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Assignment on

Money & Banking (BBA-315)

Topic: Performance Evaluation of Eastern Bank Ltd.

Submitted to
Naznin Sultana Chaity
Lecturer
School of Business

Submitted By

Md. Likhon

1
08.01.02.005
Farhan Uddin Ahmed

08.01.02.023
Md. Atiqul Islam

2
08.01.02.025
Muhammad Sazzad Hussain Chowdhury

08.01.02.027
School of Business

Date of submission
03-July-2010
AHSANULLAH UNIVERSITY OF SCIENCE AND TECHNOLOGY

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Executive Summary:
Various groups of individuals are particularly interested in evaluating bank
performance. Firstly, bank shareholders are directly affected by bank
performance. Investors take advantage of bank information to develop
expectations concerning future performance that can used to help price
common shares. Secondly, bank management traditionally is evaluated
on the basis of how well the bank performs relative to previous years and
compared with similar banks. Employees’ salaries and promotions are
frequently tied to the performance of the bank. Bankers also need to be
informed about the condition of other banks with which they have business
dealings. Loan purchases and particularly from poorly managed
institutions may be suspect; federal funds sold and repurchase agreements
with other banks require that some knowledge of their performance be
obtained to prevent loss of funds in the event of their failure and
subsequent closure by regulatory authorities. Thirdly, regulators
concerned about the safety and soundness of the banking system and the
preservation of public confidence, monitor banks using on-site
examinations computer-based “early warning system” to keep track of
bank performance. Fourthly, depositors may be interested in how well the
bank is doing. Fifthly, and lastly, the business community and general
public should be concerned about their banks performance to the success
or failure of the bank.

We provide a general framework for evaluating bank performance.


This framework helps to conceptualize the nature of bank behavior, and to
pointing out possible interactions between various aspect of performance
and also the internal performance factors that need to be evaluated.

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Table of Contents
Table of Contents...................................................................................................5
Methodology:......................................................................................................... 7
Company Profile:....................................................................................................8
Vision:................................................................................................................. 8
Mission:............................................................................................................... 8
Values:................................................................................................................ 9
Performance Evaluation:......................................................................................10
Bank Planning:..................................................................................................10
Objectives of EBL:..........................................................................................10
Strategic priority of EBL:................................................................................10
Technology:...................................................................................................... 11
Success story:............................................................................................... 12
EBL with new ICT Infrastructure features:.....................................................12
Benefits from Changes:.................................................................................13
Personal Development:.....................................................................................14
Employee Benefits:........................................................................................14
Education Programs:.....................................................................................16
Bank Profitability:.............................................................................................18
Conclusion:.......................................................................................................... 28

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Objective:
 Evaluate internal performance of the EBL.

 Improve the market share of prime grade loans.

 Upgrade the quality of management expertise in the area of high-


technology.

 Expand the financial services being offered to retail customers to


increase the size and diversification of the deposit base.

 Implement an automated delivery system for payment services.

 Help the community grow so that they may grow with it.

 Facilitate employee training.

 Diversify the loan portfolio to greater extent in terms of different


assets and the geographic distribution of these assets.

 Cross sell a wide variety of financial services including banking,


securities and insurance activities.

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Methodology:

We collect data from Eastern Bank Limited’s website


(www.ebl.com.bd) and annual report.

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Company Profile:

Eastern Bank Limited (EBL) is one of the modern, fully


online and technologically superior private commercial
Banks in Bangladesh. Eastern Bank markets a wide range
of depository, loan & card products. These products
include different types of Savings & Current Accounts,
Personal Loans, Auto Loan, Debit Card, Pre-paid Cards,
Internet Banking, Treasury, Syndication, Corporate
Banking and SME Banking services through a network of
branches & centers countrywide. Eastern Bank has its
presence in major cities/towns of the country including
Dhaka, Chittagong, Sylhet, Khulna and Rajshahi. Tracing
its origin back to 1992, EBL is serving the individual and
corporate clientele alike with remarkable success offering
innovative banking services since then.

Vision:

To become the bank of choice by transforming the way we


do business and developing a truly unique financial
institution that delivers superior growth and financial
performance and be the most recognizable brand in the
financial services in Bangladesh.

Mission:

We will deliver service excellence to all our customers,


both internal and external.

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We will constantly challenge our systems, procedures
and training to maintain a cohesive and professional
team in order to achieve service excellence.

We will create an enabling environment and embrace a


team based culture where people will excel. We will
ensure to maximize shareholder's value.

Values:

Openness

Trust

Commitment

Integrity

Service excellence

Responsible Corporate Citizen

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Performance Evaluation:

Bank Planning:

Objectives of EBL:

• EBL will deliver service excellence to all his customers,


both internal and external.

• EBL will ensure to maximize shareholders’ value.

• EBL will constantly challenge his systems, procedures


and training to maintain a cohesive and professional
team in order to achieve service excellence.

• EBL will create an enabling environment and embrace


a team based culture where people will excel.

Strategic priority of EBL:

 Further improvement of asset quality.

 Further change in deposit mix to increase pie of low


cost deposits.

 To become cost efficient organization.

 Moderate growth in conventional products.

 Pursue inorganic growth through merger and


acquisition.

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 Increase off-balance sheet business through product
innovation.

 Careful presentation in the capital market.

 Increase intrinsic value of the company by


strengthening internal controls through installation of
clearly laid down policies, procedures and processes.

 Diversity corporate business to take advantage of PPP.

 Increased and focused Corporate Social Responsibility


(CSR).

 Increase shareholders’ value.

 Strengthen risk management.

 Improve quality of human capital by strengthening


their competencies.

 Create world class IT infrastructure to deliver superior


service to our customers.

Technology:

EBL started its journey from a meager information


technology platform. The branches were operating in a
standalone/decentralized environment using local software
where limitations were in abundance. It was limited from
the delivery channels perspective for providing the
customers with maximum benefits in terms of banking
products and services. The most private banks in
Bangladesh generally have been less competitive with their
MNC bank counter parts. The sense of customer support
and service at these private banks, literally, were not up to
the par with what the customers came to expect from

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these MNC banks. So, for obvious reasons privates started
losing businesses to these MNC banks.

 Success story
 EBL with new ICT infrastructure features
 Benefits from changes

Success story:

EBL management consisting of dynamic bankers from


foreign banks working environment could assess the
benefits out of Information Technology [IT] in utilizing it to
the maximum through their experience.
Their guideline and streamlined decision making has
played a pivotal role in the implementation process of Flex
cube software in the branches.
EBL is the pioneer Bank in laying foundation to the world
class banking software in Bangladesh. No other private
Banks in Bangladesh could implement foreign banking
software with success in the past.
The concerned IT resources worked relentlessly over the
months played a significant role behind the successful
implementation of Flex cube banking software in EBL
branches.

EBL with new ICT Infrastructure features:

Essentially, EBL was not in a well-connected situation. Data


Communication was limited to secluded offices in a very
limited fashion. EBL now is a different scenario. EBL HO is
now connected with the branches all around Bangladesh.

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Here is a breakdown of what the data communication
infrastructure looks like today:

High Speed DDN and Radio Link connectivity between


Branches and the Head Office

Local Area Network (LAN) - providing data network


connectivity at the Head Office and the Branches

Metropolitan Area Network (MAN) - connecting the DHK


branches with HO, CTG branches with Agrabad and SYL
branches with Chouhatta

Wide Area Network (WAN) - enabling the data network


circle between Head Office and the Branches

Solid foundation over data and network security


implementation

Benefits from Changes:

EBL wanted to stand up in the crowd. For moving out of the


ramshackle, EBL management under the dynamic
leadership of the honorable Directors of the Board switched
over to a centralized platform using a world renowned
banking software which was the #1 most popular software
in the world for the year 2003. The result has been
incredible. We list a few of the benefits of centralization
here.

At a glance - Benefits from Changes


Standalone systems = > Centralized system
Branch Banking = > Anywhere Banking
Anywhere Banking = > EOD at Data Centre
Telegraphic Transfers = > Online Inter-branch transfer
Hold accounts = > Online Inter-branch transfer
Produce MIS at Branch = > Centralized MIS
Poor ‘Control’ reports = > Improved ‘Control’ reports
Audit needs branch visit = > MIS available at Head Office
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Information on paper = > Information in CIF
On Card Signature/Pix = > Digital Signature/Pix
No Funds Management = > Automatic Sweep-in/Out

Personal Development:
Commercial banks require a highly skilled labor force, it is
essential that attention be focused on personal
development. Human resources play a critical role in the
achievement of bank goals and objectives. Banks must
provide opportunities for the continuous training of their
employees in the latest banking operations and techniques,
and must provide means for their employees to keep up
with the changes in bank regulations.

Employee Benefits:

At Eastern Bank, they believe compensation and benefits


should not be single offerings, but should be integrated
into their Total Rewards employee benefits program, which
is designed to help their employees achieve their goals in
their personal and professional lives. To deliver on this
promise, they monitor industry best practices and solicit
input from their employees to ensure that their
compensation and benefits programs are competitive and
comprehensive. Below is a brief list of the programs
available to their employees:
Compensation
Their compensation plans are performance based and,
depending upon your position, may include base salary,
incentives, commissions, referral incentives and
recognition awards.

Health and Wellness


They offer a choice of high-quality comprehensive plans to
meet the diverse needs of their employees:

• Medical insurance – plan options through Tufts

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• Delta Dental insurance
• Eye Med Vision Care insurance
• Vision and hearing aid reimbursements
• Flexible spending accounts – medical, dependent care,
adoption, insurance premiums
• Use on-site fitness center in Lynn

Personal Protection
Available at no cost, these benefits provide additional
financial security to employees and their families for events
that impact their lives and physical well-being.

• Life insurance and AD&D insurance


• Supplemental Life and Dependent Life
• Sick days
• Short-term disability
• Long-term disability

Financial Future
They provide a blend of retirement benefits, including a)
401(k) plan that lets you make contributions, as well as a
non-contributory pension plan for tax-advantaged wealth
accumulation.

• Defined benefit pension plan


• 401(k) savings and investment plan with company
contribution.

Work/Life Program
Their program assists employees with personal and/or work
situations.

• Lifeworks Employee Assistance Program

Education
They provide financial support to employees to increase
their knowledge and skills, and enhance their job

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performance and career development.

• Tuition reimbursement program


• Wide variety of on-site training courses

Time Off
They offer paid time off to focus on non-work interests and
obligations as well as to relax.

• Vacation
• Holidays
• Personal days

Other Benefits

• Free or discounted banking services


• Discounted group auto and homeowners insurance
• T-Pass pre-tax program

Education Programs:

At Eastern Bank, They understand that dealing with


personal finances can be overwhelming for anyone. That’s
why they have partnered with local nonprofit community
organizations and high schools to offer education
programs that will help you take control of your finances.

 FDIC Alliance
 FDIC News
 FDIC Guides

FDIC Alliance

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As a member of the FDIC Money Smart Alliance, they
support financial literacy – the ability to save, budget,
spend wisely and invest – in the communities they serve.

The FDIC Money Smart program helps students and adults


develop good money management skills and understand
financial services and bank accounts.

The money smart program is a standardized banking


curriculum consisting of 10 modules covering basic
financial topics. In addition to attending a training class led
by a certified instructor, class participants receive a course
booklet containing resource materials and highlights of the
material covered.

Certified Instructors
Eastern has a team of over 50 employees that have
attended training programs and are certified to teach all 10
of the banking modules. Eastern Bank will send instructors
to your organization or school to present one or more of
the Money Smart courses. Classes are available in both
English and Spanish.

Requesting a Money Smart Presentation


When requesting a Money Smart Presentation, please
provide a minimum of 30 days notice to give them
sufficient time to schedule an instructor and obtain training
materials.

To request a Money Smart presentation for a school,


contact: John Patria keas, Vice President, Eastern Bank at
781-596-4534.

To request a Money Smart presentation for an


organization, please complete our request form.

If your organization is located outside their marketplace,


they will connect you with a representative at the FDIC to

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find Money Smart trainers in your community.

FDIC News

Consumer News is a quarterly newsletter published by the


Federal Deposit Insurance Corporation (FDIC) that provides
practical guidance on how to become a smarter, safer user
of financial services. Each issue offers helpful hints, quick
tips, and commonsense strategies to protect and stretch
your hard-earned dollars.

FDIC Guides

The Federal Deposit Insurance Corporation (FDIC) has


published several special how-to guides on money
management. Each guide contains topics designed for a
selected age group: senior citizens and their families,
young adults just beginning a career or family, and teens.

Bank Profitability:
Like all businesses, banks profit by earning more money
than what they pay in expenses. The major portion of a
bank's profit comes from the fees that it charges for its
services and the interest that it earns on its assets. Its
major expense is the interest paid on its liabilities.

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The major assets of a bank are its loans to individuals,
businesses, and other organizations and the securities that
it holds, while its major liabilities are its deposits and the
money that it borrows, either from other banks or by selling
commercial paper in the money market.

To analyze performance of Eastern Bank Limited (EBL) by


calculating different financial ratios, we use following
ratios-

1. ROE (Return on Equity)


2. ROA (Return on Asset)
3. Profit Margin
4. Asset Utilization
5. Net Interest Margin
6. Provision for Loss Ratio
7. Loan Ratio
8. Temporary Investment Ratio
9. EPS (Earning Per Share)
10. DPS (Dividend Per Share)
11. P/E (Price Earning) Ratio

To calculate those ratio of 5 years of Eastern Bank Limited


(EBL), we use following data-
Item 2005 2006 2007 2008 2009

(Taka) (Taka) (Taka) (Taka) (Taka)


Net 546,515,0 513,233,6 418,648,1 798,353,1 1,458,991
Income 28 80 50 97 ,932
Total 3,071,336, 3,314,723 3,710,912 4,733,358 8,434,181
Equity 910 ,164 ,939 ,666 ,804
Total 27,399,95 35,934,83 42,507,02 54,351,79 68,330,33

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Asset 4,469 3,110 5,504 5,983 3,103
Operati
ng 1,591,610, 2,110,747 2,820,667 3,701,632 4,617,633
revenu 252 ,329 ,205 ,829 ,138
e
Total
2,075,412, 2,829,332 3,808,903 5,224,413 6,186,163
Interest
522 ,632 ,036 ,145 ,190
Income
Total
Interest 1,365,455, 2,160,078 2,498,068 3,675,380 4,032,711
Expens 642 ,142 ,117 ,751 ,612
e
Averag
e
13,602,75 17,768,02 21,062,04 26,962,55 33,924,41
Earning
5,449.5 6,879 8,945 5,829 7,402
Asset

Provisio
n for 88,425,74 223,369,2 584,394,0 452,686,0 262,511,3
Loan 2 58 08 73 22
Losses
Total
17,757,59 25,973,98 30,895,70 39,427,38 46,129,52
Loans &
8,566 1,280 6,294 3,891 2,083
Leases
Net 17,174,52 25,046,61 30,194,17 38,632,08 45,277,52
Loan 8,536 9,296 1,436 3,300 1,185
Treasur 4,560,000, 3,680,000 1,170,000
- -
y Bill 000 ,000 ,000
Investm
2,962,734 1,298,180 440,079,5 278,305,6
ent ≤ 1 -
,773 ,168 20 75
year
Due 745,258,4 927,301,7 1,540,351 3,406,323 6,777,216
from 50 29 ,987 ,925 ,553
Other

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Bank
No. of
10,350,00 13,869,00 24,964,20
Shares 8,280,000 8,280,000
0 0 0
Issue
Propose
d 331,200,0 372,600,0 351,900,0
- -
Dividen 00 00 00
d
Market
price of
1222.75 792.50 1070.75 589.30 644.25
per
Share

Now,

ROE (Return on Equity):

ROE= (Net Income ÷ Total Equity) × 100

Year 2005 2006 2007 2008 2009


Net 546,515,0 513,233,6 418,648,1 798,353,1 1,458,991,
Inco 28 80 50 97 932
me
Total 3,071,336, 3,314,723, 3,710,912, 4,733,358, 8,434,181,
Equit 910 164 939 666 804
y
ROE 17.79% 15.48% 11.28% 16.87% 17.3%

By this ratio we see that in 2006 & 2007 EBL’s ROE is


relatively lower than others. But in 2008 its increasing &
also continuous increasing is going on. Therefore, investors
will attract more effectively to invest.

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ROA (Return on Asset):

ROA= (Net Income ÷ Total Asset) × 100

Year 2005 2006 2007 2008 2009


Net 546,515,0 513,233,6 418,648,1 798,353,1 1,458,991,
Inco 28 80 50 97 932
me
Total 27,399,95 35,934,83 42,507,02 54,351,79 68,330,33
Asse 4,469 3,110 5,504 5,983 3,103
t
ROA 1.99% 1.43% 0.99% 1.47% 2.14%

Managing asset or handling asset is the most important


part of an organization. Here, we see that Eastern Bank
Ltd. Managing their asset in average at 1.5%. And also in
2009, ROA is much better than others.

Profit Margin:

Profit Margin= (Net Income ÷ Operating Revenue) × 100

Year 2005 2006 2007 2008 2009


Net 546,515,02 513,233,68 418,648,15 798,353,19 1,458,991,9
Income 8 0 0 7 32

Operating 1,591,610,2 2,110,747,3 2,820,667,2 3,701,632,8 4,617,633,1


revenue 52 29 05 29 38

Profit 34.34% 24.32% 14.84% 21.57% 31.60%


Margin

EBL’s profit margin ratio in 2005 is 34.34% but it decreases


in 2006, 2007, 2008 and it’s overcome in 2009. So, EBL is
doing well in 2009.

Asset Utilization:

Asset Utilization== (Operating Revenue ÷ Total Asset)

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Year 2005 2006 2007 2008 2009
Total 27,399,954, 35,934,833, 42,507,025, 54,351,795, 68,330,333,
Asset 469 110 504 983 103

Operati 1,591,610,2 2,110,747,3 2,820,667,2 3,701,632,8 4,617,633,1


ng 52 29 05 29 38
revenue
Asset
Utilizati 0.058 0.059 0.066 0.068 0.067
on

EBL’s asset utilization capability is increasing 0.058 to


0.067. That’s a very good sign to any financial
organization.

Net Interest Margin:

Net Interest Margin= (Total Interest Income – Total Interest


Expense) ÷ Average Earning Asset

Year 2005 2006 2007 2008 2009


Total
Interes
2,075,412,52 2,829,332,6 3,808,903,0 5,224,413,1 6,186,163,1
t
2 32 36 45 90
Incom
e

Total
Interes
1,365,455,64 2,160,078,1 2,498,068,1 3,675,380,7 4,032,711,6
t
2 42 17 51 12
Expen
se

Avera 13,602,755,4

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ge 17,768,026, 21,062,048, 26,962,555, 33,924,417,
Earnin 879 945 829 402
49.5
g
Asset

Net
Interes
t 0.052 0.038 0.062 0.057 0.063
Margin

EBL’s net interest margin standing in 2009 is 0.063, which


is much better from previous years.

Provision for Loss Ratio:

Provision for Loss Ratio= (Provision for Loan Losses ÷ Total


loans & Leases) × 100

Year 2005 2006 2007 2008 2009


Provisio
n for 88,425,742 223,369,258 584,394,008 452,686,073 262,511,322
Loan
Losses
Total
17,757,598, 25,973,981, 30,895,706, 39,427,383, 46,129,522,
loans
&Lease 566 280 294 891 083
s
Provisio
n for
Loss 0.5% 0.86% 1.89% 1.15% 0.57%
Ratio

Provision for loan losses is doing better when it’s


decreasing. Here we see that in 2006, 2007, 2008 this rate
is increase & in 2009 its rate become lower. So, EBL is
standing in a low risk position.

Loan Ratio:

Loan Ratio= = (Net Loan ÷ Total Asset) × 100

Year 2005 2006 2007 2008 2009


Net 17,174,528, 25,046,619, 30,194,171, 38,632,083, 45,277,521,
loan

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536 296 436 300 185

Total 27,399,954, 35,934,833, 42,507,025, 54,351,795, 68,330,333,


Asset 469 110 504 983 103

Loan 62.69% 69.7% 71.03% 71.08% 66.26%


Ratio

EBL use their asset against loan very well like more than
50%. So, it is the good sign to EBL. But in 2009 it
decreases. So, EBL must have to concentrate on this &
solve the problem.

Temporary Investment Ratio:

Temporary
Investment Ratio= (Treasury bill + Investment ≤ 1year +
Due from other Bank) ÷ Total Asset

Year 2005 2006 2007 2008 2009


Treasury 4,560,000,0 3,680,000,0 1,170,000,0
bill - -
00 00 00

Investm 2,962,734,7 1,298,180,1 440,079,52 278,305,67


ent ≤ -
73 68 0 5
1year
Due
745,258,45 927,301,72 1,540,351,9 3,406,323,9 6,777,216,5
from
other 0 9 87 25 53
Bank
Total 27,399,954, 35,934,833, 42,507,025, 54,351,795, 68,330,333,
Asset 469 110 504 983 103

Tempora
ry 0.19 0.21 0.094 0.071 0.1
Investm
ent Ratio
Temporary invest ratio of EBL in 2009 is running low. EBL
must have to keep concentrate on it.

EPS (Earning Per Share):

EPS= Net Income ÷ No. of Shares Issue

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Year 2005 2006 2007 2008 2009
Net 546,515,02 798,353,19 1,458,991,9
513,233,680 418,648,150
Income 8 7 32

No. of
Shares 8,280,000 8,280,000 10,350,000 13,869,000 24,964,200
Issue
EPS 66 61.98 40.50 57.56 58.44

EPS of EBL 2005 & 2006 is good but in 2007 it is too much
lower. In 2008 EBL make over the problem for EPS is
increasing & also keep it in 2009.

DPS (Dividend per Share):

DPS= Proposed Dividend ÷ No. of Shares Issue

Year 2005 2006 2007 2008 2009


Proposed 331,200,00
372,600,000 351,900,000 - -
Dividend 0

No. of
Shares 8,280,000 8,280,000 10,350,000 13,869,000 24,964,200
Issue
DPS 40 45 34 - -

DPS of EBL 2005 & 2006 is good but in 2007 it is much


lower. And it is going on in 2008 & 2009. EBL can’t give
dividend.

P/E (Price Earning) Ratio:

P/E Ratio= Market Price of per Share ÷ Annual


Earnings per share (EPS)

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Year 2005 2006 2007 2008 2009
Market
Price of 1222.75 792.50 1070.75 589.30 644.25
per Share

Annual
Earnings
per Share 66 61.98 40.50 57.56 58.44
(EPS)
P/E (Price
Earning) 18.53 12.79 26.44 10.24 11.02
Ratio

EPS of EBL 2005, 2007 is good but in 2006, 2008, 2009 it is


too much lower. Somehow external factors are not work
properly for that P/E ratio decreasing.

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Conclusion:

The evaluating of bank performance is a complex process


involving interactions between the environment, internal
operations, and external activities. The primary method of
evaluating internal performance is by analyzing accounting
statements. Financial ratios of accounting items permit an
historical sketch of bank returns and risks.

At Eastern Bank, they believe that, in order to support the


success of their business customers, they need to take the
time to understand their unique challenges.

At Eastern Bank, they know that your business is unique


with specific financial challenges and opportunities. Their
experienced team of business bankers not only will take
the time to understand them, but to solve them. So no
matter what lies ahead for you and your business, you can
count on them to be there for you – every step of the way.

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