Capital Requirement Analysis of

Prime Bank Limited

 Course Code:
Course Name: Accounting for Financial Institution

Submitting a report on capital requirement analysis of The Prime Bank Limited

Submitted To

Rowshonara Akter Akhi

Assistant Professor
Department of Finance and Banking
Jahangirnagar University, Savar, Dhaka

Submitted By

Team Name: Destructive Leaders

Members Individual ID
Kawsar Ahmed 1706
Ariful Islam Shawpon 1712
MD. Hriday Hossain 1713
Md. Enamul Hoque Limon 1722
Md. Mizanur Rahman 1709
Falgooni Ahmed Reepa 1675

Deadline: January 03, 2024

 Letter of Acceptance

We, the student of Department of Finance & Banking, 12th batch, Jahangirnagar
University, in here and declare that the report on “Capital Requirement Analysis of
Prime Bank Limited” for the course of “Accounting for Financial Institution” in
Finance & Banking Department from Jahangirnagar University is our work that has
been submitted by us in your course. The report was prepared under the supervision
of “Rowshonara Akter Akhi” the Assistant Professor, Department of Finance &
Banking, Jahangirnagar University. All of us kindly requested to you to accept our
report.

-------------------------
Md. Hriday Hossain
Class ID: 1713

-------------------------
Md. Kawsar Ahmed
Class ID: 1705

(On behalf of Destructive Leaders)

 Letter of Transmittal

January 03, 2024

Rowsonora Akter Akhi

Assistant Professor
Department of Finance and Banking
Faculty of Business Studies
Jahangirnagar University, Savar, Dhaka- 1342.

Subject: Application for submitting our report.

Dear Ma'am:
With due respect, we the students of 12th batch the Department of Finance & Banking
are submitting you the report “The Capital Requirement Analysis of The Prime
Bank Limited” under the course “Accounting for Financial Institution” In our
learning process, researching and composing this report has enabled us to how to
write a formal report with all of the parts that come with it and enabled us to develop
our skill in presentation. It was a great opportunity and a valuable experience for us.
Thank you for your supportive consideration for formulating an idea.

It will be kind for us if you accept our report on the previously mentioned topic. We
hope you will be pleased and find this report satisfactory.

Sincerely,

--------------------------------

Md. Ariful Islam Shawpon

Class ID: 1712
(On behalf of the Destructive Leaders)
 Acknowledgement

This is our pleasure to prepare and submit the report on the “The Capital
Requirement Analysis of Prime Bank Limited”. We went through many websites,
newspapers, journals and articles to complete our report and it is really a great
opportunity for us to acquire valuable knowledge for this interesting subject.

First, we would like to express our gratitude to Almighty Allah to whom we are
grateful forever for giving us all the opportunities to do everything.

Next, we want to express our profound gratitude to our respected course teacher,
“Rowsonara Akter Akhi” to provide us with such a nice opportunity to prepare this
kind.

We would also like to take this opportunity to express our wholehearted gratitude to
our fellow friends who offered encouragement, information, inspiration and assistance
during the course of preparing this term paper.

This report suffers from many shortcomings; nevertheless, we have exerted our best
efforts in preparing this paper. We seek apologies for the errors that might have
occurred in spite of our best effort.
 Abstract

The study's objective is to assess Prime Bank's capital performance. The capital
adequacy ratio, tier 1 capital ratio, tier 1 leverage ratio, liquidity coverage ratio, and
net stable funding ratio (NSFR) are used to assess the bank's data from 2018 to 2022.
The goals of this study also include calculating various ratios for Prime Bank Limited,
identifying problem areas, and formulating recommendations based on the results.
The analysis analyzes and evaluates all the ratios that show banks maintaining capital
above regulatory requirements at a high level. This will help the researcher and bank
to further improvement in capital adequacy to meet regulatory requirement and
enhance bank performance. In order to calculate CAR, banks are required to calculate
their Risk Weighted Assets (RWA) on the basis of credit, market, and operational
risks. Total RWA will be determined by multiplying the amount of capital charge for
market risk and operational risk by the reciprocal of the minimum CAR and adding
the resulting figures to the sum of risk weighted. To calculate tier 1 capital ratio using
the summation of total tier 1 capital is divided by RWA. To calculate all of the ratios
is carefully and maintain the requirement fulfill. The report is analytical in nature
which briefly reveals the analysis of the financial performance of Prime Bank Limited.
Annual reports of Prime Bank Limited were the major secondary data sources in this
aspect. Prime Bank Limited is setting new level in the field in the time of unstable
economic conditions. The recommendation part of the report strives to find out some
steps could be initiated by Prime Bank to run their business in a dynamic way. A
more effective approval system, strong monitoring activities, and some ratio
arrangements could improve Prime bank’s performance.
 Table of Contents

Particulars Page No.

Chapter 1: Introduction 1
1.1: Background of the study 1
1.2: Objective of the report 1
1.3: Scope of the report 1
1.4: Limitation of the report 2
1.4.1: Lack of record 2
1.4.2: Lack of experience 2
1.4.3: Diversity of books & publication 2
Chapter 2: Literature Review 3
Chapter 3: Research methodology 4
3.1: Primary data 4
3.2: Secondary data 4
Chapter 4: Instruments used for analysis 5
4.1: Total capital of the bank 5
4.1.1: Tier 1 capital 5
4.1.2: Tier 2 capital 5
4.2: Tier 1 capital ratio 7
4.3: Tier 1 leverage ratio 9
4.4: Capital Adequacy ratio 11
4.5: Liquidity coverage ratio 13
4.6: Net Stable Funding ratio 15
Chapter 5: Recommendation 17
Chapter 6: Conclusion 18
6.1: Reference 18

Content of the Figure of the report

Particulars Page No.

Figure 1: Total capital of the bank 7
Figure 2: Tier 1 capital ratio 8
Figure 3: Tier 1 leverage ratio 10
Figure 4: Capital Adequacy ratio 12
Figure 5: Liquidity coverage ratio 14
Figure 6: Net stable funding ratio 16
 Chapter-1: Introduction

1.1 Background of the Study: An institution of finance is a bank. Funds are needed
to operate a business. Both deposits and non-deposits may provide funds. Capital is
one of the non-deposit sources of finding money. According to Rose, capital is the
long-term funds derived from debt and equity that sustain a bank's long-term assets
and offset earnings losses. Lack of capital increases uncertainty to the depositors.
Capital performs several indispensable jobs in the operation of a bank, such as
supplying resources to get a new bank started, providing a base for growth and
expansion, defending a bank against risk and maintaining public confidence in the
bank’s management and stockholders. Prime Bank Ltd operating its business in
Bangladesh over a decade. It is perfect time to measure performance how well the
bank meeting capital requirement. The study organized as Capital Standard in
Bangladesh, objective of the report, literature review, research methodology, analysis
and compare, conclusion.

1.2 Objective of the Report: Banks is a special form of financial institution. Most of
it fund coming from depositors. Owner’s contribution is infinitesimal. Banking
business depends on trust of the depositors on a bank. The measure of this trust is the
strength and soundness of a bank. Specific objectives of the report are as follows;

1. To identify the financial strength and soundness of the bank and provide
suggestions

2. To analyze the adequacy of capital by using total capital of the bank, Capital
Adequacy Ratio(CAR), SLR, CRR etc.

3. Comparing the actual performance with Standards.

1.3 Scope of the Report: This paper explores The Prime Bank Limited complexities,
covering a wide spectrum of capital sectors that are active in the financial market. It
includes all metrics, including the bank's total capital and metrics like CAR, NSFR,
tier 1 capital ratio, and so on. In order to assess how successfully banks compete with
other institutions in the financial market, the research examines the function of these
measurements in the banking industry. But banking sector is too big to justify. But it
is important to know that the banking condition in our country. This report will do the
job a little bit way.

1
1.4 Limitation of the Report :

Analyzing the bank's broad performance and is not easy. Moreover, due to the
obvious reasons for transparency and privacy, bank generally does not want to publish
all information about their organization. However, when preparing this report, some
of our restrictions have been listed as follows:

1.4.1 Lack of Record: Large scale of the research was not possible due to
organization restrictions.

1.4.2 Lack of experience: The lack of experience serves as an obstacle to the best
way research.

1.4.3 As the number of books, publications and journal are not so much available
related to bank industries, we try our best to do formulate information.

2
 Chapter 2: Literature Review

Financial ratio analysis, benchmarking, performance against budget, or a combination

of these techniques are typically used to measure the financial performance of banks
and other financial institutions. The "CAMELS" grading system is used to compare
the financial performance of the banking industry. The Samad and Hassan financial
ratios were used to analyze the performance of Malaysia's Islamic bank. The financial
ratios study of Kumbiari and Webb is used to gauge the performance of South African
commercial banks. Selected Indian commercial banks' performance has been
evaluated based on increases in assets, profits, revenue, investments, and deposits.An
international standard that calls for minimum capital adequacy ratios has been created
to guarantee that banks have a sufficient amount of loss absorbency before going
bankrupt. The implementation of minimum capital adequacy ratios safeguards
depositors and fosters.In past years, the world has witnessed ‘the crack’ and in some
cases, total collapse of major financial institutions, which before then, had made and
declared significant and sometimes enviable returns. Following these collapse, there
was a need to review the contradiction that played out in some of these cases, between
declaration of significant returns and sudden death. This informs the evaluation of
banks’ performance from a risk adjusted basis. Banks are among the most leveraged
businesses and a financial institution (Khan). It require fund to carry out business.
Fund may come from deposit and non-deposit. One of the non-deposit sources of fund
is capital. Capital can be defined as long term fund coming from debt and equity that
support a banks long term assets and absorb earning losses (Rose). Lack of capital
increases uncertainty to the depositors. Capital performs several indispensable jobs in
the operation of a bank, such as supplying resources to get a new bank started,
providing a base for growth and expansion, defending a bank against risk and
maintaining public confidence in the bank’s management and stockholders. So, there
are lots of researchers who published their paper on different bank analysis in
different way. Now we can analyze The Prime Bank Limited to take five years data.

3
 Chapter 3: Research Methodology

In order to evaluate performance prime bank different capital adequacy ratios, tier 1
capital ratio, tier 1 leverage ratio, CLR are used. We take two types of data and those
are primary data and secondary data.

3.1 Primary Data : Those are primary data we got;

1. Help to many note books

2. Talk to other friends
3. Collect the information from different accounting books.

3.2 Secondary Data : Those are secondary data we took help;

1. Annual reports of PBL

2. Different books and journals
3. Various articles related to study
4. Some of my course elements as related to this report.
5. Much information got through goggling.

4
 Chapter 4: Instruments Used for Analysis

4.1 Total capital of The Bank: The difference between a bank's assets and liabilities
is known as bank capital, and it tells investors how much the bank is worth or its
equity value.. The asset portion of a bank's capital includes cash, government
securities, and interest-earning loans (e.g., mortgages, letters of credit, and inter-bank
loans). Total capital of the bank consists of the summation of Tier-1 capital and Tier-2
capital.

4.1.1 Tier-1 Capital : Tier 1 capital includes common equity tier-1 capital plus other
instruments that are subordinated to subordinated debt, and have no fixed maturity, no
embedded incentive for redemption, and for which a bank can cancel dividends or
coupons at any time, also called additional tier 1 capital. Common equity tier-1 is the
summation of common stocks, retained earnings, accumulated comprehensive income
etc.

4.1.2 Tier-2 Capital: Tier-2 Capital, or supplementary capital, includes a number of

important and legitimate constituents of a bank's capital requirement. Tier 2 capital
consists of reevaluation reserve, general provision, undisclosed reserve, subordinated
debt. Now we had shown a table;

Prime Bank does not have ‘Additional Tier 1 (AT 1)’ Capital since it did not issue any
instrument that meets the qualifying criteria for Additional Tier 1 Capital.
Subsidiaries did not issue AT 1 capital to third parties as well. Tier-2 Capital consists
of (i) General Provision (ii) Subordinated Debt/Instruments issued by the Banks that
meet the qualifying criteria for Tier 2 Capital. Summary information on the terms and
condition in the case of capital instruments eligible for inclusion in that we show that
the total 5 years capital of the Prime Bank Limited. Here the table shows in that way.

5
The 2018 2019 2020 2021 2022
amount of (Taka in (Taka in (Taka in (Taka in (Taka in
Tier-1 crore) crore) crore) crore) crore)
capital
Fully paid 1132.28 1132.28 1132.28 1132.28 1132.28
up capital
Non- 121.19 121.19 121.19 121.19 121.19
repayable
share
premium
accounts
Statutory 1035.34 1035.34 1035.34 1035.34 1035.34
reserve
General 2.80 2.80 2.80 2.80 2.80
reserve
Retained 179.88 202.24 362.09 521.39 747.13
earnings
Minority - - - - -
interest in
subsidiaries
Dividend - - - - -
equalization
accounts
Sub total 2471.49 2493.85 2653.70 2813.00 3038.74
Additional - - - - -
tier-1
capital
Total tier-1 2471.49 2493.85 2653.70 2813.00 3038.74
capital
Tier-2 1471.24 1645.43 1570.73 1490.48 1173.02
capital
Total 3942.73 4139.28 4224.43 4303.48 4211.76
amount of
tier-1 and
tier-2
capital
Regulatory (112.53) (147.07) (204.24) (272.59) (377.70)
Adjustments
Total 3830.20 3992.21 4020.19 4030.89 3834.06
eligible
capital

6
Now we want to realize that we need a graph to show the whole five years capital of
The Prime Bank Limited.

Figure-1: Total Capital of the Bank

Now we can see that total capital is growing day by day except 2022. Because of
pandemic situation, in the year of 2022 capital is diminished.

4.2 Tier-1 Capital Ratio: A specific amount of capital or assets must be kept in
reserve by banks. They are separated into groups called tiers, like tier 1 and tier 2. A
bank's core capital, or Tier 1 capital, is what it utilizes to fund its daily operations.
Retained earnings, common stock, and some types of preferred stock fall under this
category. Money deposited by clients is not included. As mentioned previously, the
tier 1 capital ratio of a financial institution is calculated by dividing its core capital by
its risk-weighted assets.

Financial regulators use this ratio to determine the soundness and stability of the
financial system. It forms the basis of the Basel III capital and liquidity standards
devised after the financial crisis that led to the Great Recession.1 The crisis
highlighted the fact that many banks had too little capital to absorb losses or remain
liquid, and were funded with too much debt and not enough equity. Tier-1 capital
ratio consists of tier-1 capital is divided by risk weighted assets. Now we can see
another table to show the tier-1 capital ratio.

7
Particulars 2018 2019 2020 2021 2022
Tier-1 2471.49 2493.85 2653.70 2813.00 3038.74
capital(1)
RWA (2) 23107.71 23215 23680 23909 23477.52
Tier-1 10.55% 10.53% 11.21% 11.77% 11.33%
capital
ratio(1/2)

Tier 1 capital represents the strongest form of capital, consisting of shareholder equity,
disclosed reserves, and certain other income. Under the Basel III standards, banks
must maintain the equivalent of 6% of their risk-weighted assets in Tier 1 capital.
This allows them to absorb unexpected losses and continue operating as a going
concern. Now we can show the data in a graphically way.

Figure-2: Tier-1 Capital ratio

In 2018, it was 10.55%, which is over 6%. It was slightly change to 10.53% in 2019.
In 2020 it was 11.21% which is better than 2020. In 2021 it was 11.77% and in 2022
it was 11.33%. The minimum tier 1 capital ratio required by financial regulators is 6%.
Anything under this threshold means that a bank isn't adequately capitalized. Now we
can see that tier-1 capital ratio of The Prime Bank Limited is above 6%.So we
determine that The Prime Bank is well tier-1 capitalized.

8
4.3 Tier-1 Leverage Ratio: The Tier 1 leverage ratio measures a bank's core
capital relative to its total assets. The ratio looks specifically at Tier 1 capital to judge
how leveraged a bank is based on its assets. Tier 1 capital refers to those assets that
can be easily liquidated if a bank needs capital in the event of a financial crisis. The
Tier 1 leverage ratio is thus a measure of a bank's near-term financial health.

Tier 1 capital is the core capital of a bank according to Basel III and consists of the
most stable and liquid capital as well as the most effective at absorbing losses during
a financial crisis or downturn. Basel III required banks to include off-balance-sheet
exposures, such as commitments to provide loans to third parties, standby letters of
credit (SLOC), acceptances, and trade letters of credit.

The Tier 1 leverage ratio is frequently used by regulators to ensure the capital
adequacy of banks and to place constraints on the degree to which a financial
company can leverage its capital base.Tier-1 leverage ratio is composed of tier-1
capital is divided by the consolidated total assets.

Now we can show a table of the Tier-1 leverage ratio of The Prime Bank Limited;

Particulars 2018 2019 2020 2021 2022

Tier-1 2471.49 2493.85 2653.70 2813.00 3038.74
Capital(1)
Total 29501.13 32507.18 34829.36 6680.07 6311.18
Assets(2)
Tier-1 11.94% 7.67% 7.62% 42.11% 48.15%
leverage
Ratio(1/2)

The Tier 1 leverage ratio was introduced by the Basel III accords, an international
regulatory banking treaty proposed by the Basel Committee on Banking
Supervision in 2009. The ratio uses Tier 1 capital to evaluate how leveraged a bank is
in relation to its overall assets. The higher the Tier 1 leverage ratio is, the higher the
likelihood that the bank could withstand a negative shock to its balance sheet.

9
Now we can show the Tier-1 leverage ratio of The Prime Bank Limited in a graphical
way;

Figure-3: Tier 1 leverage ratio

The Basel standards require banks to maintain a Tier 1 leverage ratio of at least
3%. Global systemically important banks should maintain an extra leverage ratio
buffer, which the Basel Committee agreed in December 2017 to set at 50% of a
bank’s risk-weighted capital buffer. National regulators have implemented their own
versions of the Basel III leverage ratio in their respective jurisdictions. However,
many regulators consider a risk-insensitive leverage ratio an essential complement to
the risk-based capital ratios

In 2018, it was 11.94%, which is over 3%. It was change to 7.67% in 2019. In 2020 it
was 7.62% which is lower than 2019. In 2021 it was 42.11% and in 2022 it was the
highest 48.15%. The minimum tier 1 leverage ratio required by financial regulators
is 3%. Anything under this threshold means that a bank isn't adequately capitalized.
Now we can see that tier-1 leverage ratio of The Prime Bank Limited is above 3%.So
we determine that The Prime Bank is well t capitalized.

But, A limitation of using the Tier 1 leverage ratio is that investors are reliant on
banks to properly and honestly calculate and report their Tier 1 capital and total assets
figures. If a bank doesn't report or calculate its figures properly, the leverage ratio
could be inaccurate.

10
4.4 Capital Adequacy Ratio: How well a bank is able to meet its obligations is
indicated by the capital adequacy ratio, or CAR. The ratio, also referred to as the
capital-to-risk-weighted assets ratio (CRAR), is used by regulators to assess a bank's
risk of failure by comparing capital to risk-weighted assets. It is employed to
safeguard depositors and advance the global financial systems' efficiency and stability.

The capital used to calculate the capital adequacy ratio is divided into two tiers. The
two capital tiers are added together and divided by risk-weighted assets to calculate a
bank's capital adequacy ratio.4 Risk-weighted assets are calculated by looking at a
bank's loans, evaluating the risk and then assigning a weight. When measuring credit
exposures, adjustments are made to the value of assets listed on a lender’s balance
sheet. Capital Adequacy Ratio is comprises of the summation of Tier-1 capital and
Tier-2 capital is divided by the risk weighted assets.

Here we can show the capital adequacy ratio of The Prime Bank Limited;

Particulars 2018 2019 2020 2021 2022

Total 3830.20 3992.21 4020.19 4030.89 3834.06
Capital (1)
RWA (2) 23107.71 23215 23680 23909 23477.52
CAR (1/2) 16.58% 17.20% 16.98% 16.86% 16.33%

Currently, the minimum ratio of capital to risk-weighted assets is 8

percent under Basel II and 10.5 percent under Basel III. High capital adequacy
ratios are above the minimum requirements under Basel II and Basel III.
Minimum capital adequacy ratios are critical in ensuring that banks have enough
cushions to absorb a reasonable amount of losses before they become insolvent and
consequently lose Depositors’ funds.

Broadly, the capital adequacy ratios can help ensure the efficiency and stability of a
nation’s financial system by lowering the risk of banks collapsing. Generally speaking,
a bank with a high capital adequacy ratio is considered safe and likely to meet its
financial commitments.

During the winding up process, funds belonging to depositors are given a higher
priority than the bank’s capital. So depositors are only at risk of losing their savings if
a bank registers a loss that exceeds the amount of capital it possesses. Thus, the higher
the bank’s capital adequacy ratio is increasing the higher the degree of protection for
depositors' assets.

11
Now we want to represent the capital adequacy ratio in a graphical way so that we
could understand the matter easily.

Figure 4: Capital Adequacy Ratio

In 2018, it was 16.58%, which is over 10.5%, according to Basel iii. It was change to
17.20% in 2019. In 2020 it was 16.98% which is lower than 2020. In 2021 it was
16.86% and in 2022 it was the 16.33%. The minimum tier CAR required by financial
regulators is 10.5%. Anything under this threshold means that a bank isn't adequately
capitalized. Now we can see that CAR of Prime Bank Limited is above 10.5%we
determine that The Prime Bank is well capitalized.

Though it is the best measurement of capital requirement of a bank, it has some

limitation too. One limitation of CAR is that it fails to account for expected losses
during a bank run or financial crisis that can distort a bank's capital and cost of capital.
Minimum capital adequacy ratios are critical. They can reveal whether individual
banks have enough financial cushions to absorb a reasonable amount of loss so that
they don't become insolvent and consequently lose depositors’ funds .However, the
capital adequacy ratio is applied specifically to banks and measures their abilities to
overcome financial losses related to loans they've made. So, we made the analysis our
best method.

12
4.5 Liquidity Coverage Ratio: The percentage of highly liquid assets that financial
institutions hold to guarantee their continued capacity to fulfill short-term obligations
is known as the liquidity coverage ratio, or LCR. In essence, this ratio is a general-
purpose stress test designed to predict market-wide shocks and ensure that financial
institutions have adequate capital preservation to withstand any potential short-term
liquidity disruptions.

Banks are required to hold an amount of high-quality liquid assets that's enough to
fund cash outflows for 30 days. High-quality liquid assets include only those with a
high potential to be converted easily and quickly into cash. Thirty days was chosen
because it was believed that in a financial crisis, a response to rescue the financial
system from governments and central banks would typically occur within 30 days. In
other words, the 30 day period allows banks to have a cushion of cash in the event of
a run on banks during a financial crisis. The formula of Liquidity coverage ratio is
total liquid assets divided by the net cash flow.

Now we can show the total liquidity coverage ratio of The Prime Bank Limited;

particulars 2018 2019 2020 2021 2022

Total 411017.39 379167.19 436352.58 491201.12 232702.36
liquidity
Assets(1)
Net cash 3130.37 2950.72 2498.01 2826.57 2294.67
flow(2)
Liquidity 131.30% 128.50% 174.68% 173.78% 101.41%
coverage
ratio(1/2)

The final rule establishes a quantitative minimum liquidity coverage ratio that
requires a company subject to the rule to maintain an amount of high-quality liquid
assets (the numerator of the ratio) that is no less than 100 percent of its total net cash
outflows over a prospective 30 calendar-day period.

The LCR is a stress test that aims to anticipate market-wide shocks and make sure that
financial institutions possess suitable capital preservation to ride out any short-term
liquidity disruptions. Of course, we won't know until the next financial crisis if the
LCR provides enough of a financial cushion for banks or if it's insufficient.The
liquidity coverage ratio applies to all banking institutions that have more than $250
billion in total consolidated assets or more than $10 billion in on-balance sheet
foreign exposure.

13
Now we want to represent the data in a graphically way;

Figure 5: Liquidity Coverage Ratio

In 2018, it was 131.30%, which is over 100%, according to Basel ii. It was change to
128.50% in 2019. In 2020 it was 174.68% which is higher than 2020. In 2021 it was
173.78% and in 2022 it was the 101.41%. The minimum liquidity is required by
financial regulators is more than 100%. Anything under this threshold means that a
bank isn't adequately capitalized. Now we can see that liquidity coverage ratio of The
Prime Bank Limited is above 100%. So we determine that The Prime Bank is well
capitalized.

A limitation of the LCR is that it requires banks to hold more cash and might lead to
fewer loans issued to consumers and businesses. One could argue that if banks issue a
fewer number of loans, it could lead to slower economic growth since companies that
need access to debt to fund their operations and expansion would not have access to
capital. On the other hand, another limitation is that we won't know until the next
financial crisis if the LCR provides enough of a financial cushion for banks or if it's
insufficient to fund cash outflows for 30 days.

14
4.6 Net Stable Funding Ratio: The net stable funding ratio is a liquidity standard
requiring banks to hold enough stable funding to cover the duration of their long-term
assets. For both funding and assets, long-term is mainly defined as more than one year,
with lower requirements applying to anything between six months and a year to avoid
a cliff-edge effect. Banks must maintain a ratio of 100% to satisfy the requirement.

Introduced as part of the post-crisis banking reforms known as Basel III, the ratio
ensures banks do not undertake excessive maturity transformation, which is the
practice of using short-term funding to meet long-term liabilities. It was finalized by
the Basel Committee in October 2014.We got Net Stable Funding ratio from the
annual statement of The Prime Bank Limited.

particulars 2018 2019 2020 2021 2022

Net Stable 112.29% 116.89% 124.65% 127.30% 127.94%
Funding
Ratio

This ratio should be equal to at least 100% on an ongoing basis. These standards are
an essential component of the set of reforms introduced by Basel III and together will
increase banks' resilience to liquidity shocks, promote a more stable funding profile
and enhance overall liquidity risk management.

The NSFR's goal is to ensure a more stable funding profile for banks according to the
maturity profile of assets and other exposures they present. Indeed, retail bank's
business model rest upon the transformation of short-term and cheap borrowing (e.g.
savings account, wholesale funding) into long-term and more profitable investments
(e.g. loans). Banks then generate profits through the interest margin gained from the
difference between the interests paid and the ones received. This model is based on
the maturity mismatch between the assets (long term and high-interest rate) and the
liabilities (short term and low-interest rate).

Even though the Basel Committee is currently reviewing the NSFR to avoid
unintended consequences, banks will progressively start they work to comply with
this second ratio. This large compliancy work will induce a pressure on the stable
funding market. If €2.0 trillion are demanded in a too short period of time, the market
might witness large and dramatic unintended consequences.

15
Now we want to show it in a graphically way;

Figure 6: Net Stable Funding Ratio

In 2018, it was 112.29%, which is over 100%, according to Basel 3. It was change to
116.89% in 2019. In 2020 it was 124.65% \ which is higher than 2020. In 2021 it was
127.30% and in 2022 it was the 127.94%. The minimum liquidity is required by
financial regulators is at least equal 100%. Anything under this threshold means that a
bank isn't adequately capitalized. Now we can see that Net Stable Funding Ratio of
Prime Bank Limited is above 100%. So, we determine that The Prime Bank is well
capitalized.

There are also some disadvantages of NSFR. The imposition of the NSFR may have
negative consequences for the broader economy— including through the reduction in
the supply of credit by banking organizations—and may add further to a deterioration
in market liquidity.

16
 Chapter-5: Recommendation

In context of the economic and social scenario of Bangladesh, The Prime Bank
Limited running well their business. Besides, the following suggestion may be made
their business in dynamic situation;

1.PBL should try to increase total capital of the bank and to run their business
perfectly. PBL will take necessary steps to increase tier 1 capital ratio and tier 1
leverage ratio too.

2.PBL must have maintained CAR. Because CAR is the best way to justify the capital
structure of a bank.

3.Prime bank can share common platform in order to provide SME loan. It can jointly
work with other financial institutes to take more interest.

4.Increase marketing activities in the urban area because other competing industries
are given huge ad in urban area which helps them to increase their deposits.

Service diversification is extremely necessary with the changes in current economy

and the position of the competitors with other banks.

17
 Chapter 6: Conclusion

Prime Bank Limited is one of the best commercial banks in our country.Because it
offers its clients unique and advanced financial services, this bank is on the front lines.
It looks for ways to increase productivity on a constant basis in order to remain
competitive. Information technology use is still at the forefront. In addition to many
other fields, PBL has made a substantial contribution to industry, agriculture, trade
and commerce, and transportation. It is crucial for developing human resources and
opening up new job prospects. It is carrying out a number of welfare initiatives to
advance societal development.

According to the research, this bank's capital structure is satisfactory. In this study,
various financial parameters are considered for capital structure evaluation of this
bank and Prime Bank Limited is available as a fast growing bank and often performs
well in all cases. They should be aware of the speed of their growth and progress,
what their customers should be, and should be more careful to their total capital, CAR,
LCR, NSFR etc.

6.1 References: Here the website we goggled;

1. https://www.primebank.com.bd
2. http://www.investopedia.com/
3. https://www.primebank.com.bd/index.php/home/financialreports

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