Amir hamza


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Amir hamza

  1. 1. OverviewWithin the commercial banking sector, ABBANK has achieved an amazing growth since the last5 years, upgraded from a rural bank to an urban bank. ABBANK now has become a prestigiousbrand in the Vietnam financial and banking industry. It has an extensive network of 118transaction offices located in 28 provinces nationwide.With the support of the Electricity of Vietnam (EVN)- the strategic partner in the country and thesharing of experience on professional management models of Maybank – the foreign strategicpartner, ABBANK has built up a development plan from now until 2016. ABBANK aims for anannual growth rate at an average of 35% - 40%.In recent years, in order to diversify the range of products and services, ABBANK also enhancedthe cooperation with big Vietnamse and international partners such as Agribank, PrudentialVietnam, Deutsche Bank, EVN SPC, Prevoir VN, Postal Corporation of Vietnam (VNPost),Telecom Corporation Viettel ....With the slogan “Provide to solution - Receive the smile", ABBANK stands out in the marketbecoming a friendly retail bank. ABBANK takes the customer needs and satisfaction as the coreelement of all business activities. At ABBANK, customers are satisfied not only with the productdiversification and flexibility, but also the friendly and professional services.VisionAn Binh Commercial Joint Stock Bank(ABBANK) is heading toward becoming a leadingcommercial bank in Viet nam, operating under the model of universal bank with focus onretailing banking and adoption of best international practice, extensive application of advancedand modern technologies with ability to compete with ather local and foreign banks operating inVietnamMission Serving the customers with safe, efficient and value added products and services. Increase benefits for shareholders. Moving towards the comprehensive and sustainable development of the bank. Investing in the human resources as the basis for long-term development.
  2. 2. Introduction In recent days the Small and Medium Enterprise (SME) Financing has become an important area for Commercial Banks in Bangladesh. To align its corporate policy with the regulation of Central Bank, banks have become more concerned about SME and opened windows to conduct business in this particular area. Small and medium enterprises have been recognized as one of the most important means for providing better economic opportunities for the people of least developing countries like Bangladesh. A developing economy like that of ours suffers from many peculiar problems such as disproportionate pressure of population on agriculture due to lack of rural industrialization, unemployment and underemployment of human and materials resources, unbalanced regional development etc. The contribution of small and medium enterprises in the solution of these problems is beyond doubt, provided they are organized and run on scientific basis. Small and medium enterprises are particularly suitable for densely populated countries like Bangladesh where SME sector can provide employment with much lower investment per job provided. Out of 11% employment of the civilian labor force provided by the manufacturing sector, about two thirds are estimated to be provided by the small and cottage industries sector. Again, development of small industries facilitates the effective mobilization of capital and labor resources. They also help in raising standards of living of people in rural areas. Contribution of SME sector to GDP remained above 4% during the period from 1985-86 to 1999-00. Moreover, the present contribution of SME sector to GDP is approximately 5% and SME sector employs 25% of the total labor forces, thus this sector is the present available sector for creation of jobs. The recent private sector survey estimates the contribution of the micro, small, and medium enterprises (MSMEs) is 20-25% of GDP (Daniels, 2003). While SMEs are characteristically highly diverse and...Board of Directors of AB Bank Limited (ABBL) takes immense pleasure in presenting the 25th AnnualReport of the Bank to you. It is also the privilege of the Board to present the audited accounts of theBank for the year ended 31st December, 2006 and the Auditors Report thereon.Your Bank reached a milestone on 12th of April, 2011 when AB reached 29 years of its journey whichstarted with a single Branch operation at Karwan Bazar, Dhaka way back in 1982. AB being the pioneerin private sector banking in Bangladesh will be the first to achieve this milestone. Over the years, yourBank has contributed in many ways towards development of the private sector banking in the country.Many of the big industries in different fields of the economy has ABs name attached and your Bankremains a proud development partner of these industrial houses over the years. AB thrived on customerservice and relationship banking which brought new dimensions to this particular service sector andmany more new entrants to banking sector followed AB.ABs Sponsors set a vision for the Bank which reads: "To be the Trendsetter for innovative banking withexcellence and perfection". Throughout these 29 years your Bank raised the bar for itself throughservices, initiatives, products, customer support and performance towards that visionary path.
  3. 3. At the beginning of the year 2005, Board took the mission for the year as "a year of consolidation andgrowth". In line with that, year 2006 was identified to be the year of "financial re-structuring andgrowth". Sponsors of the Bank remain committed to take AB into next higher level of banking on astrong financial footing and with appropriate systems and processes in place.Being a financial institution, your Bank is exposed to the entire gamut of economic developments andactivities both within and outside the country. Hence to start with, we will throw some brief insights into the economic scenario of the year 2006.Global EconomyWorld economic growth strengthened in the year 2006 as the global gross domestic product (GDP)registered a growth of 3.9 percent compared to 3.5 percent in 2005. Despite rising oil prices (thattopped $75 a barrel during the course of the year), rising short-term interest rates, and a bout ofvolatility of financial market, the global growth accelerated in the overall. This strong globalperformance was driven by very rapid expansion in developing economies, which grew by 7 percent -more than twice as fast as high income countries (3.1 percent). In the overall, 38 percent of the increasein global output originated in developing countries which far exceeded these economies 22 percentshare in world GDP.Although broadly based, strong performance by China (10.4 percent growth) played a significant role inthe recent expansion of developing economies which grew by 7 percent. It is of significance thatexcluding China and India (8.7 percent growth), developing countries grew by 5.5 percent therebyplaying important roles in the global economic performance.Fast growth of developing countries over the past five years has been fueled by low interest rates andabundant global liquidity. This has led to rising commodity prices and over-heating in some high-incomeand developing countries. This, in turn, has provoked a tightening of monetary policy that is in part isresponsible for slowdown at the global level towards the later part of the year. However, in mostcountries strong productivity growth, due in part to the absorption of China and the former EasternBlock countries into the global economy, has checked inflationary pressures.In the United States, the acceleration of industrial output began at a torrid pace of 5.6 percent duringthe year. As a result US GDP had a positive growth in 2006. However, responding to higher short-terminterest rates, spending in the housing sector declined and also had a moderating effect on theconsumer demand. This resulted in the slowing down of the economy to 1.6 percent annualized growthrate in the third quarter of 2006. However, profit, foreign investment and consumption remained robustwhile inflation and unemployment remained low. Consequent upon all these factors, US economy isexpected to grow by 3.2 percent as a whole.European economy also experienced growth in 2006 after several years of weakness. Growth
  4. 4. accelerated in the first half of the year as GDP expanded by about 3.3 percent over that period. This ismostly driven by private consumption and increased investment spending. However, slower growth inthe third quarter for France had an impact on the overall growth but the full year GDP growth in Europeis estimated to be 2.5 percent.In Japan, the GDP was estimated to have expanded by 2.9 percent in 2006. A slowdown in exportscontributed to weaker growth in the second quarter of the year, but growth rebounded in the thirdquarter led by a surge in investment spending.High oil prices and the rapid pace of global growth have contributed to a gradual increase in inflationamong developing countries. These countries experienced rising inflation in response to higher oilprices, but it has since declined, reflecting both solid productivity growth and the impact of morecredible monetary policies. In contrast, in high-income economies inflation rose to about 2.7 percentfrom 1.3 percent before falling towards the end of the year matching with the falling oil prices.In the overall, limited inflationary pressures and high savings among oil exporters and in Europe areexpected to keep long term interest rates low. Moreover, improved fundamentals have boosted growthrates in many developing countries. All these factors cumulatively suggest the continuation of robusteconomic performance in 2007 barring unanticipated reversals.Bangladesh EconomyBangladesh economy continued on the growth path in 2006 and achieved a higher growth compared tothe year 2005 mainly driven by a strong post-flood agriculture recovery. Growth was also fuelled bynotable expansion of the manufacturing sector. Economic growth was also aided by strong growth ofexports and remittances from abroad. This is a noteworthy performance in the face of rising oil price,rise in import costs and also the phase out of the Multi -Fiber Arrangement (MFA). GDP growth wasregistered at 6.7 percent in the year 2006.Growth performance of the economy was led by the post-flood recovery of the agriculture sector whichwas 4.5 percent in 2006 compared to 2.2 percent in the year before. Strong growth in crops, horticultureand fishing were mainly responsible for such growth. At the same time, industrial sector attained 9.6percent growth during the year which is way above the previous years growth of 8.3 percent. Thishigher growth rate was sustained through strong performances in the manufacturing arena facilitatedby strong and sustained growth in export oriented manufacturing activities and expansion of domesticdemands. In the overall, service sector of the economy grew by 6.5 percent. The growth was fairlyspread in different sub-sectors which in turn were related to increase in industrial out put and increasein trade related activities.Structural transformation of economy was aimed at through giving new focus on the development ofthe Small & Medium Enterprises (SMEs) sector. A credit line was established in the Bangladesh Bankwith the support of the Asian Development Bank (ADB) and the World Bank (WB), respectively. In the
  5. 5. year 2006, SME sector experienced sizeable growth in the field of rice mills, dairy products, knitwear,leather products, paper and paper products, light engineering, etc.Countrys foreign exchange reserve crossed the US $ 4.0 billion mark for the first time in the history atthe beginning of the year 2007. Present level of reserves covers for over three months of imports of thecountry. Exports and remittances from the Non-resident Bangladeshis (NRBs) continued to achievestrong growth in the year 2006 while import growth slowed down to a sustainable level. Exports grew21.6 percent to US$ 10,422 million over the previous year. At the same time, remittances by the NRBsgrew by 24.8 percent at US$ 4,802 million. While, total import was registered at US$ 13,301 millionshowing a growth of 12.1 percent during the year.Export earnings achieved more than expected growth in the post MFA situation due to higher exportdemand in the US and the European markets. Impressive growth of 35.4 percent was achieved in theknitwear sector driven by a volume growth of 37.4 percent. Countrys export of raw Jute alsoexperienced significant growth of 54 percent over the year 2005. More significantly, country is graduallyshifting towards a diversified export base. Bangladesh has been included in the "next eleven" a group ofnations having economic growth potential by Goldman Sachs.Relative slowdown of total import was mainly attributable to the reduced import of food grains, milkproducts, spices and most other edible products. However, import of industrial raw materials and capitalmachineries increased signifying the dynamism in investment activities in the country. The commoditieswhose import payments, however, increased significantly include crude petroleum and POL reflectingthe volatile international market for those.The overall balance of payments recorded a significant surplus of US$ 365 million (US$67 million in2005) at the end of the year 2006 reflecting a notable improvement in the current account balance anda larger surplus in the capital account. Despite noteworthy performance of the external sector, theforeign exchange market experienced substantial pressure in the year 2006. Pressures on Taka-US Dollarexchange rate generated by continued price hike for import of petroleum and many other majorcommodities coupled with higher growth of lending to the private sector (18.3 percent) created all suchpressure situation. In 2006, the nominal Taka-US Dollar exchange rate depreciated by 8.6 percent in theoverall. However, the real effective exchange rate of Taka depreciated by 5.3 percent providing a boostto the countrys external competitiveness.Inflation in the economy showed upward trend in 2006. Pressures on consumer prices emerged mainlythrough rising import prices of fuel, food items, other consumer items and production inputs feedinginto domestic prices. Depreciation of Taka further contributed to rising consumer prices. The annualaverage inflation increased to 7.2 percent in June, 2006.Bangladesh Bank continued to pursue a restrained monetary policy stance with a view to curb excessdemand from inflationary expectations while supporting the sustainable real GDP growth. During theyear, the Cash Reserve Requirement (CRR) and the Statutory Liquidity Ratio (SLR) were raised from 4.5
  6. 6. and 16.0 percent respectively to 5.0 and 18.0 percent towards slowing down of the growth of domesticcredit. Besides, repo and reverse repo interest rates and treasury bills / bond yield rates were kept at anuptrend towards slowing down the credit growth rate.Broad money (M2) grew by 19.3 percent during the year which was much higher than 2005 growth of16.7 percent and far exceeded the projection of 14.3 percent growth. Public sector credit grewsubstantially by 30.6 percent mainly to finance higher cost of imports of fuel. Total domestic credit grewby 21.1 percent, while credit to private sector grew by 18.3 percent reflecting acceleration of economicactivities. The declining trend of interest rates that persisted over a period till year 2005 reversed in2006 keeping pace with the tightened monetary policy. Countrys revenue collection scenario throughthe National Board of Revenue (NBR) remains much lower than the projection. Among other factors lowtariff rates on many importable items, lower import volume due to political crisis were mainlyresponsible for such a situation.Despite stronger growth of some macroeconomic indicators, Bangladesh economy faced somechallenges originating from price hike of oil, some imported commodities in the international marketcausing fluctuations in real sector and foreign exchange market. As a result, the financial market wasvolatile during the year. The call money market was also volatile for a period of time due to increase ofGovernment borrowing from the banking system for financing higher priced imports. Till December2006, Government borrowing stood at Taka 63.50 billion. Due to such a development, banks andfinancial institutions were forced to mobilize deposit at a higher rate resulting in higher pricing on creditand forcing restrains, at times.Overall Banking SectorFinancial sector reforms to strengthen the regulatory and supervisory framework for banks madeheadway in 2006 although at a slower than expected pace. Overall health of the banking system showedimprovement since 2002 as the gross Non-performing Loans (NPL) declined from 28 percent to 14percent while net NPL (less Provision) reduced to 8 percent from 21 percent. This led significantimprovement in the profitability ratios. Although the Private Commercial Banks (PCB) NPL ratioregistered a record low of 6 percent, the four Nationalized Commercial Banks (NCB) position are stillweak and showed very high NPL at 25 percent. The NCBs have large capital shortfalls with a risk-weighted capital asset ratio of just 0.5 percent (June 2006) as against the required 9 percent. For thePCBs risk-weighted capital asset ratio stood at 10 percent.Bangladesh Bank issued a good number of prudential guidelines during the year 2006 and the firstquarter of 2007 which among others relate to (i) rationalization of prudential norms for loanclassification and provisioning, (ii) policy for rescheduling of loans, (iii) designing and enforcing an"integrated credit risk grading manual", (iv) credit rating of the banks, and (v) revisions to the make-upof Tier-2 capital.Besides, recent decision of the Government to corporatize the remaining three NCBs along with the
  7. 7. initiative to sale the Rupali Bank are bound to usher in changes in the banking sector competitivenessaspect. Bangladesh Bank has also taken up the task of implementing the Basel II capital accord. Further,the recent enactment of the Micro-credit Regulatory Authority Act (MRAA) for the regulation of theMicro Finance Institutions (MFI) has been a major development in the year 2006.Since 1998 CAMEL rating of banks gradually improved and in 2006 Bangladesh Bank updated this ratingmodel by incorporating the market risk and the new model is known as CAMELS.Capital MarketBangladesh capital market is still quite small in terms of size compared to countries like India orPakistan. Present market capitalization accounts for roughly 6 percent of the GDP. During the first half ofthe year 2006, liquidity crises had its affect in the market and towards the end of the year, the markethad to weather unstable and volatile political situation. Besides, relatively higher rates on Governmentand bank saving instruments were challenging factors towards expansion of investment in the capitalmarket. Yet, the market showed remarkable stability in the face of the above. Market capitalizationregistered a rapid growth of over 38 percent which was fuelled by entry of 13 new companies and flowof stock dividends, rights shares among others.At the end of the year DSE general price index stood at 1609.51 and the all shares price index closed at1321.39 while CSE general price index stood at 2432.51 and the all shares price index closed at 3724.39.Future for the capital market looks bright as government is planning to off-load profitable state ownedenterprises. Moreover, enlistment of telecommunication and inclusion of various companies under oiland gas sector will contribute towards increasing the size of the market.Economic outlookThe 6 percent plus growth of GDP over the past four years has been underpinned by more market-oriented economic policies, a dynamic garment sector, and substantial inflow of overseas workersremittances. The lead-up to the parliamentary election was generally expected to be rough ride for thecountry as a whole and the economy in particular. However, deepening political deadlock culminatedwith the declaration of state of emergency in January. The new caretaker Government continued withthe established economic policies and expedited structure and sector reforms. It has taken a broadagenda of activity, including an extensive anti-corruption drive that it sees necessary to establish betterfoundations for the future besides establishing the atmosphere for a truly democratic system to unfurlin the future.Economic forecasts for the fiscal year 2007-8 are based on several policy assumptions towardspreserving the macroeconomic stability and ensuring GDP growth of around 7 percent. However, someof the significant challenges include increased competition, high interest rate environment, risinginflationary pressure, sustained high global oil price, power shortage etc.
  8. 8. The economy has started to come back on track after months of political instability which at times hadthe risk of irretrievable consequences. With the economic course outlined in the budget for 2007-8,Bangladesh should be able to drive full steam towards the desired growth.Executive summaryBanking sector stocks faced significant correction in the recent past following dividend and earnings declaration forthe year 2010. The tide is against the sector, valuations are high and looming threat of rising delinquencies put thebanking stocks in a tight spot. We find that only a few well‐balanced banks could swim in the troubled water, whereasothers are either challenged by their profit sustainability, asset-liability management, asset quality or capital.In the year 2010, we experienced many developments in the banking sector. Liquidity crisis and a downwardcorrecting capital market were key concerns in the financial system. Most of the banks suffered severe liquidity crisisat the end of the year. Moreover, managing asset quality became a challenge after the recent correction in the stockmarket, particularly for banks specialized in consumer and SME banking.Although we think Q1 2011 bottom line numbers would be challenging for Bangladeshi banks, concerns seem to beoverdone. Despite sharp cut in expectations, banks will be the primary driver of the market’s earnings growth on ourview. Operating income of the banking sector grew by 50% in FY10. However, with regards to YTD the financialsector has underperformed the DGEN by –26.31%. (Banking sector, –33.53%).Liquidity crisis, credit-deposit ratio andrising NPAs are the major concerns in this fiscal. We expect NPAs to rise for some banks more exposed to consumerand SME business. This will not be the scenario for large corporate bankers having relatively strong corporatebalance sheets, well capitalized, broad-based credit growth, better asset quality and management.This note focuses on listed private sector banks. Our conclusion is that listed banks are likely to underperform overthe next 6 months. In this environment, limited cost flexibility and elevated directed lending are our key concerns. Weinitiated coverage on 10 listed banks: AB Bank, Bank Asia, BRAC Bank, The City Bank, Eastern Bank, Islami BankBangladesh Limited, IFIC Bank, National Bank, NCC Bank and Prime Bank. We like Islami Bank for its asset base,unique franchise concept, management quality and superior operational profile, high Tier 1 ratio, superior margin andflexibility in managing asset quality risks, and Prime Bank for its strong corporate presence, asset quality, stablebusiness growth, high capital adequacy and management. Amongst mid size corporate-consumer banks our picksare Eastern Bank and NCC Bank.Still