FIN464.5.Group Number-7(Mutual Trust Bank Ltd. and Jamuna Bank Ltd PDF

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Summary

In this project, we have analyzed the financial ratios of Mutual Trust Bank Limited (MTBL) and Jamuna Bank Limited (JBL) for the period 2015-2018. We have found different issues regarding interest revenues, interest expenses, non-interest revenues, non-interest expenses, operating profit, net profit...

Description

FIN464: BANK MANAGEMENT Section: 05 Project on: Bank Performance Analysis Mutual Trust Bank Limited vs. Jamuna Bank Limited Submitted To: Trisha Ahmed [TSA] Lecturer Department of Accounting and Finance, SBE-NSU

Submitted By: Titon Saha- 1712411030 Mohammad Mahfuzur Rahman- 1632673030 Md. Iftekhar-1510840030 MD. Jahidul Hasan Rana-1610469030

Date of submission: 17th December 2019 (Tuesday)

Contents Executive Summary............................................................................................................................... 4 Bank Overview and Competitive Environment .................................................................................... 5 Mutual Trust Bank Ltd. .................................................................................................................... 5 Jamuna Bank Limited ....................................................................................................................... 7 Bank Performance Analysis .................................................................................................................. 9 Liquidity ............................................................................................................................................ 9 Cash position indicator .................................................................................................................. 9 Liquid Securities .......................................................................................................................... 10 Capacity Ratio ............................................................................................................................. 11 Financial Risk .................................................................................................................................. 12 Debt Ratio .................................................................................................................................... 12 Debt to Equity Capital Ratio ....................................................................................................... 13 Interest Coverage Ratio ............................................................................................................... 14 Efficiency ......................................................................................................................................... 15 Return on Equity (ROE) ............................................................................................................. 15 Return on Asset (ROA)................................................................................................................ 16 Net Interest Margin ..................................................................................................................... 17 Net Non-Interest Margin ............................................................................................................. 18 Net Operating Margin ................................................................................................................. 19 Tax Management Ratio ............................................................................................................... 20 Expense Control........................................................................................................................... 21 Degree of Asset ............................................................................................................................. 22 Funds Management ..................................................................................................................... 23 Operating Efficiency .................................................................................................................... 24 Employee Productivity ................................................................................................................ 25 Profitability ...................................................................................................................................... 26 Net Profit Margin ........................................................................................................................ 26 Market Position ............................................................................................................................... 27 Earnings per Share ...................................................................................................................... 27 P/E Ratio ...................................................................................................................................... 28 M/B Ratio..................................................................................................................................... 29 Dividend Per share ...................................................................................................................... 30 2

Dividend Yield ............................................................................................................................. 31 Credit Ratings ..................................................................................................................................... 32 CAMELS Rating ................................................................................................................................. 33 Capital Adequacy Ratio ...................................................................................................................... 34 Conclusion ........................................................................................................................................... 36 Recommendations ............................................................................................................................... 37 References ............................................................................................................................................ 38 Appendix.............................................................................................................................................. 40

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Executive Summary In this project, we have analyzed the financial ratios of Mutual Trust Bank Limited (MTBL) and Jamuna Bank Limited (JBL) for the period 2015-2018. We have found different issues regarding interest revenues, interest expenses, non-interest revenues, non-interest expenses, operating profit, net profit, interest-earning assets, and shareholders’ equity for both banks. For Mutual Trust Bank Limited, we have found higher Debt ratio, Debt to Equity Capital, Return on Equity (ROE), Net Interest Margin, Earnings per Shares, Tax management ratio, Fund Management Efficiency, operating Efficiency, Employee productivity, Price to earnings ratio, Market to book ratio, and Capacity ratio. In managing liabilities and operating expenses MTBL is not performing well according to industry standards. It is playing different cost management strategies for maximizing profits. On the other hand, Jamuna Bank Ltd. performance in managing Debt, operating expenses, Interest Expenses on deposits and borrowings, Asset utilization, Tax management, and Fund management were very attractive related to the industry average. However, it could not achieve operating efficiency and expense control efficiency which resulted in decreased net operating margin and return on equity. Though both of the banks were performing their best to accomplish their goals, JBL was performing better than MTBL in earning profit and managing assets. MTBL was performing better than JBL in managing expenses and equity capital. MTBL had greater EPS than JBL and also greater P/E ratio but JBL distributed a higher dividend per share than MTBL. As a whole, actual information in the completion of the task has been demonstrated in this project. The project will clear the knowledge about financial statements analysis of the two banks concerned.

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Bank Overview and Competitive Environment Mutual Trust Bank Ltd. The Company was incorporated as a Public Limited Company in 1999, under the Companies Act 1994, with an Authorized Share Capital of BDT 1,000,000,000 divided into 10,000,000 ordinary shares of BDT 100 each. At present, the Authorized Share Capital of the company is BDT 10,000,000,000 divided into 1,000,000,000 ordinary shares of BDT 10 each. The Company was also issued a Certificate for Commencement of Business on the same day and was granted the license in October 5, 1999, by Bangladesh Bank under the Banking Companies Act 1991 and started its banking operation on October 24, 1999. As envisaged in the Memorandum of Association and as licensed by Bangladesh Bank under the provisions of the Banking Companies Act 1991, the Company started its banking operation and entitled to carry out the following types of banking business: •

Wholesale Banking

•

Retail Banking

•

International Trade Financing

•

Small and Medium Enterprises (SME) Banking

•

NRB Banking

•

Privilege Banking

•

Card Services

•

Treasury Operations

The Company (Bank) operates through its Head Office at Dhaka and 114 branches. The Company/ Bank carries out international business through a Global Network of Foreign Correspondent Banks (Mutual Trust Bank Limited, 2019).

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Clientele Corporate clients of Mutual Trust Bank Ltd. comprise Non-Bank Financial Institutions (NBIs); manufacturing, trading, and service companies including garments and textile, steel, shipbreaking, chemicals, engineering and construction, telecommunications, airlines, etc. Small and Medium Enterprise (SME) clients include NGO-Microfinance Institutions (MFIs), agro-based businesses, IT firms, women entrepreneur-owned SMEs, start-ups, etc. Retail clients include households, professionals, students, and non-resident Bangladeshis. The company serves these clients by providing loans, leases, remittance services, trade financing, working capital financing, deposit products, and privilege banking. It also provides syndication for corporate clients willing to access large loans through cost-efficient structures. Moreover, the government is a client of Mutual Trust Bank Ltd. as it is one of the primary dealers for selling government securities to raise funds for public expenditure. Competition

Mutual Trust Bank Ltd. faces strong competition due to the highly concentrated banking sector of Bangladesh with 57 scheduled banks 33 NBFIs, and other categories of financial institutions. It faces the most competition in retail loans and deposit products, corporate loans, SME loans and deposit products, and card services due to most other financial institutions providing similar services to customers. It faces competition from financial institutions including One Bank Ltd., Premier Bank Ltd., Jamuna Bank Ltd., and Dutch Bangla Bank Ltd. among others in providing remittance services. In providing privilege banking services, the bank faces competition from Standard Chartered Bangladesh, City Bank Ltd., Eastern Bank Ltd., and HSBC Bank Bangladesh among others. Competitors in government security primary dealers include Jamuna Bank Ltd., Janata Bank Ltd., Agrani Bank Ltd., NCC Bank Ltd., and Sonali Bank Ltd. among others (Mutual Trust Bank Limited, 2019).

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Jamuna Bank Limited Jamuna Bank Limited (JBL) is a Banking Company registered under the Companies Act, 1994 of Bangladesh with its Head Office currently at Hadi Mansion, 2, Dilkusha C/A, Dhaka-1000, Bangladesh. The Bank started its operation from 3rd June 2001. The Bank provides all types of support to trade, commerce, industry and overall business of the country. JBL's finances are also available for the entrepreneurs to set up promising new ventures and BMRE of existing industrial units. The bank was established by a group of local entrepreneurs who are well reputed in the field of trade, commerce, industry, and business of the country. The Bank offers both conventional and Islamic banking through designated branches. The Bank is being managed and operated by a group of highly educated and professional team with diversified experience in finance and banking. The Management of the bank constantly focuses on understanding and anticipating customers' needs. Since the need of customers is changing day by day with the changes of time, the bank endeavors its best to devise strategies and introduce new products to cope with the change. Jamuna Bank Ltd. has already achieved tremendous progress since its beginning. The bank has already built up reputation as one of quality service providers of the country. At present the Bank has real-time Online banking branches (of both Urban and Rural areas) network throughout the country having smart IT-backbone. Besides traditional delivery points, the bank has ATMs of its own, sharing with other partner banks and consortium throughout the country. The bank operates through 132 branches including 2 Islami Banking and 8 SME Banking branches and 270 ATM booths across the country. 3 subsidiaries, namely Jamuna Bank Capital Management. Jamuna Bank Securities Ltd., and Jamuna Bank Asset Management Arm operate under the parent company (Jamuna Bank Ltd., 2019).

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Clientele Corporate clients of Jamuna Bank Ltd. include businesses in areas like garments, iron and steel, furniture and furniture materials, edible oil, trading, shipbuilding and ship-breaking, electronic and electrical equipment, agro products, and telecommunications among others. SME clients include women entrepreneur-owned SMEs, NGO-Microfinance Institutions, agrobased businesses, IT firms, young start-ups, etc. Retail clients of the bank are households, professionals, students, & non-resident Bangladeshis. The company serves these clients by providing loans, remittance services, trade financing, working capital financing, deposit products, and Islamic financing (loans and deposits). The government is also a client of Jamuna Bank Ltd. as the bank helps in selling government securities to individuals, corporations, and other financial institutions to raise government fund. Competition

The highly competitive banking sector of Bangladesh puts Jamuna Bank Ltd. into fierce competition particularly in retail loans and deposit products, corporate loans, SME loans and deposit products, and card services due to most other financial institutions providing similar services to customers. In providing Islamic banking services, it faces competition from Islami Bank Bangladesh Ltd., Social Islami Bank Ltd., Al-Arafah Islami Bank Ltd., Shahjalal Islami Banking Ltd., and First Security Islami Bank Ltd. among others. The bank faces competition from financial institutions including One Bank Ltd., Premier Bank Ltd., Mutual Trust Bank Ltd., Dutch Bangla Bank Ltd., and EXIM Bank Ltd. among others in providing remittance services. Competitors in government security primary dealers include Mutual Trust Bank Ltd., Janata Bank Ltd., Agrani Bank Ltd., and Sonali Bank Ltd. among others. (Jamuna Bank Ltd., 2019)

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Bank Performance Analysis The performance of Mutual Trust Bank Ltd. and Jamuna Bank Ltd. for the period of 2015-2018 are analyzed by exploring their liquidity, financial risk, efficiency, profitability, market position, and capital adequacy ratios. Liquidity

To identify liquidity position of both of the bank, ash position indicator liquid securities and capacity ratio has been calculated and briefly discussed below. Cash position indicator Cash position indicator refers a company’s liquidity position. It refers to the amount of cash that is available in banks vault from its deposit accounts in other banks or cash equivalent items out of its total asset. A higher number represents that the bank has more or adequate cash in hand to meet its debt obligation (HAYES, Cash Position, 2019).

Cash position indicator 14.00% 12.00% 10.00%

8.00%

11.71% 10.31% 8.66%

11.79%

9.60%

9.09%

7.64%

6.00%

6.86%

4.00% 2.00% 0.00%

2015

2016

2017

2018

Mutual Trust Bank Limited

8.66%

11.71%

7.64%

6.86%

Jamuna Bank Limited

10.31%

9.60%

11.79%

9.09%

Mutual Trust Bank Limited

Jamuna Bank Limited

Source: (Mutual Trust Bank Ltd., 2018)& (Jamuna Bank Ltd., 2018) In 2015, MTBL’s cash position indicator was 8.66% because of cash and depositors due from other depository institutions. In 2016, they kept highest cash in their history due to higher investor withdrawals. In 2017 and 2018, they invested in securities rather than holding cash. 9

On the other hand, Jamuna bank kept 10.31% cash position throughout the 2015. In 2017, they hold the highest cash percentages, which ended up with lower profits but satisfied their investors’ demands. In 2018, they tried to keep the ratio as less as possible. Overall, Jamuna bank had a greater cash position than MTBL. Jamuna bank hold highest cash position than MTBL but they lost net profit also due to excessive cash in hand, whereas MTBL earned a lot from investing in liquid securities and managed investors as well. Liquid Securities Liquid securities indicator compares the most liquid securities held by the bank (particularly government securities) with its overall asset portfolio. A higher value of this ratio indicates more liquidity and less risk for the bank. However, its profitability can be low if too much is invested in liquid securities as these securities usually give a low rate of return (Mueller, 2019).

Liquid Securities 30.00% 25.00% 20.00%

24.05% 16.17%

15.00%

17.66% 11.93%

12.99% 12.28% 11.25% 10.98%

10.00% 5.00%

0.00%

2015

2016

2017

2018

Mutual Trust Bank Limited

16.17%

11.93%

11.25%

10.98%

Jamuna Bank Limited

24.05%

17.66%

12.99%

12.28%

Mutual Trust Bank Limited

Jamuna Bank Limited

Source: (Mutual Trust Bank Ltd., 2018)& (Jamuna Bank Ltd., 2018) In 2015 MTBL hold 16.17% of liquid securities which was the highest liquid securities indicator ratio for the bank. Later on, 2016 to 2018, bank focused on loans and leases more rather than investing in securities which decreased their investment in securities by a significant percentage. This kind of strategy may create liquidity crisis for the bank.

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In contrast, Jamuna bank kept 24.05% liquid securities in 2015 which decreased to 17.66% in the next year. Later on, 2017 to 2018, the bank focused on loans and leases more rather than investing in securities which decreased their investment in securities by a significant percentage. Comparatively, Jamuna bank kept higher liquid securities than MTBL. Lower investments in securities may result in liquidity shortages for MTBL and on the other hand, keeping higher securities may result in decreased interest income from making further loans and leases for Jamuna Bank. Capacity Ratio The capacity ratio is the amount of net loans and leases given out by a bank out of its overall asset portfolio. If the ratio is higher, it indicates less liquidity position of the bank and higher liquidity risk as loans and leases are usually long-term and non-marketable. However, the bank may earn significant revenues from the repayment of loans and leases (Eugene F. Brigham, Phillip R. Daves, 2014).

Capacity ratio 76.00% 74.00% 72.00% 70.00% 68.00% 66.00% 64.00% 62.00% 60.00% 58.00% 56.00%

71.97% 70.24% 70.79% 66.10%

73.40% 73.34%

67.38%

61.90%

2015
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