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THESIS PAPER
On
“Measuring Financial Performance Based on Camels Rating on
Five Selected Commercial Banks in Bangladesh”
Submitted in Partial Fulfillment of the Requirement for the Degree of Master
of Business Administration
Supervised By
Dr. Md. Rafiqul Islam
Professor
Department of Banking and Insurance
University of Dhaka
Submitted By
Md. Nazmus Sakib
ID NO:51326090
Department of Banking and Insurance
University of Dhaka
September 7, 2016
THESIS PAPER
On
Measuring Financial Performance Based on Camels
Rating on Five Selected Commercial Banks in
Bangladesh
Supervised by
Dr. Md. Rafiqul Islam
Professor
Department of Banking and Insurance
University of Dhaka
Submitted by
Md. Nazmus Sakib
ID No. 51326090
EMBA Program
Department of Banking and Insurance
University of Dhaka
Date of Submission: September 7, 2016
i
Letter of Transmittal
September 7, 2016
Dr. Md. Rafiqul Islam
Professor
Department of Banking and Insurance
Faculty of Business Studies
University of Dhaka
Subject: Submission of the Thesis Paper on “Measuring Financial Performance Based
on Camels Rating on Five Selected Commercial Banks in Bangladesh.”
Dear Sir,
It is my pleasure to submit report on “Measuring Financial Performance Based on Camels
Rating on Five Selected Commercial Banks in Bangladesh” as a part of my internship
program of MBA. I tried my best to gather relevant information for preparing a paper by
following and analyzing the proposal. I believe that the knowledge and experience I have
gathered during my internship period and while preparing the report; have enlarged my
learning into the field and will immensely help me further in my professional life. I have tried
my best to follow your instructions to complete the report. I am very much grateful to you
because of your full co-operation with me in preparing this report. However, I would always
be happy to welcome any further clarification that you may require.
I hereby submit the report for your perusal and request you to accept my report.
Yours faithfully
……………………
Md. Nazmus Sakib
Evening MBA Program
ID – 51326090, Batch – 26th
Department of Banking & Insurance
University of Dhaka
ii
Supervisor’s Certificate
This is to certify that the Thesis Paper on “Measuring Financial Performance Based on
Camels Rating on five Selected Commercial Banks in Bangladesh” is the record of
internship done by Md. Nazmus Sakib bearing ID No. 51326090, as the fulfillment of all
requirement of the Evening MBA Program in the Department of Banking and Insurance,
Faculty of Business Studies, University of Dhaka.
I instructed him to prepare this thesis paper. Hereby, I accept the report as the successful
completion of the internship program. During the program he has been found to be sincere,
regular, proactive and attentive to work for which I wish him every success in his future
career.
_________________
Dr. Md. Rafiqul Islam
Professor,
Department of Banking & Insurance
University of Dhaka
iii
Declaration
I the undersigned, hereby declare that the presented Thesis Paper on “Measuring Financial
Performance Based on Camels Rating on Five Selected Commercial Banks in
Bangladesh” is an original work prepared by me, under the supervision of Professor, Dr.
Md. Rafiqul Islam, Department of Banking and Insurance, Faculty of Business Studies,
University of Dhaka.
I also confirm that the Thesis paper has been prepared to meet my academic internship
requirement and not for any other purpose. No part of this report has been previously
submitted to any other university/college/institution/organization for any academic certificate
or degree.
_____________________
Md. Nazmus Sakib
Evening MBA Program
ID – 51326090
Batch – 26th
Department of Banking & Insurance
Faculty of Business Studies
University of Dhaka
iv
Acknowledgement
The report is the outcome of my internship program. First of all, I must show my gratitude to
Almighty Allah for giving me energy and capabilities to preparing this report.
It was a great pleasure to prepare Thesis paper on “Measuring Financial Performance Based
on Camels Rating on Five Selected Commercial Banks in Bangladesh” I would like to thank
and convey my sincere gratitude to honorable Supervisor, Dr. Md. Rafiqul Islam,
Professor, Department of Banking & Insurance, Faculty of Business Studies, University
of Dhaka, for giving me valuable advice, support and suggestion to complete the report in an
appropriate manner and I would also like to express my sincere appreciation for his
wholehearted support and guidance.
And I would also like to take the opportunity to express my wholehearted gratitude to my
fellow friends, near and dear ones who offered encouragement, information, inspiration and
assistance during the period of constructing the internship report.
v
Executive Summary
Banking industry is one of the most promising industries in our country. Since 1972 the
banking sector has been playing an important role in achieving economic growth of
Bangladesh. In this age of modern civilization commercial bank is emerging as a driving
factor for the economic development of a country. Banks do not make intermediation only to
individuals; they also intermediate to the firms in other sectors. So the performance and
soundness of the banking sector are very important for almost all sectors, consequently for
our economy. To keep the performance of the banking sector high, knowing dynamics of it is
very important. This paper aims to analyze the “Measuring Financial Performance Based
on Camels Rating on Five Selected Commercial Banks in Bangladesh”.
CAMELS rating system is an international bank-rating system where bank supervisory
authorities rate institutions according to six factors. It is encountered by six components
named capital adequacy, asset quality, management quality, earnings, liquidity and sensitivity
to market risk. It is used for banking companies to know about their financial condition,
overall soundness of the banks, and predict different risk factors that may contribute to turn
the bank into a problem.
In Bangladesh, since the early nineties, CAMELS rating have been used for evaluating
institution’s financial condition, compliance with banking regulations and statutes and overall
operating soundness. The key purpose of the study is to find out overall soundness of the
banks and predict different risk factors that may contribute to turn the bank into a problem.
This study is based on secondary data. This paper examines the comparative performance of
five leading commercial banks, namely, Premier bank, Bank Asia, Dhaka bank, Mercantile
bank and Prime bank through CAMELS rating, to understand the camels models and
practices and their impact on the banking sector of Bangladesh. The information’s of the
research have gathered by the internet from the different related official websites and various
thesis paper. I have collected data from different links and then analyzed it. After analysis, I
got significant results from this study. From this, now we can get a clear idea that how Banks
calculated Camels rating to know about the financial soundness of the banks.
Table of Content
Item No. Particulars Page
Letter of Transmittal i
Supervisor’s Certificate ii
Declaration iii
Acknowledgement iv
Executive Summary v
Chapter One: Introduction
1.1.0 Background of the study 1-2
1.2.0 Objectives of the report 2
1.3.0 Methodology 2-3
1.4.0 Limitation of the study 3
Chapter Two: Literature Review 4-5
Chapter Three: Theoretical Review
3.1.0 Camels Rating 6
3.2.0 Composite of Camels Rating 6-7
3.3.0 Camels Numerical Rating: Rating Description 7
3.4.0 Capital Adequacy 8
3.5.0 Asset Quality 8-9
3.6.0 Management Quality 9
3.7.0 Earning Quality 9-10
3.8.0 Liquidity 10
3.9.0 Sensitivity to Market Risk 10
3.10.0 CAMELS Rating System of Bangladesh 11
Chapter Four: Organizations Profile
4.1.0 Brief Introduction of Prime Bank Limited 12
4.1.1 Organizational Structure 13
4.1.2 Core business and achievements of Prime Bank Ltd. 14-15
4.1.3 Some Specific Banking Offerings 15-16
4.1.4 Functional Structure of Prime Bank Ltd. 16
4.2.0 Brief Introduction of Dhaka Bank Limited 17
4.2.1 Management Hierarchy of Dhaka Bank Ltd 18
4.2.2 Products and Services 19-20
4.3.0 Background of Mercantile Bank Limited 21
4.3.1 Organizational Structure of MBL 21-22
4.3.2 Product and Services 22-23
4.3.4 Function of MBL 23
4.4.0 Background of Premier Bank Limited 24
4.4.1 Management Hierarchy of Premier Bank 24
4.4.2 Products and Services of the bank 25
4.4.3 Functions of the Bank 25
4.5.0 Background of Bank Asia Limited 26
4.5.1 Management Hierarchy of Dhaka Bank 27
4.5.2 Products and Services of the bank 27-28
4.5.3 CSR Functions of the Bank 28
Chapter Five: Data Analysis and Interpretation
of Camels Rating
5.0.0 Financial Analysis 29
5.1.0 Capital Adequacy 29
5.1.1 Capital Adequacy Ratio 29-30
5.1.2 Debt-Equity Ratio 30-31
5.1.3 Equity to Total Assets 31-32
5.1.4 Composite Capital Adequacy 32
5.2.0 Assets Quality 32
5.2.1 NPLs to Total loans 33
5.2.2 Total Investments to Total Assets 34
5.2.3 Composite Asset Quality 35
5.3.0 Management Quality 35
5.3.1 Credit Deposit Ratio 36
5.3.2 Profit per Employee 37
5.3.3 Composite Management Efficiency 38
5.4.0 Earning Quality 38
5.4.1 Return on Equity 39
5.4.2 Return on Assets 40
5.4.3 Cost to Income Ratio/ Efficiency Ratio 41
5.4.4 Composite Earning Quality 42
5.5.0 Liquidity 42
5.5.1 Liquid Assets to Total Assets 43
5.6.0 Sensitivity to Market Risk 44
5.6.1 Price Earnings Ratio 44
5.7.0 Composite Ranking 45
Chapter Six: Finding, Recommendation
and Conclusion
6.1.0 Objectives, Findings and Recommendations 46-49
6.2.0 Conclusion 49
References 50
CHAPTER ONE
Introduction
1.1.0 Background of the study
1.2.0 Objectives of the report
1.3.0 Methodology
1.4.0 Limitation of the study
1
1.1.0 Background of the study
The performance of an economy is very much associated with the performance of the financial
sector of that economy. The financial sector of our country is gaining strength over the years and
its contribution to growth is overwhelming. Banks are considered the main component of our
Financial Sector. A good performance of banking sector itself indicates the overall good
performance of the sector, which ultimately leads to improved performance of economy. The
functions of present day commercial banks have diversified manifold.
The banking sectors are treated as the back-bone of an economy. There are several types of banks
in Bangladesh. In today’s scenario, the banking sector is one of the fastest growing sector and a
lot of funds are invested in Banks. Also today’s banking system is becoming more complex. So,
we thought of evaluating the performance of the banks. There are so many models of evaluating
the performance of the banks, but we have chosen the CAMELS Model to evaluate the
performance of the banks. CAMELS is an acronym for six components of bank safety and
soundness And those include –
C - Capital adequacy
A - Asset quality
M - Management quality
E - Earnings
L - Liquidity
S - Sensitivity to Market Risk
This paper examines the comparative performance of the commercial banks of Bangladesh namely
Prime Bank, Dhaka Bank, Mercantile Bank, Premier Bank and Bank Asia through CAMELS
Rating.
Performance of the banking sector under CAMELS involves analysis and evaluation of these six
crucial dimensions of banking operations. The CAMELS methodology was originally adopted by
North American bank regulators to evaluate the financial and managerial soundness of U.S.
commercial lending institutions.
2
1.1.1 Research background and motivations
A number of studies have been done relating to Camels rating and exploited on the implication of
such measures of banking institutions. Therefore, this study has aimed at filling the gap on Camels
rating of private commercial banking institution.
1.1.2 Statement of the Problem
This report has been titled as “Measuring Financial Performance Based on Camels Rating on
Five Selected Commercial Banks in Bangladesh”. This rating system is designed to take into
account and reflect all significant financial and operational factors examiners assess in their
evaluation of a camels rating performance.
1.2.0 Objectives of the report
This assignment examines the Camels rating in the area of banking sector. The main objective of
the study is to measure financial performance based on Camels rating of commercial banks in
Bangladesh.
a) To explore about CAMELS rating frame work.
b) To understand the financial performance of the banks.
c) To describe the CAMELS model of ranking, banking institutions, so as to analyze the
comparative of various banks.
d) To analyze 5 banks to get the desired results by using CAMELS as a tool of measuring
performance.
1.3.0 Methodology
Research Design: Descriptive research will be followed to cover the topic at hand. According to
the instruction of my supervisor, I would like to prepare information about the assignment. So the
assignment is descriptive in nature.
Population Size: The population for this study is the all commercial banks that operate inside
Bangladesh. Here 56 commercial banks in Bangladesh are considered as population.
Sample Design: The sample design comprises 5 commercial banks. These 5 Commercial banks
are selected randomly from 56 commercial banks in Bangladesh
3
Sources of Data: This study is purely based on secondary data. This paper examines the
comparative performance of five leading private sector commercial banks, namely, Premier bank,
Bank Asia, Dhaka bank, Mercantile bank and Prime bank through CAMELS Rating, to understand
the camels models and practices and their impact on the banking sector of Bangladesh. The
financial data of selected banks have been collected from the financial statements of the respected
banks. The financial statements have been collected from the Official Websites of selected banks.
To determine this, financial statements for the fiscal period 2013 to 2015 are evaluated.
Data Analysis: The collected data for analyzing financial performance based on Camels rating on
five selected commercial banks in Bangladesh.
Data is presented using tables and graphs among other data presentation tools.
Collected information has then processed & compiled with the aid of MS Word 2016.
Various graphs and tables will be used through Microsoft Excel 2016 for calculation and
putting up in the report.
1.4.0 Limitation of the study
Every study has its distinct limitations. Preparing this report, I have faced some certain limitations
to collect the information which are as follows:
 Limited sources of data, only the website. Insufficient supply of relevant books and
journals and lack of structured information.
 The data used for his study is the published annual reports from time to time. Therefore,
the quality of this research depends on reliability of data published in those reports.
 Time constraint for preparing the report in appropriate manner.
 Lack of proper experience in the explored area while preparing the standard report.
 Time and resource constrains.
 The study was completely done on the basis of ratios calculated from the balance sheets.
 It was not possible to get a personal interview with the management employees of all banks
under study.
In spite of these limitations it can be said that such limitations are common to almost all data
based study. Appropriate methodology, proper research design and appropriate statistical
techniques have been used to overcome many of these limitations.
CHAPTER TWO
Literature Review
4
Banking sector has played a crucial role in the development of the economy. Various
scholars have made several studies on the performance of banking sector in the using CAMELS
model. The Camels rating is a supervisory rating system originally developed in the U.S. to classify
a bank's overall condition. It's applied to every bank and credit union in the U.S. and is also
implemented outside the U.S. by various banking supervisory regulators Some of the important
studies reviewed for present paper are as under:
Federal Reserve System of United States implemented The Uniform Financial Institutions
Rating System (UFIRS) in 1979 in the US banking institutions. UFIRS was recommended
worldwide later on. UFIRS was known internationally as CAMELS rating system globally.
Dang, Uyen. 2011, The camels ratıng system ın bankıng supervısıon a case study by
examining its balance sheet, as well as, profit and loss statement on the basis of each component,
thus observing the institution's dynamic aspect.
Doumpos & Zopounidis said that " In the new globalize financial system, as with all new
financial markets and products, the banks' economic situation can rapidly change than in the past.
As a result of the new situation, supervisory authorities were led towards changing their way of
approach and assessment, paying more emphasis on ways to overcome and manage risks. As a
result of this new situation that was created through the development of the financial system, a
further area of assessment was added, that of the initial S, indicating market risk. This took place
in 1995 by the US Federal Reserve (Fed) and the Comptroller of the Currency (Hafer, 2005), who
replaced CAMEL with CAMELS and added a management assessment system scale from 1
(optimum) to 5 (worse) for risk management.
Prasuna (2003), analyzed the performance of Indian banks by adopting the CAMEL
Model. The performance of 65 banks was studied for the period 2003-04. The author concluded
that the competition was tough and consumers benefited from better services quality, innovative
products and better bargains.
Dr. Sneha S. Shukla (2015) study the analysis financial strength of public and private
sector banks: A CAMELS approach. His study was mainly based on secondary data drawn from
the annual reports published by banks. His report analyzed the financial health of public and private
sector banks in the CAMELS parameters. His findings of the study revealed that the financial
health of public and private sector banks.
5
Bangladesh Bank introduced CAMEL Rating System in 1993 as an integral part of Offsite
Supervision System. Initially, report was prepared on the half-yearly basis for all banks.
Subsequently in 1999, Board of Directors of BB advised to prepare the reports of State-owned
Commercial Banks (SCBs) on quarterly basis. Due to the emergence of the banking sector and
changes in the economic scenario, BB Management updated the previously practiced CAMEL
based Supervision System to "Guidelines for Determination of CAMELS Rating for the Banking
Companies" which was developed by supervision consultant Ms. F. P. Santos employed under the
Central Bank Strengthening Project Cell (CBSP).
The new system was approved by the Governor on 26.01.2006. The revised rating system was first
exercised on June ‘06 to evaluate the performance of banks as of 30/06/2006.
In the new system, Sensitivity to Market Risks has been added to the previously practiced system
to observe how the banks manage the market risks such as interest rate risk, foreign exchange risk,
commodity prices, equity prices etc.
Mohammad Kamrul Ahsan (2016) performance Measuring financial based on CAMEL:
A study on selected Islamic banks in Bangladesh. His study focuses on domestic Islamic banks
measuring financial performance based on CAMEL rating model.
CHAPTER THREE
Theoretical Review
3.1.0 Camels Rating
3.2.0 Composite of Camels Rating
3.3.0 Camels Numerical Rating: Rating Description
3.4.0 Capital Adequacy
3.5.0 Asset quality
3.6.0 Management quality
3.7.0 Earning Quality
3.8.0 Liquidity
3.9.0 Sensitivity to Market Risk
3.10.0 CAMELS Rating System of Bangladesh
6
3.1.0 Camels Rating
Camels is a rating system generally used by the government policy circle, regulating bodies
regulating commercial banks, that is, central banks and non-governmental policy research centers
for the purpose of assessing the soundness of a savings association or a bank. As regards to the
background of introducing CAMEL, it was originally adopted by the regulators of North American
Commercial banks and it covers five areas of performance, namely, Capital Adequacy, Asset
quality, Management quality, Earning ability and Liquidity. In the early 1970s; federal regulators
of the US developed CAMEL rating system to appraise the performance of the Commercial banks.
Later in 1979, the uniform financial institution’s rating system was adopted to provide federal
regulatory agencies with a framework for rating financial condition and individual banks. Since
then, the application of CAMEL has spread up dramatically in respect of examining the financial
strengths of one of the basic constituents of money market i.e. commercial banks. In 1995 the
Federal Reserve and the OCC (Office of the Comptroller of the Currency) replaced CAMEL with
CAMELS, adding the "S" which stands for Sensitivity (sensitivity to market risk, especially
interest rate risk).
CAMELS Rating has been considered as one of the widely used tools for judging capital adequacy,
asset quality, management quality, earnings ability, liquidity and Sensitivity to market risk of the
financial institutions including commercial banks by the principal regulators all around the world.
In addition to this, State Banking departments as well as the Farm Administration use the
CAMELS rating system to evaluate the soundness of financial institutions as follows.
The abbreviations are as follows:
C = Capital Adequacy
A = Asset Quality
M = Management Quality
E = Earning
L = Liquidity and
S = Sensitivity to market risk.
3.2.0 Composite of Camels Rating
Composite of camels ratings are based on a careful evaluation of an institution's managerial,
operational, financial, and compliance performance. The six key components used to assess an
7
institution's financial condition and operations are: capital adequacy, asset quality, management
quality, earnings, liquidity and sensitivity to market risk. The numerical ratings assigned to the
criteria are:
Table:1.1
Rating
Scale
Rating Range Rating Analysis Rating Analysis interpretation
1 1.0-1.4 Strong Sound in every respect, no supervisory
responses required
2 1.6-2.4 Satisfactory Fundamentally sound with modest correctable
weakness, supervisory response limited.
3 2.6-3.4 Fair (watch
category)
Combination of weaknesses if not redirected will
become severe. Requires more than normal
supervision
4 3.6-4.4 Marginal (some
risk of failure)
Immoderate weakness unless properly addressed
could impair future viability of the bank. Needs
close supervision.
5 4.6-5.0 Unsatisfactory
(high degree of
failure evident)
High risk of failure in the near term. Under
constant supervision/cease and desist order.
3.3.0 Camels Numerical Rating: Rating Description
1. STRONG: It is the highest rating and is indicative of performance that is
significantly higher than average.
2. SATISFACTORY: It reflects performance that is average or above; it includes
performance that adequately provides for the safe and sound operation of the banks.
3. FAIR: Represent performance that is flawed to some degree. It is neither satisfactory nor
unsatisfactory but is characterized by performance of below average quality.
4. MARGINAL: Performance is significantly at below average; if not changed, such
performance might evolve into weaknesses or conditions that could threaten the viability
of the bank.
5. UNSATISFACTORY: Is the lowest rating and indicative of performance that is critically
deficient and in need of immediate remedial attention. Such performance by itself, or in
combination with other weakness, threatens the viability of the institution.
8
3.4.0 Capital Adequacy
The dimension of capital adequacy is an important factor to help the bank in understanding the
shock attractive capability during risk. That means, capital adequacy enables a bank to meet any
financial unexpected condition due to FX risk, credit risk, market risk. Capital adequacy protects
the interest of depositors of a bank.
Examiners assess institutions' capital adequacy through capital trend analysis. To get a high capital
adequacy rating, institutions must also comply with interest and dividend rules and practices. Other
factors involved in rating and assessing an institution's capital adequacy are its growth plans,
economic environment, ability to control risk, and loan and investment concentrations.
The adequacy of capital is examined based upon the two most important measures such as Capital
Adequacy Ratio (CAR) or Capital to Risk-weighted Assets ratio, and the ratio of capital to assets.
3.4.1 Capital Adequacy Ratios
The capital adequacy is estimated based upon the following key financial ratios, and to be
considered as good banks in world they must meet certain criteria detailed below:
Table: 1.2. Capital Ratios Analysis
Capital Adequacy Ratios 𝑻𝒊𝒆 𝑰 𝑪𝒂𝒑𝒊𝒕𝒂𝒍 + 𝑻𝒊𝒆𝒓𝑰𝑰 𝑪𝒂𝒑𝒊𝒕𝒂𝒍
𝑹𝒊𝒔𝒌 𝒘𝒆𝒊𝒈𝒉𝒕𝒆𝒅 𝒂𝒔𝒔𝒆𝒕𝒔
Debt-Equity Ratio 𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦
Equity capital to total
assets
𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
3.5.0 Asset Quality
The dimension of asset quality is an important factor to help the bank in understanding the risk on
the exposure of the debtors. In this paper, this parameter is measured by the Non-performing loans
to total loans ratio. This ratio assures to cover the bad and doubtful loans of the bank. This
parameter will benefit the bank in understanding the amount of funds that reserved by the banks
in the event of bad investments. Popular indicators include non-performing loans to total loan,
9
non-performing loans to total equity, and total investments to total assets ratios. The asset quality
is estimated based upon the following key financial ratios.
Table:1.3. Asset Quality Ratios
NPLs to total loans
𝑵𝒐𝒏 − 𝒑𝒆𝒓𝒇𝒐𝒓𝒎𝒊𝒏𝒈 𝒍𝒐𝒂𝒏𝒔
𝑻𝒐𝒕𝒂𝒍 𝒍𝒐𝒂𝒏𝒔
NPLs to total equity
𝑁𝑜𝑛 − 𝑝𝑒𝑟𝑓𝑜𝑟𝑚𝑖𝑛𝑔 𝑙𝑜𝑎𝑛𝑠
𝑇𝑜𝑡𝑎𝑙 𝑠ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 𝐸𝑞𝑢𝑖𝑡𝑦
Total Investments to Total Assets
𝑇𝑜𝑡𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡𝑠
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
3.6.0 Management Quality
Management quality reflects the management soundness of a bank. The management acts as a
safeguard to operate the bank in a smooth and decent manner and is called excellence management
or skilful management, whenever it controls its cost and increases productivity, ultimately
achieving higher profits.
Management quality is basically the capability of the board of directors and management, to
identify, measure, and control the risks of an institution ‘s activities and to ensure the safe, sound,
and efficient operation in compliance with applicable laws and regulations.
The management quality is estimated based upon the following key financial ratios.
Table:1. 4. Management Quality Ratios
Total Advance to Total Deposit Ratio
𝑻𝒐𝒕𝒂𝒍 𝒍𝒐𝒂𝒏𝒔
𝑻𝒐𝒕𝒂𝒍 𝑫𝒆𝒑𝒐𝒔𝒊𝒕
Profit per Employee
𝑃𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑇𝑎𝑥
𝑁𝑜. 𝑜𝑓 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠
3.7.0 Earning Quality
The quality of earnings represents the sustainability and growth of future earnings, value of a
bank’s lucrativeness and its competency to maintain quality and earn consistently. Earnings and
profitability are examined as against interest rate policies and adequacy of provisioning. The
earning quality is estimated based upon the following key financial ratios.
10
Table :1.5. Earning Quality Ratios
Return on Equity
𝑷𝒓𝒐𝒇𝒊𝒕 𝒂𝒇𝒕𝒆𝒓 𝑻𝒂𝒙
𝑺𝒉𝒂𝒓𝒆𝒉𝒐𝒍𝒅𝒆𝒓 𝑬𝒒𝒖𝒊𝒕𝒚
Return on Assets
𝑃𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑇𝑎𝑥
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
Cost to income Ratio
𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠
𝑁𝑒𝑡 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐼𝑛𝑐𝑜𝑚𝑟𝑒 − 𝑁𝑜𝑛 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
3.8.0 Liquidity
Liquidity is another noteworthy factor that determines the financial performance of banks.
Liquidity means the ability of the bank to fulfill its obligations, primarily of depositors. Bank can
maintain adequate liquidity position either by increasing current liabilities or by converting its
assets in to cash quickly. The Liquidity is estimated based upon the following key financial ratio.
Table :1.6. Liquidity Ratio
Liquid Assets to Total Assets
𝑳𝒊𝒒𝒖𝒊𝒅 𝑨𝒔𝒔𝒆𝒕𝒔
𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔
3.9.0 Sensitivity to Market Risk
The sensitivity of the market risk is evaluated by banks through changes in interest rate, foreign
exchange rates and equity prices. The changes in these variables influence bank's earning ability.
So, sensitivity to market risk measures how adversely the bank is affected by such changes. The
sensitivity to market risk is estimated based upon the following key financial ratio.
Table :1.7. Sensitivity to Market Risk Ratio
Price Earnings Ratio
𝑴𝒂𝒓𝒌𝒆𝒕 𝑽𝒂𝒍𝒖𝒆 𝒑𝒆𝒓 𝑺𝒉𝒂𝒓𝒆
𝑬𝒂𝒓𝒏𝒊𝒏𝒈𝒔 𝒑𝒆𝒓 𝑺𝒉𝒂𝒓𝒆
11
3.10.0 CAMELS Rating System of Bangladesh
In Bangladesh, since the early nineties, the same 5 components of CAMEL have been used for
evaluating the five crucial dimensions of a bank’s operations that reflect in a comprehensive
fashion an institution’s financial condition, compliance with banking regulations and statutes and
overall operating soundness. Recently, Bangladesh Bank has upgraded the CAMEL into
CAMELS effective from June, 2006. After inserting ‘S’ or ‘sensitivity to market risk’, it is
presumed that this off-site supervision technique of central bank would make it a more effective
tool in rating banks. The present system requires that a bank’s condition and performance be
regularly appraised according to predetermined stress testing on asset and liability and foreign
exchange exposures, procedures, rules and criteria and on the basis of the results obtained through
risk-based audits under core risk management guidelines. A single CAMELS rating for each bank
is the result of both off-site monitoring, which uses monthly financial statement information, and an
on-site examination, from which bank supervisors gather further “private information” not reflected
in the financial reports.
These examinations result in the development of "credit points" ranging from 0 to 100. As noted
above, the six key performance dimensions - capital adequacy, asset quality, management quality,
earnings, liquidity and sensitivity to market risk - are to be evaluated on a scale of 1 to 5 in ascending
order. Following is a description of the graduations of rating:
Rating 1 indicates strong performance: BEST rating.
Rating 2 reflects satisfactory performance.
Rating 3 represents performance that is flawed to some degree.
Rating 4 refers to marginal performance and is significantly below average and
Rating 5 is considered unsatisfactory: WORST rating.
CHAPTER FOUR
Organizations Profile
4.1.0 Brief Introduction of Prime Bank Limited
4.2.0 Brief Introduction of Dhaka Bank Limited
4.3.0 Background of Mercantile Bank Limited
4.4.0 Background of Premier Bank Limited
4.5.0 Background of Bank Asia Limited
12
4.1.0 Brief Introduction of Prime Bank Limited
In the backdrop of economic liberalization and financial sector reforms, a group of highly
successful local entrepreneurs conceived an idea of floating a commercial bank with different
outlook. For them, it was competence, excellence and consistent delivery of reliable service with
superior value products. Thus Prime Bank Limited a private sector commercial bank was
incorporated in Bangladesh under the companies’ act 1994 and commencement of business started
on 17th April 1995 with an authorized capital of Tk. 1,000 million divided into 10 million ordinary
shares of Tk. 100 each. The Bank operates as a Scheduled Bank under a Banking license issued
by Bangladesh Bank, the Central Bank of the country. The bank is registered with Bangladesh
Securities and Exchange Commission and its shares are traded at the Dhaka and Chittagong Stock
Exchanges. The sponsors are reputed personalities in the field of trade and commerce and their
stake ranges from shipping to textile and finance to energy etc.
As a fully licensed commercial bank, Prime Bank is being managed by a highly professional and
dedicated team with long experience in banking. They constantly focus on understanding and
anticipating customer needs. As the banking scenario undergoes changes so is the bank and it
repositions itself in the changed market condition. Prime Bank has already made significant
progress within a very short period of its existence. The bank has been graded as a top class bank
in the country through internationally accepted CAMELS rating. The bank has already occupied
an enviable position among its competitors after achieving success in all areas of business
operation. Prime Bank offers all kinds of Commercial Corporate and Personal Banking services
covering all segments of society within the framework of Banking Company Act and rules and
regulations laid down by our central bank. Diversification of products and services include
Corporate Banking, Retail Banking and Consumer Banking right from industry to agriculture, and
real state to software.
Prime Bank, since its beginning has attached more importance in technology integration. In order
to retain competitive edge, investment in technology is always a top agenda and under constant
focus. Keeping the network within a reasonable limit, our strategy is to serve the customers through
capacity building across multi-delivery channels. Our past performance gives an indication of our
13
strength. We are better placed and poised to take our customers through fast changing times and
enable them compete more effectively in the market they operate.
4.1.1. Organizational Structure
Prime Bank maintains a strong organizational hierarchy in which every individual performs their
duty very sincerely. The hierarchy of Prime Bank Limited is as follows:
Figure 2.1: Organizational hierarchy
Top Management
Executive CommitteeChairman Board of Directors
Executive Management
MD AMD DMD SEVP EVP SVP VP SAVP AVP
Mid Level Management
FAVP SEO EO PO
Junior Level
SO MTO JO
14
4.1.2 Core business and achievements of Prime Bank Limited
Success is simply a product of excellence. Prime Bank Ltd (PBL) with a slogan of 'a bank with a
difference' has proved it over the years. Their efforts are focused on delivery of quality services in
all areas of banking activities with the aim to add increased value to shareholders’ investment and
offer highest possible benefits to their customers. Also, the bank is different from many other
banks in terms of philanthropic contributions. It has spent 4 percent of its profit for corporate social
responsibility in year 2011.
The Prime Bank Group focuses on a wide range of banking and financial products and services that
include commercial banking through both conventional and Islamic mode, merchant and
investment banking. It has a big presence in SME and retail banking, credit card and off-shore
banking. It plays leading role in syndicated and structured financing. It has expertise in corporate
credit and trade finance and made extensive market penetration with continuous growth in
corporate, commercial and trade finance sectors.
The Prime Bank group has a large and well distributed branch network of 140 fully fledged
branches including 18 SME or Agricultural branches and 3 Off-shore banking units. It also has
more than 100 ATM booths across the country with a strong tradition of service excellence. The
bank has also made its presence in Singapore through its fully owned subsidiary Prime Exchange
Co. Pvt. Ltd. for facilitating inward foreign remittance to Bangladesh. Prime Bank has fully owned
exchange houses in Singapore, UK and a fully owned finance company in Hong Kong to remit
expatriate Bangladeshis' income into the country.
To cater to customers' needs PBL has always been moving with the latest technology to strengthen
its IT infrastructure. In order to retain competitive edge, investment in technology is always a top
agenda and under constant focus. Keeping the network within a reasonable limit, bank's strategy
is to serve the customers through capacity building across multi delivery channels. The Bank has
set up a Wide Area Network (WAN) across the country to provide Online branch banking facility
to its valued clients. PBL is one of the first few Bangladeshi Banks who have become member of
SWIFT (Society for Worldwide Inter-bank Financial Telecommunication) in 1999 and opened up
possibilities for uninterrupted connectivity with over 5,700 user institutions in 150 countries
around the world.
15
Prime Bank obtained Principal Membership of Master-Card International in the month of May
1999 and launched Master Card-Credit Card which created a new dimension in its customer
service and consumer financing. The special feature of the Prime Bank Master Card is that it bears
the card holder's photo on the card, which is the first of its kind in Bangladesh and adds security
against misuse. Prime Bank issues few types of cards like Gold Local & International and Silver
Local & International. Local cards can be used in Bangladesh only.
4.1.3 Some Specific Banking Offerings
Online Banking and Internet Banking facilities
All the 140 branches of the Bank are providing online banking facilities through its core banking
system namely “Temenos T24”. Fund Transfer to Other bank’s Accounts through BEFTN has
been made available through Online Banking for the Consumer Banking Customers. As a result,
customers can execute fund transfer through paperless and automated Online Banking over
internet to any other account in Bangladesh. Prime Bank Limited has also offered a safe and
convenient Internet Banking, which is to accessible 24/7. By using real-time internet banking our
customers can avail the services like Balance enquiry, View account statement, View loans &
deposit of their own, Mobile & Utility Bill Payment.
Automated Teller Machine (ATM)
In addition to the Bank’s own 160 ATMs, the Bank has joined National Payment Switch
Bangladesh (NPSB) network during the year 2014, which enabled the Debit Cardholders of the
Bank to enjoy cash withdrawal facility from other ATMs under NPSB Network. Prime Bank has
used the BACH and BEFTN mechanism for convenient payment activities which to a great extent
supports the concept of green banking.
SMS Banking facilities
Prime Bank also offers SMS Banking services to ensure instant access to customers’ account
information at any time. Any mobile phone user having account of Prime Bank can get the service
through their mobile phone upon subscribing. By using SMS banking our customers can avail the
services like Balance Enquiry, Mini Statement, Exchange Rate, and PIN Change.
16
Biometric Smart Card based alternate banking service
Prime Bank Limited in collaboration with Dipon Consultancy Services introduced a Biometric
Smart Card based alternate banking service in the brand name “Prime Cash” for the unbanked rural
and urban people to address their banking and payment needs. Most importantly, it will provide a
fast, safe and simple mechanism for the un-banked men/women across Bangladesh in all
municipalities and upazilas. The services that can be obtained through Prime Cash are: Account
Opening, Deposit, Withdrawal, Local Money Transfer, Inward Foreign Remittance, DPS, Prime
Bank ATM Facility, Mobile Recharge, Salary Disbursement, Balance Inquiry, and Mini
Statement.
Cash Back Service
Cash Back Service allows the debit cardholders of the Bank to meet instant requirement of cash
through POS terminals of selected merchant points while shopping. Cash Back service meets
instant requirement of cash which ultimately increase customer satisfaction.
4.1.4 Functional Structure of Prime Bank Ltd.
Prime Bank Limited has the following functional departments in its Head Office.
1. Financial Administration Division (FAD)
2. Credit Division
3. International Division
4. Information Technology (IT) Division
5. Public Relations Division
6. Marketing Division
7. Human Resources Division
8. Inspection and Audit Division
9. Credit Card Division
10. Merchant Banking and Investment Division
11. Facility Management Division (FMD)
17
4.2.0 Brief Introduction of Dhaka Bank Limited
Dhaka Bank Limited (DBL) started its commercial operation on July 05, 1995. Since its
incorporation, DBL has proved itself as a true development partner of the Government in
developing the national economy by providing efficient banking services to different sectors of
the economy.
The bank has stood out for its financial strength and operational craftsmanship marking its
position as the potential market player in all core areas of banking in the country. It got listed in
DSE and CSE in 2000. Alongside a lasting bond with the corporate world, DBL has got hold of
a countrywide reach through a larger network of Branches, ATMs, SME channels, agricultural
outreach and mobile banking. DBL has made its vibrant presence at 87 locations including 2
Islamic Banking Branches; and 1 Offshore Banking Unit, 3 SME Service Centers, 1 Business
Kiosk and 53 ATMs & 19 ADMs across the country. Catering to the needs of Capital Markets,
the Bank has established a subsidiary company named ‘DBL Securities Ltd.’ having 6
countrywide Branches.
The Bank offers the full range of banking and investment services for personal and corporate
customers, backed by the latest technology and a team of highly motivated officers and staff. The
Bank has launched Online Banking services (i-Banking), joined a countrywide shared ATM
network and has introduced a co-branded credit card. A process is also underway to provide e-
business facility to the bank's clientele through Online and Home banking solutions. Some
important facts about Dhaka Bank Limited are given below:
Date of Incorporation : April 06, 1995.
Registered Office : Biman Bhaban, 100 Motijheel C/A, Dhaka
First Branch : Local Office, Adamjee Court, Motijheel, Dhaka
Enlisted as Public Limited Co. : 1998
Capital Structure at Formation
Authorized Capital : BDT 600 Crore
Paid up capital : BDT 266 Crore
18
4.2.1 Management Hierarchy of Dhaka Bank Ltd
The Managing director heads the management team of Dhaka Bank Limited. Several
management committees have been formed to handle the banking operation and identifying and
managing risk. The committees are MANCOM, ALCO. As per Bangladesh Bank’s instruction
“BASEL II Implementation team” has been formed which will be responsible for proper
implementation of BASEL II capital adequacy guidelines in the Bank. The guidelines have been
issued Bangladesh Bank recently but the target date for the implementation was 31st
November,
2009.
Figure 2.2: Organizational hierarchy
19
4.2.2 Products and Services
Dhaka Bank Limited has a wide range of products and services in its assortment. These value
based products are very much contemporary and standardized. Its main products and services are
described briefly next:1.2.1 Retail Banking
DBL is a leading bank in the countries consumer banking arena. Emphasis on customer service,
product innovation, asset quality and brand building are the cornerstones of the Retail Banking
strategy. The major products and services of Retail Banking include:
Corporate Banking
Providing a tailored solution is the essence of Corporate Banking services of DBL. Dhaka Bank
recognizes that Corporate Customers' needs vary from one to another and a customized solution is
critical for the success of their business. Dhaka Bank offers a full range of tailored advisory,
financing and operational services to its corporate client groups combining trade, treasury,
investment and transactional banking activities in one package.
Trade Finance
Dhaka Bank Limited (DBL) started it trade operations in 1995 and all the trade activities were
carried out by DBL’s 15 (fifteen) Authorized Dealer (AD) Branches. In the year 2009, DBL
established the Central Processing Center (CPC) at BGMEA Bhaban, Karwanbazar, Dhaka and
Agrabad, Chittagong.
Import Finance
DBL undertakes Import Finance in the form of both pre-import and post-import finance. These
two categories of import finances include:
Liability Products Asset Products Services
Savings Bundled Product Car Loan Internet Banking
Deposit Pension Scheme Home Loan SMS Banking
Special Deposit Scheme Personal Loan Locker
Deposit Double Scheme Vacation Loan ATM & VISA Credit Card
20
 Letter of Credit
 Performance Bonds & Other Guarantees
 Loan against Trust Receipt (LTR)
Export Finance
Like import trade, DBL advances in export trade at both pre-shipment and post-shipment
shipment stages. The pre-shipment facilities are usually required to finance the costs to execute
export orders, such as: procuring & processing of raw materials, packaging and transportation,
payment of various fees and charges including insurance premium etc. The facilities under both
the categories are:
 Export Letter of Credit Advising
 Back to Back LC
 Export Bills for Collection
 Packing Credit
 Foreign Documentary Bill Purchased (FDBP)
 Inland Documentary Bills Purchased (IDBP)
 Export Development Fund (EDF)
SME
Small and Medium Enterprises (SMEs) are the ‘engines of growth’ in almost all the emerging
economies of the globe. Banking to the SMEs can be termed as banking to the ‘unbanked’, as
many is yet to receive bank finances to ensure greater business development. DBL signed a new
refinancing deal on ‘Solar Energy’, Solar panel assembling plant and ETP with Bangladesh Bank.
Remittance
DBL has already started payment of remittance through two renowned NGO of Bangladesh-
PAGE and PADAKHEP MANOBIK UNNOYON KENDRO, which added 250 distribution
centers. It is also a member of EL-DORADO which is a 9-bank Elite Network for remittance
distribution facility. It has already introduced Mobile remittance disbursement partnering with
Banglalink.
21
4.3.0 Background of Mercantile Bank Limited
Mercantile Bank Limited was established in June 2, 1999 as a private commercial bank and started
its operation. The then Prime Minister Sheikh Hasina inaugurated the bank. The renowned 30
industrialists establish this bank with everybody’s consent. Mr. Abdul Jalil elected as the chairman.
Mercantile Bank Limited is a private commercial bank with Head Office at 61, Dilkusha C/A,
Dhaka, Bangladesh started operation on 2nd June 1999. The Bank has 93 branches spread all over
the country and introducing some braches. With assets of TK. 155143.746 million, the bank has
diversified activities that cover all the areas of corporate/commercial, retail/personal, SME
banking business and international trade.
Mercantile Bank is playing an important role while giving loan for the small and medium
enterprises. In the terms of credit mercantile bank has introduced new schemes mostly for the
business people in Bangladesh. Different categories of loan been provided to the businessman.
Total loans and advances of the Bank stood at BDT 93,610.87 million as on December 31, 2012
its main investing projects are business, garments, micro credit, construction and others. Consumer
Credit Scheme: Mercantile Bank has been providing loan to medium and low-income peoples.
This policy has gained a great popularity among consumers.
MBL is working with the slogan of "efficiency is our strength" and their logo contains a dialogue
“Banglar Bank”
4.3.1 Organizational Structure of MBL
The organization structure and corporate of Mercantile Bank Limited (MBL) strongly reflect its
determination to establish, uphold and gain a stronger footing as an organization which is
customer-oriented and transparent in its management.
22
Figure 2.3: Organizational hierarchy
Senior Vice President
Head of Branch
Vice President
Manager Operation
Assistant Vice Assistant Vice Assistant Vice
Foreign Exchange Credit Department General Banking
First AVP Principle Officer Principle Officer
Principle Officer Senior Executive Senior Executive
Officer Officer
Senior Executive Executive Officer Executive Officer
Officer
Executive Officer Officer Officer
Assistant Officer Trainee Assistant
Officer
4.3.2 Product and Services
MBL has launched a number of financial products and services since its inception. Among these,
Monthly Savings Scheme, Double Benefit Deposit Scheme, Quarterly Benefit Deposit Scheme,
1.5 Times Benefit Deposit Scheme, Advance Benefit Deposit Scheme, Consumer Credit Scheme,
Small Loan Scheme, Lease Finance Scheme, Overseas Employment Loan Scheme, Car Loan
Scheme, Home Loan Scheme and SME Loan have received wide acceptance among the people.
23
Deposits Loan Cards
- Current Deposit Account
- Saving Deposit Account
- Fixed Deposit Account
- Double Benefit Deposit Scheme
- Mashik Sanchay Prakalpa
- Quarterly Benefit Deposit Scheme
- 1.5 times Benefit Deposit Scheme
- Advance Benefit Deposit Scheme
- Special Savings Scheme
- School Banking
-Educational Planning Deposit Scheme
-Consumer credit scheme
-Doctor credit scheme
-Rural planning scheme
-Lease Financing
-Any purpose loan
-Educational loan
-Car loan
-Home loan
-Dual card
-Debit Card
-Prepaid Card
Supplementary Card
-Visa Card
4.3.4 Function of MBL
Mercantile Bank Limited performs all types of functions of a modern commercial bank, which
generally includes flowing-
Mobilization of savings of the people and safe keeping of all types of deposit account.
Making advances especially for productive activities and for the other commercial and
socio-economic needs.
Providing banking services to common people through the branches.
Introduce modern Banking services in the country.
Discounting and purchasing bills.
Finance for both capital machinery and working capital.
Finance under small business of self-employed clients.
Finance of farming and non-farming activities to rural people including purchase of
agricultural equipment’s.
Developing new products Market surveys before making any finance.
Finance for small transport.
Monitoring and forecasting.
Developing marketing campaigns.
Finance for household durables.
Work simplification studies.
24
4.4.0 Background of Premier Bank Limited
The Premier Bank Limited (PBL) is the leading private bank in Bangladesh. It is a scheduled bank,
which is incorporated in Bangladesh as banking company on June 10, 1999 under Companies
Act.1994. It has created a new way of its own banking area of Bangladesh in terms of providing
service to customer and value addition to its stakeholders. 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. Within short period of time, the
bank has been successful in positioning itself as progressive and dynamic financial institution in
our country. The bank is now widely operated by the business community from small
entrepreneurs to big merchant and multinational because of modern and innovative ideas and
financial solution. Now it has opened 92 branches in different areas of the country.
4.4.1 Management Hierarchy of Premier Bank
Figure 2.4: Organizational hierarchy
25
4.4.2 Products and Services of the bank
Premier Bank is always conscious of the changing needs of the customers and strive to
develop new and improved services for its valued customers. Bank offers various
Deposits and Lending Products & Services to meet all kinds of financial needs of our
customers.
Deposit Products Lending Products
 Monthly Savings Scheme (MSS)
 Monthly Income Scheme (MIS)
 Education Savings Scheme (ESS)
 Special Deposit Scheme (SDS)
 Fixed Deposit (FD)
 Saving Account (SB)
 Current Account (CD)
 Corporate Savings Account (SB)
 Short Term Deposit Account (STD)
 RFCD/ NFCD Account
 Consumer Credit Scheme
 Rural Credit Scheme
 Student Credit Programme
 Special Credit Scheme on RMG
 Doctor’s Loan
 Lease Finance
 SME Finance
 Hire Purchase
 Trade Finance
 Working Capital Finance
 Project Finance
 Finance for Agro processing Industry
4.4.3 Functions of the Bank
 Commercial banking service including collection of deposit, short term trade finance,
working capital finance in processing and manufacturing units and financing and
facilitating trade
 Term loans and working capital loans to industries.
 Loans to Small and Medium Enterprises (SMEs).
26
4.5.0 Background of Bank Asia Limited
Bank Asia Ltd is one of the leading private sector commercial banks in Bangladesh. As we all
know that achievement of high economic growth is the basic objective of the present economic
policy of Bangladesh government. To achieve this objective, the banking sector plays an
important role. Bank Asia Limited is one of the banks. It is a new entrant in the private banking
scenario of Bangladesh. It also operates in Bangladesh for a long time as a country’s one of the
good bank. Bank Asia Limited conducts all types of commercial banking activities. The core
service or business comprises of Import/Export finance, Working capital finance and corporate
finance. Foreign trade operation is one of the most important activities of the bank. It helps
corporate clients build their businesses by providing financial and strategic advice and products.
Foreign trade contains Import and Export section and foreign remittance department contains
inward and outward remittance.
Bank Asia started its journey on November 27, 1999 with an aim to be fully customer focused
through rendering technology driven innovative products and services. The Bank obtained
Certificate of Incorporation and Certificate of Commencement of Business on September 28,
1999 and banking license on October 06, 1999. Subsequently the Bank was listed with Dhaka
Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) on January 06, 2004. Since
inception Bank Asia is working efficiently and achieving a strong prominent position in banking
sector. By this time Bank Asia has consolidated its strength manifold through extending its
business rapidly while ensuring sustainable growth. Bank Asia started its most cherished Islamic
banking operation in 2008 for providing strict Shariah based products. It established its 1st
subsidiary company named “Bank Asia Securities Limited” on March 16, 2011 and another
subsidiary company “BA Exchange Company (UK) Limited” in United Kingdom in the same
year. Now the Bank is rendering services through its 107 Branches, 7 Islamic Windows, 10 SME
Service Centers, 1 Off-shore Banking Unit, and 2 Subsidiary companies.
27
4.5.1 Management Hierarchy of Dhaka Bank
Figure 2.1: Organizational hierarchy
4.5.2 Products and Services of the bank
i) Business Banking
 Overdraft
 Secured Overdraft
 Secured OD (Earnest Money)
 Working capital finance
 Loan against Trust Receipt
 Loan against Cash Incentives
 Bill discounting
28
 Loan Syndication and structured Finance
 Packing Credit
 Demand Loan
 Demand Loan (work order)
 Time Loan
 Transport Loan
 House Building Loan
 Term loan
 Lease Finance
 Letter of Guarantee
 Letter of Credit
 Back to back Letter of Credit
ii) Small and Medium Enterprise (SME)
a) Term Loan
 Subidha -Unsecured Trading
 Sondhi -Secured Trading
 Sristi – Unsecured Manufacturing
 Shombridhi- Secured Manufacturing
 Shofol – Unsecured Service
 Sheba- Secured Service
4.5.3 CSR Functions of the Bank
Bank Asia has been conscious of corporate social responsibility from the very beginning of its
operation in 1999. The Bank looks beyond short-term quantitative gains and concentrates on
issues which make the financial institution socially responsible and thus expects a sustainable
balanced growth.
Bank Asia has three major CSR programs. These are as follows:
o Higher Study Scholarship
o Ophthalmological Operation
o Operating Computer Learning Center.
CHAPTER FIVE
Data Analysis and
Interpretation of
Camels rating
5.1.0 Capital Adequacy
5.2.0 Assets Quality
5.3.0 Management Quality
5.4.0 Earning Quality
5.5.0 Liquidity
5.6.0 Sensitivity to Market Risk
5.7.0 Composite Ranking
29
5.0.0 Financial Analysis
We have chosen the CAMELS Model for Financial analysis purpose. It measures the performance
of the banks from each parameter i.e. Capital, Assets, Management, Earnings, Liquidity and
Sensitivity to Market risks. CAMELS evaluate banks on the following six parameters
5.1.0 Capital Adequacy
It is important for a bank to maintain depositors’ confidence and preventing the bank from going
bankrupt. It reflects the overall financial condition of banks and also the ability of management to
meet the need of additional capital. The following ratios measure capital adequacy:
5.1.1 Capital Adequacy Ratio (CAR): Capital adequacy ratio focuses on the total position of
banks' capital and the protection of depositors and other creditors from the potential losses that a
bank might incur. It helps absorbing all possible financial risks related to credit, market, operation,
interest rate and liquidity etc.
Bank
Capital Adequacy Ratio
2013 2014 2015 Average Rank
Premier Bank 11.46% 13.31% 9.11% 12.29% 2
Bank Asia 11.05% 11.32% 13.31% 11.89% 4
Dhaka Bank 12.18 11.20% 10.46% 11.28% 5
Mercantile Bank 11.43% 12.95% 11.87% 12.08% 3
Prime bank 12.04% 12.71% 12.74% 12.49% 1
Table:3.1 (Source: Annual Report 2015)
9.11%
13.31%
11.46%
13.31%
11.32%
11.05%
10.46%
11.20%
12.18%
11.84%
12.95%
11.43%
12.74%
12.71%
12.04%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
2015 2014 2013
Capital Adequacy
Premier Bank Bank Asia Dhaka Bank Mercantile Bank Prime bank
30
11.36
11.01
9.53
10.82
9.84
10.2
11.94
11.47
10.13
9.27
8.72
9.51
11.7
10.61
10.43
2015 2014 2013
DEBT-EQUITY RATIO
Premier Bank Bank Asia Dhaka Bank Mercantile Bank Prime bank
Comment: From the above table and charts, it is found that capital adequacy ratio of following
banks is increasing and decreasing over the years. The capital adequacy of Premier Bank was
9.11% in 2015 which is lower than the required rate of 10%. Besides, Bank Asia capital adequacy
increased from 11.05% to 13.31% and Dhaka Bank capital adequacy little bit decreased which
10.46% in 2015 and it is comparatively good position than Premier Bank and Mercantile Bank
capital adequacy ratio fluctuating year to year and at last Prime bank CAR shows positive trends.
Average capital adequacy ratio is finds that Prime bank ranked on the top position with
highest CAR of 12.49 followed by Premier Bank of 12.29, Mercantile Bank of 12.08. and Dhaka
Bank scored the lowest position.
5.1.2 Debt-Equity Ratio
This ratio represents the degree of leverage of a bank. It shows how much proportion of the bank
business is financed through equity and how much through debt.
Bank
Debt-Equity Ratio
2013 2014 2015 Average Rank
Premier Bank 9.53 11.01 11.36 10.63 3
Bank Asia 10.20 9.84 10.82 10.28 2
Dhaka Bank 10.13 11.47 11.94 11.18 5
Mercantile Bank 9.51 8.72 9.27 9.16 1
Prime bank 10.43 10.61 11.70 10.91 4
Table:3.2 (Source: Annual Report 2015)
31
Comment: In above table, Mercantile Bank is on the top position with least average of 9.16
followed by Bank Asia of 10.28 and Premier Bank of 10.63. on second and third positions
respectively. Dhaka Bank scored the lowest position with least percentage of 11.18.
5.1.3 Equity to Total Assets
The Equity Ratio measures the proportion of the total assets that are financed by stockholders, as
opposed to creditors. A low equity ratio will produce good results for stockholders as long as the
company earns a rate of return on assets that is greater than the interest rate paid to creditors.
Bank
Equity to Total Assets
2013 2014 2015 Average Rank
Premier Bank 8.97% 8.01% 7.79% 8.25% 4
Bank Asia 8.92% 9.22% 8.45% 8.86% 2
Dhaka Bank 8.23% 8.02% 7.59% 7.94% 5
Mercantile Bank 8.68% 8.02% 8.48% 8.39% 3
Prime bank 9.44% 9.59% 10.47% 9.83% 1
Table: 3.3 (Source: Annual Report 2015)
Comment: From the above table and charts, it is finds that equity to total assets ratio is fluctuating
or increasing and decreasing over the years. The equity to total assets ratio of Premier Bank was
8.97% in 2013 which was decreased to 7.83% in 2015. Besides, Bank Asia equity to total assets
ratio increased 9.22% in 2014 but 2015 it ratio is 8.45% and Dhaka Bank and Mercantile Bank
7.83%
8.07%
8.97%
8.45%
9.22%
8.45%
7.59%
8.02%
8.23%
8.48%
8.02%
8.68%
10.47%
9.59%
9.44%
2015 2014 2013
EQUITY TO TOTAL ASSETS
Premier Bank Bank Asia Dhaka Bank Mercantile Bank Prime bank
32
equity to total assets little bit decreased in 2015 but Mercantile Bank equity to total assets ratio is
10.47% in 2015 which is good position than others four banks.
In table 3.3, Average equity to total assets ratio is finds Prime bank is on the top position with
highest average of 9.83% followed by Bank Asia of 8.70% and Mercantile Bank of 8.39% on
second and third positions respectively. Dhaka Bank scored the lowest position with least
percentage of 7.94%.
5.1.4 Composite Capital Adequacy
On the basis of group averages of two ratios of capital adequacy as expressed in table
Bank
Capital
Adequacy Ratio
Debt-Equity Ratio
Equity to Total
Assets
Group Rank
Average Rank Average Rank Average Rank Average Rank
Premier Bank 12.29% 2 10.63 3 8.25% 4 3.00 4
Bank Asia 11.89% 4 10.28 2 8.86% 2 2.67 3
Dhaka Bank 11.28% 5 11.18 5 7.94% 5 5.00 5
Mercantile Bank 12.08% 3 9.16 1 8.39% 3 2.33 2
Prime bank 12.49% 1 10.91 4 9.83% 1 2.00 1
Table:3.4
Analysis and Interpretation: On the basis of group averages of three sub-parameters of capital
adequacy, Prime bank was at the top position with group average of 2.00, followed by Mercantile
Bank of 2.33 and Bank Asia of 2.67 on second and third positions respectively. Dhaka Bank stood
at the least position due to its poor performance in CAR, debt-equity ratio and also due equity to
total assets.
5.2.0 Assets Quality
The quality of assets is an important parameter to gauge the strength of bank. The ratios necessary
to assess the assets quality. The most important indicator intends to identify problems with asset
quality in the loan portfolio is the ratio of gross nonperforming loan to total loan.
33
5.2.1 NPLs to Total Loans: A nonperforming loan is either in default or close to being in default.
This ratio represents the proportion of bad loans over total loans. This ratio discloses the efficiency
of bank in assessing the credit risk and, to an extent, recovering the debts.
Bank
NPLs to total loans
2013 2014 2015 Average Rank
Premier Bank 5.73% 9.00% 6.64% 7.12% 5
Bank Asia 5.60% 5.31% 4.26% 5.05% 3
Dhaka Bank 4.15% 5.49% 4.66% 4.74% 1
Mercantile Bank 4.77% 5.10% 4.95% 4.94% 2
Prime Bank 5.09% 7.61% 7.82% 6.84% 4
Table:3.5 (Source: Annual Report 2015)
Comment: In table 3.5, Dhaka Bank is on the top position with least average of 4.74% followed
by Mercantile Bank of 4.94% and Bank Asia of 5.05% on second and third positions respectively.
Premier Bank scored the lowest position with highest percentage of 7.12%.
6.64%
9.00%
5.73%
4.26%
5.31%
5.60%
4.66%
5.49%
4.15%
4.95%
5.10%
4.77%
7.82%
7.62%
5.09%
2015 2014 2013
NPLS TO TOTAL LOANS
Premier Bank Bank Asia Dhaka Bank Mercantile Bank Prime bank
34
5.2.2 Total Investments to Total Assets (TI/TA): It indicates the extent of deployment of assets
in investment as against advances.
Table:3.6 (Source: Annual Report 2015)
Comment: From the above table and charts, it is found that total investments to total assets ratio
is fluctuating or increasing and decreasing over the years. In table 3.6, Dhaka Bank is on the top
position with least average of 12.39% followed by Mercantile Bank of 19.45% and Premier Bank
of 19.89% on second and third positions respectively. Prime bank scored the lowest position with
highest percentage of 26.90%.
Bank
Total Investments to Total Assets
2013 2014 2015 Average Rank
Premier Bank 22.51% 18.58% 18.58% 19.89% 3
Bank Asia 20.71% 21.16% 20.92% 20.90% 4
Dhaka Bank 12.98% 12.40% 11.79% 12.39% 1
Mercantile Bank 20.77% 19.10% 18.50% 19.45% 2
Prime bank 23.34% 28.49% 24.87% 26.90% 5
18.58%
18.58%
22.51%
20.92%
21.16%
20.71%
11.79%
12.40%
12.98%
18.50%
19.10%
20.77%
24.87%
28.49%
23.34%
2015
2014
2013
Total Investments to Total Assets
Prime bank Mercantile Bank Dhaka Bank Bank Asia Premier Bank
35
5.2.3 Composite Asset Quality
Bank
NPLs to total
loans
Total Investments to Total
Assets
Group Rank
Average Rank Average Rank Average Rank
Premier Bank 7.12% 5 19.89% 3 4 4
Bank Asia 5.05% 3 20.90% 4 3.5 3
Dhaka Bank 4.74% 1 12.39% 1 1 1
Mercantile Bank 4.94% 2 19.45% 2 2 2
Prime bank 6.84% 4 26.90% 5 4.5 5
Table:3.7 (Source: Annual Report 2015)
Analysis and Interpretation: On the basis of group averages of two ratios of assets quality as
expressed in table 3.7, Dhaka Bank was at the first position with group average of 1, followed by
Mercantile Bank of 2 and Bank Asia of 3.5. Prime bank scored the lowest position with 4.5 rank
due to its poor performance in net NPLs to total loans and total investments to total assets ratios.
5.3.0 Management Quality
Management efficiency is another important element of the CAMELS Model. The ratio in this
segment involves subjective analysis to measure the efficiency and effectiveness of management.
The ratios used to evaluate management efficiency are described as:
36
5.3.1 Credit Deposit Ratio (TA/TD): This ratio indicates how much of a bank's core funds are
being used for lending, the main banking activity. A higher ratio indicates more reliance on
deposits for lending and vice-versa.
Bank
Credit Deposit Ratio
2013 2014 2015 Average Rank
Premier Bank 70.76% 77.21% 83.87% 77.28% 4
Bank Asia 78.59% 82.92% 80.31% 80.60% 3
Dhaka Bank 84.22% 81.26% 84.74% 83.40% 1
Mercantile Bank 77.02% 83.33% 81.58% 80.64% 2
Prime bank 76.07% 71.94% 77.95% 75.32% 5
Table:3.8 (Source: Annual Report 2015)
Comment: From the above table and charts, it is finds that credit deposit ratio ratio is fluctuating
or increasing and decreasing over the years. In table 3.8, Dhaka Bank is on the top position with
highest average of 83.40% followed by Mercantile Bank of 80.64% and Bank Asia of 80.60% on
second and third positions respectively. Prime bank scored the lowest position with least
percentage of 75.32%.
83.87%
77.21%
70.76%
80.31%
82.92%
78.59%
84.74%
81.26%
84.22%
81.58%
83.33%
77.02%
77.95%
71.94%
76.07%
60.00%
65.00%
70.00%
75.00%
80.00%
85.00%
90.00%
2015 2014 2013
Credit Deposit Ratio
Premier Bank Bank Asia Dhaka Bank Mercantile Bank Prime bank
37
5.3.2 Profit per Employee: It is calculated by dividing the profit after tax earned by the bank with
the total number of employees. The higher the ratio, higher is the efficiency of the management
and vice versa.
Bank
Profit per Employee
2013 2014 2015 Average Rank
Premier Bank 1.19 1.34 1.43 1.32 5
Bank Asia 3.38 3.26 3.27 3.30 1
Dhaka Bank 2.10 2.14 2.30 2.18 3
Mercantile Bank 2.35 2.25 1.86 2.15 4
Prime bank 2.76 2.15 2.01 2.30 2
Table:3.9 (Source: Annual Report 2015)
Comment: In table 3.9, Profit per Employee of Bank Asia is on the top position with highest
average of 3.30 followed by Prime bank of 2.30 and Dhaka Bank of 2.81 on second and third
positions respectively. Premier Bank scored the lowest position with least percentage of 1.32.
0
0.5
1
1.5
2
2.5
3
3.5
2015 2014 2013
1.43
1.34
1.19
3.27
3.26
3.38
2.3
2.14
2.1
1.86
2.25
2.35
2.01
2.15
2.76Profit per Employee
Premier Bank Bank Asia Dhaka Bank Mercantile Bank Prime bank
38
5.3.3 Composite Management Efficiency:
Bank
Credit Deposit
Ratio
Profit per Employee Group Rank
Average Rank Average Rank Average Rank
Premier Bank 77.28% 4 1.32 5 4.5 4
Bank Asia 80.60% 3 3.30 1 2.00 1
Dhaka Bank 83.40% 1 2.18 3 2.00 1
Mercantile Bank 80.64% 2 2.15 4 3.00 2
Prime bank 75.32% 5 2.30 2 3.50 3
Table:3.10 (Source: Annual Report 2015)
Analysis and Interpretation: On the basis of group averages of two ratios of management quality
as expressed in table 3.10, Dhaka Bank and Bank Asia was at the first position with group average
of 1, followed by Mercantile Bank of 2. Premier Bank scored the lowest position with 4 rank due
to its poor performance in credit deposit ration and Profit per employee ratios.
5.4.0 Earning Quality
The quality of earnings is a very important criterion that determines the ability of a bank to earn
consistently. It basically determines the profitability of bank and explains its sustainability and
growth in earnings in future. The following ratios explain the quality of income generation.
39
5.4.1 Return on Equity: It is a measure of the profitability of a bank. In calculation of this ratio,
Profit after tax is expressed as a percentage of equity.
Bank Return on Equity(%)
2013 2014 2015 Average Rank
Premier Bank 9.84% 9.75% 9.39% 9.66% 4
Bank Asia 10.55% 14.09% 14.36% 13.00% 2
Dhaka Bank 16.21% 15.92% 10.74% 14.29% 1
Mercantile Bank 16.84% 9.11% 9.60% 11.85% 3
Prime bank 8.35% 10.08% 8.41% 8.94% 5
Table:3.11 (Source: Annual Report 2015)
Comment: In table 3.11, Return on equity of Dhaka Bank is on the top position with highest
average of 14.29% followed by Bank Asia of 13.00% and Mercantile Bank of 11.85% on second
and third positions respectively. Prime Bank scored the lowest position with least percentage of
8.94%.
0.00%
5.00%
10.00%
15.00%
20.00%
2015 2014 2013
9.39%
9.75%
9.84%
14.36%
14.09%
10.55%
10.74%
15.92%
16.21%
9.60%
9.11%
16.84%
8.41%
10.08%
8.35%
Return on Equity(%)
Premier Bank Bank Asia Dhaka Bank Mercantile Bank Prime bank
40
5.4.2 Return on Assets: Return on assets (ROA) is an indicator of how profitable a company is
relative to its total assets. ROA gives an idea as to how efficient management is at using it assets
to generate earning.
Bank Return on Assets (%)
2013 2014 2015 Average Rank
Premier Bank 0.87% 0.87% 0.79% 0.84% 5
Bank Asia 0.96% 1.28% 1.26% 1.16% 2
Dhaka Bank 1.39% 1.34% 0.86% 1.19% 1
Mercantile Bank 1.33% 0.76% 0.79% 0.96% 3
Prime bank 0.76% 0.96% 0.84% 0.85% 4
Table:3.12 (Source: Annual Report 2015)
Comment: In table 3.12, Return on Assets of Dhaka Bank is on the top position with highest
average of 1.19% followed by Bank Asia of 1.16% and Mercantile Bank of 0.96% on second and
third positions respectively. Premier Bank scored the lowest position with least percentage of
0.84%.
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
2015 2014 2013
0.79%
0.87%
0.87%
1.26%
1.28%
0.96%
0.86%
1.34%
1.39%
0.79%
0.76%
1.33%
0.84%
0.96%
0.76%
Return on Assets (%)
Premier Bank Bank Asia Dhaka Bank Mercantile Bank Prime bank
41
5.4.3 Cost to Income Ratio/ Efficiency Ratio: Cost-to-income ratio is important for determining
the profitability of a bank. The ratio gives a clear view of how efficiently the bank is being run -
the lower the ratio, the more profitable the bank.
Bank Cost to Income Ratio
2013 2014 2015 Average Rank
Premier Bank 64.64 64.14 63.20 64.00 5
Bank Asia 36.53 40.34 41.84 39.57 1
Dhaka Bank 42.38 44.47 47.77 44.87 2
Mercantile Bank 41.66 44.84 50.46 45.65 3
Prime bank 41.98 48.29 51.08 47.11 4
Table:3.13 (Source: Annual Report 2015)
Comment: In table 3.13, Cost to income ratio of Bank Asia is on the top position with least average
of 39.57 followed by Dhaka Bank of 44.87 and Mercantile Bank of 45.65 on second and third
positions respectively. Premier Bank scored the lowest position with highest average of 64.00.
0
10
20
30
40
50
60
70
2015 2014 2013
63.2
64.14
64.64
41.84
40.34
36.53
47.77
44.47
42.38
50.46
48.84
41.66
51.08
48.29
41.98
Cost to Income Ratio
Premier Bank Bank Asia Dhaka Bank Mercantile Bank Prime bank
42
5.4.4 Composite Earning Quality:
Bank
Return on
Equity(%)
Return on Assets
(%)
Cost to Income
Ratio
Group Rank
Average Rank Average Rank Average Rank Average Rank
Premier Bank 9.66% 4 0.84% 5 64.00 5 4.66 5
Bank Asia 13.00% 2 1.16% 2 39.57 1 1.66 2
Dhaka Bank 14.29% 1 1.19% 1 44.87 2 1.33 1
Mercantile Bank 11.85% 3 0.96% 3 45.65 3 3.00 3
Prime bank 8.94% 5 0.85% 4 47.11 4 4.33 4
Table:3.14 (Source: Annual Report 2015)
Analysis and Interpretation: On the basis of group averages of three ratios of earning quality as
expressed in table 3.14, Dhaka Bank was at the first position with group average of 1.33 followed
by Bank Asia of 1.66 and Mercantile Bank of 3.00 on second and third positions respectively.
Premier Bank scored the lowest position with 4.66 average due to its poor performance in return
on assets and cost to income ratio.
5.5.0 Liquidity
Risk of liquidity can have an effect on the image of bank. Liquidity is a crucial aspect which
reflects bank’s ability to meet its financial obligations. An adequate liquidity position means a
situation, where organization can obtain sufficient liquid funds, either by increasing liabilities or
by converting its assets quickly into cash.
43
5.5.1 Liquid Assets to Total Assets: This ratio measures the overall liquidity position of the bank.
The liquid assets include cash in hand, money at call and short notice, balance with other banks
and financial institutions (Home and Abroad).
Bank Liquid Assets to Total Assets(%)
2013 2014 2015 Average Rank
Premier Bank 6.14% 12.14% 7.59% 8.62% 2
Bank Asia 6.71% 6.56% 10.84% 8.03% 4
Dhaka Bank 10.29% 14.41% 14.21% 12.97% 1
Mercantile Bank 7.80% 8.07% 9.86% 8.57% 3
Prime bank 7.63% 7.47% 7.89% 7.66% 5
Table:3.15 (Source: Annual Report 2015)
Comment: In table 3.15, liquid assets to total assets ratio of Dhaka Bank is on the top position
with highest average of 12.97 followed by of Premier Bank of 8.62% and Mercantile Bank of
8.57% on second and third positions respectively. Premier Bank scored the lowest position with
least percentage of 7.66%.
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
2015 2014 2013
7.59%
12.14%
6.14%
10.84%
6.56%
6.71%
14.21%
14.41%
10.29%
9.86%
8.07%
7.80%
7.89%
7.47%
7.63%
Liquid Assets to Total Assets(%)
Premier Bank Bank Asia Dhaka Bank Mercantile Bank Prime bank
44
5.6.0 Sensitivity to Market Risk
The sensitivity of the market risk is evaluated by banks through changes in interest rate, foreign
exchange rates and equity prices. sensitivity to market risk measures how adversely the bank is
affected by such changes.
5.6.1 Price Earnings Ratio: The Price Earnings ratio gives an idea of what the market is willing
to pay for the company’s earnings. The higher the Price Earnings ratio the more the market is
willing to pay for the company’s earnings.
Bank Price earnings ratio (times)
2013 2014 2015 Average Rank
Premier Bank 7.12 6.33 5.24 6.23 5
Bank Asia 12.04 5.74 5.38 7.72 2
Dhaka Bank 5.28 5.13 8.57 6.32 4
Mercantile Bank 5.57 8.52 5.68 6.59 3
Prime bank 14.57 8.43 8.71 10.57 1
Table:3.16 (Source: Annual Report 2015)
Comment: In table 3.15, Price earnings ratio of Prime bank is on the top position with highest
average of 10.57 followed by Prime bank of 7.72 and Mercantile Bank of 6.59 on second and third
positions respectively. Premier Bank scored the lowest position with least percentage of 6.23.
0
2
4
6
8
10
12
14
16
2015 2014 2013
5.24
6.33
7.12
5.38
5.74
12.04
8.57
5.13
5.28
5.68
8.52
5.57
8.71
8.43
14.57
Cost to Income Ratio
Premier Bank Bank Asia Dhaka Bank Mercantile Bank Prime bank
45
5.7.0 Composite Ranking (Overall Performance)
Bank C A M E L S Average Rank
Premier Bank 4 4 4 5 5 5 4.5 5
Bank Asia 3 3 1 2 3 2 2.33 2
Dhaka Bank 5 1 1 1 1 4 2.16 1
Mercantile Bank 2 2 2 3 2 3 2.5 3
Prime bank 1 5 3 4 4 1 3 4
Table:3.17
Analysis and Interpretation: Table 3.17 depicts the group ranking of five commercial bank of
Bangladesh for the period of 2013-2015 and results are presented in the above table. It shows that
under the capital adequacy ratio, Prime bank and Mercantile Bank were at the top position, while
Dhaka Bank got lowest rank. Under the asset quality parameter, Dhaka Bank hold the top rank
while Prime bank hold the lowest rank. Under management efficiency parameter it is observed
that the top rank was taken by Dhaka Bank and the lowest rank by Premier Bank. In terms of
earning quality parameter, the capability of Dhaka Bank got the top rank in the list while Premier
Bank was at the lowest position. Under the liquidity parameter, Dhaka Bank stood on the top
position and Premier Bank was on the lowest position. And lastly, for the sensitivity to market
risk, Prime Bank stood on the top position and Premier Bank was at the lowest position.
The analysis of the above table reveals that Dhaka Bank secured the top position in terms of overall
composite ranking followed by Bank Asia and Mercantile Bank on second and third positions
respectively. Premier Bank and Prime Bank secured the most bottom position.
CHAPTER SIX
Finding, Recommendation
and Conclusion
6.1.0 Objectives, Findings and Recommendations
6.2.0 Conclusion
46
6.1.0 Objectives, Findings and Recommendations
In the process of evaluation of the performance of various banks I have obtained different
performances with respect to CAMELS ratios. The study has brought many interesting objectives,
finding and recommendation some of which are mentioned as below:
 Objective 1: To explore about CAMELS rating framework.
Finding 1: The CAMELS rating system is to evaluate a bank’s level of risk and overall condition.
Study find out the camels rating framework through capital, assets quality, management quality,
earnings, liquidity and sensitivity to market risk of the bank. Capital adequacy, as in the quality
and amount of capital a bank can access. Asset quality, which looks at a bank’s credit and how it
identifies risk. Management quality is concerned with the quality of a bank’s support and
oversight. Earnings, which explores how stable a bank’s earnings are. Liquidity refers to how
quickly a bank can turn assets into cash and sensitivity to market risk, which explores how sensitive
the bank’s earnings is to adverse developments in the market, such as a sudden change in interest
rate. The system helps regulators identify banks that are in trouble. Each factor receives a rating
between 1 and 5, with 1 being the best score. Bangladesh bank follows international rules to
calculate camels rating to measure the financial performance of banks and assessing the banks
soundness more accurately.
Recommendation 1: Bangladesh bank should make regular adjustments and update the camels
rating framework guideline to all banks of the Bangladesh. Bangladesh Bank or regulatory
authority should regularly practice camels rating to measure the financial performance of banks
as well as to mitigate adverse situation of the financial institution.
 Objective 2: To understand the financial performance of the banks.
 Objective 2.1: To understand the capital adequacy of the banks.
Finding 2.1: Capital adequacy reflects the overall financial condition of the bank and also the
ability of the management to meet the need for additional capital. Average capital adequacy ratio
is finds that Prime bank ranked on the top position with highest CAR of 12.49 followed by Premier
Bank of 12.29, Mercantile Bank of 12.08. and Dhaka Bank scored the lowest position. All the
five banks have succeeded in maintaining CAR at a higher level than the prescribed level 10%.
47
Recommendation 2.1: The studies have shown that Dhaka bank, capital adequacy ratio is
continuously decreasing which are not a good sign for a bank so they have to improved capital
adequacy ratio.
 Objective 2.2: To understand the debt equity ratio of the banks.
Finding 2.2: Debt equity ratio shows how much proportion of the bank business is financed
through equity and how much through debt. According to the analysis, Mercantile Bank is on the
top position with least average of 9.16 followed by Bank Asia of 10.28 and Premier Bank of
10.63. on second and third positions respectively. Dhaka Bank scored the lowest position with
least percentage of 11.18.
Recommendation 2.2: In Dhaka bank, debt equity ratio is continuously rising over the years
which are not a good sign so they have to increase equity or reduce debts in their capital structure.
 Objective 2.3: To understand the Non-performing loans to total loans ratio of the bank.
Finding 2.3: Non-performing loans to total loans ratio disclose the efficiency of the bank in
assessing the credit risk and, to an extent, recovering the debts. According to ratio the Dhaka Bank
is on the top position with least average of 4.74% followed by Mercantile Bank of 4.94% and Bank
Asia of 5.05% on second and third positions respectively. Premier Bank scored the lowest position
with highest percentage of 7.12%.
Recommendation 2.3: In Premier bank, Non-performing loans to total loans ratio are
continuously raising over the years which are not good so they have to conscious to providing a
loan.
 Objective of the study 2.4: To understand the Credit deposit ratio of the banks.
Finding 2.4: Credit deposit ratio indicates how much of a bank's core funds are being used for
lending, the main banking activity. A higher ratio indicates more reliance on deposits for lending
and vice-versa. According to study credit deposit ratio is fluctuating or increasing and decreasing
over the years. Dhaka Bank is on the top position with highest average of 83.40% followed by
Mercantile Bank of 80.64% and Bank Asia of 80.60% on second and third positions respectively.
Prime bank scored the lowest position with least percentage of 75.32%.
48
Recommendation 2.4: In Prime bank, Credit deposit ratios less than other four banks so bank
management should to be conscious of this area.
 Objective 2.5: To understand the return on equity ratio of the bank.
Finding 2.5: Return on equity measures of the profitability of a bank. Return on equity of Dhaka
Bank is on the top position with the highest average of 14.29% followed by Bank Asia of 13.00%
and Mercantile Bank of 11.85% on second and third positions respectively. Prime Bank scored
the lowest position with least percentage of 8.94%.
Recommendation 2.5: The studies have shown that Prime bank and Premier Bank return on equity
is continuously decreasing over the years which are not good so they have to improve return on
equity.
 Objective 2.6: To understand the Liquid assets to total assets ratio of the bank.
Finding 2.6: Liquid assets to total assets ratio measure the overall liquidity position of the bank.
liquid assets to total assets ratio of Dhaka Bank is on the top position with the highest average of
12.97% followed by Premier Bank of 8.62% and Mercantile Bank of 8.57% on second and third
positions respectively. Premier Bank scored the lowest position with least percentage of 7.66%.
Recommendation 2.6: The studies have shown that Prime Bank Liquid assets to total assets ratio
are continuously decreasing over the years which are not good so they have to improve Liquid
assets to total assets ratio.
 Objective 3: To describe the CAMELS model of ranking, banking institutions, so as to
analyze the comparative of various banks.
Finding 3: The overall performance of camels rating it is found that under the capital adequacy
ratio parameter Prime bank and Mercantile Bank were at the top position, while Dhaka Bank got
the lowest rank. Under the asset quality parameter, Dhaka Bank held the top rank while Prime
bank held the lowest rank. Under management efficiency parameter it is observed that top rank
was taken by Dhaka Bank and lowest rank by Premier Bank. In terms of earning quality parameter,
the capability of Dhaka Bank got the top rank in the list while Premier Bank was at the lowest
position. Under the liquidity parameter, Dhaka Bank stood on the top position and Premier Bank
49
was on the lowest position. And lastly, for the sensitivity to market risk, Prime Bank stood on the
top position and Premier Bank was at the lowest position.
Recommendation 3: The studies have shown that Dhaka bank, capital adequacy ratio is
continuously decreasing over the years which are not good so they have to improved capital
adequacy ratio. Prime bank and Premier Bank return on equity is low than other banks. Because
the management cannot utilize its equity efficiently like other banks. So Bank has to take this
aspect into consideration.
 Objective 4: To analyze 5 banks to get the desired results by using CAMELS as a tool of
measuring performance.
Finding 4: In the study using CAMELS model, it is revealed that Dhaka Bank secured the top
position in terms of overall composite ranking followed by Bank Asia and Mercantile Bank on
second and third positions respectively. Premier Bank and Prime Bank secured the most bottom
position.
Recommendation 4: In the study using camels model, it is revealed that Premier Bank and Prime
Bank Unsatisfactory position. Such performance indicates weakness, threatens the viability of the
institution. So bank management should be aware of it.
6.2.0 Conclusion
Camels rating is a common phenomenon for all banking system all over the world. Camels rating
provides a measurement of banks current overall financial, managerial, and operational and
compliance performance. Regulators of the banking sector always monitor the performance of the
banks to ensure efficient financial system based on camels rating model. Various studies have been
conducted on banks using camels framework. In the process of evaluation of the performance of
various banks, our study concluded that different banks have obtained different performances with
respect to camels ratios.
50
References
Ahsan, Mohammad Kamrul. 2016. "Measuring Financial Performance Based on CAMEL: A
Study on Selected Islamic Banks in Bangladesh." 6: 48-53.
Bangladesh Bank. 2016. "Annual Report 2014-15." Dhaka, Bangladesh, 46-66.
Bank Asia Limited. 2016. "FINANCIAL STATEMENTS & REPORTS (2013-2015)."
Dang, Uyen. 2011. "The camels ratıng system ın bankıng supervısıon a case study." 18-25.
Dhaka Bank Limited. 2016. "FINANCIAL STATEMENTS & REPORTS (2013-2015)."
DR. Mikail Altan, Habib Yusufazari, Aykut Beduk. 2014. "Performance analysis of banks in
Turkey Using Camel Approach." (International Academic Conference,Malta) 22-30.
Gupta, CA. Ruchi. 2014. "An analysis of Indian public sector banks using camel approach."
(Journal of Business and Management) 16: 95-101.
Iqbal, M. J. 2012. "Banking Sector's Performance In Bangladesh An Application Of Selected
Camels Ratio." 27-30.
The Prime Bank Limited. 2016. "FINANCIAL STATEMENTS & REPORTS (2013-2015)."
Mercantile Bank Limited. 2016. "FINANCIAL STATEMENTS & REPORTS (2013-2015)."
Prasuna. 2003. "Analyzed the performance of 65 Indian banks according to the CAMEL Model."
X(11): 6-13.
Premier Bank Limited. 2016. "FINANCIAL STATEMENTS & REPORTS (2013-2015)."
Rose, Peter S. n.d. Bank Management and Financial Services. Edition 9th.
Shukla, Dr. Sneha S. 2015. "Analyzing Financial Strength of Public and Private Sector Banks: A
CAMELS Approach." 3: 2-7.
Zikmund, William G. n.d., Business Research Methods. Edition 8th.

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Measuring Financial Performance Based on Camels Rating

  • 1. THESIS PAPER On “Measuring Financial Performance Based on Camels Rating on Five Selected Commercial Banks in Bangladesh” Submitted in Partial Fulfillment of the Requirement for the Degree of Master of Business Administration Supervised By Dr. Md. Rafiqul Islam Professor Department of Banking and Insurance University of Dhaka Submitted By Md. Nazmus Sakib ID NO:51326090 Department of Banking and Insurance University of Dhaka September 7, 2016
  • 2. THESIS PAPER On Measuring Financial Performance Based on Camels Rating on Five Selected Commercial Banks in Bangladesh Supervised by Dr. Md. Rafiqul Islam Professor Department of Banking and Insurance University of Dhaka Submitted by Md. Nazmus Sakib ID No. 51326090 EMBA Program Department of Banking and Insurance University of Dhaka Date of Submission: September 7, 2016
  • 3. i Letter of Transmittal September 7, 2016 Dr. Md. Rafiqul Islam Professor Department of Banking and Insurance Faculty of Business Studies University of Dhaka Subject: Submission of the Thesis Paper on “Measuring Financial Performance Based on Camels Rating on Five Selected Commercial Banks in Bangladesh.” Dear Sir, It is my pleasure to submit report on “Measuring Financial Performance Based on Camels Rating on Five Selected Commercial Banks in Bangladesh” as a part of my internship program of MBA. I tried my best to gather relevant information for preparing a paper by following and analyzing the proposal. I believe that the knowledge and experience I have gathered during my internship period and while preparing the report; have enlarged my learning into the field and will immensely help me further in my professional life. I have tried my best to follow your instructions to complete the report. I am very much grateful to you because of your full co-operation with me in preparing this report. However, I would always be happy to welcome any further clarification that you may require. I hereby submit the report for your perusal and request you to accept my report. Yours faithfully …………………… Md. Nazmus Sakib Evening MBA Program ID – 51326090, Batch – 26th Department of Banking & Insurance University of Dhaka
  • 4. ii Supervisor’s Certificate This is to certify that the Thesis Paper on “Measuring Financial Performance Based on Camels Rating on five Selected Commercial Banks in Bangladesh” is the record of internship done by Md. Nazmus Sakib bearing ID No. 51326090, as the fulfillment of all requirement of the Evening MBA Program in the Department of Banking and Insurance, Faculty of Business Studies, University of Dhaka. I instructed him to prepare this thesis paper. Hereby, I accept the report as the successful completion of the internship program. During the program he has been found to be sincere, regular, proactive and attentive to work for which I wish him every success in his future career. _________________ Dr. Md. Rafiqul Islam Professor, Department of Banking & Insurance University of Dhaka
  • 5. iii Declaration I the undersigned, hereby declare that the presented Thesis Paper on “Measuring Financial Performance Based on Camels Rating on Five Selected Commercial Banks in Bangladesh” is an original work prepared by me, under the supervision of Professor, Dr. Md. Rafiqul Islam, Department of Banking and Insurance, Faculty of Business Studies, University of Dhaka. I also confirm that the Thesis paper has been prepared to meet my academic internship requirement and not for any other purpose. No part of this report has been previously submitted to any other university/college/institution/organization for any academic certificate or degree. _____________________ Md. Nazmus Sakib Evening MBA Program ID – 51326090 Batch – 26th Department of Banking & Insurance Faculty of Business Studies University of Dhaka
  • 6. iv Acknowledgement The report is the outcome of my internship program. First of all, I must show my gratitude to Almighty Allah for giving me energy and capabilities to preparing this report. It was a great pleasure to prepare Thesis paper on “Measuring Financial Performance Based on Camels Rating on Five Selected Commercial Banks in Bangladesh” I would like to thank and convey my sincere gratitude to honorable Supervisor, Dr. Md. Rafiqul Islam, Professor, Department of Banking & Insurance, Faculty of Business Studies, University of Dhaka, for giving me valuable advice, support and suggestion to complete the report in an appropriate manner and I would also like to express my sincere appreciation for his wholehearted support and guidance. And I would also like to take the opportunity to express my wholehearted gratitude to my fellow friends, near and dear ones who offered encouragement, information, inspiration and assistance during the period of constructing the internship report.
  • 7. v Executive Summary Banking industry is one of the most promising industries in our country. Since 1972 the banking sector has been playing an important role in achieving economic growth of Bangladesh. In this age of modern civilization commercial bank is emerging as a driving factor for the economic development of a country. Banks do not make intermediation only to individuals; they also intermediate to the firms in other sectors. So the performance and soundness of the banking sector are very important for almost all sectors, consequently for our economy. To keep the performance of the banking sector high, knowing dynamics of it is very important. This paper aims to analyze the “Measuring Financial Performance Based on Camels Rating on Five Selected Commercial Banks in Bangladesh”. CAMELS rating system is an international bank-rating system where bank supervisory authorities rate institutions according to six factors. It is encountered by six components named capital adequacy, asset quality, management quality, earnings, liquidity and sensitivity to market risk. It is used for banking companies to know about their financial condition, overall soundness of the banks, and predict different risk factors that may contribute to turn the bank into a problem. In Bangladesh, since the early nineties, CAMELS rating have been used for evaluating institution’s financial condition, compliance with banking regulations and statutes and overall operating soundness. The key purpose of the study is to find out overall soundness of the banks and predict different risk factors that may contribute to turn the bank into a problem. This study is based on secondary data. This paper examines the comparative performance of five leading commercial banks, namely, Premier bank, Bank Asia, Dhaka bank, Mercantile bank and Prime bank through CAMELS rating, to understand the camels models and practices and their impact on the banking sector of Bangladesh. The information’s of the research have gathered by the internet from the different related official websites and various thesis paper. I have collected data from different links and then analyzed it. After analysis, I got significant results from this study. From this, now we can get a clear idea that how Banks calculated Camels rating to know about the financial soundness of the banks.
  • 8. Table of Content Item No. Particulars Page Letter of Transmittal i Supervisor’s Certificate ii Declaration iii Acknowledgement iv Executive Summary v Chapter One: Introduction 1.1.0 Background of the study 1-2 1.2.0 Objectives of the report 2 1.3.0 Methodology 2-3 1.4.0 Limitation of the study 3 Chapter Two: Literature Review 4-5 Chapter Three: Theoretical Review 3.1.0 Camels Rating 6 3.2.0 Composite of Camels Rating 6-7 3.3.0 Camels Numerical Rating: Rating Description 7 3.4.0 Capital Adequacy 8 3.5.0 Asset Quality 8-9 3.6.0 Management Quality 9 3.7.0 Earning Quality 9-10 3.8.0 Liquidity 10 3.9.0 Sensitivity to Market Risk 10 3.10.0 CAMELS Rating System of Bangladesh 11 Chapter Four: Organizations Profile 4.1.0 Brief Introduction of Prime Bank Limited 12 4.1.1 Organizational Structure 13 4.1.2 Core business and achievements of Prime Bank Ltd. 14-15 4.1.3 Some Specific Banking Offerings 15-16 4.1.4 Functional Structure of Prime Bank Ltd. 16 4.2.0 Brief Introduction of Dhaka Bank Limited 17 4.2.1 Management Hierarchy of Dhaka Bank Ltd 18 4.2.2 Products and Services 19-20 4.3.0 Background of Mercantile Bank Limited 21 4.3.1 Organizational Structure of MBL 21-22 4.3.2 Product and Services 22-23 4.3.4 Function of MBL 23 4.4.0 Background of Premier Bank Limited 24
  • 9. 4.4.1 Management Hierarchy of Premier Bank 24 4.4.2 Products and Services of the bank 25 4.4.3 Functions of the Bank 25 4.5.0 Background of Bank Asia Limited 26 4.5.1 Management Hierarchy of Dhaka Bank 27 4.5.2 Products and Services of the bank 27-28 4.5.3 CSR Functions of the Bank 28 Chapter Five: Data Analysis and Interpretation of Camels Rating 5.0.0 Financial Analysis 29 5.1.0 Capital Adequacy 29 5.1.1 Capital Adequacy Ratio 29-30 5.1.2 Debt-Equity Ratio 30-31 5.1.3 Equity to Total Assets 31-32 5.1.4 Composite Capital Adequacy 32 5.2.0 Assets Quality 32 5.2.1 NPLs to Total loans 33 5.2.2 Total Investments to Total Assets 34 5.2.3 Composite Asset Quality 35 5.3.0 Management Quality 35 5.3.1 Credit Deposit Ratio 36 5.3.2 Profit per Employee 37 5.3.3 Composite Management Efficiency 38 5.4.0 Earning Quality 38 5.4.1 Return on Equity 39 5.4.2 Return on Assets 40 5.4.3 Cost to Income Ratio/ Efficiency Ratio 41 5.4.4 Composite Earning Quality 42 5.5.0 Liquidity 42 5.5.1 Liquid Assets to Total Assets 43 5.6.0 Sensitivity to Market Risk 44 5.6.1 Price Earnings Ratio 44 5.7.0 Composite Ranking 45 Chapter Six: Finding, Recommendation and Conclusion 6.1.0 Objectives, Findings and Recommendations 46-49 6.2.0 Conclusion 49 References 50
  • 10. CHAPTER ONE Introduction 1.1.0 Background of the study 1.2.0 Objectives of the report 1.3.0 Methodology 1.4.0 Limitation of the study
  • 11. 1 1.1.0 Background of the study The performance of an economy is very much associated with the performance of the financial sector of that economy. The financial sector of our country is gaining strength over the years and its contribution to growth is overwhelming. Banks are considered the main component of our Financial Sector. A good performance of banking sector itself indicates the overall good performance of the sector, which ultimately leads to improved performance of economy. The functions of present day commercial banks have diversified manifold. The banking sectors are treated as the back-bone of an economy. There are several types of banks in Bangladesh. In today’s scenario, the banking sector is one of the fastest growing sector and a lot of funds are invested in Banks. Also today’s banking system is becoming more complex. So, we thought of evaluating the performance of the banks. There are so many models of evaluating the performance of the banks, but we have chosen the CAMELS Model to evaluate the performance of the banks. CAMELS is an acronym for six components of bank safety and soundness And those include – C - Capital adequacy A - Asset quality M - Management quality E - Earnings L - Liquidity S - Sensitivity to Market Risk This paper examines the comparative performance of the commercial banks of Bangladesh namely Prime Bank, Dhaka Bank, Mercantile Bank, Premier Bank and Bank Asia through CAMELS Rating. Performance of the banking sector under CAMELS involves analysis and evaluation of these six crucial dimensions of banking operations. The CAMELS methodology was originally adopted by North American bank regulators to evaluate the financial and managerial soundness of U.S. commercial lending institutions.
  • 12. 2 1.1.1 Research background and motivations A number of studies have been done relating to Camels rating and exploited on the implication of such measures of banking institutions. Therefore, this study has aimed at filling the gap on Camels rating of private commercial banking institution. 1.1.2 Statement of the Problem This report has been titled as “Measuring Financial Performance Based on Camels Rating on Five Selected Commercial Banks in Bangladesh”. This rating system is designed to take into account and reflect all significant financial and operational factors examiners assess in their evaluation of a camels rating performance. 1.2.0 Objectives of the report This assignment examines the Camels rating in the area of banking sector. The main objective of the study is to measure financial performance based on Camels rating of commercial banks in Bangladesh. a) To explore about CAMELS rating frame work. b) To understand the financial performance of the banks. c) To describe the CAMELS model of ranking, banking institutions, so as to analyze the comparative of various banks. d) To analyze 5 banks to get the desired results by using CAMELS as a tool of measuring performance. 1.3.0 Methodology Research Design: Descriptive research will be followed to cover the topic at hand. According to the instruction of my supervisor, I would like to prepare information about the assignment. So the assignment is descriptive in nature. Population Size: The population for this study is the all commercial banks that operate inside Bangladesh. Here 56 commercial banks in Bangladesh are considered as population. Sample Design: The sample design comprises 5 commercial banks. These 5 Commercial banks are selected randomly from 56 commercial banks in Bangladesh
  • 13. 3 Sources of Data: This study is purely based on secondary data. This paper examines the comparative performance of five leading private sector commercial banks, namely, Premier bank, Bank Asia, Dhaka bank, Mercantile bank and Prime bank through CAMELS Rating, to understand the camels models and practices and their impact on the banking sector of Bangladesh. The financial data of selected banks have been collected from the financial statements of the respected banks. The financial statements have been collected from the Official Websites of selected banks. To determine this, financial statements for the fiscal period 2013 to 2015 are evaluated. Data Analysis: The collected data for analyzing financial performance based on Camels rating on five selected commercial banks in Bangladesh. Data is presented using tables and graphs among other data presentation tools. Collected information has then processed & compiled with the aid of MS Word 2016. Various graphs and tables will be used through Microsoft Excel 2016 for calculation and putting up in the report. 1.4.0 Limitation of the study Every study has its distinct limitations. Preparing this report, I have faced some certain limitations to collect the information which are as follows:  Limited sources of data, only the website. Insufficient supply of relevant books and journals and lack of structured information.  The data used for his study is the published annual reports from time to time. Therefore, the quality of this research depends on reliability of data published in those reports.  Time constraint for preparing the report in appropriate manner.  Lack of proper experience in the explored area while preparing the standard report.  Time and resource constrains.  The study was completely done on the basis of ratios calculated from the balance sheets.  It was not possible to get a personal interview with the management employees of all banks under study. In spite of these limitations it can be said that such limitations are common to almost all data based study. Appropriate methodology, proper research design and appropriate statistical techniques have been used to overcome many of these limitations.
  • 15. 4 Banking sector has played a crucial role in the development of the economy. Various scholars have made several studies on the performance of banking sector in the using CAMELS model. The Camels rating is a supervisory rating system originally developed in the U.S. to classify a bank's overall condition. It's applied to every bank and credit union in the U.S. and is also implemented outside the U.S. by various banking supervisory regulators Some of the important studies reviewed for present paper are as under: Federal Reserve System of United States implemented The Uniform Financial Institutions Rating System (UFIRS) in 1979 in the US banking institutions. UFIRS was recommended worldwide later on. UFIRS was known internationally as CAMELS rating system globally. Dang, Uyen. 2011, The camels ratıng system ın bankıng supervısıon a case study by examining its balance sheet, as well as, profit and loss statement on the basis of each component, thus observing the institution's dynamic aspect. Doumpos & Zopounidis said that " In the new globalize financial system, as with all new financial markets and products, the banks' economic situation can rapidly change than in the past. As a result of the new situation, supervisory authorities were led towards changing their way of approach and assessment, paying more emphasis on ways to overcome and manage risks. As a result of this new situation that was created through the development of the financial system, a further area of assessment was added, that of the initial S, indicating market risk. This took place in 1995 by the US Federal Reserve (Fed) and the Comptroller of the Currency (Hafer, 2005), who replaced CAMEL with CAMELS and added a management assessment system scale from 1 (optimum) to 5 (worse) for risk management. Prasuna (2003), analyzed the performance of Indian banks by adopting the CAMEL Model. The performance of 65 banks was studied for the period 2003-04. The author concluded that the competition was tough and consumers benefited from better services quality, innovative products and better bargains. Dr. Sneha S. Shukla (2015) study the analysis financial strength of public and private sector banks: A CAMELS approach. His study was mainly based on secondary data drawn from the annual reports published by banks. His report analyzed the financial health of public and private sector banks in the CAMELS parameters. His findings of the study revealed that the financial health of public and private sector banks.
  • 16. 5 Bangladesh Bank introduced CAMEL Rating System in 1993 as an integral part of Offsite Supervision System. Initially, report was prepared on the half-yearly basis for all banks. Subsequently in 1999, Board of Directors of BB advised to prepare the reports of State-owned Commercial Banks (SCBs) on quarterly basis. Due to the emergence of the banking sector and changes in the economic scenario, BB Management updated the previously practiced CAMEL based Supervision System to "Guidelines for Determination of CAMELS Rating for the Banking Companies" which was developed by supervision consultant Ms. F. P. Santos employed under the Central Bank Strengthening Project Cell (CBSP). The new system was approved by the Governor on 26.01.2006. The revised rating system was first exercised on June ‘06 to evaluate the performance of banks as of 30/06/2006. In the new system, Sensitivity to Market Risks has been added to the previously practiced system to observe how the banks manage the market risks such as interest rate risk, foreign exchange risk, commodity prices, equity prices etc. Mohammad Kamrul Ahsan (2016) performance Measuring financial based on CAMEL: A study on selected Islamic banks in Bangladesh. His study focuses on domestic Islamic banks measuring financial performance based on CAMEL rating model.
  • 17. CHAPTER THREE Theoretical Review 3.1.0 Camels Rating 3.2.0 Composite of Camels Rating 3.3.0 Camels Numerical Rating: Rating Description 3.4.0 Capital Adequacy 3.5.0 Asset quality 3.6.0 Management quality 3.7.0 Earning Quality 3.8.0 Liquidity 3.9.0 Sensitivity to Market Risk 3.10.0 CAMELS Rating System of Bangladesh
  • 18. 6 3.1.0 Camels Rating Camels is a rating system generally used by the government policy circle, regulating bodies regulating commercial banks, that is, central banks and non-governmental policy research centers for the purpose of assessing the soundness of a savings association or a bank. As regards to the background of introducing CAMEL, it was originally adopted by the regulators of North American Commercial banks and it covers five areas of performance, namely, Capital Adequacy, Asset quality, Management quality, Earning ability and Liquidity. In the early 1970s; federal regulators of the US developed CAMEL rating system to appraise the performance of the Commercial banks. Later in 1979, the uniform financial institution’s rating system was adopted to provide federal regulatory agencies with a framework for rating financial condition and individual banks. Since then, the application of CAMEL has spread up dramatically in respect of examining the financial strengths of one of the basic constituents of money market i.e. commercial banks. In 1995 the Federal Reserve and the OCC (Office of the Comptroller of the Currency) replaced CAMEL with CAMELS, adding the "S" which stands for Sensitivity (sensitivity to market risk, especially interest rate risk). CAMELS Rating has been considered as one of the widely used tools for judging capital adequacy, asset quality, management quality, earnings ability, liquidity and Sensitivity to market risk of the financial institutions including commercial banks by the principal regulators all around the world. In addition to this, State Banking departments as well as the Farm Administration use the CAMELS rating system to evaluate the soundness of financial institutions as follows. The abbreviations are as follows: C = Capital Adequacy A = Asset Quality M = Management Quality E = Earning L = Liquidity and S = Sensitivity to market risk. 3.2.0 Composite of Camels Rating Composite of camels ratings are based on a careful evaluation of an institution's managerial, operational, financial, and compliance performance. The six key components used to assess an
  • 19. 7 institution's financial condition and operations are: capital adequacy, asset quality, management quality, earnings, liquidity and sensitivity to market risk. The numerical ratings assigned to the criteria are: Table:1.1 Rating Scale Rating Range Rating Analysis Rating Analysis interpretation 1 1.0-1.4 Strong Sound in every respect, no supervisory responses required 2 1.6-2.4 Satisfactory Fundamentally sound with modest correctable weakness, supervisory response limited. 3 2.6-3.4 Fair (watch category) Combination of weaknesses if not redirected will become severe. Requires more than normal supervision 4 3.6-4.4 Marginal (some risk of failure) Immoderate weakness unless properly addressed could impair future viability of the bank. Needs close supervision. 5 4.6-5.0 Unsatisfactory (high degree of failure evident) High risk of failure in the near term. Under constant supervision/cease and desist order. 3.3.0 Camels Numerical Rating: Rating Description 1. STRONG: It is the highest rating and is indicative of performance that is significantly higher than average. 2. SATISFACTORY: It reflects performance that is average or above; it includes performance that adequately provides for the safe and sound operation of the banks. 3. FAIR: Represent performance that is flawed to some degree. It is neither satisfactory nor unsatisfactory but is characterized by performance of below average quality. 4. MARGINAL: Performance is significantly at below average; if not changed, such performance might evolve into weaknesses or conditions that could threaten the viability of the bank. 5. UNSATISFACTORY: Is the lowest rating and indicative of performance that is critically deficient and in need of immediate remedial attention. Such performance by itself, or in combination with other weakness, threatens the viability of the institution.
  • 20. 8 3.4.0 Capital Adequacy The dimension of capital adequacy is an important factor to help the bank in understanding the shock attractive capability during risk. That means, capital adequacy enables a bank to meet any financial unexpected condition due to FX risk, credit risk, market risk. Capital adequacy protects the interest of depositors of a bank. Examiners assess institutions' capital adequacy through capital trend analysis. To get a high capital adequacy rating, institutions must also comply with interest and dividend rules and practices. Other factors involved in rating and assessing an institution's capital adequacy are its growth plans, economic environment, ability to control risk, and loan and investment concentrations. The adequacy of capital is examined based upon the two most important measures such as Capital Adequacy Ratio (CAR) or Capital to Risk-weighted Assets ratio, and the ratio of capital to assets. 3.4.1 Capital Adequacy Ratios The capital adequacy is estimated based upon the following key financial ratios, and to be considered as good banks in world they must meet certain criteria detailed below: Table: 1.2. Capital Ratios Analysis Capital Adequacy Ratios 𝑻𝒊𝒆 𝑰 𝑪𝒂𝒑𝒊𝒕𝒂𝒍 + 𝑻𝒊𝒆𝒓𝑰𝑰 𝑪𝒂𝒑𝒊𝒕𝒂𝒍 𝑹𝒊𝒔𝒌 𝒘𝒆𝒊𝒈𝒉𝒕𝒆𝒅 𝒂𝒔𝒔𝒆𝒕𝒔 Debt-Equity Ratio 𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦 Equity capital to total assets 𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 3.5.0 Asset Quality The dimension of asset quality is an important factor to help the bank in understanding the risk on the exposure of the debtors. In this paper, this parameter is measured by the Non-performing loans to total loans ratio. This ratio assures to cover the bad and doubtful loans of the bank. This parameter will benefit the bank in understanding the amount of funds that reserved by the banks in the event of bad investments. Popular indicators include non-performing loans to total loan,
  • 21. 9 non-performing loans to total equity, and total investments to total assets ratios. The asset quality is estimated based upon the following key financial ratios. Table:1.3. Asset Quality Ratios NPLs to total loans 𝑵𝒐𝒏 − 𝒑𝒆𝒓𝒇𝒐𝒓𝒎𝒊𝒏𝒈 𝒍𝒐𝒂𝒏𝒔 𝑻𝒐𝒕𝒂𝒍 𝒍𝒐𝒂𝒏𝒔 NPLs to total equity 𝑁𝑜𝑛 − 𝑝𝑒𝑟𝑓𝑜𝑟𝑚𝑖𝑛𝑔 𝑙𝑜𝑎𝑛𝑠 𝑇𝑜𝑡𝑎𝑙 𝑠ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 𝐸𝑞𝑢𝑖𝑡𝑦 Total Investments to Total Assets 𝑇𝑜𝑡𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡𝑠 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 3.6.0 Management Quality Management quality reflects the management soundness of a bank. The management acts as a safeguard to operate the bank in a smooth and decent manner and is called excellence management or skilful management, whenever it controls its cost and increases productivity, ultimately achieving higher profits. Management quality is basically the capability of the board of directors and management, to identify, measure, and control the risks of an institution ‘s activities and to ensure the safe, sound, and efficient operation in compliance with applicable laws and regulations. The management quality is estimated based upon the following key financial ratios. Table:1. 4. Management Quality Ratios Total Advance to Total Deposit Ratio 𝑻𝒐𝒕𝒂𝒍 𝒍𝒐𝒂𝒏𝒔 𝑻𝒐𝒕𝒂𝒍 𝑫𝒆𝒑𝒐𝒔𝒊𝒕 Profit per Employee 𝑃𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑇𝑎𝑥 𝑁𝑜. 𝑜𝑓 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠 3.7.0 Earning Quality The quality of earnings represents the sustainability and growth of future earnings, value of a bank’s lucrativeness and its competency to maintain quality and earn consistently. Earnings and profitability are examined as against interest rate policies and adequacy of provisioning. The earning quality is estimated based upon the following key financial ratios.
  • 22. 10 Table :1.5. Earning Quality Ratios Return on Equity 𝑷𝒓𝒐𝒇𝒊𝒕 𝒂𝒇𝒕𝒆𝒓 𝑻𝒂𝒙 𝑺𝒉𝒂𝒓𝒆𝒉𝒐𝒍𝒅𝒆𝒓 𝑬𝒒𝒖𝒊𝒕𝒚 Return on Assets 𝑃𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑇𝑎𝑥 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 Cost to income Ratio 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 𝑁𝑒𝑡 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐼𝑛𝑐𝑜𝑚𝑟𝑒 − 𝑁𝑜𝑛 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 3.8.0 Liquidity Liquidity is another noteworthy factor that determines the financial performance of banks. Liquidity means the ability of the bank to fulfill its obligations, primarily of depositors. Bank can maintain adequate liquidity position either by increasing current liabilities or by converting its assets in to cash quickly. The Liquidity is estimated based upon the following key financial ratio. Table :1.6. Liquidity Ratio Liquid Assets to Total Assets 𝑳𝒊𝒒𝒖𝒊𝒅 𝑨𝒔𝒔𝒆𝒕𝒔 𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔 3.9.0 Sensitivity to Market Risk The sensitivity of the market risk is evaluated by banks through changes in interest rate, foreign exchange rates and equity prices. The changes in these variables influence bank's earning ability. So, sensitivity to market risk measures how adversely the bank is affected by such changes. The sensitivity to market risk is estimated based upon the following key financial ratio. Table :1.7. Sensitivity to Market Risk Ratio Price Earnings Ratio 𝑴𝒂𝒓𝒌𝒆𝒕 𝑽𝒂𝒍𝒖𝒆 𝒑𝒆𝒓 𝑺𝒉𝒂𝒓𝒆 𝑬𝒂𝒓𝒏𝒊𝒏𝒈𝒔 𝒑𝒆𝒓 𝑺𝒉𝒂𝒓𝒆
  • 23. 11 3.10.0 CAMELS Rating System of Bangladesh In Bangladesh, since the early nineties, the same 5 components of CAMEL have been used for evaluating the five crucial dimensions of a bank’s operations that reflect in a comprehensive fashion an institution’s financial condition, compliance with banking regulations and statutes and overall operating soundness. Recently, Bangladesh Bank has upgraded the CAMEL into CAMELS effective from June, 2006. After inserting ‘S’ or ‘sensitivity to market risk’, it is presumed that this off-site supervision technique of central bank would make it a more effective tool in rating banks. The present system requires that a bank’s condition and performance be regularly appraised according to predetermined stress testing on asset and liability and foreign exchange exposures, procedures, rules and criteria and on the basis of the results obtained through risk-based audits under core risk management guidelines. A single CAMELS rating for each bank is the result of both off-site monitoring, which uses monthly financial statement information, and an on-site examination, from which bank supervisors gather further “private information” not reflected in the financial reports. These examinations result in the development of "credit points" ranging from 0 to 100. As noted above, the six key performance dimensions - capital adequacy, asset quality, management quality, earnings, liquidity and sensitivity to market risk - are to be evaluated on a scale of 1 to 5 in ascending order. Following is a description of the graduations of rating: Rating 1 indicates strong performance: BEST rating. Rating 2 reflects satisfactory performance. Rating 3 represents performance that is flawed to some degree. Rating 4 refers to marginal performance and is significantly below average and Rating 5 is considered unsatisfactory: WORST rating.
  • 24. CHAPTER FOUR Organizations Profile 4.1.0 Brief Introduction of Prime Bank Limited 4.2.0 Brief Introduction of Dhaka Bank Limited 4.3.0 Background of Mercantile Bank Limited 4.4.0 Background of Premier Bank Limited 4.5.0 Background of Bank Asia Limited
  • 25. 12 4.1.0 Brief Introduction of Prime Bank Limited In the backdrop of economic liberalization and financial sector reforms, a group of highly successful local entrepreneurs conceived an idea of floating a commercial bank with different outlook. For them, it was competence, excellence and consistent delivery of reliable service with superior value products. Thus Prime Bank Limited a private sector commercial bank was incorporated in Bangladesh under the companies’ act 1994 and commencement of business started on 17th April 1995 with an authorized capital of Tk. 1,000 million divided into 10 million ordinary shares of Tk. 100 each. The Bank operates as a Scheduled Bank under a Banking license issued by Bangladesh Bank, the Central Bank of the country. The bank is registered with Bangladesh Securities and Exchange Commission and its shares are traded at the Dhaka and Chittagong Stock Exchanges. The sponsors are reputed personalities in the field of trade and commerce and their stake ranges from shipping to textile and finance to energy etc. As a fully licensed commercial bank, Prime Bank is being managed by a highly professional and dedicated team with long experience in banking. They constantly focus on understanding and anticipating customer needs. As the banking scenario undergoes changes so is the bank and it repositions itself in the changed market condition. Prime Bank has already made significant progress within a very short period of its existence. The bank has been graded as a top class bank in the country through internationally accepted CAMELS rating. The bank has already occupied an enviable position among its competitors after achieving success in all areas of business operation. Prime Bank offers all kinds of Commercial Corporate and Personal Banking services covering all segments of society within the framework of Banking Company Act and rules and regulations laid down by our central bank. Diversification of products and services include Corporate Banking, Retail Banking and Consumer Banking right from industry to agriculture, and real state to software. Prime Bank, since its beginning has attached more importance in technology integration. In order to retain competitive edge, investment in technology is always a top agenda and under constant focus. Keeping the network within a reasonable limit, our strategy is to serve the customers through capacity building across multi-delivery channels. Our past performance gives an indication of our
  • 26. 13 strength. We are better placed and poised to take our customers through fast changing times and enable them compete more effectively in the market they operate. 4.1.1. Organizational Structure Prime Bank maintains a strong organizational hierarchy in which every individual performs their duty very sincerely. The hierarchy of Prime Bank Limited is as follows: Figure 2.1: Organizational hierarchy Top Management Executive CommitteeChairman Board of Directors Executive Management MD AMD DMD SEVP EVP SVP VP SAVP AVP Mid Level Management FAVP SEO EO PO Junior Level SO MTO JO
  • 27. 14 4.1.2 Core business and achievements of Prime Bank Limited Success is simply a product of excellence. Prime Bank Ltd (PBL) with a slogan of 'a bank with a difference' has proved it over the years. Their efforts are focused on delivery of quality services in all areas of banking activities with the aim to add increased value to shareholders’ investment and offer highest possible benefits to their customers. Also, the bank is different from many other banks in terms of philanthropic contributions. It has spent 4 percent of its profit for corporate social responsibility in year 2011. The Prime Bank Group focuses on a wide range of banking and financial products and services that include commercial banking through both conventional and Islamic mode, merchant and investment banking. It has a big presence in SME and retail banking, credit card and off-shore banking. It plays leading role in syndicated and structured financing. It has expertise in corporate credit and trade finance and made extensive market penetration with continuous growth in corporate, commercial and trade finance sectors. The Prime Bank group has a large and well distributed branch network of 140 fully fledged branches including 18 SME or Agricultural branches and 3 Off-shore banking units. It also has more than 100 ATM booths across the country with a strong tradition of service excellence. The bank has also made its presence in Singapore through its fully owned subsidiary Prime Exchange Co. Pvt. Ltd. for facilitating inward foreign remittance to Bangladesh. Prime Bank has fully owned exchange houses in Singapore, UK and a fully owned finance company in Hong Kong to remit expatriate Bangladeshis' income into the country. To cater to customers' needs PBL has always been moving with the latest technology to strengthen its IT infrastructure. In order to retain competitive edge, investment in technology is always a top agenda and under constant focus. Keeping the network within a reasonable limit, bank's strategy is to serve the customers through capacity building across multi delivery channels. The Bank has set up a Wide Area Network (WAN) across the country to provide Online branch banking facility to its valued clients. PBL is one of the first few Bangladeshi Banks who have become member of SWIFT (Society for Worldwide Inter-bank Financial Telecommunication) in 1999 and opened up possibilities for uninterrupted connectivity with over 5,700 user institutions in 150 countries around the world.
  • 28. 15 Prime Bank obtained Principal Membership of Master-Card International in the month of May 1999 and launched Master Card-Credit Card which created a new dimension in its customer service and consumer financing. The special feature of the Prime Bank Master Card is that it bears the card holder's photo on the card, which is the first of its kind in Bangladesh and adds security against misuse. Prime Bank issues few types of cards like Gold Local & International and Silver Local & International. Local cards can be used in Bangladesh only. 4.1.3 Some Specific Banking Offerings Online Banking and Internet Banking facilities All the 140 branches of the Bank are providing online banking facilities through its core banking system namely “Temenos T24”. Fund Transfer to Other bank’s Accounts through BEFTN has been made available through Online Banking for the Consumer Banking Customers. As a result, customers can execute fund transfer through paperless and automated Online Banking over internet to any other account in Bangladesh. Prime Bank Limited has also offered a safe and convenient Internet Banking, which is to accessible 24/7. By using real-time internet banking our customers can avail the services like Balance enquiry, View account statement, View loans & deposit of their own, Mobile & Utility Bill Payment. Automated Teller Machine (ATM) In addition to the Bank’s own 160 ATMs, the Bank has joined National Payment Switch Bangladesh (NPSB) network during the year 2014, which enabled the Debit Cardholders of the Bank to enjoy cash withdrawal facility from other ATMs under NPSB Network. Prime Bank has used the BACH and BEFTN mechanism for convenient payment activities which to a great extent supports the concept of green banking. SMS Banking facilities Prime Bank also offers SMS Banking services to ensure instant access to customers’ account information at any time. Any mobile phone user having account of Prime Bank can get the service through their mobile phone upon subscribing. By using SMS banking our customers can avail the services like Balance Enquiry, Mini Statement, Exchange Rate, and PIN Change.
  • 29. 16 Biometric Smart Card based alternate banking service Prime Bank Limited in collaboration with Dipon Consultancy Services introduced a Biometric Smart Card based alternate banking service in the brand name “Prime Cash” for the unbanked rural and urban people to address their banking and payment needs. Most importantly, it will provide a fast, safe and simple mechanism for the un-banked men/women across Bangladesh in all municipalities and upazilas. The services that can be obtained through Prime Cash are: Account Opening, Deposit, Withdrawal, Local Money Transfer, Inward Foreign Remittance, DPS, Prime Bank ATM Facility, Mobile Recharge, Salary Disbursement, Balance Inquiry, and Mini Statement. Cash Back Service Cash Back Service allows the debit cardholders of the Bank to meet instant requirement of cash through POS terminals of selected merchant points while shopping. Cash Back service meets instant requirement of cash which ultimately increase customer satisfaction. 4.1.4 Functional Structure of Prime Bank Ltd. Prime Bank Limited has the following functional departments in its Head Office. 1. Financial Administration Division (FAD) 2. Credit Division 3. International Division 4. Information Technology (IT) Division 5. Public Relations Division 6. Marketing Division 7. Human Resources Division 8. Inspection and Audit Division 9. Credit Card Division 10. Merchant Banking and Investment Division 11. Facility Management Division (FMD)
  • 30. 17 4.2.0 Brief Introduction of Dhaka Bank Limited Dhaka Bank Limited (DBL) started its commercial operation on July 05, 1995. Since its incorporation, DBL has proved itself as a true development partner of the Government in developing the national economy by providing efficient banking services to different sectors of the economy. The bank has stood out for its financial strength and operational craftsmanship marking its position as the potential market player in all core areas of banking in the country. It got listed in DSE and CSE in 2000. Alongside a lasting bond with the corporate world, DBL has got hold of a countrywide reach through a larger network of Branches, ATMs, SME channels, agricultural outreach and mobile banking. DBL has made its vibrant presence at 87 locations including 2 Islamic Banking Branches; and 1 Offshore Banking Unit, 3 SME Service Centers, 1 Business Kiosk and 53 ATMs & 19 ADMs across the country. Catering to the needs of Capital Markets, the Bank has established a subsidiary company named ‘DBL Securities Ltd.’ having 6 countrywide Branches. The Bank offers the full range of banking and investment services for personal and corporate customers, backed by the latest technology and a team of highly motivated officers and staff. The Bank has launched Online Banking services (i-Banking), joined a countrywide shared ATM network and has introduced a co-branded credit card. A process is also underway to provide e- business facility to the bank's clientele through Online and Home banking solutions. Some important facts about Dhaka Bank Limited are given below: Date of Incorporation : April 06, 1995. Registered Office : Biman Bhaban, 100 Motijheel C/A, Dhaka First Branch : Local Office, Adamjee Court, Motijheel, Dhaka Enlisted as Public Limited Co. : 1998 Capital Structure at Formation Authorized Capital : BDT 600 Crore Paid up capital : BDT 266 Crore
  • 31. 18 4.2.1 Management Hierarchy of Dhaka Bank Ltd The Managing director heads the management team of Dhaka Bank Limited. Several management committees have been formed to handle the banking operation and identifying and managing risk. The committees are MANCOM, ALCO. As per Bangladesh Bank’s instruction “BASEL II Implementation team” has been formed which will be responsible for proper implementation of BASEL II capital adequacy guidelines in the Bank. The guidelines have been issued Bangladesh Bank recently but the target date for the implementation was 31st November, 2009. Figure 2.2: Organizational hierarchy
  • 32. 19 4.2.2 Products and Services Dhaka Bank Limited has a wide range of products and services in its assortment. These value based products are very much contemporary and standardized. Its main products and services are described briefly next:1.2.1 Retail Banking DBL is a leading bank in the countries consumer banking arena. Emphasis on customer service, product innovation, asset quality and brand building are the cornerstones of the Retail Banking strategy. The major products and services of Retail Banking include: Corporate Banking Providing a tailored solution is the essence of Corporate Banking services of DBL. Dhaka Bank recognizes that Corporate Customers' needs vary from one to another and a customized solution is critical for the success of their business. Dhaka Bank offers a full range of tailored advisory, financing and operational services to its corporate client groups combining trade, treasury, investment and transactional banking activities in one package. Trade Finance Dhaka Bank Limited (DBL) started it trade operations in 1995 and all the trade activities were carried out by DBL’s 15 (fifteen) Authorized Dealer (AD) Branches. In the year 2009, DBL established the Central Processing Center (CPC) at BGMEA Bhaban, Karwanbazar, Dhaka and Agrabad, Chittagong. Import Finance DBL undertakes Import Finance in the form of both pre-import and post-import finance. These two categories of import finances include: Liability Products Asset Products Services Savings Bundled Product Car Loan Internet Banking Deposit Pension Scheme Home Loan SMS Banking Special Deposit Scheme Personal Loan Locker Deposit Double Scheme Vacation Loan ATM & VISA Credit Card
  • 33. 20  Letter of Credit  Performance Bonds & Other Guarantees  Loan against Trust Receipt (LTR) Export Finance Like import trade, DBL advances in export trade at both pre-shipment and post-shipment shipment stages. The pre-shipment facilities are usually required to finance the costs to execute export orders, such as: procuring & processing of raw materials, packaging and transportation, payment of various fees and charges including insurance premium etc. The facilities under both the categories are:  Export Letter of Credit Advising  Back to Back LC  Export Bills for Collection  Packing Credit  Foreign Documentary Bill Purchased (FDBP)  Inland Documentary Bills Purchased (IDBP)  Export Development Fund (EDF) SME Small and Medium Enterprises (SMEs) are the ‘engines of growth’ in almost all the emerging economies of the globe. Banking to the SMEs can be termed as banking to the ‘unbanked’, as many is yet to receive bank finances to ensure greater business development. DBL signed a new refinancing deal on ‘Solar Energy’, Solar panel assembling plant and ETP with Bangladesh Bank. Remittance DBL has already started payment of remittance through two renowned NGO of Bangladesh- PAGE and PADAKHEP MANOBIK UNNOYON KENDRO, which added 250 distribution centers. It is also a member of EL-DORADO which is a 9-bank Elite Network for remittance distribution facility. It has already introduced Mobile remittance disbursement partnering with Banglalink.
  • 34. 21 4.3.0 Background of Mercantile Bank Limited Mercantile Bank Limited was established in June 2, 1999 as a private commercial bank and started its operation. The then Prime Minister Sheikh Hasina inaugurated the bank. The renowned 30 industrialists establish this bank with everybody’s consent. Mr. Abdul Jalil elected as the chairman. Mercantile Bank Limited is a private commercial bank with Head Office at 61, Dilkusha C/A, Dhaka, Bangladesh started operation on 2nd June 1999. The Bank has 93 branches spread all over the country and introducing some braches. With assets of TK. 155143.746 million, the bank has diversified activities that cover all the areas of corporate/commercial, retail/personal, SME banking business and international trade. Mercantile Bank is playing an important role while giving loan for the small and medium enterprises. In the terms of credit mercantile bank has introduced new schemes mostly for the business people in Bangladesh. Different categories of loan been provided to the businessman. Total loans and advances of the Bank stood at BDT 93,610.87 million as on December 31, 2012 its main investing projects are business, garments, micro credit, construction and others. Consumer Credit Scheme: Mercantile Bank has been providing loan to medium and low-income peoples. This policy has gained a great popularity among consumers. MBL is working with the slogan of "efficiency is our strength" and their logo contains a dialogue “Banglar Bank” 4.3.1 Organizational Structure of MBL The organization structure and corporate of Mercantile Bank Limited (MBL) strongly reflect its determination to establish, uphold and gain a stronger footing as an organization which is customer-oriented and transparent in its management.
  • 35. 22 Figure 2.3: Organizational hierarchy Senior Vice President Head of Branch Vice President Manager Operation Assistant Vice Assistant Vice Assistant Vice Foreign Exchange Credit Department General Banking First AVP Principle Officer Principle Officer Principle Officer Senior Executive Senior Executive Officer Officer Senior Executive Executive Officer Executive Officer Officer Executive Officer Officer Officer Assistant Officer Trainee Assistant Officer 4.3.2 Product and Services MBL has launched a number of financial products and services since its inception. Among these, Monthly Savings Scheme, Double Benefit Deposit Scheme, Quarterly Benefit Deposit Scheme, 1.5 Times Benefit Deposit Scheme, Advance Benefit Deposit Scheme, Consumer Credit Scheme, Small Loan Scheme, Lease Finance Scheme, Overseas Employment Loan Scheme, Car Loan Scheme, Home Loan Scheme and SME Loan have received wide acceptance among the people.
  • 36. 23 Deposits Loan Cards - Current Deposit Account - Saving Deposit Account - Fixed Deposit Account - Double Benefit Deposit Scheme - Mashik Sanchay Prakalpa - Quarterly Benefit Deposit Scheme - 1.5 times Benefit Deposit Scheme - Advance Benefit Deposit Scheme - Special Savings Scheme - School Banking -Educational Planning Deposit Scheme -Consumer credit scheme -Doctor credit scheme -Rural planning scheme -Lease Financing -Any purpose loan -Educational loan -Car loan -Home loan -Dual card -Debit Card -Prepaid Card Supplementary Card -Visa Card 4.3.4 Function of MBL Mercantile Bank Limited performs all types of functions of a modern commercial bank, which generally includes flowing- Mobilization of savings of the people and safe keeping of all types of deposit account. Making advances especially for productive activities and for the other commercial and socio-economic needs. Providing banking services to common people through the branches. Introduce modern Banking services in the country. Discounting and purchasing bills. Finance for both capital machinery and working capital. Finance under small business of self-employed clients. Finance of farming and non-farming activities to rural people including purchase of agricultural equipment’s. Developing new products Market surveys before making any finance. Finance for small transport. Monitoring and forecasting. Developing marketing campaigns. Finance for household durables. Work simplification studies.
  • 37. 24 4.4.0 Background of Premier Bank Limited The Premier Bank Limited (PBL) is the leading private bank in Bangladesh. It is a scheduled bank, which is incorporated in Bangladesh as banking company on June 10, 1999 under Companies Act.1994. It has created a new way of its own banking area of Bangladesh in terms of providing service to customer and value addition to its stakeholders. 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. Within short period of time, the bank has been successful in positioning itself as progressive and dynamic financial institution in our country. The bank is now widely operated by the business community from small entrepreneurs to big merchant and multinational because of modern and innovative ideas and financial solution. Now it has opened 92 branches in different areas of the country. 4.4.1 Management Hierarchy of Premier Bank Figure 2.4: Organizational hierarchy
  • 38. 25 4.4.2 Products and Services of the bank Premier Bank is always conscious of the changing needs of the customers and strive to develop new and improved services for its valued customers. Bank offers various Deposits and Lending Products & Services to meet all kinds of financial needs of our customers. Deposit Products Lending Products  Monthly Savings Scheme (MSS)  Monthly Income Scheme (MIS)  Education Savings Scheme (ESS)  Special Deposit Scheme (SDS)  Fixed Deposit (FD)  Saving Account (SB)  Current Account (CD)  Corporate Savings Account (SB)  Short Term Deposit Account (STD)  RFCD/ NFCD Account  Consumer Credit Scheme  Rural Credit Scheme  Student Credit Programme  Special Credit Scheme on RMG  Doctor’s Loan  Lease Finance  SME Finance  Hire Purchase  Trade Finance  Working Capital Finance  Project Finance  Finance for Agro processing Industry 4.4.3 Functions of the Bank  Commercial banking service including collection of deposit, short term trade finance, working capital finance in processing and manufacturing units and financing and facilitating trade  Term loans and working capital loans to industries.  Loans to Small and Medium Enterprises (SMEs).
  • 39. 26 4.5.0 Background of Bank Asia Limited Bank Asia Ltd is one of the leading private sector commercial banks in Bangladesh. As we all know that achievement of high economic growth is the basic objective of the present economic policy of Bangladesh government. To achieve this objective, the banking sector plays an important role. Bank Asia Limited is one of the banks. It is a new entrant in the private banking scenario of Bangladesh. It also operates in Bangladesh for a long time as a country’s one of the good bank. Bank Asia Limited conducts all types of commercial banking activities. The core service or business comprises of Import/Export finance, Working capital finance and corporate finance. Foreign trade operation is one of the most important activities of the bank. It helps corporate clients build their businesses by providing financial and strategic advice and products. Foreign trade contains Import and Export section and foreign remittance department contains inward and outward remittance. Bank Asia started its journey on November 27, 1999 with an aim to be fully customer focused through rendering technology driven innovative products and services. The Bank obtained Certificate of Incorporation and Certificate of Commencement of Business on September 28, 1999 and banking license on October 06, 1999. Subsequently the Bank was listed with Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) on January 06, 2004. Since inception Bank Asia is working efficiently and achieving a strong prominent position in banking sector. By this time Bank Asia has consolidated its strength manifold through extending its business rapidly while ensuring sustainable growth. Bank Asia started its most cherished Islamic banking operation in 2008 for providing strict Shariah based products. It established its 1st subsidiary company named “Bank Asia Securities Limited” on March 16, 2011 and another subsidiary company “BA Exchange Company (UK) Limited” in United Kingdom in the same year. Now the Bank is rendering services through its 107 Branches, 7 Islamic Windows, 10 SME Service Centers, 1 Off-shore Banking Unit, and 2 Subsidiary companies.
  • 40. 27 4.5.1 Management Hierarchy of Dhaka Bank Figure 2.1: Organizational hierarchy 4.5.2 Products and Services of the bank i) Business Banking  Overdraft  Secured Overdraft  Secured OD (Earnest Money)  Working capital finance  Loan against Trust Receipt  Loan against Cash Incentives  Bill discounting
  • 41. 28  Loan Syndication and structured Finance  Packing Credit  Demand Loan  Demand Loan (work order)  Time Loan  Transport Loan  House Building Loan  Term loan  Lease Finance  Letter of Guarantee  Letter of Credit  Back to back Letter of Credit ii) Small and Medium Enterprise (SME) a) Term Loan  Subidha -Unsecured Trading  Sondhi -Secured Trading  Sristi – Unsecured Manufacturing  Shombridhi- Secured Manufacturing  Shofol – Unsecured Service  Sheba- Secured Service 4.5.3 CSR Functions of the Bank Bank Asia has been conscious of corporate social responsibility from the very beginning of its operation in 1999. The Bank looks beyond short-term quantitative gains and concentrates on issues which make the financial institution socially responsible and thus expects a sustainable balanced growth. Bank Asia has three major CSR programs. These are as follows: o Higher Study Scholarship o Ophthalmological Operation o Operating Computer Learning Center.
  • 42. CHAPTER FIVE Data Analysis and Interpretation of Camels rating 5.1.0 Capital Adequacy 5.2.0 Assets Quality 5.3.0 Management Quality 5.4.0 Earning Quality 5.5.0 Liquidity 5.6.0 Sensitivity to Market Risk 5.7.0 Composite Ranking
  • 43. 29 5.0.0 Financial Analysis We have chosen the CAMELS Model for Financial analysis purpose. It measures the performance of the banks from each parameter i.e. Capital, Assets, Management, Earnings, Liquidity and Sensitivity to Market risks. CAMELS evaluate banks on the following six parameters 5.1.0 Capital Adequacy It is important for a bank to maintain depositors’ confidence and preventing the bank from going bankrupt. It reflects the overall financial condition of banks and also the ability of management to meet the need of additional capital. The following ratios measure capital adequacy: 5.1.1 Capital Adequacy Ratio (CAR): Capital adequacy ratio focuses on the total position of banks' capital and the protection of depositors and other creditors from the potential losses that a bank might incur. It helps absorbing all possible financial risks related to credit, market, operation, interest rate and liquidity etc. Bank Capital Adequacy Ratio 2013 2014 2015 Average Rank Premier Bank 11.46% 13.31% 9.11% 12.29% 2 Bank Asia 11.05% 11.32% 13.31% 11.89% 4 Dhaka Bank 12.18 11.20% 10.46% 11.28% 5 Mercantile Bank 11.43% 12.95% 11.87% 12.08% 3 Prime bank 12.04% 12.71% 12.74% 12.49% 1 Table:3.1 (Source: Annual Report 2015) 9.11% 13.31% 11.46% 13.31% 11.32% 11.05% 10.46% 11.20% 12.18% 11.84% 12.95% 11.43% 12.74% 12.71% 12.04% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 2015 2014 2013 Capital Adequacy Premier Bank Bank Asia Dhaka Bank Mercantile Bank Prime bank
  • 44. 30 11.36 11.01 9.53 10.82 9.84 10.2 11.94 11.47 10.13 9.27 8.72 9.51 11.7 10.61 10.43 2015 2014 2013 DEBT-EQUITY RATIO Premier Bank Bank Asia Dhaka Bank Mercantile Bank Prime bank Comment: From the above table and charts, it is found that capital adequacy ratio of following banks is increasing and decreasing over the years. The capital adequacy of Premier Bank was 9.11% in 2015 which is lower than the required rate of 10%. Besides, Bank Asia capital adequacy increased from 11.05% to 13.31% and Dhaka Bank capital adequacy little bit decreased which 10.46% in 2015 and it is comparatively good position than Premier Bank and Mercantile Bank capital adequacy ratio fluctuating year to year and at last Prime bank CAR shows positive trends. Average capital adequacy ratio is finds that Prime bank ranked on the top position with highest CAR of 12.49 followed by Premier Bank of 12.29, Mercantile Bank of 12.08. and Dhaka Bank scored the lowest position. 5.1.2 Debt-Equity Ratio This ratio represents the degree of leverage of a bank. It shows how much proportion of the bank business is financed through equity and how much through debt. Bank Debt-Equity Ratio 2013 2014 2015 Average Rank Premier Bank 9.53 11.01 11.36 10.63 3 Bank Asia 10.20 9.84 10.82 10.28 2 Dhaka Bank 10.13 11.47 11.94 11.18 5 Mercantile Bank 9.51 8.72 9.27 9.16 1 Prime bank 10.43 10.61 11.70 10.91 4 Table:3.2 (Source: Annual Report 2015)
  • 45. 31 Comment: In above table, Mercantile Bank is on the top position with least average of 9.16 followed by Bank Asia of 10.28 and Premier Bank of 10.63. on second and third positions respectively. Dhaka Bank scored the lowest position with least percentage of 11.18. 5.1.3 Equity to Total Assets The Equity Ratio measures the proportion of the total assets that are financed by stockholders, as opposed to creditors. A low equity ratio will produce good results for stockholders as long as the company earns a rate of return on assets that is greater than the interest rate paid to creditors. Bank Equity to Total Assets 2013 2014 2015 Average Rank Premier Bank 8.97% 8.01% 7.79% 8.25% 4 Bank Asia 8.92% 9.22% 8.45% 8.86% 2 Dhaka Bank 8.23% 8.02% 7.59% 7.94% 5 Mercantile Bank 8.68% 8.02% 8.48% 8.39% 3 Prime bank 9.44% 9.59% 10.47% 9.83% 1 Table: 3.3 (Source: Annual Report 2015) Comment: From the above table and charts, it is finds that equity to total assets ratio is fluctuating or increasing and decreasing over the years. The equity to total assets ratio of Premier Bank was 8.97% in 2013 which was decreased to 7.83% in 2015. Besides, Bank Asia equity to total assets ratio increased 9.22% in 2014 but 2015 it ratio is 8.45% and Dhaka Bank and Mercantile Bank 7.83% 8.07% 8.97% 8.45% 9.22% 8.45% 7.59% 8.02% 8.23% 8.48% 8.02% 8.68% 10.47% 9.59% 9.44% 2015 2014 2013 EQUITY TO TOTAL ASSETS Premier Bank Bank Asia Dhaka Bank Mercantile Bank Prime bank
  • 46. 32 equity to total assets little bit decreased in 2015 but Mercantile Bank equity to total assets ratio is 10.47% in 2015 which is good position than others four banks. In table 3.3, Average equity to total assets ratio is finds Prime bank is on the top position with highest average of 9.83% followed by Bank Asia of 8.70% and Mercantile Bank of 8.39% on second and third positions respectively. Dhaka Bank scored the lowest position with least percentage of 7.94%. 5.1.4 Composite Capital Adequacy On the basis of group averages of two ratios of capital adequacy as expressed in table Bank Capital Adequacy Ratio Debt-Equity Ratio Equity to Total Assets Group Rank Average Rank Average Rank Average Rank Average Rank Premier Bank 12.29% 2 10.63 3 8.25% 4 3.00 4 Bank Asia 11.89% 4 10.28 2 8.86% 2 2.67 3 Dhaka Bank 11.28% 5 11.18 5 7.94% 5 5.00 5 Mercantile Bank 12.08% 3 9.16 1 8.39% 3 2.33 2 Prime bank 12.49% 1 10.91 4 9.83% 1 2.00 1 Table:3.4 Analysis and Interpretation: On the basis of group averages of three sub-parameters of capital adequacy, Prime bank was at the top position with group average of 2.00, followed by Mercantile Bank of 2.33 and Bank Asia of 2.67 on second and third positions respectively. Dhaka Bank stood at the least position due to its poor performance in CAR, debt-equity ratio and also due equity to total assets. 5.2.0 Assets Quality The quality of assets is an important parameter to gauge the strength of bank. The ratios necessary to assess the assets quality. The most important indicator intends to identify problems with asset quality in the loan portfolio is the ratio of gross nonperforming loan to total loan.
  • 47. 33 5.2.1 NPLs to Total Loans: A nonperforming loan is either in default or close to being in default. This ratio represents the proportion of bad loans over total loans. This ratio discloses the efficiency of bank in assessing the credit risk and, to an extent, recovering the debts. Bank NPLs to total loans 2013 2014 2015 Average Rank Premier Bank 5.73% 9.00% 6.64% 7.12% 5 Bank Asia 5.60% 5.31% 4.26% 5.05% 3 Dhaka Bank 4.15% 5.49% 4.66% 4.74% 1 Mercantile Bank 4.77% 5.10% 4.95% 4.94% 2 Prime Bank 5.09% 7.61% 7.82% 6.84% 4 Table:3.5 (Source: Annual Report 2015) Comment: In table 3.5, Dhaka Bank is on the top position with least average of 4.74% followed by Mercantile Bank of 4.94% and Bank Asia of 5.05% on second and third positions respectively. Premier Bank scored the lowest position with highest percentage of 7.12%. 6.64% 9.00% 5.73% 4.26% 5.31% 5.60% 4.66% 5.49% 4.15% 4.95% 5.10% 4.77% 7.82% 7.62% 5.09% 2015 2014 2013 NPLS TO TOTAL LOANS Premier Bank Bank Asia Dhaka Bank Mercantile Bank Prime bank
  • 48. 34 5.2.2 Total Investments to Total Assets (TI/TA): It indicates the extent of deployment of assets in investment as against advances. Table:3.6 (Source: Annual Report 2015) Comment: From the above table and charts, it is found that total investments to total assets ratio is fluctuating or increasing and decreasing over the years. In table 3.6, Dhaka Bank is on the top position with least average of 12.39% followed by Mercantile Bank of 19.45% and Premier Bank of 19.89% on second and third positions respectively. Prime bank scored the lowest position with highest percentage of 26.90%. Bank Total Investments to Total Assets 2013 2014 2015 Average Rank Premier Bank 22.51% 18.58% 18.58% 19.89% 3 Bank Asia 20.71% 21.16% 20.92% 20.90% 4 Dhaka Bank 12.98% 12.40% 11.79% 12.39% 1 Mercantile Bank 20.77% 19.10% 18.50% 19.45% 2 Prime bank 23.34% 28.49% 24.87% 26.90% 5 18.58% 18.58% 22.51% 20.92% 21.16% 20.71% 11.79% 12.40% 12.98% 18.50% 19.10% 20.77% 24.87% 28.49% 23.34% 2015 2014 2013 Total Investments to Total Assets Prime bank Mercantile Bank Dhaka Bank Bank Asia Premier Bank
  • 49. 35 5.2.3 Composite Asset Quality Bank NPLs to total loans Total Investments to Total Assets Group Rank Average Rank Average Rank Average Rank Premier Bank 7.12% 5 19.89% 3 4 4 Bank Asia 5.05% 3 20.90% 4 3.5 3 Dhaka Bank 4.74% 1 12.39% 1 1 1 Mercantile Bank 4.94% 2 19.45% 2 2 2 Prime bank 6.84% 4 26.90% 5 4.5 5 Table:3.7 (Source: Annual Report 2015) Analysis and Interpretation: On the basis of group averages of two ratios of assets quality as expressed in table 3.7, Dhaka Bank was at the first position with group average of 1, followed by Mercantile Bank of 2 and Bank Asia of 3.5. Prime bank scored the lowest position with 4.5 rank due to its poor performance in net NPLs to total loans and total investments to total assets ratios. 5.3.0 Management Quality Management efficiency is another important element of the CAMELS Model. The ratio in this segment involves subjective analysis to measure the efficiency and effectiveness of management. The ratios used to evaluate management efficiency are described as:
  • 50. 36 5.3.1 Credit Deposit Ratio (TA/TD): This ratio indicates how much of a bank's core funds are being used for lending, the main banking activity. A higher ratio indicates more reliance on deposits for lending and vice-versa. Bank Credit Deposit Ratio 2013 2014 2015 Average Rank Premier Bank 70.76% 77.21% 83.87% 77.28% 4 Bank Asia 78.59% 82.92% 80.31% 80.60% 3 Dhaka Bank 84.22% 81.26% 84.74% 83.40% 1 Mercantile Bank 77.02% 83.33% 81.58% 80.64% 2 Prime bank 76.07% 71.94% 77.95% 75.32% 5 Table:3.8 (Source: Annual Report 2015) Comment: From the above table and charts, it is finds that credit deposit ratio ratio is fluctuating or increasing and decreasing over the years. In table 3.8, Dhaka Bank is on the top position with highest average of 83.40% followed by Mercantile Bank of 80.64% and Bank Asia of 80.60% on second and third positions respectively. Prime bank scored the lowest position with least percentage of 75.32%. 83.87% 77.21% 70.76% 80.31% 82.92% 78.59% 84.74% 81.26% 84.22% 81.58% 83.33% 77.02% 77.95% 71.94% 76.07% 60.00% 65.00% 70.00% 75.00% 80.00% 85.00% 90.00% 2015 2014 2013 Credit Deposit Ratio Premier Bank Bank Asia Dhaka Bank Mercantile Bank Prime bank
  • 51. 37 5.3.2 Profit per Employee: It is calculated by dividing the profit after tax earned by the bank with the total number of employees. The higher the ratio, higher is the efficiency of the management and vice versa. Bank Profit per Employee 2013 2014 2015 Average Rank Premier Bank 1.19 1.34 1.43 1.32 5 Bank Asia 3.38 3.26 3.27 3.30 1 Dhaka Bank 2.10 2.14 2.30 2.18 3 Mercantile Bank 2.35 2.25 1.86 2.15 4 Prime bank 2.76 2.15 2.01 2.30 2 Table:3.9 (Source: Annual Report 2015) Comment: In table 3.9, Profit per Employee of Bank Asia is on the top position with highest average of 3.30 followed by Prime bank of 2.30 and Dhaka Bank of 2.81 on second and third positions respectively. Premier Bank scored the lowest position with least percentage of 1.32. 0 0.5 1 1.5 2 2.5 3 3.5 2015 2014 2013 1.43 1.34 1.19 3.27 3.26 3.38 2.3 2.14 2.1 1.86 2.25 2.35 2.01 2.15 2.76Profit per Employee Premier Bank Bank Asia Dhaka Bank Mercantile Bank Prime bank
  • 52. 38 5.3.3 Composite Management Efficiency: Bank Credit Deposit Ratio Profit per Employee Group Rank Average Rank Average Rank Average Rank Premier Bank 77.28% 4 1.32 5 4.5 4 Bank Asia 80.60% 3 3.30 1 2.00 1 Dhaka Bank 83.40% 1 2.18 3 2.00 1 Mercantile Bank 80.64% 2 2.15 4 3.00 2 Prime bank 75.32% 5 2.30 2 3.50 3 Table:3.10 (Source: Annual Report 2015) Analysis and Interpretation: On the basis of group averages of two ratios of management quality as expressed in table 3.10, Dhaka Bank and Bank Asia was at the first position with group average of 1, followed by Mercantile Bank of 2. Premier Bank scored the lowest position with 4 rank due to its poor performance in credit deposit ration and Profit per employee ratios. 5.4.0 Earning Quality The quality of earnings is a very important criterion that determines the ability of a bank to earn consistently. It basically determines the profitability of bank and explains its sustainability and growth in earnings in future. The following ratios explain the quality of income generation.
  • 53. 39 5.4.1 Return on Equity: It is a measure of the profitability of a bank. In calculation of this ratio, Profit after tax is expressed as a percentage of equity. Bank Return on Equity(%) 2013 2014 2015 Average Rank Premier Bank 9.84% 9.75% 9.39% 9.66% 4 Bank Asia 10.55% 14.09% 14.36% 13.00% 2 Dhaka Bank 16.21% 15.92% 10.74% 14.29% 1 Mercantile Bank 16.84% 9.11% 9.60% 11.85% 3 Prime bank 8.35% 10.08% 8.41% 8.94% 5 Table:3.11 (Source: Annual Report 2015) Comment: In table 3.11, Return on equity of Dhaka Bank is on the top position with highest average of 14.29% followed by Bank Asia of 13.00% and Mercantile Bank of 11.85% on second and third positions respectively. Prime Bank scored the lowest position with least percentage of 8.94%. 0.00% 5.00% 10.00% 15.00% 20.00% 2015 2014 2013 9.39% 9.75% 9.84% 14.36% 14.09% 10.55% 10.74% 15.92% 16.21% 9.60% 9.11% 16.84% 8.41% 10.08% 8.35% Return on Equity(%) Premier Bank Bank Asia Dhaka Bank Mercantile Bank Prime bank
  • 54. 40 5.4.2 Return on Assets: Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using it assets to generate earning. Bank Return on Assets (%) 2013 2014 2015 Average Rank Premier Bank 0.87% 0.87% 0.79% 0.84% 5 Bank Asia 0.96% 1.28% 1.26% 1.16% 2 Dhaka Bank 1.39% 1.34% 0.86% 1.19% 1 Mercantile Bank 1.33% 0.76% 0.79% 0.96% 3 Prime bank 0.76% 0.96% 0.84% 0.85% 4 Table:3.12 (Source: Annual Report 2015) Comment: In table 3.12, Return on Assets of Dhaka Bank is on the top position with highest average of 1.19% followed by Bank Asia of 1.16% and Mercantile Bank of 0.96% on second and third positions respectively. Premier Bank scored the lowest position with least percentage of 0.84%. 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% 2015 2014 2013 0.79% 0.87% 0.87% 1.26% 1.28% 0.96% 0.86% 1.34% 1.39% 0.79% 0.76% 1.33% 0.84% 0.96% 0.76% Return on Assets (%) Premier Bank Bank Asia Dhaka Bank Mercantile Bank Prime bank
  • 55. 41 5.4.3 Cost to Income Ratio/ Efficiency Ratio: Cost-to-income ratio is important for determining the profitability of a bank. The ratio gives a clear view of how efficiently the bank is being run - the lower the ratio, the more profitable the bank. Bank Cost to Income Ratio 2013 2014 2015 Average Rank Premier Bank 64.64 64.14 63.20 64.00 5 Bank Asia 36.53 40.34 41.84 39.57 1 Dhaka Bank 42.38 44.47 47.77 44.87 2 Mercantile Bank 41.66 44.84 50.46 45.65 3 Prime bank 41.98 48.29 51.08 47.11 4 Table:3.13 (Source: Annual Report 2015) Comment: In table 3.13, Cost to income ratio of Bank Asia is on the top position with least average of 39.57 followed by Dhaka Bank of 44.87 and Mercantile Bank of 45.65 on second and third positions respectively. Premier Bank scored the lowest position with highest average of 64.00. 0 10 20 30 40 50 60 70 2015 2014 2013 63.2 64.14 64.64 41.84 40.34 36.53 47.77 44.47 42.38 50.46 48.84 41.66 51.08 48.29 41.98 Cost to Income Ratio Premier Bank Bank Asia Dhaka Bank Mercantile Bank Prime bank
  • 56. 42 5.4.4 Composite Earning Quality: Bank Return on Equity(%) Return on Assets (%) Cost to Income Ratio Group Rank Average Rank Average Rank Average Rank Average Rank Premier Bank 9.66% 4 0.84% 5 64.00 5 4.66 5 Bank Asia 13.00% 2 1.16% 2 39.57 1 1.66 2 Dhaka Bank 14.29% 1 1.19% 1 44.87 2 1.33 1 Mercantile Bank 11.85% 3 0.96% 3 45.65 3 3.00 3 Prime bank 8.94% 5 0.85% 4 47.11 4 4.33 4 Table:3.14 (Source: Annual Report 2015) Analysis and Interpretation: On the basis of group averages of three ratios of earning quality as expressed in table 3.14, Dhaka Bank was at the first position with group average of 1.33 followed by Bank Asia of 1.66 and Mercantile Bank of 3.00 on second and third positions respectively. Premier Bank scored the lowest position with 4.66 average due to its poor performance in return on assets and cost to income ratio. 5.5.0 Liquidity Risk of liquidity can have an effect on the image of bank. Liquidity is a crucial aspect which reflects bank’s ability to meet its financial obligations. An adequate liquidity position means a situation, where organization can obtain sufficient liquid funds, either by increasing liabilities or by converting its assets quickly into cash.
  • 57. 43 5.5.1 Liquid Assets to Total Assets: This ratio measures the overall liquidity position of the bank. The liquid assets include cash in hand, money at call and short notice, balance with other banks and financial institutions (Home and Abroad). Bank Liquid Assets to Total Assets(%) 2013 2014 2015 Average Rank Premier Bank 6.14% 12.14% 7.59% 8.62% 2 Bank Asia 6.71% 6.56% 10.84% 8.03% 4 Dhaka Bank 10.29% 14.41% 14.21% 12.97% 1 Mercantile Bank 7.80% 8.07% 9.86% 8.57% 3 Prime bank 7.63% 7.47% 7.89% 7.66% 5 Table:3.15 (Source: Annual Report 2015) Comment: In table 3.15, liquid assets to total assets ratio of Dhaka Bank is on the top position with highest average of 12.97 followed by of Premier Bank of 8.62% and Mercantile Bank of 8.57% on second and third positions respectively. Premier Bank scored the lowest position with least percentage of 7.66%. 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 2015 2014 2013 7.59% 12.14% 6.14% 10.84% 6.56% 6.71% 14.21% 14.41% 10.29% 9.86% 8.07% 7.80% 7.89% 7.47% 7.63% Liquid Assets to Total Assets(%) Premier Bank Bank Asia Dhaka Bank Mercantile Bank Prime bank
  • 58. 44 5.6.0 Sensitivity to Market Risk The sensitivity of the market risk is evaluated by banks through changes in interest rate, foreign exchange rates and equity prices. sensitivity to market risk measures how adversely the bank is affected by such changes. 5.6.1 Price Earnings Ratio: The Price Earnings ratio gives an idea of what the market is willing to pay for the company’s earnings. The higher the Price Earnings ratio the more the market is willing to pay for the company’s earnings. Bank Price earnings ratio (times) 2013 2014 2015 Average Rank Premier Bank 7.12 6.33 5.24 6.23 5 Bank Asia 12.04 5.74 5.38 7.72 2 Dhaka Bank 5.28 5.13 8.57 6.32 4 Mercantile Bank 5.57 8.52 5.68 6.59 3 Prime bank 14.57 8.43 8.71 10.57 1 Table:3.16 (Source: Annual Report 2015) Comment: In table 3.15, Price earnings ratio of Prime bank is on the top position with highest average of 10.57 followed by Prime bank of 7.72 and Mercantile Bank of 6.59 on second and third positions respectively. Premier Bank scored the lowest position with least percentage of 6.23. 0 2 4 6 8 10 12 14 16 2015 2014 2013 5.24 6.33 7.12 5.38 5.74 12.04 8.57 5.13 5.28 5.68 8.52 5.57 8.71 8.43 14.57 Cost to Income Ratio Premier Bank Bank Asia Dhaka Bank Mercantile Bank Prime bank
  • 59. 45 5.7.0 Composite Ranking (Overall Performance) Bank C A M E L S Average Rank Premier Bank 4 4 4 5 5 5 4.5 5 Bank Asia 3 3 1 2 3 2 2.33 2 Dhaka Bank 5 1 1 1 1 4 2.16 1 Mercantile Bank 2 2 2 3 2 3 2.5 3 Prime bank 1 5 3 4 4 1 3 4 Table:3.17 Analysis and Interpretation: Table 3.17 depicts the group ranking of five commercial bank of Bangladesh for the period of 2013-2015 and results are presented in the above table. It shows that under the capital adequacy ratio, Prime bank and Mercantile Bank were at the top position, while Dhaka Bank got lowest rank. Under the asset quality parameter, Dhaka Bank hold the top rank while Prime bank hold the lowest rank. Under management efficiency parameter it is observed that the top rank was taken by Dhaka Bank and the lowest rank by Premier Bank. In terms of earning quality parameter, the capability of Dhaka Bank got the top rank in the list while Premier Bank was at the lowest position. Under the liquidity parameter, Dhaka Bank stood on the top position and Premier Bank was on the lowest position. And lastly, for the sensitivity to market risk, Prime Bank stood on the top position and Premier Bank was at the lowest position. The analysis of the above table reveals that Dhaka Bank secured the top position in terms of overall composite ranking followed by Bank Asia and Mercantile Bank on second and third positions respectively. Premier Bank and Prime Bank secured the most bottom position.
  • 60. CHAPTER SIX Finding, Recommendation and Conclusion 6.1.0 Objectives, Findings and Recommendations 6.2.0 Conclusion
  • 61. 46 6.1.0 Objectives, Findings and Recommendations In the process of evaluation of the performance of various banks I have obtained different performances with respect to CAMELS ratios. The study has brought many interesting objectives, finding and recommendation some of which are mentioned as below:  Objective 1: To explore about CAMELS rating framework. Finding 1: The CAMELS rating system is to evaluate a bank’s level of risk and overall condition. Study find out the camels rating framework through capital, assets quality, management quality, earnings, liquidity and sensitivity to market risk of the bank. Capital adequacy, as in the quality and amount of capital a bank can access. Asset quality, which looks at a bank’s credit and how it identifies risk. Management quality is concerned with the quality of a bank’s support and oversight. Earnings, which explores how stable a bank’s earnings are. Liquidity refers to how quickly a bank can turn assets into cash and sensitivity to market risk, which explores how sensitive the bank’s earnings is to adverse developments in the market, such as a sudden change in interest rate. The system helps regulators identify banks that are in trouble. Each factor receives a rating between 1 and 5, with 1 being the best score. Bangladesh bank follows international rules to calculate camels rating to measure the financial performance of banks and assessing the banks soundness more accurately. Recommendation 1: Bangladesh bank should make regular adjustments and update the camels rating framework guideline to all banks of the Bangladesh. Bangladesh Bank or regulatory authority should regularly practice camels rating to measure the financial performance of banks as well as to mitigate adverse situation of the financial institution.  Objective 2: To understand the financial performance of the banks.  Objective 2.1: To understand the capital adequacy of the banks. Finding 2.1: Capital adequacy reflects the overall financial condition of the bank and also the ability of the management to meet the need for additional capital. Average capital adequacy ratio is finds that Prime bank ranked on the top position with highest CAR of 12.49 followed by Premier Bank of 12.29, Mercantile Bank of 12.08. and Dhaka Bank scored the lowest position. All the five banks have succeeded in maintaining CAR at a higher level than the prescribed level 10%.
  • 62. 47 Recommendation 2.1: The studies have shown that Dhaka bank, capital adequacy ratio is continuously decreasing which are not a good sign for a bank so they have to improved capital adequacy ratio.  Objective 2.2: To understand the debt equity ratio of the banks. Finding 2.2: Debt equity ratio shows how much proportion of the bank business is financed through equity and how much through debt. According to the analysis, Mercantile Bank is on the top position with least average of 9.16 followed by Bank Asia of 10.28 and Premier Bank of 10.63. on second and third positions respectively. Dhaka Bank scored the lowest position with least percentage of 11.18. Recommendation 2.2: In Dhaka bank, debt equity ratio is continuously rising over the years which are not a good sign so they have to increase equity or reduce debts in their capital structure.  Objective 2.3: To understand the Non-performing loans to total loans ratio of the bank. Finding 2.3: Non-performing loans to total loans ratio disclose the efficiency of the bank in assessing the credit risk and, to an extent, recovering the debts. According to ratio the Dhaka Bank is on the top position with least average of 4.74% followed by Mercantile Bank of 4.94% and Bank Asia of 5.05% on second and third positions respectively. Premier Bank scored the lowest position with highest percentage of 7.12%. Recommendation 2.3: In Premier bank, Non-performing loans to total loans ratio are continuously raising over the years which are not good so they have to conscious to providing a loan.  Objective of the study 2.4: To understand the Credit deposit ratio of the banks. Finding 2.4: Credit deposit ratio indicates how much of a bank's core funds are being used for lending, the main banking activity. A higher ratio indicates more reliance on deposits for lending and vice-versa. According to study credit deposit ratio is fluctuating or increasing and decreasing over the years. Dhaka Bank is on the top position with highest average of 83.40% followed by Mercantile Bank of 80.64% and Bank Asia of 80.60% on second and third positions respectively. Prime bank scored the lowest position with least percentage of 75.32%.
  • 63. 48 Recommendation 2.4: In Prime bank, Credit deposit ratios less than other four banks so bank management should to be conscious of this area.  Objective 2.5: To understand the return on equity ratio of the bank. Finding 2.5: Return on equity measures of the profitability of a bank. Return on equity of Dhaka Bank is on the top position with the highest average of 14.29% followed by Bank Asia of 13.00% and Mercantile Bank of 11.85% on second and third positions respectively. Prime Bank scored the lowest position with least percentage of 8.94%. Recommendation 2.5: The studies have shown that Prime bank and Premier Bank return on equity is continuously decreasing over the years which are not good so they have to improve return on equity.  Objective 2.6: To understand the Liquid assets to total assets ratio of the bank. Finding 2.6: Liquid assets to total assets ratio measure the overall liquidity position of the bank. liquid assets to total assets ratio of Dhaka Bank is on the top position with the highest average of 12.97% followed by Premier Bank of 8.62% and Mercantile Bank of 8.57% on second and third positions respectively. Premier Bank scored the lowest position with least percentage of 7.66%. Recommendation 2.6: The studies have shown that Prime Bank Liquid assets to total assets ratio are continuously decreasing over the years which are not good so they have to improve Liquid assets to total assets ratio.  Objective 3: To describe the CAMELS model of ranking, banking institutions, so as to analyze the comparative of various banks. Finding 3: The overall performance of camels rating it is found that under the capital adequacy ratio parameter Prime bank and Mercantile Bank were at the top position, while Dhaka Bank got the lowest rank. Under the asset quality parameter, Dhaka Bank held the top rank while Prime bank held the lowest rank. Under management efficiency parameter it is observed that top rank was taken by Dhaka Bank and lowest rank by Premier Bank. In terms of earning quality parameter, the capability of Dhaka Bank got the top rank in the list while Premier Bank was at the lowest position. Under the liquidity parameter, Dhaka Bank stood on the top position and Premier Bank
  • 64. 49 was on the lowest position. And lastly, for the sensitivity to market risk, Prime Bank stood on the top position and Premier Bank was at the lowest position. Recommendation 3: The studies have shown that Dhaka bank, capital adequacy ratio is continuously decreasing over the years which are not good so they have to improved capital adequacy ratio. Prime bank and Premier Bank return on equity is low than other banks. Because the management cannot utilize its equity efficiently like other banks. So Bank has to take this aspect into consideration.  Objective 4: To analyze 5 banks to get the desired results by using CAMELS as a tool of measuring performance. Finding 4: In the study using CAMELS model, it is revealed that Dhaka Bank secured the top position in terms of overall composite ranking followed by Bank Asia and Mercantile Bank on second and third positions respectively. Premier Bank and Prime Bank secured the most bottom position. Recommendation 4: In the study using camels model, it is revealed that Premier Bank and Prime Bank Unsatisfactory position. Such performance indicates weakness, threatens the viability of the institution. So bank management should be aware of it. 6.2.0 Conclusion Camels rating is a common phenomenon for all banking system all over the world. Camels rating provides a measurement of banks current overall financial, managerial, and operational and compliance performance. Regulators of the banking sector always monitor the performance of the banks to ensure efficient financial system based on camels rating model. Various studies have been conducted on banks using camels framework. In the process of evaluation of the performance of various banks, our study concluded that different banks have obtained different performances with respect to camels ratios.
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