An Evaluation of Business and Financial Performance of the Dhaka Bank Limited 1 January 2005 and 31 December 2007

ANALYSIS, FINDINGS and RECOMMENDATIONS

1.1 Company Profile
Background of Dhaka Bank Limited (DBL): DBL is a scheduled bank that was incorporated under the Companies Act 1994, started its operation on July 1995 with a target to play a vital role on the socio-economic development of the country. Aiming at offering commercial banking service to the customers’ door around the country, DBL established 20 branches up-to this year. This organization achieved customers’ confidence immediately after its establishment. At the end of year 2007 the equity ownership of DBL was as follows:

Ownership Structure

Sponsors Institutional Investors General Public Foreign

Chart 1.1: Ownership Structure Source: Dhaka Bank Annual Report 2007 (A) Mission Statement To be the premier financial institution in the country providing high quality products and services backed by latest technology and a team of highly motivated personnel to deliver excellence in Banking.

An Evaluation of Business and Financial Performance of the Dhaka Bank Limited 1 January 2005 and 31 December 2007

Slogan Excellence in Banking Objectives • • • • • Be one of the best banks of Bangladesh. Achieve excellence in customer service next to none and superior to all competitors. Cater to all differentiated segments of Retail and Wholesale Customers. Be a high quality distributor of product and services. Use state-of the art technology in all spheres of banking.

DBL is now offering different types Depository product for mobilizing the savings of the general people. • • • • • • • • Deposit Product Current Deposit Saving deposit Account STD Account Fixed Deposit Excel Account Foreign Currency Deposit Account NFCD Non Resident Foreign Currency Account

DBL was offering the following loan and advance product to its client. These were to maintain good return on the investment as well as to satisfy the client. The loan and advance products were: • • • • • • • • • Personal Loan Scheme Lease Finance Term Loan Small and Medium Enterprise loan Working Capital Financing Import Financing Export Financing Syndicate Loan Industrial Financing

DBL also provides the following personal banking products • • • ATM Card Service Credit Card Services Excel Account for Executives

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An Evaluation of Business and Financial Performance of the Dhaka Bank Limited 1 January 2005 and 31 December 2007

1.2 Business & Financial Analysis:
The business and financial performance of Dhaka Bank Limited (DBL) over a three year period has been analysed under five broad categories:

Environmental Analysis. Business Performance Analysis. Financial Performance Analysis. Investors’ Interest Analysis. Other Factors Analysis.
1.2.1 Environmental Analysis:

PESTEL analysis: • Political: In the year 2006-2007 the economy of the country faced a state of emergency without an elected political government. This made the overall industry activity slower. The Daily Star, (2007). Economical: Bangladesh economy grew at 6.5% in 2006-07 fiscal year against 6.7% in 2005-06 (Dhaka Bank Limited Annual Report 2007,). Inflation of the economy increased from 7.2% in year 2006-07 to 9.94% in year 2007-08 (Bangladesh Bank, 2008). This was backed by stimulated manufacturing, remittances and export growth. Private sector commercial banks posted almost 38% growth in operating profit in 2007 over the last year. (Bangladesh Bureau of Statistics 2007). Social: Raised inflation hit customer’s disposable income that ultimately effect in customer deposit. Moreover customer taste about banking service is changing over the years. Potential customers are increasing includes a big stake of youth. Legal: The industry is inherently highly regulated by Banking Act and the central bank. Very recently DBL’S minimum capital rate against risk weighted capital increased from 9% to 10%.

•

•

•

Porter Five Force model: Threats of new entrant: High capital requirement, existing strong competition, required economies of scale, inherent complexity and government entry barrier reduced the threat of new entrant. Though the sector is highly profitable and the industry is in the growth phase of life cycle. Future changes in government policy may increase the threat of new entrant. Existing competition: Recently there were 62 banks operating in the economy of Bangladesh. The majority of the population are still outside of the banking operation. This is a high growth industry in this economy. The demand for banking services has been increasing at a rapid rate, so existing competition has been less of a threat to DBL..

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An Evaluation of Business and Financial Performance of the Dhaka Bank Limited 1 January 2005 and 31 December 2007

Depositor and customer bargain power: It is high as the depositor and customer have alternatives, and product and service information of other banks are easily available.

1.2.2 Business Performance Analysis
Business performance indicates how successfully and efficiently a company is operating and utilizing its available resources to generate profit. So it covers Income generation capability, Profitability measure of the bank, major financial activity, efficiency, economy of bank’s capital and revenue expenditures and there ultimate effectiveness. Profitability The profitability ratios measure the return in relation to the revenue earned or capital employed. They show the profitability and the management efficiency on utilizing the business resources. The main ratios used to reflect the profitability are Return on Asset and Return on Equity. A comparison of the two between Dhaka Bank Limited (DBL) and Prime Bank Limited (PBL) is shown below.
Dhaka Bank Ltd Prime Bank Ltd 2006 2005 2007 2006 Figures & numbers used are all in Million otherwise stated. 1.22% 580 47594 22.74% 580 2551 1.40% 463 33072 20.89% 463 2216 1.76% 1401 79588 26.57% 1401 5273 1.73% 1052 60899 27.29% 1052 3855

Particulars

2007

Return on Asset Profit after Tax Total Asset Return on Equity Profit after Tax Shareholder's Equity

1.23% 704 57443 22.53% 704 3125

Table 1.1: Return on Assets and Return on Equity

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An Evaluation of Business and Financial Performance of the Dhaka Bank Limited 1 January 2005 and 31 December 2007

Return on Asset & Return on Equity
30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2007 2006 2005
Return On Asset- DBL Return On Asset-PBL Return On Equity-DBL Return On Equity-PBL

Chart 1.1: ROA & ROE The comparison shows that the performance of DBL in terms of ROA was worse than our chosen benchmark PBL. The ROA of DBL dropped to 1.22% at 2006 and remained almost same in year 2007, though PBL registered growth in this measure. DBL’s ROE registered growth in year 2006 but slightly curved in the year 2007. DBL’s efficiency in the utilization of assets (Return on Asset) dropped by 12.5% from previous year. This indicates management inefficiency in utilisation of funds. In the year of 2006 and 2007 there was no elected political government and the environment was not favourable to entrepreneurs and other business sectors and banks’ potential customersthat was the reason for the downturn in its performance. Moreover DBL issued right shares in November 2006 that doubled the number of issue with a high premium. This additional money increased the total asset value but could not contribute at expected rate of return. That immature fund fuelled the dilution of the ratio. Net Interest Income and Profit After Tax
Dhaka Bank Ltd Particulars 2007 Interest Income Interest Expense 5636 4049 Growth Over Last Year 29.8% 19.8% Growth Over Last 2 Years 94.5% 88.4% 2006 4342 3380 2005 2897 2149 2007 7170 5267 Prime Bank Ltd Growth Over Last Year 37.9% 42.4% 2006 5199 3698 1500 1052

Net Interest Income 1589 65.2% 112.4% 962 748 1903 26.9% Net Profit After Tax & 21.4% 52.1% 580 463 1400 33.1% Provision 704 Table 1.2: Interest Income, Interest Expense, Sources: Dhaka Bank Limited Annual Report 2007 & Prime Bank Limited Annual Report 2007.

DBL’s Net Interest Income Stood at BDT 1589 million in the year of 2007 from BDT 962 and 748 million in 2006 and 2005, registering growth of 65% over last year and 112% over the last 2 years. On the other hand the PBL has earned net interest Income BDT 1903 million, higher than DBL but with reduced growth rate of 26%. In terms of net interest income DBL is relatively growing faster though net Interest income of the bank was 83% for PBL.

An Evaluation of Business and Financial Performance of the Dhaka Bank Limited 1 January 2005 and 31 December 2007

The interest income from Loans and Advances stood at BDT 5636 million in the year of 2007, showing a growth of 29% for DBL, at the same time Interest expenses on deposit grew by 20% to BDT 4049 million. DBL’s interest income grew 8% higher than interest expense. Here it is worth mentioning that PBL Interest income grew by 38% in response to growth in Interest Expense of 42%. DBL’s Profit after tax (PAT) stood at BDT 704 million in year 2007 with 52% growth over past two years. DBL registered growth of PAT by 21% from previous year where PBL PAT grew by 33%.
Investment Income

Investment income of DBL stood at BDT 529 million in 2007 registering 38% growth, though the investment grew at 11%, so the investment income earned better margin. The income consists of interest earned on treasury bills and bonds and dividend received on shares and capital ain from sale of securities of listed companies. During the year under review, investment income earning was better because of purchasing five and ten years government bonds at higher interest rate.
Operating Expense
Dhaka Bank Ltd Growth Growth Over Last Over Last Year 2 Years Prime Bank Ltd Growth Over Last 2007 Year 2006

Particulars

2007 2006 2005 Total Operating 30.4% 95.1% 889 594 1559 41.6% 1101 Expense 1159 Table1.4 : Total Operating Expense Source: Dhaka Bank Limited Financial Highlights (2007) & Prime Bank Limited Financial Highlights (2007).

In the year under review, DBL’s Operating Expense stood at BDT 1159 million from BDT 889 million and BDT 594 million of the previous year, registering a growth of 30% and 95%. Increase in expense is not worrying but indicator of the business activities. The expense should be consistent with income or operation. Operating expense in relation to Total Income was 16.05% in 2007 as against 16.3% in 2006 with no major change, where as it was 15.46 in PBL. The advantage that PBL was having is simply economic of scale. However, the increased number of branches as well as employees, 11% and 7% respectively of the bank is the reason behind its increase in absolute figure.
Import and Export Business
Dhaka Bank Ltd Prime Bank Ltd Growth Growth Growth Over Last Over Last Over Last 2007 Year 2 Years 2006 2005 2007 Year 2006 Import 49496 7.0% 63.8% 46277 30213 70617 34.2% 52639 Export 31081 33.6% 130.1% 23268 13505 51316 22.8% 41801 Table 1.5: Import and Export Business Source: Dhaka Bank Limited Financial Highlights (2007) & Prime Bank Limited Financial Highlights (2007). Particulars

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An Evaluation of Business and Financial Performance of the Dhaka Bank Limited 1 January 2005 and 31 December 2007

Import and Export
50000 40000 30000 20000 10000 0 2007
Chart 1.5: Import and Export
Export Import

2006

2005

DBL’s Import business volume for the year ended 31 December 2007 stood at BDT 49496 million against BDT 46277 and 30213 million at 2006 and 2005 respectively registering a growth of 7% over last year and 64% over last two years. The Import business grew we well in year 2006 but sharply fall in the next year. The PBL registered growth in Import of 34%. The Export business of DBL stood at BDT 31081 million in 2007. The figure was BDT 23268 and 13505 million. This showed 130% growth over last two years of which 34% 3 was from the year of 2006. On the other hand PBL grew by 23% from the previous year to BDT 51316 million at 2007. The total export business was 63% of total import business. The major items were industrial machinery, scrap vessel, vegetable oil, raw cotton, fabrics hot alloy steel, HDPE and the main items of exports were readymade garments, Jute goods, Fish, vegetable and other Agricultural products. In export sector expansion in non traditional items especially Garments Export also. of imports rolled non Raw Jute, there was

An Evaluation of Business and Financial Performance of the Dhaka Bank Limited 1 January 2005 and 31 December 2007

1.2.3 Financial Performance

Liquidity Banks Liquidity is important as it is concerned about DBL’s going concern. Banks should have enough liquidity in the form of cash reserve and short term investment so that it can honour customer demands. Normally the liquidity controlled by Banking Company Act 1991 and Circular of Central bank, Bangladesh Bank. So performance in maintaining liquidity will be indicated by the measures set by the central bank.

Particulars Cash Reserve Ratio (Required 5%) Actual Reserve Held Average Demand & Time Liability Statutory Reserve Ratio (Required 13%) Actual Reserve Held Average Demand & Time Liability

2007

Dhaka Bank Ltd Prime Bank Ltd 2006 2005 2007 2006 Figures & numbers used are all in Million otherwise stated. 5.09% 1973 38786 5.40% 1282 23760 5.10% 3286 64492 3.76% 2423 64492

5.13% 2117 41238

14.11% 5819 41238

13.99% 5427 38786

15.51% 3684 23760

27.15% 17509 64492

18.28% 11789 64492

Table 1.6: Cash Reserve Ratio and Statutory Reserve Ratio

Cash Reserve Ratio
6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 2007 2006 3.76% Cash Reserve Rat io of DBL Cash Reserve Rat io of PBL 5.13% 5.10% 5.09%

Chart 1.6.1: Cash Reserve Ratio

An Evaluation of Business and Financial Performance of the Dhaka Bank Limited 1 January 2005 and 31 December 2007

Statutory Reserve Ratio
30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2007 2006 14.11% 13.99% 18.28% Statutory Reserve Ratio of DBL Statutory Reserve Ratio of PBL

27.15%

Chart 1.6.2: Statutory Reserve Ratio

Banks in Bangladesh are required to keep 5% worth of its time and demand liabilities (Cash Reserve Requirement [CRR]) in the form of cash in current account with Bangladesh Bank and worth 13% (including 5% CRR) of its time and demand liabilities (Statutory Liquidity Requirement) in form of treasury bills, bonds, FC with Bangladesh Bank. In response to the requirement bank kept 5.13% CRR and 14.1% SLR of its time and demand liabilities in the year of 2007 compared to 5.10% and 27.15% in PBL. The reserve kept at the minimum level leaving rest of the fund free to be utilised as necessary. So, in liquidity management the Dhaka Bank is well efficient.

Capital Capital Adequacy Ratio (CAP) ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world. Two types of capital are measured: tier one capital, which can absorb losses without a bank being required to cease trading, and tier two capital, which can absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors. CAP is one of the important regulatory requirements, measured by the ratio of the bank’s total capital to risk weighted assets both on balance sheet and off balance sheet transactions. This is to ensure that the bank has strong capital base.
Dhaka Bank Ltd Prime Bank Ltd 2006 2005 2007 2006 Figures & numbers used are all in Million otherwise stated. 10.36% 9.41% 11.00% 11.50% 9.95% 2007 3681 35514 2920 31022 2453 22293 6382 55485 4409 44324

Particulars Capital Adequacy Ratio Core + Supplementary Capital Total Risk Weighted Asset

Table 1.7.1: Capital Adequacy Ratio

An Evaluation of Business and Financial Performance of the Dhaka Bank Limited 1 January 2005 and 31 December 2007

Particulars 2007 Growth

Dhaka Bank Ltd Growth Over Last 2 Years 26.0% 59.7% 41.0% 133.8% 50.0% 1289 1262 2551 373 2924 1228 988 2216 237 2453 2275 2998 5273 1109 6382 2006 2005 2007 Over Last Year

Prime Bank Ltd Growth Over Last Year 30.0% 42.4% 36.8% 102.0% 44.7% 1750 2105 3855 549 4409 2006

Paid Up Capital Reserve Fund & Other Reserve Total Shareholder Equity(Tier-1) Supplementary Capital(Tier-2) Total Capital

1547 1578 3125 554 3679

20.0% 25.0% 22.5% 48.5% 25.8%

Total Risk Weighted 3551 14.5% 59.3% 3102 2229 5548 25.2% 4432 Assets 4 2 3 5 4 Table 1.7.2: Paid Up Capital, Reserve Fund & Other Reserve, Total Shareholder Equity(Tier-1), Supplementary Capital(Tier-2), Total Capital, Total Risk Weighted Assets Source: Dhaka Bank Limited Financial Highlights (2007) & Prime Bank Limited Financial Highlights (2007).

The required amount of total capital (tier 1 and tier 2) is 10% of total risk weighted asset, where DBL kept the ratio at 10.36%. DBL’s paid up capital have been increased by series of bonus issue, Initial Public Offering (IPO issue) in year of 2000 and Rights issue in the year of 2006. This was to comply with central banks circular to increase paid up capital. To adopt the requirement, the bank increased its Authorized capital in the year of 2005 and 2007. The total shareholder’s equity of DBL stood at BDT 3125 million in the year of 2007 as against BDT 2551 and 2216 million in 2006 and 2005 respectively showing a growth of 23% from the year 2006 because of profit earned. Total shareholder equity of PBL grew by 37% in year 2007 compared to 2006.

Loan and Advances The level of Loan and Advances depends on the level of customer deposit. The measure should be how efficiently the bank disbursed the available fund ensuring higher yield and avoiding risk of default. Here DBL disbursed 82.03% of its deposited amount, where PBL did 81.08%.
Dhaka Bank Ltd Particulars Growth Over Last 2007 Loan & Advances 39972 Year 17.4% Growth Over Last 2 Years 71.0% 2006 34049 2005 23372 2007 57683 Prime Bank Ltd Growth Over Last Year 28.2% 2006 45010

Non Performing Loan 1258 127.1% 258.4% 554 351 777 111.7% 367 Table 1.8: Loan Source: Dhaka Bank Limited Financial Highlights (2007) & Prime Bank Limited Financial Highlights (2007).

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An Evaluation of Business and Financial Performance of the Dhaka Bank Limited 1 January 2005 and 31 December 2007

DBLs’ Loan and Advances stood at BDT 39972 million in the year of 2007 against BDT 34049 and 23372 million at 2006 and 2005 respectively grew by 17% from previous year and 71% over last two years. PBL registered growth 28% from previous year to BDT 57683 million in 2007. The non performing loan or toxic asset of DBL stood at BDT 1258 million that was 3.15% of the total Loans and Advances. The ratio dramatically increased from 1.63% at 2006. PBL had the ratio at 1.35% only. So the bank’s credit system does not seem to be adequately efficient. The high volume of toxic loan may affect future profitability of the bank dramatically. The credit portfolio of DBL was diversified having a balanced mix covering a wide range of industries.

Loan & Advance Portfolio

Agriculture Pharmacuticals Textile Chemical Transport energy Housing Food Service Ind. Other

Chart 1.8: Loan and Advance Portfolio Source: Dhaka Bank Annual Report 2007 (B)

Investments DBLs Investment stood at BDT 5972 million in the year of 2007 against BDT 5378 and 3926 million in 2006 and 2005 respectively grew by 11% from previous year and 52% over last two years. PBL registered growth of 62% from previous year to BDT 12698 million in 2007. DBL mostly invested in government securities, risk free investment as a result provides fewer yields than Loans and Advances. However it helped the bank to meet central bank’s Statutory Liquidity Ratio (SLR) requirement. In addition, investments were worked as a way to provide sufficient liquidity and flexibility in treasury operations. The portfolio included Government Treasury bill, Treasury bond, prize bond, Quoted and unquoted companies etc.

An Evaluation of Business and Financial Performance of the Dhaka Bank Limited 1 January 2005 and 31 December 2007

Deposits and Borrowings
Dhaka Bank Ltd Growth Growth Over Last Over Last Year 2 Years 17.3% 71.4% 11.0% 52.1% 17.4% 71.0% Prime Bank Ltd Growth Over Last Year 2007 2006 70512 28.9% 54724 12698 61.9% 7844 57683 28.2% 45010

Particulars 2007 48731 5972 39972

Deposits Investment Loan & Advances

2006 41554 5378 34049

2005 28439 3926 23372

Table 1.9: Deposit, Investment, Loan & Advance Source: Dhaka Bank Limited Financial Highlights (2007) & Prime Bank Limited Financial Highlights (2007).

Customer Deposit is in heart of overall banking activities and important indicator to overall business growth. The Deposit of DBL stood at BDT 48731 million in the year of 2007 against BDT 41554 and 28439 million at 2006 and 2005 respectively grew by 17% from previous year and 71% over last two years. The growth supported by increased branch network and better standard product and services along with competitive interest rate. tter However, PBL registered growth of 29% from previous year reached to BDT 70512 million in 2007. DBL’s total deposit was only 70% of PBL deposit.

Deposit Mix
1716 4625 4393
Savings Deposits

1998

Current & other Deposit

36000

Short Term Deposit

Term Deposit

Bill Paybale

Chart 1.9.1: Deposit Mix Source: Dhaka Bank Annual Report 2007 (C)

The relativity of deposit and Advances and Investment has shown bellowbellow-

An Evaluation of Business and Financial Performance of the Dhaka Bank Limited 1 January 2005 and 31 December 2007

Relativity of Deposit, Loan & Investment

50000 40000 30000 20000 10000 0 2007 2006 2005
Loan & Advances Deposits

Investments

Chart 1.9.2:Relativity of Deposit, Loan and Investment. Relativity

The free/low cast deposits and high cost fixed deposit of DBL was 26% and 7 72% of total deposit. PBL High cost fixed deposit was 70%. This indicates the ability of PBL to have access of low cost fund. The customer groups of the bank were individuals, corporation, NBFI, Government bodies, NGO, autonomous bodies etc.

1.2.4 Investor’s Interest This part focused on the requirement of a potential investor, how much lucrative the bank is to them. The Earning per Share, Dividend per Share, Price earning ratio etc. measure the return to ordinary shareholder. Particulars Earning Per Share (Taka) Price Earning Ratio(time) Net Asset Per Share (At actual) Market Price Per Share(BDT) Price Earning Ratio(Times) Number Of Share Dhaka Bank Ltd 2007 2006 36 45 19.61 10.36 202 706.00 15.33 15.47 198 466.00 10.32 12.89 Prime Bank Ltd 2007 2006 61.57 60.11 15.01 8.80 232 924 15.00 22.75 220 529 8.80 17.5

2005 44 10.66 180 469.00 10.66 12.28

Table 1.10: Earning Per Share (Taka), Price Earning Ratio(time), Net Asset Per Share (At actual), Market Price Per Share(BDT), Price Earning Ratio(Times), Number Of Share Source: Dhaka Bank Limited Financial Highlights (2007) & Prime Bank Limited Financial Highlights (2007).

An Evaluation of Business and Financial Performance of the Dhaka Bank Limited 1 January 2005 and 31 December 2007

Earnings and Dividend Earning Per Share (EPS) is the Net income of a firm divided by the number of its outstanding shares - the shares held by the stockholders The EPS of DBL stood at BDT 46.06 per share in the year of 2007 against BDT 45.17 in 2006, registering an increase of 2%. The EPS of the bank was 23% of net asset value per share. On the other hand PBL bank earned BDT 62 per share grew by 2.4% that was 26% of its net asset per share. So DBL earning at 23% of its net asset value that is 3% less than PBL.

Earning Per Share

70 60 50 40 30 20 10 0

62 46 45

60 44 41
Earning Per Share-DBL Earning Per Share-PBL

2007

2006

2005

Chart 1.10.1: Earning Per Share of DBL and PBL

The company has declared 25% of stock dividend without any cash dividend for the year of 2007 as against 20% of stoke with 10% cash dividend for the previous year. In economic sense 25% stock dividend paid shareholder better return at ex market price per share for small investors; retention of fund will generate further return and especially the increased capital fund will enable DBL to maintain better capital structure as well as to increase their business activities. Price earning ratio of DBL stood at 15.34 times against 10.36 times in last year. This measure exceeded the performance of PBL but just a little, as PBL ratio stood at 15.01 times in 2007. This indicates stock market confidence on future cash flow of DBL.

Share Market Price and Net Asset; The share price of DBL at the end of 2007 was BDT 706 per share against BDT 466 and 469 in 2006 and 2005. The market price of the share has increased by 51%. Comparatively in 2007, the PBL share price at the end of 2007 was 924 though nominal value of both shares is BDT100.

An Evaluation of Business and Financial Performance of the Dhaka Bank Limited 1 January 2005 and 31 December 2007

Market Price Per Share & Net Asset Per Share

2500 2000 1500 1000 500 0

924 529 232 706 202 221 466 198 681 200 469 180

Market Price Per SharePBL Net Asset Per SharePBL Market Price Per ShareDBL Net Asset Per ShareDBL

2007

2006

2005

The Chart 1.10.2: Market Price and Net Asset per Share of DBL and PBL Net Asset per share of DBL was BDT 202 per share in the year of 2007 against BDT 198 and 180 in the year of 2006 and 2005, registering a growth of only 2% from past year. PBL net assets stood at BDT 232 after a growth of 5%. Both of them diluted by number of bonus issues took place over the years. The increase in share price was supported by net asset value at the same time future prospects of DBL adjacent to price sensitive information.

1.2.5 Other Factors:
Performance Awards: DBL has awarded a number of achievement awards over the last two years. These awards that the bank won from home and abroad as the recognition of its excellent services and quality are listed bellow01. The best-published accounts of 2005, from The Institute of Chartered Accountants of Bangladesh (IACB). 02. First Corporate Social Responsibility (CSR) Award 2005. 03. International Star Award for Quality 2006 at Geneva for integral quality process, the first recipient from Bangladesh. 04. SAFA Award 2006. 05. Human Right Award 2006 and others. These awards significantly add value, improve corporate image and also contributes to the share market price.

An Evaluation of Business and Financial Performance of the Dhaka Bank Limited 1 January 2005 and 31 December 2007

Human Resource: “… the land, buildings, knowledge and machines that are used to produce goods and the worker skills are necessary to use those resources. Together, physical and ‘human’ assets generate the entire spectrum of output produced and consumed by the society.” (Bodie et al. 2005) So human resources are an important part of an organisation. According to Mendelow Stakeholder Mapping Matrix they are considered as stakeholder group with High level of interest at the same time high level of power. DBL’s average payment to each employee was 0.63 million where PBL expensed 0.52 million. A bank’s employee development is a vital factor for an organisation’s directional and operational efficiency and future financial growth. DBL’s average training expense for each employee stood at BDT 6300 whereas it was BDT 4800 for PBL. Comparatively the bank’s employees are earning less than PBL as DBL employee earn BDT 0.84 million each whereas PBL employee earn BDT 1 million each.

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An Evaluation of Business and Financial Performance of the Dhaka Bank Limited 1 January 2005 and 31 December 2007

3.3 Conclusion:

The main objective of this report was to analyse the financial situation of DBL, by gathering all the relevant information and data, applying the appropriate techniques to analyse it The report has started with some background of the bank and subsequently by business environmental analysis to figure out Threats and Opportunities using PESTAL analysis and Porter Five Force Model. Other parts of the analysis cover evaluation of Internal Strengths and Weaknesses of the bank. The analysis is classified into Environmental Analysis, Business Performance Analysis, Financial Performance Analysis, Investors Interest Analysis and Other factors analysis. The information was gathered mainly from primary and secondary sources. The analysis has figured out a number of strengths and weaknesses in the performance of DBL. Return on Asset of the bank dropped by 13% from the previous year. In terms of net interest income DBL relatively grew faster than PBL, which stood at BDT 1589 million. DBL has earned a higher return on Loan and Advances as compared to PBL at 14.84%. Cost of Deposit of DBL decreased from past year but still 7% higher than PBL. Investment income grew at higher rate than Investment volume. So investments were earning higher yields than before. The Import business of DBL fell and Export grew over the last year. The increased export gave the bank an edge in managing required foreign currency for meeting Letter of Credit (LC) commitment. All performance indicator of DBL other than Return on Asset (ROA) and Foreign Remittance registered growth, though majority were not at the desired efficiency level. The bank maintained liquidity requirement in an efficient manner. DBL had a Capital Adequacy Ratio of 10.36%, which is well above the requirement. DBL’s earning ratio dropped because of adverse economical & political uncertainty as well as right issue of share capital. Earning per share of DBL was BDT 46 per share that was 25% less than PBL. Share market price of DBL in relation to earnings was higher than PBL. Share price grew by 51% from the past year. Share market price of DBL in relation to earning was higher than PBL. Share Price grew by 51% from past year. DBL adopted 100% retention policy in current year. Shareholders were compensated by 25% bonus issue. Higher average payment scale of DBL has and will attract skilled and talented employees and higher retention of experienced employees. This will in effect increase overall operational efficiency. In response to DBL’s Return on Asset, management’s focus should be on better utilization of its asset to earn higher return. They should consider Loan and Advance mix. The bank can itself create a cell to promote entrepreneur with specialized support that will increase its service income and at the same time will create a scope for better utilization of fund.

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An Evaluation of Business and Financial Performance of the Dhaka Bank Limited 1 January 2005 and 31 December 2007

Management should review the operating expenses. The Incremental Budget for the operating expenses could include Budgetary Slack. So the budget should be reproduced using the concept of Zero Based Budgeting system. Moreover the management may perform Porter Value Chain Analysis to eliminate the expenses that does not add value that customers would recognise. New sectors for export business should be generated. DBL itself can arrange promotional activities to develop knowledgeable service customer group. The documentation processing should be easier, it should arrange easy loan and guarantee faster services. The bank can also make it easier for exporters by creating a Virtual Group to complete the processes for example by providing logistic service, warehousing etc. Bank can appoint counsellor to advice customers facing trouble and provide general and technical advise. Banks mainly generate income from lending and investing from customer deposits. Overall bank’s levels of activities depend on levels of customer deposit. So DBL should strengthen its customer base and that is the key for success. The bank should concentrate on particular targets e.g. Customer friendly deposit scheme, increased class depth, worthy return and standard level of servicing. But merely better service and return are not all because it’s the era of Specialisation; customers nowadays prefer prestigious brand image, reliability and individual value adding services. The bank should have research and development department to recognise and analyse customer requirement and future potentiality. These should be considered in corporate strategy making process. Overall on the ground of the analysis I can conclude that the Dhaka bank was growing over the three years (2005, 2006 and 2007) in all important sector e.g. Income, deposit, investment, loan & advances, import export, EPS, share price etc., but the important question was whether the growth rate was higher than its competitor (Prime Bank Limited)? The answer I found for majority of my analysis instruments was that it was not. So DBL was not competitive. Though the bank showed efficiency in managing higher return by higher Loan & Advance & Investment yield but failed to utilize its entire asset as ROA was weak. DBL has maintained liquidity & capital requirement in an efficient manner. Overall Dhaka Bank Limited has performed fairly well with a growth in almost all aspects of the business. Although it has been seen to have below the average performace compared to Prime Bank Limited it may still be concluded that it will continue to grow and perform well and thus be attractive to stoke future market investors. (The Financial Express, 2007).

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An Evaluation of Business and Financial Performance of the Dhaka Bank Limited 1 January 2005 and 31 December 2007

APPENDICES
Appendix-1 Financial Highlights includes important figure of financial statements of Dhaka Bank Limited of years 2005 to 2007 (2004 to 2008 Included) and Prime Bank Limited of year 2006 to 2007. Dhaka Bank Financial Highlights for the Years 2004 to 2008.

Sources: Dhaka Bank Financial Highlights (2007)

An Evaluation of Business and Financial Performance of the Dhaka Bank Limited 1 January 2005 and 31 December 2007

Prime Bank Limited Financial Highlights for the Years 2003 to 2007

Source: Prime Bank Limited Financial Highlights (2007)

An Evaluation of Business and Financial Performance of the Dhaka Bank Limited 1 January 2005 and 31 December 2007

Appendix-2 Ratio Analysis for Dhaka Bank Ltd ( Year 2005 to 2007) and Prime Bank Ltd (Year 2006 and 2007)
Workings: Ratio Calculation No Particulars Dhaka Bank Ltd Prime Bank Ltd 2007 2006 2005 2007 2006 Figures & numbers used are all in Million otherwise stated. 1.23% 704 57443 22.53% 704 3125 10.36% 3681 35514 46 704 15.47 1.22% 580 47594 22.74% 580 2551 9.41% 2920 31022 45 580 16.21 1.40% 463 33072 20.89% 463 2216 11.00% 2453 22293 44 1.76% 1401 79588 26.57% 1401 5273 11.50% 6382 55485 61.57 1401 22.75 1.73% 1052 60899 27.29% 1052 3855 9.95% 4409 44324 60.11 1052 17.5

1

Return on Asset Profit after Tax Total Asset

2

Return on Equity Profit after Tax Shareholder's Equity

3

Capital Adequacy Ratio Core + Supplementary Capital Total Risk Weighted Asset

4

Earning Per Share (Diluted) Profit after Tax No of Ordinary Share('000)

5

Dividend Per Share Cash + Bonus Dividend Net Asset per Share Shareholders Equity No of share

0%+25% 202 3125 15.47

10%+20% 198 2551 12.89

20%+5% 180 2216 12.28

10%+25% 232 5273 22.75

0%+30% 220 3855 17.5

6

7

Interest Margin Net Interest Income Interest Income

28.19% 1589 5636 82.03% 39972 48731 3.15% 1258 39972 5.13% 2117 41238

22.16% 962 4342 81.94% 34049 41554 1.63% 554 34049 5.09% 1973 38786

25.82% 748 2897 82.18% 23372 28439 1.50% 351 23372 5.40% 1282 23760

26.54% 1903 7170 81.80% 57683 70512 1.35% 777 57683 5.10% 3286 64492

28.85% 1500 5199 82.25% 45010 54724 82.00% 367.15 45010 3.76% 2423 64492

8

Loan / Deposit Ratio

9

NPL* / Loan & Advance Ratio (NPL-Non Performing Loan)

10

Cash Reserve Ratio (Required 5%) Actual Reserve Held Average Demand & Time Liability

Research and Analysis Report

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An Evaluation of Business and Financial Performance of the Dhaka Bank Limited 1 January 2005 and 31 December 2007

No

Particulars

Dhaka Bank Ltd Prime Bank Ltd 2007 2006 2005 2007 2006 Figures & numbers used are all in Million otherwise stated.

11

Statutory Reserve Ratio (Required 13%) Actual Reserve Held Average Demand & Time Liability

14.11% 5819 41238 24.80 7218 291 15.34 706 46 72.15% 5208 7218

13.99% 5427 38786 25.12 5452 217 10.36 466 45 78.30% 4269 5452

15.51% 3684 23760 29.80 3636 122 10.66 469 44 75.44% 2743 3636

27.15% 17509 64492 15.28 10083 660 15.01 924 62 67.70% 6826 10083

18.28% 11789 64492 16.82 6931 412 8.80% 529 6011 69.24% 4799 6931

12

Fixed Asset Turnover Ratio Total Revenue Fixed Asset

13

Price Earning Ratio(time) Price Earning

14

Expense Income Ratio Total Expense Total Income

Research and Analysis Report

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An Evaluation of Business and Financial Performance of the Dhaka Bank Limited 1 January 2005 and 31 December 2007

Appendix-3

Balance Sheet of Dhaka Bank Limited – as at 31 December 2007.

Source: Dhaka Bank Limited Annual Report 2007

An Evaluation of Business and Financial Performance of the Dhaka Bank Limited 1 January 2005 and 31 December 2007

Appendix-4 Profit and Loss Account of Dhaka Bank Limited – for the year ended 31 December 2007.

Source: Dhaka Bank Limited Annual Report 2007

An Evaluation of Business and Financial Performance of the Dhaka Bank Limited 1 January 2005 and 31 December 2007

Appendix-5 Cash Flow Statement of Dhaka Bank Limited – for the year ended 31 December 2007.

Source: Dhaka Bank Limited Annual Report 2007

An Evaluation of Business and Financial Performance of the Dhaka Bank Limited 1 January 2005 and 31 December 2007

Appendix-6 Balance Sheet of Prime Bank Limited Limited – as at 31 December 2007

Source: Prime Bank Limited Annual Report 2007.

An Evaluation of Business and Financial Performance of the Dhaka Bank Limited 1 January 2005 and 31 December 2007

Appendix-7 Profit and Loss Account of Prime Bank Limited Limited – for the year ended 31 December 2007.

Source: Prime Bank Annual Report 2007