Valuation of 5 Banks:

Residual earnings valuation model has been used to find the intrinsic value of these five banks.
Our valuation shows that the market is imperfect as the current stock prices of those shares are
overvalued.

Name Intrinsic Value Current Price Comment

CITY 40.72 51.3 Overvalued
BRAC 14.46 105.9 Overvalued
DHAKA 9.42 22 Overvalued
MERCANTILE 10.25 27.5 Overvalued
EBL 16.14 54.3 Overvalued

Assumptions:

1) Terminal growth rate 7.2%

2) Interest Growth rate is held constant for the upcoming five fiscal years
3) DPR is held constant for the upcoming five fiscal years
4) NPM is held constant for the upcoming five fiscal years
5) Cost of Equity is held constant for the upcoming five fiscal years
 Valuation of City Bank using Residual Earnings (RE) Model
Particulars Time 0 Projected Projected Projected Projected Projected
Year 1 Year 2 Year 3 Year 4 Year 5
Interest income growth rate 6.63% 6.63% 6.63% 6.63% 6.63%
Interest income/profit on investments 16,057,152,921 17122009272 18257483314 19468258173 20759327547 22136016298
NPM 14.23% 14.23% 14.23% 14.23% 14.23%
Earnings 2436663849 2598255196 2770562738 2954297136 3150216181
DPR - dividend payout ratio 43.7% 43.7% 43.7% 43.7% 43.7%
Transfer to the equity 1370802062 1461709043 1558644668 1662008737 1772227565
CSE 22,264,106,438 23,634,908,500 25,096,617,543 26,655,262,211 28,317,270,948 30,089,498,513
Cost of equity 9.11% 9.11% 9.11% 9.11% 9.11%
Benchmark income 2027871328 2152727459 2285863629 2427828942 2579208916
Residual income 408792521 445527737 484699109 526468195 571007265
Year 1 2 3 4 5
PV of discount factor 0.92 0.84 0.77 0.71 0.65
PV of residual income 374666908.11 374248041.47 373163712.69 371485372.58 369278146.42
Summation of PV of residual income 1862842181.27
Terminal growth rate 7.20%
Continuing value 20744943174
PV of terminal value 13,416,036,235.84
Book value of equity - existing value 22264106438
Equity value 37,542,984,855.11
Number of shares outstanding 921,892,664
Value per share 40.72
 Valuation of BRAC Bank using Residual Earnings (RE) Model
Projected Year Projected Projected Projected Projected
Particulars Time 0
1 Year 2 Year 3 Year 4 Year 5
Interest income growth rate 2.17% 2.17% 2.17% 2.17% 2.17%
Interest income/profit on investments 18,310,392,086 18708343848 19114944557 19530382186 19954848794 20388540612
NPM 11.74% 11.74% 11.74% 11.74% 11.74%
Earnings 2196812035 2244556792 2293339217 2343181863 2394107771
DPR - dividend payout ratio 27.7% 27.7% 27.7% 27.7% 27.7%
Transfer to the equity 1587273693 1621770954 1657017966 1693031024 1729826778
CSE 22,264,106,438 23,851,380,131 25,473,151,085 27,130,169,050 28,823,200,074 30,553,026,852
Cost of equity 11.43% 11.43% 11.43% 11.43% 11.43%
Benchmark income 2545853480 2727354870 2912800948 3102277448 3295871964
Residual income -349041445 -482798078 -619461731 -759095585 -901764193
Year 1 2 3 4 5
PV of discount factor 0.90 0.81 0.72 0.65 0.58
PV of residual income -313224846.61 -388797931.97 -447663929.53 -492281248.35 -524794193.45
Summation of PV of residual income -2166762149.91
Terminal growth rate 7.20%
Continuing value -13284710127
PV of terminal value -7731221519
Book value of equity - existing value 22,264,106,438
Equity value 12,366,122,768.71
Number of shares outstanding 855,209,694
Value per share 14.46
 Valuation of Mercantile Bank using Residual Earnings (RE) Model
Projected Year Projected Projected Projected Projected
Particulars Time 0
1 Year 2 Year 3 Year 4 Year 5
Interest income growth rate 2.45% 2.45% 2.45% 2.45% 2.45%
Interest income/profit on investments 13,746,142,871 14082322081 14426722977 14779546630 15140999029 15511291201
NPM 12.01% 12.01% 12.01% 12.01% 12.01%
Earnings 1691979729 1733359221 1775750700 1819178917 1863669225
DPR - dividend payout ratio 31.8% 31.8% 31.8% 31.8% 31.8%
Transfer to the equity 1153214067 1181417367 1210310415 1239910078 1270233638
CSE 16,818,844,936 17,972,059,003 19,153,476,370 20,363,786,785 21,603,696,862 22,873,930,500
Cost of equity 17.78% 17.78% 17.78% 17.78% 17.78%
Benchmark income 2990959016 3196039449 3406135383 3621369476 3841867390
Residual income -1298979287 -1462680228 -1630384682 -1802190559 -1978198165
Year 1 2 3 4 5
PV of discount factor 0.85 0.72 0.61 0.52 0.44
- -
PV of residual income -997787487.22 -936407031.79 -872669383.76
1102854488.28 1054341664.39
Summation of PV of residual income -4964060055.43
Terminal growth rate 7.20%
Continuing value -8839346477
PV of terminal value -3899420785
Book value of equity - existing value 16,818,844,936
Equity value 7,955,364,095.70
Number of shares outstanding 776,114,537
Value per share 10.25
 Valuation of EBL using Residual Earnings (RE) Model
Projected Year Projected Year Projected Year Projected Year Projected Year
Particulars Time 0
1 2 3 4 5
Interest income growth rate 0.09% 0.09% 0.09% 0.09% 0.09%
Interest income/profit on investments 13,662,629,884 13674535704 13686451899 13698378478 13710315450 13722262824
NPM 17.29% 17.29% 17.29% 17.29% 17.29%
Earnings 2364394716 2366455085 2368517249 2370581211 2372646970
DPR - dividend payout ratio 40.8% 40.8% 40.8% 40.8% 40.8%
Transfer to the equity 1399980341 1401200305 1402421332 1403643422 1404866578
CSE 20,831,809,735 22,231,790,076 23,632,990,380 25,035,411,712 26,439,055,134 27,843,921,713
Cost of equity 14.55% 14.55% 14.55% 14.55% 14.55%
Benchmark income 3031302829 3235018417 3438911526 3642982310 3847230925
Residual income -666908113 -868563332 -1070394277 -1272401100 -1474583954
Year 1 2 3 4 5
PV of discount factor 0.87 0.76 0.67 0.58 0.51
PV of residual income -582191568.40 -661913611.67 -712104138.57 -738964674.23 -747599592.91
Summation of PV of residual income -3442773585.79
Terminal growth rate 7.20%
Continuing value -10901810940
PV of terminal value -5527111153
Book value of equity - existing value 20,831,809,735
Equity value 11,861,924,996.20
Number of shares outstanding 734,999,590
Value per share 16.14
 Valuation of DHAKA Bank using Residual Earnings (RE) Model
Projected Year Projected Projected Projected Projected
Particulars Time 0
1 Year 2 Year 3 Year 4 Year 5
Interest income growth rate 0.23% 0.23% 0.23% 0.23% 0.23%
Interest income/profit on investments 13,173,471,870 13203681099 13233959603 13264307542 13294725074 13325212359
NPM 11.69% 11.69% 11.69% 11.69% 11.69%
Earnings 1544017390 1547558110 1551106949 1554663927 1558229061
DPR - dividend payout ratio 28.7% 28.7% 28.7% 28.7% 28.7%
Transfer to the equity 1101162591 1103687762 1106218724 1108755490 1111298073
CSE 14,914,932,104 16,016,094,695 17,119,782,457 18,226,001,181 19,334,756,672 20,446,054,745
Cost of equity 17.08% 17.08% 17.08% 17.08% 17.08%
Benchmark income 2548203729 2736336441 2924900576 3113897124 3303327076
Residual income -1004186340 -1188778331 -1373793627 -1559233197 -1745098015
Year 1 2 3 4 5
PV of discount factor
0.85 0.73 0.62 0.53 0.45
PV of residual income -857656449.38 -867159482.45 -855891361.65 -829673592.12 -793076474.84
Summation of PV of residual income -4203457360.43
Terminal growth rate 7.20%
Continuing value -8600760178
PV of terminal value -3908697681
Book value of equity - existing value 14,914,932,104
Equity value
6,802,777,062.68
Number of shares outstanding 722,295,720
Value per share
9.42