Introduction

This report consist of the results of the 2006 to 2010 study on time series ratio analysis of a listed private commercial bank in Bangladesh and one of its direct competitor banks. The two banks were randomly selected from the listed local banks that are operating in the banking industry in Bangladesh. The chosen banks for this purpose were Prime Bank Limited and Trust Bank Limited (competitor). Both the banks are enlisted in the Dhaka Stock Exchange (DSE).

Origin of Study:
On May 07, 2011, Mr. Mizanur Rahman Jodder, course instructor of the Bank Fund Management course at Stamford University, Bangladesh authorized to prepare a report on the ratio analysis of Prime Bank Limited and Trust Bank Limited.

Objective of the Report

The objective is to find out the performance of the management and the bank as a whole, and suggest steps to improve the condition. The financial ratios were used as the main tool for evaluating the performance. The financial ratios concerning liquidity, leverage, efficiency, profitability and market position are useful in evaluating the financial performance and management quality of the two banks. The ratio findings help to identify the current position and future growth potential of a bank in the industry. After the main objective of determining the performance level of the bank, there are some recommendations for the existing and potential investors are also given in the report that whether they should keep or buy the shares of stock or not. Limitations This reports accuracy is minimized due to some limitations. The unavoidable limitations are as follows: 1. Time: The execution period of the report was quite short to carry out such an intensive report. 2. Accuracy of Analysis: The quality of information in this study is limited as the basis of data is taken from a delicate source. All of the data had to be taken from the secondary sources (Annual reports and the internet). 3. Lack of adequate information to study the analysis. 4. Due to lack of industry average the measurement of performance level is somewhat difficult

Flow of Methodology

The methodology of this report consisted of developing an analysis based on the ratio calculation of two competitor banks. The ratios were calculated by using the data collected from the annual reports of two competitor banks. Analysis was based relative to the topic. Interpretation and recommendation was minutely based on the ratio analysis. The report is written with the help of different sources like text books, other reference books, journals, newspapers and websites. The ratio analysis was based on time series comparison method.

Overview of Prime Bank Limited:

Prime Bank Ltd. started is business was on 17th April 1995. It was by created a group of highly successful local entrepreneurs. 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. Prime Bank Ltd. 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 Ltd. 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 CAMEL rating. The bank has already occupied an enviable position among its competitors after achieving success in all areas of business operation. The bank has consistently turned over good returns on Assets and Capital. During the year 2005, the bank has posted an operating profit of Tk.1520.34 million and its capital funds stood at Tk.3177.32 million. Out of this, Tk.1400 million consists of paid up capital by shareholders and Tk.1777.32 million represents reserves and retained earnings. The banks current capital adequacy ratio of 9.96% is in the market. In spite of complex business environment and default culture, quantum of classified loan in the bank is very insignificant and stood at less than 0.96%.

Overview of Trust Bank Limited:

Trust Bank Limited is one of the leading private commercial bank having a spread network of 39 branches across Bangladesh and plans to open few more branches to cover the important commercial areas in Dhaka, Chittagong, Sylhet and other areas in 2008. The bank, sponsored by the Army Welfare Trust (AWT), is first of its kind in the country. With a wide range of modern corporate and consumer financial products Trust Bank has been operating in Bangladesh since 1999 and has achieved public confidence as a sound and stable bank.

It offers a range of banking services, including deposit banking; loans and advances; and export, import, and financing national and international remittance facilities. The companys deposit products include current accounts, savings accounts, short term deposit accounts, fixed deposit accounts, trust smart savers schemes, trust money double schemes, trust money making schemes, monthly benefit deposit schemes, and interest first fixed deposit schemes. Its loan products comprise household durables loans, doctors loans, advance against salary, educational loans, travel loans, hospitalization loans, any purpose loans, house finance, CNG conversion loans, and marriage loans. The company also offers SME financing products, including trust flan agri-business loans, entrepreneurship development loans, loans for light engineering, loans for poultry farms, loans for shopkeepers, peak seasons loans, and women entrepreneur loans. In addition, it provides merchant banking services, including investors' discretionary account, bank's discretionary account, non-margin investors' discretionary account, and profit-loss sharing account; offers various types of trade products, such as import and export letter of credit, foreign guarantees, standby letters of credit, and discounting services; and operates as an underwriter and banker to the issue operation in initial public offering and right share offering. Further, the company provides Islamic banking, debit cards and credit cards, locker, and depository services, as well as any branch, ATM, phone, SMS, and Internet banking services. As of December 31, 2009, it had 42 branches and 4 SME service centers in Bangladesh. The company was formerly known as The Trust Bank Limited and changed its name to Trust Bank Limited in November 2006. Trust Bank Limited was founded in 1999 and is headquartered in Dhaka, Bangladesh.

Analyzing performance of Prime Bank Ltd. & Trust Bank Ltd. 1. Profit Ratios: (a) Return on Equity (ROE) :
Return on equity measures a banks profitability by revealing how much profit a bank generates with the shareholders investment. The equation for ROE is Base of judgment: It measures the return on the money the investors have put into the company. This is the ratio potential investors may look at when deciding whether or not to invest in the company. In general, the higher the percentage is the better. Calculation of Return on Equity (ROE) as follows: Data of Prime Bank Ltd: Year A 2006 2007 2008 2009 2010 Net Income B 1,051,890,526 1,400,664,725 1,231,832,174 2,784,218,989 3,002,876,567 Total Equity Capital C 3,859,888,724 5,273,277,362 6,696,770,778 11,745,223,217 16,768,521,255 ROE % 27.25 26.56 18.39 23.71 17.91

Data of Trust Bank Ltd: Year A 2006 2007 2008 2009 2010 Net Income B 262,695,349 239,028,693 463,049,546 610,905,838 1,274,775,554 Total Equity Capital C 1,154,261,983 2,154,291,716 3,119,652,987 3,754,866,056 5,025,357,187 ROE % 22.76 11.10 14.84 16.27 25.37

The Comparison of return on Equity among Prime Bank Ltd, Trust Bank Ltd and Industry Standard is given blew through Bar-diagram: Year 2006 2007 2008 2009 2010 ROE % of Prime Bank 27.25 26.56 18.39 23.71 17.91 ROE % of Trust Bank 22.76 11.10 14.84 16.27 25.37 Industry Standard 15.20 16.70 16.40 20.95 24.32

Prim Bank Ltd e 30.00 25.00 20.00 15.00 10.00 5.00 0.00

Trust Bank Ltd

Industry Standard

ROE

2006

2007

2008 Year

2009

2010

Comments: From above analysis, we can see that, return on equity between Prime Bank Ltd and Trust Bank Ltd. The performance of Prime Bank Ltd is better

Explanation: Prime Bank Ltd: In 2006 ROE of bank was 27.25% and 26.56% gradually decrease in 2008 to 2010 which was 18.39%, 23.71% and 17.91%. But it is to be mentioned in 2009 the banks return on equity was significantly increased. Trust Bank Ltd: In 2006 the return on Equity of the bank was 22.76% which gradually decreased in 2007 to 2009 that was 11.10%, 14.84%& 16.27% but in 2010 it was increase again and the result was 25.37% which is positive sign for the bank.

(b) Return on Assets (ROA)

ROA measures the efficiency with which the company is managing its investment in assets and utilizing them to generate profit. It measures the amount of profit earned relative to the firms level of investment in total assets. Base of judgment: The higher the percentage is better, because that means the company is doing a good job using its assets to generate sales. The equation for ROA is Calculation of Return on Assets (ROA) as follows: Data of Prime Bank Ltd: Year A 2006 2007 Net Income B 1,051,890,526 1,400,664,725 Total Assets C 60,899,475,793 79,588,430,798 ROA % 1.73 1.76

2008 2009 2010

1,231,832,174 2,784,218,989 3,002,876,567

110,437,103,311 124,806,383,846 152,796,945,827

1.12 2.23 1.97

Data of Trust Bank Ltd: Year Net Income Total Assets ROA % Industry Standard A B C 2006 262,695,349 21,060,771,167 1.25 1.10 2007 239,028,693 30,382,222,281 0.79 1.30 2008 463,049,546 38,534,721,576 1.20 1.40 2009 610,905,838 54,206,648,607 1.13 1.55 2010 1,274,775,554 58,276,332,285 2.19 2.00 The Comparison of Return on Assets among Prime Bank Ltd, Trust Bank Ltd and Industry standard is given blew through Graph:

Comments: From the above data analysis we can see that return on asset between these two banks, the performance of Prime Bank Ltd. is better than the Trust Bank Ltd. Explanation: Prime Bank Ltd: In 2006 & 2007 the return on asset was 1.73% & 1.76% and it was decrease in 2008by 1.12% but in 2009 the bank was turn around and the return on asset was 2.23% since that it falls down again in 2010 and that time the return on asset was 1.97%. Trust Bank Ltd: From 2006 to 2009 the return on asset of the bank was 1.25%, 0.79%, 1.20% & 1.13% respectively but in 2010 it was increased by 2.19% which was comparatively better than the previous years.

(c) Net Interest Margin %

A measure of the return on a company's investments relative to its interest expenses. The net interest margin helps a company determine whether or not it has made wise investment decisions. A negative net

interest margin indicates that interest expenses exceed investment returns and that the company therefore has a net negative return. A positive net interest margin indicates the opposite. It is calculated thusly: Net Interest Margin = = Base of judgment: Higher score of Net Interest Margin is better for respective bank. Calculation of Net Interest Margin as follows: Data of Prime Bank Ltd: Year A 2006 2007 2008 2009 2010 Total Interest Income B 5,198,790,368 7,170,099,616 9,095,891,683 10,831,380,275 12,023,158,687 Total Interest Expenses C 3,698,441,036 5,266,592,564 7,126,309,515 8,426,118,565 7,789,506,602 Total Asset D 60,899,475,793 79,588,430,798 110,437,103,311 124,806,383,846 152,796,945,827 Not Performing Loan E 367,151,000 777,216,000 1,322,600,000 1,149,100,000 1,367,690,000 Net Interest Margin (%) 2.48 2.42 1.81 1.95 2.80

Data of Trust Bank Ltd: Year Total Interest Total Interest Total Asset Not Performing Net Interest Income Expenses Loan Margin (%) A B C D E 2006 1,771,362,525 1,371,361,160 21,060,771,167 174,369,437 1.92 2007 2,614,806,274 1,947,001,397 30,382,222,281 506,649,407 2.24 2008 3,634,651,908 2,462,230,880 38,534,721,576 693,279,003 3.10 2009 4,027,199,131 3,112,822,489 54,206,648,607 860,717,688 1.71 2010 4,686,638,621 3,213,947,255 58,276,332,285 960,023,068 2.57 The Comparison of Net Interest margin between Prime Bank Ltd and Trust Bank Ltd is given blew through Diagram:

4.00 Net Interest Margin 3.00 2.00 1.00 0.00 Prime Bank Ltd Trust Bank Ltd Comments: From the above analysis we can see that net interest margin of Prime Bank Ltd. Is better than the Trust Bank Limited although Trust Bank Ltd tried to get better but they could not keep up their consistency. Explanation: Prime Bank Ltd: In 2006 & 2007 the net interest margin was 2.48% & 2.42% and it was decrease in 2008 by 1.81% but in 2009 & 2010 the bank was turn around and the net interest margin was 1.95% & 2.80%. Trust Bank Ltd: From 2006 to 2008 the net interest margin of the bank was 1.92%, 2.24% & 3.10% respectively again it decrease in 2009 by 1.71% but in 2010 it was increased by 2.57% which was comparatively better than the previous year. 2006 2.48 1.92 2007 2.42 2.24 2008 1.81 3.10 2009 1.95 1.71 2010 2.80 2.57

(d) Earnings per Share of Stock (EPS)

The term earnings per share (EPS) represents the portion of a company's earnings, net of taxes and preferred stock dividends, that is allocated to each share of common stock. The figure can be calculated simply by dividing net income earned in a given reporting period (usually quarterly or annually) by the total number of shares outstanding during the same term. Because the number of shares outstanding can fluctuate, a weighted average is typically used. Base of judgment: High score of Earnings per Share of Stock (EPS) is better. It is calculated thusly: Earnings per Share of Stock (EPS) = Calculation of EPS as follows: Data of Prime Bank Ltd & Trust Bank Ltd: Year Prime Bank Ltd Trust Bank Ltd

Net Income after Tax

Common equity shares outstanding EPS

Net Income after Tax

Common equity shares EPS

(No.) outstanding (No.) A B C D= E F G= 2006 1,051,890,526 17,500,000 60.11 262,695,349 5,000,000 52.54 2007 1,400,664,725 22,750,000 61.57 239,028,693 11,666,700 20.49 2008 1,231,832,174 28,437,500 43.32 463,049,546 12,833,370 36.08 2009 2,784,218,989 35,546,875 78.33 610,905,838 18,480,052 33.06 2010 3,002,876,567 52,774,028 56.90 1,274,775,554 22,176,062 57.48 The Comparison of EPS between Prime Bank Ltd, Trust Bank Ltd and Industry Average is given blew through Diagram: 80.00 60.00 EPS 40.00 20.00 0.00 2006 52.54 2007 61.57 20.49 2008 43.32 36.08 2009 78.33 33.06 2010 56.90 57.48

Prime Bank Ltd 60.11 Trust Bank Ltd

Comments: From the above analysis we can see that the earning per share of stock of Prime Bank Ltd. is better than the Trust Bank Limited although Trust Bank Ltd gradually rising up their position. Explanation: Prime Bank Ltd: In 2006 & 2007 the earning per share of stock was 60.11% & 61.57% and it was decrease in 2008 by 43.32% but in 2009 & 2010 it was rise up by 78.33% & 56.90%. Trust Bank Ltd: In 2006 the earning per share of stock was 52.54% but it goes down from 2007 to 2009 which was 20.49%, 36.08%, 33.06% respectively. But in 2010 it was increased by 57.48% which was comparatively better than the previous years.

2. Risk Ratio : (a). Provision for Loss Ratio %

A non-cash expense for banks to account for future losses on loan defaults. Banks assume that a certain percentage of loans will default or become slow-paying. Banks enter a percentage as an expense when calculating their pre-tax incomes. This guarantees a bank's solvency and capitalization if and when the

defaults occur. The loan loss provision allocated each year increases with the riskiness of the loans a given bank makes. A bank making a small number of risky loans will have a low loan loss provision compared to a bank taking higher risks. The equation is Provision for Loss Ratio = Base of judgment: In the calculation of Provision for Loss Ratio of Loans & Advances the low scoring bank plays a positive performance. So the low score of Loss ratio is better for the respective bank than others. Calculation of Provision for Loss Ratio as follows: Data of Prime Bank Ltd & Trust bank Ltd: Prime Bank Ltd Year Provision for loan Total Loans & Leases Provision for loss Provision for loan Trust Bank Ltd Total Loans & Leases Provision for loss

ratio % ratio % A B C D= E F G= 2006 853,321,095 45,010,218,048 1.90 38,555,000 13,188,092,885 0.29 2007 1,373,199,925 57,683,021,512 2.38 229,445,936 18,682,164,654 1.23 2008 1,774,225,560 75,156,206,817 2.36 196,900,064 27,528,084,387 0.72 2009 1,933,702,561 89,252,222,489 2.17 212,426,000 32,663,107,783 0.65 2010 2,104,694,164 111,167,388,892 1.89 53,500,000 39,799,923,991 0.13 The Comparison of Provision for Loss Ratio Prime Bank Ltd, Trust Bank Ltd is given blew through Diagram: 2.50 2.00 Ratio % 1.50 1.00 0.50 0.00 Prime Bank Ltd Trust Bank Ltd Comments: From the above analysis we can see that each banks provides an estimated of future loan losses as on expenses on its income statement and the provision for loss ratio of Prime Bank Ltd. shows that the bank provided more for losses on loans than Trust Bank Ltd. Explanation: 2006 1.90 0.29 2007 2.38 1.23 2008 2.36 0.72 2009 2.17 0.65 2010 1.89 0.13

Prime Bank Ltd: In 2006 to 2009 the provision for loss ratio was 1.90%, 2.38%, 2.36% & 2.17% respectively but it was decrease in 2010 by 1.89%. Trust Bank Ltd: In 2006 the provision for loss ratio was 0.29% but in 2007 it goes up which is 1.23% to 2009 which was 20.49%, 36.08%, 33.06%.But in 2010 it was increased by 57.48% which was comparatively better than the previous years

(b). Loan Ratio %

The amount of a bank's loans divided by the amount of its deposits at any given time. The higher the ratio, the more the bank is relying on borrowed funds, which are generally more costly than most types of deposits. It is calculated thusly: Base of judgment: Low score of Loan Ratio is better for analyzing performance of bank. Calculation of Loan Ratio as follows: Data of Prime Bank Ltd & Trust Bank Ltd: Prime Bank Ltd Year Net Loans Assets C 60,899,475,793 79,588,430,798 110,437,103,311 124,806,383,846 152,796,945,827 Loan Ratio % D= 71.81 69.60 64.97 68.76 70.26 Net Loans E 12,951,512,229 17,862,331,050 26,528,922,278 31,400,883,593 38,494,340,384 Trust Bank Ltd Assets F 21,060,771,167 30,382,222,281 38,534,721,576 54,206,648,607 58,276,332,285 Loan Ratio % G= 61.50 58.79 68.84 57.93 66.05

A B 2006 43,730,090,524 2007 55,393,023,822 2008 71,746,248,216 2009 85,821,795,136 2010 107,349,817,408

The Comparison of Loan Ratio between Prime Bank Ltd and Trust Bank Ltd is given blew through Diagram: 80.00 Ratio % 60.00 40.00 20.00 0.00 Prime Bank Ltd Trust Bank Ltd 2006 71.81 61.50 2007 69.60 58.79 2008 64.97 68.84 2009 68.76 57.93 2010 70.26 66.05

Comments:
From the above analysis we can see that the Loan Ratio between Prime Bank Limited & Trust bank Limited, the performance of Trust Bank Limited is better.

Explanation: Prime Bank Ltd: In 2006 to 2009 the Loan ratio was 71.81%, 69.60%, 64.97% & 68.76% respectively although low score is better for this ratio but it was again increase in 2010 by 70.26%. Trust Bank Ltd: In 2006 Loan ratio 61.50% but in 2007 it decrease by 58.79% again 2008, 2009 & 2010 the ratio was 68.84%, 57.93% & 66.05% so every year it fluctuate.

3. Efficiency Ratios : (a) Operating Efficiency Ratio

A bank efficiency ratio that is typically used to analyze how well a company uses its assets and liabilities internally. OER is Efficiency Ratios can calculate the turnover of receivables, the repayment of liabilities, the quantity and usage of equity and the general use of inventory and machinery. The formula of

Base of judgment: An increase means the company is losing a larger percentage of its income to expenses. If the efficiency ratio is getting lower, it is good for the bank and its shareholders. Also referred to as the overhead burden or overhead efficiency ratio. Calculation of Operating Efficiency Ratio as follows: Data of Prime Bank Ltd and Trust Bank Ltd: Total Operating Prime Bank Ltd Total Operating Operating Efficiency Total Operating Trust Bank Ltd Total Operating Operating Efficiency

Year

Expenses Revenues Ratio Expenses Revenues Ratio A B C D= E F G= 2006 1,101,072,827 3,232,036,163 0.34 305,013,022 851,912,518 0.36 2007 1,559,345,650 4,816,210,375 0.32 474,318,259 1,328,031,765 0.36 2008 1,930,955,801 5,777,810,297 0.33 753,668,020 2,006,111,087 0.38 2009 2,906,887,699 8,195,606,688 0.35 1,109,313,775 2,467,667,896 0.45 2010 3,602,929,761 9,680,806,328 0.37 1,365,390,204 3,643,051,455 0.37 The Comparison of Operating Efficiency Ratio between Prime Bank Ltd and Trust Bank Ltd is given blew through Bar Diagram:

Operating Efficiency Ratio

0.50 0.40 0.30 0.20 0.10 0.00 2006 0.34 0.36 2007 0.32 0.36 2008 0.33 0.38 2009 0.35 0.45 2010 0.37 0.37

Prime Bank Ltd Trust Bank Ltd Comments:

From the above analysis we can see that Operating Efficiency ratio between Prime Bank Limited & Trust bank Limited, the performance of Prime Bank Limited is better.

Explanation: Prime Bank Ltd: In 2006 to 2010 the Operating Efficiency ratio was 0.34, 0.32, 0.33 & 0.37 respectively every year it shows low score which is good for this ratio but it was again increase in 2010 by 0.37 Trust Bank Ltd: In 2006 to 2008 Operating Efficiency ratio was 0.36, 0.36 & 0.38 but in 2008 it increase by 0.45 but again decrease in 2010 the ratio was 0.37. It seems the company tries getting lower its operating efficiency ratio score.

(b) Employee Productivity Ratio:

In an effort to maximize profit ability and the value of the share holder investment in the bank, many banking organizations recognize the need for greater efficiency in their operations. This usually means reducing operating expenses and increasing the productivity of their employees through the use of automated equipment & improved employee training. Base for Judgment: High score of Employee Productivity Ratio is better for the bank The formula is Calculation of Employee Productivity Ratio as follows: Data for Prime Bank Ltd & Trust Ltd: Prime Bank Ltd Number of Full Time Equivalent Employees Trust Bank Ltd Number of Full Time Equivalent Employees

Year

Net Operating Income

Employee Productivity Ratio

Net Operating Income

Employee Productivity Ratio

A 2006 2007 2008 2009 2010

B 213,096,336 3,256,864,725 3,846,854,496 5,288,718,989 6,077,876,567

C 1,172 1,400 1,550 1,844 2,139

D= 181,823 2,326,332 2,481,842 2,868,069 2,841,457

E 546,899,496 853,713,506 1,252,443,067 1,358,354,121 2,277,661,251

F 508 842 979 1,041 1,041

G= 1,076,574 1,013,912 1,279,309 1,304,855 2,187,955

The Comparison of Employee Productivity Ratio between Prime Bank Ltd and Trust Bank Ltd is given blew through Graph: 4,000,000 3,000,000 2,000,000 1,000,000 2006 2007 2008 2009 2010

Prime Bank Ltd 181,823 2,326,33 2,481,84 2,868,06 2,841,45 Trust Bank Ltd 1,076,57 1,013,91 1,279,30 1,304,85 2,187,95

Comments:
From the above analysis we can see that the Employee Productivity Ratio between Prime Bank Limited & Trust bank Limited, the performance of Prime Bank Limited is higher productivity ratio than Trust Bank Limited.

Explanation: Prime Bank Ltd: In 2006 the Employee Productivity Ratio was 181,823 but it increase from 2007 to 2010 which was 232,633, 248,184, 286,806, 284,145, respectively every year it shows high score which is good for this ratio. Trust Bank Ltd: In 2006 to 2008 the Employee Productivity Ratio was 107,657, 101,391, 127,930 & 130,485 respectively but in 2010 it increase and the ratio was 218,795 which shows the company tries getting higher its Employee Productivity Ratio operating efficiency ratio score.

Recommendations
The analysis indicated that most of the ratios favor Prime Bank Ltd. According to the liquidity, leverage, efficiency and profitability ratio analysis it was revealed that Prime bank limited is in a better current

position than EBL. Moreover, it was also revealed that Prime Banks growth potential is higher than Eastern Bank. If the potential investors had to choose between these two companys stocks, I would recommend them to buy the shares of Prime Bank Limited. For the existing investors, the recommendation is to hold the shares for Prime Bank because there is a higher growth potential. The analysis also shows that the market price per share fell sharply in the year 2008 which was consistent with the earnings(compared to the asset investments) falling drastically. So the current share price reflects the performance of the firm to some extent.

Conclusion
In conclusion, we can say that Prime Bank Ltds financial performance was better than that of the competitor Eastern Bank Ltd. The ratio analysis also suggested that the future expected returns and growth potential is also higher for Prime bank. Therefore the potential investors are recommended to buy the shares of Prime bank.

References:
Commercial Banking, Benton E. Gap, James W. Kolari. 3rd Edition. Annual Reports of Prime Bank Limited. (From 2006-2010) Annual Reports of Trust Bank Limited. (From 2006-2010) Related topics from Internet by using various website.