1. Chapter one-Introduction
1.1 Background of the Study
In the world of modern ages importance of banking business is immeasurable. Agricultural and
industrial prosperity cannot be imagined without the existence of an expedient banking system in
the country. Absence of a fair banking system is identified as a prime cause of backwardness of
any country in respect of its commerce and industry. Banks have been playing effective role in
the capitalistic as well as socialistic countries of the world in their internal distribution of wealth.
The financial sector in Bangladesh is continuously evolving towards a more modern and
efficient system of finance which is supportive of greater investment and inclusive
economic growth. The financial system of Bangladesh consists of The Bangladesh Bank,
scheduled banks, non-bank financial institutions, micro finance institutions, insurance
companies, co-operative banks, credit rating agencies and stock exchange. At present
Bangladesh has 4 state owned banks, 10 foreign banks, 9 specialized banks, 32 commercial
banks and 6 more commercial banks are on their way to commencement.
To get an overview of any company in a very short period, financial analysis is the most
effective way. Financial analysis give the actual probable profitability is a short and convincing
way. It also shows which company is good for general people for their investment. In short we
can say that it gives a clear understanding of the financial position of the company to any person.
While doing the financial analysis it was tough to analyze all the banks. So a sample of five
banks was taken to analyze the whole banking industry. As there are diversified banking
practices in Bangladesh, thinks analysis was done on diversified origin bank. Three commercial
banks are analyzed since there are more commercial banks, one government owned and one
specialized bank are analyzed here. This diversification was done so that we can get a good view
of overall banking sector of Bangladesh.
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2. 1.2 Objective:
The general objective of the study is to know how to calculate these ratios and implement them
in real life in banking sector. While doing this term paper our specific objective was on
 To calculate financial ratios of five banks.
 To analyze the ratios.
1.3 Scope:
Since there are about 55 banks in Bangladesh, it is almost impossible to analyze the financial
data of all these banks in this short time span. So we decided to limit our study to five banks.
Among them three are commercial banks, one specialized bank and one is government owned
bank. All these banks were selected randomly.
1.4 Limitation:
 Time span was so short that analyzing all the banks were not possible. So a sample of
five banks was selected
 Annual reports of all banks were not available so a sample of five was selected
 Since bank is a service rendering organization, it was not possible to calculate some of
the ratios that are applicable for merchandising organization
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3. Chapter Two-Methodology
This paper uses a financial ratio analysis to measure, describe and analyze the performance of
five banks of Bangladesh during the period of 2009-2012. The whole process has been done in
three steps: data collection, analysis and drawing conclusion.
2.1 Data Collection:
The annual report of two years which contain the necessary information such as balance
sheet, income statement etc. of three years (2009, 2010, 2011) have been collected from our
five respective banks.
2.2 Analysis:
Using the required information from the annual report the analysis has been done. In the
analysis part, we have calculated the ratios (the applicable ones) of three years for our five
selected banks. And then we have compared the ratios and their effects on the respective
banks over the three years. The ratios that we calculated in our analysis are given below with
corresponding formulas:
Current Ratio = Current Asset / Current Liability
Net Profit Margin = Net Income / Total Operating Revenue
Asset Utilization = Total Operating Revenue / Total Asset
Return on Asset (ROA) = Net Income After Tax / Average Assets
Return on Equity (ROE) = Net Income After Tax / Total Shareholder’s Equity
Earnings Per Share (EPS) = Net Income / Weighted Average Common Shares
Outstanding
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4. Price Earning Ratio = Market Price Per Share of Stock / Earning Per Share
Net Interest Margin = (Invested Returns – Interest Expense)/Avg Earning Assets
Debt to Total Asset Ratio = Total Liability / Total Asset
Times Interest Earned = Income Before Income Tax & Interest Expense / Interest
Expense
2.3 Drawing Conclusion:
Comparing the ratios of three years for the five banks we concluded about the focus,
dependency, degree of profit orientation and some others factors about the five banks. We
also tried to figure out how the shareholders can take decisions regarding buying the shares
seeing the financial ratios of the banks.
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5. Chapter Three: Ratio Analysis and Major Findings
3.1 Ratio Analysis
Ratio Analysis can be very much helpful to understand the condition of a financial institution.
But some of the ratios cannot be calculated for Banking Institutions, like, Receivable Turnover,
Inventory Turnover etc. as Banks do not have Inventories. These ratios are more applicable for
Merchandizing Industry. Profitability and Solvency Ratios are more important measures for
banks. Moreover, some ratios require internal data, which are generally not provided in annual
reports. Considering all these factors the following ratios are calculated to understand the
scenario in Banking industries.
3.1.1 Current Ratio:
Figure3.1: Current Ratio of Banks in 2011 and 2010
In 2011, industry average of current ratio is 1.22 and all the banks have ratios around this value.
Only data of BDBL bank (2.377) shows somewhat of a variation. All other banks have value of
below 1.2. So, it indicates that BDBL holds more cash and other liquid assets than other banks.
BDBL is more focused on investing in development banking than on commercial business and
hence holds more cash than other banks.
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6. Similarly, in 2010 BDBL also had the highest current ratio and its variation with industrial
average was even more prominent. Among the five banks, National bank had the lowest current
ratio in 2011 and UCBL had the lowest ratio in 2010. So these two banks had comparative less
cash than other banks during the respective years. It is also evident that though industrial average
of current ratio decreased from 2010 to 2011 but it increased for most of the banks except for
BDBL.BDBL being the highest data resulted in decrease of industrial average data from 2010 to
2011. This occurred because current liability of BDBL increased in 2011even more than twice as
much of the liability in 2010. So, BDBL holds more cash than other banks and at the same time
has significant amount of current liability. Due to data unavailability current ratio for 2009 could
not be calculated for all the banks and thus could not be included in the analysis.
3.1.2 Times Interest Earned:
Times Interest Earned 2011 Times Interest Earned 2010
4 10
3 8
6
2
Ratio
Ratio 4
1 2
0 0
BDBL Bank
National
UCBLJanata
Industry BDBL Bank
National
UCBLJanata
Industry
Asia Bank BankAverage Asia Bank BankAverage
Banking Institution Banking Institution
Times Interest Earned 2009
2
1.5
1
Ratio
0.5
0
BankNati onal UCBL Janata
Indus try
As i a Bank Bank Average
Banking Institution
Figure 3.2: Times Interest Earned for Banks in 2011,2010 and 2009
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7. In 2011, the industrial average of Times Interest Earned ratio was 2.04. The lowest Times
Interest Earned was of Bank Asia, that was 1.41 and the highest was of BDBL which was
3.77. The rest of the 3 banks had approximately same Times Interest Earned ratio.Form
the ratio,we can say that BDBL earned enough during the period to pay its interest
expense almost 4 times over.Bank Asia has a lower ratio than industrial average that
suggests that the bank would default on required interest payments.
3.1.3 Debt to Asset Ratio:
Debt to Total Asset Ratio 2011 Debt to Total Asset Ratio 2010
1 1
0.8 0.8
0.6 0.6
Ratio
Ratio
0.4 0.4
0.2 0.2
0 0
BDBL Bank
National
UCBLJanata
Industry BDBL Bank
National
UCBLJanata
Industry
Asia Bank BankAverage Asia Bank BankAverage
Banking Institution Banking Institution
Debt to Total Asset Ratio 2009
1
0.8
0.6
Ratio
0.4
0.2
0
BDBL Bank Nati onal
UCBLJanata
Indus try
As i a Bank BankAverage
Banking Institution
Figure 3.3: Debt to Asset Ratio of Banks in 2011,2010 and 2009
In 2011, the industry average of Debt to Total Asset ratio was 0.817.The highest Debt to Total
Asset ratio was of Janata Bank which was 0.93 and the lowest was of BDBL, which was
0.48.Bank Asia and National Bank have approximately same ratio. So, it is seen that from all the
5 banks, Janata Bank is at highest risk that it may be unable to meet its maturing obligation.
BDBL has the highest ability among all 5 banks to withstand losses without impairing the
interest of creditors. Bank Asia, UCBL and National Bank have their Debt to Total Asset ratio
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8. around industrial average. We can also see that the Debt toTotal Asset ratio of BDBL
significantly decreased from the year 2009 to 2010(from 0.62 to 0.43) and the ratio of Janata
Bank has always been approximately same and the highest of all five banks.
3.1.4 Net Profit Margin:
Figure3.4: Net Profit Margin of Banks in 2011, 2010 and 2009
Comparatively the highest profit earning bank both in 2011 and 2010 was National Bank.
Industrial average was around 0.34 there was not much variation in net profit margin among the
banks. Janata Bank being a government bank imposes low interest rate and thus earns less profit
and consequently has the lowest value of net profit margin. BDBL was not incorporated prior to
2009 and so there is no profit margin for BDBL in 2009. Industrial average remained similar in
2010 and 2011.
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9. 3.1.5 Asset Utilization:
Figure3.5: Asset Utilization of Banks in 2011, 2010 and 2009
All the banks except National Bank have value around the industrial average in 2011. All banks
are utilizing their assets in a sound manner. National bank utilizes its assets more as it earns more
than other banks. In 2010 and 2009, the pattern was similar. National bank earned even more
profit in 2010 utilizing its assets. In 2010 overall asset utilization of banks was higher i.e. more
operating income was generated. Overall the ratio is lowest for Janata Bank.
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10. 3.1.6 Return on Asset (ROA):
Figure3.6: Return of Asset Ratio of Banks in 2011 and 2010
In 2011, industry average of ROA is 0.023 and all the banks have ratios around this value. Only
data of National Bank shows somewhat of a variation. National Bank shows the highest ROA
and also has the highest value in Asset utilization. So, National Bank is using its assets well and
earning more than other banks. So, National Bank is more focused on earning profits than other
banks.In 2010 ROA of banks show a similar pattern. Janata Bank being a government bank has
the lowest ROA ratio in both the years. Overall Industry average of ROA decreased from 2010 to
2011 due to a decrease in ROA of National Bank and Bank Asia.
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11. 3.1.7 Return on Equity (ROE):
Figure3.7: Return on Equity of Banks in 2011 and 2010
In 2011, industry average of ROE is 0.193 and National Bank, UCBL and Bank Asia have higher
ROE than industrial average. So there is more scope of investment in these three banks. All the
three banks are commercial banks. Janata Bank has a close enough value of ROE with industrial
average, but there is huge variation in case of ROE ratio of BDBL. BDBL is a specialized bank
and is more development sector oriented. All the shares are under government control and hence
have less scope of investment. The pattern was again similar in 2010 and overall Return on
Equity decreased on an average. The value of industrial average decreased from 0.294 to 0.193
from 2010 to 2011.
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12. 3.1.8 Earning per Share (EPS):
Earning Per Share 2011 Earning Per Share 2010
100
70
Ratio
50 60
50
40
30
0 20
10
0
Banking Institution
Earning Per Share 2009
8
6
4
2
0
BDBL Bank Asia National Bank UCBL
Banking Institution
Figure 3.8:Earning per Share of Banks in 2011, 2010 and 2009
In 2011, industry average of EPS is about 18.5. Whereas most of the bank has EPS far lower
than this. Only the data of BDBL (17.15) is close to it, where Janata Bank Ltd (60.45) has far
higher ratio than the industry. So, it indicates that Janata Bank Ltd either has low number of
shares or it shows a huge probable profitability. So as a result more people will be interested to
invest in Janata Bank Ltd.
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13. 3.1.9 Price Earning Ratio (P-E Ratio):
P-E Ratio 2011 P-E Ratio 2010
16 40
Ratio
14
12
10
Ratio
8 20
6
4
2
0 0
Banking Institution Banking Institution
P-E Ratio 2009
Figure 3.7:Price-Earning Ratio (P-E Ratio)of Banks in 2011, 2010 and 2009
15
10
Ratio
5
0
BDBL Bank Asia National UCBL JBL Industry
Bank Average
Banking Institution
Figure 3.9 :P-E Ratio of Banks in 2011, 2010 and 2009
In 2011, industry average of P-E ratio is 12.143. And we can see that most of the bank’s P-E
ratios are around this point. So, it indicates that all the banks take almost same time to return
people’s investment. And since the time is low enough, investors will be more interested to
invest in the banking sector of Bangladesh.
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14. 3.1.10 Net Interest Margin:
Net Interest Margin 2010
Net Interest Margin 2011
0.03
0.025
0.04 0.02
0.03 0.015
Ratio
0.01
0.02
Ratio
0.005
0.01 0
BDBL Bank
National
UCBLJanata
Industry
0
BDBL Bank
National
UCBLJanata
Industry Asia Bank BankAverage
Asia Bank BankAverage
Banking Institution
Banking Institution
Net Interest Margin 2009
0.03
0.02
Ratio
0.01
0
BankNationalUCBL Janata
Industry
Asia Bank Bank Average
Banking Institution
Figure3.10: Net Interest Margin Ratio of Banks in 2011,2010 and 2009
In 2011, the industrial average of net interest margin was 0.02.BDBL, UCBL and National Bank
had the highest net interest margin. Bank Asia and Janata Bank had the lowest net interest
margin. It suggests that Bank Asia and Janata Bank earned lowest interest income out of total
assets.
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15. 3.2 Overall Findings from the Data
Overall the ratios show that BDBL has highest amount of liquid assets in comparison with its
current liability. It is not focused on commercial banking and hence does not exchange cash and
other liquid assets like commercial banks and holds more liquid assets. In terms of profitability,
National Bank shows the best performance. It has the highest Net Profit Margin,it utilizes its
assets well and has high Return on Asset and high Return on Equity. Earning per Share for
commercial banks is below 10 and more or less similar. P-E ratio varies from 10 to 15 and banks
do not vary much from industrial average. Among the banks, Janata Bank has lowest interest
income against its assets. None of the bank’s share is undervalued in comparison with industrial
average value. Janata Bank, National Bank and Bank Asia depends more on debt finance and
BDBL is more inclined towards equity finance. Bank Asia had the lowest earningsagainst its
expenses in 2011. BDBL earns higher than other banks against the interest expenses it has to
bear. So, overall in terms of profitability, National Bank performs better.
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16. Chapter Four-Conclusion
4.0 Conclusion:
Ratio Analysis of the banks shows that the commercial banks focus on increasing their
profitability. Majority of the banks depend on debt finance. Whether a bank is running profitably
and fruitfully managing its assets can be understood from Ratio Analysis. Ratio analysis is also
important for shareholders on taking up their investment decision.
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