Finaalcial report

SWOT ANALYSIS: A STUDY ON DUTCH-BANGLA BANK LIMITED

CHAPTER IV AN ANALYSIS OF FINANCIAL PERFORMANCES OF DBBL Financial Performance of Dutch-Bangla Bank Limited Dutch-Bangla Bank limited one of the forerunners of 2nd generation private sector commercial banks in Bangladesh. It has strong network of dynamic banking system rendering services through its 79 branches spreading all over the country. It has been maintaining a strong market base providing quality services through modern technology and by earning profit adding value to the assets of share holders. The employees are self motivated, proactive and committed to uphold the brand image of the bank.

4.1 Balance Sheet of Dutch-Bangla Bank Ltd. 4.1.1Analysis of the Changes in Assets (Tk. In million) Property and Assets/Year Cash in hand and balance with BB Balance with other Banks and Financial Institute Money at call and short notice Investment Loan and Advance Lease Receivable

2004

2005

2006

2007

2008

1301 2489

2375 728

3141 3151

4193 4853

5126 1901

1450

1600

560

2050

2500

2034 14976 951

3499 20134 2242

5876 28325 2130

5909 28369 1033

5385 41016 681

Fixed Asset Other Asset Total Table: 4.1 Assets of DBBL

323 1033 24560

376 1382 32339

536 1770 45439

1147 1340 1814 2729 49371 60682 Source: Annual Repot

of DBBl, 2008, 2007 The total assets of the bank grew up by 22.90% to TK. 60682.07 million in 2008 compare with the previous year. The significant asset was increased due to rise in cash in hand, cash balance with Bangladesh Bank, loans and advance, money at call and short notice and fixed assets etc. Investment, balance with other banks and financial institutions, lease receivable are decreased in the year 2008 comparison with previous year. Fixed asset trend is increasing due to a good number of branches and ATM booths have been opened every year.

4.1.1.1 Cash in Hand and Balance with Bangladesh Bank Cash in Hand and Balance w ith BB 6000 5000 4000 3000 2000 1000 0 2004

2005

2006

2007

2008

Year

Fig. 4.1 Cash in Hand Balance with Bangladesh Bank of the Bank As at 31 December 2008, cash in hand and balances with Bangladesh Bank and its agents bank stood at Tk. 5126 million as against 4193 million of 2007 registering a growth by Taka 933 million (22.3%). The increased cash was required to provide uninterrupted cash services to DBBL’s growing customer bases and customer needs.

Amount (Tk. in Million)

4.1.1.2 Loan and advances Loans And Advance 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 2004

2005

2006

2007

2008

Year

Fig 4.2 Loans & Advances Position of the Bank Dutch-Bangla Bank Limited succeeded to increase its loans and advances despite the current wave of global recession registering a growth of 44.58% with a total loans and advances portfolio of Tk. 41016 million in 2008 compared to Tk. 28369 million of 2007. Where as there was no significant change its total loan and advance in the year of 2006 and 2007 due to political instability of the country.

The growth was due to introduce retail loan, project loan, lease finance, etc. and usual growth in foreign trade 4.1.1.2. Fixed Asset

Amount (Tk. in Million)

Fixed Asset 1600 1400 1200 1000 800 600 400 200 0 2004

2005

2006

2007

2008

Year

Fig 4.3 Fixed Asset Position of the Bank There were increasing trend of fixed asset of the bank in the year 2004 to 2008 which shows investment in the fixed asset procurement increased day to day. In

considering in the year 2004 to 2008, the fixed asset of the two year 2007 and 2008 was drastically increased due to a good number of ATM booth establishments.

4.1.1.3 Investment Amount (Tk. in Million)

Investm ent 7000 6000 5000 4000 3000 2000 1000 0 2004

2005

2006

2007

2008

Year

Fig. 4.4 Investment Position of the Bank The banking system showed improvement during the year under report. Nonperforming loan to total loan ratio of the banking sector decreased. The interest rate spread also narrowed down. Country's banking sector remained shielded from the global financial turmoil mainly due to low level of global integration, prudent regulation and sound management. Though there was a bullish trend in capital market in the first half of 2008, all the indicators slightly declined in the last part of the year. In view of the present global crisis the important issue is to ensure good risk management for capital market institutions enabling them to take risk and reap returns.

4.1.2 Analysis of the Changes in Liabilities (Tk. In million) Liabilities/ Year 2004 Borrowing from other banks, financial institute and agents 432 Deposit and other accounts 21067

2005

2006

2007

2008

1195 27241

843 40111

623 42110

593 51575

Long term liability- DBBL 500 Industrial Bond Subordinated bond Others liability 1536 Total 23536 Table: 4.2 Liabilities of DBBL

500

500

500

-

2054 30990

442 935 1423 1935 2858 3869 43832 47036 57461 Source: Annual Repot of

DBBl, 2008, 2007 Total liabilities increased by 22.16% to Tk.57461 million as of 31 December, 2008 from the year 2007. This was mainly due to increase in customers’ deposits, issuance of subordinated bond and increase in others liability like keeping provision for income tax, gratuity and loan loss etc.

4.1.2.1. Borrowings from others bank, Financial Institute and Agents

Amount (Tk. in Million)

Borrow ings from other Bank FI and Agents 2009 2008 2007 2006 2005 2004 2003 2002 2004

2005

2006

2007

2008

Year

Fig. 4.5 Borrowings from other Banks, FI and Agents Borrowings from other banks or financial Institute or agent are highest in the year 2005 (1200 million Taka) from 2004 to 2008. Basically, liquidity crisis in the banking sector in our country was remarkable in the year 2005. This is why; DBBL was one of the stake holders of this financial phenomenon.

4.1.2.2 Deposit

Deposits

Amount (Tk. In Million)

60000 50000 40000 30000 20000 10000 0 2004

2005

2006

2007

2008

Year

Fig. 4.6 Deposit of the Bank The deposit base of the bank registered a growth of 22.47 percent it the reporting year over the last year and stood at Tk.51575 million. Expansion of branch and ATM network, competitive interest rate and innovative deposit products contributed to the growth. The customers of the bank were individuals, corporations, financial institutions government and autonomous bodies etc.

4.1.2.3 Others Liability

Amount (Tk. in million)

Others Liability 4500 4000 3500 3000 2500 2000 1500 1000 500 0 2004

2005

2006

2007

2008

Year

Fig.4.7 Others Liability of the bank Other liabilities increased by Tk. 3869 million due to current tax liability and for making provision for loan loss. Provision for income tax was Tk. 954.41 million in 2008 compared to Tk. 542.45 million in the previous year.

4.1.3 Owners Equity (Tk. In million) Capital/year Paid up share capital Share premium Statutory reserve Dividend equalization account Asset Revaluation reserve Revaluation reserve of HTM securities Dividend (Share & cash) Retain earnings Total Table: 4.3 Capital of DBBL

2004 202 11 352 5

2005 202 11 409 15

2006 202 11 637 25

2007 202 11 842 25

2008 1000 11 1197 25

-

-

-

244 -

244 64

45 407 1023

50 579 1348

50 797 500 733 210 177 1660 2334 3220 Source: Annual Repot of

DBBl, 2008, 2007 Equity and capital increased by 37.97% to Tk.3220 million as of 31 December, 2008 from the year 2007. This was mainly due to increase in paid up share capital and statutory reserve where as retain earning is slow down.

4.1.3.1 Statutory Reserve

Amount (Tk. in million)

Statutory Reserve 1400 1200 1000 800 600 400 200 0 2004

2005

2006

2007

Year

Fig. 4.8 Statutory Reserve of the Bank

2008

Statutory reserve of DBBL was increasing due to the reserve is the maintenance requirement on the basis total deposit of the bank. Since the deposit was increasing for each year, this is why statutory reserve was increasing year by year.

4.1.3.2 Retain Earning Amount (Tk. in million)

Retain Earnings 800 700 600 500 400 300 200 100 0 2004

2005

2006

2007

2008

Ye ar

Fig. 4.9 Retain Earning of the bank Retain earnings of the bank in the year 2006 is highest in compared to previous two year and following two year. It was the result of regulatory requirement for the specific period.

4.2 Profit and Loss Account of Dutch-Bangla Bank Limited Particulars/years Interest income Interest expense Net interest income Investment income Non interest income Other operating income Total operating income Total operating expense Profit before provision

2004 1845 1264 581 126 346 48

2005 2684 1863 821 183 488 78

2006 4054 3112 942 428 603 94

(Tk. In million) 2007 2008 4879 5453 3689 3636 1190 1817 630 621 710 859 147 340

1102

1570

2069

2678

3639

470

631

988

1351

1703

632

939

1081

1327

1936

Profit before tax Profit after tax Retained earning Earning per share

499 687 236 367 81 169 Tk.116.9 Tk. 3 181.97 Table: 4.4 Profit and Loss Account of DBBL

736 1022 1776 362 479 821 733 210 177 Tk.179.1 Tk. Tk. 8 47.98 82.17 Source: Annual Repot of

DBBl, 2008, 2007 4.2.1 Net Interest Income

Amount (Tk. in million)

Net Interest Income 2000 1500 1000 500 0 2004

2005

2006

2007

2008

Year

Fig. 4.10 Net Interest Income of the Bank During the year 2008, the net interest income of the Bank rose by Taka 627.8 million or 52.8% to Taka 1817.7 million from Taka 1189.9 million of the previous year. Net interest income increased mainly due to higher average loan portfolio and lower cost of fund resulting from improved deposit mix. Cost of fund declined from8.44% of 2007 to 7.66 in 2008 while yield on loans and advances declined from 13.85% in 2007 to 13.62% in 2008 mainly due to reduction in interest rate for regulatory compliance. However, the share of net interest income to the total income of the Bank increased to 49.9% in 2008 compared to 44.4% of the previous year.

4.2.2. Investment Income

Amount (Tk. in million)

Investment Income 700 600 500 400 300 200 100 0 2004

2005

2006

2007

2008

Year

Fig.4.11 Investment Income of the Bank In the year 2004 the interest income from investment was Tk.126 million.

Subsequently, it was increased by 45% and stood up at Tk. 183 million in the year 2005. In this way finally it was stood up Tk. 621 million in the year 2008 which was 2% decreased from 2007.

4.2.3 Non Interest Income Non Interest Income

Amount (Tk in Million)

1000 800 600 400 200 0 2004

2005

2006

2007

2008

Year

Fig. 4.12 Non interest Income of the Bank The non interest income consists of the commission, exchange and other operating income of the Bank. Total non-interest income of DBBL increased by Taka 342.8 million or 40.0% in 2008 over the previous year. Commission and exchange

income increased by Taka 342 million or 21% during the year 2008. Notable growth was achieved in other operating income which grew by Taka 193.4 million to Taka 340 million in 2008 from Taka 147 million in 2007 marking a rise by 131%. Other operating income increased due to growing services provided by online banking network of the Bank.

4.2.4 Total operating income and total operating expense

Amount (Tk. in Million)

4000 3500 3000 2500

Operating Income

2000

Operating Expense

1500 1000 500 0 2004

2005

2006

2007

2008

Year

Fig 4.13 Total Operating Income and Total Operating Expense Total operating income and total operating expense of DBBL were increased year by year from 2004 to 2005 simultaneously. From this comparative statistics, profit before provision was determined by deducting income from expense for the each year. The profit before provision of the bank was good as there was increasing trend was observed year after year. It was Tk. 632 million, Tk. 939 million, Tk.988 million, Tk. 1327 million and Tk.1703 million in the year 2004, 2005, 2006, 2007, and 2008 respectively.

4.2.5 Profit after Tax

Amount (Tk. in million)

Profit After Tax 900 800 700 600 500 400 300 200 100 0 2004

2005

2006

2007

2008

Year

Fig. 4.14 Profit After Tax of the Bank The overall profit after tax scenario of Dutch-Bangla Bank Ltd. was more or less increasing trend among the five years. In the year 2006, profit Tk.362 million was slightly decreased than 2005 and 2007. However, finally in 2008 the Bank got back its momentum where it counted its profit worth Tk. 821 million.

4.3 Key Ratio 4.3.1 Return on Assets (ROA) Growth Rate(%)

Return on Asset 2.00% 1.50% 1.00% 0.50% 0.00% 2004

2005

2006

2007

2008

Ye ar

YEAR 2004 ROA 1.06% Fig.4.15 ROA of DBBL DBBl, 2008, 2007

2005 1.29%

2006 0.93%

2007 2008 1.01% 1.49% Source: Annual Repot of

ROA is primarily an indicator of managerial efficiency. The returns on asset increase from 2004 to 2005, but at the close of 2006 the ratio decrease. In 2008 the ratio again increases. So it indicates that the management of the bank has been converting the institution asset into net earning efficiently.

4.3.2 Return on Equity Return on Asset 35.00%

Growth Rate

30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2004

2005

2006

2007

2008

Year

YEAR 2004 2005 2006 ROE 26.03% 31.01% 24.07% Fig .4.16 ROE of DBBL DBBl, 2008, 2007 ROE is a measure of the rate of return flowing to

2007 2008 24.02% 29.58% Source: Annual Repot of the bank shareholder. It

approximates the net benefit that the stockholders have received from investing their capital in the bank. The ROE of the bank indicated that the shareholder return was increasing in 2005 and in the year 2008 where as it was decreasing in the year 2004, 2006 and 2007 two consecutive years.

4.3.3 Net Interest Margin

NIM (%)

Ne t Inte r e s t M ar gin 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 2004

2005

2006

2007

2008

Ye ar

YEAR NIM

2004 2.62%

2005 2.86%

2006 2.31%

2007 2.79%

2008 3.47%

Fig. 4.17 NIM of DBBL DBBl, 2008, 2007

Source: Annual Repot of

The net interest margin how large a spread between interest revenue and interest cost management has been able to achieve by close control over the bank earning asset and the pursuit of cheapest sources of earnings. The NIM of Dutch-Bangla Bank Ltd. was increasing trend in the year 2004 and 2005 where as it was fall drastically in the year 2006 it was fall drastically. Again, it was increasing from 2007 to 2008 stood up 3.47%.

4.3.4 Net Non Interest Margin Non interest Margin

NNIM (%)

4.00 3.00 2.00 1.00 0.00 2004

2005

2006

2007

2008

Year

YEAR Non

2004

2005

2006

2007

2008

Interest

Margin 0.23% 0.42% 0.34% Fig. 4.18 Net Non Interest Margin of DBBL DBBl, 2008, 2007

0.35% 0.23% Source: Annual Repot of

The net non interest margin, in contrast, measures the amount of non interest revenue steaming from service fees the financial firm has been able to collect relative to the amount of non interest costs incurred (salaries, wages, repair and maintenance of facilities and loan-loss expense). The net non interest margin of Dutch-Bangla Bank was more less increasing trend from 2004 to 2008. Although in the year 2006 it was .34% which was less then the previous year and next year.

4.3.5 Net Operating Margin Net Operating Margin 4.00 3.50 NIM (%)

3.00 2.50 2.00 1.50 1.00 0.50 0.00 2004

2005

2006

2007

2008

Year

YEAR 2004 2005 2006 NOM 2.85% 3.28% 2.65% Fig . 4.19 Net Operating Margin of DBBL DBBl, 2008, 2007

2007 2008 3.12% 3.70% Source: Annual Repot of

The net operating margin how large a spread between total operating income and total operating expense has been able to achieve by close control over the bank earning asset and the pursuit of cheapest sources of earning. The net operating margin of Dutch-Bangla Bank Ltd. was closely increasing trend from 2004 to 2008 accept in the 2006 due to decreasing result of NIM an NNIM of DBBL. 4.3.6. Earning per Share Amount in Taka

Ear ning pe r Share 250.00 200.00 150.00 100.00 50.00 0.00 2004

2005

2006

2007

2008

Ye ar

YEAR 2004 2005 2006 2007 2008 EPS (Taka) 116.93 181.97 179.18 237.37 82.17 Fig . 4.20 Earning Per Share of DBBL Source: Annual Repot of DBBl, 2008, 2007

The Earning per share (EPS) is calculated as the absolute figure of ratio of total income and number of share of the respective year. The above finding shows that in the year 2008 it was Tk. 82.12 which was less Tk. 155.20 than the year 2007. It was due to number of share in the year 2008 had been increased almost 400% for allocating bonus share.

4.4 Capital Management Plan and Capital Adequacy Ration Strong Capital Adequacy ration was maintained in 2008 which reached 10.96% at the end of the year that was well above statuary requirement of 10.00%.

Shareholder’s equity (Tier-1 capital) increased to Taka 2,011.2 million being 6.91% of risk weighted assets (RWA) and supplementary capital (Tier-2 capital) increased to taka 1704 million being 4.05% of RWA. The details of risk-weighted assets, requirement of capital, actual capital and capital adequacy ratio are given below: Particular Risk weighted assets Tier-1 capital Tier-2 capital Total capital

2008 42114 2911 1705 4616

Tier-1 capital adequacy 6.91% ratio Tire-2 capital adequacy 4.05% ratio Total Capital adequacy 10.96% ration Table:4.5 Risk Weighted Assets DBBl, 2008, 2007 4.5 Funding and Lending Ratio 4.5.1 Credit Deposit Ratio

2007 28900 2090 1310 3400

Change (%) 45.7 39.3 30.2 35.8 7.23%

-0.3%

4.53%

-0.5%

11.76%

-0.8%

Source: Annual Repot of

Credit Deposit Ratio 90.00% Ratio in %

80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2004

2005

2006

2007

2008

Ye ar

YEAR 2004 2005 2006 2007 2008 Credit Deposit Ratio 71.00% 83.00% 75.00% 69.00% 80.00% Fig. 4.21 Credit Deposit ratio of the Bank Source: Annual Repot of DBBl, 2008, 2007 The overall scenario of credit deposit ratio was superior from the year 2004 up to 2008. In 2004 the ratio was 71% though that increased to 83% in the subsequent year 2005. However, that decreased to 75% in the year 2006 and 69% in the year 2007.It was due to political instability and world economic recession during this period. Finally, in 2008 the ratio lifted up to 80% which was recorded highest among the five years.

4.5.2 Cost Fund Cost of Fund

Growth Rate

10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2004

2005

2006

2007

2008

Year

YEAR Cost of Fund

2004 6.90%

2005 7.48%

2006 8.80%

2007 8.44%

2008 7.66%

The cost of fund of Dutch-Bangla Bank Ltd. in 2004 was 6.90%. Though in 2006 that turned into 8.80% which was costlier than other five years cost of fund. But in

the subsequent year 2007 became 8.44% cost of fund. However, last reporting year it was 7.66% cost of fund which was less costly than previous year.