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

by

Bhaskar Podder

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

Examination Committee:

Dr. Sundar Venkatesh (Chairperson) Dr. Winai Wongsurawat Dr. Yuosre Badir

Nationality: Bangladeshi Previous Degree: Master of Business Administration University of Dhaka Dhaka, Bangladesh

Scholarship Donor: Central Bank of Bangladesh

Asian Institute of Technology School of Management Thailand May 2012

ACKNOWLEDGEMENT

At the outset, I wish to acknowledge the immeasurable blessings and profound kindness of the Almighty the supreme authority of the universe. Successful completion of any course requires support from various persons. I am very much grateful to Dr. Sundar Venkatesh, the renowned academician and supervisor of my project work for his untiring and sincere guidance. I would like to express my whole-hearted thanks and sincere gratitude to him. Without his close guidance and valuable suggestions, it would be quite impossible for me to complete the project work. I like to extend my gratitude to the authority of Bangladesh Bank, the central bank of Bangladesh for granting me a scholarship for studying this Professional Master in Banking & Finance. I would like to express my indebtedness to the officials of Bangladesh Bank for extending their hands in collecting the required data for the project work.

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ABSTRACT

With developed banking technologies and client- focused mentality, Private Commercial Banks (PCBs) try to ensure quality services to their customers. For this philosophy, they are becoming able to increase the level of deposits and credits more rapidly than Govt.-owned banks. Moreover, they are becoming successful in decreasing the percentage of nonperforming loan. So their businesses are found quite profitable. This paper is an attempt to analyze the growth of PCBs o f Bangladesh in respect of deposit, advances, total assets, equity and net income, find out the determinants of their profitability and their performance in respect of those determinants. It is observed that PCBs have shown mentionable growth during the pe riod 2001-10. The prominent determinants of profitability are found to be Advance/Deposit ratio, Total Asset, Equity/Total Asset ratio, Non Performing Loan as percentage of total Advance, Business per Employee and Number of Bank Branches. The performance of PCBs in respect of the profitability determinants are found quite satisfactory. This indicates the prospect of PCBs in Bangladesh is bright. With a view to face competition in coming days, PCBs require to concentrate more on the profitability determinants.

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TABLE OF CONTENT Title Title Page Acknowledgement Abstract Table of content List of figures List of table Abbreviation and acronyms Chapter-I Introduction 1.1 Background of the study 1.2 Objectives of the study 1.3 Rational of the study 1.4 Methodology Chapter-II Literature Review 2.1 Determinants of Profitability for Commercial Banks 2.2 Internal determinants & external determinants 2.3 Profitability Determinants used in emerging economies of Asia Chapter-III An Overview of Banking Sector in Bangladesh 3.1 Banking Sector in Bangladesh 3.2 Nationalization of Commercial Banks 3.3 Denationalization and Privatization of Banks 3.4 Financial Liberalization under FSRP 3.5 Bank Restructuring under BRC/FSRP Chapter-IV Evolution and Growth of PCBs in Bangladesh 4.1 Private Commercial Banks (PCBs) in Bangladesh 4.2 Generation of Banking Sector in Bangladesh 4.3 Growth of Private Commercial Banks (PCBs) in Bangladesh 4.4 CAGR of selected variables of generation wise PCBs 4.5 Comparison of the selected variables of category wise banks 4.6 Comparison of CAGR Part-V Determinants of PCBs Profitability A proposed model
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i ii iii iv vi vii viii

1 1 1 2

4 4 6

8 8 9 9 10

11 11 12 14 16 17

5.1 Bank Profitability 5.2 Model Specification 5.3 Results 5.4 Analysis Part-VI Sample, Data and Results 6.1

18 18 19 27

Commercial Bank Performance 30 6.2 Trend of the profitability determinants of PCBs 30 6.3 Performance of PCBs in respect of profitability determinants 32 6.4 PCBs Profitability Determinants and those of SCBs, DFIs & FCBs 35 6.5 Performance of PCBs in respect of ROA & ROE 38 6.6 ROA & ROE of PCBs and those of SCBs, DFIs & FCBs 40 Part-VII Conclusions and areas for further research 7.1 Conclusions 7.2 Areas for further research Reference Appendices 42 43 44 45

LIST OF FIGURES

Figure 4.1 Trends of the Variables of Growth of PCBs Figure 4.2 CAGR of selected variables of First Generation PCBs Figure 4.3 CAGR of selected variables of Second Generation PCBs Figure 4.4 CAGR of selected variables of Third Generation PCBs Figure 4.5 Trend of deposit of category wise banks Figure 4.6 Trend of advance of category wise banks Figure 4.7 Trend of total asset of category wise banks Figure 4.8 Trend of equity of category wise banks Figure 4.9 Trend of net income of category wise banks Figure 6.1 Performance of PCBs in respect of profitability determinants Figure 6.2 PCBs Advance-Deposit ratio in respect of other categories of banks Figure 6.3 PCBs total asset in respect of other categories of banks Figure 6.4 PCBs equity/total asset ratio in respect of other categories of banks

13 14 15 15 16 16 17 17 17 31 35 36 36

Figure 6.5 PCBs NPL as % of total advance in respect of other categories of banks 36 Figure 6.6 PCBs Business per Employee in respect of other categories of banks Figure 6.7 PCBs No of Bank Branches in respect of other categories of banks Figure 6.8 PCBs Return on Asset (ROA) and Return on Equity (ROE) Figure 6.9 PCBs Return on Asset (ROA) in respect of other categories of banks Figure 6.10 PCBs Return on Equity (ROE) in respect of other categories of banks 37 37 38 40 40

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LIST OF TABLES Table: 3.1 Banking structure in Bangladesh Table 4.1 PCBs in Bangladesh Table 4.2 Growth of PCBs Table 4.3 CAGR of selected variables of Generation wise PCBs Table 4.4 Mean & Standard Deviation of selected variables of category wise banks Table 4.5 CAGR of selected variables of category wise banks Table 5.1 Correlation Matrix of selected Independent Variables Table 5.2 Independent variables and expected relation Table 5.3 Model Summary and ANOVA (F) Results (NI as dependent variable) Table 5.4 Model Summary and ANOVA (F) Results (ROA as dependent variable) Table 5.5 Model Summary and ANOVA (F) Results (ROE as dependent variable) Table 5.6 Regression Coefficients (NI as dependent variable) Table 5.7 Regression Coefficients (ROA as dependent variable) Table 5.8 Regression Coefficients (ROE as dependent variable) Table 5.9 Significant Regression Coefficients Table 6.1 Trend of the profitability determinants of PCBs Table 6.2 First Generation PCBs in respect of profitability determinants Table 6.3 Second Generation PCBs in respect of profitability determinants Table 6.4 Third Generation PCBs in respect of profitability determinants Table 6.5 Comparison of selected variables of PCBs to those of SCBs, DFIs & FCBs 37 Table 6.6 Mean, Standard deviation, Trend equation of ROA and ROE of PCBs Table 6.7 ROA & ROE of First Generation PCBs Table 6.8 ROA & ROE of Second Generation PCBs Table 6.9 ROA & ROE of Third Generation PCBs Table 6.10 Comparison of ROA & ROE of PCBs to those of SCBs, DFIs & FCBs 38 39 39 40 41 8 11 12 14 16 17 18 19 20 20 21 22 24 26 28 30 32 33 34

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ABBREVIATION AND ACRONYMS

BB BCA BRC CAGR CBRP CBSP CIB DFI FCB FSRP GDP NCB NI PCB ROA ROE SCB

Bangladesh Bank Bank Company Act, 1991 Bank Restructuring Committee Cumulative Average Growth Rate Commercial Bank Restructuring Project Central Bank Strengthening Project Credit Information Bureau Development Financial Institute Foreign Commercial Bank Financial Sector Reform Program Gross Domestic Product Nationalized Commercial Bank Net Income Private Commercial Bank Return on Asset Return on Equity State owned Commercial Bank

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CHAPTER I INTRODUCTION 1.1 Background of the study Bangladesh has a mixed banking system comprising State-owned Commercial Banks (SCBs), Development Financial Institutions (DFIs) or Specialized Commercial Banks (SBs), private commercial banks (PCBs) and foreign commercial banks (FCBs). Bangladesh Bank is the central bank of the country and is in charge of formulating and implementing monetary policies and regulator of the banking sector of the country. After the independence in 1971, the govt. of Bangladesh initially nationalized the total domestic banking system and reorganized and renamed the various banks. In nineteen eighties, the decision of privatization of the commercial banks revolutionizes the entire banking system of the country. At present the banking systems of Bangladesh as a whole, consists of four state owned commercial banks, four specialized commercial banks, thirty private commercial banks and nine foreign commercial banks. Private Commercial Banks (PCBs) started their journey in Bangladesh in 1982. Since then, they play a vital role in the economic development of the country. With the help of developed banking technologies and client- focused mentality, they try to ensure quality services in quick time to their customers as per their expectation. Their prudence in selecting appropriate borrowers and sector of providing loans and monitoring them closely has decreased the percentage of non-performing loan. Besides, the prudent regulatory measure of the central bank including guidance regarding prudential norms of capital adequacy, classification of loans, on-site and off- site supervision have made the PCBs sound in Banking operation. For these reasons, they are found profitable in their business. Their performance in respect of the profitability determinants shows their potentiality in the banking industry. An effectively functioning financial system requires a banking system that can earn a reasonable return by taking an acceptable level of risks. 1.2 Objectives of the study The objectives of the study are as follows: (a) Provide an overview of banking sector in Bangladesh with a focus on evolution and growth of PCBs. (b) Compare performance of PCBs and other categories of banks such as SCBs, DFIs and FCBs. (c) Analyze the determinants of PCBs profitability.

1.3 Rational of the study In order to survive in the long run, it is important for a bank to find out what are the determinants of profitability so that it can take initia tives to increase its profitability managing the dominant determinants. Bank performance is also vitally important for all stake holders, such as the owners, the investors, the debtors, the creditors, the depositors, the managers of banks, the regulators and the government. The performance of banks gives
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directions to the stake holders in their decision making. It gives direction to the debtors and the investors to make decision whether they should invest money in bank or invest somewhere else. It also flashes direction to bank managers whether to improve its deposit service or loan service or both to improve its finance. Regulatory agencies and government are also interested in financial performance for the regulation purposes. 1.4 Methodology The following methodology has been followed in the study: 1.4.1 Sample Design The sample of the study represents all 4 category wise schedule banks in Bangladesh, especially focusing on all 30 Privatized Commercial Banks. The banks categorized into ownership pattern like State-owned Commercial Banks, Specialized Banks, Privatized Commercial Banks and Foreign Commercial Banks. 1.4.2 Data Collection The secondary data on deposits, advance, total assets, equity, net income, number of branches, number of employees and non performing loan of all the scheduled banks in the study have been collected from various departments of Bangladesh Bank. 1.4.3 Time Reference The time reference of the study was 2001-2010. This period was selected mainly because all the 30 PCBs are in operation during this period. There are 3 PCBs that started operation in 2001. So the data prior to this period may not reflect a total scenario. 1.4.4 Hypothesis of the Study H1 : Profitability (considered as Net Income) of a private commercial bank is positively and significantly related to its advance/deposit ratio, total assets, equity/total asset, number of branches, Business per Employee (BPE) calculated as Deposit + Advances/ Number of Employees and negatively and significantly related to its NPL/Advance ratio. H2 : Profitability (considered as Return on Asset) of a private commercial bank is positively and significantly related to its advance/deposit ratio, total assets, equity/total asset, number of branches, Business per Employee (BPE) calculated as Deposit + Advances/ Number of Employees and negatively and significantly related to its NPL/Advance ratio. H3 : Profitability (considered as Return on Equity) of a private commercial bank is positively and significantly related to its advance/deposit ratio, total assets, equity/total asset, number of branches, Business per Employee (BPE) calculated as Deposit + Advances/ Number of Employees and negatively and significantly related to its NPL/Advance ratio.

1.4.5 Data Analysis Calculation of the following: i. Cumulative Average Growth rate (CAGR) of various variables: CAGR= (Value of the parameter in the year 2010/ Value of the parameter in the year 2001)1/10-1 ii. The performance of the banks has been measured by several variables: ROA, ROE and the prominent variables that have been found to have significant impact on profitability. Among these variables, there are several ratios. These have been calculated as follows: a. b. c. d. e. f. ROA = Net Income/Total Asset. ROE = Net Income/Total Equity. Advance- Deposit ratio = Total Advance/Total Deposit. Equity/Total Asset ratio = Equity/Total Asset NPL as percentage of total advances= Non-performing Loans /Total Advances. Business Per Employee (BPE) = (Deposit + Advances)/ Number of Employees

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The statistical tools that have been used in the study are, a. Trend analysis: For trend analysis, time series analysis has been used. b. Standard deviation: It has been used for measuring dispersion from the mean result. c. Correlation and Regression: These have been used to identify the relationship among the variables.

1.4.6 Limitation: i. ii. Time Constraint: The obtained duration for the project work was very limited. Scarcity of published work: Research work and publication on the concern area in Bangladesh have not yet been done extensively.

CHAPTER II LITERATURE REVIEW 2.1 Determinants of Profitability for Comme rcial Banks There is a vast body of empirical literature on what are the determinants of profitability for commercial banks. Hester and Zoellner (1966), the pioneers of the bank profitability studies, used net current operating income, net income before taxes, and net income after taxes as the dependent variable and found that the changes in asset and liability portfolios (items in the balance sheet) produced positive and negative results on banks earnings. All asset items are found to have a significant positive relationship and all liability items, which include demand, time and savings deposits were found negatively related to profits. 2.2 Inte rnal determinants & external determinants Bourke (1986) divided the profitability determinants for commercial banks into two main categories, such as internal determinants and external determinants. The internal determinants are management controllable factors, for example, liquidity, investment in subsidiaries, investment in securities, loans, non-performing loans and overhead expenditure. Other determinants such as savings, fixed deposits, current account deposits and capital reserves and money supply also play a major role in influencing the profitability. Similarly, external determinants are those factors which are beyond the control of management of these institutions such as inflation rates, interest rates, market share and market growth and. 2.2.1 The inte rnal determinants Financial and Non-Financial State ments variables

Guru and Bala. S (1998), classified the internal determinants into two sub-categories Financial Statement variables and Non-Financial Statements variables. The Financial statement variables are related to the decisions that directly affect the items of a balance sheet and profit & loss accounts where the nonfinancial statement variables are those factors that do not have a direct impact on the financial statements. Liquidity

Steven J. L and B.D Roderick (1992), and Graham. H, (1993), suggested that as the loans to deposit ratio rises and hence liquidity falls, banks would be reluctant to lend that leads to higher loan rates. Again, banks in a liquid situation as indicated by low loans-deposit ratio or recent inflows of deposit would tend to offer lower loan rates compared to banks in a less liquid situation. Slovin and Sushka (1984) also found evidence that banks with rapid growth in deposit and hence higher liquidity set lower loan rates. Thus, given the relationship between liquidity and loan rates, the relationship between bank liquidity and profitability would depend on the interest rate elasticity of demand for loans. Bourke (1989) used the ratio of liquid assets to total assets as a measure of liquidity. The higher the ratio, the higher the

liquidity and vice- versa. Bourkes results indicated a significant positive relationship between liquidity and profitability. Bank Size and Economies of Scale

The size of a bank is considered as an internal determinant on the assumption that management of the bank is responsible for expanding their organization by acquiring additional assets and liabilities. Boyd, J.H. and D.E. Runkle (1993) showed that size of a bank is also associated with the concept of economies of scale. Athanasoglou P., Delis M. and C. Staikouras (2006), indicated that as a result of gaining market share, a bank would increase its earnings which would increase its profitability. It is usually assumed that large banks enjoy economies of scale, so they are able to produce their outputs or services more cheaply and efficiently than smaller banks. As a result, larger banks will earn higher rates of profit if entry is restricted. 2.2.2 External determinants Regulation

Frame et al. (1994) showed that the banking industry is among the most heavily regulated industries in the world. Regulations on the banking system as a whole include regulation on the condition of entry, establishment of new branches, ventures, mergers and acquisitions. Direct regulations on bank management cover the lending policy, deposit policy, interest rates, and liquidity requirements. Gilbert (1984) found that many researchers failed to recognize regulation as one of the bank profitability determinants. For example, several studies by Fraser and Rose, (1972), Rose and Fraser (1976), and Rhoades (1979), found that market concentration had no effect on the interest rate paid on time and savings but offer no explanation, Gilbert (1984) believed that the results were caused by the Regulation. Competition

Heggested and Mingo (1976) believed that when the degree of monopoly in a market is high, bank prices will be higher and fewer facilities will be provided by the bank. They tested the relationship between concentration and eleven performance measures that included facilities available to customers and charges for using those facilities and found that eight of the 11 performance measures were significantly affected by at least one specification of concentration. This is an indication that the market power of an individual bank usually increases with the degree of monopoly. The greater the market share, the greater will be its control over its prices and services it offers. Market Share

Market share is considered as one of the potential determinants of profitability since the bigger the market, the larger the firms potential for profits. Bigger market share also means more power to the bank in controlling the prices and services it offers to customers (Heggested and Mingo, 1976).

Market Growth

Smirlock (1985), Bourke (1989) and Molyneux and Thornton (1992) found market growth as an external determinant of bank profitability. This is based on the assumption that an expanding market would produce greater potentials for banks to achieve higher profits. 2.3 Profitability Determinants used in e merging economies of Asia 2.3.1 India P. Ganesan (2001) determines profitability of Indian banks using profit function model which showed that interest cost, interest income, other income, deposits, credit to tota l assets, proportion to priority sector advances and interest income loss as the significant determinants of profit and profitability of banks. B.S. Bodla & Richa Verma (2007) found Credit/Deposit Ratio, Non-Interest Income, Spread, NPA as percentage to Net Advances, Provision and Contingencies, Operating Expenses, Business per Employee, Profit per Employee and Net Profit as determinants of profitability of banks in India. 2.3.2 Thailand Saovanee chantapong (2006) emphasizes on Return on Assets (net income after tax/total assets) that indicates managerial efficiency and Commitment to Domestic Economy (LR: loans to clients/total assets) which presents consumer lending activities and bank commitment to the domestic economy as profitability determinants of banks. 2.3.3 China Fadzlan Sufian, Muzafar Shah Habibullah (2009) found bank specific variables - total loans divided by total assets, log of total assets, loans loss provisions divided by total loans, noninterest income divided by total assets, total overhead expenses divided by total assets, log of total deposits, and book value of stockholders equity as a fraction of total assets as Internal determinants and natural log of GDP, the annual inflation rate, and money supply growth as External determinants of bank profitability. 2.3.4 Indonesia Fadzlan Sufian and Muzafar Shah Habibullah (2010) used the return on assets (ROA) and/or the return on equity (ROE) expressed as a function of internal and external determinants in measuring bank profitability. They found bank-specific variables - log of total assets, loans loss provisions divided by total loans, non-interest income divided by total assets, total overhead expenses divided by total assets, log of total deposits, and book value of stockholders equity as a fraction of total assets and external determinants - natural log of GDP, the three largest banks asset concentration ratio. 2.3.5 Bangladesh

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

CHAPTER III AN OVERVIEW OF BANKING SECTOR IN BANGLADESH 3.1 Banking Sector in Bangladesh Banking sector in Bangladesh comprises of State Owned Commercial Banks (SCBs), government-owned Development Financial Institutions (DFIs) or Specialized Banks (SBs) dealing with development finance, Private Commercial Banks (PCBs) and Foreign Commercial Banks (FCBs). Currently, the there are 4 SCBs, 4 DFIs, 30 PCBs and 9 FCBs in Bangladesh. The following Table shows the current (December, 2010) banking structure in Bangladesh.
Table: 3.1 Banking structure in Bangladesh
Bank Types SCBs DFIs PCBs FCBs Total Number of B anks 4 4 30 9 47 Number of Branches 3,447 1,382 2,828 72 7,729 % of Branches 44.60% 17.88% 36.59% 0.93% 100% Total Assets (Crore Tk.) 135,929.28 29,091.57 287,416.75 31,942.40 484,380.00 % of Industry Assets 28.06% 6.01% 59.34% 6.59% 100% Deposits (Crore Tk.) 101,357.14 18,408.22 222,182.25 22,677.42 364,625.03 % of Deposits 27.80% 5.05% 60.93% 6.22% 100%

Source: Bangladesh Bank

3.2 Nationalization of Comme rcial Banks Before liberation of Bangladesh, the ownership of the commercial banks was vested to the private sector. After the independence, the government took different measures to achieve the macroeconomic objectives by ensuring a sound and vibrating financial system as this can only lead to proper intermediation. After the nationalization of banks in 1972, it was expected that the banks would be playing their role for social benefit and in the economic de velopment process. The main objectives of the nationalization of commercial banks were: a) Branch expansion for providing services to the rural people, b) Mobilization of domestic savings, specially rural savings more effectively, c) Providing credit to the priority sector such as agriculture, small scale and cottage industries etc., d) Ensuring balanced regional development, removal of control of banks by few individuals. The lending rate on priority sector credit was very low and they were bound to operate in the rural areas, as a result, the quality of customer service has been deteriorated and commercial consideration of profitability, safety and efficiency were sacrificed in favor of social profitability.

3.3 Denationalization and Privatization of Banks A retransfer of ownership and control from public to private sector can be termed as denationalization. Denationalization refers to the term privatization. Privatization was meant to signify the return to profitable private motivation of anything that had declined through unprofitable state ownership. This process in the financial sector was initiated in 1982, by denationalization of two NCBs - Uttara Bank and Pubali Bank. Rupali Bank was partly denationalized through selling 49% share to the public and also permitting a number of private commercial banks to come into existence to increase competition in the financial market. The objectives of the privatization of banks were to: a) Reduce the deficit of the government to meet the continuous loss of the public enterprises b) Improve the efficiency of the banking sector c) Introduce competition in all spheres of economic activities d) Slack the flow of credit to different economic sector beyond the priority sector e) Improve the customer service of the bank f) Run towards the way of globalization of financial sector Recently the government has turned the remaining NCBs into corporation under the Bank Company Act to gain efficiency, transparency and accountability and eventually to viably compete with private and foreign commercial banks. Consequently, Sonali Bank, Janata Bank and Agrani Bank have been renamed as Sonali Bank Limited, Janata Bank Limited and Agrani Bank Limited respectively. Now these three banks and Rupali Bank Ltd. are considered as State-owned banks (SCBs). 3.4 Financial Liberalization under FSRP By the mid 1980s, the problems in the financial sector were becoming so severe that the Government formed a committee on Money, Banking and Credit headed by the then Finance Minister to suggest ways and means to improve the operational efficiency of the banking system. The World Bank also made an in- depth study on Bangladeshs financial sector in the mid 80s. They suggested reform in the following fields: a) b) c) d) Fixation of interest rates on deposits and advances, Classification of overdue loans, Restructuring of NCBs and PCBs, Market orientation of banking transaction (Task Force Report, 1991)

Based on these findings and recommendations Bangladesh initiated a Financial Sector Reform Project in 1990 to overcome from the repressed economy, making a more competitive and market oriented financial sector. The main objectives of the FSRP were to: a) Remove gradually the distortions in the interest rate structure with a view to improving the allocation of resources, b) Provide increase market oriented incentive for priority sector lending c) Make subsidies in those more transparent sectors d) Adopt appropriate monetary tools to control inflation e) Establish appropriate accounting policies and modes of recapitalization, f) Improve debt recovery process g) Expand and strength the capital market
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Other than the regulatory and legal measures FSRP introduced some manual for operation and guidance of reporting system. These are: a) Lending Risk Analysis b) Financial Spread Sheet c) Performance Planning System d) Large Loan Reporting System e) New Loan Ledger Card 3.5 Bank Restructuring under BRC/FSRP Just before the expiry of FSRP term, the government formed one Banking Restructuring Committee (BRC) to evaluate the situation arising in NCBs and recommendations to the government for bringing back financial discipline and improving efficiency of NCBs. In May 1997, a Commercial Bank Restructuring Project (CBRP), funded by the World Bank, has also been undertaken to take stock of progress on key issues and identify urgent actions that need to be taken for the development of commercial banks in Bangladesh. The measures taken are: a) b) c) d) e) f) g) h) i) j) k) An aggressive institutional renewal program for Bangladesh Bank Fundamental reforms of NCBs Strengthening the legal process and institution of expending recovery of debt Better internal governance both in NCBs and PCBs Compliance with capital standards Penalties for imprudent lending Announcement of banking policy statement Hiring of auditors of valuation audits of NCBs Formation of a Bank Supervision Committee Special recovery efforts A committee on Union problem has been taken

Along with the above measures since the formation of BRC in 1996, it has taken following actions: a) The amendment of Bangladesh Bank Order, 1972 to give Bangladesh Bank legal autonomy over its affairs b) Reforms of supervision system of Bangladesh Bank to bring back financial discipline. c) Reforms of Bangladesh Banks (Nationalization) Order, 1972, to give autonomy to NCBs board so that NCBs could run on commercial consideration d) Deposit insurance scheme to protect depositors interest e) Amendments to Bank Company Act, 1991, to effectively handle problem banks f) Precluding crony (insider) lending and ensuring credit discipline All the above measures and actions have taken by BRC/CBRP to achieve the goals: a) The three pillars of banking - effective legal system, good management and effective Central Bank b) Emphasis on the core aspects (dominance of market forces, competition among banks, financial discipline through broad based legal and regula tory base and operational efficiency) rather the peripheral aspects (privatization).

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CHAPTER IV EVOLUTION AND GROWTH OF PCBS IN BANGLADESH 4.1 Private Commercial Banks (PCBs) in Bangladesh After liberation, the banks operating in Bangladesh (except those incorporated abroad) were nationalized. These banks were merged and grouped into six commercial banks. Of the total six commercial banks, Pubali Bank Ltd. and Uttara Bank Ltd. were subsequently transferred to the private sector with effect from January 1983. Seven banks obtained licenses to run their operation as Private Commercial Banks during 1980s, eighteen banks during 1990s and three more banks in 2001. These thirty banks are now operating as Private Commercial Banks (PCBs) in Bangladesh. The Oriental Bank Ltd. - an Islamic private bank founded in 1987 was renamed as ICB Islamic Bank Ltd. in 2008. Arab Bangladesh Bank Ltd. founded in 1982, was renamed as AB Bank Ltd in 2008 and Social Investment Bank Ltd. founded in 1982 was renamed as Social Islami Bank Ltd. in 2009. 4.2 Generation of Banking Sector in Bangladesh The banking sector of Bangladesh is usually classified into three generations. Banks incorporated from the period of 1971-1990 are classified as first generation banks. Second generation banks were licensed in the period of 1991-2000. All banks licensed since 2000 are classified as third generation banks.
Table 4.1 PCBs in Bangladesh
Sl. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. Name of PCB Arab B angladesh B ank Li mited IFIC Ban k Limited Uttara Bank Limited Pubali Ban k Limited National Bank Limited Islami Bank Bangladesh Limited The City Ban k Limited United Co mmercial Bank Limited ICB Islami Bank Limited Eastern Bank Limited NCC Bank Limited Prime Bank Limited Dhaka Bank Limited Al-Arafah Islami Bank Limited Southeast Bank Limited Social Islami Ban k Ltd Dutch-Bangla Bank Limited Trust Bank Limited Bank Asia Limited EXIM Ban k Limited First Security Islami Bank Mutual Trust Bank Year of Foundation/ Denationalization* 1982 1983 1983* 1983* 1983 1983 1983 1983 1987 1992 1993 1995 1995 1995 1995 1995 1996 1999 1999 1999 1999 1999 Generation of B anking Sector First Generat ion Ban k First Generat ion Ban k First Generat ion Ban k First Generat ion Ban k First Generat ion Ban k First Generat ion Ban k First Generat ion Ban k First Generat ion Ban k First Generat ion Ban k Second Generat ion Bank Second Generat ion Bank Second Generat ion Bank Second Generat ion Bank Second Generat ion Bank Second Generat ion Bank Second Generat ion Bank Second Generat ion Bank Second Generat ion Bank Second Generat ion Bank Second Generat ion Bank Second Generat ion Bank Second Generat ion Bank

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Year of Foundation/ Generation of B anking Denationalization* Sector 23. Mercantile Bank Limited 1999 Second Generat ion Bank 24. ONE Bank Limited 1999 Second Generat ion Bank 25. The Premier Bank Limited 1999 Second Generat ion Bank 26. Standard Bank Limited 1999 Second Generat ion Bank 27. Bangladesh Co mmerce Ban k 1999 Second Generat ion Bank 28. BRAC Bank Limited 2001 Third Generation Ban k 29. Jamuna Bank Limited 2001 Third Generation Ban k 30. Shahjalal Islami Bank Limited 2001 Third Generation Ban k *Uttara Bank and Pubali Bank were denationalized to operate as Private Co mmercial Bank (PCB) Source: Bangladesh Bank Sl. No. Name of PCB

4.3 Growth of Private Comme rcial Banks (PCBs) in Bangladesh Last ten years aggregate data on the deposit, advance, total asset, equity and net income of Private Commercial Banks (PCBs) shows their increasing trend over the period. The following table shows the mean, standard deviatio n, trend equation and r2 of deposit, advance, total asset, total equity and net income of PCBs.
Table 4.2 Growth of PCBs
Sl. No. 1. 2. 3. 4. 5. Vari ables Deposit Advance Total asset Equity Net inco me Mean & Standard Deviation (Figures in crore) 101,091.1 (65,396.7) 88,122.7 (59,529.4) 128,298.4 (79,693.5) 9,811.8 (7,816.7) 1,934.1 (1,635.0) Equation for trend line Yc = a+bx Yc = - 13172 + 20775x Yc = - 15115 + 18771x Yc = - 9786 + 25106x Yc = - 3417 + 2405x Yc = - 509.9 + 444.3x r2 0.925 0.911 0.909 0.868 0.677

Source: Bangladesh Bank

The straight line trend is represented by the equation Yc = a + b. Where, Yc denotes the trend values to distinguish them from the actual Y values. a is the Y intercept or the value of the Y variable when X = 0. b represents the slope of the line of the amount of change in Y variable that associated with the change of one unit in X variable. Here X variable represents time. The square of correlation coefficient (r2 ) is called the squared multiple correlation coefficients. The coefficient of correlation is denoted by r. The value of r lies between 0 and 1. The higher the r2 , the greater the percentage of the variation of Y as explained by the regression model, that is, the better the goodness of fit of the regression mode l to the sample observations. Again r2 , the closer to zero, the worse the fit. It is reflected from the above table that the trend equations of all the selected variables are positive and goodness of fit as in case of all the equations, r2 is greater than 0.50.

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Figure 4.1 Trends of the Variab les of Growth of PCBs Source: Bangladesh Bank

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4.4 CAGR of selected variables of generation wise PCBs The following table shows the mean and standard deviation of Cumulative Average Growth Rate (CAGR) of deposit, advance, total asset, total equity and net income of generation wise PCBs:
Table 4.3 CAGR of selected variables of Generation wise PCBs
Mean & Std Dev of CAGR of Deposit First 14.77% Generation (5.80%) Second 28.89% Generation (6.64%) Third 71.59% Generation (20.01%) Source: Bangladesh Bank Generation of B anks Mean & Std Dev of CAGR of Advance 15.08% (6.64%) 28.03% (7.53%) 82.02% (20.47%) Mean & Std Dev of CAGR of Total Asset 13.78% (6.13%) 25.08% (6.81%) 53.07% (23.75%) Mean & Std Dev of CAGR of Equity 24.79% (5.64%) 29.67% (7.94%) 39.75% (6.75%) Mean & Std Dev of CAGR of Net Income 13.89% (6.80%) 22.69% (10.75%) 90.95% (39.56%)

The above table shows that the CAGR of deposit, advance, total asset, total equity and net income of the PCBs of second generation is higher than that of first generation and CAGR of those variables of third generation is mention ably higher than that of second generation respectively. Moreover, the standard deviation shows that the PCBs of first generation than second generation and PCBs of second generation than those of third generation have least deviation from the mean.

Figure 4.2 CA GR of selected variables of First Generation PCBs Source: Bangladesh Bank

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Figure 4.3 CA GR of selected variables of Second Generat ion P CBs Source: Bangladesh Bank

Figure 4.4 CA GR of selected variables of Th ird Generation PCBs Source: Bangladesh Bank

15

4.5 Comparison of the selected variables of category wise banks

Table 4.4 Mean & Standard Deviation of selected variables of category wise banks
(Figures in crore) Category of B anks PCBs SCBs DFIs FCBs Source: Bangladesh Bank Mean & Std Dev of Deposit 101,091.1 (65,396.7) 68,316.4 (18,018.8) 10,263.7 (4,352.6) 13,780.0 (6,207.7) Mean & Std Dev of Advance 88,122.6 (59,529.4) 47,207.7 (12,479.3) 13,014.3 (3,321.2) 10,530.8 (5,080.2) Mean & Std Dev of Asset 128,298.4 (79,693.5) 85,708.9 (25,883.1) 19,845.8 (4,573.0) 18,877.7 (8,327.6) Mean & Std Dev of Equi ty 9,811.8 (7,816.7) 2,636.4 (2,847.2) 1,095.5 (532.4) 2,757.9 (1,513.5) Mean & Std Dev of Net Income 1,934.1 (1,635.0) 655.1 (560.4) 19.8 (68.2) 633.4 (215.2)

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

Figure 4.5 Trend of deposit of category wise banks Source: Bangladesh Bank

Figure 4.6 Trend of advance of category wise banks Source: Bangladesh Bank

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Figure 4.7 Trend of total asset of category wise banks Source: Bangladesh Bank

Figure 4.8 Trend of equity of category wise banks Source: Bangladesh Bank

Figure 4.9 Trend of net inco me of category wise banks Source: Bangladesh Bank

4.6 Comparison of CAGR The following table shows that CAGR of Deposit, Advance, Asset, Equity and Net Income of PCBs is higher in almost every respects that that of SCBs, DFIs & FCBs over time.
Table 4.5 CAGR of selected variables of category wise banks
Category of B anks PCBs SCBs DFIs FCBs Source: Bangladesh Bank CAGR of Deposit 22.28% 8.24% 14.07% 13.43% CAGR of Advance 22.59% 8.43% 6.54% 16.31% CAGR of Asset 20.39% 8.87% 6.96% 13.83% CAGR of Equi ty 26.83% 20.68% 0.40% 20.35% CAGR of Net Income 16.78% 19.62% -1.61% 6.76%

During 2001-2010, the PCBs are found to achieve mentionable growth in the above selected variables. This reflects their gradual expansion of business and earning increasing amount of profit over the period.

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CHAPTER V DETERMINANTS OF PCBS PROFITABILITY A PROPOSED MODEL 5.1 Bank Profitability Banks are involved in the function of mobilization of deposit and deployment of credit. Through this intermediation function, banks contribute a lot toward the development of the economy. Banks are engaged in the banking system with a motive to earn profit and it is the most important element in the competition among the banks. Profit is the absolute term, which creates ambiguity for comparison. For the purpose of comparing operational efficiency of the banks, profitability is the most important indicator. 5.2 Model Specification The independent variables considered for the model include natural log of Advance/Deposit (A/D), Total Asset (TA), Equity/Total Asset (E/TA), Non Performing Loan/Total Advance (NPL/A), Business Per Employee (BPE) calculated as (Deposit + Advances)/ Number of Employees, Number of Bank Branches (NBB) and dependent variables are Net Income (NI), Return on Asset (ROA) and Return on equity (ROE). These independent variables are selected as they are independent of each-other. They are not highly correlated.
Table 5.1 Correlation Matrix of selected Independent Variables (Year 2010)
Vari ables Adv/ Dep Total Asset No. of Branches NPL/Adv Equi ty/Asset Adv/ Dep 1.000 0.153 -0.046 0.174 -0.235 Total Asset 0.153 1.000 0.601 -0.324 0.220 0.033 No. of Branches -0.046 0.601 1.000 -0.174 0.152 -0.447 NPL/Adv 0.174 -0.324 -0.174 1.000 -0.909 -0.309 Equi ty/Asset -0.235 0.220 0.152 -0.909 1.000 0.189 BPE 0.323 0.033 -0.447 -0.309 0.189 1.000

BPE 0.323 Source: Bangladesh Bank

Profitability of a bank is the efficiency of a bank at generating earnings. It can be measured in several ways. For example, Net income of a bank expresses the volume of profit in a year. Again Return on Asset (ROA) indicates how profitable a bank is relative to its total assets. ROA provides an idea that how efficient management is at using its assets in generating earnings. ROA is calculated by dividing a bank's net income by its total assets. Return on Equity (ROE) is the amount of net income returned as a percentage of shareholders equity. It measures a bank's profitability revealing how much profit it generates with the money shareholders have invested. ROE is calculated by dividing a bank's net income by the shareholder's Equity. In this connection, Net Income, Return on Asset (ROA) and Return on equity (ROE) have been considered as measure of PCBs profitability. In order to identify the prominent variables that affect the profitability of banks as described Log of Net Income, Return on Asset (ROA) and Return on Equity (ROE), Multiple Regression Model has been applied.

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Mathematically the equation is as follows: Y= a+b1 x1 +b2 x2 +b3 x3 +b4 x4 +b5 x5 +b6 x6 + Where, Y= Log of Net Income (Income after Tax), Return on Asset (ROA) and Return on Equity (ROE) a= constant term, b1 to b6 = Regression coefficients for the respective variables, x1 = Log of Advance/Deposit (A/D), x2 = Log of Total Asset (TA), x3 = Log of Equity/Total Asset (E/TA), x4 = Log of Non Performing Loan/Total Advance (NPL/A), x5 = Log of Business Per Employee (BPE) calculated as Deposit + Advances/ Number of Employees, x6 = Log of Number of Bank Branches (NBB), = Error Term. Here, Y [i.e. Log of Net Income, Return on Asset (ROA) and Return on Equity (ROE)] is the dependent variable, while the rest x1 to x6 are independent variables. This test has been used to find out whether there is a linear relationship between dependent variable and any of the independent variables under consideration. Collected data has been processed and analyzed with the help of SPSS software. The expected relationships between the dependent variables (i.e. Log of Net Income, ROA and ROE) and any of the selected independent variables considered for the model are as follows:
Table 5.2 Independent variables and expected relation
Independent Variables Log of Advance/Deposit (A/D) Log of Total Asset (TA) Log of Equity/Total Asset (E/TA) Log of Non Performing Loan/Total Advance (NPL/A) Log of Business Per Emp loyee (BPE) calculated as (Deposit + Advances)/ Number of Employees Log of Nu mber of Bank Branches (NBB) Expected Relati on + + + + +

5.3 Results Model Summary (Considering Net Income as dependent variable) The following table reveals that F value is significant at .01 level almost in every year during the last 10 years. This clearly indicates that the variation caused by independent variables in the net income is significant and cannot be left to chance factors. The value of Correlation Coefficient (R) and Coefficient of Determination (R square and Adjusted R square) of the model are shown in the Table. The values of correlation coefficient ranges from .699, the lowest in the year 2004 to .944, the highest in 2009. Almost every year, the found correlation is very high. This shows that the independent variables under reference have high degree of correlation with profitability (Net Income). The same is further confirmed by values of R square and Adjusted R square. From the results of Coefficient of Determination, one can see that the independent variables have explanatory powers above 80
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percent in case of 7 years (2001, 2003, 2006-10) and between 69.9 percent and 78.9 percent in case of rest of the years (2002, 2004-05).
Table 5.3 Model Summary and ANOVA (F) Results (NI as dependent variable)
Year 2001 2002 2003 2004 2005 R .936 .703 .892 .699 .789 R S quare .875 .494 .795 .488 .622 Adjusted R S quare .834 .325 .737 .342 .514 F 21.050 2.930 13.580 3.342 5.759 Significance .000 .036 .000 .018 .001

2006
2007 2008 2009 2010

.811
.823 .817 .944 .824

.658
.677 .667 .891 .680

.560
.585 .576 .861 .592

6.725
7.345 7.347 30.023 7.783

.000
.000 .000 .000 .000

Model Summary (Considering ROA as dependent variable) The following table reveals that F value is significant at .01 level in maximum years during the last 10 years. This clearly indicates that the variation caused by independent variables on ROA is significant. The value of Correlation Coefficient (R) and Coefficient of Determination (R square and Adjusted R square) of the model are shown in the Table. The values of correlation coefficient ranges from .453, the lowest in the year 2010 to .812, the highest in 2001. Almost every year, the found correlation is high except 2010. This shows that the independent variables under reference have high degree of correlation with ROA. The same is further confirmed by values of R square and Adjusted R square. From the results of Coefficient of Determination, it is found that the independent variables have explanatory powers above 65 percent in case of 8 years (2001-03, 2005-09).
Table 5.4 Model Summary and ANOVA (F) Results (ROA as dependent variable)
Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 R .812 .691 .678 .621 .770 .803 .668 .792 .742 .453 R S quare .659 .478 .460 .386 .593 .645 .446 .627 .550 .206 Adjusted R S quare .545 .304 .305 .210 .477 .543 .287 .525 .428 -.011 F 5.799 2.749 2.976 2.197 5.103 6.354 2.815 6.161 4.487 .949 Significance .002 .045 .029 .084 .002 .001 .036 .001 .004 .481

Model Summary (Considering ROE as dependent variable)

The following table reveals that F value is significant at .01 level in maximum years during the last 10 years. This clearly indicates that the variation caused by independent variables on ROE is significant. The value of Correlation Coefficient (R) and Coefficient of Determination (R square and Adjusted R square) of the model are shown in the Table. The values of correlation coefficient ranges from .492, the lowest in the year 2010 to .895, the highest in 2001. Almost every year, the found correlation is high except 2010. This shows that the independent variables under reference have high degree of correlation with ROE. The same is furthe r confirmed by values of R square and Adjusted R square. From the results of Coefficient of Determination, it is
20

found that the independent variables have explanatory powers above 70 percent in case of 6 years (2001, 2003, 2005-06, 2008-09).
Table 5.5 Model Summary and ANOVA (F) Results (ROE as dependent variable)
Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 R .895 .649 .755 .567 .779 .808 .545 .797 .709 .492 R S quare .801 .421 .570 .322 .607 .653 .297 .635 .503 .242 Adjusted R S quare .735 .228 .447 .128 .494 .554 .097 .536 .367 .035 F 12.074 2.179 4.641 1.661 5.395 6.598 1.482 6.384 3.710 1.171 Significance .000 .094 .004 .180 .002 .000 .233 .001 .011 .357

Regression Coefficients (Considering NI as dependent variable)

The following table presents regression coefficients obtained from the Multiple Regression Model. This is observed that during 2001-2010, six independent variables have exerted influence on profitability (net income) of the PCBs. However, in 2001, only two variables (TA, A/D) have turned as significant influencer among them. In 2002, another two variables namely E/TA and NPL/A are found as having significant impact on net income. In 2003, BPE and NBB have significant impact where in 2004, only NPL/A has significant impact on profitability. In 2005, all variables except A/D and TA are found to have significant influence. In 2006, TA, E/TA and NBB have significant impact. In 2007, TA, E/TA and in 2008, TA, E/TA and NPL/A have significant impact. In 2009, TA, E/TA & NPL/A and in 2010 only TA have significant impact on net income. Regression coefficient for TA and E/TA are found significant for 6 years, NPL/A for 5 years, NBB for 3 years, BPE for 2 years and A/D for only 1 year out of a total of 10 years. As expected, TA, NBB, BPE are found to have positive and NPL/A has negative relationship with net income in all (in case of TA and NPL/A) or in maximum cases (in case of NBB and BPE). But in case of E/TA, among 6 significant results, it has been found to have positive impact for three times and negative impact for remaining three times. However, contrary to the expectation, the relationship is observed negative in case of A/D in 2001. During the remaining years, A/D has not been found to have significant impact on Net Income.
Table 5.6 Regression Coefficients (NI as dependent variable)
Year 2001 Vari able (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Unstandardized Coefficients B Std. Error -8.799 1.742 -2.224 .730 1.926 .472 -.487 .434 -.105 .106 .146 .306 -.146 .631 -3.503 3.756 .359 1.756 .194 1.099 1.496 1.071 Standardized Coefficient Beta -.335 1.144 -.390 -.161 .049 -.052 .049 .090 .935 t -5.051 -3.045 4.085 -1.123 -.996 .478 -.231 -.933 .205 .176 1.397 Significance .000 .007 .001 .276 .333 .639 .820 .363 .840 .862 .179

2002

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2003

2004

2005

2006

2007

Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee

-.523 1.665 2.286 -.578 -.591 -.013 .974 .082 .246 1.319 -5.359 1.492 1.026 .172 -.279 .359 .195 -65.679 2.351 -.635 5.703 -2.747 -11.671 8.284 -92.281 -4.344 12.614 -13.653 -1.510 -17.482 -5.711 -4.106 .560 1.286 .186 -.314 1.593 -.275

.279 .901 1.626 1.754 .672 .386 .318 .079 .380 .384 2.752 1.581 .755 .532 .115 .943 .616 15.587 10.836 3.895 3.010 1.091 5.165 3.471 20.341 13.870 4.303 4.316 1.721 7.290 4.779 3.363 1.211 .418 .346 .297 .867 .391

-.558 .445 .651 -.123 -.009 .950 .148 .095 .663 .231 .628 .154 -.487 .119 .109 .036 -.049 .689 -.428 -.492 .639 -.051 .752 -1.048 -.155 -.437 -.324 .070 .617 .138 -.200 .327 -.140

-1.873 1.849 1.406 -.330 -.880 -.033 3.068 1.041 .649 3.435 -1.948 .944 1.359 .324 -2.428 .381 .316 -4.214 .217 -.163 1.894 -2.519 -2.260 2.387 -4.537 -.313 2.932 -3.164 -.877 -2.398 -1.195 -1.221 .463 3.076 .537 -1.058 1.836 -.704

.077 .081 .177 .745 .389 .974 .006 .310 .524 .002 .065 .356 .189 .749 .024 .707 .755 .000 .830 .872 .072 .020 .035 .026 .000 .757 .008 .005 .390 .026 .245 .236 .648 .006 .597 .302 .081 .489

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Year 2008

Vari able (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee

2009

2010

Unstandardized Coefficients B Std. Error -89.758 17.218 -8.620 12.915 5.227 2.948 -.797 2.958 -4.174 1.632 -14.539 7.330 .142 2.957 -5.281 1.140 .114 .708 1.192 .164 .143 .179 -.223 .120 .885 .314 .149 .186 -3.986 2.490 1.853 1.482 1.038 .457 .135 .466 .000 .239 .369 .420 .073 .493

Standardized Coefficient Beta -.109 .443 -.077 -.418 -.297 .010 .014 .797 .097 -.175 .218 .085 .208 .635 .091 .000 .115 .037

t -5.213 -.667 1.773 -.269 -2.557 -1.984 .048 -4.632 .162 7.249 .799 -1.858 2.819 .802 -1.601 1.250 2.273 .289 .000 .880 .149

Significance .000 .511 .090 .790 .018 .060 .962 .000 .873 .000 .433 .077 .010 .431 .124 .224 .033 .775 1.000 .389 .883

Regression Coefficients (Considering ROA as dependent variable)

The following table presents regression coefficients obtained from the Multiple Regres sion Model. This is observed that during 2001-2010, six independent variables have exerted influence on ROA of the PCBs as found in case of considering Net Income as dependent variable also. However, in 2001, only two variables (TA, A/D) have turned as significant influencer among them. In 2002, another two variables namely E/TA and NPL/A are found as having significant impact on profitability. In 2003, TA, BPE and NBB have significant impact where in 2004, only NPL/A has significant impact on profitability. In 2005, all variables except A/D and TA are found to have significant influence. In 2006, TA, E/TA and NBB have significant impact. In 2007, only E/TA has significant influence. In 2008 and 2009, E/TA and NPL/A have found to have significant impact. In 2010 no variables has significant impact on profitability. Regression coefficient for E/TA are found significant for 6 years, NPL/A for 5 years, NBB and TA for 3 years, BPE for 2 years and A/D for only 1 year out of a total of 10 years. As expected, TA, NBB, BPE are found to have positive and NPL/A has negative relationship with ROA in all (in case of TA, BPE and NPL/A) or in maximum cases (in case of NBB). But in case of E/TA, among 6 significant results, it has been found to have positive impact for three times and negative impact for remaining three times. However, contrary to the expectation, the relationship is observed negative in case of A/D in 2001. During the remaining years, A/D has not been found to have significant impact on ROA.

23

Table 5.7 Regression Coefficients (ROA as dependent variable)

Year 2001 Vari able (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee Unstandardized Coefficients B Std. Error -8.816 1.746 -2.208 .732 .926 .473 -.484 .435 -.106 .106 .144 .306 -.144 .633 -3.516 3.761 .358 1.758 -.802 1.100 1.495 1.072 -.525 .280 1.668 .902 2.280 1.628 -.595 1.750 -.591 .670 -1.012 .385 .975 .317 .081 .078 .242 .379 1.318 .383 -5.374 2.757 1.492 1.584 .026 .756 .175 .533 -.279 .115 .358 .944 .196 .617 -65.668 15.585 2.361 10.835 -1.639 3.894 5.705 3.010 -2.749 1.090 -11.675 5.165 8.284 3.470 -92.309 20.348 -4.359 13.875 11.625 4.304 -13.662 4.317 -1.510 1.722 -17.477 7.292 -5.719 4.781 -4.061 3.366 .560 1.212 .281 .418 .187 .347 -.313 .297 1.595 .868 -.275 .392 Standardized Coefficient Beta -.549 .907 -.639 -.268 .080 -.085 .050 -.378 .947 -.568 .452 .659 -.201 -1.216 1.547 .237 .153 1.079 .252 .017 .171 -.533 .130 .120 .037 -.131 .715 -.445 -.510 .663 -.052 .706 -1.068 -.158 -.445 -.331 .092 .177 .181 -.260 .428 -.183 t -5.050 -3.016 1.959 -1.114 -1.003 .469 -.227 -.935 .204 -.729 1.394 -1.879 1.850 1.400 -.340 -.881 -2.630 3.077 1.027 .640 3.439 -1.949 .942 .034 .328 -2.427 .379 .318 -4.214 .218 -.421 1.895 -2.521 -2.261 2.387 -4.537 -.314 2.701 -3.165 -.877 -2.397 -1.196 -1.206 .462 .671 .539 -1.053 1.836 -.702 Significance .000 .007 .066 .280 .329 .644 .823 .362 .841 .475 .180 .077 .081 .179 .737 .388 .016 .006 .316 .529 .002 .065 .357 .973 .746 .024 .709 .754 .000 .830 .678 .072 .020 .035 .026 .000 .757 .013 .005 .390 .026 .245 .241 .649 .509 .595 .304 .081 .490

2002

2003

2004

2005

2006

2007

24

Year 2008

Vari able (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee

2009

2010

Unstandardized Coefficients B Std. Error -89.750 17.217 -8.632 12.915 4.231 2.948 -.803 2.958 -4.175 1.632 -14.532 7.330 .137 2.957 -5.285 1.139 .135 .707 .193 .164 .144 .179 -.222 .120 .882 .314 .149 .186 -3.993 2.499 1.866 1.487 .033 .458 .145 .468 .006 .240 .363 .421 .083 .494

Standardized Coefficient Beta -.116 .380 -.082 -.443 -.315 .011 .033 .262 .199 -.354 .441 .173 .329 .032 .153 .006 .177 .065

t -5.213 -.668 1.435 -.271 -2.558 -1.983 .046 -4.641 .191 1.172 .803 -1.852 2.813 .802 -1.598 1.255 .072 .309 .024 .862 .168

Significance .000 .511 .165 .789 .018 .060 .963 .000 .851 .254 .431 .078 .010 .431 .124 .223 .943 .760 .981 .398 .868

Regression Coefficients (Considering ROE as dependent variable)

The following table presents regression coefficients obtained from the Multiple Regression Model. This is observed that during 2001-2010, six independent variables have exerted influence on ROE of the PCBs as found in case of considering net income and ROA as dependent variables also. However, in 2001, three variables (TA, A/D and E/TA) have turned as significant influencer among them. In 2002, only NPL/A is found as having significant impact on ROE. In 2003, TA, E/TA, BPE and NBB have significant impact where in 2004, only NPL/A has significant impact on ROE. In 2005, all variables except A/D and TA are found to have significant influence. In 2006, TA, E/TA and NBB have significant impact. In 2008, E/TA and NPL/A have and in 2009 only NPL/A has found to have significant impact. In 2007 and 2010 no variables has significant impact on profitability. Regression coefficient for E/TA and NPL/A are found significant for 5 years, NBB and TA for 3 years, BPE for 2 years and A/D for only 1 year out of a total of 10 years. As expected, TA, NBB, BPE are found to have positive and NPL/A has negative relationship with ROA in all (in case of BPE and NPL/A) or in maximum cases (in case of TA, NBB). However, contrary to the expectation, the relationship is observed negative in case of A/D (in 2001) and E/TA are found to be negative (2001, 2003, 2005-06).

25

Table 5.8 Regression Coefficients (ROE as dependent variable)

Year 2001 Vari able (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee Unstandardized Coefficients B Std. Error -8.826 1.741 -2.210 .730 .928 .471 -.486 .434 -.106 .106 -.857 .305 -.145 .631 -3.530 3.756 .370 1.756 -.803 1.099 1.495 1.071 -.524 .279 .662 .901 2.283 1.627 -.606 1.748 -.578 .670 -1.017 .384 .981 .317 .081 .078 -.762 .378 1.325 .383 -5.389 2.754 1.487 1.582 .031 .755 .172 .532 -.280 .115 -.636 .943 .196 .616 -65.661 15.584 2.357 10.835 -1.640 3.894 5.704 3.010 -2.749 1.090 -12.675 5.164 8.284 3.470 -92.323 20.344 -4.358 13.872 11.627 4.303 -13.664 4.316 -1.509 1.722 -18.479 7.291 -5.717 4.780 -4.033 3.365 .564 1.212 .282 .418 .186 .347 -.313 .297 .604 .868 -.279 .391 Standardized Coefficient Beta -.421 .696 -.491 -.205 -.365 -.066 .054 -.399 .999 -.598 .189 .696 -.176 -1.090 1.390 .212 -.429 .968 .265 .022 .177 -.562 -.243 .126 .037 -.129 .703 -.438 -.545 .653 -.052 .698 -1.056 -.156 -.465 -.326 .104 .199 .203 -.294 .183 -.210 t -5.069 -3.027 1.968 -1.120 -1.004 -2.806 -.230 -.940 .211 -.731 1.396 -1.877 .735 1.403 -.346 -.864 -2.645 3.100 1.027 -2.015 3.462 -1.957 .940 .041 .324 -2.433 -.674 .317 -4.213 .218 -.421 1.895 -2.521 -2.454 2.387 -4.538 -.314 2.702 -3.166 -.877 -2.535 -1.196 -1.198 .465 .674 .536 -1.055 .696 -.714 Significance .000 .007 .065 .277 .329 .012 .821 .360 .835 .474 .180 .077 .472 .178 .732 .397 .015 .005 .316 .057 .002 .064 .358 .968 .749 .024 .508 .754 .000 .830 .678 .072 .020 .023 .026 .000 .757 .013 .005 .391 .019 .245 .244 .647 .508 .597 .303 .494 .483

2002

2003

2004

2005

2006

2007

26

Year 2008

Vari able (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee (Constant) Log of Advance/Deposit Log of Total Asset Log of No. of Branches Log of NPL/Advance Log of Total Equity/Total Asset Log of Business Per Emp loyee

2009

2010

Unstandardized Coefficients B Std. Error -89.760 17.217 -8.605 12.915 4.231 2.948 -.802 2.958 -4.175 1.632 -15.538 7.329 .135 2.957 -5.309 1.146 .126 .711 .191 .165 .145 .180 -.223 .121 -.124 .316 .153 .187 -3.978 2.499 1.864 1.487 .037 .458 .138 .468 .004 .240 -.634 .421 .072 .494

Standardized Coefficient Beta -.114 .376 -.081 -.438 -.333 .010 .033 .272 .210 -.371 -.065 .186 .321 .035 .143 .005 -.302 .055

t -5.213 -.666 1.435 -.271 -2.558 -2.120 .046 -4.633 .178 1.158 .806 -1.846 -.394 .818 -1.592 1.253 .081 .296 .018 -1.506 .145

Significance .000 .512 .165 .789 .018 .046 .964 .000 .861 .259 .429 .078 .698 .422 .126 .223 .937 .770 .986 .146 .886

5.4 Analysis The above result has revealed that Advance/Deposit, total asset, equity/total asset, No. of Branches, Business per Employee and non-performing loan as percentage of total advance are the determinants of profitability (considering Net income, ROA and ROE). Among the variables, as expected, total asset, Business per Employee and No. of Branches are found to have positive and significant impact and non performing loan as percentage of total advance is found to have negative and significant impact on profitability. It is expected that equity/total asset will have positive and significant impact on profitability. But in some cases, positive coefficients are found and in other cases, negative coefficients are found. The reason is that Equity-Total asset ratio should be justified and only this well justified Equity-Total asset ratio can enhance profitability. Contrary to the expectation, Advance/Deposit ratio is found to have negative impact on profitability. Advance Deposit ratio of a bank should be such that can ensure required liquidity as well as can ensure adequate utilization of funds without keeping idle fund. This ratio should also be justified; otherwise it can affect profitability adversely. So PCBs should be prudent in maintaining this ratio to ensure maximum profitability. So it is found that profitability of PCBs in Bangladesh increases as total asset, No. of Branches and Business per Employee increase. Total asset can be considered to measure the size of a bank. Big banks can provide services to their customers in cheaper rate than small ones. As total asset increases, a bank can attain more competitive advantages that can help to earn more profit. Through increasing number of branches, a bank can get scope to expand its business. This expansion of business increases profitability.
27

There is a close relationship between customer satisfaction and bank profitability. If the employees of a bank can satisfy the customers more than its competitors, it will get more business that can earn more profit. So it is found as Business per Employee increases, profitability of the bank also increases. As non-performing loan as percentage of total advance is an important determinant of profitability, managing them efficiently becomes very essential. NPL reduces the loan able fund of a bank that ultimately affects the income source. Through reducing NPL, a bank can increase its profitability.
Table 5.9 Significant Regression Coefficients
Year Profitability Net Inco me ROA ROE Net Inco me ROA ROE Net Inco me ROA ROE Net Inco me ROA ROE Net Inco me ROA ROE Net Inco me ROA ROE Net Inco me ROA ROE Net Inco me ROA ROE Net Inco me ROA ROE Net Inco me ROA ROE A/D * * * TA * ** ** E/ TA NPL/A BPE NBB

2001

2002

* *** ***

*** *** *** * * * * * * * * * * * *

2003

* *

**

2004

2005

2006

* * * *

2007

** ** * ** * * *** *** ** ** ** * *

* * *

*** *** *** * * *

***

2008

2009

* * * *** *** ***

**

2010

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

The above table shows that in maximum cases, independent variables are found to be significant irrespective of all three dependent variables but in some cases, there are some deviations. The reason is that net income affected by those independent variables must have great influence over ROA (net income/total asset) or ROE (net income/equity) as net income comes in all three cases but both ROA and ROE are two separate ratios with different denominators. So there must be some deviation also.
28

Again, when one dependent variable is considered, some independent variables are found to be significant in some years and not in others. This is because all independent variables had not equal influence over profitability in all the years. For example, A/D ratio is found to be significant impact on profitability for only one year. This proves that increase or decrease of A/D does affect little on profitability as prudent use of A/D with high E/TA and low NPL/A affect the profitability more significantly. The frequency of the independent variables being significant shows their level of influence over profitability. The more the independent variables are significant, the more they have influence over dependent variable. The most frequently significant independent variables are TA, E/TA and NPL/A. In case of dependent variable net income, Regression coefficient for TA and E/TA are found significant for 6 years, NPL/A for 5 years, NBB for 3 years, BPE for 2 years and A/D for only 1 year out of a total of 10 years. In case of dependent variable ROA, Regression coefficient for E/TA are found significant for 6 years, NPL/A for 5 years, NBB and TA for 3 years, BPE for 2 years and A/D for only 1 year out of a total of 10 years. In case of dependent variable ROE, Regression coefficient for E/TA and NPL/A are found significant for 5 years, NBB and TA for 3 years, BPE for 2 years and A/D for only 1 year out of a total of 10 years.

29

CHAPTER VI SAMPLE, DATA AND RESULTS 6.1 Commercial Bank Performance Banks are the foundation of the financial system of any country. Because of close relationship between economic and financial development, the banking system must be made robust, resilient and sound for efficient intermediation of financial resources. For that reason, sound macro-economic environment, effective bank management strategies and prudential financial regulations are the means to ensure the appropriate contribution of banks to the growth and development of a country. An economy belonging to either developed or developing zones of the globe is significantly influenced by how well its banking industry performs. Any organization is born to serve the interests of not only the people who make up it, but also those who are outside the organization and hence, a bank being a service entity is no less an exception. The performance of banks is important to the individual consumers of bank deposit and loan services, stockholders, employees, government regulators, management and to the entire economy. 6.2 Trend of the profitability determinants of PCBs Last ten years aggregate data on the Advance/Deposit (A/D), Total Asset (TA), Equity/Total Asset (E/TA), Business Per Employee (BPE) calculated as Deposit + Advances/ Number of Employees and Number of Bank Branches (NBB) of Private Commercial Banks (PCBs) show their increasing trend where Non Performing Loan/Total Advance (NPL/A) show its decreasing trend over the period.
Table 6.1 Trend of the profitability determinants of PCBs
(Figures other than percentage and ratio are in crore) Sl. No. 6. 7. 8. 9. 10. 11. Vari ables Advance/Deposit (A/D) Total Asset (TA) Equity/Total Asset (E/TA) Non Performing Loan/Total Advance (NPL/A) Business Per Emp loyee (BPE) Nu mber of Ban k Branches (NBB) Mean & Standard Deviation 86.11% (3.85%) 128,298 (79,693) 6.94% (1.34%) 7.98% (5.07%) 3.99 (1.45) 1,825 (467) Equation for trend line Yc = a+bx Yc = 0.834 + 0.004x Yc = 9786 + 25106x Yc = 0.046 + 0.004x Yc = 0.163 - 0.015x Yc = 1.376 + 0.475x Yc = 1026 + 145.2x

Source: Bangladesh Bank

The straight line trend is represented by the equation Yc = a + b. Where, Yc denotes the trend values to distinguish them from the actual Y values. a is the Y intercept or the value of the Y variable when X = 0. b represents the slope of the line of the amount of change in Y variable that assoc iated with the change of one unit in X variable. Here X variable represents time.

30

Figure 6.1 Perfo rmance of PCBs in respect of profitability determinants Source: Bangladesh Bank

31

6.3 Performance of PCBs in respect of profitability determinants

Table 6.2 First Generation PCBs in respect of profitability determinants
CAGR, Mean & Std Dev of A/D 1.88% 0.82 (0.10) -1.34% 0.96 (0.09) -1.27% 0.69 (0.10) 2.87% 0.78 (0.09) -0.18% 0.84 (0.05) 0.15% 0.90 (0.03) 0.23% 0.78 (0.07) 1.08% 0.80 (0.05) -1.20% 0.97 (0.15) CAGR, Mean & Std Dev of TA 16.44% 5,909.67 (3747.31) 10.02% 3,958.66 (1,578.94) 8.53% 5,311.70 (1,480.80) 12.64% 6,952.16 (2,990.68) 15.58% 5,952.53 (3,244.32) 20.91% 16,589.17 (9,448.07) 15.93% 4,499.65 (2,408.50) 21.61% 4,934.53 (3,631.43) 2.34% 2,096.48 (476.67) (Figures other than percentage and ratio are in crore) CAGR, Mean & CAGR, CAGR, Mean & Std Dev of Mean & Mean & Std Dev NPL/A Std Dev of Std Dev of E/ TA BPE of NBB 11.19% -18.99% 15.72% 2.54% 0.065 0.098 4.55 70 (0.024) (0.082) (2.49) (5.44) 5.80% -18.29% 8.97% 5.81% 0.063 0.150 2.74 69 (0.014) (0.118) (0.87) (12.22) 9.77% -15.27% 7.70% 0.64% 0.057 0.177 2.07 203 (0.023) (0.096) (0.67) (5.66) 9.44% -24.13% 11.58% 1.35% 0.066 0.153 1.98 362 (0.026) (0.129) (0.87) (17.66) 9.61% -17.92% 10.86% 6.81% 0.076 0.134 3.23 94 (0.029) (0.107) (1.21) (24.01) 1.88% -14.38% 7.51% 8.79% 0.066 0.047 3.81 165 (0.007) (0.027) (0.78) (49.37) 15.74% -17.82% 11.51% 1.48% 0.061 0.123 2.98 80 (0.028) (0.104) (1.09) (4.72) 3.57% -26.83% 18.33% 3.08% 0.059 0.102 3.36 86 (0.012) (0.103) (1.93) (9.25) N/C 15.17% 3.23% -0.30% -0.002 0.422 4.53 32 (0.175) (0.310) (1.04) (1.76)

Name of PCB

A.B. Ban k Ltd.

IFIC Ban k Ltd.

Uttara Bank Ltd. Pubali Ban k Ltd.

National Bank Ltd.

Islami Bank Ltd.

The City Ban k Ltd.

U.C. Ban k Ltd.

ICB Islami Bank Ltd. Source: Bangladesh Bank

The above table demonstrates that CAGR of Advance/Deposit is positive for 5 banks and negative for 4 banks. The mean stands between 0.69 (in case of Uttara Bank Ltd.) and 0.97 (in case of ICB Islami Bank Ltd.). The CAGR for Total Asset is positive for all 9 banks. It is found to have highest CAGR in case of UCBL (21.61%) and lowest in case of ICB Islami Bank Ltd. (2.34%). The mean is highest for Islami Bank Ltd. (16,589 Crore) where the lowest one is for ICB Islami Bank Ltd. (2,096 Crore). The CAGR for Equity/Total Asset is positive for all banks except ICB Islami Bank Ltd. The mean is highest in case of National Bank Ltd. (7.6%) and this is negative in case of ICB Islami Bank Ltd. (-.02%). Non Performing Loan as percentage of Advance is found to have decreasing trend with only exception to ICB Islami Bank Ltd.

32

Business per Employee is found to have increasing trend for all 9 banks. The CAGR is highest in case of UCBL (18.33%) and lowest in case of ICB Islami Bank Ltd. (3.23%). The mean is highest for AB Bank Ltd (4.55) and lowest for Pubali Bank Ltd. (1.98). No. of Bank Branches is found to have an increasing trend except ICB Islami Bank Ltd. The mean is highest for Pubali Bank Ltd. (362) and lowest for ICB Islami Bank Ltd. (32).
Table 6.3 Second Generation PCBs in respect of profitability determinants
Name of PCB CAGR, Mean & Std Dev of A/D -1.27% 1.04 (0.12) 0.73% 0.93 (0.05) 2.84% 0.83 (0.06) -0.37% 0.88 (0.09) 1.98% 0.95 (0.09) -0.58% 0.89 (0.06) -4.37% 0.91 (0.16) -1.09% 0.77 (0.07) 2.26% 0.75 (0.12) -0.001% 0.91 (0.05) 0.86% 0.94 (0.03) -0.82% 0.90 (0.10) 0.34% 0.88 (0.05) -0.13% 0.88 (0.06) CAGR, Mean & Std Dev of TA 16.26% 4,045 (2,139) 17.91% 3,908 (2,307) 25.52% 6,637 (4,852) 16.73% 4,668 (2,637) 23.11% 2,686 (2,151) 24.72% 5,829 (4,015) 17.07% 2,603 (1,270) 22.30% 4,471 (2,915) 33.87% 2,454 (2,010) 36.39% 3,656 (3,142) 30.26% 4,551 (3,399) 30.45% 2,498 (1,854) 29.51% 2,636 (1,898) 20.88% 3,960 (2,441) (Figures other than percentage and ratio are in crore ) CAGR, Mean & CAGR, CAGR, Mean & Std Dev of Mean & Mean & Std Dev NPL/A Std Dev Std Dev of E/ TA of BPE of NBB 2.43% -15.25% 11.03% 8.34% 0.111 0.065 7.59 29 (0.022) (0.042) (2.85) (9.34) 4.64% -12.94% 8.43% 9.21% 0.077 0.059 4.59 46 (0.016) (0.027) (1.40) (14.79) 2.43% 0.85% 11.76% 13.71% 0.082 0.012 7.34 52 (0.012) (0.003) (2.82) (24.63) 5.22% 14.66% 10.98% 12.66% 0.063 0.028 8.20 33 (0.009) (0.014) (3.13) (14.34) 11.95% -21.12% 14.96% 6.91% 0.079 0.044 3.66 48 (0.024) (0.038) (1.66) (12.36) 9.95% 4.39% 14.24% 19.31% 0.078 0.034 7.85 36 (0.029) (0.010) (3.20) (18.95) 4.85% -0.71% 9.13% 15.61% 0.061 0.058 4.75 29 (0.016) (0.024) (1.23) (14.20) 3.48% 17.06% 1.55% 24.19% 0.060 0.018 7.04 41 (0.009) (0.014) (1.74) (29.87) -1.01% 6.42% 8.03% 18.29% 0.081 0.021 4.84 26 (0.023) (0.007) (1.34) (16.60) 1.30% 61.58% 11.44% 21.48% 0.069 0.020 8.53 25 (0.009) (0.009) (2.61) (13.44) 8.35% N/C 14.12% 19.42% 0.073 0.016 6.49 31 (0.020) (0.009) (2.74) (15.84) 0.31% 1.10% 20.67% 23.49% 0.059 0.080 6.92 24 (0.013) (0.058) (3.87) (19.97) 1.46% N/C 6.69% 25.34% 0.078 0.013 7.43 27 (0.016) (0.017) (1.75) (18.63) 5.93% 36.84% 9.35% 16.59% 0.069 0.024 6.62 33 (0.015) (0.014) (1.63) (16.48)

Eastern Bank Ltd.

NCC Bank Ltd.

Prime Bank Ltd.

Dhaka Bank Ltd.

Al-Arafa Ban k Ltd.

Southeast Bank Ltd.

Social Investment Ltd.

Dutch Bangla Bank Ltd.

The Trust Bank Ltd.

Bank Asia Ltd.

Exim Bank Ltd.

First Security Ban k Ltd.

Mutual Trust Bank Ltd.

Mercantile Bank Ltd.

33

Name of PCB

One bank Ltd.

Premier Ban k Ltd.

Standard Bank Ltd.

Co mmerce Bank Ltd. Source: Bangladesh Bank

CAGR, Mean & Std Dev of A/D -1.11% 0.86 (0.06) -1.13% 0.88 (0.05) -1.54% 0.93 (0.06) -8.78% 1.19 (0.49)

CAGR, Mean & Std Dev of TA 22.96% 2,492 (1,663) 34.49% 2,601 (2,046) 32.35% 2,306 (2,085) 16.72% 753 (341)

CAGR, Mean & Std Dev of E/ TA 7.12% 0.067 (0.014) 0.60% 0.085 (0.013) 3.35% 0.101 (0.028) -5.79% 0.161 (0.050)

Mean & Std Dev of NPL/A 25.32% 0.033 (0.023) 22.29% 0.030 (0.023) 9.48% 0.011 (0.006) -15.28% 0.318 (0.144)

CAGR, Mean & Std Dev of BPE 0.71% 6.45 (0.71) 14.73% 6.12 (2.26) 18.81% 5.50 (2.97) 16.61% 2.06 (0.90)

CAGR, Mean & Std Dev of NBB 25.89% 23 (14.82) 22.21% 25 (12.92) 19.22% 26 (14.68) 0.41% 25 (0.32)

The above table demonstrates that CAGR of Advance/Deposit is positive for 6 banks and negative for 12 banks. The mean stands between 0.75 (in case of The Trust Bank Ltd.) and 1.19 (in case of Commerce Bank Ltd.). The CAGR for Total Asset is positive for all 18 banks. It is found to have highest CAGR in case of Bank Asia (36.39%) and lowest in case of Eastern Bank Limited (16.26%). The mean is highest for Prime Bank Ltd (6,637 Crore) where the lowest one is for Commerce Bank Limited (753 Crore). The CAGR for Equity/Total Asset is positive for all banks except Trust Bank Limited and Commerce Bank Ltd. The mean is highest in case of Commerce Bank Ltd. (16.1%) and lowest in case of First Security Bank Limited (5.9%). Non Performing Loan as percentage of Advance is found to have decreasing trend for 5 banks and increasing trend for 11 banks. Among these banks, Al Arafa Bank Ltd is found to have highest decreasing trend (-21.12%) where Bank Asia is found to have highest increasing trend (61.58%). Business per Employee is found to have increasing trend for all 9 banks. This trend is highest in case of First Security Bank Ltd. (20.67%) and lowest in case of One Bank Limited (0.71%). The mean is highest for Bank Asia Ltd (8.53) and lowest for Commerce Bank Ltd. (2.06). No. of Bank Branches is found to have an increasing trend for all 18 banks. The mean is highest for Prime Bank Ltd. (52) and lowest for One Bank Limited (23). Table 6.4 Third Generation PCBs in respect of profitability determinants
Name of PCB CAGR, Mean & Std Dev of A/D 5.12% 0.80 (0.12) CAGR, Mean & Std Dev of TA 79.14% 4,158.41 (4,251.93) (Figures other than percentage and ratio are in crore) CAGR, CAGR, CAGR, CAGR, Mean & Mean & Mean & Mean & Std Dev Std Dev of Std Dev of Std Dev of E/ TA NPL/A BPE of NBB -18.81% N/C 31.41% 62.32% 0.141 0.029 1.86 35 (0.194) (0.022) (0.92) (39.33)

BRAC Bank Ltd.

34

Name of PCB

Jamuna Bank Ltd.

Shahjalal Bank Ltd.

CAGR, Mean & Std Dev of A/D 3.77% 0.75 (0.09) 9.49% 0.88 (0.18)

CAGR, Mean & Std Dev of TA 32.66% 2,483.68 (2,103.84) 47.42% 2,697.40 (2,609.73)

CAGR, Mean & Std Dev of E/ TA -0.27% 0.073 (0.017) -4.01% 0.085 (0.022)

CAGR, Mean & Std Dev of NPL/A N/C 0.017 (0.019) N/C 0.005 (0.006)

CAGR, Mean & Std Dev of BPE 24.55% 4.02 (1.96) 24.35% 5.87 (2.63)

CAGR, Mean & Std Dev of NBB 36.01% 28 (19.21) 41.20% 24 (20.03)

Source: Bangladesh Bank

The above table demonstrates that CAGR of Advance/Deposit is positive for all 3 banks. The mean stands between 0.75 (in case of Jamuna Bank Ltd.) and 0.88 (in case of Shahjalal Bank Ltd.). The Total Asset is found to have high increasing trend for all 3 banks. This is because in 2001, all these three banks started their operation. So in the following years they expand their businesses hugely in compare to that of starting year. The CAGR for Equity/Total Asset is negative for all these banks. The mean is highest in case of Brac Bank Ltd. (14.1%) and lowest in case of Jamuna Bank Ltd (7.3%). Non Performing Loan as percentage of Advance is found to have low amount for all three banks. The mean are 2.9%, 1.7% and 0.5% for Brac Bank Ltd., Jamuna Bank Ltd. and Shahjalal Bank Ltd. respectively. Business per Employee is found to have high increasing trend for all 3 banks. The mean is highest for Shahjalal Bank Ltd (5.87) and lowest for Brac Bank Ltd. (1.86). No. of Bank Branches is found to have a high increasing trend because of the gradual expansion of businesses. 6.4 PCBs Profitability Determinants and those of SCBs, DFIs & FCBs At aggregate level, PCBs are performing better in respect of profitability in maximum cases than that of SCBs, DFIs & FCBs over time. Advance/Deposit ratio has an increasing trend for all categories of banks except DFIs. Neglecting the imprudent ratio of DFIs (138%), this ratio is highest in case of PCBs (86.1%).

Figure 6.2 PCBs Advance -Deposit ratio in respect of other categories of banks Source: Bangladesh Bank

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

35

Figure 6.3 PCBs total asset in respect of other categories of banks Source: Bangladesh Bank

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

Figure 6.4 PCBs equ ity/total asset ratio in respect of other categories of banks Source: Bangladesh Bank

Non Performing Loan as percentage of Advance is found to have decreasing trend for all categories of banks. The CAGR is lowest for PCBs (-15.42%). This means PCBs are getting gradual success in handling NPL. This proves their efficiency in credit management. The mean of NPL/A is lowest for FCBs (1.8%) and PCBs stand next to FCBs having 8% where SCBs and DFIs stand far behind having 26.3% and 37.1% respectively.

Figure 6. 5 PCBs NPL as % of total advance in respect of other categories of banks Source: Bangladesh Bank

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

36

Figure 6.6 PCBs Business per Employee in respect of other categories of banks Source: Bangladesh Bank

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

Figure 6.7 PCBs No of Ban k Branches in respect of other categories of banks Source: Bangladesh Bank

Table 6.5 Comparison of selected variables of PCBs to those of SCBs, DFIs & FCBs
(Figures other than percentage and ratio are in crore)

Category of Banks PCBs

SCBs

DFIs

FCBs
Source: Bangladesh Bank

CAGR, Mean & Std Dev of A/D 0.25% 0.861 (0.039) 0.18% 0.692 (0.039) -6.60% 1.382 (0.378) 2.54% 0.756 (0.061)

CAGR, Mean & Std Dev of TA 20.39% 128,298 (79,693) 8.87% 85,709 (25,883) 6.96% 19,846 (4,573) 13.83% 18,878 (8,328)

CAGR, Mean & Std Dev of E/TA 5.35% 0.069 (0.013) 10.84% 0.027 (0.020) -6.14% 0.058 (0.026) 5.73% 0.138 (0.028)

CAGR, Mean & Std Dev of NPL/A -15.42% 0.080 (0.051) -8.23% 0.263 (0.065) -9.06% 0.371 (0.131) -1.01% 0.018 (0.010)

CAGR, Mean & Std Dev of BPE 12.27% 3.989 (1.454) 10.54% 2.144 (0.723) 10.88% 1.504 (0.554) 5.95% 10.335 (1.580)

CAGR, Mean & Std Dev of NBB 7.83% 1825 (467.5) -0.46% 3428 (73.1) 0.63% 1340 (28.1) 7.79% 48 (13.4)

The above table shows that Advance/Deposit has an increasing trend for all categories of banks except DFIs. Neglecting the imprudent ratio of DFIs (138%), this ratio is highest in case of PCBs (86.1%). Total Asset has an increasing trend for all categories of banks. The CAGR of total asset is highest for PCBs (20.39%). The mean is also highest for PCBs (128,298 Crores).
37

Equity/Total Asset has an increasing trend for all categories of banks except DFIs. This ratio is highest in case of FCBs (13.8%) and PCBs stand next to FCBs having 6.9%. Non Performing Loan as percentage of Advance is found to have decreasing trend for all categories of banks. The CAGR is lowest for PCBs (-15.42%). This means PCBs are getting gradual success in handling NPL. This proves their e fficiency in credit management. The mean of NPL/A is lowest for FCBs (1.8%) and PCBs stand next to FCBs having 8% where SCBs and DFIs stand far behind having 26.3% and 37.1% respectively. In respect of other category of banks, PCBs are also found prudent in achieving gradual success in increasing Business per Employee as CAGR is highest for PCBs (12.27%). Though the mean is highest for FCBs (10.34), PCBs (3.99) stand next to them. No. of Branches has an increasing trend for all categories of banks except DFIs. The CAGR is highest for PCBs. In fine, PCBs are performing better in maximum cases than those of SCBs, DFIs & FCBs over time at aggregate level. 6.5 Performance of PCBs in respect of ROA & ROE

Figure 6.8 PCBs Return on Asset (ROA) and Return on Eq uity (ROE) Source: Bangladesh Bank

Last ten years aggregate data on the ROA & ROE of PCBs show their decreasing trend over the period.
Table 6.6 Mean, Standard deviation, Trend equation of ROA and ROE of PCBs
Sl. No. 1. 2. Vari ables Return on Asset (ROA) Return on Equ ity (ROE) Mean & Standard Deviation 1.4% (0.6%) 21.6% (10.9%) Equation for trend line Yc = a+bx Yc = 0.014 - 6E-05x Yc = 0.306 - 0.016x

The average ROA and ROE show soundness in profitability over time. The equation for trend line shows that both ROA and ROE are having decreasing trend due to the gradual increase of competition.

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Table 6.7 ROA & ROE of First Generation PCBs

Name of PCBs A.B. Ban k Ltd. IFIC Ban k Ltd. Uttara Bank Ltd. Pubali Ban k Ltd. National Bank Ltd. Islami Bank Ltd. The City Ban k Ltd. U.C. Ban k Ltd. ICB Islami Bank Ltd. Source: Bangladesh Bank ROA Mean 1.69% 1.40% 1.46% 1.45% 1.92% 1.34% 1.39% 1.35% -3.64% Standard Deviation 1.17% 0.93% 1.22% 0.87% 1.45% 0.63% 0.94% 0.66% 3.54% Mean 25.01% 21.79% 29.77% 25.15% 23.65% 20.96% 27.80% 23.57% -44.08% ROE Standard Deviation 16.43% 14.84% 31.74% 18.65% 14.57% 11.46% 27.31% 15.46% 77.26%

The above table shows that both ROA and ROE are positive for all banks except ICB Islami Bank Ltd. ROA is highest for National Bank Ltd. (1.92%) and ROE for Uttara Bank Ltd. (29.77%).
Table 6.8 ROA & ROE of Second Generation PCBs
Name of PCBs Eastern Bank Ltd. NCC Bank Ltd. Prime Bank Ltd. Dhaka Bank Ltd. Al-Arafa Ban k Ltd. Southeast Bank Ltd. Social Investment Bank Ltd. Dutch Bangla Bank Ltd. The Trust Bank Ltd. Bank Asia Ltd. Exim Bank Ltd. First Security Ban k Ltd. Mutual Trust Bank Ltd. Mercantile Bank Ltd. One Bank Ltd. Premier Ban k Ltd. Standard Bank Ltd. Co mmerce Bank Ltd. Source: Bangladesh Bank ROA Mean 1.98% 1.84% 1.83% 1.55% 1.68% 1.82% 0.90% 1.34% 1.35% 2.01% 2.01% 0.54% 1.63% 1.69% 1.56% 1.91% 1.99% 0.19% Standard Deviation 0.91% 0.88% 1.17% 0.47% 0.62% 0.87% 0.73% 0.68% 0.58% 0.60% 0.68% 0.69% 0.47% 0.64% 0.72% 1.11% 0.35% 0.31% Mean 17.47% 23.45% 22.46% 25.71% 21.50% 26.57% 15.76% 23.21% 17.03% 29.74% 29.55% 9.65% 21.55% 26.54% 24.34% 22.22% 20.52% 1.25% ROE Standard Deviation 6.20% 10.27% 13.29% 13.14% 5.41% 18.78% 15.63% 13.90% 6.07% 9.88% 14.59% 13.44% 7.36% 15.91% 10.95% 11.39% 4.68% 2.29%

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

39

Table 6.9 ROA & ROE of Third Generation PCBs

Name of PCBs BRAC Bank Ltd. Jamuna Bank Ltd. Shahjalal Bank Ltd. Source: Bangladesh Bank ROA Mean 0.64% 1.05% 1.65% Standard Deviation 0.99% 0.74% 0.67% Mean 9.72% 15.64% 20.81% ROE Standard Deviation 10.93% 11.97% 8.80%

The above table shows that both ROA and ROE are positive for all banks. Both ROA and ROE are highest for Shahjalal Bank Ltd. having 1.65% and 20.81% respectively and lowest for Brac Bank Ltd. having 0.64% and 9.72% respectively. 6.6 ROA & ROE of PCBs and those of SCBs, DFIs & FCBs In respect of the mean of ROA and ROE, FCBs (having ROA 3.7% & ROE 29.3%) are in best position and PCBs (having ROA 1.4% & ROE 21.6%) are next to FCBs.

Figure 6.9 PCBs Return on Asset (ROA) in respect of other categories of banks Source: Bangladesh Bank

Figure 6.10 PCBs Return on Equ ity (ROE) in respect of other categories of banks Source: Bangladesh Bank

40

Table 6.10 Comparison of ROA & ROE of PCBs to those of SCBs, DFIs & FCBs
CA GR, Mean & Std Dev of ROA -3.00% PCBs 1.4% (0.6%) 9.87% SCBs 0.7% (0.6%) -8.01% DFIs 0.1% (0.4%) -6.20% FCBs 3.7% (1.6%) Source: Bangladesh Bank Category of Banks CA GR, Mean & Std Dev of ROE -7.93% 21.6% (10.9%) -0.87% -22.0% (217.6%) -2.00% -14.8% (54.4%) -11.29% 29.3% (18.8%)

The above table shows that CAGR of ROA and ROE of a ll categories of banks is found to be negative, with only exception in case of ROA of SCBs. This is because the ROA and ROE of all category of banks in 2001were very high in respect of the other years. Moreover, the competition in banking industry is increasing gradually and this may cause the reduction in profitability. In respect of the mean of ROA and ROE, FCBs (having ROA 3.7% & ROE 29.3%) are in best position and PCBs (having ROA 1.4% & ROE 21.6%) are next to FCBs.

41

CHAPTER VII CONCLUSIONS AND AREAS FOR FURTHER RESEARCH 7.1 Conclusions The PCBs in Bangladesh are performing well. The deposit, advance, total asset, equity and net income of Private Commercial Banks (PCBs) are found to have their increasing trend over the period. CAGR of deposit, advance, total asset, total equity and net income of the PCBs of second generation is higher than that of first generation and CAGR of those variables of third generation is mention ably higher than that of second generation respectively. CAGR of Deposit, Advance, Asset, Equity and Net Income of PCBs is higher in almost every respects that that of SCBs, DFIs & FCBs over time. This shows PCBs dominance in the banking sector of Bangladesh. During 2001-2010, the PCBs are found to achieve mentionable growth in the above selected variables. This reflects their gradual expansion of business and earning increasing amount of profit over the period. But it is obvious that the competition among the commercial banks will be more severe in course of time. Several new PCBs are coming soon. Their licensing process is under active consideration of Bangladesh Bank. So in order to survive, a bank should be potential enough to face the coming challenges. In this connection, PCBs should concentrate on customer needs and satisfaction. More professional approach to management and attitudinal change among bank employees can make the clients more satisfied. To collect more deposit, PCBs should be innovative in launching their various new deposit schemes according to the changing demand of the customers. Keeping pace with the time, they should be more technology driven to serve the customers. If a PCB can increase business per employee (BPE), it can be able to enhance its profitability. Advance Deposit ratio of a bank should be such that can ensure required liquidity as well as can ensure adequate utilization of funds without keeping idle fund. So PCBs should be prudent in maintaining this ratio to ensure maximum profitability. Profitability depends on the size of banks. Total asset of a bank can be considered to measure its size. Large banks can provide services to their customers in cheaper rate than small ones. Through increasing its total assets, a bank can attain more competitive advantages that can help it to earn more profit. So PCBs should concentrate to increase its assets to be more competitive. To ensure smooth functioning of a bank, Equity-Total asset ratio also should be justified and only this well justified Equity-Total asset ratio can enhance profitability. In order to expand the business, it is necessary to increase number of branches also. Through increasing number of bank branches, a bank can expand its services more geographically. PCBs have to find out new avenues of businesses through selecting appropriate locations of new branches to expand the volume of customers. PCBs have to face continuous challenges in scrutinizing credit proposals, selecting borrowers and monitoring them. Borrowers credit-worthiness should be judged very carefully without compromising to any pressure. Post lending regular monitoring should be rigorous. The most acute challenge is to manage the NPL. As non-performing loan reduces the loan able fund of

42

a bank that ultimately affects the income source, managing them efficiently becomes very essential. Through reducing NPL, a bank can increase its profitability. 7.2 Areas for further research In Bangladesh, banks are reliable source of financial intermediation. Their potentiality in terms of growth and performance is vitally req uired for their smooth functioning. This paper mainly focuses on growth, profitability determinants and performance of Private Commercial Banks of Bangladesh. It is found that Advance/Deposit and Equity/Total asset ratios should be well justified to ensure profitability. In this connection, what the appropriate ratio of these two variables should be at what context - is an issue of further research. Moreover, further comprehensive research work can be initiated to find out various pros and cons of each category of banks as well as of the entire banking sector of Bangladesh as a whole.

43

REFERENCES 1. Berger, A.N., 1995, The Relationship Between Capital and Earnings in Banking, Journal of Money, Credit and Banking 27, Vol. 2 (1995), pp. 43256. 2. Bodla B.S. & Verma Richa, 2007, 'Determinants of Profitability of Banks in India: A Multivariate Analysis', Journal of Services Research, Volume 6, Number 2 (October 2006 March 2007), pp. 75-89. 3. Chandan, C. L. and Rajput, P.K., 2002, Profitability analysis of banks in India: A multiple regression approach, Indian Management Studies Journal, 6:1, pp. 119-129. 4. Chantapong Saovanee, 2006, Comparative Study of Domestic and Foreign Bank Performance in Thailand: The Regression Analysis, Economic Change and Restructuring, Vol. Springer 2006, pp. 63-83.
5. Chantapong S., 2005, Comparative Study of Domestic and Foreign Bank Performance in

Thailand: The Regression Analysis, Economic Change and Restructuring, Vol. 38, pp. 63 83. 6. Debasish Sathya Swaroop & S hil Nikhil Chandra, 2009, Key Discriminators of Bank Profitability, Interdisciplinary Journal of Contemporary Research in Business , Vol. 1, No. 2, pp. 97-110. 7. Goddard J., Molyneux P. and Wilson J., 2004 Dynamic of Growth and Profitability in Banking, Journal of Money, Credit and Banking 36, Vol. 6 (2004), pp. 106990. 8. Guru B.K., Staunton J., and Balashanmugam B., 2002, Determinants of Commercial Bank Profitability in Malaysia, Working Paper, Multimedia University, 2002. 9. Kalluru Siva Reddy, 2009, 'Ownership Structure, Performance and Risk in Indian Commercial Banks', The IUP Journal of Applied Finance, Vol. 15, No. 8, pp. 31-45. 10. Rasiah Devinaga, Dr. 2010, 'Review of Literature and Theories on Determinants of Commercial Bank Profitability', Journal of Performance Management , pp. 23-49. 11. Sufian Fadzlan & Habibullah Muzafar Shah, 2009, 'Bank Specific and Macroeconomic Determinants of Bank Profitability: Empirical Evidence from the China Banking Sector', Front. Econ. China, Vol. 4(2), pp. 274291. 12. Sufian Fadzlan & Habibullah Muzafar Shah, 2010, 'Assessing the Impact of Financial Crisis on Bank Performance-Empirical Evidence From Indonesia', ASEAN Economic Bulletin, Vol. 27, No. 3, pp. 24562.

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APPENDICES
Appendices 1: Net Income (2001-2010) (Figures in crore) Mean 59.2 68.1 130.0 59.9 145.7 78.2 109.7 81.4 77.5 69.4 100.2 94.8 61.1 62.0 44.1 96.0 47.5 45.2 12.9 1.6 39.4 33.4 67.6 49.5 -71.8 209.6 22.7 48.6 34.0 56.8 Median 49.6 55.1 58.1 59.6 82.0 78.6 80.7 56.5 51.4 55.7 78.4 77.6 37.9 53.8 26.7 61.4 29.1 33.7 6.4 0.8 32.4 22.4 50.7 25.7 -59.1 154.3 17.3 27.3 23.1 36.0 Maxi mum 184.9 218.0 369.6 166.4 687.2 158.3 323.3 251.4 237.2 167.9 276.4 282.3 200.5 142.5 188.8 345.8 175.8 136.9 54.9 6.3 98.8 127.5 193.0 181.6 9.9 448.6 64.0 139.3 106.6 207.2 Mi ni mum 0.0 9.3 1.6 7.2 14.6 16.8 0.0 31.6 16.9 23.4 20.2 37.5 17.8 25.7 11.4 20.1 6.8 6.5 -11.7 -2.9 9.8 5.3 11.4 7.9 -206.2 59.7 1.5 -3.8 0.0 0.7

Sl. No. Name of PCBs 1 The City Ban k Ltd 2 U.C.B.L. 3 A.B. Ban k 4 IFIC Ban k Ltd 5 National Bank Ltd. 6 Uttara Bank Ltd 7 Pubali Ban k Ltd 8 Eastern Bank Ltd 9 NCCBL 10 Dhaka Bank Ltd 11 Southeast Bank 12 Prime Bank 13 Dutch Bangla 14 Mercantile 15 One bank 16 Exim Bank 17 Premier Ban k 18 Standard Bank 19 First Security Ban k 20 Co mmerce Bank 21 Mutual Trust Bank 22 The Trust Bank 23 Bank Asia 24 Al-Arafa Ban k 25 Al-Baraka Bank 26 Islami Bank 27 Social Investment 28 BRAC Bank 29 Jamuna Bank 30 Shahjalal Bank Source: Bangladesh Bank

45

Appendices 2:

Return on Asset (ROA) (2001-2010) Mean 1.39% 1.35% 1.69% 1.40% 1.92% 1.46% 1.45% 1.98% 1.84% 1.55% 1.82% 1.83% 1.34% 1.69% 1.56% 2.01% 1.91% 1.99% 0.54% 0.19% 1.63% 1.35% 2.01% 1.68% -3.64% 1.34% 0.90% 0.64% 1.05% 1.65% Median 1.25% 1.26% 1.74% 1.48% 1.77% 1.21% 1.32% 1.76% 1.56% 1.46% 1.60% 1.61% 1.10% 1.51% 1.49% 1.79% 1.64% 2.06% 0.38% 0.20% 1.64% 1.16% 1.82% 1.77% -3.00% 1.20% 0.73% 1.05% 1.25% 1.79% Maxi mum 2.98% 2.74% 3.05% 2.66% 5.10% 4.41% 3.00% 3.85% 3.53% 2.74% 3.40% 4.80% 2.95% 3.09% 3.22% 3.41% 3.60% 2.46% 1.67% 0.65% 2.45% 2.25% 2.97% 2.56% 0.67% 2.47% 2.67% 1.37% 2.00% 2.63% Mi ni mum 0.00% 0.45% 0.05% 0.25% 0.33% 0.35% 0.00% 1.04% 0.66% 1.18% 0.60% 0.52% 0.62% 1.08% 0.82% 1.26% 0.26% 1.23% -0.57% -0.40% 0.78% 0.76% 1.35% 0.79% -10.85% 0.64% 0.08% -1.83% 0.00% 0.46%

Sl. No. Name of PCBs 1 The City Ban k Ltd 2 U.C.B.L. 3 A.B. Ban k 4 IFIC Ban k Ltd 5 National Bank Ltd. 6 Uttara Bank Ltd 7 Pubali Ban k Ltd 8 Eastern Bank Ltd 9 NCCBL 10 Dhaka Bank Ltd 11 Southeast Bank 12 Prime Bank 13 Dutch Bangla 14 Mercantile 15 One bank 16 Exim Bank 17 Premier Ban k 18 Standard Bank 19 First Security Ban k 20 Co mmerce Bank 21 Mutual Trust Bank 22 The Trust Bank 23 Bank Asia 24 Al-Arafa Ban k 25 Al-Baraka Bank 26 Islami Bank 27 Social Investment 28 BRAC Bank 29 Jamuna Bank 30 Shahjalal Bank Source: Bangladesh Bank

46

Appendices 3:

Return on Equity (ROE) (2001-2010) Mean 27.8% 23.6% 25.0% 21.8% 23.7% 29.8% 25.2% 17.5% 23.5% 25.7% 26.6% 22.5% 23.2% 26.5% 24.3% 29.6% 22.2% 20.5% 9.6% 1.3% 21.6% 17.0% 29.7% 21.5% -44.1% 21.0% 15.8% 9.7% 15.6% 0.208 Median 15.0% 20.8% 28.9% 19.8% 21.4% 17.2% 20.6% 16.4% 20.2% 21.8% 18.8% 21.5% 18.7% 19.6% 24.0% 26.6% 21.7% 19.2% 5.6% 0.8% 21.2% 15.9% 26.6% 21.7% -25.7% 18.0% 12.0% 14.2% 15.7% 0.220 Maxi mum 80.5% 64.7% 52.0% 46.1% 56.7% 105.9% 66.0% 32.9% 49.7% 62.5% 67.5% 55.7% 59.8% 66.6% 38.9% 69.0% 40.7% 31.7% 36.6% 4.8% 37.7% 25.4% 45.9% 28.6% 46.5% 41.8% 55.9% 19.5% 39.8% 0.340 Mi ni mum 0.0% 10.6% 1.1% 4.5% 7.7% 8.2% 0.0% 11.1% 13.9% 17.4% 11.5% 4.7% 9.7% 14.3% 10.6% 18.7% 3.1% 15.3% -10.2% -2.9% 10.6% 9.8% 18.7% 11.1% -179.2% 10.1% 1.4% -17.1% 0.0% 0.035

Sl. No. Name of PCBs 1 The City Ban k Ltd 2 U.C.B.L. 3 A.B. Ban k 4 IFIC Ban k Ltd 5 National Bank Ltd. 6 Uttara Bank Ltd 7 Pubali Ban k Ltd 8 Eastern Bank Ltd 9 NCCBL 10 Dhaka Bank Ltd 11 Southeast Bank 12 Prime Bank 13 Dutch Bangla 14 Mercantile 15 One bank 16 Exim Bank 17 Premier Ban k 18 Standard Bank 19 First Security Ban k 20 Co mmerce Bank 21 Mutual Trust Bank 22 The Trust Bank 23 Bank Asia 24 Al-Arafa Ban k 25 Al-Baraka Bank 26 Islami Bank 27 Social Investment 28 BRAC Bank 29 Jamuna Bank 30 Shahjalal Bank Source: Bangladesh Bank

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

Independent Vari ables Advance/Deposit Total Asset No. of Branches NPL/Adv Equi ty/Asset BPE

Advance/ Deposit 1.00 -0.02 -0.14 0.46 -0.11 0.17

Total Asset

No. of Bank Branches

NPL/Adv

Equi ty/Asset

BPE

1.00 0.75 0.39 -0.33 -0.08 1.00 0.48 -0.18 -0.31 1.00 0.00 -0.45 1.00 -0.38 1.00

Appendices 5: Correlation matrix of independent variables (Year 2002) Independent Vari ables Advance/Deposit Total Asset No. of Branches NPL/Adv Equi ty/Asset BPE Advance/ Deposit 1.00 -0.18 -0.18 0.34 0.64 -0.10 1.00 0.70 0.48 -0.33 -0.15 1.00 0.63 -0.23 -0.43 1.00 0.07 -0.59 1.00 -0.22 1.00 Total Asset No. of Bank Branches

NPL/Adv

Equi ty/Asset

BPE

Appendices 6: Correlation matrix of independent variables (Year 2003) Independent Vari ables Advance/Deposit Total Asset No. of Branches NPL/Adv Equi ty/Asset BPE Advance/ Deposit 1.00 -0.27 -0.28 0.21 0.55 -0.14 1.00 0.74 0.48 -0.41 -0.21 1.00 0.63 -0.36 -0.47 1.00 -0.21 -0.63 1.00 0.05 1.00 Total Asset No. of Bank Branches NPL/Adv Equi ty/Asset BPE

Appendices 7: Correlation matrix of independent variables (Year 2004) Independent Vari ables Advance/Deposit Total Asset No. of Branches NPL/Adv Equi ty/Asset BPE Advance/ Deposit 1.00 -0.07 -0.34 -0.09 0.61 0.22 1.00 0.60 0.20 -0.36 -0.15 1.00 0.52 -0.30 -0.51 1.00 0.11 -0.65 1.00 0.05 1.00 Total Asset No. of Bank Branches

NPL/Adv

Equi ty/Asset

BPE

48

Appendices 8: Correlation matrix of independent variables (Year 2005) Independent Vari ables Advance/Deposit Total Asset No. of Branches NPL/Adv Equi ty/Asset BPE Advance/ Deposit 1.00 -0.03 -0.37 -0.16 0.49 0.16 1.00 0.56 -0.06 -0.29 -0.20 1.00 0.30 -0.24 -0.54 1.00 -0.05 -0.45 1.00 0.17 1.00 Total Asset No. of Bank Branches

NPL/Adv

Equi ty/Asset

BPE

Appendices 9: Correlation matrix of independent variables (Year 2006) Independent Vari ables Advance/Deposit Total Asset No. of Branches NPL/Adv Equi ty/Asset BPE Advance/ Deposit 1.00 -0.09 -0.30 0.22 0.45 0.00 1.00 0.52 -0.20 -0.21 -0.10 1.00 0.03 -0.15 -0.51 1.00 -0.01 -0.29 1.00 -0.13 1.00 Total Asset No. of Bank Branches

NPL/Adv

Equi ty/Asset

BPE

Appendices 10: Correlati on matrix of independent variables (Year 2007) Independent Vari ables Advance/Deposit Total Asset No. of Branches NPL/Adv Equi ty/Asset BPE Advance/ Deposit 1.00 -0.09 -0.28 0.29 0.18 0.17 1.00 0.52 -0.19 -0.15 -0.06 1.00 -0.06 -0.15 -0.44 1.00 -0.33 -0.28 1.00 -0.01 1.00 Total Asset No. of Bank Branches

NPL/Adv

Equi ty/Asset

BPE

Appendices 11: Correlati on matrix of independent variables (Year 2008) Independent Vari ables Advance/Deposit Total Asset No. of Branches NPL/Adv Equi ty/Asset BPE Advance/ Deposit 1.00 0.00 -0.39 -0.04 0.11 0.44 1.00 0.51 -0.26 -0.24 -0.03 1.00 -0.09 -0.14 -0.47 1.00 0.95 -0.27 1.00 -0.16 1.00 Total Asset No. of Bank Branches

NPL/Adv

Equi ty/Asset

BPE

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Appendices 12: Correlati on matrix of independent variables (Year 2009) Independent Vari ables Advance/Deposit Total Asset No. of Branches NPL/Adv Equi ty/Asset BPE Advance/ Deposit 1.00 -0.06 -0.23 0.33 -0.29 0.34 1.00 0.35 -0.29 0.20 -0.02 1.00 -0.12 0.12 -0.43 1.00 -0.91 -0.21 1.00 0.11 1.00 Total Asset No. of Bank Branches

NPL/Adv

Equi ty/Asset

BPE

Appendices 13: Correlati on matrix of independent variables (Year 2010) Independent Vari ables Advance/Deposit Total Asset No. of Branches NPL/Adv Equi ty/Asset BPE Advance/ Deposit 1.00 0.15 -0.05 0.17 -0.24 0.32 1.00 0.60 -0.32 0.22 0.03 1.00 -0.17 0.15 -0.45 1.00 -0.91 -0.31 1.00 0.19 1.00 Total Asset No. of Bank Branches NPL/Adv Equi ty/Asset BPE

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Appendices 14: Sl. No.

Advance/Deposit Rati o (2001-2010) Mean 0.78 0.80 0.82 0.96 0.84 0.69 0.78 1.04 0.93 0.88 0.89 0.83 0.77 0.88 0.86 0.94 0.88 0.93 0.90 1.19 0.88 0.75 0.91 0.95 0.97 0.90 0.91 0.80 0.75 0.88 Median 0.76 0.81 0.84 0.95 0.84 0.68 0.77 1.04 0.93 0.89 0.91 0.84 0.74 0.89 0.86 0.94 0.88 0.92 0.93 0.95 0.88 0.71 0.91 0.96 1.00 0.90 0.90 0.81 0.77 0.93 Maxi mum 0.90 0.90 0.94 1.11 0.93 0.86 0.92 1.21 1.03 1.00 0.97 0.91 0.92 0.98 0.98 1.01 0.95 1.05 1.02 2.01 0.97 1.03 0.96 1.08 1.17 0.95 1.31 0.99 0.85 1.01 Mi ni mum 0.66 0.71 0.60 0.78 0.78 0.55 0.66 0.79 0.86 0.71 0.79 0.69 0.68 0.74 0.76 0.91 0.79 0.83 0.76 0.68 0.81 0.64 0.84 0.80 0.71 0.83 0.66 0.60 0.57 0.40

Name of PCBs 1 The City Ban k Ltd 2 U.C.B.L. 3 A.B. Ban k Ltd. 4 IFIC Ban k Ltd 5 National Bank Ltd. 6 Uttara Bank Ltd 7 Pubali Ban k Ltd 8 Eastern Bank Ltd 9 NCCBL 10 Dhaka Bank Ltd 11 Southeast Bank 12 Prime Bank 13 Dutch Bangla 14 Mercantile 15 One bank 16 Exim Bank 17 Premier Ban k 18 Standard Bank 19 First Security Ban k 20 Co mmerce Bank 21 Mutual Trust Bank 22 The Trust Bank 23 Bank Asia 24 Al-Arafa Ban k 25 ICB Islami Bank Limited 26 Islami Bank 27 Social Investment 28 BRAC Bank 29 Jamuna Bank 30 Shahjalal Bank Source: Bangladesh Bank

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Appendices 15:

Total Asset (2001-2010) (Figures in crore) Mean 4500 4935 5910 3959 5953 5312 6952 4045 3908 4668 5829 6637 4471 3960 2492 4551 2601 2306 2498 753 2636 2454 3656 2686 2096 16589 2603 4158 2484 2697 Median 4129 3540 4003 3314 4937 5005 5909 3569 3001 4083 4975 5134 3922 3362 2229 3775 2047 1566 2035 734 2276 1806 2693 1835 1961 14604 2188 3078 1851 1829 Maxi mum 9090 12977 13299 7084 13475 8145 12846 8249 8355 9014 13178 15280 10078 8714 5870 11305 6676 6660 6362 1558 5825 5828 10520 7401 2918 33079 5467 12280 7106 7880 Mi ni mum 2073 1835 2841 2552 3166 3591 3907 1813 1609 1910 1447 1574 1346 1308 743 804 345 404 446 332 439 315 472 876 1480 4955 1130 36 421 162

Name of PCBs 1 The City Ban k Ltd 2 U.C.B.L. 3 A.B. Ban k 4 IFIC Ban k Ltd 5 National Bank Ltd. 6 Uttara Bank Ltd 7 Pubali Ban k Ltd 8 Eastern Bank Ltd 9 NCCBL 10 Dhaka Bank Ltd 11 Southeast Bank 12 Prime Bank 13 Dutch Bangla 14 Mercantile 15 One bank 16 Exim Bank 17 Premier Ban k 18 Standard Bank 19 First Security Ban k 20 Co mmerce Bank 21 Mutual Trust Bank 22 The Trust Bank 23 Bank Asia 24 Al-Arafa Ban k 25 Al-Baraka Bank 26 Islami Bank 27 Social Investment 28 BRAC Bank 29 Jamuna Bank 30 Shahjalal Bank Source: Bangladesh Bank

Sl. No.

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Appendices 16: Sl. No.

Equi ty/Total Asset (2001-2010) Mean 0.061 0.059 0.065 0.063 0.076 0.057 0.066 0.111 0.077 0.063 0.078 0.082 0.060 0.069 0.067 0.073 0.085 0.101 0.059 0.161 0.078 0.081 0.069 0.079 -0.002 0.066 0.061 0.141 0.073 0.085 Median 0.058 0.061 0.056 0.058 0.066 0.049 0.066 0.114 0.075 0.064 0.076 0.077 0.059 0.068 0.068 0.073 0.087 0.106 0.058 0.138 0.075 0.079 0.072 0.079 0.026 0.064 0.055 0.086 0.077 0.085 Maxi mum 0.127 0.076 0.104 0.084 0.142 0.106 0.112 0.149 0.112 0.074 0.130 0.110 0.077 0.092 0.083 0.110 0.099 0.147 0.092 0.250 0.114 0.128 0.078 0.130 0.343 0.077 0.089 0.690 0.093 0.129 Mi ni mum 0.029 0.042 0.036 0.046 0.039 0.029 0.033 0.075 0.048 0.044 0.050 0.070 0.049 0.046 0.042 0.046 0.063 0.061 0.045 0.108 0.053 0.037 0.051 0.042 -0.311 0.056 0.044 0.032 0.046 0.055

Name of PCBs 1 The City Ban k Ltd 2 U.C.B.L. 3 A.B. Ban k 4 IFIC Ban k Ltd 5 National Bank Ltd. 6 Uttara Bank Ltd 7 Pubali Ban k Ltd 8 Eastern Bank Ltd 9 NCCBL 10 Dhaka Bank Ltd 11 Southeast Bank 12 Prime Bank 13 Dutch Bangla 14 Mercantile 15 One bank 16 Exim Bank 17 Premier Ban k 18 Standard Bank 19 First Security Ban k 20 Co mmerce Bank 21 Mutual Trust Bank 22 The Trust Bank 23 Bank Asia 24 Al-Arafa Ban k 25 Al-Baraka Bank 26 Islami Bank 27 Social Investment 28 BRAC Bank 29 Jamuna Bank 30 Shahjalal Bank Source: Bangladesh Bank

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Appendices 17: Sl. No.

NPL as % of Total Advances (2001-2010) Mean 12.32% 10.22% 9.82% 14.96% 13.44% 17.66% 15.31% 6.50% 5.90% 2.81% 3.40% 1.25% 1.82% 2.39% 3.27% 1.65% 2.98% 1.09% 8.05% 31.77% 1.33% 2.08% 2.00% 4.43% 42.25% 4.68% 5.80% 2.94% 1.68% 0.51% Median 7.39% 4.33% 6.42% 9.18% 6.62% 15.81% 11.75% 4.91% 4.88% 2.78% 3.48% 1.26% 1.83% 2.68% 3.41% 1.86% 2.86% 0.90% 7.05% 29.22% 0.52% 2.21% 2.02% 3.46% 43.58% 3.20% 4.85% 2.70% 1.14% 0.43% Maxi mum 31.49% 27.33% 25.09% 34.95% 29.45% 32.29% 35.37% 13.67% 9.84% 5.57% 4.98% 1.77% 4.24% 4.17% 7.40% 2.68% 6.00% 1.96% 16.84% 67.85% 5.10% 3.18% 3.31% 12.22% 86.78% 8.40% 11.41% 6.04% 5.04% 1.91% Mi ni mum 4.42% 1.20% 2.10% 4.38% 3.96% 5.50% 2.04% 1.99% 2.10% 1.16% 2.00% 0.82% 0.16% 0.08% 0.39% 0.00% 0.37% 0.43% 2.14% 12.92% 0.00% 1.30% 0.01% 0.28% 2.28% 1.78% 3.19% 0.00% 0.00% 0.00%

Name of PCBs 1 The City Ban k Ltd 2 U.C.B.L. 3 A.B. Ban k 4 IFIC Ban k Ltd 5 National Bank Ltd. 6 Uttara Bank Ltd 7 Pubali Ban k Ltd 8 Eastern Bank Ltd 9 NCCBL 10 Dhaka Bank Ltd 11 Southeast Bank 12 Prime Bank 13 Dutch Bangla 14 Mercantile 15 One bank 16 Exim Bank 17 Premier Ban k 18 Standard Bank 19 First Security Ban k 20 Co mmerce Bank 21 Mutual Trust Bank 22 The Trust Bank 23 Bank Asia 24 Al-Arafa Ban k 25 Al-Baraka Bank 26 Islami Bank 27 Social Investment 28 BRAC Bank 29 Jamuna Bank 30 Shahjalal Bank Source: Bangladesh Bank

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Appendices 18: Sl. No.

Business Per Employee (2001-2010) Mean 2.98 3.36 4.55 2.74 3.23 2.07 1.98 7.59 4.59 8.20 7.85 7.34 7.04 6.62 6.45 6.49 6.12 5.50 6.92 2.06 7.43 4.84 8.53 3.66 4.53 3.81 4.75 1.86 4.02 5.87 Median 3.06 2.66 3.57 2.41 2.94 1.75 1.58 7.67 4.45 8.50 8.04 7.46 7.00 6.80 6.65 6.33 6.36 4.70 8.02 1.92 8.05 5.23 9.04 3.27 4.46 3.65 4.90 1.92 4.28 6.96 Maxi mum 4.73 7.45 9.09 4.47 5.59 3.46 3.30 11.62 6.98 12.09 12.39 10.90 9.66 9.09 7.42 11.18 10.14 10.75 11.62 3.70 9.50 6.38 13.22 6.47 6.12 5.32 6.42 3.87 7.26 8.71 Mi ni mum 1.59 1.38 2.11 1.89 1.99 1.53 1.10 4.08 3.07 4.13 3.27 3.59 4.63 3.72 5.43 2.98 2.57 1.92 1.77 0.80 4.09 2.95 4.47 1.61 2.82 2.58 2.68 0.25 0.81 0.88

Name of PCBs 1 The City Ban k Ltd 2 U.C.B.L. 3 A.B. Ban k 4 IFIC Ban k Ltd 5 National Bank Ltd. 6 Uttara Bank Ltd 7 Pubali Ban k Ltd 8 Eastern Bank Ltd 9 NCCBL 10 Dhaka Bank Ltd 11 Southeast Bank 12 Prime Bank 13 Dutch Bangla 14 Mercantile 15 One bank 16 Exim Bank 17 Premier Ban k 18 Standard Bank 19 First Security Ban k 20 Co mmerce Bank 21 Mutual Trust Bank 22 The Trust Bank 23 Bank Asia 24 Al-Arafa Ban k 25 Al-Baraka Bank 26 Islami Bank 27 Social Investment 28 BRAC Bank 29 Jamuna Bank 30 Shahjalal Bank Source: Bangladesh Bank

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Appendices 19: Sl. No.

Number of B ank Branches (NBB) (2001-2010) Mean 80 86 70 69 94 203 362 29 46 33 36 52 41 33 23 31 25 26 24 25 27 26 25 48 32 165 29 35 28 24 Median 78 83 70 65 84 200 353 24 44 31 31 44 32 30 20 28 24 23 14 25 22 21 22 43 32 157 24 20 24 17 Maxi mum 88 107 81 95 145 211 399 49 70 56 76 94 96 65 50 59 52 58 66 25 67 59 49 78 34 281 64 127 65 63 Mi ni mum 76 79 63 54 75 198 349 22 29 17 13 26 11 14 5 10 7 10 8 24 7 11 7 40 30 117 15 1 3 2

Name of PCBs 1 The City Ban k Ltd 2 U.C.B.L. 3 A.B. Ban k 4 IFIC Ban k Ltd 5 National Bank Ltd. 6 Uttara Bank Ltd 7 Pubali Ban k Ltd 8 Eastern Bank Ltd 9 NCCBL 10 Dhaka Bank Ltd 11 Southeast Bank 12 Prime Bank 13 Dutch Bangla 14 Mercantile 15 One bank 16 Exim Bank 17 Premier Ban k 18 Standard Bank 19 First Security Ban k 20 Co mmerce Bank 21 Mutual Trust Bank 22 The Trust Bank 23 Bank Asia 24 Al-Arafa Ban k 25 Al-Baraka Bank 26 Islami Bank 27 Social Investment 28 BRAC Bank 29 Jamuna Bank 30 Shahjalal Bank Source: Bangladesh Bank

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