ibrahim southern.doc

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Acknowledgement

I would like to express my deep sense of gratitude to all those who are always a source ofinspiration for their involvement, unconditional cooperation and support in the successful and

timely preparation of this report. Without their encouragement, I could not stand in pride ashaving done some academic work. I am indebted to all of them. As being a human being, it is

natural to forget and few names may not be mentioned unmindfully. I would like to apologize

for my forgetfulness.

I take the opportunity to express my sincere gratitude and respect to Mr. Parvez Sajjad,

Financial Controller of Prime Bank Ltd., as well as Mr. Mohammad Kamal Uddin, SeniorManager, Bank Asia Ltd. for accepting me to work in these renowned Banks.

Finally, I express my special gratitude to my honorable teacher, ---------Assistant Professor of

Southern University for his supervision in preparing the report. He has guided me in

coordinating the whole report. He has spend time to check the draft report and given his

suggestions on different chapters of the report. Without his help, it would have been difficultto prepare a comprehensive report.


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Executive Summery

CAMELS Rating System is an international bank-rating system where bank supervisory

authorities rate institutions according to six factors. It is encountered by six components

named capital adequacy, asset quality, management competence, earnings, liquidity andsensitivity to market risk. It is used for banking companies to know about their financial

condition, overall soundness of the banks, and predict different risk factors that maycontribute to turn the bank into a problem. CAMEL first founded in 1979 and in 1996

CAMEL became CAMELS with the addition of a component grade for the Sensitivity of thebank to market risk. In Bangladesh, the five components of CAMEL have been used for

evaluating the banks operations that reflect in a complete institutions financial condition,

compliance with banking regulations and statutes and overall operating soundness since the

early nineties. In 2006, Bangladesh Bank has upgraded the CAMEL into CAMELS andincluded Sensitivity to market risk or S which make CAMEL into CAMELS. It has 1

through 5 rating for each of these components and a composite rating where the rating of 1indicates strong performance or best rating, 2 reflects satisfactory performance, 3 represents

performance that is flawed to some degree, 4 refers to marginal performance and is

significantly below average and 5 is considered as unsatisfactory or worst rating.

In Bangladesh, CAMELS rating is followed by all commercial as a recommendation of

Bangladesh Bank. Bank Asia Ltd. also makes report on CAMELS rating internally andexternally. Bangladesh Bank evaluates CAMELS rating where BAL issue all necessary

reports. BAL is a B category bank in Bangladesh according to CAMELS rating system of

Bangladesh Bank. It is in satisfactory position in 2010 by holding rating 2. Although it is instrong position in capital adequacy and earnings, but it is not in good position in asset quality,

management quality and liquidity. So, it is B category bank in Bangladesh. Now BAL is

planning to include CAMELSs new component named sensitivity to market in theirCAMELS rating system which will make their rating system more efficient and effective.

They do not yet use any quantitative factors to evaluate the new components of CAMELSrating system named sensitivity to market.


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Chapter: 1

Introductory note:

OVERVIEW OF CAMELS RATING SYSTEMCamels rating system is a common phenomenon for all banking system all over the world. Itis used in all over the country in the world. It is mainly used to measure a ranking position of

a bank on the basis of few criteria. Camels rating system is an international bank-rating

system where bank supervisory authorities rate institutions according to six factors. The sixfactors are represented by the acronym "CAMELS". The six factors examined are as follows:C - Capital adequacy A - Asset quality M - Management quality E - Earnings L - Liquidity S

- Sensitivity to Market Risk Bank supervisory authorities assign a score on a scale of one(best) to five (worst) for each factor to each bank. If a bank has an average score less than

two it is considered to be a high-quality institution, while banks with scores greater than three

are considered to be less-than-satisfactory establishments. The system helps the supervisory

authority identify banks that are in need of attention.


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1.1 ORIGIN OF CAMELS RATING SYSTEM

There were many banks rating system available in the world. However, Camels rating systemis the most successful bank rating system in the world. The Uniform Financial Institutions

Rating System (UFIRS) was created in 1979 by the bank regulatory agencies. Under the

original UFIRS a bank was assigned ratings based on performance in five areas: the adequacyof Capital, the quality of Assets, the capability of Management, the quality and level of

Earnings and the adequacy of Liquidity. Bank supervisors assigned a 1 through 5 rating for

each of these components and a composite rating for the bank. This 1 through 5 compositerating was known primarily by the short form CAMEL.

A bank received the CAMEL rate 1 or 2 for their sound or good performance in every respectof criteria. The bank which exhibited unsafe and unsound practices or conditions, critically

deficient performance received the CAMEL rate 5 and that bank was of the greatest

supervisory concern.

While the CAMEL rating normally bore close relation to the five component ratings, it wasnot the result of averaging those five grades. Supervisors consider each institutions specific

situation when weighing component ratings and review all relevant factors when assigningratings to a certain extent. The process and component and composite system exist similar for

all banking companies.In 1996, the UFIRS was revised and CAMEL became CAMELS with the addition of a

component grade for the Sensitivity of the bank to market risk. Sensitivity is the degree to

which changes in market prices such as interest rates adversely affect a financial institution.

The communication policy for bank ratings was also changed at end of 1996. Starting in1997, the supervisors were to report the component rating to the bank. Prior to that,

supervisors only reported the numeric composite rating to the bank.CAMELS ratings in the Ninth District as of the third quarter of 1998 reflect the excellent

banking conditions and performance over the last several years. Comparison between the

distribution of ratings in the most recent quarter and 10 years ago during the height of the

national banking crisis is illustrative (221 banks failed nationally in 1988 while 3 banks failedin 1998). Nearly 100 percent of Ninth District banks currently fall into the top two ratings

with 40 percent receiving the top grade. Ten years ago one-third of Ninth District banks fellinto the bottom three ratings and only about one of 10 banks received the highest grade.

1.2 SIX FACTORS OF CAMELS RATINGS SYSTEM

Capital Adequacy

Capital adequacy focuses on the total position of bank capital. It assures the depositors thatthey are protected from the potential shocks of losses that a bank incurs. Financial managers

maintain companys adequate level of capitalization by following it. It is the key parameter

of maintaining adequate levels of capitalization.Asset Quality

Asset quality determines the robustness of financial institutions against loss of value in the

assets. All commercial banks show the concentration of loans and advances in total assets.

The high concentration of loans and advances indicates vulnerability of assets to credit risk,especially since the portion of non-performing assets is significant.


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Management Soundness

Management quality of any financial institution is evaluated in terms of Capital Adequacy,

Asset Quality, Management, Earnings, Liquidity and Sensitivity to market risk. Moreover, it

is also depended on compliance with set norm, planning ability; react to changing situation,technical competence, leadership and administrative quality. A Sound management is the

most important pre-requisite for the strength and growth of any financial institution.

Earnings and Profitability

Earning and profitability is the prime sources of increasing capital of any financial institution.

Strong earnings and profitability profile of a bank reflect its ability to support present andfuture operations. Increased earning ensure adequate capital and adequate capital can absorb

all loses and give shareholder adequate dividends.


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Liquidity

An adequate liquidity position refers to a situation, where an institution can obtain sufficient

funds, either by increasing liabilities or by converting its assets quickly at a reasonable cost.It access in terms of asset and liability management. Liquidity indicators measured as

percentage of demand and time liabilities (excluding interbank items) of the banks. It meansthat the percentage of demand and time liabilities gets a bank as per its liquid assets.

Sensitivity to Market Risk

The sensitivity to market risk is evaluated from changes in market prices, notably interestrates; exchange rates, commodity prices, and equity prices adversely affect a banks earnings

and capital.

PROCESS OF CAMELS REPORTING

The reporting process of CAMELS rating is given below:


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1.3 CAMELS RATING FOR BANKING COMPANIES

CAMELS rating system is encountered by six components named capital adequacy, assetquality, management competence, earnings, liquidity and sensitivity to market risk. It is used

for banking companies to know about their financial condition, overall soundness of thebanks, and predict different risk factors that may contribute to turn the bank into a problem.

To review the different aspects of the banks such as adequacy of risk-based capital, future

sources of capital and dividend payment ratio, asset growth rate, loan growth rate, non-

performing loan trends, provision for loan loss and bad assets, maturity profile of assets, theirclassification-wise weightage, performance of off balance sheet items, return on assets, level

and composition of earnings, volatility of deposits base and reliance position on the borrowedfunds and its sources, technical competence in the rise of financial globalization and

deregulation, uses of financial innovations, leadership ability, administrative and control

ability, compliance with the rules and regulations and standard management information

system etc CAMELS rating system is very important. It also recommends on which sector itshould improve.


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1.4 CAMELS RATING SYSTEM OF BANGLADESH

All over the world, CAMELS rating is a common figure to all banking industry. Like allother countries, it is also used in Bangladesh. In Bangladesh, the five components of CAMEL

have been used for evaluating the five crucial dimensions of a banks operations that reflect

in a complete institutions financial condition, compliance with banking regulations andstatutes and overall operating soundness since the early nineties. In 2006, Bangladesh Bank

has upgraded the CAMEL into CAMELS. Sensitivity to market risk or S is the new rating

component which is included in CAMEL and make it into CAMELS. The new ratingcomponent makes the system more effective and efficient. The new system needs banks

regular condition and performance according to predetermined stress testing on asset andliability and foreign exchange exposures, procedures, rules and criteria and on the basis of the

results obtained through risk-based audits under core risk management guidelines. A banks

single CAMELS rating has come from off-site monitoring, which uses monthly financial

statement information, and an on-site examination, from which bank supervisors gatherfurther private information not reflected in the financial reports. The development of

"credit points" examination result is ranging from 0 to 100. The six key performancedimensions capital adequacy, asset quality, management, earnings, liquidity and sensitivity

to market risk are to be evaluated on a scale of 1 to 5 in ascending order.Following is a description of the graduations of rating:

Rating 1 indicates strong performance: BEST rating.Rating 2 reflects satisfactory performance.

Rating 3 represents performance that is flawed to some degree.Rating 4 refers to marginal performance and is significantly below average and

Rating 5 is considered unsatisfactory: WORST rating.

CAMEL Numerical Rating: Rating Description1. STRONG: It is the highest rating and is indicative of performance that is significantly

higher than average.

2. SATISFACTORY: It reflects performance that is average or above; it includes performancethat adequately provides for the safe and sound operation of the banks.

3. FAIR: Represent performance that is flawed to some degree. It is neither satisfactory norunsatisfactory but is characterized by performance of below average quality.

4. MARGINAL: Performance is significantly at below average; if not changed, suchperformance might evolve into weaknesses or conditions that could threaten the viability of

the bank.

5. UNSATISFACTORY: Is the lowest rating and indicative of performance that is critically

deficient and in need of immediate remedial attention. Such performance by itself, or incombination with other weakness, threatens the viability of the institution.


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CAMEL Numerical Rating: Rating Description

1. STRONG: It is the highest rating and is indicative of performance that is significantly

higher than average.2. SATISFACTORY: It reflects performance that is average or above; it includes performance

that adequately provides for the safe and sound operation of the banks.3. FAIR: Represent performance that is flawed to some degree. It is neither satisfactory nor

unsatisfactory but is characterized by performance of below average quality.

4. MARGINAL: Performance is significantly at below average; if not changed, such

performance might evolve into weaknesses or conditions that could threaten the viability ofthe bank.

5. UNSATISFACTORY: Is the lowest rating and indicative of performance that is criticallydeficient and in need of immediate remedial attention. Such performance by itself, or in

combination with other weakness, threatens the viability of the institution.

Table 6: Composite

CAMELS and their

Interpretation Rating

Composite range Description Rating Analysisinterpretation

1 1 to 1.4 Strong Sound in everyrespect, no supervisoryresponses required.

2 1.5 to 2.4 Satisfactory Fundamentally soundwith modestcorrectable weakness,supervisory responselimited.

3 2.5 to 3.4 Fair Combination ofweaknesses if notredirected will becomesevere. Watchcategory. Requires

more than normalsupervision.4 3.5 to 4.4 Marginal Immoderate weakness

unless properlyaddressed could impairfuture viability of thebank. Needs closesupervision.

5 4.5 to 5 Unsatisfactory High risk of failure inthe near term. Underconstantsupervision/cease anddesist order.


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1.5 STATEMENT OF THE PROBLEM

The aim of this study is to summarize the major reforms undertaken in the banking industry

of Bangladesh and to evaluate their impact on the financial development and individualperformances of the banks. Development of financial system is measured by financial

deepening, competitiveness and profitability within the banking industry. Individual

performances of the banks are measured by "Capital Adequacy, Asset Quality, Management

Soundness, Earning performance and Liquidity" of the banks. The study reveals that the

financial system in Bangladesh has been developed to some extent. However, we observe a

mixed result for different types of banks in case of performance evaluation of the banks.

While the local banks failed to achieve satisfactory improvement, the foreign banks were able

to improve their performance considerably perhaps for having strong and efficient

management, and additional compliance with the policy, guidelines, standards issued by their

head office.

Southern university Bangladesh, Chittagong one of the reputed private university

in Bangladesh has international designed the curriculum of the (MBA) course such

a way that the international standard semester will be produced. After completing

57 credit hours. One student needs to go completion a thesis paper, which is

belonged further (6) credit hours.

This report is an Endeavour to evaluate the financial performance of Prime Bank

ltd and Bank Asia Ltd.

1.6 Literature review


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Financial sector of Bangladesh comprises with commercial banks, non-bank financialinstitutions, insurance companies etc. However, the banks play the key role in the financial

system of Bangladesh. After liberation of Bangladesh in December 1971, all the financial

institutions including the commercial banks carried out their operations in order to achievethe objectives of the government. This situation continued up to 1982. At that period, someregulations were formulated and some directions were made to the banks with a view to

fulfill the economic objectives of the government rather than to fulfill the commercial interestof the banks. Expansion of bank branches was also directed to increase the network of the

banking system. As a result, bank branches increased commendably which consequently

reduced the population per branch.

Having completed the literature review of banking sector reforms and bank performance

evaluation, we will now look at the reform measures undertaken aiming to eliminate theproblems of the financial/banking sector of Bangladesh. During the first decade of

Bangladesh after independence, financial system has been suffering from deep crises; loan

recovery was extremely disastrous, enterprises were experiencing mismanagement, financialmarket and institutions were inefficient to reach the commercial goal. In order to identify the

major problems in the financial system and to suggest remedial measures, Government

formed the "National Commission on Money, Banking and Credit (NCMBC)" in 1986.After carrying out a thorough study, the NCMBC came out with some suggestions to the

government. These recommendations were generally based on the capital adequacyrequirement of banks, problems regarding to overdue loans, strengthening of infrastructure

both for legal and institutional capacity etc.

Subsequently, a World Bank Mission conducted an comprehensive study of the financial

sector and suggested reforms relating toFixation of interest rates on deposits and advances;

Classification of overdue loans;

restructuring of capital of NCBs and PCBs; and

Market orientation of banking transactions. (Task Force Report, 1991)

Bangladesh Bank combined the observations and suggestions from both the NCMBC andWB, and undertook some initiatives aligned with the suggestions. Some of these initiatives

are:

Decontrol of interest rates for both the deposit and lending;

Improvement of capital adequacy of NCBs and PCBs;

exercising strict central bank supervisory roles;

improving the operational structure of commercial banks;

providing support by endorsing legal framework;

Computerization of banks.

All these reform measures undertaken by Bangladesh Bank aimed to achieve operational

efficiency of the financial institutions and consequently to attain financial development in thelong run.

In 1992, Financial Sector Reform Program (FSRP) was also instituted to assist inimplementing the above measures. The broad objective of FSRP was to enhance


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competitiveness in the banking industry, whereas the Specific objective was to make NCBscommercially viable for subsequent privatization and help PCBs to increase their market

share in total commercial banking.


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The Financial Sector Reform Program (FSRP) was launched in 1990. The World Bank andUSAID financed the program and the International Monetary Fund provided technical

assistance. FSRP was instituted considering to make NCBs commercially viable forprivatization and to help PCBs to increase their market share. FSRP focused to improve the

operations of NCBs through introducing financial technologies, adopting international best-

practices, setting up IT based banking operation etc.

During the tenure of the program, the FSRP consultants provided extensive training to a largenumber of bank officials on some tools and techniques. These tools covered how:

To analyze the risk associated with lending,

To introduce ledger card while sanctioning new loans,

To report any loan of large monetary amount,

To evaluate individual official's performance,

To supervise and inspect the banks effectively, and

To use the MIS effectively and efficiently.

BRC/CBRP Restructuring Measures

Just before the expiry of FSRP term, the government formed the "Banking ReformCommittee (BRC)". Subsequently, in May 1997, government undertook another project,

namely "Commercial Bank Restructuring Project (CBRP)". CBRP was also funded by the

WB. This project was undertaken to identify urgent course of actions needed for continuing

the pace and progress so far done. World Bank also submitted some recommendations in linewith the activities of BRC.

The WB mentioned "effective legal system, good management, and effective central bank" asthree pillars of banking and they proposed to rebuild these pillars first. The WB urged to go

for privatization only after the successful completion of financial restructuring of the NCBs.

The WB emphasized that the need for establishing strong financial infrastructure is much

important than to privatize banks.The WB identified less attractive pay structure of NCB officials, excessive influence of trade

unions, absence of autonomy and accountability, poor internal governance and management,over-staffing and over-branching, and weak legal infrastructure. Going with these major

obstacles, the banks cannot perform their most important function which is to ensure safetyof their deposits. Based on these observations, the WB suggested some programs mainly

focusing on to improve institutional capacity, restructure NCBs, ensuring transparency,

formulating legal procedure related to realize the outstanding loans, compliance with

international best practices etc.Based on the recommendation of the WB, Bangladesh Bank undertook some initiatives.

Subsequently, the WB again suggested a set of urgent and short to medium term measures.They drew attention mostly to the reform of Bangladesh Bank and urged for reestablishing

credit discipline, restructuring of NCBs and PCBs, and overall governance quality of the

banking system.The BRC submitted detailed reports along with recommendations on various issues

related to legal framework. The BRC realized that the financial discipline is a must inorder to attain the financial stability. As the central bank of the country, Bangladesh

Bank should have been empowered to play the key role in supervision and inspection. In

order for doing that, the Bangladesh Bank should enjoy the full autonomy in all aspects.Moreover, the Board of Directors for the NCBs should also function without restraint.

Lacking full autonomy, the Board may face interference from the government and may


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not perform effectively to achieve their own commercial objectives. Relevant Acts and

laws should be reviewed and amended accordingly to ensure the legal enforcement.

Bangladesh Bank has introduced a number of reporting forms and returns to be submitted by

the commercial banks regularly. On the basis of those returns, Bangladesh Bank prepares a

composite rating on yearly basis for each bank. This rating is known as CAMEL rating..Based on the CAMEL rating, Bangladesh Bank gives Early Warning Signal (EWS) to a

particular bank which is facing problems. CAMEL comprises of the following fiveperformance measures and these components are explained below:

Capital Adequacy : Banks have to maintain

the capital equal to 8% ofits "Risk weighted

Assets" out of which

minimum 4% of theircore capital.

Assets Quality : Amount & nature of non-

performing assets,provision, etc.

Management efficiency : Knowledge, experience,administrative,

organizational, leadership

ability and integrity.

Earning performance : Sound control ofexpenses, efficient fund

management, budgetingdiscipline etc.

Liquidity : Asset/liquiditymanagement

procedure/policies,

reliability of funding

source, etc.


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Profitability of the Banking Industry

Profitability is one of the indicators to measure the improvement in the banking industry.We analyze two profitability ratios, namely "Return on Assets (ROA)" and "Return on

Equity (ROE)", and the "Net Interest Income (NII)" for the banking sector since 2000.

All these variables have increased considerably during the period. Table 4.5:

Profitability of the Aggregate Banking Industry

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

RO

A

0.47 0.74 0.5 0.5 0.7 0.6 0.8 0.9 1.2 1.37 1.8

RO

E

10.91

16.94

11.6 9.8 13 12.4 14.1 13.8 15.6 21.72

15.5

NII 8.4 13.4 13.5 16.6 18.3 35.3 44.3 54.8 70.9 81.46

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1.7 SCOPE OF THE REPORT

The report is all about the CAMELS rating system of Bangladesh Bank in accordance with

Bank Asia and Prime Bank Ltd. The report has been prepared using highest concern, but the

complexity of CAMELS rating system is very well known. It is a report which can be easyfor all that a primary reader do not face any problem to know about the banking industry or

about regulatory requirement or about the CAMELS rating system. This report can beabsolute alternative for anyone who wants to know the ins and outs of CAMELS rating

system of BAL, prime Bank ltd and common rules and regulation of BB about CAMELSrating system. Graphical analysis and different chart of this report makes it easier and more

acceptable to all.


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1.8 METHODOLOGY

The report is based on primary and secondary sources. To make this report, I have neitherattended any seminar/training regarding CAMELS Rating System nor worked with the

reporting unit for CAMELS Rating. My own research and few practical knowledge has beenused in this report what I understood from my primary sources.

Primary sources are collected through:

Conducted face to face interview

General discussion with reporting unit officers

Secondary sources are collected through:

Bangladesh Bank capital adequacy guideline

Bangladesh Bank CAMELS rating system guideline

Websites

Articles

BRAC Bank Ltd. And Prime bank Ltd Annual Report for last five years.

Many Research Report on CAMELS rating system


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1.9 LIMITATIONS OF THE REPORT

The report has few limitations. The limitations are raised from different reasons which aregiven below:

In this report, I only use my own practical and researching knowledge because I didnot attend any seminar or training session regarding CAMELS Rating System and

even I did not work with the reporting unit for CAMELS Rating in BBL. So, it was

impossible to me to represent the absolute details about CAMELS Rating System.

Employees were always busy with routine work and making reports. In the period of

my internship, the Bangladesh Bank DBI Auditing was running in BRAC Bank Ltd.So, all officers were too much busy about it. That is why I cannot gather vast

knowledge about the critical issues.

There some information which are confidential for collecting the data. So, some data

could not been collected for confidentiality or secrecy of management.


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Chapter: 2

Description of sample banks:
http://www.bankasia-bd.com/credit_card.php


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Bank Asia Limited is a schedule Bank under private sector established

with in the ambit of Bank Company Act, 1991 and was incorporated as

a Public Limited Company under Company Act, 1994 on September

28, 1999. The Bank started commercial banking operations from

November 27, 1999 with the inauguration of the Banks Corporate

Office at the Rangs Bhaban. A huge public response has enabled the

Bank to keep up the plan of expanding its network. The opening of the

principal office was the big leap forward and successively the opening

of Gulshan and Chittagong branch expanded the horizon of Bank Asia

to bring its services to valued clients more effectively. Within a short

period, the bank has opened four more branches in Dhaka and two

branches in Sylhet and Kishorgonj. In February 2001, Bank Asia took

over the Bangladesh operation of The Bank of Nova Scotia, the first

acquisition of a foreign bank by a local bank in the banking history of

Bangladesh. Later, Bank Asia took over the Bangladesh operation of

Muslim Commercial Bank of Pakistan in December 2001. These

courageous moves were possible for some visionary decision makers

and also dedicated team of professionals who are constantly putting

their best efforts to establish the bank as one of the leading concerns in

the industry.

Bank Asia has so far been highly successful in keeping its customers satisfied with its

high quality service, while continuing its expansion to reach more people around the


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country. Bank Asia conducts all types of commercial banking activities. The Bank is

involved in most of the areas of commercial banking operations. The core business of the

Bank comprises of trade finance, term finance, working capital finance and corporate

finance. Bank Asia has acted as the lead arranger in raising term loan for a number of

projects under syndicated finance and also participated in some cases under such

financing arrangement. The Bank is also providing personal credit, service related to

local and foreign remittances and several other products. The Personal Credit scheme

of the Bank, which is designed to help the fixed income group in raising standard of

living is competitively priced and has been widely appreciated by the customers. Bank

Asias program under Poverty Alleviation Scheme delivered through rural branches in

the form of micro credit is playing an important role towards socio economic

development of the poor people in the rural areas.

The management of Bank Asia is determined to maintain and upgrade the quality of these

resources through continuous training and upgrading technology to keep pace with

market demands, new developments and practices of the competitors. Bank Asia entered

the market at a time when economic policy environment of the country is poised for

higher level of business activities and growth. The prevailing macroeconomic

management and the governments determination to carry on reforms in the banking

sector provide a supporting and encouraging environment.


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Structure of the Corporate Office

Figure-3.1: Structure of the Corporate Office

Board of Directors Chairman

Managing Director

Deputy Managing Director

Advisor

General ServiceCompany Secretary Operations

Board Share Implementationof Board

Human Resource Accounts/MIS/ITDevelopment

SpecializedTreasuryInternational DivisionCredit

Dealing RoomForeign Ex. Call Market

Corporate/Retail Product Development& Marketin

Public Relations


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3.3 Directors and Key Persons Profile

The Board of Directors of Bank Asia Limited consists of 13 Directors

including one Chairman, one First Vice Chairman and one Second Vice

Chairman. The list of Directors is given below:

Figure-3.2: Structure of Board of Directors

Mr. M. Syeduzzaman

Md. Anwar Hussain

Director

Mr. Faisal Samad

Director

Mr. M. Shamsul Alam

Director

Mr. Fariduddin Ahmed

Director

Mr. Rumee A. Hossain

Director

Ms. Sohana Rouf

Chowdhury

Director

Mr. A. Rouf Chowdhury

Mr. Arifur Rahman Sinha

Dr. Md. Shafiuddin

Chowdhury

Director

Mohd. Safwan

Choudhury

Md. Sirajul Haque

Director


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3.4 Mission Statement of Bank Asia

To assist in bringing high quality service to their customers and to participate in

the growth and expansion of our national economy.

To set high standards of integrity and bring total satisfaction to their clients,

shareholders and employees.

To become the most sought after bank in the country, rendering technology

driven innovative services by their dedicated team of professionals.

3.5 Corporate Objectives

Bank Asias objectives are reflected in the following areas:

Highly personalized service.

Customer-driven focus.

Total commitment to quality.

Contribution in the economy.

Quality of human resources.

Commitment to its clients at each level.

The company believes that communication with, and feedbacks from its clients help it

achieve its goal of providing world-class product and services. Bank Asia regularly

conducts client satisfaction surveys and make immediate accommodations and

adjustments where needed. It also constantly monitors its standards, and strives to meet

clients requirements.

Mr. Jahir Uddin

Director


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3.6 SWOT Analysis of Bank Asia

Every organization is composed of some internal strengths and weaknesses and also hassome external opportunities and threats in its whole life cycle. The following will briefly

introduce the customer to the Bank Asias internal strengths and weaknesses, and

external opportunities and threats as I have explored in the past ten weeks.

3.6.1 Strength

Superior Quality: Bank Asia provides its customers excellent quality of service.

It gives the first priority to customer satisfaction.

Dynamism: Bank Asia draws its strength from the adaptability and dynamism it

possesses. It has quickly adapted to world class standard in terms of banking

services. Bank Asia has also adapted state of the art technology to connect with

the world for better communication to integrate facilities.

Financial Strength: Bank Asia is a finally sound company backed by the

enormous resource base of the mother concern Rangs Group. As result customers

feel comfortable in dealing with the company.

Efficient Management: All the levels of the management of Bank Asia are

solely directed to maintain a culture of the betterment of the quality of the service

and development of a corporate brand image in the market through organization

wide term approach and open communication system.

State of the Art Technology: Bank Asia utilizes state-of-the-art technology to

ensure consistent quality and operation. The corporate office is equipped with

SWIFT (SWIFT is a banking software, used by Bank Asia). All other branches

are also equipped with SWIFT system.

Experts: The key contributing factor behind the success of the Bank Asia is its

employee, who is highly trained and most competent in their own field. Bank

Asia provides their employees training both in-house and out side job.

In-House Utility: Bank Asia is free from dependence on ever disruptive power

supply of our public sources. The company generates the required power through


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generator fed on diesel. Water generation is done by deep tube wells on site and

in abundance.

Excellent Working Environment: Bank Asia provides its workforce an

excellent place to work in. Total complex has been centrally air conditioned. The

interior decoration was done exquisitely with choice of soothing colors and blend

of artistic that is comparable to any overseas bank.

3.6.2 Weaknesses

Limited Workforce: Bank Asia has limited human resources compared to its

financial activities. There are not many people to perform most of the tasks. As a

result many of the employees are burdened with extra workloads and work late

hours with out any overtime facilities. This might cause high employee turnover

that will prove to be too costly to avoid.

Problem in Delivery: Few of the Bank Asias products offered to its clients like

Personal Credit (PC) is lying idle due to proper marketing initiative from the

management. These products can easily be made available in attractive ways to

increases its client base as well as its deposit status.

3.6.3 Opportunities

Government Support: Government of Bangladesh has rendered its full support

to the banking sector for a sound financial status of the country, as it has become

one of the vital sources of employment in the country now. Such government

concern will facilitate and support the long-term vision of Bank Asia.

Evaluation of E-Banking: Emergence of e-banking will open more scope for

Bank Asia to reach the clients not only in Bangladesh but also in the global

banking arena. Although the bank has already entered the world of e-banking but

yet to provide full electronic banking facilities to its customer. A proper blend of

Banking and information technology might give the bank leverage to its

competitors. Nevertheless there are ample opportunities for Bank Asia to go for

product innovation in line with the modern day need. The bank has yet to

develop credit card facility, lease financing and merchant banking.


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3.6.4 Threats

Merger and Acquisition: The worldwide trend of merging and acquisition in

financial institution is causing concentration. The industry and competitors are

increasing in power their respective areas.

Poor Telecommunication Infrastructure: As previously mentioned, the world

is advancing e-technology very rapidly. Though Bank Asia has taken effort to

join the stream of information technology, it is not possible to complete the

mission due to poor technology and infrastructure of our country.

Frequent Currency Devaluation: Frequent devaluation of Taka exchange rate

fluctuations and particularly South-East Asian currency crisis adversely affects

the business globally.

Emergence of Competitors: Due to high customer demand, more and more

financial institutions are being introduced in the country. There are already 52

banks of various types are operating in the country. Many banks are entering the

market with new and lucrative products. The market for banking industry is now

a buyer dominated market. Unless Bank Asia can come up with attractive

financial products in the market, it will have to face steep competition in the days

to come.

3.7 Values Considered as Guiding Factors

All the activities and decisions of Bank Asia are based on, and guided

by, these values:

Placing the interests of clients and customers first.

A continuous quest for quality in everything the company does.

Treating everyone with respect and dignity.

Conduct that reflects the highest standards of integrity.

Teamwork- from the smallest unit to the enterprise as a whole.

Being good citizens in the communities, in which they live and work.


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3.8 Equity Formation

AUTHORISED CAPITAL

12,000,000 Ordinary Shares of Tk. 100.00 each Tk. 1,200,000,000.00

PAID UP CAPITAL

Issued3,000,000 Ordinary Shares of Tk. 100.00 each have already

been subscribed for and fully paid up by the Sponsors.

Tk. 300,000,000.00

To be Issued3,000,000 Ordinary Share of Tk. 100.00 each are being hereby

offered to the General Public for Subscription in cash.Tk. 300,000,000.00

Pre-IPO1,000,000 Ordinary Shares of Tk. 100.00 each at par have been

subscribed by investors under private placement arrangementTk. 100,000,000.00

IPO2,000,000 Ordinary Shares of Tk. 100.00 each at par are being

hereby offered to the general Public for Subscription in cash.

Tk. 200,000,000.00

TOTAL Tk. 600,000,000.00

3.9 Performance of the Bank

3.9.1 Profit and Operating Results


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The Bank earned as operating profit Tk. 705.69 million during 2005

after all provisions including the 1% general provision on unclassified

Loans and Advances. Provision for income tax for the year amounted

to Tk. 168.81 million resulting into a net profit after tax of Tk. 293.74

million. The growth in net profit over the previous year was 215.86

million.

3.9.2 Deposit

A strong deposit base is necessary for the success of a Bank. During the

year 2005 the Bank mobilized a substantial amount of deposits from

mid-level income group people under Deposit Savings Scheme. After

critical handling the Bank mobilized total Deposit of Tk. 14,884.91

million as at December 31, 2005, thus recording an increase in

comparison with Tk. 13,470.98 million as at December 31, 2004. The

significant growth in deposit enabled the Bank to expand its business,

performing assets and also had an impact on the profit position of the

Bank.

3.9.3 Advance

The Banks Loans and Advances portfolio also indicates an impressive

growth. Total Loans and Advances amounted to Tk. 17,897.15 million

in 2006 up to July against Tk. 11,861.19 million in 2005. Bank Asias

Advance portfolio is well diversified and covers a wide range of

businesses and industries. The sectors financed include Manufacturing,


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Trading, Construction, Transport, Agriculture, Fishing and Forestry,

Edible Oil, Pharmaceuticals, Information Technology, and Consumer

Credit amongst others. Advances constitute the most significant

indicator of the health of a Bank. The Bank has formulated its policy to

give priority to SME (Small and Medium Enterprise) and at the same

time the Bank is financing large-scale enterprises through consortium

of Banks. Bank Asia is committed to maintain a very high quality of

assets. Close monitoring and efficient asset management has resulted in

minimal creation (1.50%) of classified loans to total Loans and

Advances.

3.9.4 Foreign Exchange Business

International Trade constitutes the main stream of business activities of

Bank Asia. They offer a full range of trade finance and services

namely, issue, advise and confirmation of Documentary Credit,

arranging forward exchange coverage; pre-shipment and post shipment

finance; negotiation and purchase of export bills; discounting bill of

exchange; collection of bills, inward and outward remittance etc.

Import Business: The Bank established Letters of Credit amounting to Tk.

21,747.60 million during 2005; showing over the volume of Tk. 18,942.40

million in the year 2004.

Export Business: The total export handled by the bank amounted to Tk.

7,103.50 million for the year 2005 compared to Tk. 5,996.48 million for 2004.

Foreign Correspondents: The number of foreign correspondents and agents

of Bank Asia in 2005 stood at 150 covering most of the important business

centers in different countries of the world. The Bank has maintained excellent


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relationship with leading international Banks and has successfully established

credit lines with major banks to support global Foreign Trade Business.

3.9.5 Investment

Investment stood at Tk. 4,048.58 million at the end of 2005. This

consists of Tk. 3,240.51 million in Treasury Bills and Prize Bonds, Tk.

529.75 million in Debentures and Tk. 202.34 million in Shares.

3.9.6 Dividend

Bank Asia has distributed a substantial amount of dividend in the

preceding years and also strengthened the platform of the Bank. The

percentages of distribution of dividend are as follows.

Table-3.1:The percentages of distribution of dividend

Year Cash

Dividend

Bonus

Dividend

Total

(%)


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(%) (%)

2003 16% 8% 24%

2004 17% 8% 25%

2005 18% 8% 26%

3.10 Special Features of the Bank

Bank Asia is engaged in conventional commercial banking. It is also in the

process of introducing banking functions on Islamic Banking Principles.

It is the pioneer in introducing and launching different customer friendly deposit

schemes to tap the savings of the people for channeling the same to the productive

sectors of the economy.

For uplifting the standard of living of the limited income group of the population,the Bank has introduced Consumer Credit Schemes by providing financial

assistance in the form of loan to the consumers for procuring household durables,

which have had encouraging responses.

The Bank is committed to continuous research and development so as to keep

pace with modern banking.

The operations of the Bank are computer oriented to ensure prompt and efficient

services to the customer.

The Bank has introduced camera surveillance system (CCTV) to strengthen the

security services inside the Bank premises.

The Bank has introduced customer relations management system to assess the

needs of various customers and resolve any problem on the spot.

3.11 Products and Services

Bank Asia launched several financial products and services since its

inception. Among them are Monthly Savings Scheme, Monthly Benefit


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Scheme, Special Savings Scheme, Consumer Credit Scheme, Small

Loan Scheme, Rural Finance Scheme and E-cash (ATM). All of these

have received wide acceptance among the people.

Monthly Savings Scheme (DG+): The Prime objective of this scheme is to

encourage people to build up a habit of saving. In this scheme, one can save a

fixed amount of money every month and receive substantial lump sum of money

after three to five years.

Monthly Benefit Scheme (MB+): MB+ is a five (05) years scheme that lets

Depositors earn monthly benefit of Tk. 1000 or its multiple by minimum initial

deposit of Tk. 100,000 or its multiple and after maturity depositors will get refund

of his/her principal amount.

Special Savings Scheme (DB+): DB+ is a 7 (seven) or 10 (ten) years scheme.

The Deposit doubles in 7 years and triples in 10 years.

Bonus Savings Scheme: A savings Account with a minimum balance of Tk.

50,000 will attract not only the usual savings interest but also a further 10% bonus

on interest.

Personal Credit: Personal credit is a relatively new field of collateral-free

finance of the Bank. People with fixed income can avail of these credit facilities

to buy household goods, consumer items, or to renovate existing house, etc.

Credit Loan: If customers are in possession of BSP (Bangladesh Sanchay Patra),

which will mature within the next 5 years, but they are in dire need of funds now,

this scheme can come to their rescue.


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Rural Development Scheme: Rural Development Scheme has been evolved for

the rural people of the country to make them self-employed through financing

various income generating activities. This scheme is operated through the rural

branches of the Bank.

E-Cash Banking Facility: The E-cash card is an ATM card. It can be used as a

combination of debit facility. The E-cash card network offers all banking

requirements without ever setting foot in a bank. Its more than just an ATM

service for quick cash withdraws or account enquiries. E-cash card provides round

the clock banking.

Credit Card Facilities: Bank Asia introduced credit card which name is Master

card.

Acceptance: Bank Asia credit card is accepted more than 4,800 merchant outlets around

the country. Our wide range of merchants include hotels, restaurants, airlines& travel

agents, shopping malls and departmental stores, hospital & diagnostic centers, Jewellery

shops, electronics & computer shops, leather goods, mobiles & internet service

providers, patrol pumps and many more.

Credit facility: Bank Asia credit card offers free credit facility up to 45 days & minimum

15 days without any interest.

Cash advance: Bank Asia master card gives facility to draw cash up to 50% of the credit

limit against local master card and can enjoy this facility by using any ATMs across the

country which shows Master Card logo. Besides this can also withdraw cash from any

of our branches.


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AN OVERVIEW OF PRIME BANK LIMITED

With the economic liberalization and financial sector reforms, a group

of highly successful local entrepreneurs conceived an idea of floating a

commercial bank with different outlook. Prime bank is the reality ofthat idea. Three corner stones of prime bank are competence,

excellence and consistent delivery of reliable service with superior

value products. Prime Bank has been registered under the companies

Act 1993 as a Public Limited Company on February 12, 1995 with its

registered office at 5, Rajuk Avenue, Motijheel Commercial Area,

Dhaka-1000, Bangladesh. Later on, the office had been shifted to

Adamjee Court (annex building), Motijheel Commercial Area. It

started operation from April 17, 1995 with a commitment to play some

social role in addition to normal banking. Its slogan is Prime Bank

Limited a bank with a difference". From the very beginning, the bank

has adopted the policy of diversifying its business. To achieve this

objective, the bank started Consumer Credit Scheme, Lease Financing,

Hire Purchase and Loans in general, Secured Overdrafts etc. Under the

dynamic leadership of the PBLs top management, the bank earned

profit within December 1995 and raised its reserve. The bank started

operation its business through four branches. Now its branches stand at

Forty three.


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Prime Bank had paid up capital of Taka 1000 million till 2004. On February 7, 2005 the

bank increased its authorized capital to Taka 4000 million by passing a special, resolution

in the banks annual general meeting. At present, Managing Director is Mr. M. Shahjahan

Bhuiyan, who has a long experience in domestic and international banking. The bank has

made a significant progress within a very short time due to its very competent board ofdirectors, dynamic management and introduction of various customer-friendly deposit

and loan products. At present bank has 13 Directors, including the Chairman. The bank

holds the first position in the CAMEL rating, published by Bangladesh Bank for the last

consecutive five years.

2.2 Vision of the Bank

A Bank with a difference is the motto of Prime Bank Limited. So, the motto itself is

self-explanatory to deliver the vision of the bank. Prime Bank limited is prepared to meetthe challenge of the 21st century well ahead of time. To cope with the challenge of the

new millennium it hired experienced and well-reputed banker of the country from the

inception. The bank has efficient and dedicated professional and equipped with modern

technology to provide the best service in the need of the people and thus to realize its

vision.

Vision: to be the most efficient Bank in terms of customer service, profitability and

technology application.

Mission: continuous improvement in our business policies and procedures, cost

reductions through integration of technology at all levels.

2.3 Objectives of the Bank

The objectives of the Prime Bank Limited are specific and targeted to its vision and to

position itself in the mindset of the people as a bank with a difference. The objectives of

the Prime Bank Limited are as follows:

To mobilize the savings and channeling it out as loan or advance as the company

approve


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To establish, maintain, carry on, transact and undertake all kinds of investment and

financial business including underwriting, managing and distributing the issue of

stocks, debentures, and other securities

To finance the international trade both in Import and Export

To carry on the Foreign Exchange Business, including buying and selling of foreign

currency, travelers cheque issuing, international credit card issuance etc.

To develop the standard of living of the limited income group by providing Consumer

Credit

To finance the industry, trade and commerce in both the conventional way and by

offering customer friendly credit service

To encourage the new entrepreneurs for investment and thus to develop the countrys

industry sector and contribute to the economic development

2.4 Management of the BankBoard of Directors is the sole authority to take decision about the affairs of the business. Now

there are 13 directors in the management of the bank. All the directors have good academicbackground and have huge experience in business. Capt. Imam Anowar is the Chairman of the

bank. The board of directors holds meetings on a regular basis.

2.5 Departments of PBL

If the jobs are not organized considering their inter-relationship and are not allocated in a

particular department, it would be very difficult to control the system effectively. If the

departmentalization is not fitted for the particular works there would be haphazard

situation and the performance of a particular department would not be measured. PrimeBank Limited has done this work very well.

2.5.1 Logistic & Support Services Division (L&SSD)


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This Division was formerly known as General Services Division (GSD). Its main

functions relate to procurements and supply of all tangible goods and services to the

Branches as well as Head Office of Prime Bank Limited. These include:

Every tangible functions of Branch opening such as making lease agreement, interiordecoration etc.

Print all security papers and Bank Stationeries

Distribution of these Stationeries to the Branch

Purchase and distribute all kinds of banks furniture and fixtures

Receives demand of cars, vehicles, telephones etc. from branches and different

divisions in Head Office and arrange, purchase and delivery of it to the concerned

person / Branch

Install & maintain different facilities in the Branches

2.5.2 Financial Administration Division (FAD)

Financial Administration Division mainly deals with the accounting part of the Bank. It

deals with all the Head Office transactions with bank and its Branches and all are

controlled under the following heads:

2.5.3 Credit Division

The main function of this division is to maintain the Banks Credit Portfolio. A well-

reputed and hard working group of executives & officers run the functions of this

division. These functions are as follows:

1. Receiving proposals

2. Proposing and appraising

3. Getting approval

4. Communicating and sanctioning5. Monitoring and follow-up

6. Setting price for credit and ensuring effectiveness of it

7. Preparing various statements for onward submission to Bangladesh Bank

2.5.4 International Division


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The objective of this division is to assist management to make international dealing

decisions and after decision is made, guide Branches in their implementation. Its

functional areas are as follows:

1. Maintaining correspondence relationship2. Monitoring foreign rate and exchange dealings

3. Maintaining Nostro A/Cs and reconciliation

4. Authorizing of signing and test key

5. Monitoring foreign exchange returns & statements

6. Sending updated exchange rates to the concerned Branches

2.5.5 Computer Division

Prime Bank operates and keeps records of its assets and liabilities in computers by using

integrated software to maintain client Ledger and general Ledger. The main function of

this division id to provide required Hardware and Software.

2.5.6 Public Relations Division

It has to perform certain functions related to all types of communication. The broad

routine functions can be enumerated as follows:

Receiving and Sanctioning of all advertisement application

Keeping good relation with different newspaper offices

Inviting concerned ones for any occasion

Keeping good relation with different officers of electronic media

2.5.7 Marketing Division

Marketing Division is involved in two types of marketing:

Asset Marketing: Marketing of assets refers to marketing of various kinds of loans and

advances. In-order to perform this job, they often visit large organizations and attract

them to borrow from the bank to finance profitable ventures.

Liability Marketing: The process of Liability marketing is more or less same as Asset

marketing. In this case different organizations having excess funds are solicited to deposit

their excess fund to the bank. If the amount of money to be deposited is large, the banks

sometimes offer a bit higher price than the prevailing market rate.


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2.5.8 Human Resources Division

HRD performs all kind of administrative and personnel related matters. The broad

functions of the division are as follows:

1. Selection & Recruitment of new personnel

2. Preparation for all formalities regarding appointment and joining of the successful

candidates

3. Placement of human resources

4. Dealing with the transfer, promotion and leave of the employees

5. Training & Development

6. Termination and retrenchment of the employees

7. Keeping records and personal file of every employee of the Bank8. Employee welfare fund running

9. Arranging workshops & training for employee & executives

With the economic liberalization and financial sector reforms, a group

of highly successful local entrepreneurs conceived an idea of floating a

commercial bank with different outlook. Prime bank is the reality ofthat idea. Three corner stones of prime bank are competence,

excellence and consistent delivery of reliable service with superior

value products. Prime Bank has been registered under the companies

Act 1993 as a Public Limited Company on February 12, 1995 with its

registered office at 5, Rajuk Avenue, Motijheel Commercial Area,

Dhaka-1000, Bangladesh. Later on, the office had been shifted to

Adamjee Court (annex building), Motijheel Commercial Area. Itstarted operation from April 17, 1995 with a commitment to play some

social role in addition to normal banking. Its slogan is Prime Bank

Limited a bank with a difference". From the very beginning, the bank

has adopted the policy of diversifying its business. To achieve this


40/114

objective, the bank started Consumer Credit Scheme, Lease Financing,

Hire Purchase and Loans in general, Secured Overdrafts etc. Under the

dynamic leadership of the PBLs top management, the bank earned

profit within December 1995 and raised its reserve. The bank startedoperation its business through four branches. Now its branches stand at

Forty three.

Prime Bank had paid up capital of Taka 1000 million till 2004. On February 7, 2005 the

bank increased its authorized capital to Taka 4000 million by passing a special, resolution

in the banks annual general meeting. At present, Managing Director is Mr. M. Shahjahan

Bhuiyan, who has a long experience in domestic and international banking. The bank has

made a significant progress within a very short time due to its very competent board ofdirectors, dynamic management and introduction of various customer-friendly deposit

and loan products. At present bank has 13 Directors, including the Chairman. The bank

holds the first position in the CAMEL rating, published by Bangladesh Bank for the last

consecutive five years.

2.2 Vision of the Bank

A Bank with a difference is the motto of Prime Bank Limited. So, the motto itself is

self-explanatory to deliver the vision of the bank. Prime Bank limited is prepared to meetthe challenge of the 21st century well ahead of time. To cope with the challenge of the

new millennium it hired experienced and well-reputed banker of the country from the

inception. The bank has efficient and dedicated professional and equipped with modern

technology to provide the best service in the need of the people and thus to realize its

vision.

Vision: to be the most efficient Bank in terms of customer service, profitability and

technology application.

Mission: continuous improvement in our business policies and procedures, cost

reductions through integration of technology at all levels.

2.3 Objectives of the Bank


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The objectives of the Prime Bank Limited are specific and targeted to its vision and to

position itself in the mindset of the people as a bank with a difference. The objectives of

the Prime Bank Limited are as follows:

To mobilize the savings and channeling it out as loan or advance as the companyapprove

To establish, maintain, carry on, transact and undertake all kinds of investment and

financial business including underwriting, managing and distributing the issue of

stocks, debentures, and other securities

To finance the international trade both in Import and Export

To carry on the Foreign Exchange Business, including buying and selling of foreign

currency, travelers cheque issuing, international credit card issuance etc.

To develop the standard of living of the limited income group by providing Consumer

Credit

To finance the industry, trade and commerce in both the conventional way and by

offering customer friendly credit service

To encourage the new entrepreneurs for investment and thus to develop the countrys

industry sector and contribute to the economic development

2.4 Management of the BankBoard of Directors is the sole authority to take decision about the affairs of the business. Now

there are 13 directors in the management of the bank. All the directors have good academic

background and have huge experience in business. Capt. Imam Anowar is the Chairman of the

bank. The board of directors holds meetings on a regular basis.

2.5 Departments of PBL

If the jobs are not organized considering their inter-relationship and are not allocated in a

particular department, it would be very difficult to control the system effectively. If the


42/114

departmentalization is not fitted for the particular works there would be haphazard

situation and the performance of a particular department would not be measured. Prime

Bank Limited has done this work very well.

2.5.1 Logistic & Support Services Division (L&SSD)

This Division was formerly known as General Services Division (GSD). Its main

functions relate to procurements and supply of all tangible goods and services to the

Branches as well as Head Office of Prime Bank Limited. These include:

Every tangible functions of Branch opening such as making lease agreement, interior

decoration etc.

Print all security papers and Bank Stationeries

Distribution of these Stationeries to the Branch

Purchase and distribute all kinds of banks furniture and fixtures

Receives demand of cars, vehicles, telephones etc. from branches and different

divisions in Head Office and arrange, purchase and delivery of it to the concerned

person / Branch

Install & maintain different facilities in the Branches

2.5.2 Financial Administration Division (FAD)

Financial Administration Division mainly deals with the accounting part of the Bank. It

deals with all the Head Office transactions with bank and its Branches and all are

controlled under the following heads:

2.5.3 Credit Division

The main function of this division is to maintain the Banks Credit Portfolio. A well-

reputed and hard working group of executives & officers run the functions of this

division. These functions are as follows:

8. Receiving proposals

9. Proposing and appraising


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10. Getting approval

11. Communicating and sanctioning

12. Monitoring and follow-up

13. Setting price for credit and ensuring effectiveness of it

14. Preparing various statements for onward submission to Bangladesh Bank

2.5.4 International Division

The objective of this division is to assist management to make international dealing

decisions and after decision is made, guide Branches in their implementation. Its

functional areas are as follows:

7. Maintaining correspondence relationship

8. Monitoring foreign rate and exchange dealings9. Maintaining Nostro A/Cs and reconciliation

10. Authorizing of signing and test key

11. Monitoring foreign exchange returns & statements

12. Sending updated exchange rates to the concerned Branches

2.5.5 Computer Division

Prime Bank operates and keeps records of its assets and liabilities in computers by usingintegrated software to maintain client Ledger and general Ledger. The main function of

this division id to provide required Hardware and Software.

2.5.6 Public Relations Division

It has to perform certain functions related to all types of communication. The broad

routine functions can be enumerated as follows:

Receiving and Sanctioning of all advertisement application

Keeping good relation with different newspaper offices

Inviting concerned ones for any occasion

Keeping good relation with different officers of electronic media


44/114

2.5.7 Marketing Division

Marketing Division is involved in two types of marketing:

Asset Marketing: Marketing of assets refers to marketing of various kinds of loans and

advances. In-order to perform this job, they often visit large organizations and attract

them to borrow from the bank to finance profitable ventures.

Liability Marketing: The process of Liability marketing is more or less same as Asset

marketing. In this case different organizations having excess funds are solicited to deposit

their excess fund to the bank. If the amount of money to be deposited is large, the banks

sometimes offer a bit higher price than the prevailing market rate.

2.5.8 Human Resources Division

HRD performs all kind of administrative and personnel related matters. The broad

functions of the division are as follows:

10. Selection & Recruitment of new personnel

11. Preparation for all formalities regarding appointment and joining of the successful

candidates

12. Placement of human resources

13. Dealing with the transfer, promotion and leave of the employees

14. Training & Development15. Termination and retrenchment of the employees

16. Keeping records and personal file of every employee of the Bank

17. Employee welfare fund running

18. Arranging workshops & training for employee & executives


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Chapter -03

Performance evaluation techniques and procedures


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When it comes to investing, analyzing financial statement information (also known as quantitativeanalysis), is one of, if not the most important element in the fundamental analysis process. At thesame time, the massive amount of numbers in a company's financial statements can bebewildering and intimidating to many investors. However, through financial ratio analysis, you will

be able to work with these numbers in an organized fashion.

The objective of this tutorial is to provide you with a guide to sources of financial statement data,to highlight and define the most relevant ratios, to show you how to compute them and to explaintheir meaning as investment evaluators.

In this regard, we draw your attention to the complete set of financials for Zimmer Holdings, Inc.(ZMH), a publicly listed company on the NYSE that designs, manufactures and marketsorthopedic and related surgical products, and fracture-management devices worldwide. We'veprovided these statements in order to be able to make specific reference to the account captionsand numbers in Zimmer's financials in order to illustrate how to compute all the ratios.

Among the dozens of financial ratios available, we've chosen 30 measurements that are the most

relevant to the investing process and organized them into six main categories as per the followinglist:

1) Liquidity Measurement Ratios

o - Current Ratio

o - Quick Ratio

o - Cash Ratio

o - Cash Conversion Cycle

2) Profitability Indicator Ratios

o - Profit Margin Analysis

o - Effective Tax Rate

o - Return On Assets

o - Return On Equity

o - Return On Capital

Employed

3) Debt Ratios

4) Operating Performance Ratios

o - Fixed-Asset Turnover

o - Sales/Revenue Per Employee

o - Operating Cycle

5) Cash Flow Indicator Ratios

o - Operating Cash Flow/Sales Ratio

o - Free Cash Flow/Operating Cash

Ratio

o - Cash Flow Coverage Ratio

o - Dividend Payout Ratio

6) Investment Valuation Ratios

o - Per Share Data

o - Price/Book Value Ratio
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o - Overview Of Debt

o - Debt Ratio

o - Debt-Equity Ratio

o - Capitalization Ratio

o - Interest Coverage Ratio

o - Cash Flow To Debt Ratio

o - Price/Cash Flow Ratio

o - Price/Earnings Ratio

o - Price/Earnings To Growth Ratio

o - Price/Sales Ratio

o - Dividend Yield

o - Enterprise Value Multiple

MEANING OF PERFORMANCE:

Performance is the act of performing or the state of being performed. It

is also the act or style of performing a work or role before an audience.On the other hand, it is a presentation, especially a theatrical one,

before an audience.

MEASUREMENT OF PERFORMANCE:

We can measure performance of an organization through financial

ratios. These ratios are given below:

Solvency Ratios

Efficiency Ratios

Profitability Ratios

Debt Ratios

Bank performance is important for all parties: depositors, bankmanagers and regulators. In a competitive financial market bank

performance provides signal to depositor-investors whether to invest or

withdraw funds from the bank. Similarly, it flashes direction to bankmanagers whether to improve its deposit service or loan service or both

to improve its finance. Understanding the performance of banks
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requires knowledge about the profitability and the relationships

between variables like market size, banks risk and banks market size

with profitability. We can measure performance of a bank in the

following ways:

Market Size

Cravens (2000) elaborated that, market size is usually measured by

currency, sales and/or unit sales for any product market and also in

specified time period other size measures include the number ofbuyers average purchase quantity, frequency of purchase for any

product oriented market. As a result the key measures of market sizeare market potential, sales forecast, and market share.

Market Concentration

The concentration aspect is particularly important for the transition

economies and it has been very commonly used for the measurement

for the profitability of banking industry. A highly concentrated bankingsector results in market power for the bank.

Bank Risk

According to Allen (1997), banks tend to focus on areas where they

believe they have a comparative advantage to maximize efficiency in

making loans. As economic conditions vary across different regions

and industrial sectors, therefore bank risky ness and return on equity

vary across different regions.

Banks Return on Equity

Return on equity is a revealing indicator of a banks competitive

position in banking markets and of the quality of its management. Bank


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return on equity appears to be largely attributable to fee income

generated from knowledge based activities, including merchant

banking, corporate financing and advisory services.


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GROWTH MEASUREMENT:

Growth means development and maturity. On the other hand, growth isan increase in size, number, value or strength etc.

We can measure growth of an organization through profitability ratios.

The profitability ratios are used to evaluate the firms profits with

respect to a given level of sales, a certain level of assets or owners

investment. These profitability ratios include the following:

Gross Profit Margin

Operating Profit Margin

Net Profit Margin

Earnings Per Share

Return on Total Assets

Return on Equity


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SOLVENCY RATIOS

Liquidity refers to the solvency of the firms overall financial position-

the ease with which it can pay its bills. The liquidity of a firm measures

its ability to satisfy its short-term obligations. The three basic measuresof liquidity are as follows:

Net Working Capital : Net working capital is used to measure the

firms overall liquidity. It is expressed as follows:

Net Working Capital = Current Asset Current Liabilities

Current Ratio : The current ratio measures the firms ability tomeet its short-term obligations. It is expressed as follows:

Current RatioCurrent Ratio ==sLiabilitieCurrent

AssetsurrentC

Quick Ratio : The quick ratio is similar to the current ratio except

that it excludes inventory, which is generally the least liquid

current ratio. Generally low liquidity of inventory results from

two primary factors: 1) Many types of inventory cannot be easily

sold because they are partially completed items, special purpose

items and the like; 2) Inventory is typically sold on credit. It isexpressed as follows:

Quick ratio =sLiabilitieCurrent

Inventory-AssetsurrentC


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EFFICIENCY RATIOS

Activity Ratios are used to measures the speed with which various

accounts are converted into sales or cash.

Inventory Turnover : Inventory Turnover measures the liquidityof a firms inventory. It is expressed as follows:

Inventory Turnover =Inventory

SoldGoodsofCost

Debtors Collection Period : The Debtor Collection period is useful

in evaluation of credit and collection policies. It is expressed as

follows:

Debtors Collection Period= 365SalesCreditTotal

Debtors

Creditors Payment Period : The Average Payment Period

measures the average amount of time needed to pay accountspayable. It is expressed as follows:

Creditors Payment Period = 365PurchaseCreditTotal

Creditors

Fixed asset Turnover : The Fixed asset Turnover measures the

efficiency with which the company has been using its fixed

Assets to generate sales. It is expressed as follows:

Fixed asset Turnover =AssetsFixedNet

Sales

Total Asset Turnover : The Total Asset Turnover indicates the

efficiency with which the firm uses all its assets to generate sales.

It is expressed as follows:

Total Asset Turnover =AssetsTotal

Sales


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PROFITABILITY RATIOS

Measures of profitability relate the returns of the firm to its sales,

assets, equality, or share value. These measures allow the analyst to

evaluate the firms earning with respect to a given level of sales, acertain level of assets, the owners investment, or share value.

Gross Profit Margin : The Gross Profit Margin measures the

percentage of each sales Dollar / Taka remaining after the firm

paid for its goods. It is expressed as follows:

Gross Profit Margin = 100Sales

ProfitsGross

Operating Profit Margin : The Operating Profit Margin measures

the percentage of profit earned on each sales Dollar/Taka before

interest and taxes. It is expressed as follows:

Operating Profit Margin = 100Sales

ProfitsOperating

Net Profit Margin : The Net Profit Margin measures the

percentage of each sales Dollar / Taka remaining after allexpenses, including taxes, have been deducted. It is expressed as

follows:

Net Profit Margin = 100Sales

TaxesAfterProfitsNet

Return On Total Assets (ROA) : The Return on Total Assets

(ROA) measures the overall effectiveness of management in

generating profits with its available assets. The ROA is called the

Return on Investment. It is expressed as follows:

Return on Total Assets = 100AssetsTotal



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Return On Equity : The Return on Equity measures the return

earned on the owners (both preferred and common

stockholders) investment in the firm. It is expressed as follows:

Return on Equity = 100Equityrs'Stockholde


Earnings Per Share (EPS) : The Earnings per share represents the

number of Dollars / Taka earned on behalf of each outstanding

share of common stock. It is expressed as follows:

EPS = gOutstandinStockCommonofSharesofNumberrStockholdeCommonForavailableEarnings

ANALYZING DEBT RATIOS

Creditors claims must be satisfied before earning are distributed to the

shareholders, so it is in the best interested of the present and

prospective shareholders to pay close attention to the indebtedness of a

corporation.

Debt Ratio : The Debt Ratio measures the proportion of totalassets financed by the firms creditors. The higher this ratio, thefinancial leverage the firm the firm has. It is expressed as

follows:

Debt Ratio =AssetsTotal

sLiabilitieTotal

Debt-To-Equity Ratio : The Debt-To-Equity Ratio indicates the

relationship between the long-term funds provided by creditorsand those provided by the firms owners. It is expressed as

follows:

Debt-To-Equity Ratio =Equitysr'Stockholde

DebtTermLong


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Times Interest Earned Ratio : It measures the firms ability to

make interest payments. It is expressed as follows:

Times Interest Earned Ratio =

Interest

TaxesAndInterestBeforeEarnings

Fixed Payment Coverage : The Fixed-Payment coverage Ratio

measures the firms abili

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