DETERMINANTS OF PROFITABILITY OF PRIVATE COMMERCIAL …€¦ · Bhaskar Podder A project submitted in partial fulfillment of the requirements for the degree of Professional Master

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DETERMINANTS OF PROFITABILITY OF PRIVATE COMMERCIAL BANKS IN BANGLADESH: AN EMPIRICAL STUDY

by

Bhaskar Podder

A project submitted in partial fulfillment of the requirements for the degree of Professional Master in Banking and Finance

Examination Committee: Dr. Sundar Venkatesh (Chairperson)

Dr. Winai Wongsurawat Dr. Yuosre Badir

Nationality: Bangladeshi Previous Degree: Master of Business Administration

University of Dhaka Dhaka, Bangladesh

Scholarship Donor: Central Bank of Bangladesh

Asian Institute of Technology School of Management

Thailand

May 2012

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ACKNOWLEDGEMENT

At the outset, I wish to acknowledge the immeasurable blessings and profound kindness of

the Almighty – the supreme authority of the universe.

Successful completion of any course requires support from various persons. I am very much grateful to Dr. Sundar Venkatesh, the renowned academician and supervisor of my project work for his untiring and sincere guidance. I would like to express my whole-hearted thanks

and sincere gratitude to him. Without his close guidance and valuable suggestions, it would be quite impossible for me to complete the project work.

I like to extend my gratitude to the authority of Bangladesh Bank, the central bank of Bangladesh for granting me a scholarship for studying this ‘Professional Master in Banking

& Finance’.

I would like to express my indebtedness to the officials of Bangladesh Bank for extending their hands in collecting the required data for the project work.

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ABSTRACT

With developed banking technologies and client- focused mentality, Private Commercial

Banks (PCBs) try to ensure quality services to their customers. For this philosophy, they are becoming able to increase the level of deposits and credits more rapidly than Govt.-owned

banks. Moreover, they are becoming successful in decreasing the percentage of non-performing loan. So their businesses are found quite profitable.

This paper is an attempt to analyze the growth of PCBs of Bangladesh in respect of deposit, advances, total assets, equity and net income, find out the determinants of their profitability

and their performance in respect of those determinants.

It is observed that PCBs have shown mentionable growth during the pe riod 2001-10. The

prominent determinants of profitability are found to be Advance/Deposit ratio, Total Asset, Equity/Total Asset ratio, Non Performing Loan as percentage of total Advance, Business per

Employee and Number of Bank Branches.

The performance of PCBs in respect of the profitability determinants are found quite

satisfactory. This indicates the prospect of PCBs in Bangladesh is bright. With a view to face competition in coming days, PCBs require to concentrate more on the profitability determinants.

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TABLE OF CONTENT

Title

Title Page i Acknowledgement ii Abstract iii

Table of content iv List of figures vi

List of table vii Abbreviation and acronyms viii

Chapter-I

Introduction

1.1 Background of the study 1 1.2 Objectives of the study 1

1.3 Rational of the study 1 1.4 Methodology 2

Chapter-II

Literature Review

2.1 Determinants of Profitability for Commercial Banks 4 2.2 Internal determinants & external determinants 4

2.3 Profitability Determinants used in emerging economies of Asia 6

Chapter-III

An Overview of Banking Sector in Bangladesh

3.1 Banking Sector in Bangladesh 8

3.2 Nationalization of Commercial Banks 8 3.3 Denationalization and Privatization of Banks 9

3.4 Financial Liberalization under FSRP 9 3.5 Bank Restructuring under BRC/FSRP 10

Chapter-IV

Evolution and Growth of PCBs in Bangladesh

4.1 Private Commercial Banks (PCBs) in Bangladesh 11 4.2 Generation of Banking Sector in Bangladesh 11

4.3 Growth of Private Commercial Banks (PCBs) in Bangladesh 12 4.4 CAGR of selected variables of generation wise PCBs 14

4.5 Comparison of the selected variables of category wise banks 16 4.6 Comparison of CAGR 17

Part-V Determinants of PCBs’ Profitability – A proposed model

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5.1 Bank Profitability 18 5.2 Model Specification 18

5.3 Results 19 5.4 Analysis 27

Part-VI

Sample, Data and Results 6.1 Commercial Bank

Performance 30 6.2 Trend of the profitability determinants of PCBs 30

6.3 Performance of PCBs in respect of profitability determinants 32 6.4 PCBs’ Profitability Determinants and those of SCBs, DFIs & FCBs 35 6.5 Performance of PCBs in respect of ROA & ROE 38

6.6 ROA & ROE of PCBs’ and those of SCBs, DFIs & FCBs 40

Part-VII

Conclusions and areas for further research

7.1 Conclusions 42 7.2 Areas for further research 43

Reference 44

Appendices 45

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LIST OF FIGURES

Figure 4.1 Trends of the Variables of Growth of PCBs 13

Figure 4.2 CAGR of selected variables of First Generation PCBs 14

Figure 4.3 CAGR of selected variables of Second Generation PCBs 15

Figure 4.4 CAGR of selected variables of Third Generation PCBs 15 Figure 4.5 Trend of deposit of category wise banks 16

Figure 4.6 Trend of advance of category wise banks 16

Figure 4.7 Trend of total asset of category wise banks 17

Figure 4.8 Trend of equity of category wise banks 17

Figure 4.9 Trend of net income of category wise banks 17 Figure 6.1 Performance of PCBs in respect of profitability determinants 31

Figure 6.2 PCBs’ Advance-Deposit ratio in respect of other categories of banks 35

Figure 6.3 PCBs’ total asset in respect of other categories of banks 36

Figure 6.4 PCBs’ equity/total asset ratio in respect of other categories of banks 36

Figure 6.5 PCBs’ NPL as % of total advance in respect of other categories of banks 36 Figure 6.6 PCBs’ Business per Employee in respect of other categories of banks 37

Figure 6.7 PCBs’ No of Bank Branches in respect of other categories of banks 37

Figure 6.8 PCBs’ Return on Asset (ROA) and Return on Equity (ROE) 38

Figure 6.9 PCBs’ Return on Asset (ROA) in respect of other categories of banks 40

Figure 6.10 PCBs’ Return on Equity (ROE) in respect of other categories of banks 40

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LIST OF TABLES

Table: 3.1 Banking structure in Bangladesh 8

Table 4.1 PCBs in Bangladesh 11

Table 4.2 Growth of PCBs 12

Table 4.3 CAGR of selected variables of Generation wise PCBs 14

Table 4.4 Mean & Standard Deviation of selected variables of category wise banks 16

Table 4.5 CAGR of selected variables of category wise banks 17

Table 5.1 Correlation Matrix of selected Independent Variables 18

Table 5.2 Independent variables and expected relation 19

Table 5.3 Model Summary and ANOVA (F) Results (NI as dependent variable) 20

Table 5.4 Model Summary and ANOVA (F) Results (ROA as dependent variable) 20

Table 5.5 Model Summary and ANOVA (F) Results (ROE as dependent variable) 21

Table 5.6 Regression Coefficients (NI as dependent variable) 22

Table 5.7 Regression Coefficients (ROA as dependent variable) 24

Table 5.8 Regression Coefficients (ROE as dependent variable) 26

Table 5.9 Significant Regression Coefficients 28

Table 6.1 Trend of the profitability determinants of PCBs 30

Table 6.2 First Generation PCBs in respect of profitability determinants 32

Table 6.3 Second Generation PCBs in respect of profitability determinants 33

Table 6.4 Third Generation PCBs in respect of profitability determinants 34

Table 6.5 Comparison of selected variables of PCBs to those of SCBs, DFIs & FCBs 37

Table 6.6 Mean, Standard deviation, Trend equation of ROA and ROE of PCBs 38

Table 6.7 ROA & ROE of First Generation PCBs 39

Table 6.8 ROA & ROE of Second Generation PCBs 39

Table 6.9 ROA & ROE of Third Generation PCBs 40

Table 6.10 Comparison of ROA & ROE of PCBs to those of SCBs, DFIs & FCBs 41

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ABBREVIATION AND ACRONYMS

BB Bangladesh Bank

BCA Bank Company Act, 1991 BRC CAGR

Bank Restructuring Committee Cumulative Average Growth Rate

CBRP Commercial Bank Restructuring Project CBSP Central Bank Strengthening Project

CIB DFI

Credit Information Bureau Development Financial Institute

FCB Foreign Commercial Bank

FSRP Financial Sector Reform Program GDP Gross Domestic Product

NCB NI

Nationalized Commercial Bank Net Income

PCB

ROA ROE

Private Commercial Bank

Return on Asset Return on Equity

SCB

State owned Commercial Bank

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CHAPTER I

INTRODUCTION

1.1 Background of the study

Bangladesh has a mixed banking system comprising State-owned Commercial Banks (SCBs),

Development Financial Institutions (DFIs) or Specialized Commercial Banks (SBs), private commercial banks (PCBs) and foreign commercial banks (FCBs). Bangladesh Bank is the

central bank of the country and is in charge of formulating and implementing monetary policies and regulator of the banking sector of the country. After the independence in 1971, the govt. of Bangladesh initially nationalized the total domestic banking system and

reorganized and renamed the various banks. In nineteen eighties, the decision of privatization of the commercial banks revolutionizes the entire banking system of the country. At present

the banking systems of Bangladesh as a whole, consists of four state owned commercial banks, four specialized commercial banks, thirty private commercial banks and nine foreign commercial banks.

Private Commercial Banks (PCBs) started their journey in Bangladesh in 1982. Since then,

they play a vital role in the economic development of the country. With the help of developed banking technologies and client- focused mentality, they try to ensure quality services in quick time to their customers as per their expectation. Their prudence in selecting appropriate

borrowers and sector of providing loans and monitoring them closely has decreased the percentage of non-performing loan. Besides, the prudent regulatory measure of the central

bank including guidance regarding prudential norms of capital adequacy, classification of loans, on-site and off-site supervision have made the PCBs sound in Banking operation. For these reasons, they are found profitable in their business. Their performance in respect of the

profitability determinants shows their potentiality in the banking industry. An effectively functioning financial system requires a banking system that can earn a reasonable return by

taking an acceptable level of risks.

1.2 Objectives of the study

The objectives of the study are as follows:

(a) Provide an overview of banking sector in Bangladesh with a focus on evolution and growth of PCBs.

(b) Compare performance of PCBs and other categories of banks such as SCBs, DFIs and FCBs.

(c) Analyze the determinants of PCBs’ profitability.

1.3 Rational of the study

In order to survive in the long run, it is important for a bank to find out what are the determinants of profitability so that it can take initia tives to increase its profitability managing the dominant determinants. Bank performance is also vitally important for all stake

holders, such as the owners, the investors, the debtors, the creditors, the depositors, the managers of banks, the regulators and the government. The performance of banks gives

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directions to the stake holders in their decision making. It gives direction to the debtors and the investors to make decision whether they should invest money in bank or invest

somewhere else. It also flashes direction to bank managers whether to improve its deposit service or loan service or both to improve its finance. Regulatory agencies and government

are also interested in financial performance for the regulation purposes.

1.4 Methodology

The following methodology has been followed in the study:

1.4.1 Sample Design

The sample of the study represents all 4 category wise schedule banks in Bangladesh, especially focusing on all 30 Privatized Commercial Banks. The banks categorized into

ownership pattern like State-owned Commercial Banks, Specialized Banks, Privatized Commercial Banks and Foreign Commercial Banks.

1.4.2 Data Collection

The secondary data on deposits, advance, total assets, equity, net income, number of branches, number of employees and non performing loan of all the scheduled banks in the study have been collected from various departments of Bangladesh Bank.

1.4.3 Time Reference

The time reference of the study was 2001-2010. This period was selected mainly because all the 30 PCBs are in operation during this period. There are 3 PCBs that started operation in

2001. So the data prior to this period may not reflect a total scenario.

1.4.4 Hypothesis of the Study

H1: Profitability (considered as Net Income) of a private commercial bank is positively and significantly related to its advance/deposit ratio, total assets,

equity/total asset, number of branches, Business per Employee (BPE) calculated as Deposit + Advances/ Number of Employees and negatively and significantly related to its NPL/Advance ratio.

H2: Profitability (considered as Return on Asset) of a private commercial bank is

positively and significantly related to its advance/deposit ratio, total assets, equity/total asset, number of branches, Business per Employee (BPE) calculated as Deposit + Advances/ Number of Employees and negatively and significantly related

to its NPL/Advance ratio.

H3: Profitability (considered as Return on Equity) of a private commercial bank is positively and significantly related to its advance/deposit ratio, total assets, equity/total asset, number of branches, Business per Employee (BPE) calculated as

Deposit + Advances/ Number of Employees and negatively and significantly related to its NPL/Advance ratio.

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1.4.5 Data Analysis

Calculation of the following:

i. Cumulative Average Growth rate (CAGR) of various variables:

CAGR= (Value of the parameter in the year 2010/ Value of the parameter in the

year 2001)1/10-1

ii. The performance of the banks has been measured by several variables: ROA, ROE and the prominent variables that have been found to have significant impact on profitability. Among these variables, there are several ratios. These have been

calculated as follows:

a. ROA = Net Income/Total Asset. b. ROE = Net Income/Total Equity. c. Advance- Deposit ratio = Total Advance/Total Deposit.

d. Equity/Total Asset ratio = Equity/Total Asset e. NPL as percentage of total advances= Non-performing Loans /Total

Advances. f. Business Per Employee (BPE) = (Deposit + Advances)/ Number of

Employees

iii. The statistical tools that have been used in the study are,

a. Trend analysis: For trend analysis, time series analysis has been used. b. Standard deviation: It has been used for measuring dispersion from the mean

result. c. Correlation and Regression: These have been used to identify the relationship

among the variables. 1.4.6 Limitation:

i. Time Constraint: The obtained duration for the project work was very limited.

ii. Scarcity of published work: Research work and publication on the concern area in Bangladesh have not yet been done extensively.

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CHAPTER II

LITERATURE REVIEW

2.1 Determinants of Profitability for Commercial Banks

There is a vast body of empirical literature on what are the determinants of profitability for

commercial banks.

Hester and Zoellner (1966), the pioneers of the bank profitability studies, used net current operating income, net income before taxes, and net income after taxes as the dependent variable and found that the changes in asset and liability portfolios (items in the balance

sheet) produced positive and negative results on banks’ earnings. All asset items are found to have a significant positive relationship and all liability items, which include demand, time

and savings deposits were found negatively related to profits. 2.2 Internal determinants & external determinants

Bourke (1986) divided the profitability determinants for commercial banks into two main

categories, such as internal determinants and external determinants. The internal determinants are management controllable factors, for example, liquidity, investment in subsidiaries, investment in securities, loans, non-performing loans and overhead expenditure. Other

determinants such as savings, fixed deposits, current account deposits and capital reserves and money supply also play a major role in influencing the profitability. Similarly, external

determinants are those factors which are beyond the control of management of these institutions such as inflation rates, interest rates, market share and market growth and.

2.2.1 The internal determinants

Financial and Non-Financial Statements variables

Guru and Bala. S (1998), classified the internal determinants into two sub-categories - Financial Statement variables and Non-Financial Statements variables.

The Financial statement variables are related to the decisions that directly affect the items of a balance sheet and profit & loss accounts where the nonfinancial statement variables are those factors that do not have a direct impact on the financial statements.

Liquidity

Steven J. L and B.D Roderick (1992), and Graham. H, (1993), suggested that as the loans to

deposit ratio rises and hence liquidity falls, banks would be reluctant to lend that leads to higher loan rates. Again, banks in a liquid situation as indicated by low loans-deposit ratio or recent inflows of deposit would tend to offer lower loan rates compared to banks in a less

liquid situation. Slovin and Sushka (1984) also found evidence that banks with rapid growth in deposit and hence higher liquidity set lower loan rates. Thus, given the relationship

between liquidity and loan rates, the relationship between bank liquidity and profitability would depend on the interest rate elasticity of demand for loans. Bourke (1989) used the ratio of liquid assets to total assets as a measure of liquidity. The higher the ratio, the higher the

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liquidity and vice-versa. Bourke’s results indicated a significant positive relationship between liquidity and profitability.

Bank Size and Economies of Scale

The size of a bank is considered as an internal determinant on the assumption that

management of the bank is responsible for expanding their organization by acquiring additional assets and liabilities. Boyd, J.H. and D.E. Runkle (1993) showed that size of a bank is also associated with the concept of economies of scale. Athanasoglou P., Delis M.

and C. Staikouras (2006), indicated that as a result of gaining market share, a bank would increase its earnings which would increase its profitability. It is usually assumed that large

banks enjoy economies of scale, so they are able to produce their outputs or services more cheaply and efficiently than smaller banks. As a result, larger banks will earn higher rates of profit if entry is restricted.

2.2.2 External determinants

Regulation

Frame et al. (1994) showed that the banking industry is among the most heavily regulated industries in the world. Regulations on the banking system as a whole include regulation on

the condition of entry, establishment of new branches, ventures, mergers and acquisitions. Direct regulations on bank management cover the lending policy, deposit policy, interest rates, and liquidity requirements.

Gilbert (1984) found that many researchers failed to recognize regulation as one of the bank

profitability determinants. For example, several studies by Fraser and Rose, (1972), Rose and Fraser (1976), and Rhoades (1979), found that market concentration had no effect on the interest rate paid on time and savings but offer no explanation, Gilbert (1984) believed that

the results were caused by the Regulation.

Competition

Heggested and Mingo (1976) believed that when the degree of monopoly in a market is high, bank prices will be higher and fewer facilities will be provided by the bank. They tested the relationship between concentration and eleven performance measures that included facilities

available to customers and charges for using those facilities and found that eight of the 11 performance measures were significantly affected by at least one specification of

concentration. This is an indication that the market power of an individual bank usually increases with the degree of monopoly. The greater the market share, the greater will be its control over its prices and services it offers.

Market Share

Market share is considered as one of the potential determinants of profitability since the bigger the market, the larger the firm’s potential for profits. Bigger market share also means

more power to the bank in controlling the prices and services it offers to customers (Heggested and Mingo, 1976).

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Market Growth

Smirlock (1985), Bourke (1989) and Molyneux and Thornton (1992) found market growth as an external determinant of bank profitability. This is based on the assumption that an

expanding market would produce greater potentials for banks to achieve higher profits.

2.3 Profitability Determinants used in emerging economies of Asia

2.3.1 India

P. Ganesan (2001) determines profitability of Indian banks using profit function model which

showed that interest cost, interest income, other income, deposits, credit to tota l assets, proportion to priority sector advances and interest income loss as the significant determinants of profit and profitability of banks.

B.S. Bodla & Richa Verma (2007) found Credit/Deposit Ratio, Non-Interest Income, Spread,

NPA as percentage to Net Advances, Provision and Contingencies, Operating Expenses, Business per Employee, Profit per Employee and Net Profit as determinants of profitability of banks in India.

2.3.2 Thailand

Saovanee chantapong (2006) emphasizes on Return on Assets (net income after tax/total assets) that indicates managerial efficiency and Commitment to Domestic Economy (LR:

loans to clients/total assets) which presents consumer lending activities and bank commitment to the domestic economy as profitability determinants of banks.

2.3.3 China

Fadzlan Sufian, Muzafar Shah Habibullah (2009) found bank specific variables - total loans

divided by total assets, log of total assets, loans loss provisions divided by total loans, non-interest income divided by total assets, total overhead expenses divided by total assets, log of total deposits, and book value of stockholders’ equity as a fraction of total assets as Internal

determinants and natural log of GDP, the annual inflation rate, and money supply growth as External determinants of bank profitability.

2.3.4 Indonesia

Fadzlan Sufian and Muzafar Shah Habibullah (2010) used the return on assets (ROA) and/or the return on equity (ROE) expressed as a function of internal and external determinants in

measuring bank profitability.

They found bank-specific variables - log of total assets, loans loss provisions divided by total loans, non-interest income divided by total assets, total overhead expenses divided by total assets, log of total deposits, and book value of stockholders’ equity as a fraction of total

assets and external determinants - natural log of GDP, the three largest banks asset concentration ratio.

2.3.5 Bangladesh

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Md. Safiullah (2010) judged profitability on the basis of Return on asset (ROA), Return on equity (ROE), Profit expense ratio (PER), Profit growth and EPS.

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CHAPTER III

AN OVERVIEW OF BANKING SECTOR IN BANGLADESH

3.1 Banking Sector in Bangladesh

Banking sector in Bangladesh comprises of State Owned Commercial Banks (SCBs), government-owned Development Financial Institutions (DFIs) or Specialized Banks (SBs)

dealing with development finance, Private Commercial Banks (PCBs) and Foreign Commercial Banks (FCBs).

Currently, the there are 4 SCBs, 4 DFIs, 30 PCBs and 9 FCBs in Bangladesh. The following Table shows the current (December, 2010) banking structure in Bangladesh.

Table: 3.1 Banking structure in Bangladesh

Bank

Types

Number

of Banks

Number of

Branches

% of

Branches

Total

Assets

(Crore Tk.)

% of

Industry

Assets

Deposits

(Crore Tk.)

% of

Deposits

SCBs 4 3,447 44.60% 135,929.28 28.06% 101,357.14 27.80%

DFIs 4 1,382 17.88% 29,091.57 6.01% 18,408.22 5.05%

PCBs 30 2,828 36.59% 287,416.75 59.34% 222,182.25 60.93%

FCBs 9 72 0.93% 31,942.40 6.59% 22,677.42 6.22%

Total 47 7,729 100% 484,380.00 100% 364,625.03 100%

Source: Bangladesh Bank

3.2 Nationalization of Commercial Banks

Before liberation of Bangladesh, the ownership of the commercial banks was vested to the private sector. After the independence, the government took different measures to achieve the macroeconomic objectives by ensuring a sound and vibrating financial system as this can

only lead to proper intermediation. After the nationalization of banks in 1972, it was expected that the banks would be playing their role for social benefit and in the economic development

process. The main objectives of the nationalization of commercial banks were:

a) Branch expansion for providing services to the rural people,

b) Mobilization of domestic savings, specially rural savings more effectively, c) Providing credit to the priority sector such as agriculture, small scale and cottage

industries etc., d) Ensuring balanced regional development, removal of control of banks by few

individuals.

The lending rate on priority sector credit was very low and they were bound to operate in the

rural areas, as a result, the quality of customer service has been deteriorated and commercial consideration of profitability, safety and efficiency were sacrificed in favor of social profitability.

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3.3 Denationalization and Privatization of Banks

A retransfer of ownership and control from public to private sector can be termed as

denationalization. Denationalization refers to the term privatization. Privatization was meant to signify the return to profitable private motivation of anything that had declined through unprofitable state ownership. This process in the financial sector was initiated in 1982, by

denationalization of two NCBs - Uttara Bank and Pubali Bank. Rupali Bank was partly denationalized through selling 49% share to the public and also permitting a number of

private commercial banks to come into existence to increase competition in the financial market. The objectives of the privatization of banks were to:

a) Reduce the deficit of the government to meet the continuous loss of the public enterprises

b) Improve the efficiency of the banking sector c) Introduce competition in all spheres of economic activities d) Slack the flow of credit to different economic sector beyond the priority sector

e) Improve the customer service of the bank f) Run towards the way of globalization of financial sector

Recently the government has turned the remaining NCBs into corporation under the Bank Company Act to gain efficiency, transparency and accountability and eventually to viably

compete with private and foreign commercial banks. Consequently, Sonali Bank, Janata Bank and Agrani Bank have been renamed as Sonali Bank Limited, Janata Bank Limited and

Agrani Bank Limited respectively. Now these three banks and Rupali Bank Ltd. are considered as State-owned banks (SCBs).

3.4 Financial Liberalization under FSRP

By the mid 1980’s, the problems in the financial sector were becoming so severe that the Government formed a committee on “Money, Banking and Credit” headed by the then Finance Minister to suggest ways and means to improve the operational efficiency of the

banking system. The World Bank also made an in-depth study on Bangladesh’s financial sector in the mid 80’s. They suggested reform in the following fields:

a) Fixation of interest rates on deposits and advances, b) Classification of overdue loans,

c) Restructuring of NCBs and PCBs, d) Market orientation of banking transaction (Task Force Report, 1991)

Based on these findings and recommendations Bangladesh initiated a Financial Sector Reform Project in 1990 to overcome from the repressed economy, making a more

competitive and market oriented financial sector. The main objectives of the FSRP were to: a) Remove gradually the distortions in the interest rate structure with a view to

improving the allocation of resources, b) Provide increase market oriented incentive for priority sector lending c) Make subsidies in those more transparent sectors

d) Adopt appropriate monetary tools to control inflation e) Establish appropriate accounting policies and modes of recapitalization,

f) Improve debt recovery process g) Expand and strength the capital market

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Other than the regulatory and legal measures FSRP introduced some manual for operation

and guidance of reporting system. These are: a) Lending Risk Analysis

b) Financial Spread Sheet c) Performance Planning System d) Large Loan Reporting System

e) New Loan Ledger Card

3.5 Bank Restructuring under BRC/FSRP

Just before the expiry of FSRP term, the government formed one Banking Restructuring

Committee (BRC) to evaluate the situation arising in NCBs and recommendations to the government for bringing back financial discipline and improving efficiency of NCBs. In May

1997, a Commercial Bank Restructuring Project (CBRP), funded by the World Bank, has also been undertaken to take stock of progress on key issues and identify urgent actions that need to be taken for the development of commercial banks in Bangladesh. The measures taken are:

a) An aggressive institutional renewal program for Bangladesh Bank

b) Fundamental reforms of NCBs c) Strengthening the legal process and institution of expending recovery of debt d) Better internal governance both in NCB’s and PCB’s

e) Compliance with capital standards f) Penalties for imprudent lending

g) Announcement of banking policy statement h) Hiring of auditors of valuation audits of NCB’s i) Formation of a Bank Supervision Committee

j) Special recovery efforts k) A committee on “Union problem” has been taken

Along with the above measures since the formation of BRC in 1996, it has taken following actions:

a) The amendment of Bangladesh Bank Order, 1972 to give Bangladesh Bank legal autonomy over its affairs

b) Reforms of supervision system of Bangladesh Bank to bring back financial discipline.

c) Reforms of Bangladesh Banks (Nationalization) Order, 1972, to give autonomy to

NCB’s board so that NCB’s could run on commercial consideration d) Deposit insurance scheme to protect depositor’s interest

e) Amendments to Bank Company Act, 1991, to effectively handle problem banks f) Precluding crony (insider) lending and ensuring credit discipline

All the above measures and actions have taken by BRC/CBRP to achieve the goals: a) The three pillars of banking - effective legal system, good management and

effective Central Bank b) Emphasis on the core aspects (dominance of market forces, competition among

banks, financial discipline through broad based legal and regula tory base and

operational efficiency) rather the peripheral aspects (privatization).

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CHAPTER IV

EVOLUTION AND GROWTH OF PCBS IN BANGLADESH

4.1 Private Commercial Banks (PCBs) in Bangladesh

After liberation, the banks operating in Bangladesh (except those incorporated abroad) were

nationalized. These banks were merged and grouped into six commercial banks. Of the total six commercial banks, Pubali Bank Ltd. and Uttara Bank Ltd. were subsequently transferred

to the private sector with effect from January 1983. Seven banks obtained licenses to run their operation as Private Commercial Banks during 1980s, eighteen banks during 1990s and three more banks in 2001. These thirty banks are now operating as Private Commercial Banks

(PCBs) in Bangladesh.

The Oriental Bank Ltd. - an Islamic private bank founded in 1987 was renamed as ICB

Islamic Bank Ltd. in 2008. Arab Bangladesh Bank Ltd. founded in 1982, was renamed as AB Bank Ltd in 2008 and Social Investment Bank Ltd. founded in 1982 was renamed as Social

Islami Bank Ltd. in 2009.

4.2 Generation of Banking Sector in Bangladesh

The banking sector of Bangladesh is usually classified into three generations. Banks incorporated from the period of 1971-1990 are classified as first generation banks. Second

generation banks were licensed in the period of 1991-2000. All banks licensed since 2000 are classified as third generation banks.

Table 4.1 PCBs in Bangladesh

Sl. No. Name of PCB Year of Foundation/

Denationalization*

Generation of Banking

Sector

1. Arab Bangladesh Bank Limited 1982 First Generat ion Bank

2. IFIC Bank Limited 1983 First Generat ion Bank

3. Uttara Bank Limited 1983* First Generat ion Bank

4. Pubali Bank Limited 1983* First Generat ion Bank

5. National Bank Limited 1983 First Generat ion Bank

6. Islami Bank Bangladesh Limited 1983 First Generat ion Bank

7. The City Bank Limited 1983 First Generat ion Bank

8. United Commercial Bank Limited 1983 First Generat ion Bank

9. ICB Islami Bank Limited 1987 First Generat ion Bank

10. Eastern Bank Limited 1992 Second Generat ion Bank

11. NCC Bank Limited 1993 Second Generat ion Bank

12. Prime Bank Limited 1995 Second Generat ion Bank

13. Dhaka Bank Limited 1995 Second Generat ion Bank

14. Al-Arafah Islami Bank Limited 1995 Second Generat ion Bank

15. Southeast Bank Limited 1995 Second Generat ion Bank

16. Social Islami Bank Ltd 1995 Second Generat ion Bank

17. Dutch-Bangla Bank Limited 1996 Second Generat ion Bank

18. Trust Bank Limited 1999 Second Generat ion Bank

19. Bank Asia Limited 1999 Second Generat ion Bank

20. EXIM Bank Limited 1999 Second Generat ion Bank

21. First Security Islami Bank 1999 Second Generat ion Bank

22. Mutual Trust Bank 1999 Second Generat ion Bank

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Sl. No. Name of PCB Year of Foundation/

Denationalization*

Generation of Banking

Sector

23. Mercantile Bank Limited 1999 Second Generat ion Bank

24. ONE Bank Limited 1999 Second Generat ion Bank

25. The Premier Bank Limited 1999 Second Generat ion Bank

26. Standard Bank Limited 1999 Second Generat ion Bank

27. Bangladesh Commerce Bank 1999 Second Generat ion Bank

28. BRAC Bank Limited 2001 Third Generation Bank

29. Jamuna Bank Limited 2001 Third Generation Bank

30. Shahjalal Islami Bank Limited 2001 Third Generation Bank

*Uttara Bank and Pubali Bank were denationalized to operate as Private Commercial Bank (PCB)


4.3 Growth of Private Commercial Banks (PCBs) in Bangladesh

Last ten years aggregate data on the deposit, advance, total asset, equity and net income of Private Commercial Banks (PCBs) shows their increasing trend over the period.

The following table shows the mean, standard deviation, trend equation and r2 of deposit, advance, total asset, total equity and net income of PCBs.

Table 4.2 Growth of PCBs

Sl. No. Variables

Mean &

Standard Deviation

(Figures in crore)

Equation for trend line

Yc = a+bx r

2

1. Deposit 101,091.1

(65,396.7) Yc = - 13172 + 20775x 0.925

2. Advance 88,122.7

(59,529.4) Yc = - 15115 + 18771x 0.911

3. Total asset 128,298.4

(79,693.5) Yc = - 9786 + 25106x 0.909

4. Equity 9,811.8

(7,816.7) Yc = - 3417 + 2405x 0.868

5. Net income 1,934.1

(1,635.0) Yc = - 509.9 + 444.3x 0.677


The straight line trend is represented by the equation Yc = a + b. Where, Yc denotes the trend

values to distinguish them from the actual Y values. ‘a’ is the Y intercept or the value of the Y variable when X = 0. ‘b’ represents the slope of the line of the amount of change in Y

variable that associated with the change of one unit in X variable. Here ‘X’ variable represents time.

The square of correlation coefficient (r2) is called the squared multiple correlation coefficients. The coefficient of correlation is denoted by r. The value of r lies between 0 and

1. The higher the r2, the greater the percentage of the variation of Y as explained by the regression model, that is, the better the “goodness of fit” of the regression mode l to the sample observations. Again r2, the closer to zero, the worse the fit.

It is reflected from the above table that the trend equations of all the selected variables are

positive and goodness of fit as in case of all the equations, r2 is greater than 0.50.

13

Figure 4.1 Trends of the Variab les of Growth of PCBs


14

4.4 CAGR of selected variables of generation wise PCBs

The following table shows the mean and standard deviation of Cumulative Average Growth Rate (CAGR) of deposit, advance, total asset, total equity and net income of generation wise

PCBs:

Table 4.3 CAGR of selected variables of Generation wise PCBs

Generation

of Banks

Mean & Std Dev

of CAGR of

Deposit

Mean & Std

Dev of CAGR

of Advance

Mean & Std

Dev of CAGR

of Total Asset

Mean & Std

Dev of CAGR

of Equity

Mean & Std

Dev of CAGR

of Net Income

First

Generation

14.77%

(5.80%)

15.08%

(6.64%)

13.78%

(6.13%)

24.79%

(5.64%)

13.89%

(6.80%)

Second

Generation

28.89%

(6.64%)

28.03%

(7.53%)

25.08%

(6.81%)

29.67%

(7.94%)

22.69%

(10.75%)

Third

Generation

71.59%

(20.01%)

82.02%

(20.47%)

53.07%

(23.75%)

39.75%

(6.75%)

90.95%

(39.56%)


The above table shows that the CAGR of deposit, advance, total asset, total equity and net

income of the PCBs of second generation is higher than that of first generation and CAGR of those variables of third generation is mention ably higher than that of second generation

respectively.

Moreover, the standard deviation shows that the PCBs of first generation than second

generation and PCBs of second generation than those of third generation have least deviation from the mean.

Figure 4.2 CAGR of selected variables of First Generation PCBs


15

Figure 4.3 CAGR of selected variables of Second Generat ion PCBs


Figure 4.4 CAGR of selected variables of Th ird Generation PCBs


16

4.5 Comparison of the selected variables of category wise banks

Table 4.4 Mean & Standard Deviation of selected variables of category wise banks

(Figures in crore)

Category of Banks

Mean & Std

Dev of

Deposit

Mean & Std

Dev of

Advance

Mean &

Std Dev of

Asset

Mean &

Std Dev of

Equity

Mean & Std Dev

of Net Income

PCBs 101,091.1

(65,396.7)

88,122.6

(59,529.4)

128,298.4

(79,693.5)

9,811.8

(7,816.7)

1,934.1

(1,635.0)

SCBs 68,316.4

(18,018.8)

47,207.7

(12,479.3)

85,708.9

(25,883.1)

2,636.4

(2,847.2)

655.1

(560.4)

DFIs 10,263.7

(4,352.6)

13,014.3

(3,321.2)

19,845.8

(4,573.0)

1,095.5

(532.4)

19.8

(68.2)

FCBs 13,780.0

(6,207.7)

10,530.8

(5,080.2)

18,877.7

(8,327.6)

2,757.9

(1,513.5)

633.4

(215.2)


The above table shows that PCBs are dominating in the banking sector of Bangladesh as the

mean of Deposit, Advance, Asset, Equity and Net Income of PCBs are higher in every respect than those of SCBs, DFIs & FCBs over time at aggregate level. This shows PCBs’ dominance in the banking sector of Bangladesh.

Figure 4.5 Trend of deposit of category wise banks


Figure 4.6 Trend of advance of category wise banks


17

Figure 4.7 Trend of total asset of category wise banks


Figure 4.8 Trend of equity of category wise banks


Figure 4.9 Trend of net income of category wise banks


4.6 Comparison of CAGR

The following table shows that CAGR of Deposit, Advance, Asset, Equity and Net Income of

PCBs is higher in almost every respects that that of SCBs, DFIs & FCBs over time.

Table 4.5 CAGR of selected variables of category wise banks

Category of Banks CAGR of

Deposit

CAGR of

Advance

CAGR of

Asset

CAGR of

Equity

CAGR of Net

Income

PCBs 22.28% 22.59% 20.39% 26.83% 16.78%

SCBs 8.24% 8.43% 8.87% 20.68% 19.62%

DFIs 14.07% 6.54% 6.96% 0.40% -1.61%

FCBs 13.43% 16.31% 13.83% 20.35% 6.76%


During 2001-2010, the PCBs are found to achieve mentionable growth in the above selected

variables. This reflects their gradual expansion of business and earning increasing amount of profit over the period.

18

CHAPTER V

DETERMINANTS OF PCBS’ PROFITABILITY – A PROPOSED MODEL

5.1 Bank Profitability

Banks are involved in the function of mobilization of deposit and deployment of credit.

Through this intermediation function, banks contribute a lot toward the development of the economy. Banks are engaged in the banking system with a motive to earn profit and it is the most important element in the competition among the banks. Profit is the absolute term,

which creates ambiguity for comparison. For the purpose of comparing operat ional efficiency of the banks, profitability is the most important indicator.

5.2 Model Specification

The independent variables considered for the model include natural log of Advance/Deposit (A/D), Total Asset (TA), Equity/Total Asset (E/TA), Non Performing Loan/Total Advance (NPL/A), Business Per Employee (BPE) calculated as (Deposit + Advances)/ Number of

Employees, Number of Bank Branches (NBB) and dependent variables are Net Income (NI), Return on Asset (ROA) and Return on equity (ROE).

These independent variables are selected as they are independent of each-other. They are not highly correlated.

Table 5.1 Correlation Matrix of selected Independent Variables (Year 2010)

Variables Adv/Dep Total

Asset No. of Branches NPL/Adv Equity/Asset BPE

Adv/Dep 1.000 0.153 -0.046 0.174 -0.235 0.323

Total Asset 0.153 1.000 0.601 -0.324 0.220 0.033

No. of Branches -0.046 0.601 1.000 -0.174 0.152 -0.447

NPL/Adv 0.174 -0.324 -0.174 1.000 -0.909 -0.309

Equity/Asset -0.235 0.220 0.152 -0.909 1.000 0.189

BPE 0.323 0.033 -0.447 -0.309 0.189 1.000


Profitability of a bank is the efficiency of a bank at generating earnings. It can be measured in several ways. For example, Net income of a bank expresses the volume of profit in a year. Again Return on Asset (ROA) indicates how profitable a bank is relative to its total

assets. ROA provides an idea that how efficient management is at using its assets in generating earnings. ROA is calculated by dividing a bank's net income by its total assets.

Return on Equity (ROE) is the amount of net income returned as a percentage of shareholders equity. It measures a bank's profitability revealing how much profit it generates with the money shareholders have invested. ROE is calculated by dividing a bank's net income by the

shareholder's Equity.

In this connection, Net Income, Return on Asset (ROA) and Return on equity (ROE) have been considered as measure of PCBs’ profitability.

In order to identify the prominent variables that affect the profitability of banks as described Log of Net Income, Return on Asset (ROA) and Return on Equity (ROE), Multiple

Regression Model has been applied.

http://www.moneychimp.com/glossary/earnings.htm

19

Mathematically the equation is as follows:

Y= a+b1x1+b2x2+b3x3+b4x4+b5x5+b6x6+μ

Where,

Y= Log of Net Income (Income after Tax), Return on Asset (ROA) and Return

on Equity (ROE) a= constant term,

b1 to b6 = Regression coefficients for the respective variables, x1 = Log of Advance/Deposit (A/D), x2 = Log of Total Asset (TA),

x3 = Log of Equity/Total Asset (E/TA), x4 = Log of Non Performing Loan/Total Advance (NPL/A),

x5 = Log of Business Per Employee (BPE) calculated as Deposit + Advances/ Number of Employees, x6 = Log of Number of Bank Branches (NBB),

μ = Error Term.

Here, Y [i.e. Log of Net Income, Return on Asset (ROA) and Return on Equity

(ROE)] is the dependent variable, while the rest x1 to x6 are independent variables. This test has been used to find out whether there is a linear relationship between

dependent variable and any of the independent variables under consideration. Collected data has been processed and analyzed with the help of SPSS software.

The expected relationships between the dependent variables (i.e. Log of Net Income, ROA and ROE) and any of the selected independent variables considered for the model are as

follows:

Table 5.2 Independent variables and expected relation Independent Variables Expected Relation

Log of Advance/Deposit (A/D) +

Log of Total Asset (TA) +

Log of Equity/Total Asset (E/TA) +

Log of Non Performing Loan/Total Advance (NPL/A) -

Log of Business Per Employee (BPE) calculated as (Deposit + Advances)/ Number

of Employees

+

Log of Number of Bank Branches (NBB) +

5.3 Results

Model Summary (Considering Net Income as dependent variable)

The following table reveals that F value is significant at .01 level almost in every year during

the last 10 years. This clearly indicates that the variation caused by independent variables in the net income is significant and cannot be left to chance factors.

The value of Correlation Coefficient (R) and Coefficient of Determination (R square and Adjusted R square) of the model are shown in the Table. The values of correlation coefficient ranges from .699, the lowest in the year 2004 to .944, the highest in 2009. Almost every year,

the found correlation is very high. This shows that the independent variables under reference have high degree of correlation with profitability (Net Income). The same is further

confirmed by values of R square and Adjusted R square. From the results of Coefficient of Determination, one can see that the independent variables have explanatory powers above 80

20

percent in case of 7 years (2001, 2003, 2006-10) and between 69.9 percent and 78.9 percent in case of rest of the years (2002, 2004-05).

Table 5.3 Model Summary and ANOVA (F) Results (NI as dependent variable) Year R R S quare Adjusted R S quare F Significance

2001 .936 .875 .834 21.050 .000

2002 .703 .494 .325 2.930 .036

2003 .892 .795 .737 13.580 .000

2004 .699 .488 .342 3.342 .018

2005 .789 .622 .514 5.759 .001

2006 .811 .658 .560 6.725 .000 2007 .823 .677 .585 7.345 .000

2008 .817 .667 .576 7.347 .000

2009 .944 .891 .861 30.023 .000

2010 .824 .680 .592 7.783 .000

Model Summary (Considering ROA as dependent variable)

The following table reveals that F value is significant at .01 level in maximum years during the last 10 years. This clearly indicates that the variation caused by independent variables on

ROA is significant.

The value of Correlation Coefficient (R) and Coefficient of Determination (R square and Adjusted R square) of the model are shown in the Table. The values of correlation coefficient

ranges from .453, the lowest in the year 2010 to .812, the highest in 2001. Almost every year, the found correlation is high except 2010. This shows that the independent variables under reference have high degree of correlation with ROA. The same is further confirmed by values

of R square and Adjusted R square. From the results of Coefficient of Determination, it is found that the independent variables have explanatory powers above 65 percent in case of 8

years (2001-03, 2005-09).

Table 5.4 Model Summary and ANOVA (F) Results (ROA as dependent variable)

Year R R S quare Adjusted R S quare F Significance

2001 .812 .659 .545 5.799 .002

2002 .691 .478 .304 2.749 .045

2003 .678 .460 .305 2.976 .029

2004 .621 .386 .210 2.197 .084

2005 .770 .593 .477 5.103 .002

2006 .803 .645 .543 6.354 .001

2007 .668 .446 .287 2.815 .036

2008 .792 .627 .525 6.161 .001

2009 .742 .550 .428 4.487 .004

2010 .453 .206 -.011 .949 .481

Model Summary (Considering ROE as dependent variable)

The following table reveals that F value is significant at .01 level in maximum years during

the last 10 years. This clearly indicates that the variation caused by independent variables on ROE is significant.

The value of Correlation Coefficient (R) and Coefficient of Determination (R square and Adjusted R square) of the model are shown in the Table. The values of correlation coefficient

ranges from .492, the lowest in the year 2010 to .895, the highest in 2001. Almost every year, the found correlation is high except 2010. This shows that the independent variables under

reference have high degree of correlation with ROE. The same is furthe r confirmed by values of R square and Adjusted R square. From the results of Coefficient of Determination, it is

21

found that the independent variables have explanatory powers above 70 percent in case of 6 years (2001, 2003, 2005-06, 2008-09).

Table 5.5 Model Summary and ANOVA (F) Results (ROE as dependent variable)

Year R R S quare Adjusted R S quare F Significance

2001 .895 .801 .735 12.074 .000

2002 .649 .421 .228 2.179 .094

2003 .755 .570 .447 4.641 .004

2004 .567 .322 .128 1.661 .180

2005 .779 .607 .494 5.395 .002

2006 .808 .653 .554 6.598 .000

2007 .545 .297 .097 1.482 .233

2008 .797 .635 .536 6.384 .001

2009 .709 .503 .367 3.710 .011

2010 .492 .242 .035 1.171 .357

Regression Coefficients (Considering NI as dependent variable)

The following table presents regression coefficients obtained from the Multiple Regression Model. This is observed that during 2001-2010, six independent variables have exerted influence on profitability (net income) of the PCBs. However, in 2001, only two variables

(TA, A/D) have turned as significant influencer among them. In 2002, another two variables namely E/TA and NPL/A are found as having significant impact on net income. In 2003,

BPE and NBB have significant impact where in 2004, only NPL/A has significant impact on profitability. In 2005, all variables except A/D and TA are found to have significant influence. In 2006, TA, E/TA and NBB have significant impact. In 2007, TA, E/TA and in

2008, TA, E/TA and NPL/A have significant impact. In 2009, TA, E/TA & NPL/A and in 2010 only TA have significant impact on net income.

Regression coefficient for TA and E/TA are found significant for 6 years, NPL/A for 5 years, NBB for 3 years, BPE for 2 years and A/D for only 1 year out of a total of 10 years.

As expected, TA, NBB, BPE are found to have positive and NPL/A has negative relationship

with net income in all (in case of TA and NPL/A) or in maximum cases (in case of NBB and BPE). But in case of E/TA, among 6 significant results, it has been found to have positive impact for three times and negative impact for remaining three times. However, contrary to

the expectation, the relationship is observed negative in case of A/D in 2001. During the remaining years, A/D has not been found to have significant impact on Net Income.

Table 5.6 Regression Coefficients (NI as dependent variable)

Year Variable

Unstandardized

Coefficients

Standardized

Coefficient t Significance

B Std. Error Beta

2001 (Constant) -8.799 1.742 -5.051 .000

Log of Advance/Deposit -2.224 .730 -.335 -3.045 .007

Log of Total Asset 1.926 .472 1.144 4.085 .001

Log of No. of Branches -.487 .434 -.390 -1.123 .276

Log of NPL/Advance -.105 .106 -.161 -.996 .333

Log of Total Equity/Total Asset .146 .306 .049 .478 .639

Log of Business Per Employee -.146 .631 -.052 -.231 .820

2002 (Constant) -3.503 3.756 -.933 .363

Log of Advance/Deposit .359 1.756 .049 .205 .840

Log of Total Asset .194 1.099 .090 .176 .862

Log of No. of Branches 1.496 1.071 .935 1.397 .179

22

Log of NPL/Advance -.523 .279 -.558 -1.873 .077

Log of Total Equity/Total Asset 1.665 .901 .445 1.849 .081

Log of Business Per Employee 2.286 1.626 .651 1.406 .177

2003 (Constant) -.578 1.754 -.330 .745

Log of Advance/Deposit -.591 .672 -.123 -.880 .389

Log of Total Asset -.013 .386 -.009 -.033 .974

Log of No. of Branches .974 .318 .950 3.068 .006

Log of NPL/Advance .082 .079 .148 1.041 .310


Log of Business Per Employee 1.319 .384 .663 3.435 .002

2004 (Constant) -5.359 2.752 -1.948 .065

Log of Advance/Deposit 1.492 1.581 .231 .944 .356

Log of Total Asset 1.026 .755 .628 1.359 .189

Log of No. of Branches .172 .532 .154 .324 .749



Log of Business Per Employee .195 .616 .109 .316 .755

2005 (Constant) -65.679 15.587 -4.214 .000


Log of Total Asset -.635 3.895 -.049 -.163 .872


Log of NPL/Advance -2.747 1.091 -.428 -2.519 .020

Log of Total Equity/Total Asset -11.671 5.165 -.492 -2.260 .035


2006 (Constant) -92.281 20.341 -4.537 .000

Log of Advance/Deposit -4.344 13.870 -.051 -.313 .757

Log of Total Asset 12.614 4.303 .752 2.932 .008

Log of No. of Branches -13.653 4.316 -1.048 -3.164 .005

Log of NPL/Advance -1.510 1.721 -.155 -.877 .390


Log of Business Per Employee -5.711 4.779 -.324 -1.195 .245

2007 (Constant) -4.106 3.363 -1.221 .236







23

Year Variable

Unstandardized

Coefficients

Standardized


B Std. Error Beta

2008 (Constant) -89.758 17.218 -5.213 .000



Log of No. of Branches -.797 2.958 -.077 -.269 .790



Log of Business Per Employee .142 2.957 .010 .048 .962

2009 (Constant) -5.281 1.140 -4.632 .000

Log of Advance/Deposit .114 .708 .014 .162 .873




Log of Total Equity/Total Asset .885 .314 .218 2.819 .010


2010 (Constant) -3.986 2.490 -1.601 .124

Log of Advance/Deposit 1.853 1.482 .208 1.250 .224



Log of NPL/Advance .000 .239 .000 .000 1.000



Regression Coefficients (Considering ROA as dependent variable)

The following table presents regression coefficients obtained from the Multiple Regres sion

Model. This is observed that during 2001-2010, six independent variables have exerted influence on ROA of the PCBs as found in case of considering Net Income as dependent

variable also. However, in 2001, only two variables (TA, A/D) have turned as significant influencer among them. In 2002, another two variables namely E/TA and NPL/A are found as having significant impact on profitability. In 2003, TA, BPE and NBB have significant

impact where in 2004, only NPL/A has significant impact on profitability. In 2005, all variables except A/D and TA are found to have significant influence. In 2006, TA, E/TA and NBB have significant impact. In 2007, only E/TA has significant influence. In 2008 and

2009, E/TA and NPL/A have found to have significant impact. In 2010 no variables has significant impact on profitability.

Regression coefficient for E/TA are found significant for 6 years, NPL/A for 5 years, NBB and TA for 3 years, BPE for 2 years and A/D for only 1 year out of a total of 10 years.


with ROA in all (in case of TA, BPE and NPL/A) or in maximum cases (in case of NBB). But in case of E/TA, among 6 significant results, it has been found to have positive impact for three times and negative impact for remaining three times. However, contrary to the

expectation, the relationship is observed negative in case of A/D in 2001. During the remaining years, A/D has not been found to have significant impact on ROA.

24

Table 5.7 Regression Coefficients (ROA as dependent variable)

Year Variable

Unstandardized

Coefficients

Standardized


B Std. Error Beta

2001 (Constant) -8.816 1.746 -5.050 .000


Log of Total Asset .926 .473 .907 1.959 .066





2002 (Constant) -3.516 3.761 -.935 .362







2003 (Constant) -.595 1.750 -.340 .737


Log of Total Asset -1.012 .385 -1.216 -2.630 .016

Log of No. of Branches .975 .317 1.547 3.077 .006



Log of Business Per Employee 1.318 .383 1.079 3.439 .002

2004 (Constant) -5.374 2.757 -1.949 .065


Log of Total Asset .026 .756 .017 .034 .973





2005 (Constant) -65.668 15.585 -4.214 .000


Log of Total Asset -1.639 3.894 -.131 -.421 .678





2006 (Constant) -92.309 20.348 -4.537 .000







2007 (Constant) -4.061 3.366 -1.206 .241







25

Year Variable

Unstandardized

Coefficients

Standardized


B Std. Error Beta

2008 (Constant) -89.750 17.217 -5.213 .000







2009 (Constant) -5.285 1.139 -4.641 .000





Log of Total Equity/Total Asset .882 .314 .441 2.813 .010


2010 (Constant) -3.993 2.499 -1.598 .124




Log of NPL/Advance .006 .240 .006 .024 .981



Regression Coefficients (Considering ROE as dependent variable)

The following table presents regression coefficients obtained from the Multiple Regression Model. This is observed that during 2001-2010, six independent variables have exerted

influence on ROE of the PCBs as found in case of considering net income and ROA as dependent variables also. However, in 2001, three variables (TA, A/D and E/TA) have turned

as significant influencer among them. In 2002, only NPL/A is found as having significant impact on ROE. In 2003, TA, E/TA, BPE and NBB have significant impact where in 2004, only NPL/A has significant impact on ROE. In 2005, all variables except A/D and TA are

found to have significant influence. In 2006, TA, E/TA and NBB have significant impact. In 2008, E/TA and NPL/A have and in 2009 only NPL/A has found to have significant impact.

In 2007 and 2010 no variables has significant impact on profitability.

Regression coefficient for E/TA and NPL/A are found significant for 5 years, NBB and TA

for 3 years, BPE for 2 years and A/D for only 1 year out of a total of 10 years.


with ROA in all (in case of BPE and NPL/A) or in maximum cases (in case of TA, NBB). However, contrary to the expectation, the relationship is observed negative in case of A/D (in

2001) and E/TA are found to be negative (2001, 2003, 2005-06).

26

Table 5.8 Regression Coefficients (ROE as dependent variable)

Year Variable

Unstandardized

Coefficients

Standardized


B Std. Error Beta

2001 (Constant) -8.826 1.741 -5.069 .000





Log of Total Equity/Total Asset -.857 .305 -.365 -2.806 .012


2002 (Constant) -3.530 3.756 -.940 .360







2003 (Constant) -.606 1.748 -.346 .732


Log of Total Asset -1.017 .384 -1.090 -2.645 .015

Log of No. of Branches .981 .317 1.390 3.100 .005



Log of Business Per Employee 1.325 .383 .968 3.462 .002

2004 (Constant) -5.389 2.754 -1.957 .064





Log of Total Equity/Total Asset -.636 .943 -.243 -.674 .508


2005 (Constant) -65.661 15.584 -4.213 .000


Log of Total Asset -1.640 3.894 -.129 -.421 .678





2006 (Constant) -92.323 20.344 -4.538 .000







2007 (Constant) -4.033 3.365 -1.198 .244







27

Year Variable

Unstandardized

Coefficients

Standardized


B Std. Error Beta

2008 (Constant) -89.760 17.217 -5.213 .000







2009 (Constant) -5.309 1.146 -4.633 .000





Log of Total Equity/Total Asset -.124 .316 -.065 -.394 .698


2010 (Constant) -3.978 2.499 -1.592 .126




Log of NPL/Advance .004 .240 .005 .018 .986



5.4 Analysis

The above result has revealed that Advance/Deposit, total asset, equity/total asset, No. of

Branches, Business per Employee and non-performing loan as percentage of total advance are the determinants of profitability (considering Net income, ROA and ROE).

Among the variables, as expected, total asset, Business per Employee and No. of Branches

are found to have positive and significant impact and non performing loan as percentage of total advance is found to have negative and significant impact on profitability.

It is expected that equity/total asset will have positive and significant impact on profitability. But in some cases, positive coefficients are found and in other cases, negative coefficients are

found. The reason is that Equity-Total asset ratio should be justified and only this well justified Equity-Total asset ratio can enhance profitability.

Contrary to the expectation, Advance/Deposit ratio is found to have negative impact on profitability. Advance – Deposit ratio of a bank should be such that can ensure required

liquidity as well as can ensure adequate utilization of funds without keeping idle fund. This ratio should also be justified; otherwise it can affect profitability adversely. So PCBs should

be prudent in maintaining this ratio to ensure maximum profitability.

So it is found that profitability of PCBs in Bangladesh increases as total asset, No. of

Branches and Business per Employee increase.

Total asset can be considered to measure the size of a bank. Big banks can provide services to

their customers in cheaper rate than small ones. As total asset increases, a bank can attain more competitive advantages that can help to earn more profit.

Through increasing number of branches, a bank can get scope to expand its business. This expansion of business increases profitability.

28

There is a close relationship between customer satisfaction and bank profitability. If the

employees of a bank can satisfy the customers more than its competitors, it will get more business that can earn more profit. So it is found as Business per Employee increases,

profitability of the bank also increases.

As non-performing loan as percentage of total advance is an important determinant of

profitability, managing them efficiently becomes very essential. NPL reduces the loan able fund of a bank that ultimately affects the income source. Through reducing NPL, a bank can increase its profitability.

Table 5.9 Significant Regression Coefficients

Year Profitability A/D TA E/TA

NPL/A

BPE NBB

2001

Net Income * *

ROA * **

ROE * ** *

2002

Net Income *** ***

ROA *** ***

ROE ***

2003

Net Income * *

ROA * * *

ROE * ** * *

2004

Net Income *

ROA *

ROE *

2005

Net Income ** * * ***

ROA ** * * ***

ROE * * * ***

2006

Net Income * ** *

ROA * * *

ROE * * *

2007

Net Income * ***

ROA ***

ROE

2008

Net Income *** ** *

ROA ** *

ROE ** *

2009

Net Income * * ***

ROA * ***

ROE ***

2010

Net Income **

ROA

ROE

* Significant at .01 level ** Significant at .05 level *** Significant at .10 level

The above table shows that in maximum cases, independent variables are found to be

significant irrespective of all three dependent variables but in some cases, there are some deviations. The reason is that net income affected by those independent variables must have

great influence over ROA (net income/total asset) or ROE (net income/equity) as net income comes in all three cases but both ROA and ROE are two separate ratios with different denominators. So there must be some deviation also.

29

Again, when one dependent variable is considered, some independent variables are found to

be significant in some years and not in others. This is because all independent variables had not equal influence over profitability in all the years. For example, A/D ratio is found to be

significant impact on profitability for only one year. This proves that increase or decrease of A/D does affect little on profitability as prudent use of A/D with high E/TA and low NPL/A affect the profitability more significantly.

The frequency of the independent variables being significant shows their level of influence over profitability. The more the independent variables are significant, the more they have

influence over dependent variable. The most frequently significant independent variables are TA, E/TA and NPL/A. In case of dependent variable net income, Regression coefficient for

TA and E/TA are found significant for 6 years, NPL/A for 5 years, NBB for 3 years, BPE for 2 years and A/D for only 1 year out of a total of 10 years. In case of dependent variable ROA, Regression coefficient for E/TA are found significant for 6 years, NPL/A for 5 years, NBB

and TA for 3 years, BPE for 2 years and A/D for only 1 year out of a total of 10 years. In case of dependent variable ROE, Regression coefficient for E/TA and NPL/A are found

significant for 5 years, NBB and TA for 3 years, BPE for 2 years and A/D for only 1 year out of a total of 10 years.

30

CHAPTER VI

SAMPLE, DATA AND RESULTS

6.1 Commercial Bank Performance

Banks are the foundation of the financial system of any country. Because of close

relationship between economic and financial development, the banking system must be made robust, resilient and sound for efficient intermediation of financial resources. For that reason, sound macro-economic environment, effective bank management strategies and prudential

financial regulations are the means to ensure the appropriate contribution of banks to the growth and development of a country.

An economy belonging to either developed or developing zones of the globe is significantly influenced by how well its banking industry performs. Any organization is born to serve the

interests of not only the people who make up it, but also those who are outside the organization and hence, a bank being a service entity is no less an exception. The

performance of banks is important to the individual consumers of bank deposit and loan services, stockholders, employees, government regulators, management and to the entire economy.

6.2 Trend of the profitability determinants of PCBs

Last ten years aggregate data on the Advance/Deposit (A/D), Total Asset (TA), Equity/Total Asset (E/TA), Business Per Employee (BPE) calculated as Deposit + Advances/ Number of

Employees and Number of Bank Branches (NBB) of Private Commercial Banks (PCBs) show their increasing trend where Non Performing Loan/Total Advance (NPL/A) show its decreasing trend over the period.

Table 6.1 Trend of the profitability determinants of PCBs (Figures other than percentage and ratio are in crore)

Sl. No. Variables Mean &

Standard Deviation


Yc = a+bx

6. Advance/Deposit (A/D) 86.11%

(3.85%) Yc = 0.834 + 0.004x

7. Total Asset (TA) 128,298

(79,693) Yc = – 9786 + 25106x

8. Equity/Total Asset (E/TA) 6.94%

(1.34%) Yc = 0.046 + 0.004x

9. Non Performing Loan/Total Advance

(NPL/A)

7.98%

(5.07%) Yc = 0.163 - 0.015x

10. Business Per Employee (BPE) 3.99

(1.45) Yc = 1.376 + 0.475x

11. Number of Bank Branches (NBB) 1,825

(467) Yc = 1026 + 145.2x


The straight line trend is represented by the equation Yc = a + b. Where, Yc denotes the trend values to distinguish them from the actual Y values. ‘a’ is the Y intercept or the value of the

Y variable when X = 0. ‘b’ represents the slope of the line of the amount of change in Y variable that associated with the change of one unit in X variable. Here ‘X’ variable

represents time.

31

Figure 6.1 Performance of PCBs in respect of profitability determinants


32

6.3 Performance of PCBs in respect of profitability determinants

Table 6.2 First Generation PCBs in respect of profitability determinants

(Figures other than percentage and ratio are in crore)

Name of PCB

CAGR,

Mean &

Std Dev of

A/D

CAGR,

Mean &

Std Dev of

TA

CAGR,

Mean &

Std Dev

of E/TA

Mean &

Std Dev of

NPL/A

CAGR,

Mean &

Std Dev of

BPE

CAGR,

Mean &

Std Dev

of NBB

A.B. Bank Ltd.

1.88%

0.82

(0.10)

16.44%

5,909.67

(3747.31)

11.19%

0.065

(0.024)

-18.99%

0.098

(0.082)

15.72%

4.55

(2.49)

2.54%

70

(5.44)

IFIC Bank Ltd.

-1.34%

0.96

(0.09)

10.02%

3,958.66

(1,578.94)

5.80%

0.063

(0.014)

-18.29%

0.150

(0.118)

8.97%

2.74

(0.87)

5.81%

69

(12.22)

Uttara Bank Ltd.

-1.27%

0.69

(0.10)

8.53%

5,311.70

(1,480.80)

9.77%

0.057

(0.023)

-15.27%

0.177

(0.096)

7.70%

2.07

(0.67)

0.64%

203

(5.66)

Pubali Bank Ltd.

2.87%

0.78

(0.09)

12.64%

6,952.16

(2,990.68)

9.44%

0.066

(0.026)

-24.13%

0.153

(0.129)

11.58%

1.98

(0.87)

1.35%

362

(17.66)

National Bank Ltd.

-0.18%

0.84

(0.05)

15.58%

5,952.53

(3,244.32)

9.61%

0.076

(0.029)

-17.92%

0.134

(0.107)

10.86%

3.23

(1.21)

6.81%

94

(24.01)

Islami Bank Ltd.

0.15%

0.90

(0.03)

20.91%

16,589.17

(9,448.07)

1.88%

0.066

(0.007)

-14.38%

0.047

(0.027)

7.51%

3.81

(0.78)

8.79%

165

(49.37)

The City Bank Ltd.

0.23%

0.78

(0.07)

15.93%

4,499.65

(2,408.50)

15.74%

0.061

(0.028)

-17.82%

0.123

(0.104)

11.51%

2.98

(1.09)

1.48%

80

(4.72)

U.C. Bank Ltd.

1.08%

0.80

(0.05)

21.61%

4,934.53

(3,631.43)

3.57%

0.059

(0.012)

-26.83%

0.102

(0.103)

18.33%

3.36

(1.93)

3.08%

86

(9.25)

ICB Islami Bank Ltd.

-1.20%

0.97

(0.15)

2.34%

2,096.48

(476.67)

N/C

-0.002

(0.175)

15.17%

0.422

(0.310)

3.23%

4.53

(1.04)

-0.30%

32

(1.76)


The above table demonstrates that CAGR of Advance/Deposit is positive for 5 banks and

negative for 4 banks. The mean stands between 0.69 (in case of Uttara Bank Ltd.) and 0.97 (in case of ICB Islami Bank Ltd.).

The CAGR for Total Asset is positive for all 9 banks. It is found to have highest CAGR in case of UCBL (21.61%) and lowest in case of ICB Islami Bank Ltd. (2.34%). The mean is

highest for Islami Bank Ltd. (16,589 Crore) where the lowest one is for ICB Islami Bank Ltd. (2,096 Crore).

The CAGR for Equity/Total Asset is positive for all banks except ICB Islami Bank Ltd. The mean is highest in case of National Bank Ltd. (7.6%) and this is negative in case of ICB

Islami Bank Ltd. (-.02%).

Non Performing Loan as percentage of Advance is found to have decreasing trend with only

exception to ICB Islami Bank Ltd.

33

Business per Employee is found to have increasing trend for all 9 banks. The CAGR is highest in case of UCBL (18.33%) and lowest in case of ICB Islami Bank Ltd. (3.23%). The

mean is highest for AB Bank Ltd (4.55) and lowest for Pubali Bank Ltd. (1.98).

No. of Bank Branches is found to have an increasing trend except ICB Islami Bank Ltd. The mean is highest for Pubali Bank Ltd. (362) and lowest for ICB Islami Bank Ltd. (32).

Table 6.3 Second Generation PCBs in respect of profitability determinants (Figures other than percentage and ratio are in crore)

Name of PCB

CAGR,

Mean &

Std Dev

of A/D

CAGR,

Mean &

Std Dev

of TA

CAGR,

Mean &

Std Dev

of E/TA

Mean &

Std Dev of

NPL/A

CAGR,

Mean &

Std Dev

of BPE

CAGR,

Mean &

Std Dev

of NBB

Eastern Bank Ltd.

-1.27%

1.04

(0.12)

16.26%

4,045

(2,139)

2.43%

0.111

(0.022)

-15.25%

0.065

(0.042)

11.03%

7.59

(2.85)

8.34%

29

(9.34)

NCC Bank Ltd.

0.73%

0.93

(0.05)

17.91%

3,908

(2,307)

4.64%

0.077

(0.016)

-12.94%

0.059

(0.027)

8.43%

4.59

(1.40)

9.21%

46

(14.79)

Prime Bank Ltd.

2.84%

0.83

(0.06)

25.52%

6,637

(4,852)

2.43%

0.082

(0.012)

0.85%

0.012

(0.003)

11.76%

7.34

(2.82)

13.71%

52

(24.63)

Dhaka Bank Ltd.

-0.37%

0.88

(0.09)

16.73%

4,668

(2,637)

5.22%

0.063

(0.009)

14.66%

0.028

(0.014)

10.98%

8.20

(3.13)

12.66%

33

(14.34)

Al-Arafa Bank Ltd.

1.98%

0.95

(0.09)

23.11%

2,686

(2,151)

11.95%

0.079

(0.024)

-21.12%

0.044

(0.038)

14.96%

3.66

(1.66)

6.91%

48

(12.36)

Southeast Bank Ltd.

-0.58%

0.89

(0.06)

24.72%

5,829

(4,015)

9.95%

0.078

(0.029)

4.39%

0.034

(0.010)

14.24%

7.85

(3.20)

19.31%

36

(18.95)

Social Investment Ltd.

-4.37%

0.91

(0.16)

17.07%

2,603

(1,270)

4.85%

0.061

(0.016)

-0.71%

0.058

(0.024)

9.13%

4.75

(1.23)

15.61%

29

(14.20)

Dutch Bangla Bank Ltd.

-1.09%

0.77

(0.07)

22.30%

4,471

(2,915)

3.48%

0.060

(0.009)

17.06%

0.018

(0.014)

1.55%

7.04

(1.74)

24.19%

41

(29.87)

The Trust Bank Ltd.

2.26%

0.75

(0.12)

33.87%

2,454

(2,010)

-1.01%

0.081

(0.023)

6.42%

0.021

(0.007)

8.03%

4.84

(1.34)

18.29%

26

(16.60)

Bank Asia Ltd.

-0.001%

0.91

(0.05)

36.39%

3,656

(3,142)

1.30%

0.069

(0.009)

61.58%

0.020

(0.009)

11.44%

8.53

(2.61)

21.48%

25

(13.44)

Exim Bank Ltd.

0.86%

0.94

(0.03)

30.26%

4,551

(3,399)

8.35%

0.073

(0.020)

N/C

0.016

(0.009)

14.12%

6.49

(2.74)

19.42%

31

(15.84)

First Security Bank Ltd.

-0.82%

0.90

(0.10)

30.45%

2,498

(1,854)

0.31%

0.059

(0.013)

1.10%

0.080

(0.058)

20.67%

6.92

(3.87)

23.49%

24

(19.97)

Mutual Trust Bank Ltd.

0.34%

0.88

(0.05)

29.51%

2,636

(1,898)

1.46%

0.078

(0.016)

N/C

0.013

(0.017)

6.69%

7.43

(1.75)

25.34%

27

(18.63)

Mercantile Bank Ltd.

-0.13%

0.88

(0.06)

20.88%

3,960

(2,441)

5.93%

0.069

(0.015)

36.84%

0.024

(0.014)

9.35%

6.62

(1.63)

16.59%

33

(16.48)

34

Name of PCB

CAGR,

Mean &

Std Dev

of A/D

CAGR,

Mean &

Std Dev

of TA

CAGR,

Mean &

Std Dev

of E/TA

Mean &

Std Dev of

NPL/A

CAGR,

Mean &

Std Dev

of BPE

CAGR,

Mean &

Std Dev

of NBB

One bank Ltd.

-1.11%

0.86

(0.06)

22.96%

2,492

(1,663)

7.12%

0.067

(0.014)

25.32%

0.033

(0.023)

0.71%

6.45

(0.71)

25.89%

23

(14.82)

Premier Bank Ltd.

-1.13%

0.88

(0.05)

34.49%

2,601

(2,046)

0.60%

0.085

(0.013)

22.29%

0.030

(0.023)

14.73%

6.12

(2.26)

22.21%

25

(12.92)

Standard Bank Ltd.

-1.54%

0.93

(0.06)

32.35%

2,306

(2,085)

3.35%

0.101

(0.028)

9.48%

0.011

(0.006)

18.81%

5.50

(2.97)

19.22%

26

(14.68)

Commerce Bank Ltd.

-8.78%

1.19

(0.49)

16.72%

753

(341)

-5.79%

0.161

(0.050)

-15.28%

0.318

(0.144)

16.61%

2.06

(0.90)

0.41%

25

(0.32)


The above table demonstrates that CAGR of Advance/Deposit is positive for 6 banks and negative for 12 banks. The mean stands between 0.75 (in case of The Trust Bank Ltd.) and 1.19 (in case of Commerce Bank Ltd.).

The CAGR for Total Asset is positive for all 18 banks. It is found to have highest CAGR in

case of Bank Asia (36.39%) and lowest in case of Eastern Bank Limited (16.26%). The mean is highest for Prime Bank Ltd (6,637 Crore) where the lowest one is for Commerce Bank Limited (753 Crore).

The CAGR for Equity/Total Asset is positive for all banks except Trust Bank Limited and Commerce Bank Ltd. The mean is highest in case of Commerce Bank Ltd. (16.1%) and

lowest in case of First Security Bank Limited (5.9%).

Non Performing Loan as percentage of Advance is found to have decreasing trend for 5 banks and increasing trend for 11 banks. Among these banks, Al Arafa Bank Ltd is found to have highest decreasing trend (-21.12%) where Bank Asia is found to have highest increasing

trend (61.58%).

Business per Employee is found to have increasing trend for all 9 banks. This trend is highest in case of First Security Bank Ltd. (20.67%) and lowest in case of One Bank Limited (0.71%). The mean is highest for Bank Asia Ltd (8.53) and lowest for Commerce Bank Ltd.

(2.06).

No. of Bank Branches is found to have an increasing trend for all 18 banks. The mean is

highest for Prime Bank Ltd. (52) and lowest for One Bank Limited (23).

Table 6.4 Third Generation PCBs in respect of profitability determinants


Name of PCB

CAGR,

Mean &

Std Dev of

A/D

CAGR,

Mean &

Std Dev of

TA

CAGR,

Mean &

Std Dev

of E/TA

CAGR,

Mean &

Std Dev of

NPL/A

CAGR,

Mean &

Std Dev of

BPE

CAGR,

Mean &

Std Dev

of NBB

BRAC Bank Ltd.

5.12%

0.80

(0.12)

79.14%

4,158.41

(4,251.93)

-18.81%

0.141

(0.194)

N/C

0.029

(0.022)

31.41%

1.86

(0.92)

62.32%

35

(39.33)

35

Name of PCB

CAGR,

Mean &

Std Dev of

A/D

CAGR,

Mean &

Std Dev of

TA

CAGR,

Mean &

Std Dev

of E/TA

CAGR,

Mean &

Std Dev of

NPL/A

CAGR,

Mean &

Std Dev of

BPE

CAGR,

Mean &

Std Dev

of NBB

Jamuna Bank Ltd.

3.77%

0.75

(0.09)

32.66%

2,483.68

(2,103.84)

-0.27%

0.073

(0.017)

N/C

0.017

(0.019)

24.55%

4.02

(1.96)

36.01%

28

(19.21)

Shahjalal Bank Ltd.

9.49%

0.88

(0.18)

47.42%

2,697.40

(2,609.73)

-4.01%

0.085

(0.022)

N/C

0.005

(0.006)

24.35%

5.87

(2.63)

41.20%

24

(20.03)


The above table demonstrates that CAGR of Advance/Deposit is positive for all 3 banks. The

mean stands between 0.75 (in case of Jamuna Bank Ltd.) and 0.88 (in case of Shahjalal Bank Ltd.).

The Total Asset is found to have high increasing trend for all 3 banks. This is because in 2001, all these three banks started their operation. So in the following years they expand their

businesses hugely in compare to that of starting year.

The CAGR for Equity/Total Asset is negative for all these banks. The mean is highest in case

of Brac Bank Ltd. (14.1%) and lowest in case of Jamuna Bank Ltd (7.3%).

Non Performing Loan as percentage of Advance is found to have low amount for all three banks. The mean are 2.9%, 1.7% and 0.5% for Brac Bank Ltd., Jamuna Bank Ltd. and Shahjalal Bank Ltd. respectively.

Business per Employee is found to have high increasing trend for all 3 banks. The mean is highest for Shahjalal Bank Ltd (5.87) and lowest for Brac Bank Ltd. (1.86).

No. of Bank Branches is found to have a high increasing trend because of the gradual

expansion of businesses.

6.4 PCBs’ Profitability Determinants and those of SCBs, DFIs & FCBs

At aggregate level, PCBs are performing better in respect of profitability in maximum cases than that of SCBs, DFIs & FCBs over time.

Advance/Deposit ratio has an increasing trend for all categories of banks except DFIs.

Neglecting the imprudent ratio of DFIs (138%), this ratio is highest in case of PCBs (86.1%).

Figure 6.2 PCBs’ Advance-Deposit ratio in respect of other categories of banks


Total Asset has an increasing trend for all categories of banks. The CAGR of total asset is highest for PCBs (20.39%). The mean is also highest for PCBs (128,298 Crores).

36

Figure 6.3 PCBs’ total asset in respect of other categories of banks


Equity/Total Asset has an increasing trend for all categories of banks except DFIs. This ratio

is highest in case of FCBs (13.8%) and PCBs stand next to FCBs having 6.9%.

Figure 6.4 PCBs’ equity/total asset ratio in respect of other categories of banks


Non Performing Loan as percentage of Advance is found to have decreasing trend for all

categories of banks. The CAGR is lowest for PCBs (-15.42%). This means PCBs are getting gradual success in handling NPL. This proves their efficiency in credit management. The

mean of NPL/A is lowest for FCBs (1.8%) and PCBs stand next to FCBs having 8% where SCBs and DFIs stand far behind having 26.3% and 37.1% respectively.

Figure 6.5 PCBs’ NPL as % of total advance in respect of other categories of banks


In respect of other category of banks, PCBs are also found prudent in achieving gradual success in increasing Business per Employee as CAGR is highest for PCBs (12.27%). Though the mean is highest for FCBs (10.34), PCBs (3.99) stand next to them.

37

Figure 6.6 PCBs’ Business per Employee in respect of other categories of banks


No. of Branches has an increasing trend for all categories of banks except DFIs. The CAGR

is highest for PCBs.

Figure 6.7 PCBs’ No of Bank Branches in respect of other categories of banks


Table 6.5 Comparison of selected variables of PCBs to those of SCBs, DFIs & FCBs


Category of

Banks

CAGR,

Mean & Std Dev

of A/D

CAGR,

Mean & Std Dev of

TA

CAGR,

Mean & Std Dev of

E/TA

CAGR,

Mean & Std Dev of

NPL/A

CAGR,

Mean & Std Dev

of BPE

CAGR,

Mean & Std Dev

of NBB

PCBs 0.25% 0.861

(0.039)

20.39% 128,298 (79,693)

5.35% 0.069

(0.013)

-15.42% 0.080

(0.051)

12.27% 3.989

(1.454)

7.83% 1825

(467.5)

SCBs 0.18% 0.692

(0.039)

8.87% 85,709

(25,883)

10.84% 0.027

(0.020)

-8.23% 0.263

(0.065)

10.54% 2.144

(0.723)

-0.46% 3428 (73.1)

DFIs -6.60% 1.382

(0.378)

6.96% 19,846 (4,573)

-6.14% 0.058

(0.026)

-9.06% 0.371

(0.131)

10.88% 1.504

(0.554)

0.63% 1340 (28.1)

FCBs 2.54% 0.756

(0.061)

13.83% 18,878 (8,328)

5.73% 0.138

(0.028)

-1.01% 0.018

(0.010)

5.95% 10.335 (1.580)

7.79% 48

(13.4)


The above table shows that Advance/Deposit has an increasing trend for all categories of banks except DFIs. Neglecting the imprudent ratio of DFIs (138%), this ratio is highest in case of PCBs (86.1%).

Total Asset has an increasing trend for all categories of banks. The CAGR of total asset is

highest for PCBs (20.39%). The mean is also highest for PCBs (128,298 Crores).

38

Equity/Total Asset has an increasing trend for all categories of banks except DFIs. This ratio is highest in case of FCBs (13.8%) and PCBs stand next to FCBs having 6.9%.

Non Performing Loan as percentage of Advance is found to have decreasing trend for all

categories of banks. The CAGR is lowest for PCBs (-15.42%). This means PCBs are getting gradual success in handling NPL. This proves their efficiency in credit management. The mean of NPL/A is lowest for FCBs (1.8%) and PCBs stand next to FCBs having 8% where

SCBs and DFIs stand far behind having 26.3% and 37.1% respectively.

In respect of other category of banks, PCBs are also found prudent in achieving gradual

success in increasing Business per Employee as CAGR is highest for PCBs (12.27%). Though the mean is highest for FCBs (10.34), PCBs (3.99) stand next to them.

No. of Branches has an increasing trend for all categories of banks except DFIs. The CAGR is highest for PCBs.

In fine, PCBs are performing better in maximum cases than those of SCBs, DFIs & FCBs

over time at aggregate level.

6.5 Performance of PCBs in respect of ROA & ROE

Figure 6.8 PCBs’ Return on Asset (ROA) and Return on Equity (ROE)


Last ten years aggregate data on the ROA & ROE of PCBs show their decreasing trend over the period.

Table 6.6 Mean, Standard deviation, Trend equation of ROA and ROE of PCBs

Sl. No. Variables Mean &

Standard Deviation


Yc = a+bx

1. Return on Asset (ROA) 1.4%

(0.6%) Yc = 0.014 - 6E-05x

2. Return on Equity (ROE) 21.6%

(10.9%) Yc = 0.306 - 0.016x

The average ROA and ROE show soundness in profitability over time. The equation for trend

line shows that both ROA and ROE are having decreasing trend due to the gradual increase of competition.

39

Table 6.7 ROA & ROE of First Generation PCBs

Name of PCBs ROA ROE

Mean Standard Deviation Mean Standard Deviation

A.B. Bank Ltd. 1.69% 1.17% 25.01% 16.43%

IFIC Bank Ltd. 1.40% 0.93% 21.79% 14.84%

Uttara Bank Ltd. 1.46% 1.22% 29.77% 31.74%

Pubali Bank Ltd. 1.45% 0.87% 25.15% 18.65%

National Bank Ltd. 1.92% 1.45% 23.65% 14.57%

Islami Bank Ltd. 1.34% 0.63% 20.96% 11.46%

The City Bank Ltd. 1.39% 0.94% 27.80% 27.31%

U.C. Bank Ltd. 1.35% 0.66% 23.57% 15.46%

ICB Islami Bank Ltd. -3.64% 3.54% -44.08% 77.26%


The above table shows that both ROA and ROE are positive for all banks except ICB Islami Bank Ltd. ROA is highest for National Bank Ltd. (1.92%) and ROE for Uttara Bank Ltd. (29.77%).

Table 6.8 ROA & ROE of Second Generation PCBs



Eastern Bank Ltd. 1.98% 0.91% 17.47% 6.20%

NCC Bank Ltd. 1.84% 0.88% 23.45% 10.27%

Prime Bank Ltd. 1.83% 1.17% 22.46% 13.29%

Dhaka Bank Ltd. 1.55% 0.47% 25.71% 13.14%

Al-Arafa Bank Ltd. 1.68% 0.62% 21.50% 5.41%

Southeast Bank Ltd. 1.82% 0.87% 26.57% 18.78%

Social Investment Bank Ltd. 0.90% 0.73% 15.76% 15.63%

Dutch Bangla Bank Ltd. 1.34% 0.68% 23.21% 13.90%

The Trust Bank Ltd. 1.35% 0.58% 17.03% 6.07%

Bank Asia Ltd. 2.01% 0.60% 29.74% 9.88%

Exim Bank Ltd. 2.01% 0.68% 29.55% 14.59%

First Security Bank Ltd. 0.54% 0.69% 9.65% 13.44%

Mutual Trust Bank Ltd. 1.63% 0.47% 21.55% 7.36%

Mercantile Bank Ltd. 1.69% 0.64% 26.54% 15.91%

One Bank Ltd. 1.56% 0.72% 24.34% 10.95%

Premier Bank Ltd. 1.91% 1.11% 22.22% 11.39%

Standard Bank Ltd. 1.99% 0.35% 20.52% 4.68%

Commerce Bank Ltd. 0.19% 0.31% 1.25% 2.29%


The above table shows that both ROA and ROE are positive for all banks. ROA is highest for Exim Bank Ltd. (2.01%) where ROE is highest for Bank Asia Ltd. (29.74%). Both ROA and ROE are lowest for Commerce Bank Ltd.

40

Table 6.9 ROA & ROE of Third Generation PCBs



BRAC Bank Ltd. 0.64% 0.99% 9.72% 10.93%

Jamuna Bank Ltd. 1.05% 0.74% 15.64% 11.97%

Shahjalal Bank Ltd. 1.65% 0.67% 20.81% 8.80%


The above table shows that both ROA and ROE are positive for all banks. Both ROA and ROE are highest for Shahjalal Bank Ltd. having 1.65% and 20.81% respectively and lowest for Brac Bank Ltd. having 0.64% and 9.72% respectively.

6.6 ROA & ROE of PCBs’ and those of SCBs, DFIs & FCBs

In respect of the mean of ROA and ROE, FCBs (having ROA 3.7% & ROE 29.3%) are in best position and PCBs (having ROA 1.4% & ROE 21.6%) are next to FCBs.

Figure 6.9 PCBs’ Return on Asset (ROA) in respect of other categories of banks


Figure 6.10 PCBs’ Return on Equity (ROE) in respect of other categories of banks


41

Table 6.10 Comparison of ROA & ROE of PCBs to those of SCBs, DFIs & FCBs

Category of Banks CAGR, Mean & Std Dev of ROA CAGR, Mean & Std Dev of ROE

PCBs

-3.00%

1.4%

(0.6%)

-7.93%

21.6%

(10.9%)

SCBs

9.87%

0.7%

(0.6%)

-0.87%

-22.0%

(217.6%)

DFIs

-8.01%

0.1%

(0.4%)

-2.00%

-14.8%

(54.4%)

FCBs

-6.20%

3.7%

(1.6%)

-11.29%

29.3%

(18.8%)


The above table shows that CAGR of ROA and ROE of a ll categories of banks is found to be negative, with only exception in case of ROA of SCBs. This is because the ROA and ROE of

all category of banks in 2001were very high in respect of the other years. Moreover, the competition in banking industry is increasing gradually and this may cause the reduction in profitability. In respect of the mean of ROA and ROE, FCBs (having ROA 3.7% & ROE

29.3%) are in best position and PCBs (having ROA 1.4% & ROE 21.6%) are next to FCBs.

42

CHAPTER VII

CONCLUSIONS AND AREAS FOR FURTHER RESEARCH

7.1 Conclusions

The PCBs in Bangladesh are performing well. The deposit, advance, total asset, equity and net income of Private Commercial Banks (PCBs) are found to have their increasing trend

over the period. CAGR of deposit, advance, total asset, total equity and net income of the PCBs of second generation is higher than that of first generation and CAGR of those

variables of third generation is mention ably higher than that of second generation respectively. CAGR of Deposit, Advance, Asset, Equity and Net Income of PCBs is higher in almost every respects that that of SCBs, DFIs & FCBs over time. This shows PCBs’

dominance in the banking sector of Bangladesh. During 2001-2010, the PCBs are found to achieve mentionable growth in the above selected variables. This reflects their gradual

expansion of business and earning increasing amount of profit over the period.

But it is obvious that the competition among the commercial banks will be more severe in

course of time. Several new PCBs are coming soon. Their licensing process is under active consideration of Bangladesh Bank. So in order to survive, a bank should be potential enough to face the coming challenges. In this connection, PCBs should concentrate on customer

needs and satisfaction. More professional approach to management and attitudinal change among bank employees can make the clients more satisfied. To collect more deposit, PCBs

should be innovative in launching their various new deposit schemes according to the changing demand of the customers. Keeping pace with the time, they should be more technology driven to serve the customers. If a PCB can increase business per employee

(BPE), it can be able to enhance its profitability.

Advance – Deposit ratio of a bank should be such that can ensure required liquidity as well as can ensure adequate utilization of funds without keeping idle fund. So PCBs should be prudent in maintaining this ratio to ensure maximum profitability.

Profitability depends on the size of banks. Total asset of a bank can be considered to measure its size. Large banks can provide services to their customers in cheaper rate than small ones.

Through increasing its total assets, a bank can attain more competitive advantages that can help it to earn more profit. So PCBs should concentrate to increase its assets to be more

competitive. To ensure smooth functioning of a bank, Equity-Total asset ratio also should be justified and

only this well justified Equity-Total asset ratio can enhance profitability.

In order to expand the business, it is necessary to increase number of branches also. Through increasing number of bank branches, a bank can expand its services more geographically. PCBs have to find out new avenues of businesses through selecting appropriate locations of

new branches to expand the volume of customers.

PCBs have to face continuous challenges in scrutinizing credit proposals, selecting borrowers and monitoring them. Borrowers’ credit-worthiness should be judged very carefully without compromising to any pressure. Post lending regular monitoring should be rigorous. The most

acute challenge is to manage the NPL. As non-performing loan reduces the loan able fund of

43

a bank that ultimately affects the income source, managing them efficiently becomes very essential. Through reducing NPL, a bank can increase its profitability.

7.2 Areas for further research

In Bangladesh, banks are reliable source of financial intermediation. Their potentiality in

terms of growth and performance is vitally required for their smooth functioning. This paper mainly focuses on growth, profitability determinants and performance of Private Commercial Banks of Bangladesh. It is found that Advance/Deposit and Equity/Total asset ratios should

be well justified to ensure profitability. In this connection, what the appropriate ratio of these two variables should be at what context - is an issue of further research. Moreover, further

comprehensive research work can be initiated to find out various pros and cons of each category of banks as well as of the entire banking sector of Bangladesh as a whole.

44

REFERENCES

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Money, Credit and Banking 27, Vol. 2 (1995), pp. 432–56.

2. Bodla B.S. & Verma Richa, 2007, 'Determinants of Profitability of Banks in India: A Multivariate Analysis', Journal of Services Research, Volume 6, Number 2 (October 2006 - March 2007), pp. 75-89.

3. Chandan, C. L. and Rajput, P.K., 2002, ‘Profitability analysis of banks in India: A multiple regression approach’, Indian Management Studies Journal, 6:1, pp. 119-129.

4. Chantapong Saovanee, 2006, ‘Comparative Study of Domestic and Foreign Bank

Performance in Thailand: The Regression Analysis’, Economic Change and Restructuring, Vol. Springer 2006, pp. 63-83.

5. Chantapong S., 2005, ‘Comparative Study of Domestic and Foreign Bank Performance in Thailand: The Regression Analysis’, Economic Change and Restructuring, Vol. 38, pp. 63–

83.

6. Debasish Sathya Swaroop & Shil Nikhil Chandra, 2009, ‘Key Discriminators of Bank Profitability’, Interdisciplinary Journal of Contemporary Research in Business, Vol. 1, No. 2,

pp. 97-110.

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Banking’, Journal of Money, Credit and Banking 36, Vol. 6 (2004), pp. 1069–90.

8. Guru B.K., Staunton J., and Balashanmugam B., 2002, ‘Determinants of Commercial Bank Profitability in Malaysia’, Working Paper, Multimedia University, 2002.

9. Kalluru Siva Reddy, 2009, 'Ownership Structure, Performance and Risk in Indian Commercial Banks', The IUP Journal of Applied Finance, Vol. 15, No. 8, pp. 31-45.

10. Rasiah Devinaga, Dr. 2010, 'Review of Literature and Theories on Determinants of

Commercial Bank Profitability', Journal of Performance Management, pp. 23-49.

11. Sufian Fadzlan & Habibullah Muzafar Shah, 2009, 'Bank Specific and Macroeconomic

Determinants of Bank Profitability: Empirical Evidence from the China Banking Sector', Front. Econ. China, Vol. 4(2), pp. 274–291.

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27, No. 3, pp. 245–62.

45

APPENDICES

Appendices 1: Net Income (2001-2010)

(Figures in crore)

Sl. No. Name of PCBs Mean Median Maximum Minimum

1 The City Bank Ltd 59.2 49.6 184.9 0.0

2 U.C.B.L. 68.1 55.1 218.0 9.3

3 A.B. Bank 130.0 58.1 369.6 1.6

4 IFIC Bank Ltd 59.9 59.6 166.4 7.2

5 National Bank Ltd. 145.7 82.0 687.2 14.6

6 Uttara Bank Ltd 78.2 78.6 158.3 16.8

7 Pubali Bank Ltd 109.7 80.7 323.3 0.0

8 Eastern Bank Ltd 81.4 56.5 251.4 31.6

9 NCCBL 77.5 51.4 237.2 16.9

10 Dhaka Bank Ltd 69.4 55.7 167.9 23.4

11 Southeast Bank 100.2 78.4 276.4 20.2

12 Prime Bank 94.8 77.6 282.3 37.5

13 Dutch Bangla 61.1 37.9 200.5 17.8

14 Mercantile 62.0 53.8 142.5 25.7

15 One bank 44.1 26.7 188.8 11.4

16 Exim Bank 96.0 61.4 345.8 20.1

17 Premier Bank 47.5 29.1 175.8 6.8

18 Standard Bank 45.2 33.7 136.9 6.5

19 First Security Bank 12.9 6.4 54.9 -11.7

20 Commerce Bank 1.6 0.8 6.3 -2.9

21 Mutual Trust Bank 39.4 32.4 98.8 9.8

22 The Trust Bank 33.4 22.4 127.5 5.3

23 Bank Asia 67.6 50.7 193.0 11.4

24 Al-Arafa Bank 49.5 25.7 181.6 7.9

25 Al-Baraka Bank -71.8 -59.1 9.9 -206.2

26 Islami Bank 209.6 154.3 448.6 59.7

27 Social Investment 22.7 17.3 64.0 1.5

28 BRAC Bank 48.6 27.3 139.3 -3.8

29 Jamuna Bank 34.0 23.1 106.6 0.0

30 Shahjalal Bank 56.8 36.0 207.2 0.7


46

Appendices 2: Return on Asset (ROA) (2001-2010)


1 The City Bank Ltd 1.39% 1.25% 2.98% 0.00%

2 U.C.B.L. 1.35% 1.26% 2.74% 0.45%

3 A.B. Bank 1.69% 1.74% 3.05% 0.05%

4 IFIC Bank Ltd 1.40% 1.48% 2.66% 0.25%

5 National Bank Ltd. 1.92% 1.77% 5.10% 0.33%

6 Uttara Bank Ltd 1.46% 1.21% 4.41% 0.35%

7 Pubali Bank Ltd 1.45% 1.32% 3.00% 0.00%

8 Eastern Bank Ltd 1.98% 1.76% 3.85% 1.04%

9 NCCBL 1.84% 1.56% 3.53% 0.66%

10 Dhaka Bank Ltd 1.55% 1.46% 2.74% 1.18%

11 Southeast Bank 1.82% 1.60% 3.40% 0.60%

12 Prime Bank 1.83% 1.61% 4.80% 0.52%

13 Dutch Bangla 1.34% 1.10% 2.95% 0.62%

14 Mercantile 1.69% 1.51% 3.09% 1.08%

15 One bank 1.56% 1.49% 3.22% 0.82%

16 Exim Bank 2.01% 1.79% 3.41% 1.26%

17 Premier Bank 1.91% 1.64% 3.60% 0.26%

18 Standard Bank 1.99% 2.06% 2.46% 1.23%

19 First Security Bank 0.54% 0.38% 1.67% -0.57%

20 Commerce Bank 0.19% 0.20% 0.65% -0.40%

21 Mutual Trust Bank 1.63% 1.64% 2.45% 0.78%

22 The Trust Bank 1.35% 1.16% 2.25% 0.76%

23 Bank Asia 2.01% 1.82% 2.97% 1.35%

24 Al-Arafa Bank 1.68% 1.77% 2.56% 0.79%

25 Al-Baraka Bank -3.64% -3.00% 0.67% -10.85%

26 Islami Bank 1.34% 1.20% 2.47% 0.64%

27 Social Investment 0.90% 0.73% 2.67% 0.08%

28 BRAC Bank 0.64% 1.05% 1.37% -1.83%

29 Jamuna Bank 1.05% 1.25% 2.00% 0.00%

30 Shahjalal Bank 1.65% 1.79% 2.63% 0.46%


47

Appendices 3: Return on Equity (ROE) (2001-2010)


1 The City Bank Ltd 27.8% 15.0% 80.5% 0.0%

2 U.C.B.L. 23.6% 20.8% 64.7% 10.6%

3 A.B. Bank 25.0% 28.9% 52.0% 1.1%

4 IFIC Bank Ltd 21.8% 19.8% 46.1% 4.5%


6 Uttara Bank Ltd 29.8% 17.2% 105.9% 8.2%

7 Pubali Bank Ltd 25.2% 20.6% 66.0% 0.0%

8 Eastern Bank Ltd 17.5% 16.4% 32.9% 11.1%

9 NCCBL 23.5% 20.2% 49.7% 13.9%

10 Dhaka Bank Ltd 25.7% 21.8% 62.5% 17.4%

11 Southeast Bank 26.6% 18.8% 67.5% 11.5%

12 Prime Bank 22.5% 21.5% 55.7% 4.7%

13 Dutch Bangla 23.2% 18.7% 59.8% 9.7%

14 Mercantile 26.5% 19.6% 66.6% 14.3%

15 One bank 24.3% 24.0% 38.9% 10.6%

16 Exim Bank 29.6% 26.6% 69.0% 18.7%

17 Premier Bank 22.2% 21.7% 40.7% 3.1%

18 Standard Bank 20.5% 19.2% 31.7% 15.3%

19 First Security Bank 9.6% 5.6% 36.6% -10.2%

20 Commerce Bank 1.3% 0.8% 4.8% -2.9%


22 The Trust Bank 17.0% 15.9% 25.4% 9.8%

23 Bank Asia 29.7% 26.6% 45.9% 18.7%

24 Al-Arafa Bank 21.5% 21.7% 28.6% 11.1%

25 Al-Baraka Bank -44.1% -25.7% 46.5% -179.2%

26 Islami Bank 21.0% 18.0% 41.8% 10.1%


28 BRAC Bank 9.7% 14.2% 19.5% -17.1%

29 Jamuna Bank 15.6% 15.7% 39.8% 0.0%

30 Shahjalal Bank 0.208 0.220 0.340 0.035


48

Appendices 4: Correlation matrix of independent variables (Year 2001)

Independent

Variables

Advance/

Deposit

Total

Asset

No. of

Bank

Branches

NPL/Adv Equity/Asset BPE

Advance/Deposit 1.00

Total Asset -0.02 1.00

No. of Branches -0.14 0.75 1.00

NPL/Adv 0.46 0.39 0.48 1.00

Equity/Asset -0.11 -0.33 -0.18 0.00 1.00

BPE 0.17 -0.08 -0.31 -0.45 -0.38 1.00


Independent

Variables

Advance/

Deposit

Total

Asset

No. of

Bank

Branches




No. of Branches -0.18 0.70 1.00

NPL/Adv 0.34 0.48 0.63 1.00

Equity/Asset 0.64 -0.33 -0.23 0.07 1.00

BPE -0.10 -0.15 -0.43 -0.59 -0.22 1.00


Independent

Variables

Advance/

Deposit

Total

Asset

No. of

Bank

Branches




No. of Branches -0.28 0.74 1.00

NPL/Adv 0.21 0.48 0.63 1.00

Equity/Asset 0.55 -0.41 -0.36 -0.21 1.00

BPE -0.14 -0.21 -0.47 -0.63 0.05 1.00


Independent

Variables

Advance/

Deposit

Total

Asset

No. of

Bank

Branches




No. of Branches -0.34 0.60 1.00

NPL/Adv -0.09 0.20 0.52 1.00

Equity/Asset 0.61 -0.36 -0.30 0.11 1.00

BPE 0.22 -0.15 -0.51 -0.65 0.05 1.00

49


Independent

Variables

Advance/

Deposit

Total

Asset

No. of

Bank

Branches




No. of Branches -0.37 0.56 1.00

NPL/Adv -0.16 -0.06 0.30 1.00

Equity/Asset 0.49 -0.29 -0.24 -0.05 1.00

BPE 0.16 -0.20 -0.54 -0.45 0.17 1.00


Independent

Variables

Advance/

Deposit

Total

Asset

No. of

Bank

Branches




No. of Branches -0.30 0.52 1.00

NPL/Adv 0.22 -0.20 0.03 1.00

Equity/Asset 0.45 -0.21 -0.15 -0.01 1.00

BPE 0.00 -0.10 -0.51 -0.29 -0.13 1.00


Independent

Variables

Advance/

Deposit

Total

Asset

No. of

Bank

Branches




No. of Branches -0.28 0.52 1.00

NPL/Adv 0.29 -0.19 -0.06 1.00

Equity/Asset 0.18 -0.15 -0.15 -0.33 1.00

BPE 0.17 -0.06 -0.44 -0.28 -0.01 1.00


Independent

Variables

Advance/

Deposit

Total

Asset

No. of

Bank

Branches



Total Asset 0.00 1.00

No. of Branches -0.39 0.51 1.00

NPL/Adv -0.04 -0.26 -0.09 1.00

Equity/Asset 0.11 -0.24 -0.14 0.95 1.00

BPE 0.44 -0.03 -0.47 -0.27 -0.16 1.00

50


Independent

Variables

Advance/

Deposit

Total

Asset

No. of

Bank

Branches




No. of Branches -0.23 0.35 1.00

NPL/Adv 0.33 -0.29 -0.12 1.00

Equity/Asset -0.29 0.20 0.12 -0.91 1.00

BPE 0.34 -0.02 -0.43 -0.21 0.11 1.00


Independent

Variables

Advance/

Deposit

Total

Asset

No. of

Bank

Branches



Total Asset 0.15 1.00

No. of Branches -0.05 0.60 1.00

NPL/Adv 0.17 -0.32 -0.17 1.00

Equity/Asset -0.24 0.22 0.15 -0.91 1.00

BPE 0.32 0.03 -0.45 -0.31 0.19 1.00

51

Appendices 14: Advance/Deposit Ratio (2001-2010)


1 The City Bank Ltd 0.78 0.76 0.90 0.66

2 U.C.B.L. 0.80 0.81 0.90 0.71

3 A.B. Bank Ltd. 0.82 0.84 0.94 0.60

4 IFIC Bank Ltd 0.96 0.95 1.11 0.78


6 Uttara Bank Ltd 0.69 0.68 0.86 0.55

7 Pubali Bank Ltd 0.78 0.77 0.92 0.66

8 Eastern Bank Ltd 1.04 1.04 1.21 0.79

9 NCCBL 0.93 0.93 1.03 0.86

10 Dhaka Bank Ltd 0.88 0.89 1.00 0.71

11 Southeast Bank 0.89 0.91 0.97 0.79

12 Prime Bank 0.83 0.84 0.91 0.69

13 Dutch Bangla 0.77 0.74 0.92 0.68

14 Mercantile 0.88 0.89 0.98 0.74

15 One bank 0.86 0.86 0.98 0.76

16 Exim Bank 0.94 0.94 1.01 0.91

17 Premier Bank 0.88 0.88 0.95 0.79

18 Standard Bank 0.93 0.92 1.05 0.83

19 First Security Ban k 0.90 0.93 1.02 0.76

20 Commerce Bank 1.19 0.95 2.01 0.68


22 The Trust Bank 0.75 0.71 1.03 0.64

23 Bank Asia 0.91 0.91 0.96 0.84

24 Al-Arafa Bank 0.95 0.96 1.08 0.80

25 ICB Islami Bank Limited 0.97 1.00 1.17 0.71

26 Islami Bank 0.90 0.90 0.95 0.83


28 BRAC Bank 0.80 0.81 0.99 0.60

29 Jamuna Bank 0.75 0.77 0.85 0.57

30 Shahjalal Bank 0.88 0.93 1.01 0.40


52

Appendices 15: Total Asset (2001-2010)

(Figures in crore)


1 The City Bank Ltd 4500 4129 9090 2073

2 U.C.B.L. 4935 3540 12977 1835

3 A.B. Bank 5910 4003 13299 2841

4 IFIC Bank Ltd 3959 3314 7084 2552

5 National Bank Ltd. 5953 4937 13475 3166

6 Uttara Bank Ltd 5312 5005 8145 3591

7 Pubali Bank Ltd 6952 5909 12846 3907

8 Eastern Bank Ltd 4045 3569 8249 1813

9 NCCBL 3908 3001 8355 1609

10 Dhaka Bank Ltd 4668 4083 9014 1910

11 Southeast Bank 5829 4975 13178 1447

12 Prime Bank 6637 5134 15280 1574

13 Dutch Bangla 4471 3922 10078 1346

14 Mercantile 3960 3362 8714 1308

15 One bank 2492 2229 5870 743

16 Exim Bank 4551 3775 11305 804

17 Premier Bank 2601 2047 6676 345

18 Standard Bank 2306 1566 6660 404

19 First Security Bank 2498 2035 6362 446

20 Commerce Bank 753 734 1558 332

21 Mutual Trust Bank 2636 2276 5825 439

22 The Trust Bank 2454 1806 5828 315

23 Bank Asia 3656 2693 10520 472

24 Al-Arafa Bank 2686 1835 7401 876

25 Al-Baraka Bank 2096 1961 2918 1480

26 Islami Bank 16589 14604 33079 4955

27 Social Investment 2603 2188 5467 1130

28 BRAC Bank 4158 3078 12280 36

29 Jamuna Bank 2484 1851 7106 421

30 Shahjalal Bank 2697 1829 7880 162


53

Appendices 16: Equity/Total Asset (2001-2010)


1 The City Bank Ltd 0.061 0.058 0.127 0.029

2 U.C.B.L. 0.059 0.061 0.076 0.042

3 A.B. Bank 0.065 0.056 0.104 0.036

4 IFIC Bank Ltd 0.063 0.058 0.084 0.046


6 Uttara Bank Ltd 0.057 0.049 0.106 0.029

7 Pubali Bank Ltd 0.066 0.066 0.112 0.033

8 Eastern Bank Ltd 0.111 0.114 0.149 0.075

9 NCCBL 0.077 0.075 0.112 0.048

10 Dhaka Bank Ltd 0.063 0.064 0.074 0.044

11 Southeast Bank 0.078 0.076 0.130 0.050

12 Prime Bank 0.082 0.077 0.110 0.070

13 Dutch Bangla 0.060 0.059 0.077 0.049

14 Mercantile 0.069 0.068 0.092 0.046

15 One bank 0.067 0.068 0.083 0.042

16 Exim Bank 0.073 0.073 0.110 0.046

17 Premier Bank 0.085 0.087 0.099 0.063

18 Standard Bank 0.101 0.106 0.147 0.061

19 First Security Bank 0.059 0.058 0.092 0.045

20 Commerce Bank 0.161 0.138 0.250 0.108


22 The Trust Bank 0.081 0.079 0.128 0.037

23 Bank Asia 0.069 0.072 0.078 0.051

24 Al-Arafa Bank 0.079 0.079 0.130 0.042

25 Al-Baraka Bank -0.002 0.026 0.343 -0.311

26 Islami Bank 0.066 0.064 0.077 0.056


28 BRAC Bank 0.141 0.086 0.690 0.032

29 Jamuna Bank 0.073 0.077 0.093 0.046

30 Shahjalal Bank 0.085 0.085 0.129 0.055


54

Appendices 17: NPL as % of Total Advances (2001-2010)


1 The City Bank Ltd 12.32% 7.39% 31.49% 4.42%

2 U.C.B.L. 10.22% 4.33% 27.33% 1.20%

3 A.B. Bank 9.82% 6.42% 25.09% 2.10%

4 IFIC Bank Ltd 14.96% 9.18% 34.95% 4.38%


6 Uttara Bank Ltd 17.66% 15.81% 32.29% 5.50%

7 Pubali Bank Ltd 15.31% 11.75% 35.37% 2.04%

8 Eastern Bank Ltd 6.50% 4.91% 13.67% 1.99%

9 NCCBL 5.90% 4.88% 9.84% 2.10%

10 Dhaka Bank Ltd 2.81% 2.78% 5.57% 1.16%

11 Southeast Bank 3.40% 3.48% 4.98% 2.00%

12 Prime Bank 1.25% 1.26% 1.77% 0.82%

13 Dutch Bangla 1.82% 1.83% 4.24% 0.16%

14 Mercantile 2.39% 2.68% 4.17% 0.08%

15 One bank 3.27% 3.41% 7.40% 0.39%

16 Exim Bank 1.65% 1.86% 2.68% 0.00%

17 Premier Bank 2.98% 2.86% 6.00% 0.37%

18 Standard Bank 1.09% 0.90% 1.96% 0.43%

19 First Security Bank 8.05% 7.05% 16.84% 2.14%

20 Commerce Bank 31.77% 29.22% 67.85% 12.92%


22 The Trust Bank 2.08% 2.21% 3.18% 1.30%

23 Bank Asia 2.00% 2.02% 3.31% 0.01%

24 Al-Arafa Bank 4.43% 3.46% 12.22% 0.28%

25 Al-Baraka Bank 42.25% 43.58% 86.78% 2.28%

26 Islami Bank 4.68% 3.20% 8.40% 1.78%


28 BRAC Bank 2.94% 2.70% 6.04% 0.00%

29 Jamuna Bank 1.68% 1.14% 5.04% 0.00%

30 Shahjalal Bank 0.51% 0.43% 1.91% 0.00%


55

Appendices 18: Business Per Employee (2001-2010)


1 The City Bank Ltd 2.98 3.06 4.73 1.59

2 U.C.B.L. 3.36 2.66 7.45 1.38

3 A.B. Bank 4.55 3.57 9.09 2.11

4 IFIC Bank Ltd 2.74 2.41 4.47 1.89


6 Uttara Bank Ltd 2.07 1.75 3.46 1.53

7 Pubali Bank Ltd 1.98 1.58 3.30 1.10

8 Eastern Bank Ltd 7.59 7.67 11.62 4.08

9 NCCBL 4.59 4.45 6.98 3.07

10 Dhaka Bank Ltd 8.20 8.50 12.09 4.13

11 Southeast Bank 7.85 8.04 12.39 3.27

12 Prime Bank 7.34 7.46 10.90 3.59

13 Dutch Bangla 7.04 7.00 9.66 4.63

14 Mercantile 6.62 6.80 9.09 3.72

15 One bank 6.45 6.65 7.42 5.43

16 Exim Bank 6.49 6.33 11.18 2.98

17 Premier Bank 6.12 6.36 10.14 2.57

18 Standard Bank 5.50 4.70 10.75 1.92

19 First Security Bank 6.92 8.02 11.62 1.77

20 Commerce Bank 2.06 1.92 3.70 0.80


22 The Trust Bank 4.84 5.23 6.38 2.95

23 Bank Asia 8.53 9.04 13.22 4.47

24 Al-Arafa Bank 3.66 3.27 6.47 1.61

25 Al-Baraka Bank 4.53 4.46 6.12 2.82

26 Islami Bank 3.81 3.65 5.32 2.58


28 BRAC Bank 1.86 1.92 3.87 0.25

29 Jamuna Bank 4.02 4.28 7.26 0.81

30 Shahjalal Bank 5.87 6.96 8.71 0.88


56

Appendices 19: Number of Bank Branches (NBB) (2001-2010)


1 The City Bank Ltd 80 78 88 76

2 U.C.B.L. 86 83 107 79

3 A.B. Bank 70 70 81 63

4 IFIC Bank Ltd 69 65 95 54

5 National Bank Ltd. 94 84 145 75

6 Uttara Bank Ltd 203 200 211 198

7 Pubali Bank Ltd 362 353 399 349

8 Eastern Bank Ltd 29 24 49 22

9 NCCBL 46 44 70 29

10 Dhaka Bank Ltd 33 31 56 17

11 Southeast Bank 36 31 76 13

12 Prime Bank 52 44 94 26

13 Dutch Bangla 41 32 96 11

14 Mercantile 33 30 65 14

15 One bank 23 20 50 5

16 Exim Bank 31 28 59 10

17 Premier Bank 25 24 52 7

18 Standard Bank 26 23 58 10

19 First Security Bank 24 14 66 8

20 Commerce Bank 25 25 25 24

21 Mutual Trust Bank 27 22 67 7

22 The Trust Bank 26 21 59 11

23 Bank Asia 25 22 49 7

24 Al-Arafa Bank 48 43 78 40

25 Al-Baraka Bank 32 32 34 30

26 Islami Bank 165 157 281 117

27 Social Investment 29 24 64 15

28 BRAC Bank 35 20 127 1

29 Jamuna Bank 28 24 65 3

30 Shahjalal Bank 24 17 63 2


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