AN EMPIRICAL ANALYSIS

ON THE RELATIONSHIP
BETWEEN LOAN TO
DEPOSIT RATIO AND ROA

SUBMITTED TO
MD BAYEZID ALI
Course Instructor

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Business Statistics
Lecturer
Department of Finance
Faculty of Business Studies
Jagannath University

SUBMITTED BY
Group No: 03

BIG BANG
Name

BBA

Roll No.

IMTIAZ HOSSAIN
SHAH PORAN RAJIB
NEYAZ MORSHED
SUSANTO KORMOKER
MD. ABDULLAH
SANZIDA SULTANA
MAHAMUDUL HOQUE
KAYES MAHMUD

339
341
385
384
325
327
362

Department of Finance
Jagannath University
Date of Submission: 9 AUGUST, 2008

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1st Batch

TABLE OF CONTENT
LETTER OF TRANSMITTAL

03

ACKNOWLEDGEMENT

04

EXECUTIVE SUMMARY

05

1. INTRODUCTION

06

1.1 INTRODUCTION

07

1.2 ORIGIN OF THE REPORT

08

1.3 BACKGROUND OF THE STUDY

09

1.4 OBJECTIVE OF THE STUDY

10

1.5 SCOPE

10

1.6 METHODOLOGY

10

1.7 LIMITATIONS OF THE STUDY

11

2. OVERVIEW ON DEPOSIT&RETURN ON TOTAL ASSET

12
13

14
2.1 TOTAL DEPOSIT

14

2.2 TOAL LOAN

15

2.3 TOTAL ASSET

16

2.4 TOTAL INCOME

2.5 LOAN TO DEPOSIT RATIO

16

2.6 ROA

17

18
3. COMPANY PROFILE

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3.1 PREMEIR BANK

19

3.1.1 MISSION

20

3.1.2 VISION

20

3.1.3 CORE OBJECTIVES

21

3.1.4BANKING

21

3.3.5 SOCIAL WORK

22

3.1.6THE BOARD AND ITS COMMITTEES

23

4. MATHEMATICAL ANALYSIS

24

5. PROBLEMS AND RECOMMENDATIONS

5.1 PROBLEMS OF THE LOAN TO DEPOSIT RATIO

26

5.2 RECOMMENDATIONS

27

CONCLUSION

28

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LETTER OF TRANSMITTAL
August 6, 2008
Mohammad Bayezid Ali
Course Instructor,
Business Statistics
Department of Finance,
Faculty of Business Studies,
Jagannath University, Dhaka
Subject: Submission of Report on the relationship between Loan to Deposit

Ratio and ROA of PREMEIER BANK.

Sir,
With due respect, we want to state that, we are the students of Jagannath University of Dhaka, in
B.B.A. program. We have been taken Business statistics by you. We are supposed to do a report
on

relationship between Loan to Deposit Ratio and ROA of PREMEIER Bank . Premier

Bank is operating banking activities as a leading banking company in Bangladesh. Besides it is

the pioneer bank in our country.
In this report we have discussed about the relationship between Loan to Deposit Ratio and
ROA of PREMEIR Bank. In the report we analysis the relationship between deposit to loan
ratio and ROA by applied correlation analysis of business statistics. In this report we also point
out their benefits and recommended how this system can work more efficiently.
To do this report our Business statistics course teacher Mohammad Bayezid Ali helps us a lot.
Whenever we faced any problem, we contact with him and he always helps us. She gives us an
overall idea about how to write the report, which help us a lot to conclude this report. Without
her gracious contributions we may not be able to complete this report successfully.
Sincerely yours,
IMTIAZ HOSSAIN
On behalf of group 3

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ACKNOWLEDGEMENT

Compiling a project paper is a rewarding task that requires both mental stamina and attention to
detail. The varied nature of the matters dealt with has entitled references too many sources,
starting from books to brochures and to all of these we gladly acknowledge our indebt ness for
the ideas and information they have provided.

First of all we would like to thank from the very bottom of our hearts the almighty Allah for
making us able to complete this project paper in time.

Now, we are glad to thank Md. Aminul Islam of Premier Bank for his valuable time that he
occupied for us during his busy office hours and for his patience answering our questions.

Last but not the least, our group members whos devoted afford make it easy for all of us to
accomplish the project within the time at an efficient manner. If they were not being so loyal to
their work it would not be possible to systematize a high-quality project like that.

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EXECUTIVE SUMMARY:
Correlation is a statistical technique with the help of which we
are in a position to find out the relationship between two
variables in relative term .The measure of correlation is called
correlation coefficient & it is symbol or denoted by small r. Here
loan to deposit ratio & Roa are the two variables. By using
correlation we made a relationship between deposit to loan ratio
& ROA. .It help us to find out the enter relationship between
two variables.
It helps us to forecast the future status of the variables.
To estimate the unknown values of one variable (dependent)
from the value of another variables. (Independent) we need
regression analysis. Here loan to deposit ratio is independent &
ROA is dependent variable .by using regression analysis we are
in a position to find out average probable change in one variable
given a certain amount of change in other .

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CHAPTER
ONE
INTRODUCTION
1.1 INTRODUCTION
1.2 ORIGIN OF THE REPORT
1.3 BACKGROUND OF THE STUDY
1.4 OBJECTIVE OF THE STUDY
1.5 SCOPE
1.6 METHODOLOGY
1.7 LIMITATIONS OF THE STUDY

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1.1 INTRODUCTION
Premier Bank Limited (PBL) is one of the eminent and faster growing banks of Bangladesh. it .
Premier Bank has reputation for providing modern and essential banking to its clients. It is
playing pioneer role in promoting service in banking sector of Bangladesh. From 1999 it
introduced banking service to its clients which has added a new dimension in banking. As a part
of its banking PBL started deposit services for its clients. PBL is now on of the best solvence
bank of the country. Since we are assigned to prepare a report on an empirical analysis to Loan
To Deposit Ratio & ROA service we decided to choose PBL for preparing the project paper.

1.2 ORIGIN OF THE REPORT

As a mandatory course of B.B.A. program we are required to study the Business statistics
course. In the classroom we get the opportunity to know the theoretical part of the subject. But
without practical orientation it is somewhat difficult to grasp the core concept. Especially in case
of statistical application it is totally impossible to gather knowledge by learning theoretical part
because statistics Application is fully a practical oriented course. So in order to enhance the
understanding of the core concept, we are required to prepare a report on practical situation to
understand how to implement and practice the theoretical part in real life situation.

1.3 BACKGROUND OF THE STUDY

Premier Bank is one of the first banks in Bangladesh that has realized the potential of Deposit
banking and over the years has become a sort of pioneer in this regard and consequently enjoying
some competitive advantages over other local banks as well competing with the global banks like
HSBC and Standard Chartered Bank. This is one of the reasons why we have chosen PBL as our
target bank for the preparation of this report. We believe that working on the Loan To Deposit
Ratio & ROA of PBL will definitely help us to understand the correlation & regression
Practice in business organization.

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1.4 OBJECTIVE OF THE STUDY

The objectives of the study are to determine:

How correlation works?

How correlation helps to determine the relationship between two variables?

How regression analysis works?

How regression help us to find the average probable change in one variable given a
certain a certain amount of change in other ?

What are the weaknesses of the correlation & Regression analysis?

What protective measures should take to solve those problems?

1.5 SCOPE
Correlation & regression

are statistical technique. They are combination of two variable, .

They are is only a single part of the statistics. This study is focused on Loan TO Deposit & Roa
only.

1.6 METHODOLOGY
The methods that have been followed throughout the study may be detailed as follows:

Primary sources of data for this report have been the interviews of PBL officials.

The annual reports of PBL as well as their brochure have been great sources of secondary
data.

Website of PBL and Internet also help us a lot by providing secondary data.

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1.7 LIMITATIONS OF THE STUDY

The data we need from PBL is highly confidential. So there is a possibility of not getting much
generalized data to work on this topic. We also did not get much data on their website and
financial statement. Some times correlation shown negative value.

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CHAPTER
TWO
OVERVIEW ON LOAN
TO DEPOSIT RATIO &
ROA
2.1 TOTAL DEPOSIT
2.2 TOTAL LOAN
2.3 TOTAL ASSET
2.4 TOTAL INCOME
2.5LOAN TO DEPOSIT RATIO
2.6 ROA

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2.1 TOTAL DEPOSIT:

The deposit is the source of collecting money of bank. To collect money bank
offer various types of deposit skim. The deposit of premier bank during the
five years is given below on the diagram:

2.2 TOTAL LOAN: Loan is the source of income of a bank. Bank offers
various types loan skim. The loans of the premier bank during the last five
years are shown in diagram.

2.3 LOAN TO DEPOSIT RATIO:

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LOAN TO DEPOSIT RATIO

The loan to deposit ratio measures the percentage of the total
deposit provided by creditors. It is computed by dividing total
loan (both current and long term loan) by total deposit. This
ratio indicates the banks degree of leverage. It also provides
some indication of the bank abilities to withstand losses without
impairing the interests of creditors. The higher b the percentage
of loan to total deposit, the greater the risk that the bank may
be unable to meet its maturing obligations.

2.3 TOTAL ASSET:

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: 2.4 TOTAL INCOME

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2.6 ROA

RETURN ON TOTAL ASSET

An over all measure of profitability is return on total assets. This
ratio is computed by dividing net income by average assets. It
measures profitability from the the clients view point.

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CHAPTER
THREE
COMPANY PROFILE
3.1 PREMEIR BANGLA BANK
3.1.1 MISSION
3.1.2 VISION
3.1.3 CORE OBJECTIVES
3.2 BANKING
3.3 SOCIAL WORK
3.4 THE BOARD AND ITS COMMITTEES
3.4.1 THE BOARD
3.4.2 THE COMMITTEES OF THE BOARD

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3.1 premeir BANK:

BACKGROUND
The Premier Bank Limited is incorporated in Bangladesh as banking
company on June 10, 1999 under Companies Act.1994. Bangladesh
Bank, the central bank of Bangladesh, issued banking license on June
17, 1999 under Banking Companies Act.1991. The Head Office of The
Premier Bank Limited is located at Banani, one of the fast growing
commercial and business areas of Dhaka city.

Corporate Information
Authorized Capital : BDT 2000.00 Million
Paid up Capital : BDT 681.45 Million

3.1.1 MISSION:
Missions of the Bank

To be the most caring and customer friendly provider of financial services, creating opportunities
for more people in more places.
To ensure stability and sound growth whilst enhancing the value of shareholders investments.
To aggressively adopt technology at all levels of operations to improve efficiency and reduce cost
per transaction.
To ensure a high level of transparency and ethical standards in all business transacted by the
Bank.
To provide congenial atmosphere which will attract competent work force who will be proud and
eager to work for the Bank.
To be socially responsible and strive to uplift the quality of life by making effective contribution to
national development.

3.1.2 VISION:
Premeir Bank dreams of better Bangladesh, where arts and letters, sports and athletics, music and
entertainment, science and education, health and hygiene, clean and pollution free environment
and above all a society based on morality and ethics make all our lives worth living. PBL's

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essence and ethos rest on a cosmos of creativity and the marvel-magic of a charmed life that
abounds with spirit of life and adventures that contributes towards human development.

3.1.3 CORE OBJECTIVES:

Premier Bank believes in its uncompromising commitment to fulfill its customer needs and
satisfaction and to become their first choice in banking. Taking cue from its pool esteemed
clientele, premier Bank intends to pave the way for a new era in banking that upholds and
epitomizes its vaunted marques "service First".

3.2 SOCIAL WORK:

Premeir Bank supports social work extensively and is one of the largest private donors in
Bangladesh. It contributes extensively through its foundation premeir Bank Foundation. This
has been one of the biggest priorities for the bank since its inception. As a result the organization
has been granted numerous national and international awards for its role in the development of
Bangladesh.
PBL introduced new forms of financial services in Bangladesh. These include loans to several
hundred couriers, rickshaw drivers (bicycle taxis) and small shopkeepers, thanks to a
contribution from the Small-Scale Enterprise Fund. Investment credits for local exporting
companies in American dollars are another new activity, for the benefit of local textile and
bicycle businesses. These investments has provided stimulus for the economic growth of the
local private sector.
The bank donates mainly towards social awareness programs, medical and educational fields.

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CHAPTER
FOUR
MATHEMATI
CAL
ANAYLYSIS
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Correlation is a statistical technique with the help of which we

are in a position to find out the relationship between two
variables in relative term .The measure of correlation is called
correlation coefficient & it is symbol or denoted by small r. Here
loan to deposit ratio & Roa are the two variables. By using
correlation we made a relationship between deposit to loan ratio
& ROA. .It help us to find out the enter relationship between
two variables.
It helps us to forecast the future status of the variables.
To estimate the unknown values of one variable (dependent)
from the value of another variables. (Independent ) we need
regression analysis. Here loan to deposit ratio is independent &
ROA is dependent variable .by using regression analysis we are
in a position to find out average probable change in one variable
given a certain amount of change in other .
X
58.68
93.27
79.66
80.7
85.44
88.87
85.45

Y
9.58
13.22
12.16
14.61
15.36
13.36
14.51

X2
3443.34
8699.293
6345.716
6512.49
7300
7897.88
7301.70

Y2
97.78
174.77
147.86
213.452
235.93
178.49
210.54

XY
562.15
1233.03
968.66
1179.02
1312.10
1187.30
1239.88s

X=572.07

Y=92.79

X2 =47500.416

Y2=1258.82

XY=7682.144

x.
y
xy -
n

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R=

2 ( y) 2
2 ( x)
2
x x }{ y y

By applying kerl Pearson formula we will get the r which will represent the relationship between
the two variable loans to deposit ratio & ROA. We will get the result R=.67%which present
moderate relationship between the two variables.
Here regression equation of ROA on deposit is y=a+bx, where x is dependent & y is dependent.
A=constant
b=coefficient of variation

b=

xy
x

x y

n
( x ) 2
n

By applying this formula we get b=o.1314

A=y-bx=92.79\7-0.1314*572.07|7=2.5184.
Y=2.5184+0.1314x (in million).
That means if the loan to deposit is 1million then the ROA is 0.1314 million. if the result of
correlation is 67% it means that deposit level can explain the variation of the ROA by 67%.

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CHAPTER
FIVE
PROBLEMS AND
RECOMMENDATIONS
5.1 PROBLEMS OF THE STUDY
5.2 RECOMMENDATIONS

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5.1 PROBLEMS OF THE PREMIER BANK:

PREMIER Bank Ltd. tried its best to ensure supreme service for its clients but still there are
some problems with the deposit loan system. The problems are given below:

One of the main problems is the deposit system of PBL. Though there is no definite
system for the deposit. They do not offer deposit scheme for the clients.

PBL do not maintain loan system properly.

PBL do not have well management system.

PBL ROA is not so high, thats mean clients are not so regular to paying their loan.

PBL LOAN TO DEPOSIT is very high thats means the give loan at a large amount
against their deposit which decline their liquidity.

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5.2 RECOMMENDATIONS:
Recommendation means providing someone a remedy of specific problem. Recommendation
helps ones overcoming their obstacles & accelerating their performance. Through our report
making on premier BANK Loan to Deposit Ratio & ROA. we have been noticed some problem
in their loan & deposit system. So we provide some recommendations of solving the problems.
The recommendations are presented below:

PBL should be more careful about giving loan notes and our suggestion is they should
follow some strict principle in giving loan they should careful about the honesty,
effience, experience of a client. It will help them to earn more user satisfaction and
ultimately more clients.

PBL should offer different types of deposit scheme for attracting clients which help them
ultimately to increase their deposit.

PBL should improve their management system by using modern technology.

Loan on interest should be decline.

PBL should establish an ATM section which will look after the ATM booths. It will help
them to increase their efficiency and professionalism.

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CONCLUSION
Summing up all the previous discussions on premeir Bank Limited we can reach to the
conclusion that, the bank is offering various attractive services for their customer, one of them is
deposit which is very popular among the customers. That is why the number of account opening
is growing day-by-day compare to previous years. This signifies the positive sign of our
developing economy. In achieving ROA premeir Bank Limited (PBL) depends fully on loan to
deposit ratio. We can also say that, ROA ameliorate overall banking efficiency.

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