The Strategic Analysis of BRAC Bank Ltd.

Prepared By Zaid Hasan 01685414196

From The Years of 2008 to 2011

The Strategic Analysis of BRAC Bank Ltd.

Managerial Finance FIN333 Submitted to

Lecturer Royal University of Dhaka

Md. Nasir Iqbal

Submitted By Zahid Hasan 12 02 26 1840

Trisha Shamsuddin

Prepared By Zaid Hasan 01685414196

12 02 26 1827

Submission date 27.12.2012

Royal University of Dhaka House#2, Road#10, Block-E, Banani, Dhaka

Letter of Transmittal

27th December, 2012 Nasir Iqbal Lecturer Royal University of Dhaka Banani, Dhaka

Subject: Submission of Financial Analysis Report. Dear Sir,

We are submitting our report titled The Strategic Analysis of BRAC Bank Limited as a requirement of Managerial Finance course under BBA curriculum.

We would like to thank you for assigning this report as it provided us with the opportunity to venture into the real life scenario and to broaden the horizon of our understanding on how syndication is arranged and all the work that goes into it. I sincerely hope that our work will come up to the level of your expectation. We welcome your query and grateful to answer them. Sincerely Yours, Zahid Hasan

(On the behalf of the group) Prepared By Zaid Hasan 01685414196

Acknowledgment

The preparation of this report is a sound example of teamwork. The experience is a valuable one because not only did the report increase our understanding and knowledge on the assigned topic, BRAC Bank.

It also taught us important lessons of how to incorporate out theoretical knowledge to enhance the understanding of practical implications. In addition, it also gave us a thorough opportunity to learn from others; despite conflicting ideas, the teams managed to join efforts and reach unanimous decisions at the end. It re-defined our skills of working with others to reach a final goal, and improved our communication as well as tolerance levels. However, this would not have been possible had we not been given the opportunity to present this report. Therefore, we would like to express the deepest appreciation to our course instructor, Naser Iqbal, Lecturer, who has been a continuous source of guidance throughout the report and has always been there to answer our quarries. Prepared By Zaid Hasan 01685414196

Paper of Content
Prepared By Zaid Hasan 01685414196 Executive Summary Introduction . Background of the Organization .. Companies Performance in Recent Year Deposit from 2008 to 2011 .. Loan from 2008 to 2011 Investment from 2008 to 2011 . Total Asset from 2008 to 2011 Import from 2008 to 2011 . Export from 2008 to 2011 . Profit after Tax from 2008 to 2011 .. Income Statement As on December 31, 2011 .. Balance Sheet As on December 31, 2012 . The Financial Analysis of BRAC Bank Cost of income Ratio . Capital Adequacy Ratio Credit Deposit Ratio . Return on Investment Return on Asset . Return on Equity Dividend per Share Earnings per Share Cost of Funds . Net Income Ratio .. Net Profit Margin .... Asset Utilization . The Equity Multiplier .. Conclusion ... Recommendation ... References .. VI 07 07 08 08 08 08 08 08 08 09 10 11 12 12 12 12 12 12 13 13 13 13 13 13 13 14 15 15 16

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Executive Summary
The principal reason of banks chartered by the government and the central bank is to make loans to their customers. Banks are expected to support their communities with an adequate supply of credit for all legitimate business and consumer financial needs and to price that credit reasonably in line with competitively determined interest rates. Indeed, making loans is the principal economic function of banks to fund consumption and investment spending by businesses, individuals, and units of government. How well a bank performs its function has a great deal to do with the economic health of fits region, because banking performance support the growth of new businesses and jobs within the banks trade territory and promote economic vitality. Moreover, bank loans often seem to convey positive information to the marketplace about a borrowers credit quality, enabling a borrower to obtain more and perhaps somewhat cheaper funds from other sources. Therefore, evaluating evaluate BRAC Bank Limiteds financial performance by comparing it with that of the best performing commercial banks of Bangladesh.

As the competition is increasing, the commercial Banks are constantly looking for scope to develop credit operation and performance appraisal to the market. However tight control on the part of the Central Bank, Bangladesh Bank restricts the scope for maneuvering in the market with new performance and credit operation. Therefore, bank require finding out untapped market space for growth.

Moreover, in these liquidity crunch times, it is crucial for banks to be able to perform efficiently and effectively. If the bank is not being able to perform than the bank might no bankrupt which would have a significant impact on the economy. Prepared By Zaid Hasan 01685414196

Introduction
BBL is a full service scheduled commercial bank. It has both local and International Institutional shareholder. The bank is primarily driven with a view of creating opportunities and pursuing market niches not traditionally meet by conventional banks. BRAC Bank has been motivated to provide best-inthe-class services to its diverse assortment of customers spread across the country under an on-line banking dais.

Background of the Organization

BBL is a scheduled commercial bank in Bangladesh. It established in Bangladesh under the Banking Companies Act, 1991 and incorporated as private limited company on 20 May 1999 under the Companies Act, 1994. The primary objective of the Bank is to provide all kinds of banking business. At the very beginning the Bank faced some legal obligation because the High Court of Bangladesh suspended activity of the Bank and it could fail to start its operations till 03 June 2001. Eventually, the judgment of the High Court was set aside and dismissed by the Appellate Division of the Supreme Court on 04 June 2001 and the Bank has started its operations from July 04, 2001. The Chairman of the Bank is Mr. Muhammad A (Rumee) Ali. Now the Managing Director and CEO of the bank is Mr. Sayed Mahbubur Rahman. The bank has made a reasonable progress due to its visionary management people and its appropriate policy and implementation.

Today, BRAC Bank is one of the fastest growing banks in the country. In order to support the planned growth of its distribution, network and its various business segments, BRAC Bank is currently looking for impressive goal oriented, enthusiastic, individuals for various business operations. The bank wants to build a profitable and socially responsible financial institution. It carefully listen to the market and business potentials, It is also assisting BRAC and stakeholders to build a progressive, healthy, democratic and poverty free Bangladesh. It helps make communities and economy of the country stronger and to help people achieve their financial goals. The bank maintains a high level of standards in everything for our customers, our shareholders, our acquaintances and our communities upon, which the future affluence of our company rests. Prepared By Zaid Hasan 01685414196

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Companies Performance in Recent Years

The table below shows the financial performance of BRAC Bank Ltd. From 2004 to 2011 Source: Annual report 2008 to 2011 of BRAC Bank Ltd

2008 8245

2009 10375

2010 12856

Amount BDT in million

2011 14199

Total Asset from 2008 to 2011

The total asset of BBL is increasing continuously and consistently. In 2008 the total asset was 72,442 million taka. But in 2011 the total asset is 1, 33,201 million taka. It indicates that total asset of BBL increasing consistently. 2008 72442 2009 95127 2010 117298

Deposit from 2008 to 2011

The deposit of BBL is increasing continuously and rapidly. In 2008 the deposit was 58,007 million taka. But in 2011 the deposit is 1, 03,726 million taka. It indicates that depositors of BBL increasing day by day 2008 58007 2009 75220 2010 88158
Amount BDT in million

Amount BDT in million

2011 133201

2011 103726

Import from 2008 to 2011

In 2008 to 2011 the import is increasing two or three times than previous year. So we can say that the bank accelerate its foreign exchange performance. In 2008 it was 10,148 million and 2011 it raised to 35,400 million. 2008 10148 2009 16773 2010 33660
Amount BDT in million

Loan from 2008 to 2011

The loan of BBL is increasing continuously and rapidly. In 2008 the deposit was 52,677 million taka. But in 2011 the deposit is 90,822 million taka. It indicates that loan disbursement of BBL increasing day by day. 2008 52677 2009 64151 2010 82461
Amount BDT in million

2011 35400

2011 98022

Export from 2008 to 2011

In 2008 to 2011 the export is increasing continuously. In 2008 it was 568 million and 2011 it raised to 2,340 million. So we can say that the bank accelerate its foreign exchange performance. 2008 568 2009 681 2010 1819
Amount BDT in million

Investment from 2008 to 2011

The investment of BBL is increasing continuously and consistently. In 2008 the investment was 82,45 million taka. But in 2011 the investment is 14,199 million taka. It indicates that investment of BBL increasing consistently. Prepared By Zaid Hasan 01685414196

2011 2340

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Profit after Tax from 2008 to 2011

In 2008 profit after tax was only 973 million taka. But profit after tax increasing continuously and so rapidly due to gaining trust from customer. In 2010 profit after tax was 1,670 million taka. It indicates that, in 2010 the bank performed most efficiently. But in 2011 the bank is not perform well due to economic recession, political imbalance etc. Hope next year BBL will perform well more than any other financial years. 2008 973 2009 1304 2010 1670
Amount BDT in million

2011 1702

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Income Statement As on December 31, 2011

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Balance Sheet As on December 31, 2011

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The Financial Analysis of BRAC Bank Ltd.

The analyses of the financial performance of BBL with three selected Bangladeshi commercial banks of last 6 years and evaluating the performance of the banks based on the selected ratios and percentage and ranking the bank accordingly.

2008 12.76%

2009 12.45%

2010 12.07%

2011 11.60%

Credit Deposit Ratio

The credit deposit ratio from 2008 to 2011 was 91%, 85%, 94% and 85% respectively. So, the banks performance is good. But in 2010 the bank highly used its deposit also faced liquidity problem during this year. But in overall the banks credit deposit ratio is efficient 2008 91% 2009 85% 2010 94% 2011 85%

Cost to income Ratio.

For BBL, in 2008 to 2009 the ratio was 47.42%, and 48.82% respectively. It indicates that cost is rising day by day. But in 2010 the ratio was 47.98%; it means the companys cost efficiency was very good in 2010s financial year. Eventually in 2011 the cost to income ratio found its consisting track, and the ratio is 50.96%. 2008 47.42% 2009 48.82% 2010 47.98% 2011 50.96%

Return on Investment
The return on investment from 2008 to 2011 was 12.61%, 12.30%, 9.00% and 12.41%. The return on investment is consistently good but in 2010 the return on investment was 9% that was poor performance for the bank due to economic recession. 2008 12.61% 2009 12.30% 2010 9.00% 2011 12.41%

Capital Adequacy Ratio

For BBL, core capital (tier I) includes paid-up capital, share premium account, statutory reserve, and retained earnings. Supplementary capital (tier II) includes general provision (on classified loans), preference share, and exchange equalization fund. The standard of capital adequacy ratio is 10%. But the banks capital adequacy ratio from 2008 to 2011 was 12.76%, 12.45%, 12.07%, and 11.60% respectively. So, we can say that the banks financial management is expert and efficient. Prepared By Zaid Hasan 01685414196

Return on Asset
For BBL, the return on asset from 2008 to 2011 was 1.64%, 1.56%, 1.55% and 1.36%. The return on investment is consistently and good for banking sector. 2008 1.64% 2009 1.56% 2010 1.55% 2011 1.36%

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Return on Equity
For BBL, the return on equity from 2008 to 2011 was 22.88%, 19.19%, 18.95% and 17.90%. The return on equity is consistently going down. It indicates that the shareholders return decreases day by day due to crash of the capital market. 2008 22.88% 2009 19.19% 2010 18.95% 2011 17.90%

2008 6%

2009 12%

2010 10%

2011 18%

Net Income Ratio

The Net income ratio from 2008 to 2011 was 18.55%, 16.12%, 16.09% and 12.41%. The Net income ratio consistently good but in 2010 the return on investment was 9% that was poor performance for the bank due to economic recession. 2008 16.09% 2009 16.01% 2010 18.5% 2011 19.33%

Dividend per Share

BBL declare mostly stock dividend in the Annual General Meeting (AGM). BBL tries to provide dividend in a consisting way. In 2011 the bank declared 20% stock dividend in the AGM. 2008 30% 2009 30% 2010 30% 2011 20%

Net Profit Margin

The Net profit Margin from 2008 to 2011 was 42.29%, 62.30%, 60.98% and 60.39% respectively. So, the banks performance is good. But in 2010 the bank highly used its profit also faced liquidity problem during this year. But in overall the banks credit deposit ratio is efficient. 2008 42.29% 2009 62.30% 2010 60.98% 2011 60.39%

Earnings per Share

The Earning per Share (EPS) is good and consistently increasing. From 2008 to 2011 EPS was 2.95, 3.94, 5.05 and 5.55. It indicates that the companys operation management is so efficient. 2008 2.95% 2009 3.94% 2010 5.05% 2011 5.15%

Asset Utilization
The degree of assets utilization reflects portfolio management policies, especially the mix and yield on assets. Similarly, by carefully allocating assets to the highest yield loans and investment while avoiding excessive risks, management can raise the average yield on assets. Following are the Asset Utilization of BBL from 2008 to 2011.

Cost of Funds
For BBL, the cost of funds from 2008 to 2011 was 6%, 12%, 10% and 18%. The cost of funds is consistently going down. It indicates that the shareholders return decreases day by day due to crash of the capital market.

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2008 7.64%

2009 8.33%

2010 7.78%

2011 8.47%

The Equity Multiplier

The multiplier is a direct measure of financial leverage. It represents how much taka must be supported by each taka of equity capital and how much of the financial firms resources, therefore, must rest on debt. Followings are 2008 11.30% 2009 12.27% 2010 15.10% 2011 14.18%

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Conclusion
We can see lot of new commercial banks has been established in last few years and these banks have made this banking sector very competitive. The major task for banks, to survive in this competitive environment is by managing its assets and liabilities in an efficient way. BBL has a strong financial base and huge assets to meet up its liabilities which make this organization financially sound and solvent.

Recommendation
Track growth of portfolio on regular basis and report to top management periodically Maintain detailed MIS of portfolio

This paper is done based on the 8 key ratios and the risk index, but there are other factors that are also need to be considered to analysis the banks surveillance, like contingent liabilities, asset base analysis etc. However, the finding was such that BBL was ranked the forth because the other have had out performed it. When analyzing the key indicator of BBL over its corresponding year, it was found that in many scenarios it had performed better over the period of time. Moreover, their improvement over the period of time in relationship with the other bank was not significant. BBL and Bank Asia Limited are the only two 3rd Generation Banks in the analysis and Bank Asia has performed efficiently in every aspects of the banking actives and hence, its credit rate was the highest given by CARB.

The BBL Branch should include services like Foreign Exchange Services.

Design, implement and monitor asset and liability campaigns to enhance portfolio growth Plan and supervise execution of all necessary customer communication

Devise cross-selling strategies to increase wallet-share of existing customers

Conduct branch visits to monitor and improve customer service quality Identify bottlenecks and take necessary action to facilitate business growth

Research and Development is one of the most confidential divisions of BRAC Bank Limited. Here as an intern we are allowed to get limited information for our study. We am not allowed to get the information which is too much confidential for the Bank. So in my report all the information used was meant for the public.

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References

Annual Report of BRAC Bank Limited from 2008 to 2011 Books, Publications and Journals of BRAC Bank Limited Valuable discussion of supervisors during the period of internship Discussion with the branch staff during the period of internship http://en.wikipedia.org/wiki/BRA C_Bank http://www.bracbank.com http://www.bangladeshbank.org

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