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Term PaperOn
Bank Fund managementCourse Code: FIN-435
Topic: Performance Evaluation & Fund Management of Bank Operations.
Submitted to:Sabrina AkhterLecturerDepartment of commerceFaculty of business & economics Daffodil International University
Submitted by:Mustak Ahmed 081-11-047Md. Emanul Islam 081-18-1099Md. Aminul Islam 062-18-913Md. Tafiqul Islam 073-11-2224Masum Kamal 072-11-1943
Date of submission: 18th April, 2011
1
Acknowledgement
All praises to the Almighty Allah for enabling to complete our “Term Paper” with good and sound health.
At this point, we would like to acknowledge some of people who have made a major contribution to it preparation. It will be great achievement for us that our honorable teacher Sabrina Akhter Lecturer, Department of Commerce, faculty of Business & economics. Daffodil international University has given necessary suggestions for preparing our Term Paper.
We are highly grateful to Mr Akbor Deposit Schemes department employee of Prime Bank ltd, who gives us a lot of necessary information about Prime Bank ltd of Bangladesh.
We would like to thank Hafiz Md.Shalauddin who helps us to prepare this term paper.
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Letter of Transmittal
April 18, 2011Sabrina AkhterLecturerDepartment of commerceFaculty of business & economics Daffodil International University.
Dear Madam We submit here our report as you assigned us to prepare. You asked us to prepare a report on “Performance evalution & Fund Mangement of Prime Bank Ltd , Shahjalal Islami Bank LID IFIC Bank Ltd”.This report paper has helped us to increase our understandability on business. During preparing this report paper we have enforced our best effort. Surely it enriches our knowledge and promotes our study. We have also learned much about the dynamic business world previously unknown.
Thank you for giving us such an opportunity for working on the tropic. We will be honored to provide you any additional information, if necessary. Sincerely yours,
On bekalf of the groupMustak AhmedID: 081-11-047
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Executive Summary
Now-a-days Banking business is increasing in Bangladesh. A lot of organization of Bangladesh are doing this business and play a vital role in our economy. Prime Bank is one of the best Banking Company in Bangladesh doing their business successfully.
In BBA program one of the important parts of each course is to prepare a report on the assigned topic related to the course.
We have prepared our report on “Performance evalution & Fund Mangement of Prime Bank Ltd., Shahjalal Islami Bank Ltd. ,IFIC Bank Ltd.” They try to provide a quality full product & service.
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Objective
To assist the genuine and capable entrepreneurs for acquiring Capital Machinery and Equipments to undertake enterprises without equity.
To encourage the new and educated young entrepreneurs to undertake productive venture and demonstrate their creativity and thereby participate in the national development.
To participate in the industrial development of the country.
5
Scope
The main purpose of the report is to show the Performance evalution & Fund Mangement of CB So, we had opportunity to work on to “Performance evalution & Fund Mangement of commercial Bank in BD.
6
Methodology
Methodology of the report is mainly based on collection of the Primary & secondary as well as using appropriate method for estimating different issues not mentioned therein.
Data Collection
Deferent types of secondary data are used in this analysis with a view to making the report preparation worthwhile. In doing so, relevant information have been taken from,
The annual report Through internet.
Commercial Bank Management by Peter S Rose, International edition
Bank Management by A.R khan.
7
Origin of the report
This report has been prepared as a requirement of the course curriculums, as a part of course no (FIN-435). The report title is the “Performance evalution & Fund Mangement of Shahjalal Islami Bank Ltd., IFIC Bank Ltd course started on January 2011 and report submitted on April118, 2011. Our honorable course teacher Sabrina Akhter lecturer, Department of commerce,faculty of business & economics, Daffodil International University (DIU) assigned the report.
8
Limitation
Limitation of the report:
Due to unavailability of data,
Large-scale research was not possible due to constraints and restrictions post by data limitation,
Some important information could not be exposed for the lack of authorization.
Lack of work time.
9
Company Profile History of the Prime Bank ltd
Prime Bank started its journey in the year 1995 with the firm commitment of excellence customer service with a Difference. Its vision remained to be the best private commercial bank in Bangladesh in terms of efficiency, capital adequacy, asset quality, sound management and profitability. Having recorded progress in all areas PBL has now established itself as the leading and strongest ofPrivate commercial banks in Bangladesh. PBL was formally launched in April 1995 with one branch at Motijheel Commercial Area, Dhaka. It started its IslamicBanking operations in December of the same year. It was listed with both the bourses of Bangladesh viz. Dhaka Stock Exchange and Chittagong Stock Exchange in 1999 through initial public offering. It was registered as Merchant Banker with the Securities and Exchange Commission, Bangladesh in 2000 for starting its Investment Banking and Advisory services. In 2003 PBL became primary dealer for buying and selling securities under the license issued by Bangladesh Bank.
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For our Customers
To provide the most courteous and efficient service in every aspect of its business.
To be innovative in the development of new banking products and services
For our Employees
By promoting their well-being through attractive remuneration and fringe benefits By promoting good staff morale through proper staff training and development, and
provision of opportunities for career development
For our Shareholders
By forging ahead and consolidating its position as a stable and progressive financial institution
By generating profits and fair return on their investment
For our Community
By assuming our role as a socially responsible corporate citizen in a tangible manner By adhering closely to national policies and objectives thereby contributing towards the
progress of the Nation.
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Part-1
Performance Analysis
The bank’s performance has been exemplary in its limited history given theChallenging operating environment and the track record of most other banks inThe system.
Risk Assessment: Six types of risks are given below:
Credit Risk Liquidity risk Market Risk Interest Risk Earnings Risk Solvency Risk
Credit Risk: Credit risk is an investor's risk of loss arising from a borrower who does not make payments as promised. Such an event is called a default. Another term for credit risk is default risk.
Provision for loan loss Ratio = Total loan & lease
1933702561
In 2009 = ×100 89252220000
= 2.16%
In 2008 =
177422556075156210000
×100
= 2.36%
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Shahjalal Islami Bank Ltd.
80000000+125000000
In 2009 = ×100 43958260711
= .47%
500000+140000000In 2008 = ×100
32918773668
= .44%
IFIC Bank
310000000In 2009 = ×100
37793886723
= .82%
305000000In 2008 = ×100
33018385382
= .92%
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Liquidity risk : the danger of not having sufficient cash and borrowing capacity to
meet depositors withdrawals loan damnd & cash needs.
Purchased fund Ratio = ×100
total assets
In 2009 =
47664000000124806380000
×100
= 3.19%
in 2008 =
3534307999110437100000
×100
= 3.20%
Shahjalal Islami Bank Ltd.
43753260711
In 2009 = ×100 58920895401
= 74.26%
32773773668In 2008 = ×100
44109502922
= 74 .30%
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IFIC Bank
37483886723In 2009 = ×100
62901864980
=59.6%
32713385382In 2008 = ×100
45729473190
= 71.54%
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Market Risk: Market risk is the risk that the value of a portfolio, either an investment portfolio or a trading portfolio, will decrease due to the change in value of the market risk factors.
Banks book value of assetsRatio =
Market value of assets
In 2009 =
1174539800023212109000
×100
= 50.60%
In 2008 =
669674700015349141
×100
= 43.63%
Interest Rate Risk: Interest rate risk is the risk (variability in value) borne by an interest-bearing asset, such as a loan or a bond, due to variability of interest rates. In general, as rates rise, the price of a fixed rate bond will fall, and vice versa. Interest rate risk is commonly measured by the bond's duration.
Interest sensitive assetRatio =
Interest sensitive liabilities
In 2009 =
72944284277138749421
×100
= 102.18%
16
In 2008 =
78012580157861245879
×100
= 93.34%
Shahjalal Islami Bank Ltd.
47441407393
In 2009 = ×100 47459231493
= 99.96%
34062963068In 2008 = ×100
34279739993
= 99.37%
IFIC Bank
46876837867In 2009 = ×100
50017960808
= 93.72%
38248269634
In 2008 = ×100
17
36092169540
= 105.9%
Earnings Risk: the danger that banks rate of return on assets or equity or net earning may fall.
Solvency Risk: Solvency risk is the risk that a creditor will lose his entire investment if a debtor cannot repay him in full, even if all the debtor’s assets are liquidated. Traders call this counterparty risk .
Ratio analysisPrimeBank
Profitability ratio:
Net profit after tax1. Return on asset = ×100 total asstes
In 2009 =
2823473302124984702326
×100
= 2.26%
In 2008 =
1231832174110437103311
×100
= 1.12%
Shahjalal Islami Bank Ltd.
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1070568293
In 2009 = ×100 58920895401
= 1.82%
817709533In 2008 = ×100
44109502922
= 1.85%
IFIC Bank
899518416In 2009 = ×100
62901864980
=1.46%
657310698In 2008 = ×100
45729473190
= 1.44%
Interpretation:
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Return on asset (ROA) is primarily and indicators of managerial efficiency, it indicates how capably the management of the bank has been covering the institutions asset into net earnings.
Net profit after tax 2. Return on equity = ×100
total equity capital
In 2009 =
282347330211796677214
×100
= 23.93%
In 2008 =
12318321746696770778
×100
= 19.74%
Shahjalal Islami Bank Ltd.
1070568293
In 2009 = ×100 4926633268
= 21.73%
817709533In 2008 = ×100
3605440674
= 1.85%
IFIC Bank
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4899418416In 2009 = ×100
4197456238
=21.43%
657310698In 2008 = ×100
3196727045
= 20.56%
Interpretation:
ROE is a measure of rate of return flowing to the bank shareholders. It approximates the net benefit that this shareholders have received from investing there capital in the bank. (That means placing there funds at risk in the hope of earning a suitable earning profit
Intt. Inc. from loan & securities instrument- intt. exp. on deposit & debt 3. Net interest margin =
total assets
In 2009 =
10856114605−8426000000124984702326
×100
= 1.94%
In 2008 =
9095891683−7126000000110437103311
×100
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= 1.78%
Shahjalal Islami Bank Ltd.
1330603851
In 2009 = ×100 58920895401
= 2.26%
1273775380In 2008 = ×100
44109502922
= 2.89%
IFIC Bank
1102178581In 2009 = ×100
62901864980
=1.75%
1168701198In 2008 = ×100
457294473190
= 2.55%
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Interpretation:Net interest margin is measure of efficiency indicating how well mgt and staff have been able to kept the growth of reserves (which come primarily from the banks loan, investment and service fees) ahead of raising cost (principally the interest on deposit and money market borrowings and employee salaries and benefits) It measures how large a spread between interest revenue and interest cost management has been able to achieve by close control over the banks earning asset.
Prime Bank
Non interset Revenue – non interest expense4. Net non interest margin =
Total assets
In 2009 =
5790000000−2907000000124984702326
×100
= 2.31%
In 2008 =
3808000000−1931000000110437103311
×100
= 1.69%
IFIC Bank
1959518416In 2009 = ×100
23
62901864980
=3.11%
1622310698In 2008 = ×100
457294473190
= 3.55%
Interpretation:The Non Interest Margin measures the amount of non interest revenue steaming from deposit service charges and other service fees the bank have been able to collect(called fee income) relating to the amount of non interest cost incurred including salaries and wages, repair and maintenance cost on bank facilities and loan loss expenses. For most banks, the non interest margin is negative.
Net income after tax( NIAT)
5.Earning per Share(EPS) = Total no. of common stok outstanding
In 2009 =
282347330236045878
= 78.33 Tk.
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In 2008 =
123183217428047181
= 43.92 Tk.
\
\Shahjalal Islami Bank Ltd.
In 2009 = 39.07 Tk.
In 2008 = 29.84 Tk.
IFIC Bank In 2009 = 51.58Tk.
In2008 = 37.69 Tk.
Interpretation:EPS is a measure of efficiency indicating how much a share of a particular economy can earn from is net profit. Here 1 share of this bank earns in 2007 tk. 61.57, in 2008 is tk. 43.92 & in 2009 is tk. 78.33 from its profit.
Total operating revenue 6. The banks degree of asset utilization =
Total Asset
25
In 2009 =
8262859422124984702326
×100
= 6.61%
In 2008 =
5819245747110437103311
×100
= 5.27%
Shahjalal Islami Bank Ltd.
2916761866
In 2009 = ×100 58920895401
= 4.95%
2322991357In 2008 = ×100
44109502922
= 5.27
IFIC Bank
3724356154In 2009 = ×100
62901864980
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=5.92%
3179603897In 2008 = ×100
457294473190
= 6.95%
Interpretation:AU is a measure of asset mgt efficiency it reflects portfolio mgt policies, specially the mix and yield on the bank assets. By carefully allocating the banks assets to the highest yielding loans and investments while avoiding excessive risk management cab raise the banks average yield on its assets.
Prime Bank Total assets
7. the degree of equity multiplier(EM) = Total equity
In 2009 =
12498470232611796677214
= 10.59
In 2008 =
1104371033116696770778
= 16.49
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Shahjalal Islami Bank Ltd.
58920895401
In 2009 = 27401287
= 2150 Tk.
44109502922In 2008 =
27403134
= 1609 Tk.
IFIC Bank
62901864986In 2009 =
17439286.86
=3606 Tk.
45729473190In 2008 =
17439923
= 2622 Tk.
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Interpretation:EM or the employment of financial leverage to raise net earnings for this stakeholders it reflects leverage or financing policies, choosing the sources of financing debt or equity. The multiplier is a direct measure of this banks degree or financial leverage-how many dollars of asset must be supported by each dollar of equity capital and how much of the banks resources therefore must rest on debt because equity must absorber losses on the bank assets, the larger the multiplier, the more exposed to failure risk the bank is however the larger the multiplier the greater the banks potential for high return for its stoc
Stock valuationIn financial markets, stock valuation is the method of calculating theoretical values of companies and their stocks. The main use of these methods is to predict future market prices, or more generally potential market prices, and thus to profit from price movement – stocks that are judged undervalued (with respect to their theoretical value) are bought, while stocks that are judged overvalued are sold, in the expectation that undervalued stocks will, on the whole, rise in value, while overvalued stocks will, on the whole, fall.
STOCK PRICE DETERMINATION:
D1 Po=---------------------- R-G
Here, P = Current mkt price of stock D =D (1+g) Current year Dividend P=Discount Rate G=Growth Rate of dividend
CAMELS RATING
Capital & reserve
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1. Capital Adequacy = ×100Total Risk weighted Asset
Tier I + Tier II= Total Risk weighted Asset
In 2009 =
9057000000+311200000082710000000
×100
= 14.71% Rating-1(strong)
In 2008 =
6265000000+159400000072253000000
×100
= 10.17% Rating-1(strong)
Shahjalal Islami Bank Ltd.
4926633268
In 2009 = ×100
38832820000
= 12.67% Rating-1(strong)
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3605440674In 2008 = ×100
29463930000
= 12.24% Rating-1(strong)
IFIC Bank
4197456238In 2009 = ×100
36521634500
=11.49% Rating-1(strong)
Classified Loan 2.Asset Quality Ratio = ×100
Total loan
In 2009 =
114410000089252220000
×100
= 1.29% Rating-1(strong)
In 2008 =
132260000075156210000
×100
= 1.76% Rating-1(strong)
Shahjalal Islami Bank Ltd.
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596700000
In 2009 = ×100 43958260711
= 1.36% Rating-1(strong)
IFIC Bank
2320307000In 2009 = ×100
37793886723
=6.14% Fair or Rating 3
Prime Bank
3. Management Rating =
1+1+1+54
= 2 ( Satisfactory )
Shahjalal Islami Bank Ltd.
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Management Rating =
1+1+1+24
= 1.25 Rating-1(strong)
IFIC Bank
Management Rating =
1+3+1+14
= 1.5 ( Satisfactory ) 2
Prime Bank
Net profit after tax (NPAT)4. Earnings Ratio = ×100
Total Asset
In 2009 =
2823473302124984702326
×100
= 2.26% Rating-1(strong)
In 2008 =
1231832174110437103311
×100
= 1.12% Rating-1(strong)Shahjalal Islami Bank Ltd.
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1070568298
In 2009 = ×100 58920895401
= 1.82% Rating-1(strong)
IFIC Bank
899518416In 2009 = ×100
62901864980
=1.43% Rating-1(strong)
Prime Bank
Liquide assets 5. Liquidity ratio = ×100
Total Demand deposit
In 2009 =
2760000018629464838
×100
= 0.15% Rating-5 (Unsatisfactory )
In 2008 =
1880000013787934249
×100
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= 0.14% Rating-5 (Unsatisfactory )
Shahjalal Islami Bank Ltd.
11600278117
In 2009 = ×100 47107812102
= 24.62% ( Satisfactory ) 2
IFIC Bank
46876837867In 2009 = ×100
48738681486
=96.18% Rating-1(strong)
Prime Bank
6. Sensitivity to market risk
In 2009 =
1+1+1+5+25
= 2 ( Satisfactory )
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Shahjalal Islami Bank Ltd.
1+1+1+1+2
In 2009 = 5
= 1.2% Rating-1(strong)
IFIC Bank
1+3+2+1+1In 2009 =
5
=1.6% 2 ( Satisfactory )
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Part -2
Fund management
• Good franchise, growing customer deposits and satisfactory liquidityPosition• Although reported capitalization appears adequate, the bank’s adjusted capitalPosition is less healthy given the challenging operating environment, andInjection of new capital will be credit positive.
Sources of Fund Uses of Fund
Sources of Fund: Capital Deposit Borrowing
Capital: capital is the first source of bank fund. Bank also collects fund through selling of long term debentures .Generally, bank collects owners’ fund through issuing shares. The more the shares are purchased by the shareholders, the more the capital is collected.
Deposit: deposit is the largest sources of bank find.it are assumed that a medium sized bank collects 85%-95% of its funds through deposits. Deposits accounts can be classified into three categories.
Current deposit account Savings deposit accounts Fixed deposit accountsFrom the view point of bank fund management, the highest cost is involved in fixed deposit accounts, but the banker gets more income from this account. On the other hand cost of collecting current deposit account is almost zero. Saving deposit account
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holds the futures of the both the previously mentioned both the types of accounts. Thus from the saving account bank earns more than the current account but less than the fixed deposit account
Borrowed Fund: bank collects fund from both short term & long term borrowings, bank collects long tern funds from long term borrowing by following contemporary rules & regulations. Long term funds thus act as capital.
Uses of Fund: bank collect fund from deposit debt & capital including other sources most of the collected funds when used able to earn profit. Fund is used for two purposes one is loan & another is investment.
Bank use their fund in the following way:
1. Lending function: bank uses most of the fund mobilized as loans & advance. In develop countries 50%- 65% of fund of commercial bank are utilized from extending loan & advance, but the same ranges from 65%-75% in the developing countries. Loans are classified in two ways one for business such as investment or working capital & another for non business. Such as car loan, house loan, medical loan etc.
2. Investment Function: bank invests in T-bill which is issued by government. It is less risky than any other securities. It is easier to convert into cash than any other securities. From this reason it is more preferable. It may be short term, intermediate and long term.
3. Cash assets function: cash assets indicate that portion of bank fund which is used to maintain banks liquidity in different forms.
The assets in which funds are invested are:
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4. Cash vault 5. Items in the process of collection 6. Balance with the central bank7. Balance with sister banks
4. Other functions: for a new bank huge funds are used to purchase quality equipments, technology, building office etc. in order create & impression that will attract larger no. of customers. On the other hand exiting bank requires fund for replacement, modernization or for maintenance purpose.
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Findings & analysis
They provide ATM booth facility, but their ATM Booth Are not available in rural area. They provide the most courteous and efficient service in every aspect of its business. They try to innovative in the development of new banking products and services by promoting their well-being through attractive remuneration and fringe benefits.By promoting good staff morale through proper staff training and development, and provision of opportunities for career development.
40
Conclusion & Recommendation
The Bank operates as a Scheduled Bank under a Banking license issued by Bangladesh Bank, the Central Bank of the country. They play a great role in the economy of Bangladesh. It grow up or spread in the local area and it rapidly make a good reputation in the country. But if they follow some rule then their bank will be improve their Rating.They should developed their internet fasilities for communicate with people.
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