Group 2 - Brac Bank
Group 2 - Brac Bank
Assignment on
Fundamentals of Banking (FCC 302)
Topic : Report on a scheduled banking company (BRAC Bank Limited)
Submitted to:
Session: 2017-2018
As the competition is increasing, the commercial Banks are constantly looking for scope
to develop credit operation and performance appraisal to the market. However tight
control on the part of the Central Bank, Bangladesh Bank restricts the scope for
maneuvering in the market with new performance and credit operation. Therefore, bank
require finding out untapped market space for growth.
Moreover, in these liquidity crunch times, it is crucial for banks to be able to perform
efficiently and effectively. If the bank is not being able to perform than the bank might
no bankrupt which would have a significant impact on the economy.
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A. Prefatory Part : Page
1.1 Executive Summary 1
1.2 Introduction 2
B. Financial Analysis :
Ratio Analysis
Horizontal Analysis 18
Vertical Analysis 19
Table of content
Introduction
Brac Bank Limited is a full service scheduled commercial bank. It has both local and
International Institutional shareholder. The bank is primarily driven with a view of creating
opportunities and pursuing market niches not traditionally meet by conventional banks. BRAC
Bank has been motivated to provide “best-in-the-class” services to its diverse assortment of
customers spread across the country under an on-line banking dais.
Today, BRAC Bank is one of the fastest growing banks in the country. In order to support the
planned growth of its distribution, network and its various business segments, BRAC Bank is
currently looking for impressive goal oriented, enthusiastic, individuals for various business
operations.
The bank wants to build a profitable and socially responsible financial institution. It carefully
listen to the market and business potentials, It is also assisting BRAC and stakeholders to build a
progressive, healthy, democratic and poverty free Bangladesh. It helps make communities and
economy of the country stronger and to help people achieve their financial goals. The bank
maintains a high level of standards in everything for our customers, our shareholders, our
acquaintances and our communities upon, which the future affluence of our company rests.
BRAC Bank Limited began its journey on July 4, 2001 with the vision to provide banking
solutions to the unbanked Small and Medium Entrepreneurs. The Bank introduced small ticket
loans to the small and medium enterprises (SME), taking inspiration from its parent organization,
BRAC, world’s largest NGO. The visionaries of the bank realized that Small and Medium
Enterprises those are neglected play a great role in growth of the economy as well as creating
employment which led the establishment of the bank. At a time when it was almost impossible
for the SME entrepreneurs to get financing from the banking sector in Bangladesh, BRAC Bank
stepped forward and came to finance these unbanked SME entrepreneurs. BRAC Bank is a
performance driven dynamic organization, where its values founded at the core of each and
every activity as pillars. It is the only member of the Global Alliance for Banking on Values
(GABV) from Bangladesh. The Global Alliance comprises of 48 (as of May 2018) financial
institutions operating in countries across Asia, Africa, Australia, Latin America, North America
and Europe - serving more than 41 million customers, holding up to USD 127 billion of
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combined assets under management and powered by a network of 48,000 co-workers. Its
corporate vision is building a profitable and socially responsible financial institution focused on
market and business with growth potential, thereby assisting BRAC and its stakeholders to build
a just, enlightened, healthy democratic and poverty free Bangladesh. Its corporate missions are
sustainable growth in Small & Medium Enterprise sector; continuous low-cost deposit growth
with controlled growth in retail assets; corporate assets to be funded through self-liability
mobilization; growth in assets through syndications and investment in faster growing sectors;
continuous endeavor to increase non-funded income; keep its debt charges at 2% to maintain a
steady profitable growth; achieve efficient synergies between the bank’s branches, SME unit
offices and BRAC field offices for delivery of remittance and the bank’s other products and
services; manage various lines of business in a full controlled environment with no compromise
compliance and on service quality; keep a diverse, far flung team fully motivated and driven
towards materializing the bank’s vision into reality. Boards of Directors are DR.AHSAN H.
MANSUR, CHAIRMAN; NIHAD KABIR, NOMINATED DIRECTOR; KAZI MAHMOOD
SATTAR, INDEPENDENT DIRECTOR; KAISER KABIR, NOMINATED DIRECTOR; ASIF
SALEH, NOMINATED DIRECTOR, FAHIMA CHOUDHURY, INDEPENDENT
DIRECTOR, FARZANA AHMED, INDEPENDENT DIRECTOR, SELIM R.F. HUSSAIN,
MANAGING DIRECTOR & CEO. Its subsidiaries are:
Loans
Corporate
SME
Deposit
Retails
Loan
Credit Secured Loans/ Personal loans Personal Loan Auto Personal Loan Home Loan
Overdraft for Landlord for Doctors Loan
Cards
Deposit
Scheme
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Letter of Letter of
Credit Certificate
(LC) (LC)
OBU
Loan
Overdraft
Non-funded
Term Loan Facilities
Lease Services
Financing
Trade
Finance
Bill
Purchase
Project
Finance
Commercial
Paper/Bond
Deposit
Page 6
Financial Analysis
Profitability Ratios
Return on Assets (ROA):
The return on assets (ROA) percentages shows how profitable a company’s assets are in
generating revenue. Higher the percentages of return, higher the efficiency of assets.
Return on Assets
2.00% 1.83%
1.66%
1.80%
1.55%
1.60%
1.40%
1.20% 1.02%
0.93%
1.00%
0.80%
0.60%
0.40%
0.20%
0.00%
2014 2015 2016 2017 2018
Comment: From the above calculation, we see that Return on Asset increased gradually from
the year 2014 to 2017 and ROA has increased from 0.93% to 1.83% in these years. But ROA has
fallen in the year 2018 which was 1.66%. A low percentage ROA indicates that the company is
not making enough income from the use of its assets. That means assets of the bank was
effectively used in the years 2014, 2015, 2016 and 2017 but it failed to use its assets effectively
in the year 2018 and that’s why they can’t make enough income.
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Return on Equity (ROE):
Return on Equity (ROE) is the amount of net income returned as a percentage of shareholders’
equity. The return on equity ratio, sometimes called return on net worth, is the most important of
the entire profitability ratio for investors in the company.
Return on Equity (ROE) : Net Income after Tax/ Total Equity Capital
Return on Equity
25.00%
21.30%
18.33% 17.94%
20.00%
10.00%
5.00%
0.00%
2014 2015 2016 2017 2018
Comment: From the above calculation, we see that Return on Equity increased gradually from
the year 2014 to 2017 and ROE has increased from 11.34% to 21.30% in these years. But ROE
has fallen in the year 2018 which was 17.94%. As we know, a ROE of around 15% would be
considered healthy, and one that is 20% or higher would be good or we can say that ROE
between 15%-20% are generally considered good. So though BRAC Bank’s ROE has fallen in
the year 2018, it is in the range of 15%-20%.
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Earning Per Share (EPS) :
A company’s profit divided by it numbers of common outstanding shares. In calculating EPS, the
company often uses a weighted average of shares outstanding over the reporting term.
Earning per Share = Net income after Tax / Common Equity Shares Outstanding
4.00 3.43
3.19
3.00
2.00
1.00
0.00
2014 2015 2016 2017 2018
Comment: From the above calculation, we see that Earning Per Share (EPS) increased
gradually from the year 2014 to 2016 and EPS has increased from 3.19 to 5.23 in these years.
But EPS has fallen in the year 2017 which was 4.91 and then in the year 2018 EPS has increased
by 5.17. The higher the EPS of a company, the better is its profitability. As the maximum EPS of
BRAC Bank was in the year 2016 and 2018, so we can say that BRAC Bank has earned better
profitability in 2016 and 2018.
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Liquidity Ratio
Current Ratio:
Current Ratio measures the ability of the company to pay the current liabilities which are payable
within the period of next one year with respect to its current assets available like cash,
inventories, and accounts receivable. The higher is the current ratio, the better is the liquidity
position of the company.
Current Ratio
1.06 1.06
1.06 1.05 1.05
1.05
1.04
1.03 1.02
1.02
1.01
1
2014 2015 2016 2017 2018
Comment: A good current ratio is between 1.2 to 2.If the ratio is 2, which means that the
business has 2 times more current assets than liabilities to covers its debts. In case of BRAC
Bank the ratio remained between 1.02 to 1.06 between the year 2014-2018.Though it stared low
but at the end of 2018 it reached 1.06 which is between the standard ratio. They have a good
ability to pay company’s current liabilities.
Cash Ratio:
The Cash ratio measures the ability of the company to pay the current liabilities which are
payable within the period of next one year with respect to its cash or cash equivalents. It assesses
the ability of the company to stay solvent if there comes any emergency as even a highly
profitable company sometimes can go into trouble in case if no liquidity is there to meet
unforeseen events like economic depression.
Cash Ratio = (Cash and Cash Equivalent + Short term Investments) / Current Liability
Cash Ratio
0.23 0.23
1.06 0.22 0.25
1.05
1.04
1.03
0.26
1.02
1.01
1
2014 2015 2016 2017 2018
Comment: There is no ideal figure, but a ratio of at least 0.5 to 1 is usually preferred. BRAC
Bank has Ratio lower than 0.5.A cash ratio lower than 0.5 does sometimes indicate that a
company is at risk of having financial difficulty. However, a low cash ratio may also be an
indicator of a company's specific strategy that calls for maintaining low cash reserves because
funds are being used for expansion.
Efficiency Ratios
This ratio provides a measure of overall investment efficiency by totaling the joint impact of
both short term and long term assets.
0.077 0.075
0.075
Comment: From the above calculation, we see that the Total Assets Turnover ratio increased
gradually from the year 2014 to 2017 and the ratio has increased from 0.072 to 0.077 in these
years. But the ratio has fallen in the year 2018 which was 0.073.That means, assets of the bank
was effectively used in the years 2014, 2015, 2016 and 2017 but it failed to use its assets
effectively in the year 2018.
This turnover ratio reflects the amount of operating capital needed to maintain a given level of
revenue. Only operating assets and liabilities should be used to compute this ratio.
0.7
0.6 1 1
1 1
0.5 1
0.4
0.3
0.2
0.1
0
2013.5 2014 2014.5 2015 2015.5 2016 2016.5 2017 2017.5 2018 2018.5
Comment: From the above chart, we see that the working capital ratio of Brac Bank ltd.
gradually increased from 0.53 to 0.59 in the year 2014, 2015, 2016. But it decreased in the year
2017 and 2018 which were 0.58 and 0.48.It means the bank has utilized its working capital very
efficiently in the year 2014, 2015 and 2016. But it has failed to operate at its optimum in the year
2017 and 2018, as a result the ratio has been decreased in the year 2017 and 2018 respectively.
Page 13
Solvency Ratios
The debt to total assets ratio is an indicator of a company's financial leverage that determines
the percentage of a company's total assets that were financed by creditors.
0.92% 0.912%
0.908% 0.908%
0.91%
0.903%
0.90%
0.884%
0.89%
0.88%
0.87%
2014 2015 2016 2017 2018
Comments: A debt ratio of 0.5 is often considered to be less risky. This means the bank has
twice as many assets as liabilities. A ratio of 1 means that total liabilities equals total assets. In
other words, the bank would have to sell off all of its assets in order to pay off its liabilities.
Once its assets are sold off, the business no longer can operate. In 2014, the ratio was on a poor
level because it was 0.903% and the ratio was close to 1.Gradually on 2015, 2016, 2017 ratios
were .908% , .912% , .908% again on a poor level as the ratios remains close to 1. Also in
2018
2018 (0.884%)
(0.884%)the
theratio
ratiodecreased
decreasedlittle bitbit
little butbut
again remained
again on aon
remained poor levellevel
a poor becaubecause it still
remained above 0.5.
Page 14
Debt to Equity Ratio :
The debt to equity ratio reflects the ability of shareholder equity to cover all outstanding debts in
the event of a business downturn.
12.00% 11.041%
10.406% 10.522%
9.828%
10.00% 8.974%
8.00%
6.00%
4.00%
2.00%
0.00%
2014 2015 2016 2017 2018
Comments: The ratio highlights a company's dependence on borrowed funds and its ability to
meet those financial obligations. Lower values of debt-to-equity ratio are favorable indicating
less risk and higher debt-to-equity ratio is unfavorable because it means that the business relies
more on external lenders thus it is at higher risk, especially at higher interest rates. On 2014 the
debt-to-equity ratio was 9.828% which increased gradually to 10.406%,11.041% and 11.041%
on following year 2014,2015,2016. An increasing trend in of debt-to-equity ratio is alarming
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because it means that the percentage of assets of a business which are financed by the debts is
increasing. But on 2018,the ratio decreases to 8.974%, the lowest comparing to the other 4 years
which means the ratio is less risky than the previous years.
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Capital Adequacy Ratio
Capital adequacy ratio is a measure to find out the proportion of banks capital, with respect to the
total risk-weighted assets of the bank. The credit risk attached to the assets depends on the entity
the bank is lending loans to, for example, the risk attached to lending loan to the government is
0% but the amount of loan lends to the individuals are very high in percentage.
Capital Adequacy Ratio (CAR) = (Tier 1 capital + Tier 2 capital) / Risk Weighted Assets
CAR
15.12%
12.29%
12.06% 15.70%
11.97%
0.00%
Year
2014
2015
2016
2017
2018
Comment: As per a roadmap issued by the Bangladesh Bank in 2014, the banks were supposed to raise
their minimum capital adequacy ratio (CAR) to 12.5&of their risk-weighted assets by December 2019
from the then 10 percent and under Basel III, the minimum total capital ratio is 12.9%. So, it can be said
that BRAC Bank is ready for Basel III .
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2018 2017 2016
PROPERTY AND ASSETS BDT’M % BDT’M % BDT’M %
Cash 22,375 22% 18,284 16% 15,821 -2%
Balance with other Banks & financial 14,879 -23% 19,396 26% 15,367 -
institute 31%
Money at Call & Short Notice - - -
Investments 25,765 3% 24,966 11% 22,488 14%
Loans & Advances 238,008 185 202,559 17% 173,612 18%
Fixed Assets including Premises, Furniture 4,301 1% 4,275 37% 3,113 6%
& Fixtures
Other Assets 10,023 4% 9,642 -47% 18,142 15%
Non-Banking Assets 66 5% 63 2% 62 0%
Total Property & Assets 315,417 13% 279,187 12% 248,605 11%
Comment: Vertical analysis is the proportional analysis of a financial statement, where each line item on a
financial is listed as a percentage of another item. On the asset side, we can see that Cash, Investment (Loans),
Fixed Asset, and other asset have been increasing for the last three years. In the Liability side, we can see that
borrowing from the central bank increased but borrowing from other banks decreased simultaneously. On the
other hand, bank deposit has been increasing for the last three years which brings positive indication for the
bank also. So, in a nutshell, we can say that as Bank's Asset is increasing and there is a good harmony between
asset and liability, Bank's financial situation is very strong and has a strong position in the market.
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Economic Value Added
Economic value-added statement is a statement which shows the surplus generated by an entity
after meeting the cost of total invested equity. Here cost of total invested equity means the
equitable charge towards providers of capital. Organizations which earn higher returns than the
cost of capital are able to add value to the entity and vice-versa.
Economic
Value Added 2655 2873 3187 4257 4688
(EVA)
0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000
Comment: The EVA shows the success of management of the firm. From the above chart, it can
be seen that BRAC bank is really successful in producing value from the capital invested as the
surplus generated by them after meeting the cost is positive and gradually increasing. Last but
not least, BRAC Bank are sincerely concerned for ensuring value to all of their equity providers.
Market value added analysis is a reflection of the company’s performance evaluated by the
market through the equity of the company. It is a measure that shows how the market has judged
the company’s performance in terms of market value of shares compared to book value of shares.
(BDT in millions)
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90000 83,811
80000
67,246
70000
60000
50000
38,506
40000
27,449
30000
19,293
20000
10000
0
2014 2015 2016 2017 2018
Comment: A positive MVA is a better indication of performance and it shows that the company
can add value to shareholders wealth. A negative MVA is an indication that the value of
management’s actions and investments are less than the value of the capital contributed to the
company by the capital market. On 2014, the market value addition of Brac Bank Ltd was BDT
19,293 million that increased gradually to BDT 27,449 million on 2015.The MVA gradually
increased BDT 38,506 million and BDT 83,811 million on following years 2016,2017. During
the year 2018, the Market value addition of the bank dropped to BDT 67,246 million. Reviewing
2014-2018 financial year, the bank’s highest MVA was on 2017.But the MVA decreased about
BDT 16,565 million on 2018 yet the MVA remains positive which ultimately results adding
value to the bank’s equity.
Conclusion
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BRAC Bank began its voyage on fourth July 2001 as a private business bank concentrated on
Small and Medium Enterprises (SME). In only 10 years, the Bank has turned into an eminent
bank in Bangladesh. Besides, it’s the center concentration in SME yet getting to be one of the
nation’s driving monetary hypermarket. BRAC Bank holds a dynamic system of 156 branches,
400 SME unit workplaces, 500 Remittance Delivery Points, about 350 ATMs and 14 Financial
Kiosks.
Four main areas of financial health that should be examined are liquidity, solvency, profitability
and operating efficiency. However, of the four, likely the best measurement of a company's
health is the level of its profitability and BRAC BANK has successfully secured a strong
position in these specified sectors which will ease the major task for the bank to survive in this
competitive environment. Another major task for a bank is to manage its assets and liabilities in
an efficient way. The result of EVA and MVA indicates that, BRAC BANK has an efficient
managing base.
Finally, it can be said that though the results achieved so for are moderately satisfactory. BRAC
BANK still possesses great potentiality. They have wonderful opportunities in the banking sector
to utilize and they can easily survive in the industry with full profitability by adopting some
current relevant tactics.
References