First Security Islami Bank Ratio Analysis

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RATIO ANALYSIS ON FIRST SECURITIY ISLAMI BANK LTD.

Southeast University

Assignment

On

Ratio Analysis On First Security Islami Bank Ltd.

Course Title: Bank Management

Course Code: FIN4142

Submitted By:

Name ID Batch Sec.

Manzurul Karim 2011110000003 28th B

Irin Akter 2011110000069 28th B

Md. Alamin 2011010000191 27th B

Rajib Alam 2011010000195 27th B

Submitted To:

Kazi Md. Tarique

Assistant Professor

School of Business Studies

Submission Date:

13-08-14

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TABLE OF CONTENT

S.L NO Topics Page no

1. INTRODUCTION 03

2. OBJECTIVE & ITS ANALYSIS 04-05

3. RATIO ANALYSIS 06-21

a. Profitability Ratio

b. Breakdown of Return On Equity

c. Credit Risk Ratio

d. Liquidity Risk Ratio

e. Capital Adequacy Ratio

f. Asset Quality

g. Social And Economic Impact

h. Liquidity Indicator Ratio

i. Number of Employee

4. CONCLUSION 22

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1. INTRODUCTION

First Security Islami Bank Limited (FSIBL) was formed in Bangladesh on 29 August 1999 under

Companies Act 1994 to start banking business. It obtained permission from Bangladesh Bank on

22 September 1999 to begin its business. The Bank carries banking activities through its 117

branches in the country. Their commercial banking activities include a wide range of services

including accepting deposits, discounting bills, conducting money transfer and foreign exchange

transactions, and performing other related services such as safe keeping, collections and issuing

guarantees, acceptances and letter of credit. FSIBL started their business with traditional

commercial banking services as First Security Bank Ltd. However, from January01, 2009 they

converted their business to Islamic Banking with Islamic Shariah Act and the bank changed its

name and mode of business and incorporated as First Security Islami Bank Ltd. It started with

14 branches in 1999 but now has 117 branches in Bangladesh which shows the impact they have

had in the economy. The bank maintains a friendly relationship with the top ranking banks. They

have online, SMS and ATM banking facilities for their clients. The company philosophy “A step

ahead in time” has been exactly the spirit for Asian success; the bank has been operating with

talented and brilliant personnel, equipment with modern technology so as to make it most

efficient to meet the challenges of 21st century and to fulfill the needs and wants of its customers.

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2. OBJECTIVE ANALYSIS

Vision:

First Security Islami Bank Limited aims to become one of the leading banks in Bangladesh by

excellent quality of operations in their banking sector. The bank has some missions to achieve

to meet the organizational goals.

These are listed below:

The bank believes in strong and well-capitalization.

It maintains high standard of corporate and business ethics in the business field.

First Security Islami Bank Limited extends highest quality of services, which attracts the

customers to choose them first.

First Security Islami Bank Limited provides products and services that encourage

savings.

First Security Islami Bank Limited’s main business mission is to obtain fine position in

the banking sector of Bangladesh as well as globally.

It also emphasizes on a reasonable earnings from its investment to satisfy the

shareholders.

Mission:

To contribute the socio-economical development of the country.

To attain highest level of satisfaction through extension of services by dedicated and

motivated professional.

To maintains continuous growth of market share ensuring quality.

To ensure ethics and transparency in all levels.

To ensure sustainable growth and establish full value of the honorable shareholders and

Above all, to add effective contribution to the national economy.

Objective:

To strive our customers best satisfaction & win their confidence.

To manage & operate the bank in the most effective manner.

To identify customers' needs & monitor their perception towards meeting those

requirements.

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To review & updated policies, procedures & practices to enhance the ability to extend

better customer services.

To train & develop all employees & provide them adequate resources so that the

customers' needs reasonably addressed.

To promote organizational efficiency by communicating company plans policies &

procedures openly to the employees in a timely fashion.

To ensure a congenial working environment.

To diversify portfolio in both retail & wholesale markets.

Objective Analysis:

First Security Islami Bank Ltd. wants to give best customer satisfaction with most effective

manner. They improve their policies, procedures & practices to extend better customer services.

They give training and development employees to provide customers’ needs. For their customer

ensure a congenial working environment. They give services different cities and villages and

open branches in the city or village.

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3. RATIO ANALYSIS

A. PROFITABILITY RATIO:

i. Return On Equity (ROE) =

14.22% 13.99% 12.75% 13.46% 12.07%

Comment: FSIBL ROE ratio was increased in the year 2009 14.22% where in 2010 ROE

13.99% decreased from the year 2009. In 2011 12.75% ROE decreased from the year 2010 but

increased in the year 2012 again decreased ROE in 2013.

ii. Return On Assets (ROA) =

0.85% 0.86% 0.64% 0.59% 0.48%

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Comment: FSIBL ROA ratio 0.01% was increased from the year 2009 where 2011 0.22% ROA.

2013 ROA 0.11% decreased from the year 2012. ROA 2010 is higher than the other year.

iii. Net Interest Margin (NIM) =

2.12% 2.23% 2.28% 2.35% 2.30%

Comment: FSIBL NIM was increased0.11% in the year 2010 from the year 2009. In 2011 NIM

0.5% increased and 20120.5% increased but again 0.5% decreased in the year 2013.

iv. Net Noninterest Margin (NNM) =

-0.77% -0.69% -1.31% -1.19% -1.34%

Comment: In the graph shows that 2010 -0.08% NNM was decreased from the year 2009 but

2011 highly increased -0.62% from the year 2010.

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v. Net Operating Margin (NOM) =

1.56% 1.89% 1.75% 1.50% 1.26%

Comment: The graph shows that NOM ratio 2010 0.33% increased from the year 2009. Where

NOM ratio 2011 decreased 0.14% from the year 2010. NOM ratio 2010 is higher than the other

year.

vi. Earning Spread =

1.75% 1.89% 2.00% 2.16% 2.11%

Comment: FSIBL ES ratio was increased 0.16% in the 2012 from the year 2011. ES 2012 is

higher than the other year.

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B. BREAKDOWN OF RETURN ON EQUITY:

I. Tax Management Efficiency:

50.53% 55.77% 47.54% 50.74% 50.31%

Comment: In the graph shows that 2010 TME ratio increased 5.24% from the previous year.

Where 2011 decreased TME ratio 8.23% from the year 2010. In the year 2010 is higher than the

other year.

II. Expense Control Efficiency:

48.72% 47.17% 44.55% 39.73% 34.46%

Comment: In the year 2009 ECE ratio was increased from the other four year. But FSIBL could

not control expense in the year 2013 and ECE ratio decreased 5.27% from the year 2012.

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III. Asset Management Efficiency:

2.77% 3.28% 3.01% 2.92% 2.77%

Comment: FSIBL AME ratio was increased 0.51% in the year 2010 from the year 2009. But

AME decreased 2011 0.27% from the year 2010. In the year 2010 AME ratio is higher than the

other year.

IV. Funds Management Efficiency:

16.74404023 16.2294927 20.00744957 22.90292809 25.1527897

Comment: FSIBL FME was increased in 2013 2.24986161 from the year 2012. In the year FME

ratio is higher than the other year.

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C. CREDIT RISK RATIO:

91.28% 92.51% 88.90% 87.62% 82.14%

Comment: FSIBL credit risk increased in 2010 1.23% from the year 2009. Where 2011 credit

risk decreased 3.61% from the year 2010. FSIBL credit risk in 2010 is higher than the other four

year.

D. LIQUIDITY RISK RATIO:

I. Purchase Fund/Total Assets:

6.48% 7.05% 5.51% 0.62% 0.41%

Comment: FSIBL purchase fund increased in year 2010 0.51% from the year 2009. But in 2012

decreased purchase fund 4.89% from the year 2011. 2010 purchase fund is good for the FSIBL.

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II. Cash and due from depository/Total Assets =

10.49% 7.64% 7.85% 8.12% 7.14%

Comment: In the graph shows that cash and due from depository decreased in the year 2010

2.85% from the year 2009. But 2012 increased cash 0.27% from the year 2011. 2009 had enough

cash in the FSIBL.

III. Cash Assets & Govt. Securities/Total Assets =

3.36% 3.66% 3.43% 3.13% 37.27%

Comment: FSIBL cash & Government securities increased in year 2013 34.19% from the year

2012. But other four year Govt. securities almost same ratio. FSIBL had good cash and govt.

securities in the year 2013.

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E. CAPITAL ADEQUACY RATIO:

Tier 1+Tier 2/R.W.A=

7.10%

Undercapitalized 7.27%

Undercapitalized

6.00%

Significant

Capitalized 6.37%

Undercapitalized

5.81%

Significant

Capitalized

Comment: FSBIL Capital adequacy undercapitalized in the year 2009, 2010, and 2012, and

significant capitalized in the year 2011 and 2013. But in the year 2010 was good position.

Tier 1/R.W.A

6.02%

Well Capitalized

6.22%

Well

Capitalized

5.00%

Adequate

Capitalized

4.11%

Adequate

Capitalized

2.08%

Critically

Capitalized

Comment: FSIBL Tier 1/R.W.A was well capitalized in the year 2009 and 2010 and adequate

capitalized in the year 2011 and 2012 but in the year 2013 capital adequacy was critically

capitalized. In the year 2010 capital adequacy was good position.

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F. ASSET QUALITY:

i. Substandard/ Total Investment and Leases =

0.02% 0.94% 0.06% 0.04% 0.08%

Comment: FSIBL substandard is increasing in the year 2010 0.92% from the previous year.

Only 2010 substandard is good position.

ii. Doubtful Investment/ Total Investment and Leases =

2.47896E-06 7.54932E-05 0.000100688 0.000609527 0.00028514

Comment: We calculated doubtful investment five years but 2009 and 2010 did not show

accurate calculation. But in the year 2012 FSIBL increased doubtful investment from the other

year.

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iii. Loss Investment/ Total Investment and Leases =

2.13% 1.67% 0.79% 0.70% 0.71%

Comment: FSIBL loss investment decreased in the year 0.46% from the year 2009. In the year

2009 FSIBL loss investment is higher than the other four year.

G. SOCIAL AND ECONOMIC IMPACT:

i. CSR Exp./Total Expense =

0.09% 0.08% 0.08% 0.07% 0.05%

Comment: CSR expense decreased 0.01% in the year 2010 from the year 2009. But gradually

decreasing CSR expense.

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ii. Zakat Distribution/ Total Expense =

2.62% 0.56% 1.09% 1.03% 1.18%

Comment: FSIBL Zakat distribution decreased in the year 2010 2.06% from the year 2009. But

in the year 2009 FSIBL Zakat distribution was higher than the other four year.

iii. Investment in Technology/Total Assets =

0.01% 0.02% 0.02% 0.02% 0.03%

Comment: FSIBL investment in technology is increased 0.01% in the year 2013 from the year

2012. In the year 2013 FSIBL investment in technology higher than the other year.

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iv. Investment In Real Economic Sector =

13.94% 21.92% 4.69% 27.67% 2.37%

Comment: The graph shows that FSIBL investment in economic sector increased 22.94% in the

year 2012 from the year 2011. In 2010 investment in economic sector also increased from the

previous year.

v. Agricultural Investment/Total Investment =

0.61% 0.55% 0.56% 1.15% 1.48%

Comment: FSIBL agricultural investment increased in the year 2013 0.33% from the year 2012.

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vi. SME Investment/ Total Investment =

0.06% 0.23% 1.10% 0.91% 0.71%

Comment: In the year 2011 SME investment increased by 0.87% from the year 2010. Where

SME investment decreased in the year 0.19% from the year 2011.

vii. Training & Development Exp./Total Exp. =

0.79% 0.60% 0.41% 0.19% 0.24%

Comment: FSIBL training & development expense decreased 0.17% in the year 2010 from the

year 2009. But year 2009 training & development higher from the other four year.

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viii. Tax Paid/ Before Tax Income =

5.19% 19.93% 37.15% 36.41% 27.70%

Comment: FSIBL tax increased in the year 2011 17.22% from the year 2010. But FSIBL low

tax paid in the year 2009, it is good the bank.

H. LIQUIDITY INDICATOR RATIO:

i. Cash Position Indicator =

10.49% 7.64% 7.85% 8.10% 7.13%

Comment: The graph shows that FSIBL cash position decreased in the year 2.84% from the year

2009. FSIBL best cash position in the year 2009.

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ii. Liquid Securities Indicator =

3.36% 3.66% 3.43% 3.13% 3.72%

Comment: FSIBL liquid securities increased 0.30% in the year 2010 from the year 2009. In the

year 2013 also increased liquid securities from the previous year. The year 2013 have enough

liquid securities in the FSIBL.

iii. Net Federal Funds and repurchase agreements position =

Comment: Islami Bank does not purchase or sold federal fund. So, we could not calculate.

iv. Capacity Ratio =

80.50% 86.08% 75.92% 73.77% 70.42%

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Comment: FSIBL have enough capacity to investment and capacity ratio increased 5.58% in the

year 2010 from the year 2009. Capacity ratio in the year 2010 is higher than the other four years.

It is good for the FSIBL.

I. NUMBER OF EMPLOYEES:

775 929 1,342 2,090 2,367

Comment: FSIBL employee gradually increasing but in the year 2012 increased very high.

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4. CONCLUSION

First Security Islami Bank Ltd. ROE on an average is good and ROA is not enough good for

the bank. FSIBL NIM is high in the year 2012 it is good for the Bank. NNM day by day

increased. Net Operating Margin in the year 2010 was enough good for FSIBL. FSIBL

Breakdown on Equity on an average 2009 is good. Credit risk is very high in the year 2010.

Liquidity risk on an average 2010 was good. FSIBL capital adequacy is undercapitalized and

significant capitalized. Asset quality is good for the bank and they social and economic

impact very good such as they give Zakat, tree plantation, tax paid to the government. They

also invest in the industrial, agricultural and SME investment to the household or business

sector. FSIBL cash position is good and liquid securities also good Islami bank does not buy

or purchase federal fund because it give interest payment and Banks investment capacity also

good. FSIBL increase branches and employee increases. We can said that FSIBL overall

performance is better.

Economy & Finance

First Security Islami Bank Ratio Analysis