Final FIN380 Drafts

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Profit function of Commercial banks

LETTER OF TRANSMITTAL

July 31, 2012

Quazi Sagota Samina

Senior Lecturer

Department of Business Administration

East West University

Aftab nogor

Dhaka

.

Subject: Submission of term paper on Profit function of Commercial bank

Dear Madam

It is a great pleasure for us to have the opportunity to submit a report on Profit function of Commercial bank, which had been a great experience for us to work with such a practical &real life issue to study with. We tried utmost to make & let it look like a professional one. Any

shortcomings are expected to have a kind view for our encouragement . Thank you for your sincere & honest try to let us make easy & get familiar with the terms & facts of the issueto help us make the report a successful one .

Our efforts will be valued, if this report can serve for what its been meant for & our assistancewill be there for any queries.

Sincerely yours

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ACKNOWLEDGEMENT

All praises to almighty Allah for enabling us to complete the report on an overall study on

Profit function of Commercial bank. We are very happy to prepare this assignment.

The outcome of our Term paper would not have been made possible without the help we

received from several people that have been central throughout the whole process. With this, we

would like to give our gratitude and thanks to everyone who has contributed with inputs

throughout the duration of the Term paper. There are a few key persons and organizations we

specifically would like to thank.

First of all we express our gratitude to our respectable instructor Quazi Sagota Samina. We are

pleased to her for her warm hearted supervision, advice and suggestion in the Commercial Bank

Management course.

Last but not the least, we would like to thank to all group members that directly or indirectly

helped us to provide and accumulate all the necessary information for the accomplishment of thisreport. However, we hope that this course as well as this report work experience will help us in

further courses and precise way in this arena.

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Table of Contents

.............................................................................................................................. .... 3

EXECUTIVE SUMMARY ................................................................................................. 3

Introduction ................................................................................................................ 4Origin of the Report: ................................................................................................... 5

Objective of the Study: .............................................................................. ................. 5

Develop Our Course Knowledge ...................................................... ........................... 5

To Work for An Assignment Properly ...................................................................... .... 6

Doing Group Work ...................................................................................................... 6

Methodology .................................................................................................... ........... 6

Primary Data ................................................................................................ ........... 6

Secondary Data .......................................................................................... ............. 6Method Used .............................................................................................. ............ . 7

Preparation and Submission of Report .................................................................... 7

Limitation ................................................................................................. ........... ....... 7

Short Profile of the Sample Banks .............................................................................. 7

South East Bank Limited ............................................................................................. 7

Standard bank limited ............................................................................................ 8

Eastern Bank Limited ......................................................................... ............ ......... 9

Findings & Analysis ................................................................................................... 10

Performance of The Banks During The Period From 2007 to 2011 ...... ..................... 15

Regression Analysis .................................................................................................. 16

Correlation Matrix ..................................................................................................... 17

Effect on profit .................................................................................................. ........ 27

Conclusion ............................................................................................ .................... 28

Bibliography .......................................................................................... ............ ....... 29

EXECUTIVE SUMMARY

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Banking system plays a very important role in the economic life of the nation. The health of the

economy is closely related to the soundness of its banking system. In a developing country like

Bangladesh the banking system as a whole play a vital role in the progress of economic

development. The banking industry of Bangladesh has been a major contributor to the countrys

service sector with increased number of banks operating fuelled by both domestic and foreign

investments. Under the active jurisdiction and control of the Bangladesh Bank, the central bank

of Bangladesh, there have been four types of scheduled banks include nationalized commercial

banks (NCBs), government owned development financial institutions (DFIs), private commercial

banks (PCBs) and foreign commercial banks (FCBs)in Bangladesh. Out of a total of 48 banks a

majority 30 were the PCBs, with 54.2% of total industry assets and 56.6% of industry deposits.

This indicates that PCBs have dominated the banking industry.

The major objective of the report is to identify the profit function of commercial banks. This also

identifies the efficiency and productivity growth of various banks in Bangladesh in recent years.

We took three banks to see the overall profit function of commercial banks in Bangladesh.

Southeast Bank Limited, Standard Bank Limited (SBL) , Eastern Bank Ltd. (EBL) are offering

online banking, mobile banking, SMS banking, Banking POS, Credit card, Debit card, Prepaid

card, ATM service, NBR account etc which create a great impact on their profit analyzing. These

profit function improve their performance & enhance their efficiency.

Introduction

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The country's private commercial banks (PCBs) witnessed remarkable growth in their aggregate

operating profits in the just-concluded calendar year 2010 compared to the same of the previous

year. Most of the PCBs saw their profits bulging in 2010 riding on higher import payments and

an enhanced credit flow to the private sector including capital market, bankers said. "Higher

import payments along with the capital market investment have contributed to the hefty profit

growth in 2010," a senior official of a leading private commercial bank told the FE Friday.

Operating profit, however, does not indicate the real financial picture of a bank. Because, the

banks have to leave aside provisioning against bad debts and taxes that are paid to the

government from the operating profits. Among the top-performers, Southeast Bank Ltd., made

operating profits worth Tk. 6.80 billion in 2010 against Tk. 4.64 billion in 2009. The operating

profit of the Standard Bank Ltd. rose to Tk. 3.11 billion in 2010 from Tk. 1.81 billion 2009.

Origin of the Report:

While doing the Commercial Bank Management course, our course instructor Quazi Sagota

Samina assigned us to do a term paper on Profit function of commercial bank

As a matter of fact we have done our workings on Annual report 2007 to 2010 of three

Commercial banks of Bangladesh. We analyze by doing the correlation between the Commercial

banks profitability and deposit amount, loan amount, investment, net profit before tax etc.

Objective of the Study:

Our primary objective of the study is to identify profit of the commercial banks of our country.

For these reason we have selected three banks they are Southeast Bank Limited, Standard Bank

Limited, and Eastern Bank Limited. From this study we are going to see weather the different

factors affect their profit or not.

Develop Our Course Knowledge

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As we said before in this study we need identify three banks performance and for that we should

analyze their profit calculation. We want to get overall scenario of these banks performance by

applying all the theory into their steps for banking. Through that we can clear our knowledge and

can get some additional knowledge also.

To Work for An Assignment Properly

We have to have good skill in banking assignment. This assignment helps us to know how to

make an assignment and presentation for a banking analysis.

Doing Group Work

We have to make the assignment by doing team work. That is why we can easily know how to

do team work and this is very much important for every sort of work.

Methodology

Primary Data

We have collected information of Eastern Bank from Banani 11 brunch, Standard bank from

Motijil head office and Southeast Bank from Gulshan branch. They helped us to know about

their profits by giving us their valuable time and information that helped us to make our

assignment.

Secondary Data

We have used Southeast Bank Limited, Standard Bank Limited and Eastern Bank Limited

official website to gather some valuable information and their annual reports.

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We also collected information from Dhaka Stock Exchange about the financial statement of

those three commercial banks to make an effective assignment.

Method Used

For analyzing purpose we have used the correlation and regression analysis of SPSS software.

Preparation and Submission of Report

This report has been prepared and submitted to the honorable instructor Quazi Sagota Samina

under whom we have done this term paper.

Limitation

1. Lack of in-depth understanding of certain terms and concepts about the issue.

2. Time was short against the weight of the issue.

3. We went to branch office of Standard bank to collect some information regarding their

balance sheet information but they were reluctant to provide us those information. They

did not give useful information within the short period of time they have given us.

Short Profile of the Sample Banks

South East Bank Limited

Profile

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Southeast Bank Limited was established in 1995 with a dream and a vision to become a pioneer

banking institution of the country and contribute significantly to the growth of the national

economy. The incumbent Chairman of the Bank is Mr. Alamgir Kabir, FCA, a professional

Chartered Accountant. Mr. M. A. Kashem a member of the Board and Mr. Yussuf Abdullah

Harun were past Presidents of the Federation of Bangladesh Chamber of Commerce and

Industries (FBCCI). Southeast Bank is run by a team of efficient professionals. They create and

generate an environment of trust and discipline that encourages and motivates everyone in the

Bank to work together for achieving the objectives of the Bank. A commitment to quality and

excellence in service is the hallmark of their identity. Southeast Bank takes pride for bringing

women into the banking profession in a significant number for gender equality. At present, 32%

of SEBL's employees are women that will rise to 45% over the next five years.

Vision

To be a premier banking institution in Bangladesh and contribute significantly to the national

economy.

Mission

High quality financial services with state of the art technology

Fast customer service and sustainable growth strategy

Follow ethical standards in business and steady return on shareholders equity

Innovative banking at a competitive price

Attract and retain quality human resource

Standard bank limited

Profile

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Standard Bank Limited (SBL) was incorporated as a Public Limited Company on May 11, 1999

under the Companies Act, 1994 and the Bank achieved satisfactory progress from its commercial

operations on June 03, 1999. SBL has introduced several new products on credit and depositschemes. It also goes for Corporate and Retail Banking etc. The Bank also participated in fund

Syndication with other Banks. Through all these myriad activities SBL has created a positive

impact in the Market.

Vision

To be a modern Bank having the object of building a sound national economy and to contribute

significantly to the Public Exchequer.

Mission

To be the best private commercial bank in Bangladesh in terms of efficiency, capital adequacy,

asset quality, sound management and profitability.

Eastern Bank Limited

Profile

With a vision to become the bank of choice and to be the most valuable financial brand in

Bangladesh, Eastern Bank Ltd. (EBL) began its journey in 1992. Over the years EBL has

established itself as a leading private commercial bank in the country with undisputed leadership

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in Corporate Banking and a strong Consumer and SME growth engines. EBLs ambition is to be

the number one financial services provider, creating lasting value for its clientele, shareholder,

and employees and above all for the community it operates in. Consistency in business and

financial performance has become a hallmark for EBL. Their financial soundness lies in adding

value to shareholders wealth in whatever they do, rather than just making short term profits.

Despite having corporate loan portfolio of around 80%, they continued our effort to reduce NPL

ratio year over year. Reduced loan provision helps increase profit after tax and distributable

profit. Therefore, EBLs returns to its shareholders have been consistent over the years.

Vision

To become the most valuable brand in the financial services in Bangladesh creating long-lasting

value for our stakeholders and above all for the community we operate in by transforming theway we do business and by delivering sustainable growth.

Mission

The bank will deliver service excellence to all our customers, both internal and external

It will ensure to maximize shareholders' value.

It will constantly challenge our systems, procedures and training to maintain a cohesive

and professional team in order to achieve service excellence.

Findings & Analysis

Here we found three different commercial banks five year average deposit amount, average loan

amount and average market expense.

Deposits

Figure in Million Taka Year 2007 2008 2009 2010 2011Southeast Bank 55,474.05 68,714.67 96,669.05 107,253.19 127,178.22Standard Bank 19,214 29,304 42,548 58,345 63,871Eastern Bank 30,092 41,573 49,190 56,425 75,536Average 34,926.68 46,530.56 62,802.35 74,007.73 88,861.74

Table 1-1 : Average Deposit Amount

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From the table 1-1, we see that average deposit of those three banks were Tk.34926.68 million in

2007, Tk.46530.56 million in 2008, Tk.62802.35 million in 2009, Tk.74007.73 million in 2010

and Tk.88861.74 million in 2011.

LoansFigure in Million Taka

Year 2007 2008 2009 2010 2011

Southeast Bank

48,164.6

0 60,281.26 77,497.57 93,981.20

107,288.5

6

Standard Bank

17,310.0

0 27,190 38,057 51,758 55,346

Eastern Bank

30,092.0

0 39,662 47,668 58,607 81,774

Average31,855.53 42,377.75 54,407.52 68,115.40 81,469.52

Table 1-2 : Average Loan Amount

From the table 1-2, we see that average loan of those three banks were Tk. 31,855.53 million in

2007, Tk. 42,377.75 million in 2008, Tk. 54,407.52 million in 2009, Tk. 68,115.40 million in

2010 and Tk. 81,469.52 million in 2011.

Marketing ExpensesFigure in Million Taka

Year 2007 2008 2009 2010 2011Southeast Bank 18 32 30 36 45Standard Bank 12 15 24 25 47Eastern Bank 71 11 124 116 138Average 33.81281 19.57793 59.6226713 59.2144573 76.407052

Table 1-3: Average of Marketing Expenses

From the table 1-3, we see that average marketing expense of those three banks were Tk.

33.812810 million in 2007, Tk. 19.577930 million in 2008, Tk. 59.622671.3 million in 2009, Tk.59.2144573 million in 2010 and Tk. 76.407052 million in 2011.

No. of Branches

Year 2007 2008 2009

201

0 2011

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Southeast

Bank 38 46 56 76 84Standard

Bank 29 32 41 58 75Eastern

Bank 28 34 39 49 59Average 31.66666667 37.33333333 45.33333333 61 72.66666667

Table 1-4: Average No. of Branches

From the table 1-4, we see that average no. of branch of those three banks were 31 in 2007, 37 in

2008, 45 in 2009, 61 in 2010 and 72 in 2011.

Average Deposit rateYear 2007 2008 2009 2010 2011

Southeast Bank 9.40% 9.65% 9.16% 7.63% 9.58%Standard Bank 9.67% 9.29% 9.33% 7.83% 9.98%Eastern Bank 8.40% 6.74% 8.55% 8.66% 8.05%Average 9.16% 8.56% 9.01% 8.04% 9.20%

Table 1-5: Average Deposit rate

From the table 1-5, we see that average deposit rate of those three banks were 9.16% in 2007,

8.56% in 2008, 9.01% in 2009, 8.04% in 2010 and 9.20% in 2011.

Average Lending RateYear 2007 2008 2009 2010 2011

Southeast Bank 14.11% 14.86% 13.42% 12.83% 14.90%Standard Bank 14.38% 14.50% 13.59% 13.03% 15.30%Eastern Bank 13.40% 12.75% 13.69% 13.90% 13.76%Average 13.96% 14.04% 13.57% 13.25% 14.65%

Table 1-6: Average Lending rate

From the table 1-6, we see that average lending rate of those three banks were 13.96% in 2007,

14.04% in 2008, 13.57% in 2009, 13.25% in 2010 and 14.56% in 2011.

Managerial Expense Figure in MillionYear 2007 2008 2009 2010 2011

Southeast Bank 7 8 9 10 11Standard Bank 4 3 4 6 7Eastern Bank 10 11 11 13 14Average 7 7 8 10 11

Table 1-7: Average managerial expense

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From the table 1-7, we see that average managerial expense of those three banks were Tk. 7

million in 2007, Tk. 7 million in 2008, Tk. 8 million in 2009, Tk. 10 million in 2010 and Tk. 11

million in 2011.

Non-Performing LoanYear 2007 2008 2009 2010 2011

Southeast

Bank 3.77% 4.12% 3.73% 4.26% 3.51%Standard

Bank 1.52% 1.87% 1.83% 1.96% 2.19%Eastern

Bank 4.30% 3.30% 2.46% 1.99% 1.91%Average 3.20% 3.10% 2.67% 2.74% 2.54%

Table 1-8: Average non-performing loan rate

From the table 1-8, we see that average non-performing loan rate of those three banks were3.20% in 2007, 3.1% in 2008, 2.67% in 2009, 2.74% in 2010 and 2.54% in 2011.

Equity Capital Figure in MillionYear 2007 2008 2009 2010 2011

Southeast

Bank 6,468.36 7,657.01 9,927.16 17,196.80 19,000.06Standard

Bank 2,767 3,246 4,222 5,625 6,871

EasternBank 3,829 4,733 8,429 12,084 14,407Average 4,354.79 5,212.00 7,526.05 11,635.27 13,426.02

Table 1-9: Average equity capital

From the table 1-9, we see that average equity capital of those three banks were Tk. 4,354.79

million in 2007, Tk. 5,212.00 million in 2008, Tk. 7,526.05 million in 2009, Tk. 11,635.27

million in 2010 and Tk. 13,426.02 million in 2011.

Liquidity Figure in MillionYear 2007 2008 2009 2010 2011

Southeast

Bank 340.73719 457.86792 726.436007

7295.5826

04

9031.96399

1Standard

Bank 4,715 6,291 9,686 13,637 17,343Eastern 958.763752 7299.70144 8204.32379 7553.3108 13937.0159

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Bank 4 9 11 5

Average

2004.83364

7

4682.85645

5

6205.58660

2

9495.2978

05

13437.3266

5Table 1-10: Average liquidity

From the table 1-10, we see that average liquidity of those three banks were Tk. 2004.833647million in 2007, Tk. 4682.856455 million in 2008, Tk. 6205.586602 million in 2009, Tk.

9495.297805 million in 2010 and Tk. 13437.32665 million in 2011.

Investment Figure in MillionYear 2007 2008 2009 2010 2011

Southeast

Bank 29,846.60 18,869.07 21,350.23 12,299.61 8,462.86Standard

Bank 2,014 3,218 5,340 7,624 9,534Eastern

Bank 3,457 5,325 8,806 9,827 16,910Average 11,772.53 9,137.36 11,832.08 9,916.87 11,635.62

Table 1-11: Average investment

From the table 1-11, we see that average investment of those three banks were Tk. 11,772.53

million in 2007, Tk. 9,137.36 million in 2008, Tk. 11,832.08 million in 2009, Tk. 9,916.87

million in 2010 and Tk. 11,635.62 million in 2011.

Net Profit Before Taxes Figure in MillionYear 2007 2008 2009 2010 2011

Southeast

Bank

4345.1508

41

2154.8216

89

3451.7647

71

4923.2364

68

4345.15084

1Standard

Bank 613 1,084 1,285 2,376 2,350Eastern

Bank 1,286 1,931 2,701 3,992 4,129

Average

2081.3836

14

1723.2738

96

2479.2549

24

3763.7454

89 3608.05028Table 1-12: Average net profit before tax

From the table 1-12, we see that average net profit before tax of those three banks were Tk.

2081.383614 million in 2007, Tk. 1723.273896 million in 2008, Tk. 2479.254924 million in

2009, Tk. 3763.745489 million in 2010 and Tk. 3608.05028 million in 2011.

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Net Profit Figure in MillionYear 2007 2008 2009 2010 2011

Southeast

Bank

1222.96903

7 887.235037

1870.1852

4

2763.13646

8

1943.27955

5

StandardBank 347 657 765 1369 1297Eastern

Bank 419 798 1455 2425 2521

Average 662.989679

780.745012

3

1363.3950

8

2185.71215

6

1920.42651

8Table 1-13: Average net profit after tax

From the table 1-13, we see that average net profit after tax of those three banks were Tk.

662.989679 million in 2007, Tk. 780.7450123 million in 2008, Tk. 1363.39508 million in 2009,

Tk. 2185.712156 million in 2010 and Tk. 1920.426518 million in 2011.

Performance of The Banks During The Period From 2007 to 2011

Every bank attempted to mobilize deposits and to invest them as loans and investment in govt.

securities, so that it could earn more profits during the financial year.

Year AveragedepositAverage

loanAverage

deposit rateAverage

lending rateAverage

profit

2007 34,926.68 31,855.53 0.091567 0.139633 662.9897

2008 46,530.56 42,377.75 0.0856 0.140367 780.745

2009 62,802.35 54,407.52 0.090133 0.135667 1,363.3952010 74,007.73 68,115.4 0.0804 0.132533 2,185.712

2011 88,861.74 81,469.52 0.092033 0.146533 1,920.427

From the table we can see that the weighted average profit is higher in 2010 than other financial

years. Because of the higher amount of loan then relatively lower amount of deposit there was a

great impact on profit in 2008, for that profit there was lower profit in 2008 which was 780.745

million. The average lending rate also creates an impact on average profit. In 2008 the lending

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rate was 14% but the deposit rate was 8.5% so it also a great reason for making lower profit. In

2011 the lending rate also 14% but bank increase the deposit rate for that there was more deposit

in 2011 than that of other years. There were 1,920.427 million profits in 2011. If we focus on

change of the deposit rate (9.20% - 8.56%) or 0.64%, than there was a huge change in profit,

which was increased by 1,139.682 million though there was a little change in lending rate. So in

2011 when bank its deposit rate the deposit amount will increase 88,861.74 million as well as

the lending amount also increase 81,469.52 million and at last profit also increase 1,920.425

million.

So we can say that if bank change its deposit rate then there will be huge impact on profit. A

small change in deposit rate can make large change in profit of the bank. Because when bank

provide lower interest the depositor deposit less amount of money in the bank which indicate

lower capability to lend the money so income will be low. Low income indicates lower profit.

Regression Analysis

By regression analysis, kept net profit as dependent variable and kept the average deposit, loan,

marketing expense, number of branch, average lending rate, average deposit rate, managerial

expense, non-performing loan, equity capital, liquidity, investment and net profit before tax asindependent variables, we find the Mean and Standard deviation for these variables for 5 years

Descriptive statistics

Statistics N Mean Std. DeviationValid Missing

N.PROFIT 5 0 1382.654 673.551DEPOSIT 5 0 61425.81 21430.13

LOAN 5 0 55645.15 19785.77

MKT.EXP 5 0 49.727 22.7046BRANCH 5 0 49.6 16.9729LENDING 5 0 0.138947 5.29E-03

A.DEPOSI 5 0 8.79E-02 4.93E-03MGT.EXP 5 0 8.4856 1.5434N.P.LOAN 5 0 2.85E-02 2.84E-03E.CAPITA 5 0 8430.826 3969.066LIQUIDIT 5 0 7165.18 4429.481

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INVEST 5 0 10858.89 1248.622NPB.TEX 5 0 2731.142 913.3276

Table 1-14

From this table1-4, we can see that the mean amount of net profit is Tk. 1382.654 million, for

average deposit Tk. 61425.81 million, for average loan Tk. 55645.15 million, for average

marketing expense Tk. 49.727 million, for average branch 49.6, for average lending rate

13.8947% for average deposit rate 8.79%, for average management expense Tk. 8.4856 million,

for non performing loan 2.85%, for equity capital Tk. 8430.826 million, for liquidity Tk. 7165.18

million, for investment Tk. 10858.89 million and for net profit before tax Tk. 2731.142 million.

The standard deviation amount of net profit is Tk. 673.551 million, for average deposit Tk.

21430.13 million, for average loan Tk. 19785.77 million, for average marketing expense Tk.

22.7046 million, for average branch 16.9729, for average lending rate 5.29%% for averagedeposit rate 4.93%, for average management expense Tk. 1.5434 million, for non performing

loan 2.84%, for equity capital Tk. 8430.826 million, for liquidity Tk. 4429.481 million, for

investment Tk. 1248.622 million and for net profit before tax Tk. 913.3276 million.

Correlation Matrix

Correlations N.PROFIT DEPOSIT LOAN MKT.EXPN.PROFIT Pearson

Correlation1.000 .916 .920 .840

Sig. (2-tailed) . .029 .027 .075

N 5 5 5 5

DEPOSIT PearsonCorrelation

.916 1.000 .997 .892

Sig. (2-tailed) .029 . .000 .042

N 5 5 5 5

LOAN PearsonCorrelation

.920 .997 1.000 .876

Sig. (2-tailed) .027 .000 . .052

N 5 5 5 5

MKT.EXP PearsonCorrelation

.840 .892 .876 1.000

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Sig. (2-tailed) .075 .042 .052 .

N 5 5 5 5

Correlation is significant at the 0.05 level (2-tailed).Correlation is significant at the 0.01 level (2-tailed).

From the table we find the correlation among average net profit, average deposit, average loan

and average marketing expense.

There is a correlation (.916), positive relationship between average net profit and average deposit

and correlation (.920), positive relationship between average net profit and average loan and

correlation (.840), positive relationship between average net profit and average marketing

expenses.

So, with the above information we can say that net profit is affected positively by the deposit,

loan and marketing expenses of a bank.

Correlations

N.PROFIT BRANCH LENDING A.DEPOSIN.PROFIT Pearson

Correlation

1.000 .917 -.165 -.384

Sig. (2-tailed) . .028 .790 .523

N 5 5 5 5

BRANCH Pearson

Correlation

.917 1.000 .240 -.111

Sig. (2-tailed) .028 . .698 .859

N 5 5 5 5

LENDING Pearson

Correlation

-.165 .240 1.000 .685

Sig. (2-tailed) .790 .698 . .202

N 5 5 5 5A.DEPOSI Pearson

Correlation

-.384 -.111 .685 1.000

Sig. (2-tailed) .523 .859 .202 .

N 5 5 5 5

Correlation is significant at the 0.05 level (2-tailed).

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From the table we find the correlation among average net profit, average deposit rate, average

loan rate and average branch.

There is a correlation (-.384), negative relationship between average net profit and averagedeposit rate and correlation (-.165), positive relationship between average net profit and average

lending rate and correlation (.917), positive relationship between average net profit and average

deposit and average branch.

So, with the above information we can say that net profit is affected by the deposit rate, lending

rate and branches of a bank.

Correlations

N.PROFIT MGT.EXP N.P.LOAN E.CAPITAN.PROFIT Pearson

Correlation

1.000 .898 -.854 .949

Sig. (2-tailed) . .038 .065 .014N 5 5 5 5

MGT.EXP Pearson

Correlation

.898 1.000 -.826 .986

Sig. (2-tailed) .038 . .085 .002

N 5 5 5 5

N.P.LOAN Pearson

Correlation

-.854 -.826 1.000 -.881

Sig. (2-tailed) .065 .085 . .048

N 5 5 5 5

E.CAPITA Pearson

Correlation

.949 .986 -.881 1.000

Sig. (2-tailed) .014 .002 .048 .

N 5 5 5 5

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From the table we find the correlation among average net profit, average managerial expenses,

average non-performing loan rate and average equity capital.

There is a correlation (.898), positive relationship between average net profit and average

managerial expenses and correlation (-.858), negative relationship between average net profit

and average non-performing loan and correlation (.949), positive relationship between average

net profit and average equity capital.

So, with the above information we can say that net profit is affected by managerial expenses,

non-performing loan rate and equity capital of the bank.

Correlations

N.PROFIT LIQUIDIT INVEST NPB.TEXN.PROFIT Pearson

Correlation

1.000 .877 .006 .967

Sig. (2-tailed) . .051 .992 .007

N 5 5 5 5

LIQUIDIT Pearson

Correlation

.877 1.000 .059 .865

Sig. (2-tailed) .051 . .925 .058

N 5 5 5 5

INVEST Pearson

Correlation

.006 .059 1.000 .133

Sig. (2-tailed) .992 .925 . .832

N 5 5 5 5

NPB.TEX Pearson

Correlation

.967 .865 .133 1.000

Sig. (2-tailed) .007 .058 .832 .

N 5 5 5 5


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From the table we find the correlation among average net profit, average liquidity, average

investment, and average net profit before taxes.

There is a correlation (.877), positive relationship between average net profit and average

liquidity and correlation (.006), positive relationship between average net profit and average

investment and correlation (.967), positive relationship between average net profit and average

net profit before tax.

So, with the above information we can say that net profit is affected by liquidity, investment, and

net profit before taxes.

Model Summary

Model R R Square Adjusted R Square Std. Error of the

Estimate1 .926 .857 .427 509.9405

Predictors: (Constant), MKT.EXP, LOAN, DEPOSIT

Here, R 2 is the coefficient of multiple determinations, which measures the relationship between

two variables. Here, R 2 = .857 or 85.7%. So, 85.7% of the total variation of in the dependent

variable average net profit is explained or accounted for by the variation in the independent

variables mainly average marketing expense, average loan and average deposit.

ANOVAModel Sum of

Squaresdf Mean Square F Sig.

Regression 1554644.483 3 518214.828 1.993 .470

Residual 260039.270 1 260039.270

Total 1814683.753 4

Predictors: (Constant), MKT.EXP, LOAN, DEPOSITDependent Variable: N.PROFIT

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Here, probability value is .470 which is greater than alpha value = .05. So, null-hypothesis is

accepted. That means there is no enough evidence so that there is difference in the mean average

net profit of the bank among the average deposit & average loan amount & average marketing

expense at the .05 significance level.

CoefficientsUnstandardized Coefficients

StandardizedCoefficients

t Sig.

Model B Std. Error Beta(Constant) -263.672 841.931 -.313 .807

DEPOSIT -3.899E-02 .197 -1.240 -.198 .876

LOAN 6.613E-02 .200 1.943 .330 .797

MKT.EXP 7.267 27.491 .245 .264 .835

Dependent Variable: N.PROFITHere, Tk. -263.672 million is the intercept value that indicates the regression equation intersects

the dependent variable which is net profit , when other independent variables average deposit &

loan& marketing expense amount are zero. If average deposit amount is increased by Tk. 1

million the net profit will decreased by an amount of Tk.1.240 million per year, keeping other

independent variable constant. If average loan amount is increased by Tk. 1 million the net profitwill increased by an amount of Tk.1.943 million per year, keeping other independent variable

constant. If average marketing expense is increased by Tk. 1 million the net profit will increased

by an amount of Tk. 245 million per year, keeping other independent variable constant.

Model Summary


Estimate1 .999 .998 .994 52.4539

Predictors: (Constant), A.DEPOSI, BRANCH, LENDING



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variables mainly average deposit rate, average lending rate and average branch.

ANOVA

Model Sum of

Squares

df Mean Square F Sig.

1 Regression 1811932.344 3 603977.448 219.516 .050

Residual 2751.410 1 2751.410

Total 1814683.753 4

Predictors: (Constant), A.DEPOSI, BRANCH, LENDING

Dependent Variable: N.PROFIT

Here, probability value is .05 which is equal than alpha value = .05. So, null-hypothesis is


net profit of the bank among the average deposit rate & average lending rate & average branches

at the .05 significance level.

Coefficients

Unstandardize

d Coefficients

Standardized

Coefficients

t Sig.

Model B Std. Error Beta1 (Constant) 6631.782 696.679 9.519 .067

BRANCH 40.508 1.728 1.021 23.438 .027

LENDING -53941.661 7563.251 -.424 -7.132 .089

A.DEPOSI 2691.062 7934.915 .020 .339 .792


Here, Tk. 6631.782 million is the intercept value that indicates the regression equation intersects

the dependent variable which is net profit , when other independent variables average deposit

rate & loan rate& branch are zero. If average deposit rate amount is increased by 1% the net

profit will increase by an amount of .020 % per year, keeping other independent variable

constant. If average lending rate is increased by 1% the net profit will decrease by .424% per

year, keeping other independent variable constant. If average branches is increased by 1% the net

profit will increased by 1.021% per year, keeping other independent variable constant.

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Model Summary


Estimate1 .980 .961 .845 264.9253

Predictors: (Constant), E.CAPITA, N.P.LOAN, MGT.EXP




variables mainly average equity capital, average non-performing loan rate and average

managerial expense.

ANOVA

Model Sum of

Squares

Df Mean Square F Sig.

1 Regression 1744498.330 3 581499.443 8.285 .249Residual 70185.423 1 70185.423

Total 1814683.753 4

Predictors: (Constant), E.CAPITA, N.P.LOAN, MGT.EXP




net profit of the bank among the average equity capital & average non-performing rate &

average managerial expenses at the .05 significance level.

Coefficients

Unstandardize

d Coefficients

Standardized

Coefficients

t Sig.

Model B Std. Error Beta1 (Constant) 1992.186 3507.370 .568 .671

MGT.EXP -762.610 615.858 -1.748 -1.238 .432

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N.P.LOAN 60315.136 117497.935 .255 .513 .698

E.CAPITA .492 .285 2.896 1.722 .335



the dependent variable which is net profit , when other independent variables average deposit &

loan& marketing expense amount are zero. If average equity capital is increased by Tk. 1

million the net profit will increased by an amount of Tk. 2.896 million per year, keeping other

independent variable constant. If average non-perfoming loan amount is increased by Tk. 1

million the net profit will increased by an amount of Tk. .255 million per year, keeping other

independent variable constant. If average managerial expense is increased by Tk. 1 million the

net profit will decreased by an amount of Tk. 1.748 million per year, keeping other independent

variable constant.

Model Summary


Estimate1 .977 .955 .820 285.4676

Predictors: (Constant), NPB.TEX, INVEST, LIQUIDIT




variables mainly average net profit before tax, average investment and average liquidity.

ANOVA

Model Sum of

Squares

df Mean Square F Sig.

Regression 1733191.991 3 577730.664 7.089 .268

Residual 81491.762 1 81491.762

Total 1814683.753 4

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Predictors: (Constant), NPB.TEX, INVEST, LIQUIDIT




net profit of the bank among the average ner profit before taxes & average investment & average

liquidity at the .05 significance level.

CoefficientsUnstandardize

d Coefficients

Standardized

Coefficients

t Sig.

Model B Std. Error Beta1 (Constant) 173.775 1283.563 .135 .914

LIQUIDIT 2.056E-02 .065 .135 .318 .804

INVEST -6.280E-02 .116 -.116 -.541 .684

NPB.TEX .638 .316 .866 2.020 .293



the dependent variable which is net profit , when other independent variables average liquidity,

investment, and net profit before tax are zero. If average liquidity is increased by Tk. 1 million

the net profit will increase by an amount of Tk. 135 million per year, keeping other independent

variable constant. If average investment is increased by Tk. 1 million the net profit will

decreased by an amount of Tk.116 million per year, keeping other independent variable constant.

If average net profit before tax is increased by Tk. 1 million the net profit will increased by an

amount of Tk. 866 million per year, keeping other independent variable constant.

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In case of managerial expense when it increases bank has more expense cost so profit is

declining.

When investment increases than profit also increase.

For the increasing trend of net profit before tax, net profit after also increase but when

there are more profit before tax then bank need to pay more tax to the government.

Conclusion

Banks make money by lending money to borrowers, things like mortgage, consumer loans, etc.

While banks can raise rates on the loans when interest rate goes up, they usually do not raise as

much, since they might lose business if interest rate is too high. Banks also have loans and

mortgages in fixed rates, which they cannot change even if interest rate goes up. So in general,

high interest rate hurts bank profits.

Our aim was to find out the correlation among net profit, average deposit, average loan,

marketing expense, number of branch, average lending rate, average deposit rate, managerial

expense, non-performing loan, equity capital, liquidity, investment and net profit before tax of

sample commercial banks over last 5 years in terms of some commonly used indicators of

financial system in our economy. Our analysis reveals that four sample banks in Bangladesh in

our financial system including deposit and loan amount of last five years.

We need to know the average deposit amount, average loan amount, average deposit rate,

average loan rate that influence the net profit of banks. Here we find that the analysis explores amoderate and also positive relationship between average deposit amount and net profit; on the

other hand there is also positive relationship between average loan amount and net profit.

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At last we can say that, because of deposit and loan of the bank, profit is (upward) fluctuating

within single digit in recent years. So, profit is affected by banks average deposit amount,

average loan amount, average deposit rate and average loan rate.

Bibliography

Dhaka Stock Exchange Library, 9/F Motijheel C/A, Dhaka, Bangladesh.

http://www.dsebd.org/

http://www.standardbankbd.com/

http://www.standardbankbd.com/index.php/balance_sheet/show/year_bsheet/2

http://www.standardbankbd.com/index.php/cards/gold

http://ebl-bd.com/home/EBL_Profile

http://ebl-bd.com/home/Internet_Banking#Deposits

http://ebl-bd.com/home/Annual_Reports

http://ebl-bd.com/home/Financial_Statements

https://www.southeastbank.com.bd/atm.php

https://www.southeastbank.com.bd/swift.php

https://www.southeastbank.com.bd/westernunion.php

https://www.southeastbank.com.bd/virtual_card.php

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https://www.southeastbank.com.bd/ATM_Card.php

https://www.southeastbank.com.bd/upload/annual_report/annual_report_2010.pdf

http://www.bangladesh-bank.org/fnansys/interestlending.php

http://www.bangladesh-bank.org/fnansys/interestdeposit.php
https://www.southeastbank.com.bd/upload/annual_report/annual_report_2010.pdfhttp://www.bangladesh-bank.org/fnansys/interestlending.phphttp://www.bangladesh-bank.org/fnansys/interestdeposit.phphttps://www.southeastbank.com.bd/upload/annual_report/annual_report_2010.pdfhttp://www.bangladesh-bank.org/fnansys/interestlending.phphttp://www.bangladesh-bank.org/fnansys/interestdeposit.php

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