Part-I-Project

Part Part
 INTERNSHIP REPORT ON BANK ASIA

A. PERFORMANCE ANALYSIS

Financial Performance Analysis of Bank Asia

To understand how Bank Asia is performing financially, a ratio analysis was performed
for the consecutive years of 2007, 2008 and 2009. Since Bank Asia is a bank which is
enlisted in the securities market, its financial performance was analyzed by using special
set of ratios. There was much relevant information available or accessible, for which
these ratios could be compared with the industry standards.

A.1. Profitability Ratios

Return on Equity (ROE)

Return on equity measures a bank’s profitability by revealing how much profit a bank
generates with the shareholders investment. It measures the return on the money the
investors have put into the company. This is the ratio potential investors may look at
when deciding whether or not to invest in the company. In general, the higher the
percentage is the better. ROE is the rate of return flowing to bank’s shareholders, i.e., the
net benefit the investors have received from investing their capital in the bank. ROE is
calculated as follow:

ROE = Net Income after Tax / Total Equity Capital 30.00%

25.00%
20.00%
15.00%
Year 2007 2008 2009 10.00%
5.00%
0.00%
Bank Asia 27.50% 20.60% 26.79%
2007 2008 2009
Prime
27.00% 26.56% 18.39%
Bank Bank Asia Prime Bank EBL
EBL 15.00% 11.00% 17.00%

The calculated ROE figures have shown a decreasing and increasing trend from the year
2007 to 2009, though it dropped a bit in 2008. In 2009, Bank Asia’s ROE was 26.79%,
which is pretty good in terms of the industry. The main reason behind this result is the
well tax management efficiency of Bank Asia that results in higher net income after tax.
Another reason is the increase in Equity/Total Asset ratio improves the earnings as much
as expected. As a result the ROE has increased.

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 INTERNSHIP REPORT ON BANK ASIA

Return on Asset (ROA)

ROA measures the efficiency with which the company is managing its investment in
assets and utilizing them to generate profit. It measures the amount of profit earned
relative to the firm’s level of investment in total assets. The higher the percentage is
better; because that means the company is doing a good job using its assets to generate
sales. ROA is a managerial efficiency indicator that shows how successfully the
management has been converting the bank’s assets into net earnings. ROA is calculated
as follow:

ROA = Net Income after Tax / Total Asset

2.50%
2.00%
1.50%
Year 2007 2008 2009 1.00%
0.50%
Bank Asia 1.89% 1.29% 1.93% 0.00%
2007 2008 2009
Prime bank 1.70% 1.75% 1.18%
Bank Asia Prime Bank EBL
EBL 1.43% 0.98% 1.46%

The bank had a huge asset expansion in the year 2008, which is responsible for the small
decline in ROA in 2008. In 2009, it jumped backed to 1.93% which is quite good in
comparing with Prime Bank and EBL.

Net Profit Margin

A measure of how profitably the firm is operating. The ratio tells how well a company
converts revenue from core operations into actual profit – how many cents of profit it gets
from every dollar of sales. The operating margin shows how well the company controls
costs. The profit margin reflects the effectiveness of cost control and service pricing
policies of a bank. Net profit margin of a bank is determined by the following formula:

Net Profit Margin=Net Income after Tax /Total operating Revenue

Year 2007 2008 2009 40.00%

Bank Asia 32.19% 23.74% 32.14% 30.00%
20.00%
10.00%
Prime Bank 33.00% 29.08% 21.32% 0.00%

EBL 12.00% 8.00% 11.00% 2007 2008 2009

Bank Asia Prime Bank EBL

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 INTERNSHIP REPORT ON BANK ASIA

This tells us that in the year 2009, Bank Asia made a profit of 32.14 taka for every 100
taka it generated, which appears to be a good performance from my perception. The net
profit margin has varied during the last three years, and that is too, not by a negligible
percentage. Unavailability of the competitors’ profit margin restricts us from making a
solid judgment about its profitability performance.

A.2. Activity/Efficiency Ratios

Asset Utilization Ratio:

It measures the rate at which a business is able to turn assets into sales, and hence cash.
The higher the ratio, the more effectively assets are used to generate revenue. It reflects
the portfolio management policies, especially the mix and yield on a bank’s asset. The
asset utilization ratio of a bank is calculated as follow:

Asset Utilization Ratio = Total Operating Revenue / Total Assets

Year 2007 2008 2009

15.00%
Bank Asia 10.00%
5.87% 5.42% 6.01%
5.00%
Prime Bank 0.00%
5.30% 5.25% 3.48%
2007 2008 2009
EBL
12.00% 13.00% 14.00% Bank Asia Prime Bank EBL

The yield on the Bank’s asset has been increasing, through the ratio dropped a bit in 2008.
The credit for this goes to the portfolio management policies and the diversified business
model formed by the management.

Funds Management Efficiency (Equity Multiplier)

The ratio shows a company’s total assets per dollar of stockholders’ equity. A higher
equity multiplier indicates higher financial leverage, which means the company is relying
more on debt to finance its assets. Equity multiplier reflects the leverage or financing
policies that indicates the sources chosen to fund a bank (debt or equity). The following
formula is used to calculate equity multiplier of a bank:

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 INTERNSHIP REPORT ON BANK ASIA

Equity Multiplier = Total Assets / Total Equity Capital 20

15
Year 2007 2008 2009 10
Bank 5
14.56 16.01 13.86
Asia 0
Prime
15.78 15.09 16.49 2007 2008 2009
Bank
EBL 10.84 11.45 11.54 Bank asia Prime Bank EBL

Equity multiplier of Bank Asia has increased from 14.56 x during 2007 to 16.01 x during
2008 and it has further deteriorated to 13.86 x during 2009. This trend indicates that
equity financing of the Bank has been increased during this period. The decreasing ratios
reduce the Bank’s potential for high returns for its stockholders. On the other hand, it
reduces the exposure to risk of the Bank since the larger equity portions absorb losses on
the Bank’s assets.

Tax Management Efficiency:

The tax management ratio is also showing a mixed pattern due to the inconsistent net
income. The management should try to maximize this ratio as much as possible because
the tax is a direct cash expense which lowers the net income. They should look closely at
how well the bank’s tax exposure is being monitored and controlled. It reflects the bank’s
use of security gains or losses and other tax management tools to minimize its tax
exposure. Tax management efficiency of a bank is calculated by using the following
formula:

Tax Mgt Efficiency = Net Income after Tax / Net Income before Tax & Security gains

80.00%
Year 2007 2008 2009
60.00%
Bank 40.00%
53.08% 36.49% 58.05%
Asia 20.00%
Prime 0.00%
60.00% 59.68% 50.00%
Bank
2007 2008 2009
EBL 45.00% 33.00% 41.00% Bank Asia Prime Bank EBL

The tax management efficiency of Bank Asia shows an uneven drift during the period
2007-2009. This means management of Bank Asia is facing problem in controlling its tax

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 INTERNSHIP REPORT ON BANK ASIA

expenses. Nevertheless, in the year 2009, its Tax Management Raito raised to 58.05%
from 53.08% of 2007, which is a positive signal in terms of tax management.

Expense Control Efficiency:

It indicates the portion of revenue after the operating expense is deducted. It’s a measure
of operating efficiency and expense control. It is a measure of operating efficiency and
expense control. It indicates the amount of revenue survive after operating expenses are
removed. Expense control efficiency of a bank is calculated as follow:

Expense Control Efficiency = Net Income before Tax & Security Gains / Total
Operating Revenue

Year 2007 2008 2009 80.00%

Bank 60.00%
60.64% 48.60% 55.36% 40.00%
Asia 20.00%
Prime 0.00%
54.00% 56.06% 64.00%
bank 2007 2008 2009
EBL 27.00% 24.00% 26.00% Bank Asia Prime Bank EBL

In the recent year of 2009, Banks management was able to increase the efficiency to
almost 55.36%, which indicates that the expenses are being reduced day by day. Another
thing is noticeable is that in terms of its competitors it is doing very good.

Operating Efficiency

The efficiency ratio gives us a measure of how effectively a bank is operating. It is the
cost required to generate each dollar of revenue. An increase means the company is losing
a larger percentage of its income to expenses. If it is getting lower, it is good for the bank
and its shareholders. Costs include salaries, technology, buildings, supplies, and
administrative expenses. It is also an expense control measurement. It is calculated by the
following formula:

Operating Efficiency Ratio =Total Operating Expenses / Total Operating Revenues

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 INTERNSHIP REPORT ON BANK ASIA

80.00%
Year 2007 2008 2009 60.00%
Bank 40.00%
30.14% 34.14% 36.62% 20.00%
Asia
Prime 0.00%
34.00% 32.37% 33.42%
Bank 2007 2008 2009
EBL 68.00% 65.00% 68.00% Bank Asia Prime Bank EBL

The operating efficiency ratio shows an increasing trend. This trend during this three-year
period implies that operating expenses of the Bank has inclined as a percentage of
operating revenue, which indicates that operating expenses are not being controlled
properly.

A.3. Liquidity Ratios

Cash Position Indicator

The ratio indicates a bank’s ability to handle immediate cash needs. The higher the ratio,
the better the liquidity position of the bank. It is calculated by the following formula:

CPI = Cash and Deposit Due / Total Assets

12.00%
10.00%
Year 2007 2008 2009 8.00%
6.00%
Bank 4.00%
7.54% 9.08% 6.45% 2.00%
Asia 0.00%
Prime
8.60% 9.90% 8.30% 2007 2008 2009
Bank
EBL 2.60% 3.60% 6.30% Bank Asia Prime Bank EBL

Compared to the year 2007 and 2008, there was a significant improvement in 2009 in the
proportion of cash that indicates a stronger position to handle immediate cash needs.

Liquid Security Indicator

Government securities are the second most liquid assets after cash. This ratio compares
the most marketable securities an institution can hold with the overall size of its asset
portfolio; the greater the proportion of govt. securities, the more liquid the bank. It is
calculated as follows:

LSI = Government Securities / Total Assets

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 INTERNSHIP REPORT ON BANK ASIA

20.00%
Year 2007 2008 2009 15.00%
10.00%
Bank Asia 13.00% 11.00% 15.00% 5.00%
Prime Bank 13.00% 15.00% 18.84% 0.00%
EBL 11.00% 14.00% 9.00% 2007 2008 2009
Bank Asia Prime Bank EBL

This ratio of Bank Asia has decreased from 13.00% during 2007 to 11.00% during 2008
and it further increased to 15.00% during 2009. This increasing trend certainly indicates
that the Bank’s holing of readily marketable securities has been improved, which
indicates its stronger liquidity position.

A.4. Leverage Ratios

Debt to equity ratio

This ratio compares the amount funds supplied and the amount of funds supplied by the
owners. We know that equity is the most expensive source of funds a so an optimum debt
to equity ratio is needed to maximize income. It is calculated as follows:

Debt-equity ratio = Total debt / equity

20
Year 2007 2008 2009
Bank 10
13.56 15.01 12.86
Asia
Prime 0
14.78 14.10 15.49
Bank 2007 2008 2009
EBL 9.84 10.45 10.54 Bank asia Prime Bank EBL

This ratio has continuously increased throughout the 3 years under consideration, which
indicates that the leverage for Bank Asia has increased over the year, so as the return, and
unsurprisingly, the risk.

Total Debt Ratio

Total debt ratio = total liabilities / total assets 100.00%

80.00%
60.00%
Year 2007 2008 2009 40.00%
20.00%
Bank Asia 93.13% 93.76% 92.78 0.00%
Prime Bank 94.00% 93.00% 94.00%
2007 2008 2009
EBL 91.00% 91.00% 91.00%
Bank Asia Prime Bank EBL

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The debt ratio is measure of the level of liabilities held in relation to total assets. Increase
in this ratio means higher risk and more leverage. Since the ratio has a downward moving
trend, we come to an interesting finding; the effect of increased long term debt is being
neutralized in the overall debt composition.

A.5. Asset-Quality Ratios

Loans to Asset Ratio

Loans to Asset Ratio = Total Loans/ Total Assets

76.00%
75.00%
74.00%
Year 2007 2008 2009 73.00%
72.00%
Bank 71.00%
74.05% 74.90% 73.21% 70.00%
Asia 69.00%
Prime 2007 2008 2009
75.00% 74.05% 75.00%
Bank
Bank Asia Prime Bank EBL
EBL 71.00% 71.00% 71.00%

This indicates what portion of company’s asset is financed by loans. This ratio has a
downward moving trend, which points out that Bank Asia is reducing use of debt in terms of
asset financing over the years. The impotent thing which is noticeable is that Bank Asia is
moving with the industry rate and also its competitors. From 2007 to 2009 there is some up
and down in its ratio. In 2007 it was 74.05% but in 2009 it falls a little bit.

Equity to Loans Ratio

Equity to Loans Ratio = Total Equity Capital/ Total Loans 15.00%

10.00%
Year 2007 2008 2009 5.00%
Bank Asia 7.37% 6.66% 7.78 0.00%
Prime Bank 7.50% 7.35% 7.45% 2007 2008 2009
EBL 7.10% 7.10% 7.10% Bank Asia Prime Bank EBL

The equity capital for Bank Asia has increased over the 3 years under consideration when
compared against the loans. This indicates that Bank Asia has lowered its risk but has used
funding source which requires higher cost.

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