Credit -Strength Analysis by Using Z Score Model

Chapter: 07

Problems, Recommendation and Conclusion

Chapter overview Page no.

7.1.Problem of BASIC Bank Limited 68
7.2.Recomendation of BASIC Bank Limited 69
7.3. Conclusion 69-70
7.4. Bibliography & references 70-72
7.5. Appendix 72-74
 Chapter Problems, Recommendation and Conclusion

7.1 Problems of BASIC BANK LIMITED

In this study, I have also pointed out some operational & financial problems of BASIC Bank
Limited. These are given below:
1. To compete with other banks, Automated Teller Machines (ATM) boot are not available
in BASIC Bank Limited which help to provide instant services to its customers and
clients.
2. Customers complain boxes, which help to improve customer satisfaction, are not
available in all the branches of this bank.
3. Online banking system, which helps to ensure of faster services for customers
satisfaction, is not available in all the branches of this bank.
4. Most of the product and services of the bank are traditional and not competitive.
5. The bank is suffering from business risk extensively.
6. BASIC Bank Limited ROE is not good enough which means that the company is not
efficient enough in producing revenue & also management is making faulty decisions
such as acquiring non-complimentary business with no competitive advantage or else.
7. 40-50% of debt equity ratio is good enough for a bank. But BASIC Bank Limited average
debt equity ratio over five years study period (2012-2015) was 14.8% which indicates that
the company was not taking advantage of the increased profits that financial leverage
may bring.
8. The standard of loan deposit ratio is 85%. But the average loan deposit ratio over five
years study period (2012-2015) of this bank was 64.1%.
 Credit -Strength Analysis by Using Z Score Model

7.2 Recommendations of BASIC BANK LIMITED

It is recommended that:
1. To compete with other banks, ATM booth should be introduced in this branch.
2. For improving customer satisfaction bank should launch customer complain box in this
branch.
3. Definitely to be competitive and ensuring of faster services for customers satisfaction
online banking system should be start in this branch as fast as possible.
4. The product and services of the bank should be new and competitive.
5. In order to reduce the business risk, BASIC Bank Limited has to expand their business
portfolio.
6. The standard of loan deposit ratio is 85%. So, BASIC Bank Limited will have to try to
maintain it.
7. 40-50% of debt equity ratio is good enough for a bank. So, BASIC Bank Limited will
have to try to maintain it.
8. The default risks for all types of loan have to be minimized in order to sustain in the
financial market. Since default risk leads to bankruptcy, BASIC Bank Limited has to
remain vigilant about this problem so that proactive strategies are taken to minimize this
problem if not elimination.
 Chapter Problems, Recommendation and Conclusion

7.3 CONCLUSION

BASIC Bank limited although a state-owned bank, operates like a private bank. The name
itself contains a meaning that is to develop the small industries in Bangladesh. Though it
is not confined only in the improvement of industrial sector, it has also scattered its activities
in green banking and different CSR activities. This is very sorry to say that despite all its
activities the bank has to find itself in a very bad situation recently. However if precautionary
steps are taken the bank can regain its previous form. Working in General Banking
Department helped me to learn a lot and made my internship program complete. I have
learnt how a bank operates, how clients are handled, how calmly a situation is controlled and
many more.

To conclude, I would like to say that BASIC Bank will surely come out of its recent
status only if they try to be more careful in disbursing its loans. To bring back its strong
existence the management must think of revolutionary initiatives so that this inconvenience
will never be there to bother in future.

An efficient operation of banking sector enables the smooth financial resources

intermediation of an economy. Economic growth is contributed greatly by the efficiency of
banking sector in resources generation and its proper allocation. The smooth and efficient
operation of banking sector also helps to reduce risk of failure of an economy. Therefore, the
performance of banking sector is always been a source of interest for researchers to judge the
economic condition of a country. From this view point, the study is done on the analysis of
banking activities and credit strength of BASIC bank limited. It plays a great role in collecting
scattered deposit, loan settlement and international trade etc. But, it has some problems in their
financial performance & some steady ups and down as well as quick fluctuation, still they has
satisfactory and competitive financial condition in the market. But still BASIC bank has huge
chance to expand their business portfolio and reduce business risk.
 Credit -Strength Analysis by Using Z Score Model

7.4 Bibliography & References

1. Agarwal Vineet, Taffler J. Richard, Twenty-five years of the Taffler z-score model:
does it really have predictive ability? Taylor and Francis Online, Accounting and
Business Research, vol.17, no.4, pp.285-300, 2007.
2. Bellovary Jodi, Giacomino, Don, Akers, Michael. A Review of Bankruptcy Prediction
Studies: 1930 to Present, Journal of Financial Education, vol.33, pp.1-42, 2007.
3. Muminovi Saa, Pavlovi Vladan, Cvijanovi M. Janko, Predictive ability of various
bankruptcy prediction z-score models for Serbian publicly listed companies, Economics
Institute a.d. Beograd, Industrija, vol.39, no.3, pp.1-12, 2011.
4. Belak Vinko, Aljinovi-Bara eljana, Business excellence (BEX) index Model for
Business Excellence Evaluation for Companies in Croatia, RRIF plus d.o.o.,
Raunovodstvo, revizija i financije, vol.17, no.10, pp.15-25, 2007.
5. Jakovevi Klara, Andrai Jelena Indicators of difficulties in functioning industrial
enterprise, Economics Institute a.d. Beograd, Industrijavol.39, no.3, pp.175-192, 2011.
6. Belak Vinko, Business Forensic and Forensic Accounting, Belak Excellens d.o.o.,
Croatia, 2011.
7. Dvorakova Dana, Developments in Fair Value Measurement: Some IFRS 13 View,
Recent Researches in Applied Economics, 2011Online Available: http://www.wseas.us/
e-library/conferences/2011/Iasi/AEBD/AEBD-25.pdf
8. Mensah M. Yaw, An examination of the stationarity of multivariate bankruptcy
prediction models: a methodological study,Wiley, Journal of Accounting Research,
vol.22, no.1, pp.380-395, 1984.
9. International Accounting Standard 16 Property, Plant and Equipment, Online Available:
http://ec.europa.eu/internal_ market/accounting/docs/consolidated/ias16_en.pdf
10. Lopes Alexsandro Broedel, Walker Martin, Asset revaluations, future firm performance
and firm-level corporate governance arrangements: New evidence from Brazil, Elsevier,
The British Accounting Review, vol.44, no.2, pp.53-67, 2012.
 Chapter Problems, Recommendation and Conclusion

11. Aboody David, Barth E. Mary, Kasznik Ron, Revaluations of fixed assets and future
firm performance: Evidence from the UK, Elsevier, Journal of Accounting and
Economics, vol.26, no.1-3, pp.149-178, 1999.
12. Altman Edward, Financial Ratios, Discriminant Analysis and the Prediction of
Corporate Bankruptcy, The American Finance Asociation, The Journal of Finance,
vol.23, no.4, pp.589-609, 1968.
13. [Beaver H. William, Financial ratios as predictors of failure, Wiley, Journal of
Accounting Research, 4, pp.71-111, 1966.
14. Altman Edward, Hartzell Johm, Peck Matthew, Emerging Markets Corporate Bonds: A
Scoring System, Salomon Brothers Inc, New York, USA, 1995.
15. Altman Edward, Revisiting Credit Scoring Models in a Basel 2 Environment, 2002.
Online Available: http://www.stern.nyu.edu/fin/workpapers/papers2002/pdf/wp
a02041.pdf
16. Jerman Mateja, Kavi Slavka, Kavi Bogdan, The significance of intangibles: A
comparative analysis between Croatia, Slovenia, Czech Republic, Germany and the
USA, Juraj Dobrila University of Pula, Ekonomska istraivanja, vol.23, no.2, pp.60-69,
2010.
17. Grice J. Stephen, Dugan T. Michael, The Limitations of Bankruptcy Prediction Models:
Some Cautions for the Researcher, Springer, Review of Quantitative Finance and
Accounting, vol.17, no.2, pp.151166, 2001.
18. Taffler Richard, The Assessment of Company Solvency and Performance Using a
Statistical Model, Taylor and Francis Online, Journal Accounting and Business
Research, vol.15, no.52, pp. 295-308, 1983.
 Credit -Strength Analysis by Using Z Score Model

7.5 Appendix

Data for calculating Z-score

Particulars 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Total Assets 29,41 38,77 46,65 43,30 61,56 78,03 97,66 157,0 171,1 194,1
7.09 3.91 1.53 8.32 9.39 1.73 2.98 72.19 18.53 73.36
Working Capital 2,238 2,596 2,982 1,923 4,474 5,481 763.8 9,605. 16,72 25,94
.99 .59 .59 .95 .44 .76 3 17 4.66 7.09
Working Capital 0.076 0.067 0.064 0.044 0.073 0.07 0.008 0.061 0.098 0.134
/Total Assets
Retained Earnings 370.5 129.4 304.5 543.4 429.9 613.1 51.67 (479.8 (1,580 (4,720
4 8 1 4 9 7 6) .02) .38)
Retained earnings / 0.013 0.003 0.007 0.013 0.007 0.008 0.001 -0.003 -0.009 -0.024
Total asset
EBIT 1,092 1,091 1,534 1,568 1,717 2,348 2,610 1,470. - -
.01 .12 .12 .34 .05 .52 .09 20 1,124. 2,564.
38 25
EBIT/Total Asset 0.037 0.028 0.033 0.036 0.028 0.03 0.027 0.009 -0.007 -0.013
Market Value of 2,239 2,596 2,982 3,923 4,474 5,481 6,460 6,039. 13,01 25,97
Equity .00 .58 .60 .95 .44 .76 .46 17 3.92 4.09
Total Liabilities 27,17 36,17 43,66 41,38 57,09 72,54 96,89 147,4 154,3 168,2
8.10 7.32 8.94 4.37 4.95 9.97 9.15 67.02 93.87 26.27
Market Value of 0.082 0.072 0.068 0.095 0.078 0.076 0.067 0.041 0.084 0.154
Equity/Total
liabilities
Chapter Problems, Recommendation and Conclusion