Contents

1. Introduction: ................................................................................................................................... 3
1.1 Title of the report .......................................................................................................................... 3
1.2 Objectives of the report ................................................................................................................. 3
1.3 Limitations of the report ............................................................................................................... 4
1.4 Methodology................................................................................................................................. 4
1.4.1 Data collection ...................................................................................................................... 4
1.4.2 Analysis of Data .................................................................................................................... 4

2 Overview of Prime Bank Limited.............................................................................................. 5

2.1 Mission and Vision of Prime Bank Limited ................................................................................. 5
3 Concepts of Stress Testing ...................................................................................................... 6
3.1 Importance: ................................................................................................................................... 6
3.2 Techniques for Stress Testing: ...................................................................................................... 7
3.3 Framework for Regular Stress Testing: ........................................................................................ 7
3.4 Scope of Stress Test: ..................................................................................................................... 8

4 Calibration of Shocks ................................................................................................................ 9

4.1 Credit Risk: ................................................................................................................................... 9
4.2 Interest Rate Risk: ....................................................................................................................... 17
4.3 Exchange Rate Risk: ................................................................................................................... 20
4.4 Equity Price Risk ........................................................................................................................ 22
4.5 Liquidity Risk ............................................................................................................................. 23
4.6 Implications of Stress Test Result of the Study .......................................................................... 25
4.7 Cumulative impact of all shock .................................................................................................. 25

5 Analysis on Financial Performance on Prime Bank Limited .................................... 26

5.1 Profitability Ratio: ...................................................................................................................... 27
5.2 Liquidity Ratio: ........................................................................................................................... 31
5.3 Solvency Ratio: ........................................................................................................................... 33
5.4 Asset Management Ratio: ........................................................................................................... 34
5.5 Risk Ratio: .................................................................................................................................. 35
 5.6 Stock Market Ratio ..................................................................................................................... 38
5.7 Solvency Ratio: .............................................................................. Error! Bookmark not defined.

6 Findings and Conclusion ........................................................................................................... 41

7 References .................................................................................................................................... 42
 1. Introduction:
The international financial turmoil of the 1990s, the Asian crisis, and the recent worldwide
economic meltdown, originated in the US, prompted the development of new frameworks, tools,
and techniques to assess the stability of financial system (Paul & Mathew, 2004). This shocking
to the economy has augmented the importance of better understanding of potential vulnerabilities
in the financial system and the measures to assess these vulnerabilities for both the regulators and
the bankers. The regulators and managers of the financial system around the globe have developed
a number of quantitative techniques to assess the potential risks to the individual institutions as
well as financial system. A range of quantitative techniques that could serve the purpose is widely
known as “stress testing”. IMF and Basel Committee on banking supervision have also suggested
for conducting stress tests on the financial sector. At system level, stress tests are primarily
designed to quantify the impact of possible changes in economic environment on the financial
system (Paul & Mathew, 2004). At institutional level, stress testing techniques provide a way to
quantify the impact of changes in a number of risk factors on the assets and liabilities portfolio of
the institution. Taking the above as essence of stress testing, this study seeks to operate stress
testing on Prime Bank Ltd.

1.1 Title of the report

Stress Testing & Ratio Analysis of Prime Bank Limited in Bangladesh

1.2 Objectives of the report

The paper is prepared for serve the purpose of providing a conceptual as well as practical snapshot
of stress testing. The broad & overall objective of this report is to know about the stress testing on
Prime Bank Ltd. This report aims to achieve the following specific objective:

To give a brief conceptual idea of stress testing.

To analyze the shocks or risk factors of stress testing.
To conduct stress testing of the sample commercial bank (Prime Bank Ltd.) to determine
the impact of the potential event of deteriorations on mandatory capital requirements as
suggested by Basel.
To find out the overall stress testing of the company for five consecutive years.
To find out the Performance evaluation through ratio analysis.
To derive findings of the study.
1.3 Limitations of the report
The Study is subject to a number of limitations. A lot of information could not obtain because the
banks were not interested to disclose their information, policy, and data to maintain their secrecy.
I had to depend on the websites of the respective banks for much information. There are certain
limitations regarding the studies that are summarized below:

Lack of thorough knowledge and experience on stress testing.

Time provided for conducting the study is another important constraint.
Another limitation was that the information gathered could not be verified for accuracy.
Deficiencies in data required for the study.

1.4 Methodology

1.4.1 Data collection

The purpose of the paper is to identify the financial condition of the Prime Bank Limited in
different types of adverse events. Here data will be collected systematically and the data which
will be collected from secondary source has to be analyzed and presented in a proper way. Here
the only source of collecting secondary data is annual report of Prime bank ltd. The data are
collected for the year of 2015&2016 to show the effects in different years.

1.4.2 Analysis of Data

In the report, we use the techniques which are discussed in the guideline of Bangladesh bank to
identify the degree of shocks in the Capital Adequacy Ratio (CAR) & to analyze the Financial
Performance of Prime Bank Ltd.
 2 Overview of Prime Bank Limited
Prime Bank Ltd was created and commencement of business started on 17th April 1995. The
sponsors are reputed personalities in the field of trade and commerce and their stake ranges from
shipping to textile and finance to energy etc. Prime Bank has already made significant progress
within a very short period of its existence. The bank has been graded as a top class bank in the
country through internationally accepted CAMELS rating. The bank has already occupied an
enviable position among its competitors after achieving success in all areas of business operation.

As a fully licensed commercial bank, Prime Bank is being managed by a highly professional and
dedicated team with long experience in banking. They constantly focus on understanding and
anticipating customer needs. As the banking scenario undergoes changes so is the bank and it
repositions itself in the changed market condition.

Prime Bank offers all kinds of Commercial Corporate and Personal Banking services covering all
segments of society within the framework of Banking Company Act and rules and regulations laid
down by our central bank. Diversification of products and services include Corporate Banking,
Retail Banking and Consumer Banking right from industry to agriculture, and real state to
software.

2.1 Mission and Vision of Prime Bank Limited

Vision:

To be the best Private Commercial Bank in Bangladesh in terms of efficiency, capital adequacy,
asset quality, sound management and profitability having strong liquidity.

Mission:
To build Prime Bank Limited into an efficient, market driven, customer focused institution with
good corporate governance structure. Continuous improvement of our business policies,
procedures and efficiency through integration of technology at all levels.
 3 Concepts of Stress Testing
Stress testing is one of the effective and popular ways to alert bank management with regard to
adverse unexpected outcomes related to variety of risks and provides an indication how much
Capital Adequacy Ratio (CAR) might be needed to absorb losses should any large shocks occur.
Stress testing is a simulation technique, which are used to determine the reactions of different
financial institutions under a set of exceptional, but plausible assumptions through a series of
battery of tests.

At institutional level, stress testing techniques provide a way to quantify the impact of changes in
a number of risk factors on the assets and liabilities portfolio of the institution. For instance, a
portfolio stress test makes a rough estimate of the value of portfolio using a set of exceptional
but plausible events in abnormal markets.

At the system level, stress tests are primarily designed to quantify the impact of possible changes
in economic environment on the financial system. The system level stress tests also complement
the institutional level stress testing by providing information about the sensitivity of the overall
financial system to a number of risk factors. These tests help the regulators to identify structural
vulnerabilities and the overall risk exposure that could cause disruption of financial markets. Its
prominence is on potential externalities and market failures.

3.1 Importance:
It is of vital importance to understand and appreciate the risks the banking industry is exposed to
so that soundness and sustainability of the industry can be ensured. Earlier, Bangladesh Bank has
issued core risk management guidelines so that banks can develop a sound risk management
practice while carrying out their day‐to‐day activities. The recent financial turmoil in the US
financial system has augmented the importance of establishing more developed risk management
regime in the financial industry. Present risk management culture based on normal business
conditions and historical trends is not enough to cope with the disorders that have happened in
the financial systems globally. This required an appropriate response in the regulatory and
supervisory activities of the Central Bank.

Extreme market movements or crises in the past reveal the inadequacy of managing risks based
only on normal business conditions and historical trends. In particular, crises in the 1990’s (e.g.
Asian Crisis) and current financial turmoil have augmented the importance of better
understanding of potential vulnerabilities in the financial system and the measures to assess these
vulnerabilities for both the regulators and the bankers. The regulators and managers of the
financial system around the globe have developed a number of quantitative techniques to assess
the potential risks to the individual institutions as well as financial system. The widely known
‘Stress testing’ is a range of quantitative techniques that could serve the purpose. IMF and Basel
Committee on banking supervision have also suggested for conducting stress tests on the
financial sector.

3.2 Techniques for Stress Testing:

a) Simple Sensitivity Analysis (single factor tests):
It measures the change in the value of portfolio for shocks of various degrees to different
independent risk factors while the underlying relationships among the risk factors are not
considered. For example, the shock might be the adverse movement of interest rate by 100 basis
points and 200 basis points. Its impact will be measured only on the dependent variable i.e. capital
in this case, while the impact of this change in interest rate on NPLs or exchange rate or any other
risk factor is not considered.

b) Scenario Analysis:
It encompasses the situation where a change in one risk factor affects a number of other risk factors
or there is a simultaneous move in a group of risk factors. Scenarios can be designed to encompass
both movements in a group of risk factors and the changes in the underlying relationships between
these variables (for example correlations and volatilities). Stress testing can be based on the
historical scenarios, a backward looking approach, or the hypothetical scenario, a forward‐looking
approach.

c) Extreme Value/ Maximum Shock Scenario:

It measures the change in the risk factor in the worst‐case scenario, i.e. the level of shock which
entirely wipes out the capital.

3.3 Framework for Regular Stress Testing:

The stress‐testing framework involves the scope of the risks covered and the process/procedure to
carry out the stress test. This framework should be flexible enough to adopt advanced models for
stress testing. It involves:

A well constituted organizational structure defining clearly the roles and responsibilities of
the persons involved in the exercise. Preferably, it should be the part of the risk
management functions of the bank/FI. The persons involved should be independent from
those who are actually involved in the risk taking and should directly report the results to
the senior management.

Defining the coverage and identifying the data required and available.
 Identifying, analyzing and proper recording of the assumptions used for stress testing.

Calibrating the scenarios or shocks applied to the data and interpreting the results.

An effective management information system that ensures flow of information to the senior
management to take proper measures to avoid certain extreme conditions.

Setting the specific trigger points to meet the benchmarks/standards set by Bangladesh
Bank.

Ensuring a mechanism for an ongoing review of the results of the stress test exercise and
reflecting in the policies and limits set by management and board of directors.

Taking this stress test as a starting point and developing in‐house stress test model to assess
the bank/FI’s specific risks.

3.4 Scope of Stress Test:

As a starting point the scope of the stress test is limited to simple sensitivity analysis. Five different
risk factors namely; interest rate, Forced Sale Value of collateral, Non‐Performing Loans
(NPLs), stock prices and foreign exchange rate have been identified and used for the stress
testing. Moreover, the liquidity position of the institutions has also been stressed separately.
Though the decision of creating different scenarios for stress testing is a difficult one, however, to
start with, certain levels of shocks to the individual risk components have been specified
considering the historical as well as hypothetical movement in the risk factors.

Stress test shall be carried out assuming three different hypothetical scenarios:

Minor Level Shocks: These represent small shocks to the risk factors. The level for
different risk factors can, however, vary.

Moderate Level Shocks: It envisages medium level of shocks and the level is defined in
each risk factor separately.

Major Level Shocks: It involves big shocks to all the risk factors and is also defined
separately for each risk factor.

Assumptions behind each Scenario: The stress test at this stage is only a single factor sensitivity
analysis. Each of the five risk factors has been given shocks of three different levels. The
magnitude of shock has been defined separately for each risk factor for all the three levels of
shocks.
 Application of Stress Testing on Prime
Bank Limited

4 Calibration of Shocks
4.1 Credit Risk:
The stress test for credit risk assesses the impact of increase in the level of nonperforming loans
of the bank/FI. This involves six types of shocks:

The first deals with the increase in the NPLs and the respective provisioning. The three
scenarios shall explain the impact of 1%, 2% and 3% of the total performing loans directly
downgraded to bad/loss category having 100% provisioning requirement.

The second deals with the negative shift in the NPLs categories and hence the increase in
respective provisioning. The three scenarios shall explain the impact of 50%, 80% and
100% downward shift in the NPLs categories. For example, for the first level of shock 50%
of the SMA shall be categorized under substandard, 50% of the substandard shall be
categorized under doubtful and 50% of the doubtful shall be added to the bad/loss category.

The third deals with the fall in the forced sale value (FSV) of mortgaged collateral. The
forced sale values of the collateral shall be given shocks of 10%, 20% and 40% decline in
the forced sale value of mortgaged collateral for all the three scenarios respectively.

The fourth deals with the increase of the NPLs in particular 1 or 2 sector i.e. garments
&Textiles and the respective provisioning. The three scenarios shall explain the impact of
5%, 7.5% and 10% performing loans of particular 1 or 2 sectors directly downgraded to
bad/loss category having 100% provisioning requirement.

The fifth deals with the increase of the NPLs due to default of Top 10 large borrowers
and the respective provisioning. The three scenarios shall explain the impact of 5%, 7.5%
and 10% performing loans of Top 10 large borrowers directly downgraded to bad/loss
category having 100% provisioning requirement.

The sixth deals with extreme events in which due to increase in the certain percentage of
NPLs, the whole capital position of a bank will be wiped out to offset the increased amount
 of provision due to cover respective loan losses. The forced sale value of the collaterals
and tax‐adjusted impact of the additional required provision (if any) will be calibrated in
the CAR for the each scenario under all categories.

Initial financial position of Prime Bank Ltd. is described below:

2016

CAR (%) 12.71%

RWA 214,891,840,014

Regulatory Capital 27,312,752,866

Table : Financial position of Prime Bank Ltd

A) Increase in NPLS

Year 2016

Calibration in CAR: Scenario 1 Scenario 2 Scenario 3

Increase in NPLs (%) 1% 2% 3%

CAR 12.71% 12.71% 12.71%

Risk weighted assets 214,891,840,014 214,891,840,014 214,891,840,014

Regulatory capital
27,312,752,866 27,312,752,866 27,312,752,866

Total Loan 172,964,721,444 172,964,721,444 172,964,721,444

NPL ratio 5.26% 5.26% 5.26%

Total Non-Performing Loans 9,097,944,347.95 9,097,944,347.95 9,097,944,347.95

(NPLs)

Total Performing Loans 163,866,777,096.0 163,866,777,096.0 163,866,777,096.0

46 46 46
 Magnitude of Shock 1% 2% 3%

Increase in NPLs 90979443.48 181958887 272938330.4

Increase in provisions (after 90,979,443.48 181,958,887 272,938,330.40

adjustment of eligible
securities; if any)

Tax Adjusted Provision (not 90,979,443.48 181,958,887 272,938,330.40

yet applicable)

Revised Regulatory Capital 27,221,773,422.30 27,130,793,978.78 27,039,814,535.38

Revised risk weighted assets 214,800,860,570.5 214,709,881,127.0 214,618,901,683.6

2 0 0

Revised CAR (%) 12.67% 12.64% 12.60%

Fall in CAR (%) 0.04% 0.07% 0.11%

Revised NPLs 9,188,923,791.43 9,279,903,234.91 9,370,882,678.39

Revised NPLs to Loans (%) 5.31% 5.37% 5.42%

Table : Increase in the NPLs

In minor shock (1% increase in NPLs) the CAR of 2016 would fall to 12.67%apparently. In case
of 2% increase in NPLs, CAR of 2016 would fall to 10.64%and 3% increase of NPLs would lower
the CAR to 12.60%which is the lowest one among the three. Fall in CAR are 0.04%, 0.07%and
0.11%respectively under each scenario. So, if there is the highest shock of increase in NPL, Prime
Bank Ltd.would face lower CAR ratio.
 Revised CAR (%) 2016
12.67%
12.68%
12.66% 12.64%
12.64%
12.60% Revised CAR (%)
12.62%
12.60%
12.58%
12.56%
1 2 3

Figure: Fall of CAR in different level of magnitude in 2016

B. Downward Shift in NPLs categories

Year 2016
Calibration in CAR: Scenario 1 Scenario 2 Scenario 3
Shift in NPLs Categories (%) 50% 80% 100%
CAR 12.71% 12.71% 12.71%
Risk weighted assets 214,891,840,014 214,891,840,014 214,891,840,014
Regulatory capital 27,312,752,866 27,312,752,866 27,312,752,866
Total Non-Performing Loans (NPLs) 9,097,944,347.95 9,097,944,347.95 9,097,944,347.95
Special Mention Account or SMA 5,616,060,628 5,616,060,628 5,616,060,628
Substandard 2808030314 4492848502 5616060628
Doubtful 1404015157 3594278802 5616060628
Bad and Loss 702007578.5 2875423042 5616060628
Provision for SMA 0% 0% 0%
Provision for Substandard 20% 20% 20%
Provision for Doubtful 50% 50% 50%
Provision for Loss 100% 100% 100%
Magnitude of Shock 50% 80% 100%
Weighted Amount of Provision 1,965,621,220 5,571,132,143 9,547,303,068
Provision After Shift in Catagories 3,299,435,619 8,985,697,005 15,163,363,696
Increase in Provision 1,333,814,399 3,414,564,862 5,616,060,628
Tax Adjusted Provision (not yet
applicable) 1,333,814,399 3,414,564,862 5,616,060,628
Revised Regulatory Capital 25,978,938,467 23,898,188,004 21,696,692,238
Revised risk weighted assets 213,558,025,615 211,477,275,152 209,275,779,386
 Revised CAR 12.16% 11.30% 10.37%
Fall in CAR 0.55% 1.41% 2.34%

Table : Shifts in NPLs categories

In 2016, the downward shift in NPLs categories effect most adversely compare to the other years.
When the shocks changed by 100% than the CAR of Prime Bank become 10.37% which is lower
than the minimum required capital.

C. Increase of NPLs in particular 1 or 2 sectors

Year 2016
Calibration in CAR: Scenario 1 Scenario 2 Scenario 3
Increase in NPLs (%) 5% 7.5% 10%
CAR 12.71% 12.71% 12.71%
Risk weighted assets 214,891,840,014 214,891,840,014 214,891,840,014
Regulatory capital
27,312,752,866 27,312,752,866 27,312,752,866
Textile industries 6,070,725,733 6,070,725,733 6,070,725,733
Magnitude of Shock 5% 7.5% 10%
Increase in NPLs under bad/loss (B/L) 303536286.7 455304430 607072573.3
category
Increase in provisions (after adjustment of 303536286.7 455304430 607072573.3
eligible securities; if any)
Tax Adjusted Provision (not yet applicable) 303536286.7 455304430 607072573.3
Revised Regulatory Capital 27,009,216,579 26,857,448,436 26,705,680,293
Revised risk weighted assets 214,588,303,727 214,436,535,584 214,284,767,441
Revised CAR (%) 12.59% 12.52% 12.46%
Fall in CAR (%) 0.12% 0.19% 0.25%

Table :Increase of NPLs in particular 1 or 2 sectors

Prime bank can provides loan in different sectors where in textile sector it provides about 29% of
its deposits. So to identify the effect in particular sector, I choose textile sector.

D. Increase in NPLs due to default of Top 10

The average percentages of loan by top 10 borrowers are 15%, 10% and 18.39% respectively for
the year 2016, 2015& 2012. An increase in NPLs by top borrowers can become a negative effect
on the bank. But the effect become high in 2012 where an in increase in 7.5% of NPL can decrease
 the CAR by 0.98% and makes the CAR about 11.75% which is below the minimum capital
preferred by BASEL II.

Table : Increase in NPLs due to default of Top 10

Year 2016

Calibration in CAR: Scenario 1 Scenario 2 Scenario 3

Increase in NPLs (%) 5% 7.5% 10%

CAR 12.71% 12.71% 12.71%

Risk weighted assets 214,891,840,014 214,891,840,014 214,891,840,014

Regulatory capital 27,312,752,866 27,312,752,866 27,312,752,866

Total Outstanding Loan to Top 10 large

borrowers (Funded) 21,615,300,000 21,615,300,000 21,615,300,000

Magnitude of Shock 5% 7.5% 10%

Increase in NPLs under bad/loss (B/L)
category 1080765000 1621147500 2161530000

Increase in provisions (after adjustment of

eligible securities; if any) 1080765000 1621147500 2161530000
Tax Adjusted Provision (not yet
applicable) 1080765000 1621147500 2161530000

Revised Regulatory Capital 26,231,987,866 25,691,605,366 25,151,222,866

Revised risk weighted assets 213,811,075,014 213,270,692,514 212,730,310,014

Revised CAR (%) 12.27% 12.05% 11.82%
Fall in CAR (%)
0.44% 0.66% 0.89%

E. Fall in the FSV of Mortgaged Collateral

Year 2016
Calibration in CAR: Scenario 1 Scenario 2 Scenario 3
Fall in FSV of Mortgaged Collateral
(%) 10% 20% 40%
CAR 12.71% 12.71% 12.71%
Risk weighted assets 214,891,840,014 214,891,840,014 214,891,840,014
Regulatory capital 27,312,752,866 27,312,752,866 27,312,752,866

Total value of Mortgaged Collateral 147,366,652,393 147,366,652,393 147,366,652,393

Total FSV of Mortgaged Collateral
(80% of total value) 117,893,321,914 117,893,321,914 117,893,321,914
Special Mention Account or SMA
(10% of FSV) 11,789,332,191 11,789,332,191 11,789,332,191

Substandard (10% of FSV) 11,789,332,191 11,789,332,191 11,789,332,191

Doubtful (20% of FSV) 23,578,664,383 23,578,664,383 23,578,664,383

Bad & Loss (60% of FSV) 70,735,993,149 70,735,993,149 70,735,993,149

Provision for SMA 0% 0% 0%
Provision for Substandard 20% 20% 20%
Provision for Doubtful 50% 50% 50%
Provision for Bad & Loss 100% 100% 100%
Magnitude of Shock 10% 20% 40%

Weighted FSV of Collateral 84,883,191,778 84,883,191,778 84,883,191,778

Increase in provision (Fall in the FSV
of Collateral) 8,488,319,177.84 16,976,638,356 33,953,276,711
Tax Adjusted Provision (not yet
applicable) 8,488,319,178 16,976,638,356 33,953,276,711

Revised Regulatory Capital 18,824,433,688 10,336,114,510 (6,640,523,845)

Revised risk weighted assets 206,403,520,836 197,915,201,658 180,938,563,303

Revised CAR (%) 9.12% 5.22% -3.67%
Fall in CAR (%) 3.59% 7.49% 16.38%

Table: Fall in the FSV of Mortgaged Collateral

 After considering the shocks in different levels in case of fall in the FSV of Mortgages
Collateral, we found that revised CAR is lower than the minimum required CAR.
F. Extreme Events

Year 2016

CAR (%) 12.71%

Risk Weighted Assets 214,891,840,014

Total Regulatory Capital 27,312,752,866

Total Loan 172,964,721,444

NPL ratio 5.26%

Total Non-Performing Loans (NPLs) 9097944348

Increase in NPLs 27,312,752,866

Increase in provisions (after adjustment of eligible 27,312,752,866

securities; if any)

Revised Regulatory Capital 0

Revised risk weighted assets 187,579,087,148

Revised CAR (%) 0%

Fall in CAR (%) 12.71%

Revised NPLs 36,410,697,214

Revised NPLs to Loans (%) 21.05%

At the time of extreme events total capital shifts to non performing loan where no total capital
exists. So CAR can all the particular amount of the particular year.
4.2 Interest Rate Risk:
Interest rate risk is the potential that the value of the on‐balance sheet and the off-balance sheet
positions of the bank/DFI would be negatively affected with the change in the interest rates. The
vulnerability of an institution towards the adverse movements of the interest rate can be gauged
by using duration GAP analysis.

The banks and FIs shall follow the following steps in carrying out the interest rate stress tests:

Estimate the market value of all on‐balance sheet rate sensitive assets and liabilities of the
bank/DFI to arrive at market value of equity

Calculate the durations of each class of asset and the liability of the on‐balance sheet
portfolio Arrive at the aggregate weighted average duration of assets and liabilities

Calculate the duration GAP by subtracting aggregate duration of liabilities from that of
assets.

Estimate the changes in the economic value of equity due to change in interest rates on on‐
balance sheet positions along the three interest rate changes.

Calculate surplus/(deficit) on off‐balance sheet items under the assumption of three

different interest rate changes i.e. 1%, 2%, and 3%

Estimate the impact of the net change (both for on‐balance sheet and off‐balance sheet) in
the market value of equity on the capital adequacy ratio (CAR).

Market value of the asset or liability shall be assessed by calculating its present value discounted
at the prevailing interest rate. The outstanding balances of the assets and Liabilities should be
taken along with their respective maturity or repricing period, whichever is earlier.
The risk that an investment's value will change due to a change in the absolute level of interest
rates, in the spread between two rates, in the shape of the yield curve or in any other interest rate
relationship. When stress testing the interest rate risk, we test the robustness of the banking sector
for sufficiently high and unexpected changes in the Policy rate. The scenario consists of an
increase/ decrease of the Policy rate.
To identify the interest rate risk, a number of data are required which can not be available all time.
As a result to calculate interest rate risk for Prime Bank Ltd. I consider some assumptions. The
assumptions are:
 Market value and book value of Balance with other banks and financial institutions and
loans and advances are assumed to be same. Yield to maturity for different Govt. Treasury
Bonds are taken from the cut-off yields of respective year’s December auction.
Current bank’s lending and deposits rate are considered in order to taken deposit and
lending rate.
Book value and market value of borrowing and deposits are assumed to be same.
As Prime Bank Ltd. has no off balance sheet assets so the fall in MVE and net fall in MVE
become same in my report. Here the tax rate for all banks in 2016 it is 40%.

2016

(Da-Dl*k) 2.50551 2.50551 2.50551

A 59,043,784,710 59,043,784,710 59,043,784,710

Interest Rate Shock

Magnitude of Shock 0.01 0.02 0.03

Change in MVE‐(on‐balance -2900682216

sheet) (1,464,700,921 (4,308,780,379
) )

Net Change in MVE‐(on‐balance -1464700921 -2900682216 -4308780379

sheet & off‐balance sheet)

Tax Rate 0.4 0.4 0.4

Tax adjusted loss -1740409330 -2585268228

(878,820,553)

Tax adjusted loss 1,740,409,330

878,820,553 2,585,268,228

Total Regulatory capital 27,312,752,866

27,312,752,866 27,312,752,866
 Revised Capital 26,433,932,313 25,572,343,536 24,727,484,638

Risk weighted assets 214,891,840,014

214,891,840,01 214,891,840,01
4 4

Revised risk weighted assets 213,151,430,684

214,013,019,46 212,306,571,78
1 6

CAR 12.71% 12.71% 12.71%

Revised CAR 12.35% 12.00% 11.65%

Change in CAR (%) -0.36% -0.71% -1.06%

Procedure of Calculating Duration GAP:

The Duration GAP has been calculated by using the following formula:

DGAP = DA – (MVL/MVA) X DL
DA = Weighted average duration of assets
MVL = Market value of liabilities
MVA = Market value of assets
DL = Weighted average duration of liabilities

The change in market value of equity has been calculated using the following formula:

Δ MVE = (-DGAP) X Δi / (1+y) X Total Assets

Δi = Change in the interest rate
y = Effective yield to maturity of all the assets

The impact of interest rate shocks on the CAR of PBL are given below –

2016

1% 2% 3%

Revised CAR (%) 12.35% 12.00% 11.65%

 Fall in CAR (%) -0.36% -0.71% -1.06%

4.3 Exchange Rate Risk:

The stress test for exchange rate assesses the impact of change in exchange rate on the value of
equity. To assess foreign exchange risk the overall net open position of the bank/FI including the
on‐balance sheet and off‐balance sheet exposures shall be charged by the weightage of 5%, 10%
and 15% for minor, moderate and major levels respectively. The overall net open position is
measured by aggregating the sum of net short positions or the sum of net long positions; whichever
is greater. For example, the bank may have net long position of Tk.500 million in Yen, Euro and
USD and the net short position in GBP and Australian dollar of Tk.600 million. The total exposure
will be the greater of the two i.e. sum of the short positions of Tk.600 million. The impact of the
respective shocks will have to be calibrated in terms of the CAR. The tax‐adjusted loss if any
arising from the shocked position will be adjusted from the capital. The revised CAR will then be
calculated after adjusting total loss from the risk‐weighted assets of the bank/FI.

Exchange rate risk is the risk that exchange rate changes affect the local currency value of Banks’
(and the sector’s) assets and liabilities as well as off-balance sheet items. Exchange rate risk can
arise from positions in foreign currency as well as those in local currency that are indexed to
foreign exchange rates. Furthermore, exchange rate risk can be direct when financial institutions
have positions in foreign currency, or indirect when the foreign exchange positions taken by
the financial institutions’ borrowers may affect their creditworthiness.

Net foreign exchange exposure of PBL has been calculated by subtracting the foreign exchange
liabilities from the foreign exchange assets. Foreign exchange liabilities include both on-balance
sheet and off-balance sheet foreign exchange liabilities. Foreign currency (FC) held in hand and
FC held in BB and NOSTRO account are considered as foreign currency assets. Borrowing from
outside Bangladesh is considered as on- balance sheets liabilities and Irrevocable LC as off-
balance sheet.

Year 2016

Calibration in CAR: Scenario 1 Scenario 2 Scenario 3

Change in exchange rate 5% 10% 15%

 Tax Rate 40.00% 40.00% 40.00%

CAR 12.71% 12.71% 12.71%

Risk weighted assets 214,891,840,014

214,891,840,014 214,891,840,014

Regulatory capital 27,312,752,866

27,312,752,866 27,312,752,866

Magnitude of Shock 5% 10% 15%

Net on-balance sheet and off-balance (212,733,197)

sheet currency exposure (212,733,197) (212,733,197)

Exchange rate loss on % change (21,273,320)

(10,636,660) (31,909,980)

Tax adjusted loss (12,763,992)

(6,381,996) (19,145,988)

Revised Regulatory Capital 27,325,516,858

27,319,134,862 27,331,898,854

Revised risk weighted assets 214,904,604,006

214,898,222,010 214,910,986,002

Revised CAR (%) 12.71% 12.72% 12.72%

Fall in CAR (%) 0.00% -0.01% -0.01%

For Prime Bank Ltd. net exposure in foreign currency including off-balance sheet liabilities was
always negative. Prime bank has no foreign currency off balance sheet assets. Negative exposure
can indicate that Prime bank Ltd. becomes in risk at the time of currency depreciation. The Bank
would able to maintain required Capital Adequacy level in both minor and moderate level shock
in all the years.
4.4 Equity Price Risk

The stress test for equity price risk assesses the impact of the fall in the stock market index.
Appropriate shocks will have to be absorbed to the respective securities if the current market value
of all the on balance sheet and off balance sheet securities listed on the stock exchanges including
shares, NIT units, mutual funds etc falls at the rate of 10%, 20% and 40% respectively. The impact
of resultant loss will be calibrated in the CAR.

Year 2016

Calibration in CAR: Scenario 1 Scenario 2 Scenario 3

Fall in the stock prices (%) 10% 20% 40%

Tax Rate 40.00% 40.00% 40.00%

CAR 12.71% 12.71% 12.71%

Risk weighted assets

214,891,840,014 214,891,840,014 214,891,840,014

Regulatory capital
27,312,752,866 27,312,752,866 27,312,752,866

Magnitude of Shock 10% 20% 40%

Total exposure in stock market 324,475,510

324,475,510 324,475,510

Fall in the stock prices 32,447,551

64,895,102 129,790,204

Tax adjusted loss 19,468,531

38,937,061 77,874,122

Revised Regulatory Capital

27,293,284,335 27,273,815,805 27,234,878,743
 Revised risk weighted assets
214,872,371,483 214,852,902,953 214,813,965,892

Revised CAR (%) 12.702% 12.69% 12.68%

Fall in CAR (%) 0.008% 0.02% 0.03%

It has observed that all shocks in stock price would lower the CAR in 2016 by 0.008%, 0.02%
and 0.03% respectively under the three scenarios i.e. minor, moderate & major.

4.5 Liquidity Risk

The stress test for liquidity risk evaluates the resilience of the banks towards the fall in liquid
liabilities. The ratio “liquid assets to liquid liabilities” shall be calculated before and after the
application of shocks by dividing the liquid assets with liquid liabilities. Liquid assets are the assets
that are easily turned into cash without the threat of loss. They include cash, balances with
Bangladesh Bank and balances with banks, call money lending, lending under repo and investment
in government securities. Liquid liabilities include the deposits and the borrowings. Appropriate
shocks will have to be absorbed to the liquid liabilities if the current liquidity position falls at the
rate of 10%, 20% and 30% respectively. The ratio of liquid assets to liquid liabilities shall be re‐
calculated under each scenario.

Liquidity risk is the risk that assets are not readily available to meet a demand for cash. Stress
testing the liquidity of the banking sector involves assessing the impact on the liquidity gap of a
shock such as large-scale deposit withdrawals, a large fall in the price of equities, or an exchange
rate crisis. Modeling liquidity risk is often considered to be much more difficult than modeling
interest rate or exchange rate risk. Many central banks therefore rely on the liquidity stress tests
conducted by the banks themselves. The results of these stress tests are reported off-site, which is
followed-up by integrity checks during on-site visits.
 2014
Not more than above 5-years
Particulars 1 month term 1-3 months term 3-12 months term 1-5 years term term
TOTAL OUTFLOWS (A) 34,627,456,736 52,375,736,803 39,273,178,865 55,115,885,561 49,059,230,124
TOTAL INFLOWS (B) 40,019,325,729 44,905,652,275 62,415,751,002 55,269,362,172 52,302,108,890
MISMATCH 5,391,868,993 -7,470,084,528 23,142,572,137 153,476,611 3,242,878,766
MISMATCH (%) 15.57% -14.26% 58.93% 0.28% 6.61%
cumulative mismatch 5391868993 -2078215535 21064356602 21217833213 24460711979
24372322849
F. CUMULATIVE COUNTER BALANCING CAPACITY (AFTER MISMATCH) 16412833961 43229145780

shock of 5%
TOTAL OUTFLOWS (A) 37246243576 51720608906 40065314200 54813052789 46606268618
TOTAL INFLOWS (B) 38018359443 44661335948 61540246066 55626681614 52450471554
MISMATCH 772115866.4 -7059272958 21474931866 813628824.3 5844202936
MISMATCH (%) 2.07% -13.65% 53.60% 1.48% 12.54%
cumulative mismatch 772115866.4 -6287157092 15187774774 16001403598 21845606535
cumulative counter balancing ability 21026969288 11363401984 36560973268

shock of 7%
TOTAL OUTFLOWS (A) 38293758312 51458557747 40382168334 54691919680 45625084015
TOTAL INFLOWS (B) 37217972928 44563609417 61190044091 55769609390 52509816620
MISMATCH -1075785384 -6894948331 20807875757 1077689710 6884732604
MISMATCH (%) -2.81% -13.40% 51.53% 1.97% 15.09%
cumulative mismatch -1075785384 -7970733715 12837142043 13914831752 20799564357
cumulative counter balancing ability 18135927501 8850326074 33396206515

shock of 10%
TOTAL OUTFLOWS (A) 39865030416 51065481009 40857449535 54510220017 44153307112
TOTAL INFLOWS (B) 36017393156 44417019620 60664741129 55984001055 52598834218
MISMATCH -3847637260 -6648461389 19807291595 1473781038 8445527107
MISMATCH (%) -9.65% -13.02% 48.48% 2.70% 19.13%
cumulative mismatch -3847637260 -10496098649 9311192946 10784973983 19230501090
cumulative counter balancing ability 14946819410 5993161425 29544603809

minor 5% moderate 7% major 10%

gap during 1-90 day time bucket -7.07% -8.88% -11.54%
cumulative gap upto 1 year 11.77% 9.86% 7.07%

SUB TOTAL
1st line of defence 36,737,396,813 18368698407
2nd line of defence 3,058,777,247 611755449.4 18980453856
4.6 Implications of Stress Test Result of the Study

Having summarized the main results of the study, the researchers would like to suggest some
implications of the study that might help the senior managements, policy makers, depositors,
owners, and all other stakeholders of the banks. The implications are: first, that it can be said that
devising stress test the bank risk managers can identify and recognize the character of firm’s
exposure as well as the relative strengths and weaknesses of stress test analysis and other
techniques to better simulate the risks at different hypothetical economic crises. Second, by
interpreting the results the banks can assess their relative capital strength in terms of other banks
in the banking sector. Third, the banks would be in a position to establish a capital buffer (shock
absorbers on capital) to defend their risk appetite under stress conditions.

4.7 Cumulative impact of all shock

Financial Institutions assess combined shock by aggregating the results of Interest rate shock,
credit shock, equity shock, and liquidity shock. in case of credit shock, increase in NPL’s, result
of increase in NPL’s due to default of large borrowers, negative shift in all the categories and
increase of NPL’s in particular Textile industries would have to be taken into account.

Summary of all shock levels are as follows:

Sl. 2016
Reason for Fall in CAR (%)
No. Minor Moderate Major

1 Interest Rate Shock -0.36% -0.71% -1.06%

2 Exchange Rate Shock 0.00% -0.01% -0.01%

3 Equity Price Shock 0.008% 0.016% 0.032%

4 Credit Shock : Increase in NPLs 0.059% 0.024% 0.047%

Credit Shock : Downward Shift in
5 0.55% 1.41% 2.34%
NPLs Catagories
Credit Risk : Fall in the FSV of
6 3.59% 7.49% 16.38%
Mortgaged Collateral
Credit Risk : Increase in NPLs B/L
7 0.12% 0.19% 0.25%
Category in 1 or 2 Sectors
Credit Risk : Increase in NPLs Due to
8 0.982% 0.071% 0.107%
Top 10 Borrowers:
Total 4.95% 10.00% 18.08%
"Stress testing" is a term that comes with much mystique. In individual financial institutions, the
term describes a range of techniques that attempt to measure the sensitivity of a portfolio to a set
of extreme but plausible shocks. Stress tests are simply an analytical technique that can be used to
produce a numerical estimate of a particular sensitivity. The stress testing process, however, is
more than just applying a set of formulas to spreadsheets of numbers, but involves a series
of judgments and assumptions that can be as critical to producing meaningful results as the actual
calculations themselves. Stress tests were originally developed for use at the portfolio level, to
understand the latent risks to a trading book from extreme movements in market prices. They have
now become widely used as a risk management tool by financial institutions.

Prime Bank can apply stress testing to find out the potential effect of the bank in different
categories (interest rate risk, credit risk etc.). In recent years, the techniques have been applied in
a broader context, with the aim of measuring the sensitivity of a group of institutions (such as
commercial banks) or even an entire financial system to common shocks.

5 Analysis on Financial Performance on

Prime Bank Limited
Ratio Analysis:

Ratio analysis is the calculation and comparison of ratios which are derived from the information
in a company's financial statements. The level and historical trends of these ratios can be used to
make inferences about a company's financial condition, its operations and attractiveness as an
investment. To evaluate a firm’s financial condition and performance, the financial analyst
usually performs analysis on various aspects to find out the financial health of the firm; among
which ratio analysis is one of the most important and commonly used methods. In this study
various ratio analyses will be done to understand the financial condition of the company and to
compare this condition with its rival firm to get a clear picture. The financial ratios can be
analyzed based on three criteria:

o Benchmark Analysis: A benchmark is a point of reference with which the financial ratios
of the specific company can be compared. For example, the current ratio of 2:1 is
considered to be ideal for a company and it is assumed to be the benchmark.
o Time Series Analysis: It involves comparing a present ratio with past and expected future
ratios for the company. For instance, the current ratio (the ratio of current assets to
current liabilities) for the present year could be compared with the current ratio for the
previous years. When financial ratios are arranged over a period of years, the analyst can
 study the composition of change and determine whether there has been an improvement
or deterioration in the firm’s financial condition and performance over time.
o Cross Section Analysis: The third method of comparison involves comparing the ratios of
one with those of similar firms or with industry averages at the same point in time. Such a
comparison gives insight into the relative financial condition and performance of the
firm. It also helps us to identify any significant deviation from any applicable industry
average.

5.1 Profitability Ratio:

Ratio 2015 2016

Gross Profit Ratio (%)= (Gross 42.15% 43.33%

Profit/Net Sales) × 100

Operating Profit Ratio (%)=(Operating 3.11% 2.47%

profit / Net sales) × 100

Net Interest Margin (%)= (Investment 2.75% 1.91%

Return-Investment Expenses)/Avg.
Earning assets

Return On Assets (%)= Net 0.96% 0.76%

Income/Total Asset

Return On Equity (%) = Net Income/ 10.08% 8.35%

Avg. shareholder Equity
 Asset utilization(%)=Rev/Avg. Total 12.72% 11.02%
Asset

Graphical Representation:

Gross Profit Margin

Gross profit Margin

43.60%
43.40% 43.33%

43.20%
43.00%
42.80%
42.60%
42.40% 2015
42.15% 2016
42.20%
42.00%
41.80%
41.60%
41.40%
Gross Profit Ratio
(%)

Interpretation:

In 2016, every TK 100 sale generated TK 43.33 of gross profit. This ratio increased acutely from
2015 to 2016. The Gross Profit increased by 1.18% from year 2015 to 2016. In 2016 the ratio
increased because the relative change in gross profit was more than the relative change in sales.
Graphical Presentation:

Operating Profit Ratio

Operating Profit Ratio

3.50% 3.11%
3.00%
2.47%
2.50%

2.00%
2015
1.50% 2016
1.00%

0.50%

0.00%
Operating Profit
Ratio (%)

Interpretation:

In 2016, for every TK 100 of sales generated TK 2.47 of operating profit. The ratio was
decreased from 2016 to 2015. The ratio is higher in 2015 than 2016. So, the company isn’t in
good position. The ratio decreased in 2016 was because of the proportionate change in sales was
lower than the proportionate change in operating profit.

Return On Assets Interpretation:

In 2016, for every TK100 worth of total assets the company generated TK.96 of net profit. This
ratio has decreased huge from 2015 to 2016. Here, the proportionate increase in net profits is higher
than the proportionate increase in total assets. 2015 was in a good position compared to 2016, as
the return on assets of 2015 was much higher than that of 2016.
Graphical Representation:

Return On Equity

12.00%

10.08%
10.00%
8.35%
8.00%

6.00% 2015
2016

4.00%

2.00%

0.00%
Return On Equity (%)

Interpretation:

In 2016, the company’s shareholders have earned tk.8.35 for every tk100 investment in the
company. The ratio declined from 2015 to 2016. Comparing the years 2015 and 2016, the
proportionate increase in net common equities were lower than the proportionate increase in net
profits. That is why the ratio has decreased huge. Compared to 2015, 2016 isn’t satisfactory
level. 2016 has a much lower return on assets ratio than 2015.
Graphical Representation:

Net Interest Margin

3.00% 2.75%

2.50%

1.91%
2.00%

1.50% 2015

1.00% 2016

0.50%

0.00%
Net Interest
Margin (%)

Interpretation:

The net interest margin measures how successful an investment manager or company is at
making investment decisions or investing its resources. If this ratio is a negative figure, then it
indicates that the firm or company has not been made effective investment decisions. In other
words, the company lost money on its investments and “earned” a negative margin.

the NIM was 2.75 percent in 2015 and 1.91 percent in 2016. This means that for every $100 of
invested assets the bank made 2.75 of income in 2015 and 1.91 in 2016. As the net Interest
margin is higher in 2015 than 2016. The company made good investment decisions in year 2015
and used its resources effectively to earn a higher percent return compare to year 2016.

5.2 Liquidity Ratio:

Ratio 2015 2016

Quick Ratio(%)=(Total Current 1.12% 1.17%

Asset-Inventory-Prepaid
Expenses)/Current Liabilities
 Current Ratio (%)= Current 1.12% 1.17%
Assets/Current Liabilities

Graphical Representation:

Current Ratio:

1.23
1.22
1.22

1.21

1.2

1.19
2015
1.18
1.17 2016
1.17

1.16

1.15

1.14
Current Ratio

Current Ratio Interpretation:

For the good position the ratio should be above the one and here the Prime Bank Ltd has a
current ratio is more than one, the assets stabilities are more than liabilities
Graphical Representation:

Quick Ratio:

1.18
1.17
1.17
1.16
1.15
1.14
2015
1.13
1.12 2016
1.12
1.11
1.1
1.09
Quick Ratio
Interpretation:

The above graph suggests that the company has more liquid assets than liquid liabilities, it is a
positive sign for the company, company should not be able to meet the liquid liabilities which
arelower as compare to liquid assets. The company liquid assets are continuously shows positive
impact on liquid assets

5.3 Solvency Ratio:

Ratio 2015 2016

Debt to Equity Ratio 10.43 10.61

Interest Coverage Ratio 1.21 1.23

Interpretation:

The Ration of 2015 & 2016 says that the current earnings before interest and tax, the firm can cover
the interest cost for 1.21 times& 1.23 times in 2016.

5.4 Asset Management Ratio:

2015 2016

Asset-turnover Ratio= (Net 0.054 0.048

Operating Income/ Total
Average Assets)

Fixed Asset turnover Ratio= 2.06 1.83

(Net Operating Income/
(Total Fixed Assets including
land and building-
Accumulated Deprociation))

Graphical Representation:

Asset-turnover Ratio:

0.055
0.054
0.054
0.053
0.052
0.051
0.050
0.049
0.048
0.048
0.047
0.046
0.045
0.044
2015 2016
Interpretation:

Asset turnover ratio indicates how efficiently a banks uses its asset base to generate revenue. The
asset turnover ratio of Prime Bank Limited decreased in 2016 than that of 2015 by 0.01
percentage points. It implies that Prime Bank’s asset utilization in terms of generating revenue
deteriorated in 2016.

Fixed Asset Turnover Ratio

2.10
2.06
2.05

2.00

1.95

1.90

1.85 1.83
1.80

1.75

1.70
2015 2016

Interpretation

Fixed Asset Turnover Ratio indicates how a bank uses its fixed assets (Plant, property) to
generate business revenue. Generally, the ratio is not significant in case of any bank, since these
are not revenue generating assets of a bank.

5.5 Risk Ratio:

2015 2016

Equity Multiplier= (Total Assets/ Total 10.59 10.42

Equity)

Loss Rate = (Total Classified Amounts/ 5% 8%

Total Loans and Advances)
 Loan Ratio = (Total Loans and 0.63 0.58
Advances / Total Assets)

Graphical Representation:

Equity Multiplier

10.65

10.60
10.59

10.55

10.50

10.45 10.42
10.40

10.35

10.30
2015 2016

Interpretation

Equity Multiplier is measured to measure a bank’s leverage. The higher the equity multiplier, it
implies that bank is dependent on debt more than assets. In 2016, Prime Bank witnessed a lower
EM ration than that of 2015 because it was depending more on assets, which is a good sign for
the bank.
Loss Rate

8% 8%
7%

6%
5%
5%

4%

3%

2%

1%

0%
2015 2016

Interpretation

Loss Rate is calculated dividing the classified amount of loan by the total loans. A higher loss
rate certainly indicated bad performance of the bank’s credit part. It implies the amount of Non-
performing and portfolio at risk are on increasing trend.

Loan Ratio

0.64
0.63
0.63
0.62
0.61
0.60
0.59
0.58
0.58
0.57
0.56
0.55
2015 2016
Interpretation

Loan Ratio is calculated dividing loans and advances by total assets. An immense fall in loan
ratio implies that the bank could not generate enough profit in 2016. That is why, in 2016, the
loss rate is also higher due to having smaller loan ratio. Also, their net operating income is less in
2016.

5.6 Stock Market Ratio

Ratio 2015 2016

Market to Book Ratio 1.141472014 0.820771

Earnings per Share 1.78 2.32

Price to earnings 13.08080808 8.990826

Market to Book Ratio:

Market Price Per Share
Market to Book =
Book Value Per Share

1.2 1.141472014

0.820771
0.8

0.6 2015
2016
0.4

0.2

0
Market to Book Ratio
Interpretation:
Market to book ratio is just a comparison of market value with the book value of the firm. In other
words, it suggests how much investors are paying against each dollar of book value in the balance
sheet. In 2016 ratio less than 1 means 0.82 the market does not even perceive value equals to book
value. In a not so good investment scenario, an investor could smell some problem with the
corporation. In 2015 Market to Book ratio is greater than 1 mean 1.14which indicates
overvaluation but only and only when the book values are dynamic. Market to book ratio in 2015
was 1.14147. The market to book value ratio in 2016 was 0.820771. It decreases because the book
value increases relative to market value.

Earnings per Share:

Net Profit After Tax
Earnings per Share =
Total Number of Common Stock Outstanding

Earnings per Share

2.5

1.5 2015
2016

0.5

Interpretation:

Earnings per share are the same as any profitability or market prospect ratio. Higher earnings per
share is always better than a lower ratio because this means the company is more profitable and
the company has more profits to distribute to its shareholders. Higher earnings per share ratio often
make the stock price of a company rise.In 2015 the earning per share was 1.78. In 2016 the Earning
per share was 2.32. Earnings per share have increased 0.54 which is a good sign. Which mean the
company is more profitable and the company has more profits to distribute to its shareholders.
Price to Earnings Ratio
Market Price Per Share
Price to Earnings Ratio =
Earnings Per Share

14

12

10

8
2015
6 2016
4

0
Price to earnings

Interpretation:

Companies with a high Price Earnings Ratio are often considered to be growth stocks. This
indicates a positive future performance, and investors have higher expectations for future
earnings growth and are willing to pay more for them. Companies with a low Price Earnings
Ratio are often considered to be value stocks. It means they are undervalued because their stock
price trade lower relative to its fundamentals. Price to earnings in 2013 was 13.0808. Price to
earnings in 2014 was 8.99.
 6 Findings and Conclusion

After analyzing the financial data regarding the ratio analysis, strategy analysis, accounting
analysis and prospective analysis we have some key findings and those are given below:

 The company has the motivation to pay out the long term liabilities against their assets
 To make the shareholders happy the company also paid regular dividends. Again, the
company has a tendency of increasing non-interest bearing short term liabilities every year
to keep the cost of net working capital is low.
 From time series study of ratio analysis, we see that the company is showing improvement
in every ratio. It was capable to improve its asset turnover ratio, debt ratio, profit margin,
ROA, ROE etc.
 In terms of market value ratios the company also showing improvement that indicates that
the investors have trust on the company management.
 The investors are keeping trust on the company because they believe that it has a great
potentiality of future growth because company utilizing its cash for further investment.
 7 References

a. Bunn, P. (2005) Stress testing as a tool for assessing systemic risks. Financial Stability
Review, June.
b. Ján, K. (2009) STRESS TESTING OF INTEREST RATE RISK. Journal of Applied
Mathematics, (III).
c. Kamal, M. and Mohsin,. (2009) Stress Testing to Simulate the Shocks of Banks: A Study
on some Banks in Bangladesh. International Islamic University Chittagong.
d. Unknown. (2010, 2011, 2011, 2012 &2015) Annual Report of Prime Bank.
e. Unknown. (2010) GUIDELINES ON STRESS TESTING April, 2010. Bangladesh Bank
Department of Offsite Supervision.