measuring financial performance based on camels rating

THESIS PAPER

On

“Measuring Financial Performance Based on Camels Rating on

Five Selected Commercial Banks in Bangladesh”

Submitted in Partial Fulfillment of the Requirement for the Degree of Master

of Business Administration

Supervised By

Dr. Md. Rafiqul Islam

Professor

Department of Banking and Insurance

University of Dhaka

Submitted By

Md. Nazmus Sakib

ID NO:51326090


University of Dhaka

September 7, 2016

THESIS PAPER On

Measuring Financial Performance Based on Camels

Rating on Five Selected Commercial Banks in

Bangladesh

Supervised by


Professor


University of Dhaka

Submitted by

Md. Nazmus Sakib

ID No. 51326090

EMBA Program


University of Dhaka

Date of Submission: September 7, 2016

i

Letter of Transmittal

September 7, 2016


Professor


Faculty of Business Studies

University of Dhaka

Subject: Submission of the Thesis Paper on “Measuring Financial Performance Based

on Camels Rating on Five Selected Commercial Banks in Bangladesh.”

Dear Sir,

It is my pleasure to submit report on “Measuring Financial Performance Based on Camels

Rating on Five Selected Commercial Banks in Bangladesh” as a part of my internship

program of MBA. I tried my best to gather relevant information for preparing a paper by

following and analyzing the proposal. I believe that the knowledge and experience I have

gathered during my internship period and while preparing the report; have enlarged my

learning into the field and will immensely help me further in my professional life. I have tried

my best to follow your instructions to complete the report. I am very much grateful to you

because of your full co-operation with me in preparing this report. However, I would always

be happy to welcome any further clarification that you may require.

I hereby submit the report for your perusal and request you to accept my report.

Yours faithfully

……………………

Md. Nazmus Sakib

Evening MBA Program

ID – 51326090, Batch – 26th

Department of Banking & Insurance

University of Dhaka

ii

Supervisor’s Certificate

This is to certify that the Thesis Paper on “Measuring Financial Performance Based on

Camels Rating on five Selected Commercial Banks in Bangladesh” is the record of

internship done by Md. Nazmus Sakib bearing ID No. 51326090, as the fulfillment of all

requirement of the Evening MBA Program in the Department of Banking and Insurance,

Faculty of Business Studies, University of Dhaka.

I instructed him to prepare this thesis paper. Hereby, I accept the report as the successful

completion of the internship program. During the program he has been found to be sincere,

regular, proactive and attentive to work for which I wish him every success in his future

career.

_________________


Professor,


University of Dhaka

iii

Declaration

I the undersigned, hereby declare that the presented Thesis Paper on “Measuring Financial

Performance Based on Camels Rating on Five Selected Commercial Banks in

Bangladesh” is an original work prepared by me, under the supervision of Professor, Dr.

Md. Rafiqul Islam, Department of Banking and Insurance, Faculty of Business Studies,

University of Dhaka.

I also confirm that the Thesis paper has been prepared to meet my academic internship

requirement and not for any other purpose. No part of this report has been previously

submitted to any other university/college/institution/organization for any academic certificate

or degree.

_____________________

Md. Nazmus Sakib

Evening MBA Program

ID – 51326090

Batch – 26th


Faculty of Business Studies

University of Dhaka

iv

Acknowledgement

The report is the outcome of my internship program. First of all, I must show my gratitude to

Almighty Allah for giving me energy and capabilities to preparing this report.

It was a great pleasure to prepare Thesis paper on “Measuring Financial Performance Based

on Camels Rating on Five Selected Commercial Banks in Bangladesh” I would like to thank

and convey my sincere gratitude to honorable Supervisor, Dr. Md. Rafiqul Islam,

Professor, Department of Banking & Insurance, Faculty of Business Studies, University

of Dhaka, for giving me valuable advice, support and suggestion to complete the report in an

appropriate manner and I would also like to express my sincere appreciation for his

wholehearted support and guidance.

And I would also like to take the opportunity to express my wholehearted gratitude to my

fellow friends, near and dear ones who offered encouragement, information, inspiration and

assistance during the period of constructing the internship report.

v

Executive Summary

Banking industry is one of the most promising industries in our country. Since 1972 the

banking sector has been playing an important role in achieving economic growth of

Bangladesh. In this age of modern civilization commercial bank is emerging as a driving

factor for the economic development of a country. Banks do not make intermediation only to

individuals; they also intermediate to the firms in other sectors. So the performance and

soundness of the banking sector are very important for almost all sectors, consequently for

our economy. To keep the performance of the banking sector high, knowing dynamics of it is

very important. This paper aims to analyze the “Measuring Financial Performance Based

on Camels Rating on Five Selected Commercial Banks in Bangladesh”.

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 quality, earnings, liquidity and sensitivity

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 may contribute to turn

the bank into a problem.

In Bangladesh, since the early nineties, CAMELS rating have been used for evaluating

institution’s financial condition, compliance with banking regulations and statutes and overall

operating soundness. The key purpose of the study is to find out overall soundness of the

banks and predict different risk factors that may contribute to turn the bank into a problem.

This study is based on secondary data. This paper examines the comparative performance of

five leading commercial banks, namely, Premier bank, Bank Asia, Dhaka bank, Mercantile

bank and Prime bank through CAMELS rating, to understand the camels models and

practices and their impact on the banking sector of Bangladesh. The information’s of the

research have gathered by the internet from the different related official websites and various

thesis paper. I have collected data from different links and then analyzed it. After analysis, I

got significant results from this study. From this, now we can get a clear idea that how Banks

calculated Camels rating to know about the financial soundness of the banks.

Table of Content

Item No. Particulars Page

Letter of Transmittal i Supervisor’s Certificate ii

Declaration iii Acknowledgement iv

Executive Summary v Chapter One: Introduction

1.1.0 Background of the study 1-2 1.2.0 Objectives of the report 2

1.3.0 Methodology 2-3 1.4.0 Limitation of the study 3

Chapter Two: Literature Review 4-5

Chapter Three: Theoretical Review

3.1.0 Camels Rating 6

3.2.0 Composite of Camels Rating 6-7 3.3.0 Camels Numerical Rating: Rating Description 7

3.4.0 Capital Adequacy 8 3.5.0 Asset Quality 8-9

3.6.0 Management Quality 9

3.7.0 Earning Quality 9-10 3.8.0 Liquidity 10

3.9.0 Sensitivity to Market Risk 10

3.10.0 CAMELS Rating System of Bangladesh 11

Chapter Four: Organizations Profile

4.1.0 Brief Introduction of Prime Bank Limited 12 4.1.1 Organizational Structure 13

4.1.2 Core business and achievements of Prime Bank Ltd. 14-15

4.1.3 Some Specific Banking Offerings 15-16

4.1.4 Functional Structure of Prime Bank Ltd. 16

4.2.0 Brief Introduction of Dhaka Bank Limited 17 4.2.1 Management Hierarchy of Dhaka Bank Ltd 18

4.2.2 Products and Services 19-20 4.3.0 Background of Mercantile Bank Limited 21

4.3.1 Organizational Structure of MBL 21-22

4.3.2 Product and Services 22-23 4.3.4 Function of MBL 23

4.4.0 Background of Premier Bank Limited 24

4.4.1 Management Hierarchy of Premier Bank 24 4.4.2 Products and Services of the bank 25

4.4.3 Functions of the Bank 25

4.5.0 Background of Bank Asia Limited 26 4.5.1 Management Hierarchy of Dhaka Bank 27

4.5.2 Products and Services of the bank 27-28 4.5.3 CSR Functions of the Bank 28

Chapter Five: Data Analysis and Interpretation of Camels Rating

5.0.0 Financial Analysis 29

5.1.0 Capital Adequacy 29 5.1.1 Capital Adequacy Ratio 29-30

5.1.2 Debt-Equity Ratio 30-31 5.1.3 Equity to Total Assets 31-32

5.1.4 Composite Capital Adequacy 32 5.2.0 Assets Quality 32

5.2.1 NPLs to Total loans 33 5.2.2 Total Investments to Total Assets 34

5.2.3 Composite Asset Quality 35

5.3.0 Management Quality 35 5.3.1 Credit Deposit Ratio 36

5.3.2 Profit per Employee 37 5.3.3 Composite Management Efficiency 38

5.4.0 Earning Quality 38 5.4.1 Return on Equity 39

5.4.2 Return on Assets 40

5.4.3 Cost to Income Ratio/ Efficiency Ratio 41 5.4.4 Composite Earning Quality 42

5.5.0 Liquidity 42 5.5.1 Liquid Assets to Total Assets 43

5.6.0 Sensitivity to Market Risk 44 5.6.1 Price Earnings Ratio 44

5.7.0 Composite Ranking 45

Chapter Six: Finding, Recommendation and Conclusion

6.1.0 Objectives, Findings and Recommendations 46-49 6.2.0 Conclusion 49

References 50

CHAPTER ONE

Introduction

1.1.0 Background of the study

1.2.0 Objectives of the report

1.3.0 Methodology

1.4.0 Limitation of the study

1

1.1.0 Background of the study

The performance of an economy is very much associated with the performance of the financial

sector of that economy. The financial sector of our country is gaining strength over the years and

its contribution to growth is overwhelming. Banks are considered the main component of our

Financial Sector. A good performance of banking sector itself indicates the overall good

performance of the sector, which ultimately leads to improved performance of economy. The

functions of present day commercial banks have diversified manifold.

The banking sectors are treated as the back-bone of an economy. There are several types of banks

in Bangladesh. In today’s scenario, the banking sector is one of the fastest growing sector and a

lot of funds are invested in Banks. Also today’s banking system is becoming more complex. So,

we thought of evaluating the performance of the banks. There are so many models of evaluating

the performance of the banks, but we have chosen the CAMELS Model to evaluate the

performance of the banks. CAMELS is an acronym for six components of bank safety and

soundness And those include –

C - Capital adequacy

A - Asset quality

M - Management quality

E - Earnings

L - Liquidity

S - Sensitivity to Market Risk

This paper examines the comparative performance of the commercial banks of Bangladesh namely

Prime Bank, Dhaka Bank, Mercantile Bank, Premier Bank and Bank Asia through CAMELS

Rating.

Performance of the banking sector under CAMELS involves analysis and evaluation of these six

crucial dimensions of banking operations. The CAMELS methodology was originally adopted by

North American bank regulators to evaluate the financial and managerial soundness of U.S.

commercial lending institutions.

2

1.1.1 Research background and motivations

A number of studies have been done relating to Camels rating and exploited on the implication of

such measures of banking institutions. Therefore, this study has aimed at filling the gap on Camels

rating of private commercial banking institution.

1.1.2 Statement of the Problem

This report has been titled as “Measuring Financial Performance Based on Camels Rating on

Five Selected Commercial Banks in Bangladesh”. This rating system is designed to take into

account and reflect all significant financial and operational factors examiners assess in their

evaluation of a camels rating performance.

1.2.0 Objectives of the report

This assignment examines the Camels rating in the area of banking sector. The main objective of

the study is to measure financial performance based on Camels rating of commercial banks in

Bangladesh.

a) To explore about CAMELS rating frame work.

b) To understand the financial performance of the banks.

c) To describe the CAMELS model of ranking, banking institutions, so as to analyze the

comparative of various banks.

d) To analyze 5 banks to get the desired results by using CAMELS as a tool of measuring

performance.

1.3.0 Methodology

Research Design: Descriptive research will be followed to cover the topic at hand. According to

the instruction of my supervisor, I would like to prepare information about the assignment. So the

assignment is descriptive in nature.

Population Size: The population for this study is the all commercial banks that operate inside

Bangladesh. Here 56 commercial banks in Bangladesh are considered as population.

Sample Design: The sample design comprises 5 commercial banks. These 5 Commercial banks

are selected randomly from 56 commercial banks in Bangladesh

3

Sources of Data: This study is purely based on secondary data. This paper examines the

comparative performance of five leading private sector commercial banks, namely, Premier bank,

Bank Asia, Dhaka bank, Mercantile bank and Prime bank through CAMELS Rating, to understand

the camels models and practices and their impact on the banking sector of Bangladesh. The

financial data of selected banks have been collected from the financial statements of the respected

banks. The financial statements have been collected from the Official Websites of selected banks.

To determine this, financial statements for the fiscal period 2013 to 2015 are evaluated.

Data Analysis: The collected data for analyzing financial performance based on Camels rating on

five selected commercial banks in Bangladesh.

Data is presented using tables and graphs among other data presentation tools.

Collected information has then processed & compiled with the aid of MS Word 2016.

Various graphs and tables will be used through Microsoft Excel 2016 for calculation and

putting up in the report.

1.4.0 Limitation of the study

Every study has its distinct limitations. Preparing this report, I have faced some certain limitations

to collect the information which are as follows:

Limited sources of data, only the website. Insufficient supply of relevant books and

journals and lack of structured information.

The data used for his study is the published annual reports from time to time. Therefore,

the quality of this research depends on reliability of data published in those reports.

Time constraint for preparing the report in appropriate manner.

Lack of proper experience in the explored area while preparing the standard report.

Time and resource constrains.

The study was completely done on the basis of ratios calculated from the balance sheets.

It was not possible to get a personal interview with the management employees of all banks

under study.

In spite of these limitations it can be said that such limitations are common to almost all data

based study. Appropriate methodology, proper research design and appropriate statistical

techniques have been used to overcome many of these limitations.

CHAPTER TWO

Literature Review

4

Banking sector has played a crucial role in the development of the economy. Various

scholars have made several studies on the performance of banking sector in the using CAMELS

model. The Camels rating is a supervisory rating system originally developed in the U.S. to classify

a bank's overall condition. It's applied to every bank and credit union in the U.S. and is also

implemented outside the U.S. by various banking supervisory regulators Some of the important

studies reviewed for present paper are as under:

Federal Reserve System of United States implemented The Uniform Financial Institutions

Rating System (UFIRS) in 1979 in the US banking institutions. UFIRS was recommended

worldwide later on. UFIRS was known internationally as CAMELS rating system globally.

Dang, Uyen. 2011, The camels ratıng system ın bankıng supervısıon a case study by

examining its balance sheet, as well as, profit and loss statement on the basis of each component,

thus observing the institution's dynamic aspect.

Doumpos & Zopounidis said that " In the new globalize financial system, as with all new

financial markets and products, the banks' economic situation can rapidly change than in the past.

As a result of the new situation, supervisory authorities were led towards changing their way of

approach and assessment, paying more emphasis on ways to overcome and manage risks. As a

result of this new situation that was created through the development of the financial system, a

further area of assessment was added, that of the initial S, indicating market risk. This took place

in 1995 by the US Federal Reserve (Fed) and the Comptroller of the Currency (Hafer, 2005), who

replaced CAMEL with CAMELS and added a management assessment system scale from 1

(optimum) to 5 (worse) for risk management.

Prasuna (2003), analyzed the performance of Indian banks by adopting the CAMEL

Model. The performance of 65 banks was studied for the period 2003-04. The author concluded

that the competition was tough and consumers benefited from better services quality, innovative

products and better bargains.

Dr. Sneha S. Shukla (2015) study the analysis financial strength of public and private

sector banks: A CAMELS approach. His study was mainly based on secondary data drawn from

the annual reports published by banks. His report analyzed the financial health of public and private

sector banks in the CAMELS parameters. His findings of the study revealed that the financial

health of public and private sector banks.

5

Bangladesh Bank introduced CAMEL Rating System in 1993 as an integral part of Offsite

Supervision System. Initially, report was prepared on the half-yearly basis for all banks.

Subsequently in 1999, Board of Directors of BB advised to prepare the reports of State-owned

Commercial Banks (SCBs) on quarterly basis. Due to the emergence of the banking sector and

changes in the economic scenario, BB Management updated the previously practiced CAMEL

based Supervision System to "Guidelines for Determination of CAMELS Rating for the Banking

Companies" which was developed by supervision consultant Ms. F. P. Santos employed under the

Central Bank Strengthening Project Cell (CBSP).

The new system was approved by the Governor on 26.01.2006. The revised rating system was first

exercised on June ‘06 to evaluate the performance of banks as of 30/06/2006.

In the new system, Sensitivity to Market Risks has been added to the previously practiced system

to observe how the banks manage the market risks such as interest rate risk, foreign exchange risk,

commodity prices, equity prices etc.

Mohammad Kamrul Ahsan (2016) performance Measuring financial based on CAMEL:

A study on selected Islamic banks in Bangladesh. His study focuses on domestic Islamic banks

measuring financial performance based on CAMEL rating model.

CHAPTER THREE

Theoretical Review

3.1.0 Camels Rating

3.2.0 Composite of Camels Rating

3.3.0 Camels Numerical Rating: Rating Description

3.4.0 Capital Adequacy

3.5.0 Asset quality

3.6.0 Management quality

3.7.0 Earning Quality

3.8.0 Liquidity

3.9.0 Sensitivity to Market Risk

3.10.0 CAMELS Rating System of Bangladesh

6

3.1.0 Camels Rating

Camels is a rating system generally used by the government policy circle, regulating bodies

regulating commercial banks, that is, central banks and non-governmental policy research centers

for the purpose of assessing the soundness of a savings association or a bank. As regards to the

background of introducing CAMEL, it was originally adopted by the regulators of North American

Commercial banks and it covers five areas of performance, namely, Capital Adequacy, Asset

quality, Management quality, Earning ability and Liquidity. In the early 1970s; federal regulators

of the US developed CAMEL rating system to appraise the performance of the Commercial banks.

Later in 1979, the uniform financial institution’s rating system was adopted to provide federal

regulatory agencies with a framework for rating financial condition and individual banks. Since

then, the application of CAMEL has spread up dramatically in respect of examining the financial

strengths of one of the basic constituents of money market i.e. commercial banks. In 1995 the

Federal Reserve and the OCC (Office of the Comptroller of the Currency) replaced CAMEL with

CAMELS, adding the "S" which stands for Sensitivity (sensitivity to market risk, especially

interest rate risk).

CAMELS Rating has been considered as one of the widely used tools for judging capital adequacy,

asset quality, management quality, earnings ability, liquidity and Sensitivity to market risk of the

financial institutions including commercial banks by the principal regulators all around the world.

In addition to this, State Banking departments as well as the Farm Administration use the

CAMELS rating system to evaluate the soundness of financial institutions as follows.

The abbreviations are as follows:

C = Capital Adequacy

A = Asset Quality

M = Management Quality

E = Earning

L = Liquidity and

S = Sensitivity to market risk.

3.2.0 Composite of Camels Rating

Composite of camels ratings are based on a careful evaluation of an institution's managerial,

operational, financial, and compliance performance. The six key components used to assess an

7

institution's financial condition and operations are: capital adequacy, asset quality, management

quality, earnings, liquidity and sensitivity to market risk. The numerical ratings assigned to the

criteria are:

Table:1.1

Rating

Scale

Rating Range Rating Analysis Rating Analysis interpretation

1 1.0-1.4 Strong Sound in every respect, no supervisory

responses required

2 1.6-2.4 Satisfactory Fundamentally sound with modest correctable

weakness, supervisory response limited.

3 2.6-3.4 Fair (watch

category)

Combination of weaknesses if not redirected will

become severe. Requires more than normal

supervision

4 3.6-4.4 Marginal (some

risk of failure)

Immoderate weakness unless properly addressed

could impair future viability of the bank. Needs

close supervision.

5 4.6-5.0 Unsatisfactory

(high degree of

failure evident)

High risk of failure in the near term. Under

constant supervision/cease and desist order.

3.3.0 Camels 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

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 in

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

8


The dimension of capital adequacy is an important factor to help the bank in understanding the

shock attractive capability during risk. That means, capital adequacy enables a bank to meet any

financial unexpected condition due to FX risk, credit risk, market risk. Capital adequacy protects

the interest of depositors of a bank.

Examiners assess institutions' capital adequacy through capital trend analysis. To get a high capital

adequacy rating, institutions must also comply with interest and dividend rules and practices. Other

factors involved in rating and assessing an institution's capital adequacy are its growth plans,

economic environment, ability to control risk, and loan and investment concentrations.

The adequacy of capital is examined based upon the two most important measures such as Capital

Adequacy Ratio (CAR) or Capital to Risk-weighted Assets ratio, and the ratio of capital to assets.

3.4.1 Capital Adequacy Ratios

The capital adequacy is estimated based upon the following key financial ratios, and to be

considered as good banks in world they must meet certain criteria detailed below:

Table: 1.2. Capital Ratios Analysis

Capital Adequacy Ratios 𝑻𝒊𝒆 𝑰 𝑪𝒂𝒑𝒊𝒕𝒂𝒍 + 𝑻𝒊𝒆𝒓𝑰𝑰 𝑪𝒂𝒑𝒊𝒕𝒂𝒍

𝑹𝒊𝒔𝒌 𝒘𝒆𝒊𝒈𝒉𝒕𝒆𝒅 𝒂𝒔𝒔𝒆𝒕𝒔

Debt-Equity Ratio 𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦

Equity capital to total assets

𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦

𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

3.5.0 Asset Quality

The dimension of asset quality is an important factor to help the bank in understanding the risk on

the exposure of the debtors. In this paper, this parameter is measured by the Non-performing loans

to total loans ratio. This ratio assures to cover the bad and doubtful loans of the bank. This

parameter will benefit the bank in understanding the amount of funds that reserved by the banks

in the event of bad investments. Popular indicators include non-performing loans to total loan,

9

non-performing loans to total equity, and total investments to total assets ratios. The asset quality

is estimated based upon the following key financial ratios.

Table:1.3. Asset Quality Ratios

NPLs to total loans 𝑵𝒐𝒏 − 𝒑𝒆𝒓𝒇𝒐𝒓𝒎𝒊𝒏𝒈 𝒍𝒐𝒂𝒏𝒔

𝑻𝒐𝒕𝒂𝒍 𝒍𝒐𝒂𝒏𝒔

NPLs to total equity 𝑁𝑜𝑛 − 𝑝𝑒𝑟𝑓𝑜𝑟𝑚𝑖𝑛𝑔 𝑙𝑜𝑎𝑛𝑠

𝑇𝑜𝑡𝑎𝑙 𝑠ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 𝐸𝑞𝑢𝑖𝑡𝑦

Total Investments to Total Assets 𝑇𝑜𝑡𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡𝑠


3.6.0 Management Quality

Management quality reflects the management soundness of a bank. The management acts as a

safeguard to operate the bank in a smooth and decent manner and is called excellence management

or skilful management, whenever it controls its cost and increases productivity, ultimately

achieving higher profits.

Management quality is basically the capability of the board of directors and management, to

identify, measure, and control the risks of an institution ‘s activities and to ensure the safe, sound,

and efficient operation in compliance with applicable laws and regulations.

The management quality is estimated based upon the following key financial ratios.

Table:1. 4. Management Quality Ratios

Total Advance to Total Deposit Ratio 𝑻𝒐𝒕𝒂𝒍 𝒍𝒐𝒂𝒏𝒔

𝑻𝒐𝒕𝒂𝒍 𝑫𝒆𝒑𝒐𝒔𝒊𝒕

Profit per Employee 𝑃𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑇𝑎𝑥

𝑁𝑜. 𝑜𝑓 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠


The quality of earnings represents the sustainability and growth of future earnings, value of a

bank’s lucrativeness and its competency to maintain quality and earn consistently. Earnings and

profitability are examined as against interest rate policies and adequacy of provisioning. The

earning quality is estimated based upon the following key financial ratios.

10

Table :1.5. Earning Quality Ratios

Return on Equity 𝑷𝒓𝒐𝒇𝒊𝒕 𝒂𝒇𝒕𝒆𝒓 𝑻𝒂𝒙

𝑺𝒉𝒂𝒓𝒆𝒉𝒐𝒍𝒅𝒆𝒓 𝑬𝒒𝒖𝒊𝒕𝒚

Return on Assets 𝑃𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑇𝑎𝑥


Cost to income Ratio 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠

𝑁𝑒𝑡 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐼𝑛𝑐𝑜𝑚𝑟𝑒 − 𝑁𝑜𝑛 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐼𝑛𝑐𝑜𝑚𝑒

3.8.0 Liquidity

Liquidity is another noteworthy factor that determines the financial performance of banks.

Liquidity means the ability of the bank to fulfill its obligations, primarily of depositors. Bank can

maintain adequate liquidity position either by increasing current liabilities or by converting its

assets in to cash quickly. The Liquidity is estimated based upon the following key financial ratio.

Table :1.6. Liquidity Ratio

Liquid Assets to Total Assets 𝑳𝒊𝒒𝒖𝒊𝒅 𝑨𝒔𝒔𝒆𝒕𝒔

𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔


The sensitivity of the market risk is evaluated by banks through changes in interest rate, foreign

exchange rates and equity prices. The changes in these variables influence bank's earning ability.

So, sensitivity to market risk measures how adversely the bank is affected by such changes. The

sensitivity to market risk is estimated based upon the following key financial ratio.

Table :1.7. Sensitivity to Market Risk Ratio

Price Earnings Ratio 𝑴𝒂𝒓𝒌𝒆𝒕 𝑽𝒂𝒍𝒖𝒆 𝒑𝒆𝒓 𝑺𝒉𝒂𝒓𝒆

𝑬𝒂𝒓𝒏𝒊𝒏𝒈𝒔 𝒑𝒆𝒓 𝑺𝒉𝒂𝒓𝒆

11

3.10.0 CAMELS Rating System of Bangladesh

In Bangladesh, since the early nineties, the same 5 components of CAMEL have been used for

evaluating the five crucial dimensions of a bank’s operations that reflect in a comprehensive

fashion an institution’s financial condition, compliance with banking regulations and statutes and

overall operating soundness. Recently, Bangladesh Bank has upgraded the CAMEL into

CAMELS effective from June, 2006. After inserting ‘S’ or ‘sensitivity to market risk’, it is

presumed that this off-site supervision technique of central bank would make it a more effective

tool in rating banks. The present system requires that a bank’s condition and performance be

regularly appraised according to predetermined stress testing on asset and liability 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 single CAMELS rating for each bank

is the result of both off-site monitoring, which uses monthly financial statement information, and an

on-site examination, from which bank supervisors gather further “private information” not reflected

in the financial reports.

These examinations result in the development of "credit points" ranging from 0 to 100. As noted

above, the six key performance dimensions - capital adequacy, asset quality, management quality,

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.

CHAPTER FOUR

Organizations Profile

4.1.0 Brief Introduction of Prime Bank Limited

4.2.0 Brief Introduction of Dhaka Bank Limited

4.3.0 Background of Mercantile Bank Limited

4.4.0 Background of Premier Bank Limited

4.5.0 Background of Bank Asia Limited

12

4.1.0 Brief Introduction of Prime Bank Limited

In the backdrop of economic liberalization and financial sector reforms, a group of highly

successful local entrepreneurs conceived an idea of floating a commercial bank with different

outlook. For them, it was competence, excellence and consistent delivery of reliable service with

superior value products. Thus Prime Bank Limited a private sector commercial bank was

incorporated in Bangladesh under the companies’ act 1994 and commencement of business started

on 17th April 1995 with an authorized capital of Tk. 1,000 million divided into 10 million ordinary

shares of Tk. 100 each. The Bank operates as a Scheduled Bank under a Banking license issued

by Bangladesh Bank, the Central Bank of the country. The bank is registered with Bangladesh

Securities and Exchange Commission and its shares are traded at the Dhaka and Chittagong Stock

Exchanges. The sponsors are reputed personalities in the field of trade and commerce and their

stake ranges from shipping to textile and finance to energy etc.

As a fully licensed commercial bank, Prime Bank is being managed by a highly professional and

dedicated team with long experience in banking. They constantly focus on understanding and

anticipating customer needs. As the banking scenario undergoes changes so is the bank and it

repositions itself in the changed market condition. Prime Bank has already made significant

progress within a very short period of its existence. The bank has been graded as a top class bank

in the country through internationally accepted CAMELS rating. The bank has already occupied

an enviable position among its competitors after achieving success in all areas of business

operation. Prime Bank offers all kinds of Commercial Corporate and Personal Banking services

covering all segments of society within the framework of Banking Company Act and rules and

regulations laid down by our central bank. Diversification of products and services include

Corporate Banking, Retail Banking and Consumer Banking right from industry to agriculture, and

real state to software.

Prime Bank, since its beginning has attached more importance in technology integration. In order

to retain competitive edge, investment in technology is always a top agenda and under constant

focus. Keeping the network within a reasonable limit, our strategy is to serve the customers through

capacity building across multi-delivery channels. Our past performance gives an indication of our

http://en.banglapedia.org/index.php?title=Companies_Act_1994

http://en.banglapedia.org/index.php?title=Securities_and_Exchange_Commission

13

strength. We are better placed and poised to take our customers through fast changing times and

enable them compete more effectively in the market they operate.

4.1.1. Organizational Structure

Prime Bank maintains a strong organizational hierarchy in which every individual performs their

duty very sincerely. The hierarchy of Prime Bank Limited is as follows:

Figure 2.1: Organizational hierarchy

Top Management

Executive Committee Chairman Board of Directors

Executive Management

MD AMD DMD SEVP EVP SVP VP SAVP AVP

Mid Level Management

FAVP SEO EO PO

Junior Level

SO MTO JO

14

4.1.2 Core business and achievements of Prime Bank Limited

Success is simply a product of excellence. Prime Bank Ltd (PBL) with a slogan of 'a bank with a

difference' has proved it over the years. Their efforts are focused on delivery of quality services in

all areas of banking activities with the aim to add increased value to shareholders’ investment and

offer highest possible benefits to their customers. Also, the bank is different from many other

banks in terms of philanthropic contributions. It has spent 4 percent of its profit for corporate social

responsibility in year 2011.

The Prime Bank Group focuses on a wide range of banking and financial products and services that

include commercial banking through both conventional and Islamic mode, merchant and

investment banking. It has a big presence in SME and retail banking, credit card and off-shore

banking. It plays leading role in syndicated and structured financing. It has expertise in corporate

credit and trade finance and made extensive market penetration with continuous growth in

corporate, commercial and trade finance sectors.

The Prime Bank group has a large and well distributed branch network of 140 fully fledged

branches including 18 SME or Agricultural branches and 3 Off-shore banking units. It also has

more than 100 ATM booths across the country with a strong tradition of service excellence. The

bank has also made its presence in Singapore through its fully owned subsidiary Prime Exchange

Co. Pvt. Ltd. for facilitating inward foreign remittance to Bangladesh. Prime Bank has fully owned

exchange houses in Singapore, UK and a fully owned finance company in Hong Kong to remit

expatriate Bangladeshis' income into the country.

To cater to customers' needs PBL has always been moving with the latest technology to strengthen

its IT infrastructure. In order to retain competitive edge, investment in technology is always a top

agenda and under constant focus. Keeping the network within a reasonable limit, bank's strategy

is to serve the customers through capacity building across multi delivery channels. The Bank has

set up a Wide Area Network (WAN) across the country to provide Online branch banking facility

to its valued clients. PBL is one of the first few Bangladeshi Banks who have become member of

SWIFT (Society for Worldwide Inter-bank Financial Telecommunication) in 1999 and opened up

possibilities for uninterrupted connectivity with over 5,700 user institutions in 150 countries

around the world.

15

Prime Bank obtained Principal Membership of Master-Card International in the month of May

1999 and launched Master Card-Credit Card which created a new dimension in its customer

service and consumer financing. The special feature of the Prime Bank Master Card is that it bears

the card holder's photo on the card, which is the first of its kind in Bangladesh and adds security

against misuse. Prime Bank issues few types of cards like Gold Local & International and Silver

Local & International. Local cards can be used in Bangladesh only.

4.1.3 Some Specific Banking Offerings

Online Banking and Internet Banking facilities

All the 140 branches of the Bank are providing online banking facilities through its core banking

system namely “Temenos T24”. Fund Transfer to Other bank’s Accounts through BEFTN has

been made available through Online Banking for the Consumer Banking Customers. As a result,

customers can execute fund transfer through paperless and automated Online Banking over

internet to any other account in Bangladesh. Prime Bank Limited has also offered a safe and

convenient Internet Banking, which is to accessible 24/7. By using real-time internet banking our

customers can avail the services like Balance enquiry, View account statement, View loans &

deposit of their own, Mobile & Utility Bill Payment.

Automated Teller Machine (ATM)

In addition to the Bank’s own 160 ATMs, the Bank has joined National Payment Switch

Bangladesh (NPSB) network during the year 2014, which enabled the Debit Cardholders of the

Bank to enjoy cash withdrawal facility from other ATMs under NPSB Network. Prime Bank has

used the BACH and BEFTN mechanism for convenient payment activities which to a great extent

supports the concept of green banking.

SMS Banking facilities

Prime Bank also offers SMS Banking services to ensure instant access to customers’ account

information at any time. Any mobile phone user having account of Prime Bank can get the service

through their mobile phone upon subscribing. By using SMS banking our customers can avail the

services like Balance Enquiry, Mini Statement, Exchange Rate, and PIN Change.

16

Biometric Smart Card based alternate banking service

Prime Bank Limited in collaboration with Dipon Consultancy Services introduced a Biometric

Smart Card based alternate banking service in the brand name “Prime Cash” for the unbanked rural

and urban people to address their banking and payment needs. Most importantly, it will provide a

fast, safe and simple mechanism for the un-banked men/women across Bangladesh in all

municipalities and upazilas. The services that can be obtained through Prime Cash are: Account

Opening, Deposit, Withdrawal, Local Money Transfer, Inward Foreign Remittance, DPS, Prime

Bank ATM Facility, Mobile Recharge, Salary Disbursement, Balance Inquiry, and Mini

Statement.

Cash Back Service

Cash Back Service allows the debit cardholders of the Bank to meet instant requirement of cash

through POS terminals of selected merchant points while shopping. Cash Back service meets

instant requirement of cash which ultimately increase customer satisfaction.

4.1.4 Functional Structure of Prime Bank Ltd.

Prime Bank Limited has the following functional departments in its Head Office.

1. Financial Administration Division (FAD)

2. Credit Division

3. International Division

4. Information Technology (IT) Division

5. Public Relations Division

6. Marketing Division

7. Human Resources Division

8. Inspection and Audit Division

9. Credit Card Division

10. Merchant Banking and Investment Division

11. Facility Management Division (FMD)

17

4.2.0 Brief Introduction of Dhaka Bank Limited

Dhaka Bank Limited (DBL) started its commercial operation on July 05, 1995. Since its

incorporation, DBL has proved itself as a true development partner of the Government in

developing the national economy by providing efficient banking services to different sectors of

the economy.

The bank has stood out for its financial strength and operational craftsmanship marking its

position as the potential market player in all core areas of banking in the country. It got listed in

DSE and CSE in 2000. Alongside a lasting bond with the corporate world, DBL has got hold of

a countrywide reach through a larger network of Branches, ATMs, SME channels, agricultural

outreach and mobile banking. DBL has made its vibrant presence at 87 locations including 2

Islamic Banking Branches; and 1 Offshore Banking Unit, 3 SME Service Centers, 1 Business

Kiosk and 53 ATMs & 19 ADMs across the country. Catering to the needs of Capital Markets,

the Bank has established a subsidiary company named ‘DBL Securities Ltd.’ having 6

countrywide Branches.

The Bank offers the full range of banking and investment services for personal and corporate

customers, backed by the latest technology and a team of highly motivated officers and staff. The

Bank has launched Online Banking services (i-Banking), joined a countrywide shared ATM

network and has introduced a co-branded credit card. A process is also underway to provide e-

business facility to the bank's clientele through Online and Home banking solutions. Some

important facts about Dhaka Bank Limited are given below:

Date of Incorporation : April 06, 1995.

Registered Office : Biman Bhaban, 100 Motijheel C/A, Dhaka

First Branch : Local Office, Adamjee Court, Motijheel, Dhaka

Enlisted as Public Limited Co. : 1998

Capital Structure at Formation

Authorized Capital : BDT 600 Crore

Paid up capital : BDT 266 Crore

18

4.2.1 Management Hierarchy of Dhaka Bank Ltd

The Managing director heads the management team of Dhaka Bank Limited. Several

management committees have been formed to handle the banking operation and identifying and

managing risk. The committees are MANCOM, ALCO. As per Bangladesh Bank’s instruction

“BASEL II Implementation team” has been formed which will be responsible for proper

implementation of BASEL II capital adequacy guidelines in the Bank. The guidelines have been

issued Bangladesh Bank recently but the target date for the implementation was 31st November,

2009.


19

4.2.2 Products and Services

Dhaka Bank Limited has a wide range of products and services in its assortment. These value

based products are very much contemporary and standardized. Its main products and services are

described briefly next:1.2.1 Retail Banking

DBL is a leading bank in the countries consumer banking arena. Emphasis on customer service,

product innovation, asset quality and brand building are the cornerstones of the Retail Banking

strategy. The major products and services of Retail Banking include:

Corporate Banking

Providing a tailored solution is the essence of Corporate Banking services of DBL. Dhaka Bank

recognizes that Corporate Customers' needs vary from one to another and a customized solution is

critical for the success of their business. Dhaka Bank offers a full range of tailored advisory,

financing and operational services to its corporate client groups combining trade, treasury,

investment and transactional banking activities in one package.

Trade Finance

Dhaka Bank Limited (DBL) started it trade operations in 1995 and all the trade activities were

carried out by DBL’s 15 (fifteen) Authorized Dealer (AD) Branches. In the year 2009, DBL

established the Central Processing Center (CPC) at BGMEA Bhaban, Karwanbazar, Dhaka and

Agrabad, Chittagong.

Import Finance

DBL undertakes Import Finance in the form of both pre-import and post-import finance. These

two categories of import finances include:

Liability Products Asset Products Services

Savings Bundled Product Car Loan Internet Banking

Deposit Pension Scheme Home Loan SMS Banking

Special Deposit Scheme Personal Loan Locker

Deposit Double Scheme Vacation Loan ATM & VISA Credit Card

20

Letter of Credit

Performance Bonds & Other Guarantees

Loan against Trust Receipt (LTR)

Export Finance

Like import trade, DBL advances in export trade at both pre-shipment and post-shipment

shipment stages. The pre-shipment facilities are usually required to finance the costs to execute

export orders, such as: procuring & processing of raw materials, packaging and transportation,

payment of various fees and charges including insurance premium etc. The facilities under both

the categories are:

Export Letter of Credit Advising

Back to Back LC

Export Bills for Collection

Packing Credit

Foreign Documentary Bill Purchased (FDBP)

Inland Documentary Bills Purchased (IDBP)

Export Development Fund (EDF)

SME

Small and Medium Enterprises (SMEs) are the ‘engines of growth’ in almost all the emerging

economies of the globe. Banking to the SMEs can be termed as banking to the ‘unbanked’, as

many is yet to receive bank finances to ensure greater business development. DBL signed a new

refinancing deal on ‘Solar Energy’, Solar panel assembling plant and ETP with Bangladesh Bank.

Remittance

DBL has already started payment of remittance through two renowned NGO of Bangladesh-

PAGE and PADAKHEP MANOBIK UNNOYON KENDRO, which added 250 distribution

centers. It is also a member of EL-DORADO which is a 9-bank Elite Network for remittance

distribution facility. It has already introduced Mobile remittance disbursement partnering with

Banglalink.

21

4.3.0 Background of Mercantile Bank Limited

Mercantile Bank Limited was established in June 2, 1999 as a private commercial bank and started

its operation. The then Prime Minister Sheikh Hasina inaugurated the bank. The renowned 30

industrialists establish this bank with everybody’s consent. Mr. Abdul Jalil elected as the chairman.

Mercantile Bank Limited is a private commercial bank with Head Office at 61, Dilkusha C/A,

Dhaka, Bangladesh started operation on 2nd June 1999. The Bank has 93 branches spread all over

the country and introducing some braches. With assets of TK. 155143.746 million, the bank has

diversified activities that cover all the areas of corporate/commercial, retail/personal, SME

banking business and international trade.

Mercantile Bank is playing an important role while giving loan for the small and medium

enterprises. In the terms of credit mercantile bank has introduced new schemes mostly for the

business people in Bangladesh. Different categories of loan been provided to the businessman.

Total loans and advances of the Bank stood at BDT 93,610.87 million as on December 31, 2012

its main investing projects are business, garments, micro credit, construction and others. Consumer

Credit Scheme: Mercantile Bank has been providing loan to medium and low-income peoples.

This policy has gained a great popularity among consumers.

MBL is working with the slogan of "efficiency is our strength" and their logo contains a dialogue

“Banglar Bank”

4.3.1 Organizational Structure of MBL

The organization structure and corporate of Mercantile Bank Limited (MBL) strongly reflect its

determination to establish, uphold and gain a stronger footing as an organization which is

customer-oriented and transparent in its management.

22


Senior Vice President Head of Branch

Vice President

Manager Operation

Assistant Vice Assistant Vice Assistant Vice

Foreign Exchange Credit Department General Banking

First AVP Principle Officer Principle Officer

Principle Officer Senior Executive Senior Executive

Officer Officer

Senior Executive Executive Officer Executive Officer

Officer

Executive Officer Officer Officer

Assistant Officer Trainee Assistant

Officer

4.3.2 Product and Services MBL has launched a number of financial products and services since its inception. Among these,

Monthly Savings Scheme, Double Benefit Deposit Scheme, Quarterly Benefit Deposit Scheme,

1.5 Times Benefit Deposit Scheme, Advance Benefit Deposit Scheme, Consumer Credit Scheme,

Small Loan Scheme, Lease Finance Scheme, Overseas Employment Loan Scheme, Car Loan

Scheme, Home Loan Scheme and SME Loan have received wide acceptance among the people.

23

Deposits Loan Cards

- Current Deposit Account

- Saving Deposit Account

- Fixed Deposit Account

- Double Benefit Deposit Scheme

- Mashik Sanchay Prakalpa

- Quarterly Benefit Deposit Scheme

- 1.5 times Benefit Deposit Scheme

- Advance Benefit Deposit Scheme

- Special Savings Scheme

- School Banking

-Educational Planning Deposit Scheme

-Consumer credit scheme

-Doctor credit scheme

-Rural planning scheme

-Lease Financing

-Any purpose loan

-Educational loan

-Car loan

-Home loan

-Dual card

-Debit Card

-Prepaid Card

Supplementary Card

-Visa Card

4.3.4 Function of MBL

Mercantile Bank Limited performs all types of functions of a modern commercial bank, which

generally includes flowing-

Mobilization of savings of the people and safe keeping of all types of deposit account.

Making advances especially for productive activities and for the other commercial and

socio-economic needs.

Providing banking services to common people through the branches.

Introduce modern Banking services in the country.

Discounting and purchasing bills.

Finance for both capital machinery and working capital.

Finance under small business of self-employed clients.

Finance of farming and non-farming activities to rural people including purchase of

agricultural equipment’s.

Developing new products Market surveys before making any finance.

Finance for small transport.

Monitoring and forecasting.

Developing marketing campaigns.

Finance for household durables.

Work simplification studies.

24

4.4.0 Background of Premier Bank Limited

The Premier Bank Limited (PBL) is the leading private bank in Bangladesh. It is a scheduled bank,

which is incorporated in Bangladesh as banking company on June 10, 1999 under Companies

Act.1994. It has created a new way of its own banking area of Bangladesh in terms of providing

service to customer and value addition to its stakeholders. Bangladesh Bank, the central bank of

Bangladesh, issued banking license on June 17, 1999 under Banking Companies Act.1991. The

Head Office of the Premier Bank Limited is located at Banani. Within short period of time, the

bank has been successful in positioning itself as progressive and dynamic financial institution in

our country. The bank is now widely operated by the business community from small

entrepreneurs to big merchant and multinational because of modern and innovative ideas and

financial solution. Now it has opened 92 branches in different areas of the country.

4.4.1 Management Hierarchy of Premier Bank


25

4.4.2 Products and Services of the bank

Premier Bank is always conscious of the changing needs of the customers and strive to

develop new and improved services for its valued customers. Bank offers various

Deposits and Lending Products & Services to meet all kinds of financial needs of our

customers.

Deposit Products Lending Products

Monthly Savings Scheme (MSS)

Monthly Income Scheme (MIS)

Education Savings Scheme (ESS)

Special Deposit Scheme (SDS)

Fixed Deposit (FD)

Saving Account (SB)

Current Account (CD)

Corporate Savings Account (SB)

Short Term Deposit Account (STD)

RFCD/ NFCD Account

Consumer Credit Scheme

Rural Credit Scheme

Student Credit Programme

Special Credit Scheme on RMG

Doctor’s Loan

Lease Finance

SME Finance

Hire Purchase

Trade Finance

Working Capital Finance

Project Finance

Finance for Agro processing Industry

4.4.3 Functions of the Bank

Commercial banking service including collection of deposit, short term trade finance,

working capital finance in processing and manufacturing units and financing and

facilitating trade

Term loans and working capital loans to industries.

Loans to Small and Medium Enterprises (SMEs).

26

4.5.0 Background of Bank Asia Limited

Bank Asia Ltd is one of the leading private sector commercial banks in Bangladesh. As we all

know that achievement of high economic growth is the basic objective of the present economic

policy of Bangladesh government. To achieve this objective, the banking sector plays an

important role. Bank Asia Limited is one of the banks. It is a new entrant in the private banking

scenario of Bangladesh. It also operates in Bangladesh for a long time as a country’s one of the

good bank. Bank Asia Limited conducts all types of commercial banking activities. The core

service or business comprises of Import/Export finance, Working capital finance and corporate

finance. Foreign trade operation is one of the most important activities of the bank. It helps

corporate clients build their businesses by providing financial and strategic advice and products.

Foreign trade contains Import and Export section and foreign remittance department contains

inward and outward remittance.

Bank Asia started its journey on November 27, 1999 with an aim to be fully customer focused

through rendering technology driven innovative products and services. The Bank obtained

Certificate of Incorporation and Certificate of Commencement of Business on September 28,

1999 and banking license on October 06, 1999. Subsequently the Bank was listed with Dhaka

Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) on January 06, 2004. Since

inception Bank Asia is working efficiently and achieving a strong prominent position in banking

sector. By this time Bank Asia has consolidated its strength manifold through extending its

business rapidly while ensuring sustainable growth. Bank Asia started its most cherished Islamic

banking operation in 2008 for providing strict Shariah based products. It established its 1st

subsidiary company named “Bank Asia Securities Limited” on March 16, 2011 and another

subsidiary company “BA Exchange Company (UK) Limited” in United Kingdom in the same

year. Now the Bank is rendering services through its 107 Branches, 7 Islamic Windows, 10 SME

Service Centers, 1 Off-shore Banking Unit, and 2 Subsidiary companies.

27

4.5.1 Management Hierarchy of Dhaka Bank


4.5.2 Products and Services of the bank

i) Business Banking

Overdraft

Secured Overdraft

Secured OD (Earnest Money)

Working capital finance

Loan against Trust Receipt

Loan against Cash Incentives

Bill discounting

28

Loan Syndication and structured Finance

Packing Credit

Demand Loan

Demand Loan (work order)

Time Loan

Transport Loan

House Building Loan

Term loan

Lease Finance

Letter of Guarantee

Letter of Credit

Back to back Letter of Credit

ii) Small and Medium Enterprise (SME)

a) Term Loan

Subidha -Unsecured Trading

Sondhi -Secured Trading

Sristi – Unsecured Manufacturing

Shombridhi- Secured Manufacturing

Shofol – Unsecured Service

Sheba- Secured Service

4.5.3 CSR Functions of the Bank

Bank Asia has been conscious of corporate social responsibility from the very beginning of its

operation in 1999. The Bank looks beyond short-term quantitative gains and concentrates on

issues which make the financial institution socially responsible and thus expects a sustainable

balanced growth.

Bank Asia has three major CSR programs. These are as follows:

o Higher Study Scholarship

o Ophthalmological Operation

o Operating Computer Learning Center.

CHAPTER FIVE

Data Analysis and

Interpretation of

Camels rating


5.2.0 Assets Quality



5.5.0 Liquidity


5.7.0 Composite Ranking

29

5.0.0 Financial Analysis

We have chosen the CAMELS Model for Financial analysis purpose. It measures the performance

of the banks from each parameter i.e. Capital, Assets, Management, Earnings, Liquidity and

Sensitivity to Market risks. CAMELS evaluate banks on the following six parameters


It is important for a bank to maintain depositors’ confidence and preventing the bank from going

bankrupt. It reflects the overall financial condition of banks and also the ability of management to

meet the need of additional capital. The following ratios measure capital adequacy:

5.1.1 Capital Adequacy Ratio (CAR): Capital adequacy ratio focuses on the total position of

banks' capital and the protection of depositors and other creditors from the potential losses that a

bank might incur. It helps absorbing all possible financial risks related to credit, market, operation,

interest rate and liquidity etc.

Bank

Capital Adequacy Ratio

2013 2014 2015 Average Rank

Premier Bank 11.46% 13.31% 9.11% 12.29% 2

Bank Asia 11.05% 11.32% 13.31% 11.89% 4

Dhaka Bank 12.18 11.20% 10.46% 11.28% 5

Mercantile Bank 11.43% 12.95% 11.87% 12.08% 3

Prime bank 12.04% 12.71% 12.74% 12.49% 1

Table:3.1 (Source: Annual Report 2015)

9.1

1%

13

.31

%

11

.46

%

13

.31

%

11

.32

%

11

.05

%

10

.46

%

11

.20

%

12

.18

%

11

.84

%

12

.95

%

11

.43

%

12

.74

%

12

.71

%

12

.04

%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

2015 2014 2013

Capital AdequacyPremier Bank Bank Asia Dhaka Bank Mercantile Bank Prime bank

30

11

.36

11

.01

9.5

310

.82

9.8

4

10

.2

11

.94

11

.47

10

.13

9.2

7

8.7

2 9.5

1

11

.7

10

.61

10

.43

2 0 1 5 2 0 1 4 2 0 1 3

DEBT-EQUITY RATIO

Premier Bank Bank Asia Dhaka Bank Mercantile Bank Prime bank

Comment: From the above table and charts, it is found that capital adequacy ratio of following

banks is increasing and decreasing over the years. The capital adequacy of Premier Bank was

9.11% in 2015 which is lower than the required rate of 10%. Besides, Bank Asia capital adequacy

increased from 11.05% to 13.31% and Dhaka Bank capital adequacy little bit decreased which

10.46% in 2015 and it is comparatively good position than Premier Bank and Mercantile Bank

capital adequacy ratio fluctuating year to year and at last Prime bank CAR shows positive trends.

Average capital adequacy ratio is finds that Prime bank ranked on the top position with

highest CAR of 12.49 followed by Premier Bank of 12.29, Mercantile Bank of 12.08. and Dhaka

Bank scored the lowest position.

5.1.2 Debt-Equity Ratio

This ratio represents the degree of leverage of a bank. It shows how much proportion of the bank

business is financed through equity and how much through debt.

Bank Debt-Equity Ratio


Premier Bank 9.53 11.01 11.36 10.63 3

Bank Asia 10.20 9.84 10.82 10.28 2

Dhaka Bank 10.13 11.47 11.94 11.18 5

Mercantile Bank 9.51 8.72 9.27 9.16 1

Prime bank 10.43 10.61 11.70 10.91 4


31

Comment: In above table, Mercantile Bank is on the top position with least average of 9.16

followed by Bank Asia of 10.28 and Premier Bank of 10.63. on second and third positions

respectively. Dhaka Bank scored the lowest position with least percentage of 11.18.

5.1.3 Equity to Total Assets

The Equity Ratio measures the proportion of the total assets that are financed by stockholders, as

opposed to creditors. A low equity ratio will produce good results for stockholders as long as the

company earns a rate of return on assets that is greater than the interest rate paid to creditors.

Bank

Equity to Total Assets


Premier Bank 8.97% 8.01% 7.79% 8.25% 4

Bank Asia 8.92% 9.22% 8.45% 8.86% 2

Dhaka Bank 8.23% 8.02% 7.59% 7.94% 5

Mercantile Bank 8.68% 8.02% 8.48% 8.39% 3

Prime bank 9.44% 9.59% 10.47% 9.83% 1

Table: 3.3 (Source: Annual Report 2015)

Comment: From the above table and charts, it is finds that equity to total assets ratio is fluctuating

or increasing and decreasing over the years. The equity to total assets ratio of Premier Bank was

8.97% in 2013 which was decreased to 7.83% in 2015. Besides, Bank Asia equity to total assets

ratio increased 9.22% in 2014 but 2015 it ratio is 8.45% and Dhaka Bank and Mercantile Bank

7.8

3%

8.0

7%

8.9

7%

8.4

5%

9.2

2%

8.4

5%

7.5

9%

8.0

2%

8.2

3%

8.4

8%

8.0

2%

8.6

8%1

0.4

7%

9.5

9%

9.4

4%

2 0 1 5 2 0 1 4 2 0 1 3

EQUITY TO TOTAL ASSETSPremier Bank Bank Asia Dhaka Bank Mercantile Bank Prime bank

32

equity to total assets little bit decreased in 2015 but Mercantile Bank equity to total assets ratio is

10.47% in 2015 which is good position than others four banks.

In table 3.3, Average equity to total assets ratio is finds Prime bank is on the top position with

highest average of 9.83% followed by Bank Asia of 8.70% and Mercantile Bank of 8.39% on

second and third positions respectively. Dhaka Bank scored the lowest position with least

percentage of 7.94%.

5.1.4 Composite Capital Adequacy

On the basis of group averages of two ratios of capital adequacy as expressed in table

Bank

Capital

Adequacy Ratio Debt-Equity Ratio

Equity to Total

Assets Group Rank

Average Rank Average Rank Average Rank Average Rank

Premier Bank 12.29% 2 10.63 3 8.25% 4 3.00 4

Bank Asia 11.89% 4 10.28 2 8.86% 2 2.67 3

Dhaka Bank 11.28% 5 11.18 5 7.94% 5 5.00 5

Mercantile Bank 12.08% 3 9.16 1 8.39% 3 2.33 2

Prime bank 12.49% 1 10.91 4 9.83% 1 2.00 1

Table:3.4

Analysis and Interpretation: On the basis of group averages of three sub-parameters of capital

adequacy, Prime bank was at the top position with group average of 2.00, followed by Mercantile

Bank of 2.33 and Bank Asia of 2.67 on second and third positions respectively. Dhaka Bank stood

at the least position due to its poor performance in CAR, debt-equity ratio and also due equity to

total assets.

5.2.0 Assets Quality

The quality of assets is an important parameter to gauge the strength of bank. The ratios necessary

to assess the assets quality. The most important indicator intends to identify problems with asset

quality in the loan portfolio is the ratio of gross nonperforming loan to total loan.

33

5.2.1 NPLs to Total Loans: A nonperforming loan is either in default or close to being in default.

This ratio represents the proportion of bad loans over total loans. This ratio discloses the efficiency

of bank in assessing the credit risk and, to an extent, recovering the debts.

Bank

NPLs to total loans


Premier Bank 5.73% 9.00% 6.64% 7.12% 5

Bank Asia 5.60% 5.31% 4.26% 5.05% 3

Dhaka Bank 4.15% 5.49% 4.66% 4.74% 1

Mercantile Bank 4.77% 5.10% 4.95% 4.94% 2

Prime Bank 5.09% 7.61% 7.82% 6.84% 4


Comment: In table 3.5, Dhaka Bank is on the top position with least average of 4.74% followed

by Mercantile Bank of 4.94% and Bank Asia of 5.05% on second and third positions respectively.

Premier Bank scored the lowest position with highest percentage of 7.12%.

6.6

4%

9.0

0%

5.7

3%

4.2

6% 5

.31

%

5.6

0%

4.6

6% 5.4

9%

4.1

5%4.9

5%

5.1

0%

4.7

7%

7.8

2%

7.6

2%

5.0

9%

2 0 1 5 2 0 1 4 2 0 1 3

NPLS TO TOTAL LOANS Premier Bank Bank Asia Dhaka Bank Mercantile Bank Prime bank

34

5.2.2 Total Investments to Total Assets (TI/TA): It indicates the extent of deployment of assets

in investment as against advances.


Comment: From the above table and charts, it is found that total investments to total assets ratio

is fluctuating or increasing and decreasing over the years. In table 3.6, Dhaka Bank is on the top

position with least average of 12.39% followed by Mercantile Bank of 19.45% and Premier Bank

of 19.89% on second and third positions respectively. Prime bank scored the lowest position with

highest percentage of 26.90%.

Bank

Total Investments to Total Assets


Premier Bank 22.51% 18.58% 18.58% 19.89% 3

Bank Asia 20.71% 21.16% 20.92% 20.90% 4

Dhaka Bank 12.98% 12.40% 11.79% 12.39% 1

Mercantile Bank 20.77% 19.10% 18.50% 19.45% 2

Prime bank 23.34% 28.49% 24.87% 26.90% 5

18.58%

18.58%

22.51%

20.92%

21.16%

20.71%

11.79%

12.40%

12.98%

18.50%

19.10%

20.77%

24.87%

28.49%

23.34%

2015

2014

2013

Total Investments to Total Assets

Prime bank Mercantile Bank Dhaka Bank Bank Asia Premier Bank

35

5.2.3 Composite Asset Quality

Bank

NPLs to total

loans

Total Investments to Total

Assets Group Rank

Average Rank Average Rank Average Rank

Premier Bank 7.12% 5 19.89% 3 4 4

Bank Asia 5.05% 3 20.90% 4 3.5 3

Dhaka Bank 4.74% 1 12.39% 1 1 1

Mercantile Bank 4.94% 2 19.45% 2 2 2

Prime bank 6.84% 4 26.90% 5 4.5 5


Analysis and Interpretation: On the basis of group averages of two ratios of assets quality as

expressed in table 3.7, Dhaka Bank was at the first position with group average of 1, followed by

Mercantile Bank of 2 and Bank Asia of 3.5. Prime bank scored the lowest position with 4.5 rank

due to its poor performance in net NPLs to total loans and total investments to total assets ratios.


Management efficiency is another important element of the CAMELS Model. The ratio in this

segment involves subjective analysis to measure the efficiency and effectiveness of management.

The ratios used to evaluate management efficiency are described as:

36

5.3.1 Credit Deposit Ratio (TA/TD): This ratio indicates how much of a bank's core funds are

being used for lending, the main banking activity. A higher ratio indicates more reliance on

deposits for lending and vice-versa.

Bank

Credit Deposit Ratio


Premier Bank 70.76% 77.21% 83.87% 77.28% 4

Bank Asia 78.59% 82.92% 80.31% 80.60% 3

Dhaka Bank 84.22% 81.26% 84.74% 83.40% 1

Mercantile Bank 77.02% 83.33% 81.58% 80.64% 2

Prime bank 76.07% 71.94% 77.95% 75.32% 5


Comment: From the above table and charts, it is finds that credit deposit ratio ratio is fluctuating

or increasing and decreasing over the years. In table 3.8, Dhaka Bank is on the top position with

highest average of 83.40% followed by Mercantile Bank of 80.64% and Bank Asia of 80.60% on

second and third positions respectively. Prime bank scored the lowest position with least

percentage of 75.32%.

83

.87

%

77

.21

%

70

.76

%

80

.31

%

82

.92

%

78

.59

%84

.74

%

81

.26

%

84

.22

%

81

.58

%

83

.33

%

77

.02

%

77

.95

%

71

.94

%

76

.07

%

60.00%

65.00%

70.00%

75.00%

80.00%

85.00%

90.00%

2015 2014 2013

Credit Deposit Ratio


37

5.3.2 Profit per Employee: It is calculated by dividing the profit after tax earned by the bank with

the total number of employees. The higher the ratio, higher is the efficiency of the management

and vice versa.

Bank

Profit per Employee


Premier Bank 1.19 1.34 1.43 1.32 5

Bank Asia 3.38 3.26 3.27 3.30 1

Dhaka Bank 2.10 2.14 2.30 2.18 3

Mercantile Bank 2.35 2.25 1.86 2.15 4

Prime bank 2.76 2.15 2.01 2.30 2


Comment: In table 3.9, Profit per Employee of Bank Asia is on the top position with highest

average of 3.30 followed by Prime bank of 2.30 and Dhaka Bank of 2.81 on second and third

positions respectively. Premier Bank scored the lowest position with least percentage of 1.32.

0

0.5

1

1.5

2

2.5

3

3.5

2015 2014 2013

1.4

3

1.3

4

1.1

9

3.2

7

3.2

6

3.3

8

2.3

2.1

4

2.1

1.8

6

2.2

5

2.3

5

2.0

1

2.1

5

2.7

6Profit per Employee


38

5.3.3 Composite Management Efficiency:

Bank

Credit Deposit

Ratio Profit per Employee Group Rank

Average Rank Average Rank Average Rank

Premier Bank 77.28% 4 1.32 5 4.5 4

Bank Asia 80.60% 3 3.30 1 2.00 1

Dhaka Bank 83.40% 1 2.18 3 2.00 1

Mercantile Bank 80.64% 2 2.15 4 3.00 2

Prime bank 75.32% 5 2.30 2 3.50 3


Analysis and Interpretation: On the basis of group averages of two ratios of management quality

as expressed in table 3.10, Dhaka Bank and Bank Asia was at the first position with group average

of 1, followed by Mercantile Bank of 2. Premier Bank scored the lowest position with 4 rank due

to its poor performance in credit deposit ration and Profit per employee ratios.


The quality of earnings is a very important criterion that determines the ability of a bank to earn

consistently. It basically determines the profitability of bank and explains its sustainability and

growth in earnings in future. The following ratios explain the quality of income generation.

39

5.4.1 Return on Equity: It is a measure of the profitability of a bank. In calculation of this ratio,

Profit after tax is expressed as a percentage of equity.

Bank Return on Equity(%)


Premier Bank 9.84% 9.75% 9.39% 9.66% 4

Bank Asia 10.55% 14.09% 14.36% 13.00% 2

Dhaka Bank 16.21% 15.92% 10.74% 14.29% 1

Mercantile Bank 16.84% 9.11% 9.60% 11.85% 3

Prime bank 8.35% 10.08% 8.41% 8.94% 5


Comment: In table 3.11, Return on equity of Dhaka Bank is on the top position with highest

average of 14.29% followed by Bank Asia of 13.00% and Mercantile Bank of 11.85% on second

and third positions respectively. Prime Bank scored the lowest position with least percentage of

8.94%.

0.00%

5.00%

10.00%

15.00%

20.00%

2015 2014 2013

9.3

9%

9.7

5%

9.8

4%

14

.36

%

14

.09

%

10

.55

%

10

.74

%

15

.92

%

16

.21

%

9.6

0%

9.1

1%

16

.84

%

8.4

1%

10

.08

%

8.3

5%

Return on Equity(%)


40

5.4.2 Return on Assets: Return on assets (ROA) is an indicator of how profitable a company is

relative to its total assets. ROA gives an idea as to how efficient management is at using it assets

to generate earning.

Bank Return on Assets (%)


Premier Bank 0.87% 0.87% 0.79% 0.84% 5

Bank Asia 0.96% 1.28% 1.26% 1.16% 2

Dhaka Bank 1.39% 1.34% 0.86% 1.19% 1

Mercantile Bank 1.33% 0.76% 0.79% 0.96% 3

Prime bank 0.76% 0.96% 0.84% 0.85% 4


Comment: In table 3.12, Return on Assets of Dhaka Bank is on the top position with highest

average of 1.19% followed by Bank Asia of 1.16% and Mercantile Bank of 0.96% on second and

third positions respectively. Premier Bank scored the lowest position with least percentage of

0.84%.

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

2015 2014 2013

0.7

9%

0.8

7%

0.8

7%

1.2

6%

1.2

8%

0.9

6%

0.8

6%

1.3

4%

1.3

9%

0.7

9%

0.7

6%

1.3

3%

0.8

4%

0.9

6%

0.7

6%

Return on Assets (%)


41

5.4.3 Cost to Income Ratio/ Efficiency Ratio: Cost-to-income ratio is important for determining

the profitability of a bank. The ratio gives a clear view of how efficiently the bank is being run -

the lower the ratio, the more profitable the bank.

Bank Cost to Income Ratio


Premier Bank 64.64 64.14 63.20 64.00 5

Bank Asia 36.53 40.34 41.84 39.57 1

Dhaka Bank 42.38 44.47 47.77 44.87 2

Mercantile Bank 41.66 44.84 50.46 45.65 3

Prime bank 41.98 48.29 51.08 47.11 4


Comment: In table 3.13, Cost to income ratio of Bank Asia is on the top position with least average

of 39.57 followed by Dhaka Bank of 44.87 and Mercantile Bank of 45.65 on second and third

positions respectively. Premier Bank scored the lowest position with highest average of 64.00.

0

10

20

30

40

50

60

70

2015 2014 2013

63

.2

64

.14

64

.64

41

.84

40

.34

36

.53

47

.77

44

.47

42

.385

0.4

6

48

.84

41

.66

51

.08

48

.29

41

.98

Cost to Income Ratio


42

5.4.4 Composite Earning Quality:

Bank

Return on

Equity(%)

Return on Assets

(%)

Cost to Income

Ratio Group Rank

Average Rank Average Rank Average Rank Average Rank

Premier Bank 9.66% 4 0.84% 5 64.00 5 4.66 5

Bank Asia 13.00% 2 1.16% 2 39.57 1 1.66 2

Dhaka Bank 14.29% 1 1.19% 1 44.87 2 1.33 1

Mercantile Bank 11.85% 3 0.96% 3 45.65 3 3.00 3

Prime bank 8.94% 5 0.85% 4 47.11 4 4.33 4


Analysis and Interpretation: On the basis of group averages of three ratios of earning quality as

expressed in table 3.14, Dhaka Bank was at the first position with group average of 1.33 followed

by Bank Asia of 1.66 and Mercantile Bank of 3.00 on second and third positions respectively.

Premier Bank scored the lowest position with 4.66 average due to its poor performance in return

on assets and cost to income ratio.

5.5.0 Liquidity

Risk of liquidity can have an effect on the image of bank. Liquidity is a crucial aspect which

reflects bank’s ability to meet its financial obligations. An adequate liquidity position means a

situation, where organization can obtain sufficient liquid funds, either by increasing liabilities or

by converting its assets quickly into cash.

43

5.5.1 Liquid Assets to Total Assets: This ratio measures the overall liquidity position of the bank.

The liquid assets include cash in hand, money at call and short notice, balance with other banks

and financial institutions (Home and Abroad).

Bank Liquid Assets to Total Assets(%)


Premier Bank 6.14% 12.14% 7.59% 8.62% 2

Bank Asia 6.71% 6.56% 10.84% 8.03% 4

Dhaka Bank 10.29% 14.41% 14.21% 12.97% 1

Mercantile Bank 7.80% 8.07% 9.86% 8.57% 3

Prime bank 7.63% 7.47% 7.89% 7.66% 5


Comment: In table 3.15, liquid assets to total assets ratio of Dhaka Bank is on the top position

with highest average of 12.97 followed by of Premier Bank of 8.62% and Mercantile Bank of

8.57% on second and third positions respectively. Premier Bank scored the lowest position with

least percentage of 7.66%.

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

2015 2014 2013

7.5

9%

12

.14

%

6.1

4%

10

.84

%

6.5

6%

6.7

1%

14

.21

%

14

.41

%

10

.29

%

9.8

6%

8.0

7%

7.8

0%

7.8

9%

7.4

7%

7.6

3%

Liquid Assets to Total Assets(%)


44


The sensitivity of the market risk is evaluated by banks through changes in interest rate, foreign

exchange rates and equity prices. sensitivity to market risk measures how adversely the bank is

affected by such changes.

5.6.1 Price Earnings Ratio: The Price Earnings ratio gives an idea of what the market is willing

to pay for the company’s earnings. The higher the Price Earnings ratio the more the market is

willing to pay for the company’s earnings.

Bank Price earnings ratio (times)


Premier Bank 7.12 6.33 5.24 6.23 5

Bank Asia 12.04 5.74 5.38 7.72 2

Dhaka Bank 5.28 5.13 8.57 6.32 4

Mercantile Bank 5.57 8.52 5.68 6.59 3

Prime bank 14.57 8.43 8.71 10.57 1


Comment: In table 3.15, Price earnings ratio of Prime bank is on the top position with highest

average of 10.57 followed by Prime bank of 7.72 and Mercantile Bank of 6.59 on second and third

positions respectively. Premier Bank scored the lowest position with least percentage of 6.23.

0

2

4

6

8

10

12

14

16

2015 2014 2013

5.2

4 6.3

3

7.1

2

5.3

8

5.7

4

12

.04

8.5

7

5.1

3

5.2

8

5.6

8

8.5

2

5.5

7

8.7

1

8.4

3

14

.57

Cost to Income Ratio


45

5.7.0 Composite Ranking (Overall Performance)

Bank C A M E L S Average Rank

Premier Bank 4 4 4 5 5 5 4.5 5

Bank Asia 3 3 1 2 3 2 2.33 2

Dhaka Bank 5 1 1 1 1 4 2.16 1

Mercantile Bank 2 2 2 3 2 3 2.5 3

Prime bank 1 5 3 4 4 1 3 4

Table:3.17

Analysis and Interpretation: Table 3.17 depicts the group ranking of five commercial bank of

Bangladesh for the period of 2013-2015 and results are presented in the above table. It shows that

under the capital adequacy ratio, Prime bank and Mercantile Bank were at the top position, while

Dhaka Bank got lowest rank. Under the asset quality parameter, Dhaka Bank hold the top rank

while Prime bank hold the lowest rank. Under management efficiency parameter it is observed

that the top rank was taken by Dhaka Bank and the lowest rank by Premier Bank. In terms of

earning quality parameter, the capability of Dhaka Bank got the top rank in the list while Premier

Bank was at the lowest position. Under the liquidity parameter, Dhaka Bank stood on the top

position and Premier Bank was on the lowest position. And lastly, for the sensitivity to market

risk, Prime Bank stood on the top position and Premier Bank was at the lowest position.

The analysis of the above table reveals that Dhaka Bank secured the top position in terms of overall

composite ranking followed by Bank Asia and Mercantile Bank on second and third positions

respectively. Premier Bank and Prime Bank secured the most bottom position.

CHAPTER SIX

Finding, Recommendation and Conclusion

6.1.0 Objectives, Findings and Recommendations

6.2.0 Conclusion

46

6.1.0 Objectives, Findings and Recommendations

In the process of evaluation of the performance of various banks I have obtained different

performances with respect to CAMELS ratios. The study has brought many interesting objectives,

finding and recommendation some of which are mentioned as below:

Objective 1: To explore about CAMELS rating framework.

Finding 1: The CAMELS rating system is to evaluate a bank’s level of risk and overall condition.

Study find out the camels rating framework through capital, assets quality, management quality,

earnings, liquidity and sensitivity to market risk of the bank. Capital adequacy, as in the quality

and amount of capital a bank can access. Asset quality, which looks at a bank’s credit and how it

identifies risk. Management quality is concerned with the quality of a bank’s support and

oversight. Earnings, which explores how stable a bank’s earnings are. Liquidity refers to how

quickly a bank can turn assets into cash and sensitivity to market risk, which explores how sensitive

the bank’s earnings is to adverse developments in the market, such as a sudden change in interest

rate. The system helps regulators identify banks that are in trouble. Each factor receives a rating

between 1 and 5, with 1 being the best score. Bangladesh bank follows international rules to

calculate camels rating to measure the financial performance of banks and assessing the banks

soundness more accurately.

Recommendation 1: Bangladesh bank should make regular adjustments and update the camels

rating framework guideline to all banks of the Bangladesh. Bangladesh Bank or regulatory

authority should regularly practice camels rating to measure the financial performance of banks

as well as to mitigate adverse situation of the financial institution.

Objective 2: To understand the financial performance of the banks.

Objective 2.1: To understand the capital adequacy of the banks.

Finding 2.1: Capital adequacy reflects the overall financial condition of the bank and also the

ability of the management to meet the need for additional capital. Average capital adequacy ratio

is finds that Prime bank ranked on the top position with highest CAR of 12.49 followed by Premier

Bank of 12.29, Mercantile Bank of 12.08. and Dhaka Bank scored the lowest position. All the

five banks have succeeded in maintaining CAR at a higher level than the prescribed level 10%.

47

Recommendation 2.1: The studies have shown that Dhaka bank, capital adequacy ratio is

continuously decreasing which are not a good sign for a bank so they have to improved capital

adequacy ratio.

Objective 2.2: To understand the debt equity ratio of the banks.

Finding 2.2: Debt equity ratio shows how much proportion of the bank business is financed

through equity and how much through debt. According to the analysis, Mercantile Bank is on the

top position with least average of 9.16 followed by Bank Asia of 10.28 and Premier Bank of

10.63. on second and third positions respectively. Dhaka Bank scored the lowest position with

least percentage of 11.18.

Recommendation 2.2: In Dhaka bank, debt equity ratio is continuously rising over the years

which are not a good sign so they have to increase equity or reduce debts in their capital structure.

Objective 2.3: To understand the Non-performing loans to total loans ratio of the bank.

Finding 2.3: Non-performing loans to total loans ratio disclose the efficiency of the bank in

assessing the credit risk and, to an extent, recovering the debts. According to ratio the Dhaka Bank

is on the top position with least average of 4.74% followed by Mercantile Bank of 4.94% and Bank

Asia of 5.05% on second and third positions respectively. Premier Bank scored the lowest position

with highest percentage of 7.12%.

Recommendation 2.3: In Premier bank, Non-performing loans to total loans ratio are

continuously raising over the years which are not good so they have to conscious to providing a

loan.

Objective of the study 2.4: To understand the Credit deposit ratio of the banks.

Finding 2.4: Credit deposit ratio indicates how much of a bank's core funds are being used for

lending, the main banking activity. A higher ratio indicates more reliance on deposits for lending

and vice-versa. According to study credit deposit ratio is fluctuating or increasing and decreasing

over the years. Dhaka Bank is on the top position with highest average of 83.40% followed by

Mercantile Bank of 80.64% and Bank Asia of 80.60% on second and third positions respectively.

Prime bank scored the lowest position with least percentage of 75.32%.

48

Recommendation 2.4: In Prime bank, Credit deposit ratios less than other four banks so bank

management should to be conscious of this area.

Objective 2.5: To understand the return on equity ratio of the bank.

Finding 2.5: Return on equity measures of the profitability of a bank. Return on equity of Dhaka

Bank is on the top position with the highest average of 14.29% followed by Bank Asia of 13.00%

and Mercantile Bank of 11.85% on second and third positions respectively. Prime Bank scored

the lowest position with least percentage of 8.94%.

Recommendation 2.5: The studies have shown that Prime bank and Premier Bank return on equity

is continuously decreasing over the years which are not good so they have to improve return on

equity.

Objective 2.6: To understand the Liquid assets to total assets ratio of the bank.

Finding 2.6: Liquid assets to total assets ratio measure the overall liquidity position of the bank.

liquid assets to total assets ratio of Dhaka Bank is on the top position with the highest average of

12.97% followed by Premier Bank of 8.62% and Mercantile Bank of 8.57% on second and third

positions respectively. Premier Bank scored the lowest position with least percentage of 7.66%.

Recommendation 2.6: The studies have shown that Prime Bank Liquid assets to total assets ratio

are continuously decreasing over the years which are not good so they have to improve Liquid

assets to total assets ratio.

Objective 3: To describe the CAMELS model of ranking, banking institutions, so as to

analyze the comparative of various banks.

Finding 3: The overall performance of camels rating it is found that under the capital adequacy

ratio parameter Prime bank and Mercantile Bank were at the top position, while Dhaka Bank got

the lowest rank. Under the asset quality parameter, Dhaka Bank held the top rank while Prime

bank held the lowest rank. Under management efficiency parameter it is observed that top rank

was taken by Dhaka Bank and lowest rank by Premier Bank. In terms of earning quality parameter,

the capability of Dhaka Bank got the top rank in the list while Premier Bank was at the lowest

position. Under the liquidity parameter, Dhaka Bank stood on the top position and Premier Bank

49

was on the lowest position. And lastly, for the sensitivity to market risk, Prime Bank stood on the

top position and Premier Bank was at the lowest position.

Recommendation 3: The studies have shown that Dhaka bank, capital adequacy ratio is

continuously decreasing over the years which are not good so they have to improved capital

adequacy ratio. Prime bank and Premier Bank return on equity is low than other banks. Because

the management cannot utilize its equity efficiently like other banks. So Bank has to take this

aspect into consideration.

Objective 4: To analyze 5 banks to get the desired results by using CAMELS as a tool of

measuring performance.

Finding 4: In the study using CAMELS model, it is revealed that Dhaka Bank secured the top

position in terms of overall composite ranking followed by Bank Asia and Mercantile Bank on

second and third positions respectively. Premier Bank and Prime Bank secured the most bottom

position.

Recommendation 4: In the study using camels model, it is revealed that Premier Bank and Prime

Bank Unsatisfactory position. Such performance indicates weakness, threatens the viability of the

institution. So bank management should be aware of it.

6.2.0 Conclusion

Camels rating is a common phenomenon for all banking system all over the world. Camels rating

provides a measurement of banks current overall financial, managerial, and operational and

compliance performance. Regulators of the banking sector always monitor the performance of the

banks to ensure efficient financial system based on camels rating model. Various studies have been

conducted on banks using camels framework. In the process of evaluation of the performance of

various banks, our study concluded that different banks have obtained different performances with

respect to camels ratios.

50

References

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DR. Mikail Altan, Habib Yusufazari, Aykut Beduk. 2014. "Performance analysis of banks in

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Gupta, CA. Ruchi. 2014. "An analysis of Indian public sector banks using camel approach."

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Iqbal, M. J. 2012. "Banking Sector's Performance In Bangladesh An Application Of Selected

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Prasuna. 2003. "Analyzed the performance of 65 Indian banks according to the CAMEL Model."

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