Financial Analysis

Prime Bank
Prepared For:
Anju-man-ara begum. Course Instructor Money and Banking. Course Code:

Prepared By:
Kazi Mohammad Maruf -ID.2002210000067 Istiak Syeed Jenny-ID.2002210000081 A.B.M Khairul Alam Titash -ID.2002210000077 A.T.M Rashadul Karim Rana ID.2002210000056 ---------------------------2nd Batch Section-B

Date of submission -

25th August 2005 Anju-man ara Course Instructor School of Business Studies Southeast University Dhaka. Madam, I am a student of school of Business Studies. I am about to complete the Banking Course. Under this course I have done this financial analysis on Prime Bank. I have worked hard to complete this term paper successfully. Today I am going to submit this paper.

Yours truly On Behalf of the Group

ACKNOWLEDGEMENT
We with due respect and honors, appreciate the help of our course instructor of Banking Anju Man Ara. We must honestly say that it was absolutely impossible for Us to complete this financial analysis without your proper guidance and also very much thankful to you as he provided with the information about the different banking functions, services and others for the term paper financial analysis of Prime Bank. We also like to thank our fellow classmate who gave us all the support and once again thanks our madam for expending your valuable time for us.

Origin
In this semester,fall 2006, we enrolled ourselves in the course Banking. This course has a requirement for a Term paper. To fulfill this requirement of this course, we have prepared this Term paper on financial analysis on Prime Bank as our Term papers topic.

Rationale of the Study

As a part of course Banking, we had the opportunity to prepare this term paper. The reason for choosing this topic is we would like to expose the different features of our Course outline and by this we hope that we will be able to introduce ourselves about the different banking system, functions and services. To full fill this purpose we have made an effort to study thoroughly about the whole financial operations and transactions on Prime Bank.

Objective of the study

As a student of Bachelor of business studies, we need in depth knowledge about the different financial transaction of banks and other financial institutions. This study will help us to learn about the different banking system, functions and operations. It will also give us a clear idea about the different money and capital market instruments and will increase our knowledge about the different aspects of financial transactions of banks and other financial institutions.

Methodology
All the information has been collected from the Secondary source of information. We have visited the SEU Library, collected annual report on Prime Bank, Discussion paper, and web sites.

Limitations
Although we have tried to collect detailed information about Prime Bank and tried to give proper information about the financial position and risk of the bank, but still we believe that there might be some lacking in the secondary information/annual report of banks financial reporting. So we could not collect all the factual material in a row.

Risk Analysis of Prime Bank

Year
Total Assets Cash asset Government securities Total Shareholders Equity Total Loans and advances Total Deposits Market Value of share Number of shares outstanding Net income After Tax Earnings per Share Dividend Paid Annual Dividend Per Share

2001
1573694250 3 938096330 1601432100 1258263495 9074941476 1310987340 2 409.5 5000000 482985103 96.5970206 120000000 24

2002
2004770351 2 1366744576 1931233000 1526408120 1268684533 0 1617228788 0 307.51 6000000 418144625 69.69077083 150000000 25

2003
2424913064 2
1133517980

2004
3236161678 8 2247699221 2972210900 2239801912 2321967330 5 2806924265 0 879.5 10000000 611938344 61.1938344 154000000 15.4

2633114400 1781863568 1649222440 5 2048322552 1 374.25 10000000 375455477 37.5455477 120000000 12

Credit Risk Ratio of total loans to Total deposits Liquidity Risk Loans and advances to Total asset Cash and Govt.Securiries to total assets Market Risk Price Earning Ratio Dividend ratio 4.239261185 0.058608059 4.412492448 0.081298169 9.967892944 0.032064128 14.37236298 0.017509949 57.67% 16.14% 63.28% 16.45% 68.01% 15.53% 71.75% 16.13% 69.22% 78.45% 80.52% 82.72%

Earning Risk
Return on Asset(ROA) Return on Equity(ROE) Solvency Risk 3.07% 38.39% 2.09% 27.39% 1.55% 21.07% 1.89% 27.32%

Ratio of Equity capital to Total Assets

8.00%

7.61%

7.35%

6.92%

CURRENT MARKET POSITION

TABLE OF CONTENT
1. INTRODUCTION a. Brief history of Primes Bank b. Current market position c. Function of banks
2. RESEARCH METHODOLOGY

1-2 3 4

a. b. c. d.

Rationale of study Objective of study Data collection Method Limitation of study

5 6 7 8

3. ANALYSIS AND FINDINGS A. Performance Evaluation Return on asset Return on equity Net interest margin Net non-interest margin Employee productive ratio Asset utilization B. Risk Analysis a. Credit risk b. Liquidity risk c. Market risk d. Earnings risk e. Solvency risk 4.CONCLUSION

9 10 11 12 13 14 15 16 17 18 19 20

APPENDIX

BACKGROUND OF PRIME BANK

Accordingly, Prime Bank Ltd. was created and commencement of business started on 17th April 1995. The sponsors are reputed personalities in the field of trade and commerce and their stake ranges from shipping to textile and finance to energy etc. As a fully licensed commercial bank, Prime Bank Ltd. is being managed by a highly professional and dedicated team with long experience in banking. They constantly focus on understanding and anticipating customer needs. As the banking scenario undergoes changes so is the bank and it repositions itself in the changed market condition. Prime Bank Ltd. has already made significant progress within a very short period of its existence. The bank has been graded as a top class bank in the country through internationally accepted CAMEL rating. The bank has already occupied an enviable position among its competitors after achieving success in all areas of business operation. Prime Bank Ltd. offers all kinds of Commercial Corporate and Personal Banking services covering all segments of society within the framework of Banking Company Act and rules and regulations laid down by our central bank. Diversification of products and services include Corporate Banking, Retail Banking and Consumer Banking right from industry to agriculture, and real state to software. The bank has consistently turned over good returns on Assets and Capital. During the year 2004, the bank has posted an operating profit of Tk. 1146.14 million and its capital funds stood at Tk 2476.06 million. Out of this, Tk. 1000 million consists of paid up capital by shareholders and Tk. 1476.06 million represents reserves and retained earnings. The banks current capital adequacy ratio of 10.74% is in the market and much above the stipulated line of 9%. In spite of complex business environment and default culture, quantum of classified loan in the bank is very insignificant and stood at less than 1.52%.

In order to retain competitive edge, investment in technology is always a top agenda and under constant focus. Keeping the network within a reasonable limit, our strategy is to serve the customers through capacity building across multi delivery channels.

PERFORMANCE ANALYSIS
RETURN ON ASSET (ROA)
The Return on asset of Prime bank for the year 2004 is,

Return on asset = Net income after tax / Total asset

= 611938344/32361616788 = 1.89% The return on asset of prime bank 1.89% means if the Bank Tk.100 asset then it can generate 1.89taka net income or the prime banks Tk.100 asset can generate Tk.1.89 net income. In the same way we can calculate the other years ROA of Prime Bank . After calculating all of the Prime banks ROA for the year of 2001,2002 &2003 we get 3.75%,
RETURN ON ASSET 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 2001 2002 2003 2004 2.09% 1.55% 1.89% 3.07%
2001 2003 2002 2004

2.09% &1.55%. If we plot all the ROA values according to the Y-axis and years according to the X-axis then we will get the Graphical figure of ROA for Prime bank. But higher ROA indicates higher net income in comparison to the total asset of a bank or Proper asset utilization and lower ROA indicates lower Net income in comparison to the total asset or poor asset utilization. From

the Graph it is clearly understandable that the ROA of prime bank in 2001 was very high

(3.07%) But in 2002(2.09%) and 2003(1.55%) it takes a declining trend in its ROA ratio. But in the year 2004 we can see that the ROA of prime bank is raising which indicates that the banks net income in comparison to its total asset is raising or the Bank used its assets much effectively than the other years.

RETURN ON ASSET (ROA)

The Return on Equity(ROE)of Prime bank for the year 2004 is,

Return on Equity = Net income after tax / Total Equity Capital

= 611938344/ 2239801912 = 27.32% The return on Equity of prime bank is 27.32% means it can generate Tk.27.32 net income by using Tk.100 equity capital. In the same way we can calculate the other years ROE of Prime Bank. After calculating all of the Prime banks ROE for the year of 2001, 2002 &2003 we get 38.39%, 27.39%, 21.07% .If we plot all the ROE values according to the Yaxis and years according to the X-axis then we will get the Graphical figure of ROE for Prime Bank. But higher ROE indicates higher net income in comparison to the banks total Equity capital or Proper utilization of shareholders capital and lower ROE indicates lower Net income in comparison to the total equity capital or poor investment or utilization of shareholders investment. From the Graph it is clearly understandable that the ROE of prime bank in 2001 was very high (38.39%) But in 2002 and 2003 it takes a declining trend in its ROE ratio. But in the year 2004 we can see that the ROE of prime bank is rising which indicates that the banks net income in comparison to its total Equity capital is raising or the Bank used its Equity capital much effectively than the other years.
RETURN ON EQUITY
40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2001 2002 2003 2004 27.39% 21.07% 38.39% 27.32% PRIME

NET INTEREST MARGIN

The net interest margin of Prime bank for the year 2004 is, (Interest income from loans and Securities Net Interest Margin (NIM) = Interest Expenses on Deposits and other Debts) Total asset 2640910158 +196150200 - 1616184117 = -----------------------------------------------------32361616788 = 0.037726058
NET INTEREST MARGIN 0.042 0.04 0.038 0.036 0.034 0.032 0.03 0.04021
2000 2002 2001 2004

The Prime banks net interest Margin 0.033726058 means that the bank can generate Tk.0.033726058 net interest income by utilizing Tk.1 Asset. In this way by calculating the NIM of prime bank for the year 2001,2002 &

0.0391 0.03773 0.03471

2000

2001

2002

2004

2003 we can get 0.04021,0.034 &

0.039 . Now,If we plot all the NIM values according to the Y-axis and years according to the X-axis then we will get the Graphical figure of NIM for Prime Bank.

NET NON-INTEREST INCOME

The Net-Non Interest Margin of Prime bank for the year 2004 is, Net Noninterest Margin (NNIM) = (Noninterest Revenues Noninterest Expenses) Total Assets = (749489244 824227141) / 32361616788
100% 80% 60% 40% 20% 0% -20% -40% -60% -80% -100%

NET NON INTEREST MARGIN

=0.002309461
0.00784 0.002596 0.002195

The Prime banks net Non-interest Margin

-0.002309461 means that the

banks Non-interest expense is higher

2001 2002 2003 2004 -0.00231

than its Non-interest income. In this way by calculating the NIM of prime bank for the year 2001, 2002 & 2003 we can get 0.00784, 0.002596 & 0.002195. Now, if we plot all the

2001

2002

2003

2004

NNIM values according to the Y-axis and years according to the X-axis then we will get the Graphical figure of NNIM for Prime Bank.

NET PROFIT MARGIN

Total Operating Revenues Total Operating Expenses Net Banks Operating Margin = -------------------------------------------------------------Total Assets
1970365485 - 824227141

= ---------------------------32361616788 = 0.035416597 The Prime banks Net Operating Margin 0.035416597 means that the bank can generate Tk.0.035416597 operating profit/revenue by using Tk.1 Asset. Here the higher net operating margin indicates higher revenue and lower net operating margin indicates lower operating revenue.
NET OPERATING MARGIN
0.06 0.05 0.04 0.03 0.02 0.01 0 2001 2002 2003 PRIME 2004 0.05 0.04 0.04

0.04

In this way by calculating the Net profit margin of prime bank for the year 2001,2002 & 2003 we can get 0.05, 0.04, 0.04. Now, if we plot all the Net profit margin values

according to the Y-axis and years according to the X-axis then we will get the Graphical figure of Net operating margin for Prim Bank.

ASSET UTILIZATION RATIO

The degree of asset utilization of Prime bank for the year 2004 is,

Asset Utilization = Total Operating Revenue / Total asset

= 1970365485 / 32361616788 = 0.060885879 The Prime banks degree of asset utilization or asset utilization ratio 0.06088 means that the bank can generate Tk.0.060885879 operating profit/revenue by using Tk.1 Asset. Here the higher ratio of asset utilization indicates higher revenue and lower rate of asset utilization indicates lower revenue.
8% 7% 7% 6% 6% 5% 2001 2002 2003 PRIME 2004 0.06 0.07 0.07 0.06

ASSET UTILIZATION RATIO

In this way by calculating the degree of asset of prime bank for the year 2001,2002 & 2003 we can get 0.07, 0.06, 0.06 . Now, if we plot all the asset utilization values according to the Y-axis and years according to the X-axis then we will get the Graphical figure of degree of asset utilization for Prime Bank

EMPLOYEE PRODUCTIVE RATIO

The Employee Productive Ratio of Prime bank for the year 2004 is, Employee Productive Ratio =Net operating income / Number of Full time employees = 1146138344 / 894 =1282033.942 The Prime banks Employee Productive Ratio 1282033.942 means that the bank can generate Tk.1282033.942 operating profit/revenue by using one Full time employees. Here the higher Employee Productive Ratio indicates higher revenue through efficient employee service and lower Employee Productive Ratio rate indicates lower revenue or poor Employee performance. In this way by calculating the
EMPLOYEE PRODUCTIVE RATIO

1E +0 6

/
1E +0 6

Employee Productive Ratio of prime bank for the year 2001,2002 & 2003 we can get

1000000 800000 600000 400000 200000 0 2001

2002

1E +0 6
2003

1200000

1E +0 6

1400000

2004

1233422.1,1024444.7&1288816.5 . Now, if we plot all the Employee Productive Ratio according to the Y-axis and years according to the X-axis then we will get the Graphical figure of degree of asset utilization for Prime Bank.

CREDIT RISK
RATIO OF TOTAL LOAN TO TOTAL DEPOSIT
The ratio of total loans to deposits of prime bank for the year 2004 is, Total loans Ratio of Total Loans to Total Deposits = -------------------Total deposits = 23219673305/28069242650 =82.72% The ratio of total loans to total deposits of Prime bank 82.72% means that prime bank is issuing Tk.82.72 loans against Tk.100 deposits or if the prime banks have TK.100 deposit then it gives Tk.82.72 in loan. In this way we can Calculate and explain explain the other years Ratio of total loans to total deposits of prime bank.
RATIO OF TOTAL LOANS TO TOTAL DEPOSITS

85.00% 80.00% 75.00% 70.00% 65.00% 60.00%

69.22% 80.52% 78.45%

PRIME
82.72%

2001

2002

2003

2004

After calculating all of the Prime banks ratio of total loans to deposits for the year of 2001, 2002 &2003 we get 69.22%, 78.45%, 80.52%. If we plot all the ratios of total loans to deposits according to the Y-axis and years according to the X-axis then we will get the Graphical figure of total loans to deposits for Prime Bank. But ratio of total loans to deposits indicates higher net income and risk of default and lower total loans to deposits ratio indicates lower Net income or lower risk gives more loans or invest most of deposits as loans than DBBL. its

LIQUIDITY RISK
LOANS AND ADVANCES TO TOTAL ASSET
The ratio of loans and advances to total asset of prime bank for the year 2004 is, Loans and Advances to Total Assets = Loans and advances/ Total assets = 23219673305 / 32361616788 = 71.75%
LOANS AND ADVANCES TO TOTAL ASSET PRIME
80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2001 2002 2003 2004 63.28% 57.67% 68.01% 71.75%

The ratio of loans and advances to total deposits of Prime bank 71.75% means that prime bank is issuing Tk.71.75 loans against Tk.100 total asset or if the prime banks have TK.100 asset then it gives Tk.82.72 in loan. In this way we can Calculate and explain the other years Ratio of loans and advances to total asset of Prime bank.

After calculating all of the Prime banks ratio of loans and advances to total asset for the year of 2001, 2002 &2003 we get 57.67%, 63.28%, 68.01%... If we plot all the ratios of loans and advances to total asset according to the Y-axis and years according to the Xaxis then we will get the Graphical figure of total loans to deposits for Prime Bank. Here, the higher ratio of loans and advances to total asset indicates higher interest income from loans and advances and higher risk of loan default and lower ratio of loans and advances to total asset indicates lower interest income from loans and d advances or lower risk of loan default.

EARNINGS RISK ROA &ROE

After analyzing the ROA of Prime bank and DBBl we can clearly say that the position of prime bank in term of return on asset is higher than DBBl which means that the prime banks net income is higher than the than the net income of DBBL in comparison to its total asset or the prime bank is more capable of generating higher revenue than DBBL. But if we look at the Graph of ROE of DBBl then we will see that from 2001 to 2004 the banks ROE is declining which indicates that the banks net income is decreasing or poor utilization of shareholders equity. So, after analyzing the ROA & ROE of Prime bank and DBBl we can clearly say that the position of prime bank in term of return on Equity or Asset is higher than DBBl which means that the prime banks net income is higher than the than the net income of DBBL in comparison to its total Equity capital/Asset or the prime bank is more capable of generating higher revenue than DBBL. But as we know when there is higher return there is higher risk. So, prime banks earning risk is higher than DBBL

SOLVENCY RISK
RATIO OF EQUITY CAPITAL TO TOTAL ASSET
The ratio of equity capital to total asset of Prime bank for the year 2004 is, Ratio of equity capital to risk assets = Equity Capital/ Total Assets = 2239801912 / 32361616788 = 6.92% The ratio of equity capital to total asset of Prime bank 6.92% means that prime bank is issuing Tk.82.72 loans against Tk.100 asset or if the prime banks have TK.100 deposit
RATIO OF EQUITY TO TOTAL ASSET 8.00% 7.80% 7.60% 7.40% 7.20% 7.00% 6.80% 6.60% 6.40% 6.20%
8.00% 7.61% 7.35%

PRIME

then it gives Tk.82.72 in loan. In this way we can Calculate and explain the other years Ratio of equity capital to total asset of prime bank. After calculating all of the Prime banks ratio of equity capital to total asset for the year of 2001, 2002 &2003 we get 8.00%, 7.61%, 7.35%. If we plot all the ratios of equity capital to total asset according to

6.92%

2001

2002

2003

2004

the Y-axis and years according to the X-axis then we will get the Graphical figure of equity capital to total asset for Prime Bank. But higher ratio of equity capital to total asset

indicates higher safe investment and profitability lower equity capital to total asset ratio indicates lower risk

CONCLUSION
After analyzing the ROA & ROE of Prime bank and DBBl we can clearly say that the net prime bank is higher which means the prime bank is more capable of generating higher revenue than DBBL. But as we know when there is higher return there is higher risk. So, prime banks earning risk is higher than DBBL Also the prime banks average Net interest & Non-interest income is higher than the Dutch bangla bank. That why although the prime bank is earning more interest from their loans but it is also in a higher risk of loan default then the DBBL. So, the prime bank is in a higher credit risk and liquidity risk than DBBl. But the liquidity risk of DBBl is lower than prime bank because they have enough liquid assets in hand to meet short-term obligations than prime bank. Investing in prime bank is more profitable and also risky for shareholders because of higher market value of shares. So, at last we have to say that in this case we need to do an portfolio investment means investing in both the banks which will minimize the investment risk and will ensure more safe return.