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I am a student of school of Business Studies. I am about to complete the “ Banking ”
Course. Under this course I have done this financial analysis on Prime Bank. I haveworked hard to complete this term paper successfully. Today I am going to submit this
In this semester,fall 2006, we enrolled ourselves in the course Banking. This course has
a requirement for a Term paper. To fulfill this requirement of this course, we have
prepared this Term paper on financial analysis on Prime Bank as our Term paper’s topic.
Rationale of the Study
As a part of course Banking, we had the opportunity to prepare this term paper. The
reason for choosing this topic is we would like to expose the different features of our Course outline and by this we hope that we will be able to introduce ourselves about the
different banking system, functions and services. To full fill this purpose we have made
an effort to study thoroughly about the whole financial operations and transactions on
Prime Bank.
Objective of the study
As a student of Bachelor of business studies, we need in depth knowledge about the
different financial transaction of banks and other financial institutions. This study will
help us to learn about the different banking system, functions and operations. It will also
give us a clear idea about the different money and capital market instruments and will
increase our knowledge about the different aspects of financial transactions of banks and
Accordingly, Prime Bank Ltd. was created and commencement of business started on17th April 1995. 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 Ltd. 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 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.
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.
The bank has consistently turned over good returns on Assets and Capital. During the
year 2004, the bank has posted an operating profit of Tk. 1146.14 million and its capital
funds stood at Tk 2476.06 million. Out of this, Tk. 1000 million consists of paid up
capital by shareholders and Tk. 1476.06 million represents reserves and retained
earnings. The bank’s current capital adequacy ratio of 10.74% is in the market and much
above the stipulated line of 9%. In spite of complex business environment and default
culture, quantum of classified loan in the bank is very insignificant and stood at less than
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.
PERFORMANCE ANALYSIS
RETURN ON ASSET (ROA)
The Return on asset of Prime bank for the year 2004 is,
Return on asset = Net income after tax / Total asset
= 611938344/32361616788
= 1.89%
The return on asset of prime bank 1.89% means if the Bank Tk.100 asset then it can
generate 1.89taka net income or the prime banks Tk.100 asset can generate Tk.1.89 netincome. In the same way we can calculate the other years ROA of Prime Bank . After
calculating all of the Prime banks ROA for the year of 2001,2002 &2003 we get 3.75%,
2.09% &1.55%. If we plot all the ROA
values according to the Y-axis and years
according to the X-axis then we will get the
Graphical figure of ROA for Prime bank.
But higher ROA indicates higher net income
in comparison to the total asset of a bank or
Proper asset utilization and lower ROA
indicates lower Net income in comparison to
the total asset or poor asset utilization. From
the Graph it is clearly understandable that the ROA of prime bank in 2001 was very high
(3.07%) But in 2002(2.09%) and 2003(1.55%) it takes a declining trend in its ROA ratio.
But in the year 2004 we can see that the ROA of prime bank is raising which indicates
that the banks net income in comparison to its total asset is raising or the Bank used its
assets much effectively than the other years.
RETURN ON ASSET (ROA)
The Return on Equity(ROE)of Prime bank for the year 2004 is,
Return on Equity = Net income after tax / Total Equity Capital
= 611938344/ 2239801912
= 27.32%
The return on Equity of prime bank is 27.32% means it can generate Tk.27.32 net income
by using Tk.100 equity capital. In the same way we can calculate the other years ROE of
Prime Bank. After calculating all of the Prime banks ROE for the year of 2001, 2002
&2003 we get 38.39%, 27.39%, 21.07% .If we
plot all the ROE values according to the Y-
axis and years according to the X-axis then we
will get the Graphical figure of ROE for Prime
Bank. But higher ROE indicates higher net
income in comparison to the banks total
Equity capital or Proper utilization of
shareholders capital and lower ROE indicates
lower Net income in comparison to the total
equity capital or poor investment or utilization of shareholders investment. From the
Graph it is clearly understandable that the ROE of prime bank in 2001 was very high
(38.39%) But in 2002 and 2003 it takes a declining trend in its ROE ratio. But in the year 2004 we can see that the ROE of prime bank is rising which indicates that the banks net
income in comparison to its total Equity capital is raising or the Bank used its Equity
After calculating all of the Prime banks ratio of loans and advances to total asset for the
year of 2001, 2002 &2003 we get 57.67%, 63.28%, 68.01%... If we plot all the ratios of
loans and advances to total asset according to the Y-axis and years according to the X-
axis then we will get the Graphical figure of total loans to deposits for Prime Bank. Here,
the higher ratio of loans and advances to total asset indicates higher interest income from
loans and advances and higher risk of loan default and lower ratio of loans and advances
to total asset indicates lower interest income from loans and d advances or lower risk of
loan default.
EARNINGS RISK
ROA &ROE
After analyzing the ROA of Prime bank and DBBl we can clearly say that the position of
prime bank in term of return on asset is higher than DBBl which means that the prime
banks net income is higher than the than the net income of DBBL in comparison to its
total asset or the prime bank is more capable of generating higher revenue than DBBL.
But if we look at the Graph of ROE of DBBl then we will see that from 2001 to 2004 the
banks ROE is declining which indicates that the banks net income is decreasing or poor
utilization of shareholders equity.
So, after analyzing the ROA & ROE of Prime bank and DBBl we can clearly say that the
position of prime bank in term of return on Equity or Asset is higher than DBBl which
means that the prime banks net income is higher than the than the net income of DBBL incomparison to its total Equity capital/Asset or the prime bank is more capable of
generating higher revenue than DBBL. But as we know when there is higher return there
is higher risk. So, prime banks earning risk is higher than DBBL