Jahid Sir 01

Term paper On Ratio analysis of Eastern Bank Limited

Prepared for: Dr. Mostafa Kamal Registrar Daffodil International University

Prepared by: MD.Jalish Mahmud ID. No: 041-18-243 Department: B.Com (Hon’s) Batch: 3rd

102,Shukrabad, Mirpur Road, Dhanmondi, Dhaka- 1207

Date of Submission: 25 December 2006

December 25, 2006

Dr. Mostafa Kamal Registrar Daffodil International University Subject: Regarding the submission of Ratio Analysis on Eastern Bank Limited. Dear Sir: This term paper on Eastern Bank Limited about ratio analysis that you have gave me to prepare on this prestigious bank. It can be said that by doing this assignment I have learned a lot of excellent information about banking sector. I thinking in real life this report will be helpful for me. I tried to accommodate and suggestion in my term paper. I will be glad to clarify the queries regarding this report. Sincerely yours Md.Jalish Mahmud I.D.No-041-18-290 3rd Batch Daffodil International University

Acknowledgement

At first I want to give thanks to our course teacher Dr.Mostafa Kamal Islam who has given these kinds of excellent report. By doing this I get an excellent chance to increase my knowledge about bank sector which is the most important field for business students. I would like to acknowledge great fully to Mr. Md. Asraf Hossain, Assistant Vice President of Eastern Bank Limited.

Origin of the Report

The world is going with globalization in where the business is facing new challenge in every day market. In economy new dimensions are coming. So to keep consistence with this kind of environment each company needs some skill person who have suitable knowledge to take the new challenge in business criteria. So this kind of assignment will help to prepare the students to make their selves as a smart executive in future. As a requirement from business faculty of D.I.U preparing this term paper is really useful for me. Because of doing this, I have gained some practical knowledge which is needed for my real life.

EXECUTIVE SUMMARY

The Eastern Bank Limited was formed as a public limited company incorporated in Bangladesh with primary objective to carryon all kinds of business in and out side Bangladesh. EBL has taken over the business, asset, and liability losses of erstwhile Bank of credit and commerce international (overseas) limited, hereinafter called BCCI. Branches in Bangladesh with effect from 16th August 1992, as they stood after reduction or adjustments in accordance with the provisions of the bank of credit and commerce international (overseas) limited. Reconstruction scheme, 1992, hereinafter called scheme. The bank is also listed on the Dhaka Stock Exchange Limited. At the present they (EBL) are operating 24 branches located in main commercial areas of our country their increasing activities call for expansion of network and line with demand they hope to open few more branches in the days to come. To meets the growing market demand they introduce Debit Card and Internet Banking. They are also committed to provide Credit Card, Mobile Banking, Home Banking, etc under it form in the near future. It has only few branches all over the country. It has no enough ATM booths and not provide over night banking facilities, which is the disadvantage of this bank. EBL has great opportunity in the banking sector in Bangladesh. Within a few years it becomes the one of the finest bank in Bangladesh for its goods and services. It can introduce mobile banking, home banking and 24 hours banking facilities.

OBJECTIVE

The objectives of the report are…………………. 1. To apply theoretical knowledge in the practical field. 2. To know the organizational framework of EBL. 3. To learn about banking operation system. 4. To forecast their policy of EBL. 5. To examine sectored allocation of deposits. 6. To evaluate credit standard of EBL. 7. TO highlight the difference of EBL with other public and private banks.

Scope of the study

The present study is an attempt to evaluate the overall system of Eastern Bank Limited. The study was kept to overall division of Eastern Bank Limited, Gulshan branch, Gulshan. This brunch deals in all kind of banking business under the overall control of Bangladesh bank and this flow the regulations set by Bangladesh.

Overview of the Organization

Eastern Bank Limited incorporated on 16 August 1992 as a public limited company with the primary objective of carrying out all kinds of banking business in and outside Bangladesh. It was formed by taking over the business, assets, liabilities and losses if the erstwhile Bank of Credit and Commerce International (overseas) Limited (BCCI). Eastern Bank Commenced business with four branches and an authorize capital of Tk. 1,000 million divided into 10 million share of Tk. 100 each. Tk 600 million has been subscribed and paid up by three different classes of shareholders, namely KA< KHA and GA. The KA-type shares (1.2 million) are those, which are fully subscribed by the government of Bangladesh. The KHA-type shares (1.90 million) are subscribed by the financial institution and GA-type shares (2.9 million) are subscribed by the depositors of the previous BCCI brunches. THE bank is listed with the Dhaka Stock Exchange. The management of the bank is vested in board of directors. In 2004, the bank has total of 561 employee and 22 branches in different places in the country.

VISION OF EBL

To become the bank of choice by transforming the way we do business and developing a truly unique financial institution that delivers superior growth and financial performance and are the most recognizable brand in the financial services in Bangladesh.

MISSION OF EBL

• • • •

They will deliver service excellence to all their customers, both internal and external. They will constantly challenge their systems, procedures and training to marinating a cohesive and professional term in order to achieve service excellence. They will create an enabling environment and embrace a term-based culture where people will excel. They will ensure to maximize shareholders, value.

OBJECTIVES

•To earn and maintain CAMEL Rating 'Strong' •To establish relationship banking and improve service quality through development of Strategic Marketing Plans. •To remain one of the best banks in Bangladesh in terms of profitability and assets quality. .To introduces fully automated systems through integration of information technology. •To ensure an adequate rate of return on investment •To keep risk position at an acceptable range (including off balance sheet risk) •To maintain adequate liquidity to meet maturing obligations and commitments. •To maintain a healthy growth of business with desired image. •To maintain adequate control systems and transparency in procedures. •To develop and retain a quality work-force through an effective human Resources Management System. •To ensure optimum utilization of all available resources •To pursue an effective system of management by ensuring compliance to ethical norms, transparency and accounts at all levels.

ORGANIZATIONAL STRUCTURE OF EBL

Chairman

Chairman

Chairman

Consume r Banking

Area Head (Dhaka)

Trade Service Division

Corporate Banking

Human Resource

Area Head (Agra bad)

International Division

Credit Risk Mgt.

Audit & Accounts

Finance & Accounts

Operation Division

Credit Administration

IT Division

Brand Mgt. Division

[Figure: Organization Structure] PRPODUCT AND SERVICE OFFERED BY EBL

Brand Mgt.

Eastern Bank Limited has verity of products offered for the retail customers as well as for corporate client are given below: Product for retail client The existing products that are offered by EBL are: 1. High performance account 2. Monthly income plan, 3. Monthly deposit plan 4. Fast cash 5. Fast loan 6. Fixed deposit 7. Auto loan 8. Consumer loan 9. Loans for professional 10. Fest- loan 11. Executive’s loan. Service for retail clients Service for retail clients’ are1. Sale of Bangladesh Sanchaya patra, Pratirakkya patra, ICB certificate etc. 2. Encashment of different Sanchaya patra, ICB certificate etc. 3. EBL Q-cash ATM card. 4. Money Gram 5. Equity services bill collection 6. Tuition fees 7. Student file Product for Corporate Clients 1. Payment against document (PAD) 2. Loan against trust receipt (LTR) 3. Accept against ULC 4. Local bill purchase documentary (LBPD) 5. Foreign bill purchase documentary (FBPD) 6. Sight letter of credit (SLC) 7. Letter of guarantee (LG) 8. Secured overdraft (SOD) 9. Demand loan 10. Time loan 11. Term loan

LENDING PROCEDURE OF EBL

Request for credit from the client to a branch

Credit application from filled up by the customer and collection of documents

Scrutinizing the documents

Preparing the product The proposal goes to the board of directors through other necessary steps

Sanctioning the credit Informing the client, loan disbursement, supervision and monitoring

Growth of Loans and advances of EBL

Year 2000

Amount (Tk. in million) 8,141

2001 2002 2003 2004

9,946 10,891 11,288 11,861

BALANCE SHEET Eastern Bank LTD. As at December 31, 2005 Property and Assets

Year-2004 Taka

Year-2003 Taka

Cash: In hand ( including foreign currency) Balance With BangladeshBank & SonaliBank

174602762

105061815

933456347 1108059109

964873108 1069934923

Balance with other Banks & Financial Institutions: In Bangladesh Outside Bangladesh

576747351

1398808073

182129196 758876547

147621767 1546429840

Money at call and short notice

1067500000

255000000

4041035400 35785600 4398892000

3331354100 279856600 3611210700

14922947120 50308281 1497325541

10953543437 334587230 11288130667

Investments: Government others

Loan and advances: Loans, cash credit, overdrafts etc Bills discounted and purchased

Land, building, Furniture and fixtures(including leased assets) 270953019 Other assets 470131832 Non-banking assets Total Assets 23047667908

176468588 768507680 -

---------18715682398

==========

==========

Liabilities and Shareholders Equity Liabilities: Borrowings from other banks, FI's and agents

3015000000

2850000000

3198966923 210908606 2686380434 9530063915 22250000 15648569878

2242949052 238596438 1927170395 7521479399 22250000 11952445284

Other liabilities Total liabilities

1753264495 20416834373

1592338946 16394784230

Shareholders' equity Share capital: Issued, subscribed and fully paid up capital

828000000

828000000

828000000 190440000 1554759750 60000000 100000000 2935255 -1289341459 356040000

760422003

Deposits and other accounts: Current deposits and other accounts Bills payable Savings bank deposits Fixed deposits Bearer certificates of deposits

Statutory reserve Dividend equalization reserve Reserve against pre-takeover loss Reserve for building fund general reserve

Retain earnings brought forward from profit &loss Pre- takeover loss Proposed dividend Dividend distribution tax on dividend Total Shareholders' equity Total Liabilities & Shareholders' equity

----

--2630833535 23047667908 ==========

1554759750 60000000 185000000 48628013 -1298071598 165600000 16560000 2320898168 18715682398 =========

Off- Balance Sheet Items Off- Balance Sheet Items:

As at 31 December 2004 Year-2004 Taka

Year-2003 Taka

Contingent liabilities: Acceptances and endorsements Irrevocable letters of credit Letters of Guarantees Bills for collection Value of travelers' cheques on hand Value of Bangladesh Sanchya Patras on hand

3119901803 6278451308 1917160210 275271499 80457527 190567100 11861809447

1481410394 3654872334 1960112830 673258467 38380250 190680100 7998714375

Other Commitments: Documentory Credits and short term Trade-related transactions Forward assets purchased and Forward deposits placed 58610996 Undrawn note issuance and revolving facilities Undrawn formal standby facilities, credit Lines and other commitments Claims against the bank not acknowledged as debt Total off balance sheet items 11920420443

--1298170

8000012545 ===========

=========

INCOME STATEMENT Eastern Bank LTD

For the period ended December 31, 2004 Year-2004(Tk) Interest income

1628352434

1383351107

Interest paid on deposits, borrowings etc Net interest income

949203013

928450655

679149421

454900452

Income from Investment Commission, exchange and brokerage Other operating income

265899688

299200576

263566577

225456764

83485997 612952262

76814492 601471831

Total Operating Income

1292101683

1056372284

Salaries and allowances

184202947 46089026

145207852 39804463

5005210

4089313

14999594

10355653

25032969

22576163

5294400

4588000

814065

878053

115000

115500

44573270

22990421

73544278

46994922

3990670759

297600339

892430924

758771944

Rent, taxes, insurance, electricity etc

Legal expenses Postage, stamp, telephone Stationery, Printing, Advertisements etc. Managing director’s salary & allowances Directors’ fees & others Auditors fee Depreciation and Repair, maintenance of Bank’s assets Other expenses Total Operating Expenses Profit / (loss) before provision against loans and advances Provision before against loans and advances Specific provisions General provisions Total provisions Profit for the year before taxation Provisions for taxation for the year Deferred tax income Net profit after tax for the year retained earning brought forward from previous year Transferred from general reserve Appropriations Statutory reserve Payment of 2002 dividend @ 35% of Tk 720,000,000 Payment of dividend distribution tax on 2002 cash Dividend [ @10% of 20% of Tk 720,000,000 Dividend equalization reserve Proposed dividend Dividend distribution tax on dividend Balance of retained earnings transferred to balance sheet

117729113 41159553

3270887

41159553

121000000

851271371

637771944

-370000000

-280000000

2093857

-

483365228

357771944

48628013

251970458

85000000 133628013 616993241

15000000 266970458 624742402

-67577997

-127554389 -252000000 -14400000

-190440000 -356040000 0 2935244

-165600000 -165560000 48628013

Ye

========= Earning per share

58.38

43.21 '=========

Ratio Analysis (All amounts are Taka)

**ROE=Net income after tax / Total equity ROE (2004) =483156465 / 2630624772 ROE (2003) =357771944 / 2320898168

= 18.36% = 15.41%

ROE

15.41%

18.36%

x y

Analysis: From the figure we found that Return on Equity (ROE) in year 2003 is 15.41% and in year 2004 it is 18.36%. ROE measures the net benefit that the stockholders have received from investing their capital in the company. So the figure indicates that in 2004, shareholders are got more return to investing their capital which is greater than 2003.

**ROA=Net income after tax / Total Asset ROA (2004) ROA (2003)

= 483156465 / 23043468479 = 2.09% =357771944 / 18715682398 = 1.91% ROA

2.20% 2.10% 2.00% 1.90% 1.80%

2.09% 1.91% Year 2003

Year 2004

Series1

Analysis: From the figure we found that Return On Assets (ROA) in year 2003 is 1.91% and in year 2004 it is 2.09%. ROA provides an idea of the overall return on investment earned by the firm. It is primary indicator of managerial efficiency indicating how capably the management of a bank converting the bank’s assets into net earnings. So we can say that management efficiency of EBL Bank’s increasing day by day.

** NIM=Interest income – Interest expense /Total Asset

NIM (2004) NIM (2003)

= (1628259498 – 399666143) / 23043468479 = 5.33 % = (1383351107 - 297600339) / 18715682398 = 5.80% NIM

6.00% 5.80% 5.60% 5.40% 5.20% 5.00%

Series1

5.80% 5.33% Year 2003

Year 2004

Analysis: From the figure we found that Net interest Margin (NIM) in year 2003 is 5.80% and in year 2004 it is 5.33%. NIM measures how large a spread between interest revenues and interest costs management has been able to achieve by close control over the bank’s earning assets and the pursuit of cheapest source of funding. So we can say that EBL Bank’s interest income not increasing.

EPS:

EPS (2004) = 58.38 EPS (2003) = 43.21 EPS 80.00% 60.00% 40.00% 20.00%

43.21%

58.38%

Series1

0.00% Year 2003

Year 2004

Analysis: From the figure we found that Earning per share (EPS) in year 2003 is 43.21% and in year 2004 it is 58.38%. If we divide net income after tax by the number stock outstanding than we get EPS. This figure indicates that Income of per share increasing day by day.

**Profit Margin Ratio = Net income / Total Net sales

Profit Margin Ratio (2004) = 483365228 / 1628352434 = 29.6 % Profit Margin Ratio (2003) = 357771944 / 1383351107 = 25.86 %

PROFIT MARGIN RATIO 30.00% 28.00% 26.00% 24.00%

Series1

29.60% 25.86%

22.00% Year 2003

Year 2004

Analysis: From the figure we found that Profit Margin Ratio in year 2003 is 25.86% and in year 2004 it is 29.60%. It is indicates an idea of how much a bank makes from each dollars of loans. This figure indicates that Profit Margin Ratio is increasing day by day.

**Return on assets

=Net income / Average assets

Return on assets (2004) = 483365228 / {(23047667908 + 18715682398) / 2} =2.3% Return on assets (2003) =357771944 / {(23047667908 + 18715682398) / 2} =2.87% Return on assets 4.00% 3.00% 2.00% 1.00%

Series1

2.87%

2.30%

Year 2003

Year 2004

0.00%

Analysis: From the figure we found that Return on assets in year 2003 is 2.87% and in year 2004 it is 2.30%. It measures overall profitability of assets .This figure indicates that profitability of assets not increasing.

**Time Interest earned = Income before interest & tax / Interest expense

Time Interest earned (2004) = 1432359478 / 37000000 = 3.87 Time Interest earned (2003) = (928450655+758771944) / 280000000 = 6.025

Time Interest earned 8.00% 6.00% 4.00% 2.00%

6.03%

Series1 3.87%

0.00% Year 2003

Year 2004

Analysis: From the figure we found that time interest earned in year 2003 is 6.025times and in year 2004 it is 3.87 times. It measures ability to meet interest payments as they come due.

**Capital Adequacy:

Capital Adequacy (2004) = 14.88% Capital Adequacy (2003) = 18.27%

Capital Adequacy: 100% 50% 0%

18.27%

14.88%

Year 2003

Year 2004

Series1

Analysis: From the figure we found that capital adequacy in year 2003 is 18.27% and in year 2004 it is 14.88%. It measures to evaluate the risk position of a bank. The above graph shows that there is a declining trend. The trend asserts that the bank possesses less adequate capital to meet its requirement. It has a good sign that the bank uses the capital effectively. But sometimes the bank may fall in shortage of capital.

**Operating profit per employee:

Operating profit per employee (2004) =1.71million Operating profit per employee (2003) = 1.53 million

Value in million

Operating profit Per employee: 180.00% 170.00% 160.00% 150.00% 140.00%

Series1

Year 2003

Year 2004 Year

Analysis: From the figure we found that Operating profit Per employee in year 2003 is Tk.1.53 million and in year 2004 it is Tk. 1.71 million. It shows that the EBL bank’s employees are doing their job effectively and they effectively control the bank risks.

FINDING

EBL is one of the potential leading banks in the banking sector. The Gulshan Branch of EBL is a big branch. Therefore, it is not an easy job to find so many things during the very short period. Now, I would like to present my findings and give my opinion to improve the banking service and make the customers more satisfied. 1. The general banking activities of EBL are designed in a fashion to facilitate the customers with sophisticated and prompt financial service. 2. Customer’s dissatisfaction with the incremental hidden charges and service charges while dealing with ‘EBL”. 3. Customer’s loose temper because of taking long time for serving their purpose. Sometime it happens because of the insincerity of the ‘EBL’ officers. 4. EBL officers sometimes can’t provide services within the given time to the customers because of the dependency on other department. Personnel of related department do not realize the emergency. 5. Communication gap with the clients while dealing with EBL. 6. Facing a huge competition incase of introducing new product in the market. 7. The employees are not professionally trained and skilled enough. 8. The great problem of EBL is the absence of credit card. 9. EBL does not provide evening banking. 10. Service charges of EBL are comparatively higher than other bank. Therefore, from the above findings it has been identified that the Eastern Bank Limited has some problems. That task of this research is to identify the problems that are responsible for the decline of the credit level of EBL. The problem can be solved easily through proper steps and management needs to rethink and change the strategy.

CONCLUSION

Eastern Bank is one of the pioneer private banks in the country. It is one of the front line banks due to its specialized and sophisticated banking services rendered to its customers. In order to remain competitive in the market, it constantly looks for ways and means to improve productivity. Use of information technology remains its mainstay. EBL is playing significant role in various field of economy such as industry, agriculture, trade and commerce, transportation and many other fields. It is playing a crucial role in human resource development and in creating new employment opportunities. It is also undertaking various welfare activities for the betterment of the society. The reliability of the customers on EBL is increased promptly day by day. In EBL all the staffs are performing sands serving the customers untiringly. EBL keeps it self busy to serve the society, to improve the lifestyle of the people, to develop the business environment. The overall performance of EBL solid revenue growth together with strict discipline on expenses and a culture of sound risk management have upgraded the bank to a level of excellence, the bank constantly reviews its systems, policies, processes and price of its products and service in line with the changing market reality.

Bibliography

**Annual Report 2004&2005 **Fundamental of Investment, by Body