6026 0.0264 0.8941 0.0169 0.0287 0.1482 0.0124
29 United Commercial Bank Ltd.) 0.0103 25.2284 0.0631 0.6818 0.0263 0.8591 0.0289 0.0285 0.0868 0.0165
30 Uttara Bank Ltd. 0.0154 24.9992 0.0863 0.5483 0.0720 0.8254 0.0237 0.0439 0.3106 0.0022
Source: Author’s compilation from the annual reports of all the private commercial banks of Bangladesh
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Appendix 4: Some Selected Ratios of the Private Commercial Banks of Bangladesh (Year-2010)
Bank Name ROA Log A CA LA NPL DP NIM NII IGSEC OI
1 AB Bank Limited 0.0298 25.6211 0.1056 0.7218 0.0192 0.7073 0.0305 0.0591 0.0815 0.0308
2 Al-Arafah Islami Bank Ltd. 0.0177 24.6052 0.0735 0.7448 0.0168 0.7906 0.0276 0.0268 0.0309 0.0000
3 Bank Asia Ltd. 0.0193 24.9525 0.0722 0.7321 0.0156 0.7986 0.0255 0.0347 0.1297 0.0111
4 BRAC Bank Ltd. 0.0144 25.2788 0.0928 0.6741 0.0604 0.7824 0.0361 0.0417 0.1078 0.0013
5 City Bank Ltd. 0.0107 25.0601 0.0767 0.5687 0.0487 0.8158 0.0271 0.0300 0.1108 0.0277
6 Dhaka Bank Ltd. 0.0123 25.0770 0.0639 0.6804 0.0557 0.7833 0.0246 0.0280 0.1085 0.0028
7 Dutch-Bangla Bank Ltd. 0.0139 25.1274 0.0532 0.5919 0.0246 0.8288 0.0253 0.0336 0.1182 0.0002
8 Eastern Bank Ltd. 0.0208 24.9699 0.1206 0.6822 0.0246 0.7040 0.0332 0.0331 0.1104 0.0156
9 Export Import (Exim) Bank Ltd. of Bangladesh 0.0202 25.1460 0.0805 0.8235 0.0268 0.8862 0.0265 0.0269 0.0240 0.0020
10 First Security Islami Bank Ltd. 0.0068 24.5940 0.0597 0.8071 0.0214 0.8842 0.0212 0.0065 0.0336 0.0050
11 ICB Islamic Bank Ltd. -0.1085 23.6677 0.2336 0.7063 0.8099 0.6866 0.0153 0.0054 0.0366 0.0002
12 IFIC Bank Ltd. 0.0143 24.8648 0.0667 0.6008 0.0614 0.7952 0.0175 0.0417 0.1248 0.0132
13 Islami Bank Bangladesh Ltd. 0.0122 26.3520 0.0722 0.7712 0.0236 0.8778 0.0298 0.0145 0.0399 0.0001
14 Jamuna Bank Ltd.) 0.0189 24.6096 0.0817 0.6626 0.0220 0.8692 0.0185 0.0416 0.1739 0.0001
15 Mercantile Bank Ltd. 0.0122 24.9154 0.0649 0.7299 0.0259 0.8396 0.0198 0.0330 0.1387 0.0074
16 Mutual Trust Bank Ltd. 0.0155 24.6893 0.0698 0.6420 0.0281 0.8025 0.0165 0.0317 0.1698 0.0109
17 National Bank Ltd. 0.0226 25.2447 0.0970 0.7082 0.0596 0.8355 0.0274 0.0439 0.0934 0.0405
18 National Credti and Commerce Bank Ltd. 0.0261 24.9120 0.0915 0.7642 0.0282 0.8174 0.0232 0.0432 0.1393 0.0073
19 One Bank Ltd. 0.0161 24.5335 0.0679 0.7203 0.0540 0.8716 0.0229 0.0353 0.1088 0.0415
20 The Premier Bank Ltd. 0.0230 24.5807 0.0980 0.7111 0.0183 0.7896 0.0197 0.0321 0.1240 0.0135
21 Prime Bank Ltd. 0.0226 25.5515 0.0944 0.7197 0.0128 0.8567 0.0196 0.0465 0.1522 0.0073
22 Pubali Bank Ltd. 0.0194 25.4015 0.0884 0.6898 0.0296 0.8223 0.0399 0.0242 0.0869 0.0263
23 Rupali Bank Ltd. 0.0190 25.1982 -0.0636 0.5962 0.2091 0.8407 0.0198 0.0260 0.1553 0.0076
24 Shahjalal Islami Bank Ltd. 0.0182 24.7995 0.0836 0.7461 0.0094 0.8055 0.0226 0.0269 0.0187 0.0404
25 Social Islami Bank Ltd. 0.0108 24.4117 0.0889 0.6648 0.0319 0.7901 0.0254 0.0176 0.0188 0.0140
26 Southeast Bank Ltd. 0.0166 25.4478 0.1005 0.6878 0.0373 0.8579 0.0125 0.0395 0.1722 0.0172
27 Standard Bank Ltd. 0.0156 24.6151 0.0862 0.7766 0.0183 0.8685 0.0221 0.0227 0.0962 0.0128
28 The Trust Bank Ltd. 0.0113 24.7161 0.0693 0.6026 0.0264 0.8941 0.0169 0.0287 0.1482 0.0124
29 United Commercial Bank Ltd.) 0.0103 25.2284 0.0631 0.6818 0.0263 0.8591 0.0289 0.0285 0.0868 0.0165
30 Uttara Bank Ltd. 0.0154 24.9992 0.0863 0.5483 0.0720 0.8254 0.0237 0.0439 0.3106 0.0022
Source: Author’s compilation from the annual reports of all the private commercial banks of Bangladesh
