Assignment on

Financial Ratio Analysis of Mutual Trust Bank Ltd.

Course Title : Financial Market & Institutions Course Code : FIN- 512

Submitted to:
Dr. Sujit R. Saha Professor Business Administration Eastern University

Submitted By:
Ifa Iqbal ID: 111600028

Submission Date:
01st January 2012

Company Overview:
The Company was incorporated on September 29, 1999 under the Companies Act 1994 as a public company limited by shares for carrying out all kinds of banking activities with Authorized Capital of Tk. 38,00,000,000 divided into 38,000,000 ordinary shares of Tk.100 each The Company was also issued Certificate for Commencement of Business on the same day and was granted license on October 05, 1999 by Bangladesh Bank under the Banking Companies Act 1991 and started its banking operation on October 24, 1999. As envisaged in the Memorandum of Association and as licensed by Bangladesh Bank under the provisions of the Banking Companies Act 1991, the Company started its banking operation and entitled to carry out the following types of banking business (i) All types of commercial banking activities including Money Market operations. (ii)Investment in Merchant Banking activities. (iii)Investment in Company activities. (iv) Financiers, Promoters, Capitalists etc. (v) Financial Intermediary Services. (vii) Any related Financial Services. The Company (Bank) operates through its Head Office at Dhaka and 36 branches and 5 SME Service Centers. The Company/Bank carries out international business through a Global Network of Foreign Correspondent Banks Mission of MTBL: We aspire to be one of the most admired banks in the nation and be recognized as an innovative and client-focused company that offers an array of products and services in the search for excellence and to create an impressive economic value, enabled by cutting-edge technology, a dynamic workforce and a wide array of financial products and services. Vision of MTBL: Mutual Trust Bank's vision is based on a philosophy known as MTB3V. We envision MTB to be: • One of the Best Performing Banks in Bangladesh. • The Bank of Choice • A Truly World-class Bank. VALUES • Have a strong customer focus and build relationships based on integrity, superior service and mutual benefit. • Strive for profit and sound growth. • Relentless in pursuit of business innovation and improvement. • Work as team to serve the best interest of our owners. • Our strength emanates from our owner- MTBL and we hold the following values to guide us as we do our jobs.

• •

Creating an honest, open and enabling environment. Responsible, trustworthy and law-abiding in all that we do.

Business Units: There are five different units generating business for BRAC Bank Limited: • SME Banking • Corporate Banking • Retail Banking • Treasury services • NRB Banking

 Financial Ratio Analysis of the Mutual Trust Bank Ltd. The level and historical trends of the financial ratios can be used to make summary about a bank's financial condition, its operations and attractiveness as an investment. Financial ratio analysis is the calculation and comparison of ratio’s result which are taken from the bank's financial statements. I select Mutual Trust Bank Ltd to calculate and compare between 2010 and 2009 financial year performance for this assignment. • Key Profitability Ratios in Banking:  Profitability measure: NIAT (Net Income after Tax) = ----------------------------------------- * 100 Total Equity Capital

1. Return on Equity (ROE)

9883 For 2010 ROE = ------------ *100 53867 = 18.34 % 8206 For 2009 ROE = ------------ *100 49090 = 16.71 %

Interpretation: ROE measure of how well a company used reinvested earnings to generate additional earnings, equal to a fiscal year's after-tax income, expressed as a percentage. It is used as a general indication of the company's efficiency; in other words, how much profit it is able to generate given the resources provided by its stockholders. Investors usually look for companies with returns on equity that are high and growing. Usually ratios over15% are considered attractive. If a company can return its shareholders twenty paisa or more for every taka invested, investors can be reassured that the company is returning wealth to its shareholders. Here, in 2010 & 2009 both ROE more then 15 %. In 2010 the ROE is greater then the 2009. That mean the bank is doing well. They earn more in 2010 in contrast their equity capital.

NIAT 2. Return on Asset (ROA) = --------------------- * 100 Total Asset For 2010 9883 = ----------- *100 58246 8026 = ------------ *100 52774 = 16.97%

For 2009

= 15.55%

Interpretation: ROA an indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. The ROA figure gives investors an idea of how effectively the company is converting the money it has to invest into net income. The higher the ROA number, the better, because the company is earning more money on less investment. Management's most important job is to make wise choices in allocating its resources. In 2010 Mutual Trust Bank’s ROA is 16.97% and in 2009 ROA 15.55%. From here we can say that the Mutual Trust Bank has more ROA in 2010 then the 2009. Based on this result, Premier Bank is better at converting its investment into profit. So, the bank is earning more money by investing less money in 2010.

NIAT 3. Earning Per Share = -----------------------------------------------Common Equity Share Outstanding For 2010 9883 = ----------- = 46.63 212 8206 = -----------212 = 38.72

For 2009

Interpretation: Earnings per share (EPS) are one of the most important measures of a company’s strength. Obviously, the higher this number, the more money the company is making. The portion of a bank's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a bank's profitability. As a bank's earnings increase, Earnings per share will look better. Here, the share is remaining same for the both year but the EPS is more in 2010 then the 2009. That mean the bank’s profit is increased dramatically and the price of the share will be more attractive in 2010.

Efficiency and Profitability Measures:

Interest income from loans & securities investment – Interest expense on deposit & other borrowing 4. Net Interest Margin = ----------------------------------------------------------------- * 100 Total Asset 4455-3288 = ---------------- *100 58246

For 2010


For 2009

4279-3288 = ------------------ *100 52774


Interest income from loans & securities investment – Interest expense on deposit & other borrowing Net Interest Margin = ----------------------------------------------------------------- * 100 Earning Asset 4455-3288 = ------------------*100 39676+9216

For 2010


For 2009

4279-3288 = ------------------- *100 33883+9537


Interpretation: Net Interest Margin is a measure of the difference between the interest income generated by banks and the amount of interest paid out to their lenders to the amount of their assets. A negative value denotes that the company did not make an optimal decision, because interest expenses were greater than the amount of returns generated by investments. Here we saw that, in 2010 the NIM is higher then the 2009. So, Bank’s NIM is going higher because of less competition in the market and the less fluctuation of interest rate. Mutual Trust Bank’s net interest margin in 2009 less than 2010.This would mean that Mutual Trust Bank has earn more money due to less interest expenses from investments.

Non Interest Revenue – Non Interest Expense 5. Net Non-Interest Margin = ---------------------------------------------------------- * 100 Total Asset For 2010 2231-1396 = --------------- *100 58246 1673-917 = -------------- *100 52774 = 1.433 %

For 2009

= 1.432 %

Non Interest Revenue – Non Interest Expense Net Non-Interest Margin = ---------------------------------------------------------- * 100 Total Asset For 2010 2231-1396 = --------------- *100 48892 = 1.70% For 2009 1673-917 = -------------- *100 43420 = 1.74 % Interpretation: Here we saw that, Mutual Trust Bank is performing well in 2010 rather then in the 2009. Because, bank provide different types of service and service charge to their clients. For this their non interest margin is steadily increasing day by day. NNIM can be negative if Non Interest Revenue less then Non Interest Expense.

Total Operating – Total Operating Revenue Expense 6. Net Bank Operating Margin = ------------------------------------------------------* 100 Total Asset For 2010 3398-1396 =---------------*100 58246 2544-917 =--------------- *100 52774 = 3.43 %

For 2009


Interpretation: NBOM shows the total operating income against the total asset. Net Bank Operating Margin is the combination of both interest & non- interest income. Here in 2010 the Mutual Trust Bank’s NBOM is increasing well then the 2009. The reason is their noninterest income is much higher then the year 2009 and the interest income is slightly increased in year 2010 then the previous year. Total Interest Total Interest Income Expense 7. Earning Spread = ------------------------- – -----------------------------------------Total Earning Total Interest Bearing Bank Assets Liabilities

For 2010

4455 = ----------48892 = 0. 228

3288 ------------48175

For 2010

4279 = ----------43420 = 0 .0242

3409 – ------------45904

Interpretation: Earning spread measures the effectiveness of bank’s intermediation funding and also the intensity of competition. The high competition reflect the less the spread. In 2009 the spread is higher then the 2010 that means the completion is higher in 2010. In 2010 the Mutual Trust Bank faced lots of competition to grave the market share. For this they need to gave more interest to the depositor and took less interest from the borrowers in 2010 financial year rather than in 2009.

Productivity Ratio: Total Operating Expense 8. Operating Efficiency = -------------------------------- * 100 Total Operating Revenue For 2010 1396 = ------------ *100 3398 = 41.08 %

917 For 2009 = ------------ *100 2544

= 36.04 %

Interpretation: In normal conditions, the operating ratio should be low enough so as to leave portion of the sales sufficient to give a fair return to the investors. Operating efficiency measure the effectiveness of banks operation. The higher the operation efficiency means the bank need to expense more for operating revenue. In 2010 the Mutual Trust Bank expensed 41.08 tk. to earn 100 taka revenue. In 2009 they expensed 36.04 taka to earn 100 tk. operating revenue. Mutual Trust Bank operating efficiency is higher in 2010 rather than 2009 financial year.

Net Operating Income 9. Employee Productivity = ------------------------------No. of Employee For 2010 3398 = -----------965 2544 = -----------893 = 4.95 m tk.

For 2009

= 2.75 m tk.

Interpretation: Employee productivity means the per employees average contribution in the net operating income. In 2010 per employees contribution was 4.95 million tk. and in 2009 it was 2.75 million tk. So we can easily say that the employee productivity is increase dramatically in 2010 than the financial year 2009.

Risk Ratios:

Non Performing Asset/Classified Loan 10. Credit Risk = ------------------------------------------------ * 100 Total Loans & Lease For 2010 2160 = ------------ *100 46400 617 = ------------*100 33664 = 4.65 %

For 2009

= 1.83 %

Interpretation: The credit risk ratio is the portion of default or classified loan of the total loans & lease. From the analysis we can say that in 2010 the credit risk 4.65 % that mean 4.65 tk. is the default loan in per 100 tk. And 1.83 tk. is the default loan in per 100 tk in 2009. In case of Mutual Trust Bank the credit risk ratio is much higher in 2010 then the 2009 financial year. That mean they maximize their classified loan in the 2010financial year.

Net Loans (Cash + Gov. Security) 11. Liquidity Security = ------------------------------------------ * 100 Total Asset 3456+9216 = ------------------ *100 58246 3103+9537 = ------------------ *100 52774

For 2010

= 21.75 %

For 2009

= 23.95 %

Interpretation: The liquidity security is the measure of the portion of loans among total assets which have more liquidity. Like cash & Government security. Here we can see that Mutual Trust Bank in 2010 they have 20.37% liquidity security and 21.36 % in 2009. That means they can easy liquid their asset at least 20% in anytime. In comparison of 2010 & 2009, they had more liquidity security in 2009 financial year rather than the 2010.

From this analyze and interpretation of the financial data of the Mutual Trust Bank Limited, we identified many ratios. From those ratios we can easily understand the performance of the bank at a glance. By comparing those ratios we also saw that the bank is did well in 2010 then the Financial Year 2009. They earn more in 2010 in contrast their equity capital. The Bank is earning more money by investing less money in 2010. The EPS is increased in 2010. So finally we can say that the Mutual Trust Bank. Is doing great job in the banking sector and they are doing well gradually.

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