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PROFESSOR ABU TALEB Department of Banking University of Dhaka MD. ALIM ABDULLAH Roll No: , Department of Banking EMBA, 19 th Batch Financial analysis & control Financial performance evaluation (Ratio Analysis) Course Title: Financial Analysis & Control Course Code: 603

R atio Analysis A ratio is defined as the indicated quotient of two mathematical impressions and as the relationship between two or more things. In financial analysis, a ratio is used as benchmark for evaluating the financial position and performance of a firm. P rofitability Ratio Profitability ratios are used to assess a business' ability to generate earnings as compared to expenses over a specified time period. R eturn on Equity (ROE) ROE indicates the rate of return on equity capital. It is possible, however, that an increase in ROE indicates increased bank’s equity ratio.

R eturn on Equity (%) = Net Income/Total Equity Capital*100 ROE of NBL were Changes in the year, 2006, 2007, 2008 & 2009 respectively. ROE has been increased as Net Income of the Bank has been increased over the years. YearNet Income after Tax Total Equity Capital ROE (%)Changes (%) % %5.57% %11.6% %(2.33%) %2.45%

R eturn on Asset The rate of return on assets (ROA) measures the ability of management to utilize the real and financial resources of the bank to generate returns. R eturn on Asset = Net Income/Total Asset*100 From the table we can see that ROA of NBL has been increased over the year from 2005 to Both ROA and TA of NBL over the last five years. YearNet income after tax Total assetsROA (%)Changes (%) % %0.37% %1.11% %(0.09%) %0.15%

N et Profit Margin Net profit margin ratio establishes a relationship between net income and operating income that indicates management efficiency in providing services, administrating and selling the product. Net Profit Margin = Net Income/ Operating Revenues*100 Cost of Deposit has been increased due to the tough competition between private banks YearInterest income- interest expense Total assetsNet interest margin (%) Changes (%) % %1.02% %(0.05%) %0.47% %(0.53%)

N et Interest Margin Net interest margin (NIM) is a measure of the difference between the interest income generated by banks and the amount of interest paid out to their lenders Net Non-Interest Margin= (Non Interest Income-Operating Expense)/Total Asset*100 YearNon Interest Income- Operating Expense Total Assets Net Non- Interest Margin (%) Changes (%) % (0.17%)(0.45%) %1.17% %(0.05%) %(0.13%)

N et Non-Interest Margin The net non-interest income margin (NOM) as the difference between non-interest income received (OR) and non-interest income paid. Net Non-Interest Margin= (Non Interest Income-Operating Expense)/Total Asset*100 YearNon Interest Income- Operating Expense Total Assets Net Non- Interest Margin (%) Changes (%) % (0.17%)(0.45%) %1.17% %(0.05%) %(0.13%)

E PS-Earning per share The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability EPS (Earning per share) = Net Income after tax/ No. Of shares outstanding We can see from the table that EPS of NBL has increasing since 2006 and. EPS indicates profit of the bank. YearNet Income After Tax No. of Share Outstanding EPSChanges (%) (21.47) (8.29)

A sset Utilization The asset utilization ratio represents the ability of management to employ asset effectively to generate revenue. The more income generated per Taka of assets, the more profitable is the bank. Asset Utilization = Total Operating Income/ Total Asset*100 The bank has shown a very slight decrease in its ability to use its assets for generating income. The decrease is too small to influence the bank's financial performance YearTotal Operating Income Total Assets Asset Utilization (%) Changes (%) % %4.93% %(0.28%)

L iquidity Ratio A liquid asset is one that can be easily converted to cash without significant loss of its original value. Liquidity risk is the risk that a given security or asset cannot be traded quickly enough in the market to prevent a loss (or make the required profit) Liquidity Risk= (Net Loan/Total Asset)*100 YearNet LoanTotal AssetTotal Loan Risk (%) Changes (%) (.46%) (5.37%) (5.5%) (0.7%)

C urrent Ratio The formula of current ratio is: Current Ratio =Current Assets/Current Liability YearCurrent AssetsCurrent LiabilitiesCurrent Ratio

C redit Risk Ratio Credit risk ratio is the percentage or the likelihood that lenders will lose because of a borrower's inability to pay on time. Or, in other words, it is the odds that banks, lending institutions, Credit Risk= Classified Loan/Total Loan*100 Every year the credit risk was decrease YearClassified Loan Total LoanCredit Risk (%) Changes (%) % % (1.05%) % (1.48%) % 0.96% % 0.47%

T otal Loan Risk The loan ratio indicates the extent to which assets are devoted to loan as opposed to other assets. Total Loan Risk= Total Loan/Total Deposit*100 From the table we can see that Loans and Advances Ratio of the bank has been increasing and decreasing. As bank generate its major portion of income from interest income. So, bank generates its major portion of income from interest income. YearTotal LoanTotal DepositTotal Loan Risk (%) Changes (%) % %(0.86%) %(5.01%) %8.13% %(0.58%)

D eposit to capital Ratio: This ratio measures Taka of deposit of per Taka capital. Deposit to Capital Ratio = Deposit/ Total Capital Deposit to capital ratio of NBL has been decreasing over the years. It was times in the year 2004 and times in the year That means the deposit of the bank has been decreasing much more than its equity capital. YearTotal DepositTotal Shareholders EquityRatio (times)

R ecommendations : The existing financial performance position is good enough to run the bank. But as the competition is increasing day by day the bank should take some measures so that they can distinguish it from the others. To attain its goals more successfully NBL Bank Ltd. can follow the following suggestion to improve their performance and distinguish from others.  Branches may give suggestion regarding the features of lending products and regular revision for its products with more competitive advantage and local demand.  The bank management can give permission to its branches to design or change lending products on the basis of local demand.

R ecommendations:  The bank management can reduce the interest rate. Because of high interest rate, the net profit of NBL is increasing over the years. Though the net profit is increasing but some good loan may turn to bad loan. So if the interest rate decreases then the default loan may decrease.  To grade the credit risk, the bank can follow other appropriate models besides the credit risk grading model, because the credit risk grading models yardsticks are static which do not take into account the flexibility in economic or business or financial condition..

R ecommendations  The bank management should follow the changes in policy, system, procedure, product, technology and compliance in the banking industry, so that NBL can take appropriate measure to adapt her with the changes.  Sanction procedure should be evaluated more effectively. Loan recovery system should be monitored more strictly.  Interest rate for loan providing to marginal farmer should be in somewhat lower rate. Sometimes loan can be provided as collateral free

National Bank Limited can follow the above mentioned suggestion to improve their performance so that they can be competitive in the market and can gain some competitive advantage. Although the bank is making a huge amount of profit and gencratil1g a large volume of deposit, based on my working experience at Nationa1 Bank limited, I would like to put up the following recommendations

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