Operating and Financial Performance of Commercial Banks An Empirical Study for Eastern Bank Ltd
CHAPTER ONE INTRODUCTION 1.1 INTRODUCTION Generally by the word “Bank” we can easily understand that the financial institution deals with money. But there are different types of banks like; Central Banks, Commercial Banks, Savings Banks, Investment Banks, Industrial Banks, Cooperative Banks etc. But when use the term “Bank” without any prefix, or qualification it refers to the ‘commercial banks’. Commercial banks are the primary contributor to the economy of a country. So we can say commercial banks are a profit making institution that holds the deposit of the individuals & business in checking various accounts like current, savings account and than uses these funds to make loans. For these, people and government are very much dependent on these banks as the financial intermediary. As banks are profit-earning concern; they collect deposit at the lowest possible cost and provide loans and advances at higher possible cost. The differences between two are the profit for the bank. Banking sector is expanding its hand in different events every day. At the same time the banking process is becoming faster, easier and the banking arena becoming wider. As the demand for better service increases day by day, they are coming with different innovative ideas and products. In order to survive in the competitive field of the banking sector, all banking organization are looking for better service opportunities to provide their fellow clients. As a result, it has become essential for every person to have some idea on the bank and banking procedure. Thesis program is very essential for every student, especially for the students of business administration, which helps them to know real life situation. For this reason a student makes the thesis paper at the last stage of the MBA degree, to launch a career with some practical experience. To fulfill that requirement I have selected the study topic “Performance Analysis of Commercial Bank-An Empirical Study for Eastern Bank Limited”. 1.2 BACKGROUND OF THE STUDY Banking sector is spending its hand in different financial event every day. At the same time the banking process is becoming faster, easier and the banking arena is becoming wider. As the demand for better service increase day by day, they are coming with different innovative ideas & product. In order to survive in the competitive field of the banking sector, all banking organization are looking for better service opportunities to provide their fellow clients. As a result, it has become essential for every person to have some idea on the bank and banking procedure. This thesis report is a mandatory requirement of my MBA program, and is prepared by supervision of Professor Dr. Jamal Uddin Ahmed, Academic Advisor Department of Business Administration, Stamford University Bangladesh. The thesis supervisor authorized me to submit the report of “Performance Analysis of Commercial Bank -An Empirical Study for Eastern Bank Limited”
1.3 OBJECTIVE OF THE STUDY A. General Objective: The general objective of the report is to know about the management system of Eastern Bank Ltd As a private commercial bank as well as its formation & it’s functional, operational & financial aspects. B. Project objectives: ⇒ To have a clear idea of day to day functioning and service offered by a commercial bank. ⇒ To have a close vision as well as analyze the performance of the specific branch and the bank as a whole. ⇒ To make a bridge between the theories and practices on banking operations. ⇒ To know about the international trade financing activities. ⇒ To find out the internal and external lacking in the daily operation and to overcome that shortcomings for more progress of Eastern Bank Limited. 1.4 SCOPE OF THE STUDY Exploratory research method is used in writing this report. This type of research is meaningful in any situation in which the researcher does not have enough understanding to proceed with the research project. This research is characterized by flexibility and versatility with respect, to the methods, because formal research method, because formal research protocol and procedures are not employed. It is rarely involves structured questionnaire, large sample and probability sampling plans. Rather researchers are alert to new ideas and insights as the proceed. Once a new idea or insight is discovered, they may shift their exploration in that direction. Observation method is used to complete this qualitative research. 1.5 METHODOLOGY OF THE STUDY The following methodology has been followed to come to a successful conclusion. To successfully finish the project certain methodology has been followed. These are: Sources of Information & Data In order to make the Report more meaningful and presentable, two sources of data and information have been used widely.
z
PRIMARY PRIMARY DATA DATA
Both primary and secondary data sources were used to generate the report
SECONDARY SECONDARY DATA DATA
The “Primary Sources” are as follows – • Informal conversation with the course teacher and bankers. • Observing various organizational procedures. • Relevant file study as provided by the officers concerned. • Unpublished information through interviews The “Secondary Sources” of data and information are – • Published article and manuals • Periodicals published by Bangladesh Bank. • Various books, articles, compilations etc. regarding general banking functions, foreign exchange operations and credit policies. • From newspapers and internet Analytical Review A critical analysis of the data has been made through the bar and line graph over the last few years. This will enable me to visualize the trend of the variable of interest over time. Indicators of bank performance have also been computed thorough ratio analysis.
1.6 LIMITATION OF THE STUDY In all respect some limitation and weakness remain within which I failed to escape by any means. These are follows: Limitation of time
It was one of the main constraints that hindered to cover all aspects of the study.
Lack of Secondary
The annual report was the main secondary Information source of information that was not enough to complete the report and private the reader a clear idea about the bank.
Confidentiality of data
Confidentiality of data was another important barrier that was faced during the conduct of this study. Every organization has their own secrecy that is not revealed to others. While collecting data on EBL's strategic plan, the personnel did not disclose enough information for the sake of confidentiality of the organization CHAPTER TWO OVERVIEW OF EASTERN BANK LIMITED
2.1 Overview of the Banking Sector in Bangladesh Whoever, being an individual firm, company or corporation generally deals in the business of money and credit is called bank. In our country, any institution, which accepts, for the purpose of lending or investment deposits of money from public, repayable on demand or otherwise, and with transferable by checks draft order and otherwise can be termed as a bank. The purpose of banking is to ensure transfer of money from surplus unit to deficit units. Bank in all countries work as the depository of money. The owners look for safety and amount of interest for their deposits with Banks. Entrepreneurs try to obtain money from the banks as working capital and for long-term investment.
These entrepreneurs welcome effective and forward-looking advice for investment. Banking sector thus owe a great to the deposit holders on the hand and the entrepreneurs on the other. They are expected to play the role of friend, philosopher, and guide for the deposit holders and the entrepreneurs. Since liberation, Bangladesh passed through fragile phases of development in the banking sector. The nationalization of banks in the post liberation period was intended to safe the institutions and the interest of the depositors. Those handling the banking sector have borne the burden of putting banks on reliable footings. Despite all that was done, some elements of irregularities appeared. With the assertion of the role of the Central bank, The Bangladesh bank started adopting measures for putting banking institutions on right track. Yet the performance of public sector management of banks left some negative effects in the money market in particular and the economy in general. The agility among the borrowers manipulates the banking sector as a whole. In effect, a default culture appeared on the scene. The opening of PRIVATE and FOREIGN participants to the banking sector was intended to obtain desirable results from banking. The authorization of private banks was designed to create competition among the banks and competition in the from of efficiency with and the productivity in enterprises funded by banks. Unfortunately, for the people, at large banking sector is yet to obtain the credit for efficiency, credibility, and growth. Banking sector has a vital role to play in the economic activities and development of any country. This sector is much more important in a developing country like Bangladesh. The whole scenario of the economy of a country can be ascertained by examining the condition of the banking sector. In Bangladesh, the banking sector dominates the financial sector and macroeconomic management largely depends on the performance of the banking sector. Banking grew primarily in the public sector with main emphasis on restructuring of the financial system and development needs of the war-torn economy with gradual liberalization in subsequent years. It was increasingly felt that banks should be allowed in the private sector for giving a fillip to development process on the basis of private initiative. In the 80’s for the first time a number of banks in the private sector were allowed. Subsequently in the mid 90’s some more banks in private sector also commenced operations. Finally, in 1999, 3rd generation of private sector banks was given permission to operate. As a result while up to 80’s public sector banks dominated financial sector, banks in the private sector were given increased responsibility with the passage of time. At present there are 51 scheduled banks operating all over the country. Out of these, 9 are stateowned (including five specialized banks), 29 are private commercial banks and the rest 13 are foreign commercial banks. Domestic banks can be divided into four main groups: Nationalized Commercial Banks (NCBs); Private banks established in the early 1980s; and private banks established in 1999: NATIONALIZED COMMERCIAL BANKS (NCBS) In general terms; NCBs are large, operationally inefficient and technically insolvent. They are used as vehicles of government directed lending. These banks enjoy an enormous and stable customer deposit base, which provides a cheap source of funding. In addition, most large government related business is routed through these banks;
PRIVATE COMMERCIAL BANKS Private commercial banks are divided into three groups according to their commencement of business. They are familiar in the name of 1st generation, 2nd generation and 3rd generation banks. 1st Generation Banks (Established 1982-1988) Private Banks set up to service the sectors not being addressed by the larger NCBs. Not subject to state directed lending but have generally suffered from related lending to directors and their extended families. 1st generation banks includes National Bank Limited, The City Bank Limited, United Commercial bank Limited, AB Bank Limited, IFIC Bank Limited, Islami Bank Bangladesh Limited and Al-Baraka Bank Bangladesh Limited. 2nd Generation Banks (Established 1992-1996) In that time seven new licenses were granted. These are the better-managed banks with strong capital base and good asset quality and under a much-improved regulatory regime. All the banks lustered in this group have successfully raised capital from secondary market and all the shares are now traded in the stock exchange at premium. Eastern Bank Limited, National Credit & Commerce Bank Limited, Southeast Bank Limited , Dhaka Bank Limited, Al Arafah Islami Bank Limited, Social Investment Bank Limited and DutchBangla Bank Limited. 3rd Generation Banks (Established 1999 to present) Ten Twelve banks have been granted licenses over the year 1999 to present. While some bankers complain that the country is over-banked, the more commonly held view, including that of the World Bank, is that there is adequate scope for these banks to survive given currently untapped gaps in the market, fat in existing interest margins (currently circa 5%), and efficiency/ service level disparities. It is estimated that up to 70% of the Bangladeshi economy remains un-banked. While this appears to imply that the newer banks may move downstream in terms of asset quality but in reality the last two sets of new banks are successfully competing with NCBs and Foreign banks on the top end market segment. Mercantile Bank Limited, Standard Bank Limited, One Bank Limited, EXIM Bank Limited, Premier Bank Limited, Mutual Trust Bank Limited, First Security Bank Limited, Bank Asia Limited, the Trust Bank Limited, Jamuna Bank, and BRAC Bank, and Shahjalal Islami Bank Limited. 2.2 Background of Eastern Bank Limited The emergence of Eastern Bank Limited in the private sector is an important event in the banking industry of Bangladesh. Eastern Bank Limited started its business as a public limited company on August 8, 1992 with the primary objectives to carry on all kinds of banking business in and outside of Bangladesh and also with a view to safeguard the interest of the depositors of erstwhile BCCI (Bank of Credit and Commerce International (Overseas)) under the Reconstruction Scheme, 1992, framed by Bangladesh Bank. In 1991, when BCCI had collapsed internationally, the operation of this bank had been closed Bangladesh. After a long discussion with the BCCI employees and taking into consideration the depositors’ interest, Bangladesh Bank then gave permission to form a bank named Eastern Bank Limited which would take over all the assets, cash and liabilities of erstwhile BCCI in Bangladesh, with effect from 16th August 1992. So, it can be said that EBL is a successor of BCCI.
EBL started its business as a scheduled bank with only four branches, which included Principal Branch, Dhaka; Motijheel Branch, Dhaka; Agrabad Branch, Chittagong and Khulna Branch. EBL started its business with a motto to grow as a leader in the banking arena of Bangladesh through better counseling and efficient service to clients. EBL resumed its operational activities initially with an authorized capital of Tk. 1000 million, divided into 10 million shares of Tk. 100 each and paid up capital of Tk. 310 million. The initial shareholders were the NCBs, various govt. agencies, and some of the depositors who had agreed to accept shares in the new bank in lieu of their deposits. The first Board of Directors of EBL constituted under govt. supervision consisted of 7 directors from various business and professions. Eastern bank Limited was under govt. control until the end of 2000 and therefore, there were lots of deficiencies in the Bank’s management. In 2001, the board of directors brought in new professional management from various foreign banks who have been trying to modernize the bank ever since. Eastern Bank Limited started the year 2004 with Paid-up Capital stood at Tk. 828 million but the authorized capital remained unchanged at Tk. 1000 million. The general public held 83.42% of its shares while institutional investors held the rest 16.58%. At present, EBL is one of the fastest growing commercial banks in the country & the largest capital based bank in Bangladesh. It has 25 branches scattered all over the major cities of the country in major business areas. 2.3 Business Philosophy of Eastern Bank Ltd The philosophy of EBL is to develop the Bank into an ideal and unique banks. The sponsor perception is that EBL should be quite different from other product and managed commercial banks operating in Bangladesh. EBL to grow as a industry lieder rather than a follower. The leadership will be in the area of service as being made to add new dimension so that clients can get “Additional” in the services to commensurate with the needs and requirements of the country’s growth and developing economy. Nevertheless, EBL is a commercial bank in the private sector. It is therefore next world seek lair return on owner’s equity as its one of the main goal. This purpose sought to be achieved by rendering maximum possible satisfaction to its clients quick and efficient services. Therefore, quality service to the clients is another goal of the EBL. 2.4 Vision, Mission and Objectives of EBL VISION To become the bank of choice by transforming the way we do business and developing a truly unique financial institution that delivers superior growth and financial performance and are the most recognizable brand in the financial services in Bangladesh. MISSION •
We will deliver service excellence to all our customers, both internal and external.
•
We will constantly challenge our systems, procedures and training to maintain a cohesive and professional team in order to achieve service excellence.
•
We will create an enabling environment and embrace a team based culture where people will excel. We will ensure to maximize shareholder's value.
OBJECTIVES •
To maintain a satisfactory deposit mix.
•
To grow its credit extension service to the commercials as well as industry.
•
To increase its diversifications of loan portfolio and geographical coverage.
•
To curb present operating expenses further so as to increase earnings.
•
To reduce burden of non performing assets.
2.5 Corporate Governance at EBL Governance in Financial Institutions is considered to be the agent of effective and profitable business operation. The Corporate governance establishes trust among the interested parties, provides information for the stakeholders, establishes professionalism, builds capacity to operate business efficiently and create a congenial working environment, which is inevitable to face the challenges of the present competitive business environment. Corporate governance in EBL may be delineated as follows: 2.5.1 Board of Directors The Board of Directors has to ensure that the management headed by Chief Executive Officer (CEO) fully discharge their day to day administrative responsibilities prescribed by BB and the Board itself and necessarily refrain themselves from micro management of the management affairs. Eastern Bank Ltd. recognizes the importance of good corporate governance as a major factor in enhancing the efficiency of the organization. The Bank therefore seeks to encourage the conduct of its business to be in line with the principles of good corporate governance, which form a basis for sustainable growth. They include an independent, active and engaged Board of Directors which has the skill to properly evaluate and oversee the business process, business and financial performance, internal control and compliance structure and direct management on strategic and policy issues. 2.5.2 Executive Committee In compliance with the BRPD circular no. 16 dated July 24, 2003, the Board of Directors of Easter Bank Limited has reconstituted its Executive Committee (EC) in its 352 Board Meeting and was duly confirmed by the Board in the following Board Meeting held on September 19, 2006. Three Executive Committee meetings were held during 2006. This committee is comprised of 4 non executive Directors and Managing Director of the Bank 2.5.3 Audit Committee To assist the Board of Directors with regard to the audit of financial reports, management reports by external auditors, internal controls and internal audits, and to select and work in co-ordination with the Bank's external auditors. Compliance with the BRPD circular no. 12 dated 23 December 2002, an Audit Committee was first constituted by the Board of Directors of Eastern Bank Limited in its 253 meeting held on 7 January, 2003 and thereafter last reconstituted in 352 Board Meeting held on 29 August 2006. 2.5.4 The Management Committee Like any other business organization, the top management makes all the major decisions in EBL. The board of directors being at the highest level of organizational structure plays an important role in policy formulation. The board of directors is not directly concerned with the day-to-day operation of bank. They have delegated this duty to the management committee. The board mainly establishes the objectives and policies of the bank. There are three (3) committee of the board for different purposes: 1. 2. 3.
Executive committee comprising of 7 members of the board; Committee of the board for Administrative matter, Committee to examine Bad Loan Cases.
The Chief Executive Officer (CEO), who is assisted by 3 Executive Vice Presidents (EVPs), looks after the day-to-day affairs of the Bank. Human Resource Department, MDs Secretariat and Audit and Compliance Department are under direct control of the CEO. The three EVPs are in charge of Operations, Credit and Corporate Banking respectively. They control the affairs of these departments through the managers who are in charge of various departments under these divisions. 2.6 Functional Division/Department OF EBL All policy formulations and subsequent executions are done in the Head Office. It comprises of nine major divisions namely Corporate Banking Division, Credit Division, Consumer Banking Division, Trade Services Division, International Division, Finance and Accounts Division, Human Resources Division, Information Technology Division, and Audit and Compliance Division. Besides these main divisions, there is also an Administration Division, which looks after the Bank’s day–to-day operation.
Human Resources Division Credit Division Finance and Accounts Division Corporate Banking Division Audit and Compliance Division Information Technology Division Consumer Banking Division Marketing and Public Relation Division
Common Services Division 2.7 Business Network of EBL EBL operates through a network of 22 branches around the country. 10 of those branches are located in Dhaka, 5 in Chittagong and 3 in Sylhet & rest in other 4 commercially important cities (Khulna, Bogra, Rajshahi & Jessore).
2.8 Core Business Units of EBL Consumer Banking Corporate Banking SME banking Treasury 2.8.1 Consumer Banking EBL Consumer Banking deals with the day-to-day financial wants of the consumer clients. Consumer banking products are designed keeping in mind the financial necessities and affordability of the clients. The new IT platform of EBL has enabled its Consumer Banking to offer world class and comprehensive range of financial products and services. These have been fashioned in a manner to fulfill the clients' banking needs with dedicated Relationship Managers who are reaching out to the customers to make sure that the job is done in a systematic manner within the client’s time frame. And with Internet banking service, customers can now access the accounts and services at the click of mouse. 2.8.2 Corporate Banking Corporate Banking is an integrated specialized area of the Bank, which addresses the diverse financial needs of Corporate Customers. 2.8.3 SME Banking SME Banking is an integrated specialized area of the Bank which addresses the diverse financial needs of small and medium business houses.
2.8.4 Treasury Treasury unit is a Core banking unit with its leading-edge technology and steadily growing volume of activity in the markets, EBL's treasury unit and currency dealing desks have consolidated its position as a well-known and well established counterpart in the newly transformed Free Floating rate, dealing daily with a wide circle of both bank and non-bank customers all over Bangladesh. Our everyday business evolves around participation in Money Market & Foreign Exchange Market in a substantial volume. 2.9 Five year's progression of Eastern Bank Limited Particular Authorized capital Paid up capital Deposits Loans and advances Credit to deposit ratio Investments Fixed Assets Earning assets (Interest bearing assets) Total assets Net interest income (excluding Investment Income) Profit before tax Profit after tax (PAT) Capital adequacy ratio (Regulatory capital/RWA) Export Import (LC) Return on average equity (ROE) Return on average assets (PAT/average assets) Earning per share or EPS (In BDT) Price earning ratio (times) Market value per share BDT (as on close of the year at DSE)
2008 3300 1,387 41,573 39,662 95.40% 5325 1,246
2007 3300 1,035 29,882 30,962 103.61% 3457 871
2006 3300 828 25,734 26,008 101.06% 5890 580
2005 3300 828 19,395 17,757 91.55% 5009 489
2004 1000 828 15,649 14,973 95.68% 4399 271
46,831
34,706
32,751
25,504
22,307
54598
40204
35971
27400
23048
1,551
1,312
670
710
679
1,931 798
1,286 419
1,134 513
967 546
851 483
12.71%
13.53%
14.02%
18.76%
14.88%
35,555 62,203 18.64%
26,673 45,298 11.73%
24,286 39,347 16.07%
13,239 29,692 19.17%
8,303 24,414 18.44%
1.68%
1.10%
1.62%
2.17%
2.32%
57.52
30.22
49.58
66.00
58.38
10.24
26.44
15.98
18.53
13.36
589.30
1,070.75
792.50
1,222.75
780.00
CHAPTER THREE
PERFORMANCE AT DIFFERENT AREAS 3.1 INTRODUCTION The main goals and objectives of EBL are to manage our business profitability to satisfy our shareholders and customers. Profit is a product of prudence, judgment, accuracy, compositeness and business volume. EBL have your assets and liability committee, management committee, credit committee and other committee who continuous monitors the indicators for healthy growth of banking business. EBL are aware about natural consequences of globalization liberalization, privatization, and reforms, foreign in vestment, economic policy and infrastructure development. The national agenda have created new challengers for the banks operating in Bangladesh. 3.2 DEPOSIT PRODUCTS Eastern Bank Limited accepts deposits by the following types of accounts, and pays interest, except Current Account. The relationship between banker and customer is debtor-creditor relationship of conventional banks. The depositor is a partner in business with Eastern Bank Limited. 3.2.1 EBL savings Account: EBL Savings Account is suitably designed to meet the savings requirement of the consumer customers willing to save from their hard earned income. It pays interest at competitive rate matching the needs of the customers. Savings Account is very easy to open and can be operated from any EBL branch giving the customers the demographic flexibility. Minimum balance requirement for a savings account is Tk. 15,000.00. 3.2.2 Current Account: EBL Current Account is a non-interest bearing account suitable for both corporate and consumer clients. It allows unlimited cash withdrawal facility for customers from any of the 22 EBL branches across the country. There is a minimum balance requirement of Tk. 1.000.00 for maintaining a current account. 3.2.3 EBL Fixed Deposit: EBL Fixed Deposits having flexible tenure ranging from one month to three years allow the customers to get more out of their long term investment. Keeping in mind the income requirement of the customers EBL offers high interest rates. It is very simple to open a fixed deposit account from any EBL branch. 3.2.4 HPA (High Performance Account): If customers keep a minimum balance of Tk.20, 000.00 under this account, then EBL offer very competitive rates that are tiered into two slabs for deposits up to Tk. 10 lacs and above Tk. 10 lacs. The interest on his/her account is calculated on a daily basis and added to his/her deposit half yearly. If the deposit goes below the Tk. 20,000 limit on any day then he/she loses interest for that day. 3.2.4 EBL Interesting Account Get your saving accounting monthly instead of waiting for 6 long months. It is truly “interesting”- a complete solution for earning interest every month out of a transactional account. Earn it – just effortlessly. 3.2.5 EBL Monthly income Plan (MIP): EBL Monthly Income Plan is an income plan which helps customer to earn a monthly fixed amount on their fixed deposits kept with EBL for a period of 3 years. All we need to do is keep TK 50,000/- or multiples of it for a period of 3 years. Customer will earn TK. 356/-(After deduction of Tax) per month on every deposit of TK. 50,000/-, or TK.525/-(After deduction of Tax) per month on every deposit of TK. 100,000/- for a period of 3 years. A customer can open any number of MIP of TK 50,000/- or multiples of TK 50,000. Customer can earn money on
their fixed deposits. Monthly fixed interests will be automatically credited to customer's linked CD/SB/HP account on due date. 3.2.6 EBL Monthly Deposit Plan EBL Monthly Deposit Plan is a savings plan, which helps to turn customer's small monthly savings into a large amount over a period of 5 years. It is a convenient savings mode, which helps customer's money to grow. To open a Monthly Deposit Plan all the customer need to do is choose any of the six monthly deposit amount options. A customer may choose more than one Monthly Deposit Plan of different denomination. 3.2.7 EBL Savings Insurance Account (SIA) EBL SIA works in a very simple way. All you have to do is to keep a minimum balance for at least one year according to the class of deposit you choose. You can withdraw from this account - at any time - any amount that is above the required minimum balance under your chosen deposit class. EBL SIA not only pays you interest at the prevailing market rates; it also provides valuable insurance coverage for free corresponding to your deposit amount. This is how SIA differs from other usual savings account 3.3 LOANS PRODUCTS Banking business consists of borrowing and lending. One of the primary functions of commercial banks is the sanctioning of credit to borrowers without as equate finance. There can be no growth of maintenance of a stable output. Banks act as financial intermediates between surplus and deficit economic units. Thus a banker is a dealer in money and credit. Banks accept deposit from large number of customers and then lend a major portion of accumulated money to those who wish to borrow. In this process banks secure reasonable return for the savers, make funds available to the borrowers at a cost and earn a profit after covering the cost of funds. Banks besides their traditional role of intermediation between savers and providing an effective payment mechanism have been allowed to diversify into much new area of better paying business activities. 3.3.1 EBL Fast Cash EBL Fast Cash is a revolving credit facility. Fast Cash allows the customer to draw up to a predetermined amount of credit from their Current Account. Customers will only be charged interest for the amount they draw. The minimum limit for EBL Fast Cash is Tk. 50,000.00 3.3.2 EBL Executive Loan EBL Executive Loan is any purpose EMI (equated monthly installment) based credit facility for salaried executives. No Cash Security No Down payments No Price Quotation/ Invoice required 3.3.3 EBL fast Loan Fast loan is a short-term loan facility from EBL. This loan is fully secured against cash security (EBL FDR, Govt. SanchayaPatra, ICB Unit certificates etc.). EBL Fast Loan has convenient repayment period ranging from 12/24/36 EMI's. EBL Fast Loan is priced at competitive rates and loan is sanctioned within 24 hours of application 3.3.4 Auto Loan EBL Auto Loan is here to help you purchase your dream car. It's easy and flexible repayment schedule erase your worries about the burden of a loan. Our Auto loan Scheme will allow you to avail credit up to 75% of the car value. You need to be a Bangladeshi national between the age of 25-55, workings in a reputed multinational/ local firm or involved in a reputed business. The maximum repayment period for EBL Auto Loan is 4 years. You can choose 12, 24, 36 or 48 equated monthly installments (EMI) to repay the loan. 3.3.5 Jibandhara Loan EBL Jibandhara Loan is an any purpose Lifestyle loan. Purpose might be considered as- House renovation, Interior Decoration, Marriages in the family, Advance rental payments, Hospitalization or
other emergency medical needs, Trips abroad, Purchase of miscellaneous household appliances etc. individuals like: Salaried executives & Doctors, architects, engineers, Chartered Accountant, Consultant and IT professionals can apply for this loan. 3.3.6 Utshab Loan EBL Utshab Loan, an unsecured festival loan. Customer’s expenses volume during the EID goes up due to different shopping purpose, purchase of household appliance, travel with family abroad and so on. EBL Utshab Loan will be a timely consumer loan for meeting customers’ shopping or other expense for EID. Presently, EBL Executive loan, and Jiban Dhara Loan offer at 16% p.a. But the EBL Utshab Loan offered at 15% only. 3.3.7 Debit Line EBL Debit Line - is a unique offering that combines the smoothness of a debit card with the stunning benefits of a credit facility. It's a fully unsecured overdraft facility that customers can enjoy through their EBL Visa Electron Debit Card. Eastern Bank is the first Bank in Bangladesh to introduce this service. This facility can be availed by salaried executives with minimum one year of experience as well as self-employed professionals with minimum one year of practice. The minimum monthly income of salaried executives should be Bangladesh Taka 15,000 a month, and for self employed professionals Bangladesh Taka 20,000 a month. 3.3 CONSUMER BANKING SERVICES AT EBL Consumer Banking at EBL is to serve individual customer throughout every stage of their life stage. Consumer banking is considered to the front officers of the bank, which interfaces with the customers. These activities are being carried out through the 22 branches. Previously these branches used to conduct all kind of business activities, including processing credit issue, conducting trade service, consumer service etc. But after the restructuring process, all these branches are now mainly focusing only on delivering service to individual and corporate customers and are therefore termed as “Sales & Services Centers”. 3.4.1 Student file EBL allows students who are going abroad to study to open an account in order to transfer funds to wherever they are going. We take the step to take the permission (if necessary) from Bangladesh Bank on behalf of the customers. For this we need all the documents of the student's previous completed education and his/her (s) acceptance letter from which ever University he/she is going 3.4.2 Tuition Fees Collection ⇒ Scholastica ( Pvt) Ltd ⇒ Scholastica Transport Service Ltd ⇒ South Breeze ⇒ Mirpur Bangla School ⇒ Aga Khan Education Service System ⇒ Shahid Smrity School 3.4.3 Visa Electron online debit card EBL Introduces the Visa Electron online debit card: With EBL Visa Electron you can now draw cash from the Q-cash ATM network, 24 hours a day through out the year. No need to carry excess cash in your wallet. Your card is electronically linked to your EBL account. EBL Visa Electron is also accepted at Visa merchants with Electronic P.O.S Visa Symbol, where you can pay for merchandise and services. Acceptance - Hassle free acceptance at network of Q-Cash ATMs currently 10 and to be expanded up to 50 by July 2004 and approximately 1000 POS deployed in major cities. Photo card - Displays your photo & signature on front of your card for enhanced security. 3.4.4 Real time online banking
EBL is the pioneer Bank in laying foundation to the world class banking software in Bangladesh. No other private Banks in Bangladesh could implement foreign banking software with success in the past. Flex cube is the Internet banking solution that delivers the Corporate, Consumer and Investment Banking products to bank's customers over the Net. Our Internet Banking module is a secure, robust and extensible web banking solution. Conceived specifically to exploit the potential of the web, our new banking platform delivers a modular solution addressing Consumer, Corporate and Investment Banking. Customers will be able to transfer funds, inquire balance, request for cheque book, pay utility bills on-line etc. 3.4.5 Internet Banking EBL made a milestone in the banking arena by introducing the internet banking for the first time in Bangladesh. Internet banking application addresses the needs of small, individual and corporate account holders of the bank. This application provides a comprehensive range of banking services that enable the customer to meet most of their banking requirements over the Net. Transactions that can be executed through net are Account Operations and Inquiries, Fund Transfers and Payments, Utility Bill Payment, Deposits, Loans, Inquiries and other services. 3.4.6 Utility Services Bill Collection ⇒ WASA ( only Dhaka) ⇒ DESA ( Rajshahi, Bogra, Dhaka-Mirpur Branch) ⇒ PDB ( Chittagong, Rajshahi Jessore) ⇒ AKTEL 3.4.7 Internet Service Provider Bill 1. Proshikanet 2. Bdcom Online Ltd 3. ConnectBd Ltd 4. Access Telecom (BD) Ltd 5. In-touch Communication Ltd 6. Dhaka Broad Band Network (DBN) 7. Spark System Ltd 8. Agni Systems Ltd 9. Touch Tone Bd Ltd 3.4.8 Locker services EBL offers three different types of lockers - small, medium and large. They can be used for the safe keeping of personal belongings (jewelry, documents etc.). However nothing illegal can be kept in the locker. The locker holder has to have an account with EBL to get this service. The yearly rate of the lockers range from the smallest one being TK 1000, the medium one being Tk 1500 and the Large one being TK 2500. This service is available at the following branches of EBL. 3.4.9 EBL 5 to 9 This is a service that gives the customer the option to deposit money in the bank beyond banking hours. All the customer has to do is become a member of the EBL 5 to 9 services by providing a nominal yearly fee. The customer being a member will be given a bag and a lock. He/she can put in money in the bag lock it and deposit the same in the EBL 5 to 9 safe deposit box kept in the branch any time during 24 hours time. The bag upon deposit in the 5 to 9 deposit box will directly go to the bank's secured vault. His/her deposit will be credited to the respective account the following day and the deposit bag will be returned to the customer for further deposits in the future.
3.5 FUTURE PRODUCT DEVELOPMENT PLAN AND PROMOTION PROGRAM
We are planned to introduce and implemented the following new products for our consumer banking from 2005: • • • • • • • • • • • • • •
Children Deposit Plan (only for kids) Evening banking for selected branches Introducing Partially Secured Loan or EBL Money Maker Loan EBL Jiban Dhara (Lifestyle Loan; already launched) Islamic Banking EBL Freedom Loan (loan for women’s executives and other solvent women) EBL Homemaker Loan (loan for housewives) EBL Travel Loan Special deposit for private university students, and housewives SMS banking through mobile phone Credit Card (Visa and / or Amex) 15 ATMs – solely EBL’s ATMs, not under any consortium arrangement Mall branding (week long visibility driven show at super market / mega mall floors) Launch of Non Resident Business (foreign remittance business with the goal
3.5.1 Promotion is the vital marketing mix element that helps to occupy a place in the customers’ mind. We are thinking of launching the followings to give our brand equity a jolt: 3.5.2 Campaign for Private University Students: As we are aware that 52 private varsities are there in Bangladesh, the students of which go abroad regularly for higher studies. We want to launch “Student File” program for these students, which will give us good opportunity of fee and FX earnings. We want to offer them also savings account, debit card and Internet banking though normal channels plus kiosks. 3.5.3 Kids Day: We plan to celebrate kid’s day on a certain Friday, both in Dhaka and in Chittagong. Kids of English medium schools along with their guardians will be invited in the program. Drawing or game contest will take place. Top performers will be awarded with bank’s logo pasted school bags. 3.5.4 Mobile Loan Hut: Mobile sales booth or loan hut will be set up at Bashaudnara City, the largest mega mall in Dhaka. 3.6 MAIN ELEMENTS OF BUSINESS STRATEGY 3.6.1 Designing product wise consumer budget and action plan All branches or sales & Service centers are provided product wise and month wise budget and action plan of different customer’s events. These are monitored and tracked regularly. 3.6.2 Introducing Contemporary product and Kiosk or booth Introducing contemporary product line for different target group like executives, housewives, students of private varsities which EBL is going to do soon will assure robust sales volume. Kiosk or mini booth (total 5 in 2005) will be set up in busy Dhaka areas and that will introduce a new model of banking in Bangladesh.
3.6.3 Designing Hunting Team/ Direct Sales Team EBL already has 150 commissions pay based direct sales agents in its team whose only responsibility is sales. At EBL we have also formed “hunter team” in each branch the members of which have clear focus on branch-based sales, while there are separate teams for services.
3.6.4 Training and Motivation for Direct Sales Team Embrace Direct Sales and support Direct Sales. Know they hold the key to your growth 3.6.5 Two Customers Events per Month in the Branch Level Currently we are ensuring minimum two customer’s events are conducted inside/outside branch per month going by the net relationship value (NRV) of the customers. We believe in the strength of micro marketing, which is a totally new concept in the banking industry of Bangladesh. So far already 60+ events have been held at EBL branches where some 25 customers attended at each event. 3.6.6 Aggressive Advertisement campaign & aggressive promotion all over the year EBL has launched aggressive media campaign and street based visibility campaign this year. We are already on air every evening with a premier TV channel in Bangladesh; and have already launched a road based campaign for promoting our technology-based products. 3.6.7 One BRM per week Currently we are holding one Business Review Meeting per week in consumer banking. This is a very helpful tool for fostering nicer and more effective communication and for tracking progress of business and projects. BRM also helping us to monitor actual time-to-market for our different products and services.
The Bank believes in the development of professionalism as well as personal commitments of the employees. To keep the salary package comparable with the industry, there was upward revision of the package in different grades. The Bank arranges annual picnic, where the employees participate along with their family members and a feeling of oneness is generated. CHEPTER FOUR OPERATING AND FINANCIAL PERFORMANCE 4.1 Introduction Eastern Bank Limited (EBL) is a second generation commercial bank with 28 online branches across major cities in Bangladesh and 690 full time employees on year end 2008. Eastern Bank Limited has made a staggering 37.72 percent growth in Operating Profit in 2008 to BDT 1,870.40 million largely backed by a quantum growth (96 percent) of Net Interest Income (NII). Further analysis of Operating Profit 2007 reveals that EBL has been able to arrest the falling trend of Net Interest Income (NII) successfully in 2007 by managing balance sheet properly. This improvement once again reinforces the fact that EBL is clearly on the right track of solidifying its growth potential despite having lower fees income than expected. An usual growth of investment income (By 10.38 percent over 2006) to the tune of BDT 506.85 million and a comfortable growth of other operating income (By 26.59 percent over 2006) to the tune of BDT 365.92 million have outweighed the apparent shrinkage (negative growth) of Brokerage and Commission Income (By 8.13 percent in 2007) and incidental increase of operating expenses.
18.44% 4.2 Deposits Taka in million
YEAR 2004 2005 2006 2007 2008
AMOUNT 15649 19396 26734 30095 41573
Deposit 60000 40000 20000 0 2004
2005
2006
2007
2008
At the end of 2007 total deposits stood at Tk. 30095 million, a 15.57% increase compared to Tk. 26734 million from the preceding year. This was undoubtedly a remarkable progress considering volatile price situation for acquiring deposits. 4.3 Collections under Major Deposit Schemes Now we can focus on the deposit collection under major deposit products at 2008 of the bank so that we can understand mode of deposit mobilization they use mostly. Here we can also take a look on the schemes that are popular to the customers. Types of deposit Fixed Deposit Saving Deposit Current and Others Deposit Bills payable
% of total deposit 66 20 12 2
From the table we can have a picture of deposit portfolio of Eastern Bank Ltd. Fixed deposit is about 66% means, the bank is able to collect maximum deposit relatively at long term. Saving deposit is 20% means bank collect lower amount at relatively interest deposit Deposit Mix
Fixed Deposit Saving Deposit Current Deposit Bills Payable
From the pie chart we can see about 66% of total deposit are fixed deposit and about 20% are saving deposit. 4.4 Loans and Advances
YEAR
Taka in million AMOUNT
2004 2005 2006 2007 2008
14973 17758 26008 30962 39652 Loan and Advance
40000 30000 20000 10000 0 2004
2005
2006
2007
2008
Loans and advances of the bank grew strongly by 19.04 percent to 30962 million in 2007. Loans and advance increased by 19.04 percent indicating strong growth in operational performance. Eastern bank grew loans and advance by 19.04 percent and loans and advances of industry grew by 16 percent. 4.5 Sector wise Loans & Advances The special feature of the credit policy of EBL is to invest on the basis of current and future growth of particular sectors. Earning profit is not the only motive and objective of the bank’s credit policy rather emphasis is given in attaining social good and in creating employment opportunities. In order to diversify loan portfolio, every bank engaged itself in investment operations through special schemes introduced during the years. The following table shows the different sector wise loan and advance made by the banks. Portfolio Diversification Sector Percent Commerce and Trading 7.96 Commodity Import 2.88 Edible Oil Refinery 3.74 Individuals 12.10 Pharmaceuticals Industries 2.92 Readymade Garment 12.70 Ship Breaking Industries 4.50 Steel Products 7.53 Telecommunication 4.97 Textile Mills 12.10 Others 28.61 From the above table we see that two are particularly two modes that are not followed by SIBL. Especially the mudaraba and musaraka modes are very risky. Other modes are common to all of them.
Loans & Advances Portfolio Com m erce and Trading Com m odity Im port Edible Oil Refinary Individuals Pharmaceuticals Industries Readym ade Garm ents Ship Breaking Indusries Steel Products Telecom m unication Textile Mills Others
4.6 Geographic Locations Wise Loans & Advances Taka in million GEOGRAPHIC LOCATION Dhaka Division Chittagong Division Sylhet Division Rajshahi Division Khulna Division
AMOUNT 25118 4834 267 367 307
Dhaka Division Chittagoan Division Sylhet Division Rajshahi Division Khulna Division
Most of the branches of Eastern Bank Ltd situated in Dhaka city, therefore most of the loans are disbursed in Dhaka division which is about 80% of total loan. 4.7 Foreign Exchange Business
YEAR 2004 2005 2006
IMPORT 24414 29692 39347
Taka in million EXPORT 8303 13239 24289
2007 2008
45298 62203
26673 35555
Foreign Exchange Business 60000 50000 40000
Import
30000
Export
20000 10000 0 2004
2005
2006
2007
2008
The Bank’s performance in the area was satisfactory. Total import and export business transected were Tk. 45298 million and 26673 million respectively during 2007. The growth rate of the import business was 15 percent and the main items of import were industrial machineries, raw materials, commodities and other consumer products. The growth rate of export business was 9.8 percent and the items of export were RMG, Shrimp, and Jute etc. 4.8 Operating Profit Taka in million AMOUNT 892 1056 1358 1870 2385
YEAR 2004 2005 2006 2007 2008
Operating Profit 2500 2000 1500 1000 500 0 2004
2005
2006
2007
2008
The Bank’s operating profit increased during the year by Tk-512 million and stood at Tk-1870 million as at 31 December 2007. 4.9 Net Profit (before tax) YEAR 2004
Taka in million AMOUNT 851
2005 2006 2007 2008
967 1134 1286 1931
Operating Profit (before tax) 2000 1500 1000 500 0 2004
2005
2006
2007
2008
The Bank’s net profit increased during the year by Tk-512 million and stood at Tk-1870 million as at 31 December 2007. 4.10 Income – Expenses – Profit: YEAR 2004 2005 2006 2007 2008
INCOME 2241 2957 4272 5325 6256
EXPENSES 1349 1901 2913 3454 3870
Taka in million PROFIT 892 1056 1358 1870 2386
Income - Expenses - Profit 8000 6000 Incom e
4000
Expenses
2000
Profit
0 2004
2005
2006
2007
2008
4.11 Total Assets YEAR 2004 2005 2006 2007 2008
Taka in million AMOUNT 23048 27400 35971 42579 54598
Total Assets 60000 50000 40000 30000 20000 10000 0 2004
2005
2006
2007
2008
The Bank’s performance in the area was satisfactory. The Bank’s Total assets increased during the year by 18 percent and stood at Tk-42579 million as at 31 December 2007 4.12 Market value per share YEAR 2004 2005 2006 2007 2008
AMOUNT IN TAKA 780 1222.75 792.50 1070.75 589.30
Market Value Per Share (TK) 1500 1000 500 0 2004
2005
2006
2007
2008
The Bank’s Market value per share decreased during the year by tk. 278 and stood at tk. 1070.75 million as at 31 December 2007. 4.13 Number of Branches YEAR 2004 2005 2006 2007 2008
BRANCHES 22 22 25 28 34
Num ber of Branches 40 30 20 10 0 2004
2005
2006
2007
2008
The Bank’s Number of Branches increased during the year by 3 and stood at 28 branches as at 31 December 2007. CHEPTER FIVE RATIO ANALYSIS 5.1 INTRODUCTION Ratio Analysis expresses the relationship among selected items of financial statement data. A ratio expresses the mathematical relationship between one quantity and another. The relationship is expressed in terms of a percentage, a rate, or a simple proportion.
5.2 Operating income ratio YEAR 2004 2005 2006 2007 2008
RATIO 38.24 39.80 35.71 31.79 35.12 Operating income ratio
50 40 30 20 10 0 2004
2005
2006
2007
2008
Operating income ratio decreased during the year by 3.33 % and stood at 35.12 % as at 31 December 2008. 5.3 Net income ratio (before tax) YEAR
RATIO
2004 2005 2006 2007 2008
32.14 37.97 32.70 26.54 24.12
Net income ratio (before tax) 40 30 20 10 0 2004
2005
2006
2007
2008
Net income ratio decreased during the year by 24.34 % and stood at 13 % as at 31 December 2008. 5.4 Return on assets ratio (ROA) YEAR 2004 2005 2006 2007 2008
RATIO 1.94% 2.32% 2.17% 1.62% 1.07%
Return on assets ratio (Average) 2.5 2 1.5 1 0.5 0 2004
2005
2006
2007
2008
Return on assets ratio (ROA) decreased during the year by 0.55 % and stood at 1.07 % as at 31 December 2008. 5.5
equity (ROE) YEAR 2004 2005 2006 2007 2008
RATIO 15.33% 18.44% 19.17% 16.07% 11.93%
Return
on
Return on equity (Average) in Year 2004 to 2008 25 20 15 10 5 0 2004
2005
2006
2007
2008
Return on equity decreased during the year by 4.14 % and stood at 11.93 % as at 31 December 2008. 5.6 Dividend per share YEAR 2004 2005 2006 2007 2008
AMOUNT IN TAKA 20 43 40 45 34
Dividend per Share in Year 2004 to 2008 50 40 30 20 10 0 2004
2005
2006
2007
2008
Dividend per share decreased during the year by Tk-9 and stood at Tk-34 as at 31 December 2008. 5.7 Earning per share YEAR 2004 2005 2006 2007 2008
AMOUNT IN TAKA 43.21 58.38 66.00 61.98 40.50
Earning per share in Year 2004 to 2008 80 60 40 20 0 2004
2005
2006
2007
2008
Earning per share decreased during the year by Tk-21.48 and stood at Tk-40.50 as at 31 December 2008. 5.8 Capital adequacy ratio YEAR 2004 2005 2006 2007 2008
20
RATIO 18.27 14.88 18.76 14.02 13.14
18.76
18.27
15
14.88
14.02
13.14
10 5 0 2004
2005
2006
2007
2008
Capital adequacy ratio increased during the year by 0.88 % and stood at 13.14 % as at 31 December 2008. 5.9 Net Interest Margin Ratio
YEAR 2004 2005 2006 2007 2008
PERCENTAGE 2.47% 3.26% 2.81% 2.11% 3.34%
Net Interest Margin Ratio 4 3 2 1 0 2004
2005
2006
2007
2008
Net interest margin increased during the year by 1.24 % and stood at 3.34 % as at 31 December 2008. 5.10 Debt to total assets ratio The Debt to total assets ratio measures the percentage of the total assets provided by creditors. It is computed by dividing total debt by total assets. This ratio indicates the company’s degree of leverage. YEAR RATIO 2004 0.85 2005 0.87 2006 0.89 2007 0.91 2008 0.91 Debt to Total Assets Ratio 0.92 0.9 0.88 0.86 0.84 0.82 2004
2005
2006
2007
2008
Debt to total assets ratio remain same during the year and stood at 91 % as at 31 December 2008. 5.11 Debt-equity Ratio YEAR 2004 2005 2006 2007 2008
RATIO 6.50 6.95 7.92 9.84 10.46
Debt Equity Ratio 12 10 8 6 4 2 0 2004
2005
2006
2007
2008
Debt-equity ratio increased during the year by 0.62 % and stood at 10.46 % as at 31 December 2008. CHEPTER SIX SWOT ANALYSIS 6.1 INTRODUCTION The acronym for SWOT stands for • STRENGTH • WEAKNESS • OPPURTUNITY • THREAT The SWOT analysis comprises of the organization’s internal strength and weaknesses and external opportunities and threats. SWOT analysis gives an organization an insight of what they can do in future and how they can compete with their existing competitors. This tool is very important to identify the current position of the organization relative to others, who are playing in the same field and also used in the strategic analysis of the organization. The following table shows those four key factors for the analysis for Eastern Bank. STRENGTH • • • • • • • • • • • • • •
WEAKNESS • •
Strong corporate identity Distinct schedule Strong employee bonding and belongings Efficient Performance Young enthusiastic Workforce Empowered Work force Equalization MBO One-to-one" meeting Modem equipment & technology OPPORTUNITY Distinct operating procedures Country wide network Experienced Managers Huge population
• • • • •
Narrow operating span More Innovative products must be offered Low remuneration Package Diversification International Credit Cards Lack of employees Training facility
THREAT • • •
Upcoming Banks Similar Products are offered by other Banks Industrial downward trend due to
recession inflation & Unemployment 6.2 Strength 6.2.1 Strong corporate identity: EBL is the leading provider of financial services Identity worldwide. With its strong corporate image and identity it can better position in the mind of customers. This image has helped EBL grab the personal banking sector of Bangladesh very rapidly. 6.2.2 Distinct schedule Everyone in EBL from the appraiser to the top management has to work to the same schedule towards a different aspect of the same goal, interfacing simultaneously at all level over quite a long period of time. 6.2.3 Strong employee bonding and belongings EBL employees are one of the major assets of the company. The employees of EBL have a strong sense of commitment towards organization and also feel proud and a sense of belonging towards EBL. The sirong organizational culture of EBL is the main reason behind this strength. 6.2.4 Efficient Performance EBL provides hassle free customer service to its client base comparing to the other financial institutions of Bangladesh, Personalized approach to the needs of customers is its motto. 6.2.5 Young enthusiastic Workforce The selection & recruitment of EBL emphasizes on having the skilled graduates & postgraduates who have little or no previous work experience. The logic behind is that EBL wants to avoid the problem of 'garbage in & garbage out'. & this type young & fresh workforce stimulates the whole working environment of EBL. 6.2.6 Empowered Work force The human resource of EBL is extremely well thought & perfectly managed. As from the very first, the top management believed in empowered employees, where they refused to put their finger in every part of the pie. This empowered environment makes EBL a better place for the employees. The employees are not suffocated with authority but are able to grow as the organization matures. 6.2.7 Equalization At EBL workshops are conducted periodically. On the workshops, all people participate as equals, with new members free to openly challenge top managers. 6.2.8 MBO EBL also has Management by Objectives (MBO) everywhere. Each person has multiple objectives. All the employees must have to get the approval of Iheir bosses on what they are going to do. Later they review as how well they have performed their job with their management as well as the peer group. 6.2.9 One-to-one" meeting The MBO makes the review a communication device among various groups. The key to the system is a "one-to-one" meeting between a supervisor & a subordinate. In the meeting, the problems in dealing with customers are put forward first & everyone dug it to solve them. 6.2.10 Modem equipment & technology EBL owns the best banking and information technology in Bangladesh. 6.3 Weakness
6.3.1 Narrow operating span EBL has a very narrow operating span in Bangladesh. It has only 22 branches in Bangladesh. Various geographic segments are currently not availing the services of EBL due to inconvenient branch location or absence of neighborhood branches. 6.3.2 More Innovative products must be offered In order to be more competitive in the market EBL should come up with more new attractive products. This one of the weakness that EBL is currently passing through. 6.3.3 Low remuneration Package The remuneration packages for the entry-level officers are considerable low. Since other foreign and local banks offer a more lucrative salary package, it will be difficult for EBL to attract MBA’s in future with its current salary package. 6.3.4 Diversification EBL can peruse a diversification strategy in expanding its current line of business. The management can consider options of starting merchant banking or diversify in to leasing and insurance. As EBL is one of the leading providers of all financial services, in Bangladesh it ' can also offer these services. 6.3.5 International Credit Cards This is one of the most popular and emerging products in Bangladesh, which offers customers total financial mobility. Various other banks and institutions are currently offering this product EBL can also take advantage of this product and grab the market share. 6.4 Opportunities 6.4.1 Distinct operating procedures Repayment capacity as assessed by EBL of individual client helps to decide how much one can borrow. As the whole lending process is based on a client's repayment capacity, the recovery rate of EBL is close to 100%. This provides EBL financial stability & gears up EBL to be remaining in the business for the long run. 6.4.2 Countrywide network The ultimate goal of EBL is to expand its operations to whole Bangladesh. Nurturing this type of vision & mission & to act as required, will not only increase EBL's profitability but also will secure its existence in the log run. 6.4.3 Experienced Managers One of the key opportunities for EBL is its efficient managers. EBL has employed experienced managers to facilitate its operation. These managers have already triggered the business for EBL as being new in the market. 6.4.4 Huge Population Bangladesh is a developing country, to satisfy the needs of the huge population, a large amount of investment is required. On the other hand building EPZ areas and some Govt policies easing foreign investment in our country made it attractive to the foreigners to invest in our country. So, EBL has a large opportunity here. 6.5 Threats 6.5.1 Upcoming Banks The upcoming private local & multinational banks posses a serious threat to the existing banking networks of EBL: it is expected that in the next few years more commercial banks will emerge. If that
happens the intensity of competition will rise further and banks will have to develop strategies to compete against and win the battle of banks. 6.5.2 Other Banks offers similar Products Now day's different foreign and private banks also offering similar type of product with an almost similar profit margin. So, if all competitors fight with the same weapon, the natural result is declining profit. 6.5.3 Industrial downward trend due to recession, inflation & Unemployment Bangladesh is economically unstable country. Flood, draught, cyclone, and newly added terrorism have become an identity of our country. Along with inflation, unemployment also creates industry wide recession. These caused downward pressure on the capital demand for investment. CHEPTER SEVEN RISK ANALYSIS 7.1 INTRODUCTION In today’s challenging financial and economic environment effective risk management is vital for sustainable growth in shareholders value. The major areas of risk which the activities of the banking operation is exposed to are credit risk, operational risk, liquidity risk, market risk, and money laundering risk. Market risk may be subdivided as interest rate risk and foreign exchange risk. Risk management is emphasized not only for regulatory purpose but also to improve operational and financial performance of the Bank. The Risk management policy of the Bank operates under 4 broad principles: 1. Oversight by the Board/ Executive committee. Board approves policies and processes of risk management and Executive committee approves the credit proposals submitted by the management. 2. Audit committee of the Board reviews the internal audit reports of the Bank and risk management covering credit risk, operational risk including money laundering risk, market risk and liquidity risk. 3. Dedicated independent risk management units viz credit risk management units, credit administration units, credit monitoring and recovery units, internal control and compliance unit are responsible for implementation of compliance with risk policies and monitoring of compliance for identification and measuring of risks. 4. Dedicated committee at management level has been set up to monitor risk viz. credit risk through credit committee and risk management division, operational risk through management committee and internal control and compliance division, market and liquidity risk through assets liability committee and money laundering risk through chief anti money laundering compliance officer of the Bank and anti money laundering compliance officers of the branches. 7.2 SOURCES OF RISK • Credit Risk • Operational Risk • Liquidity Risk • Market Risk • Money laundering Risk.
7.2.1 Credit Risk The risk of a trading partner not fulfilling his obligations in full on due date or at any time thereafter is a risk that affects all aspects of business. Among the risks that face financial institutions, credit risk is the one with which we are most familiar. It is also the risk to which supervisors of financial institutions pay the closest attention because it has been the risk most likely to cause a bank to fail. 7.2.2 Operational Risk The risk of unexpected losses arising from deficiencies in a firm's management information, support and control systems and procedures. 7.2.3 Liquidity Risk Liquidity risk, which comes in two forms. Market liquidity risk arises when a firm is unable to conclude a large transaction in a particular instrument at anything near the current market price. Funding liquidity risk is defined as the inability to obtain funds to meet cash flow obligations. 7.2.4 Market Risk Business activities entail a variety of risks. For convenience, we distinguish between different categories of risk: market risk, credit risk, liquidity risk, etc. Although such categorization is convenient, it is only informal. Usage and definitions vary. Boundaries between categories are blurred. A loss due to widening credit spreads may reasonably be called a market loss or a credit loss, so market risk and credit risk overlap. Liquidity risk compounds other risks, such as market risk and credit risk. It cannot be divorced from the risks it compounds. 7.2.5 Money laundering Risk Money laundering risk is defined as the loss of reputation and expenses incurred as penalty for being negligent in prevention of money laundering. For mitigating the risks, the Bank has a designated Chief Compliance Officer at Head Office and Compliance Officers at branches, who independently review the transactions of the accounts to verify suspicious transactions. Manuals for prevention of money laundering have been established and Transaction profile has been introduced. Training has been continuously given to all the category of Officers and Executives for developing awareness and skill for identifying suspicious activities.
7.3 RISK MANAGEMENT The risk of Eastern Bank Ltd. is defined as the possibility of losses, financial or otherwise. The risk management of the Bank covers 5 core risk areas of banking: • Credit Risk Management • Foreign Exchange Risk Management • Assets Liability Management • Prevention of Money Laundering • Internal Control and Compliance 7.3.1 Credit Risk Management Credit Risk is one of the major risks faced by the Bank. This can be described as potential loss arising from the failure of a country party to perform as per contractual agreement with the Bank. The failure may result from unwillingness of the counter party or decline in his financial condition. Therefore, the Banker’s credit risk management activities have been designed to address all these issue. The Bank has segregated duties of the officers involved in credit related activities. A separate Corporate Division has been formed at Head Office which is entrusted with the duties of maintaining effective relationship with the customer, marketing of credit products, exploring new business opportunities etc. Moreover, credit approval, administration, monitoring and recovery functions have been segregated. For this reason, three separate units have been formed within the credit division. These are (a) Credit Risk Management Unit, (b) Credit Administration Unit, (c) Credit Monitoring &
Recovery Unit. Credit risk management unit is entrusted with the duties of maintaining assets quality, assessing risk in lending to a particular customer, sanctioning credit, formulation policy for lending operation etc. A through assessment is done before sanction of any credit facility at Credit Risk Management Unit. The risk assessment includes borrower risk analysis, financial analysis, industry analysis, historical performance of the customer, security of the proposed credit facility etc. The assessment process starts at corporate division by the relationship manager and ends at credit risk management unit when it is approval by competent authority. Credit approval authority has been delegated to the individual executives. Proposal beyond their delegation are approval by the executive committee and the management. In determine single borrow/large lone limit, the instructions of Bangladesh Bank are strictly followed. Internal audit is conducted on periodical interval to ensure compliance of Bank’s and Regulatory polices. Loans are classified as per Bangladesh Bank’s guideline. 7.3.2 Foreign Exchange Risk Management Foreign exchange risk is defined as the potential change in earnings arising due to change in market prices. The foreign exchange risk of the Bank is minimal as all the transactions are carried out on behalf of the customers against underlying L/C commitments and other remittance requirements. No dealing on Bank's account was conducted during the year. Treasury Department independently conducts the transactions and the back office of treasury is responsible for verification of the deals and passing of their entries in the books of account. All foreign exchange transactions are revalued at Mark-to-Market rate as determined by Bangladesh Bank at the month-end. All Nostro accounts are reconciled on monthly basis and outstanding entry beyond 30 days is reviewed by the management for its settlement. 7.3.3 Asset Liability Management The Asset Liability Committee (ALCO) of the Bank monitors market risk and liquidity risks of the Bank. The market risk is defined as potential change in earnings due to change in rate of interest, foreign exchange rates which are not of trading nature. Asset Liability Committee (ALCO) reviews liquidity requirement of the Bank, the maturity of assets and liabilities, deposit and lending, pricing strategy and the liquidity contingency plan. The primary objective of the ALCO is to monitor and avert significant volatility in Net Interest Income (NII), investment value and exchange earnings. 7.3.4 Prevention of Money Laundering Money laundering risk is defined as the loss of reputation and expenses incurred as penalty for being negligent in prevention of money laundering. For mitigating the risks, the Bank has a designated Chief Compliance Officer at Head Office and Compliance Officers at branches, who independently review the transactions of the accounts to verify suspicious transactions. Manuals for prevention of money laundering have been established and Transaction profile has been introduced. Training has been continuously given to all the category of Officers and Executives for developing awareness and skill for identifying suspicious activities. 7.3.5 Internal Control and Compliance Operational loss may arise from error and fraud due to lack of internal control and compliance. Management through Internal Control and Compliance Division controls operational procedure of the Bank. Internal Control and Compliance Division undertakes periodical and special audit of the branches and departments at Head Office for review of the operation and compliance of statutory requirement. The Audit Committee of the Board subsequently reviews the reports of the Internal Control and Compliance Division. 7.4 Bankruptcy risk
A firm that does not generate enough cash flow to make a contractually required payment, such as an interest payment, will experience Bankruptcy. Altman’s Z-score, The best Known of the bankruptcy prediction studies that have withstood the test of time is Altman’s Z-score model. The original Zmodel was designed for manufacturing firms. Also, the model was only directly applicable to publicly traded companies because one of its inputs was the market value of equity. To remedy these shortcoming, two variations of the Z-model (the Z’- and Z”-model) were developed by Altman. The original Z-score had as one of its variables the assets turnover ratio. As this variable is industry sensitive, the Z”-model, which omitted this variable, was developed. This model is applicable to (public and private) firms in the manufacturing and service and financial sector. CHAPTER EIGHT COMPERATIVE ANALYSIS
8.1 INTRODUCTION Make comparison anything with other requires extensive & significant knowledge about the subject matter. In this chapter I critically analyze the comparisons the performance at different area with other two leading banks in Bangladesh. Here Southeast Bank Limited & The City Bank Limited is two companies have the prominent position in their own position in banking sector. Both are practices various tools & techniques in their management style which is the major factor for their success.
8.2 Number of Branch YEAR
2004
2005
2006
2007
2008
EBL
22
22
25
28
34
SEBL
27
31
31
38
46
CBL
77
77
78
83
83
One of the main lacks of Eastern Bank is absence of extant branch network. Now, EBL has only 28 branches only in Dhaka and some big city. On the other hand city bank has large branch network which is the strength of the bank. 8.3 Number of Employees City bank has the larger employee than Eastern Bank and Southeast Bank. YEAR
2004
2005
2006
2007
2008
EBL
522
536
612
690
763
SEBL
835
913
998
1116
1231
CBL
1803
1829
1989
1991
2045
8.4 Deposit Amount in Million YEAR
2004
2005
2006
2007
2008
EBL
15649
19396
25734
30092
41573
SEBL
27930
38258
46056
55474
68714
CBL
22238
30647
40881
40539
45034
Deposit Mobilizations in Year 2004 to 2008 80000 60000 EBL
40000
SEBL
20000
CBL
0 2004
2005
2006
2007
2008
If we separately see to the deposit mobilization data of EBL with some important contemporary banks then it will be seen that the EBL position is not good compare to CBL and SEBL.
8.5 Credit Creation Amount in Million YEAR
2004
2005
2006
2007
2008
EBL
14973
17758
26008
30962
39599
SEBL
22001
32551
41147
48164
60281
CBL
17027
23328
30789
26788
34420
Credit Creation during 2004 to 2008 70000 60000 50000 40000 30000 20000 10000 0
EBL SEBL CBL
2004
2005
2006
2007
2008
The credit creation position of SEBL is relatively good but EBL is also good in progress and City Bank position is not good enough. 8.6 Import Businesses Amount in Million YEAR
2004
2005
2006
2007
2008
EBL
24414
29692
39347
45298
62203
SEBL
20229
29079
34079
38470
58019
CBL
17909
21363
32096
20308
34068
Import Business in year 2004 to 2008 80000 60000 EBL
40000
SEBL
20000
CBL
0 2004
2005
2006
2007
2008
The market share of EBL in Export Business is on top. Though the growth rate of Eastern Bank is good. On the other hand, the position of CBL is in declining situation. 8.7 Export Businesses Amount in Million YEAR
2004
2005
2006
2007
2008
EBL
8303
13239
24286
26673
35555
SEBL
6761
13511
25874
28771
42178
CBL
12198
18218
28211
19151
30468
Export Business in year 2004 to 2008 50000 40000 30000
EBL
20000
SEBL
10000
CBL
0 2004
2005
2006
2007
2008
In the above table it shows that the market share of Eastern bank in Export Business is highest and the CBL and SIBL also require gearing up. 8.8 Net profit after tax Amount in Million YEAR
2004
2005
2006
2007
2008
EBL
483
546
513
419
798
SEBL
294
374
909
1222
887
CBL
380
540
240
343
398
Net Profit in Year 2003 to 2007 1500 1000
EBL SEBL
500
CBL 0 2004
2005
2006
2007
2008
In the 2007 the growth of the net profit is negative for EBL. This is alarming situation for the bank. The growth of SEBL income increase in a steady rate but it is opposite situation in CBL. 8.9 Profit Growths (%) YEAR
2004
2005
2006
2007
2008
EBL
37.6
13.04
- 6.04
- 18.32
90.45
SEBL
14.84
27.21
143.05
34.43
-27.41
CBL
2823.08
42.11
- 55.56
42.92
16.03
Profit Growth (%) 200 150 100
EBL
50
SEBL
0 -50
CBL 2005
2006
2007
2008
-100
The variance of CBL is high so the risk is high. On the other hand, variance of EBL is low thus he risk is low. 8.10 Capital Adequacy Ratio YEAR
2004
2005
2006
2007
2008
EBL
14.00%
18.76%
14.02%
13.14%
12.71%
SEBL
7.83%
6.90%
11.50%
13.00%
11.12%
CBL
9.78%
9.63%
9.21%
12.61%
12.82%
Capital Adequacy Ratio 20 15 EBL
10
SEBL
5
CBL
0 2004
2005
2006
2007
2008
In this case of capital adequacy, Eastern Bank is most efficient that means depositors of EBL bear less risk than CBL and SEBL. SEBL is the 2nd most efficient and increasing consistently and other Banks have erratic nature. 8.11 Earning Per Share Amount in Taka YEAR
2004
2005
2006
2007
2008
EBL
58.38
66.00
49.58
40.50
57.52
SEBL
43.52
35.42
59.71
53.60
31.11
CBL
79.22
75.13
20.20
28.91
29.14
Earning Per Shareh in year 2004 to 2008 80 60 EBL
40
SEBL
20
CBL
0 2004
2005
2006
2007
2008
Among three banks earning per share (EPS) of Eastern bank is most stable then CBL and SEBL. The variance of CBL is high so the risk is high. On the other hand, variance of EBL and SEBL is low thus risk is low. 8.13 Operating Efficiency (I/E) YEAR
2004
2005
2006
2007
2008
EBL
1.66
1.55
1.47
1.54
3.93
SEBL
1.36
1.46
1.44
1.51
1.95
CBL
1.52
1.54
1.39
1.25
1.99
Operating Efficiency in year 2004 to 2008 4 3 EBL
2
SEBL
1
CBL
0 2004
2005
2006
2007
2008
In this case Eastern Bank is most efficient. SEBL is the 2nd most efficient and increasing consistently and other Banks have erratic nature. 8.14 Return on Assets (ROA) YEAR
2004
2005
2006
2007
2008
EBL
2.32%
2.17%
1.62%
1.07%
1.68%
SEBL
1.00%
0.86%
1.66%
1.90%
1.09%
CBL
1.52%
1.75%
0.58%
0.71%
0.75%
Return on assets ratio in year 2004 to 2006 2.5 2 EBL
1.5
SEBL
1
CBL
0.5 0 2004
2005
2006
2007
2008
Return on assets ratio position of Eastern Bank is almost stable but CBL and SEBL position are not good enough. 8.15 Return on Equity (ROE) YEAR
2004
2005
2006
2007
2008
EBL
18.44%
19.17%
16.07%
11.93%
18.64%
SEBL
17.87%
17.64%
17.98%
19.90%
12.06
CBL
34.34%
32.05%
10.69%
12.71%
14.13%
Return on equity in year 2004 to 2008 40 30 EBL
20
SEBL
10
CBL
0 2004
2005
2006
2007
2008
In this case SEBL is most efficient. EBL is the 2nd most efficient and increasing consistently and other Banks have erratic nature. 8.16 Deposit Advance Ratio YEAR
2004
2005
2006
2007
2008
EBL
1.05
1.09
0.99
0.97
0.95
SEBL
1.27
1.18
1.12
1.15
1.17
CBL
1.27
1.28
1.33
1.51
1.31
Deposit Advance Ratio 2 1.5
EBL
1
SEBL
0.5
CBL
0 2004
2005
2006
2007
2008
The above table shows that CBL is highly prudent in asset management whereas EBL and SEBL can gear up in asset management thereby help achieve profit target. 8.17 Classified Loan as a % of total loans YEAR
2004
2005
2006
2007
2008
EBL
7.19%
5.41%
3.79%
4.31%
3.30%
SEBL
4.96%
4.37%
3.97%
3.77%
4.12%
CBL
10.57%
5.71%
5.18%
6.24%
6.45%
Classified Loan as a % of total loans 12 10 8 6 4 2 0
EBL SEBL CBL
2004
2005
2006
2007
2008
CHAPTER NINE
ENDING SUMMARY 9.1 FINDINGS On the basis of previous analysis the following findings are observed during the research period: •
Lack of available branches in remote areas of business and services
•
As Eastern Bank Ltd. is not a foreign bank so they can not attract as much as clients for foreign trade. Because Clients prefer foreign bank for foreign transaction.
•
Day by day new upcoming banks are coming with many new services which are a threat for the bank. So increased number of new bank creates sever competition in Foreign Exchange banking
•
In last part of the report that is the analytical part we observed that there is a huge growth in the deposit and loan side in 2008.
•
Consumer Banking at EBL is the rising part which is striving hard and soul for grapping the market. It offering different new products for attracting the market, providing modern service to the customers, trying to create a brand image in the mind of the customers, making different campaign and promotion program.
•
In last part of the report that is the analytical part we observed that there is a huge improvement in the classified loan side in 2003 to 2006 but it was increase 3.79% to 4.31% by 2008 which is a bad indication of the bank.
•
Recently EBL launch a new product named the Debit Line, which is first time in Bangladesh. And the company asserts it as their major products. It offered totally a modern service, which is customers can overdrawn against their debit card if the have the debit line.
•
Bangladesh is a developing country and its economic growth is not that much high. So slow growth of the economy is a very vital problem for a bank.
•
From the previous years it has been observing that frequently the operating expenses are going very high which is a bad indication of an efficient bank.
•
From the previous years it has been observing that the bank collect almost 70% of total deposit by fixed deposit which is high interest bearing deposit. So, the bank should make their attention on the current and saving deposit.
•
Most of the customers of the bank ask for more quality service especially quick, accurate service and good behavior from bankers as they think a private bank should provide such quality sufficiently. It has been found that inappropriate and slow work process often compels the customers to compare the bank with government bank, which is not a good indication for the reputation of the bank.
9.2 RECOMMENDATIONS I had the practical exposure in Eastern Bank Ltd. for some weeks, with my little experience in the bank in comparison with vast and complex banking system, it is very difficult for me to recommend. I have observed some shortcomings regarding operational and other aspects of their banking. On the basis of my observation I would like to recommend the following recommendations•
Bank should make attention on the current deposit as well as saving deposit because both are low interest bearing sources of deposit.
•
Bank should entered especial focus in SME banking. Bank should give Bette 4 flexible credit facility to small of middle enterprise.
•
EBL should arrange frequent tainting for uses team since they are involved in frequent customer calls and direct sales.
•
FBL should launch priority banking to ensure better service for valued customers.
•
They should expand their business more balancing way which means they should not focus on a particular industry like readymade garments industries.
•
Make sure the stability of the loan collection.
•
Banks EPS is not stable enough. That’s why the dividend policy may hamper. So make sure the growth of the EPS
•
More investment should be made in the short period.
•
The Bank should make focus on business expansion by lunching new branches in the area of commercially important.
•
Care should also be taken so that good borrowers are not discarded due to strict adherence to the lending policy.
•
In the 2007 the growth of the net profit is negative. This is alarming situation for the bank.
•
Strict Supervision must be adapted in case of high risk borrowers. Time to time visit to the projects should be done by the bank officers to reduce classified loan.
•
Credit officers must be skilled enough to understand the manipulated and distorted financial statements.
•
Maintain the SLR properly. Two year the bank is failed to maintain the minimum SLR.
9.3 CONCLUTION It is widely accepted that credit is a phenomenon of economic development and the banking system is a vital agent which plays a crucial role in this process. In order that economic development is rapid
and meaningful proper utilization of banks funds is required. Financial intermediaries, particularly banks have a very important role in rising of the financial resources because of their capacity to tap resources from a wider spectrum of people and diversified nature of their operations. Banks ability to make a positive contribution in igniting the process growth depends to a great extent on the way the banking funds are invested. Eastern Bank places utmost importance on managing credit risk. The whole process includes management of Credit Risk, Foreign Exchange Risk, Prevention of money Laundering, Asset liability Management, Internal control and Compliance. The 10 years success story though helped the bank to attain a leading role but to remain unrivalled among new generation banks, the bank must face new challenges. Overall, the bank must make a positive attempt to be more outward looking in their goals and aware of what is happening. They must also emphasize on the domestic scenario more closely and analyze any certain trends and strategies of their competitors. The bank must accept any failures and think of them as an objective to pursue future goals instead of blaming such failures on other factors. I hope in spite of my all limitations, this experience of sharing works with such working environment will help me a lot in my professional life. References 1. Annual Reports (2006, 2007 & 2008) Eastern Bank Ltd, 2. www.ebl-bd.com 3. www.bangladeshbank.org 4. Annual Report (2008) The City Bank Ltd 5. Annual Report (2008) Southeast Bank Ltd 6. www.thecitybank.com