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City Bank Capital - Company Insight United Commercial Bank Ltd

(DSE: UCBL, Bloomberg: UCBL:BD)

08 February 2015

Valuation of United Commercial Bank Ltd.

We initiate this short note on United Commercial Bank Ltd (UCBL) with an

‘Market Perform’ rating and December 2015 fair value estimate of BDT 34.70

[expected price return of 15.7%]. The stock is trading at a 2015e ROE of 14.6%

(~15% sustainable ROE), Tangible P/B of 1.1x, P/E of 7.9x and dividend yield of

3.3%. The fair value derivation is based on both absolute valuation methods.

United Commercial Bank Limited (UCBL) is one of the 1st generation non primary

dealer (non-PD) banks, incorporated in Bangladesh in 1983. With over 30-years of

banking services, UCBL has been emerging as a strong brand name in the private

sector banking arena. Formed by a group of entrepreneurs and industrialists, it is

presently the fifth largest private commercial bank (PCB), holding about 3.4 % of the

banking sector loan market share. UCBL has a corporate and SME focused loan

portfolio that fared well throughout the recent credit cycles. Back in 2013, the senior

management of the bank has been restructured and the new leadership has proven

track record of delivering better business performance in challenging times. So the

bank has solved most of the issues after being identified as a problem bank by the

central bank years back.

The bank is operating with 148 branches, 101 ATMs and about 3,500 human capital .

We include UCBL in our top picks (among banks) and followings are the key

investment thesis:

UCBL has gone through a modernization scheme and has rebranded itself quite

well in recent years.

Fairly diversified lending portfolio with substantial focus on SME helps it to attain

decent yields while limiting provision costs to decent levels.

UCBL is the fifth largest PCB as of Sep 2014 with total asset size of BDT 252.4

bn (USD 3.2 bn). The bank registered a 5-year CAGR of 23.1% in loan book and

20.8% in deposits over the 2009-14 period against the private sector credit

growth of average 21.5% in the same period.

UCBL is well suited to grow with the next credit cycle given its industry-position

and strengths. The recent monetary policy seems growth supportive and so we

expect UCBL is one of the few banks which has better footing to reap benefits

from it. We assume 17.5% and 16.5% growth in loan book for 2014 and 2015

respectively.

The bank has also avoided exposure to some of the problem sectors like ship

building & ship-breaking which harmed other banks in recent past. The largest

loan book exposure is in Textile & RMG sector (8.9% of its loan book as of Dec

2013). Furthermore, the bank has moderate exposure of 5.9% in real estate and

only 0.3% in ship breaking industries.

UCBL is fairly compliant with the new loan provisioning and rescheduling

guidelines introduced in Dec 2012 (by the Central Bank). The one-off adjustment

due to compliant with the guidelines is partially done but needs more time to

clean its book.

The bank has taken steps to regularize its non-performing loans and so this will

lower its NPL ratio going forward. However, we project 4.8% and 5.1% gross

NPL in 2014 and 2015 respectively from 4.0% of 2013. Such uptick in NPL

projection is due for UCBL since they took advantage of the relaxed loan

provisioning (allowed by Bangladesh Bank in December 2013 and till June 2014,

on the backdrop of political instability in second half of 2013).

UCBL is also in compliance with the recent capital market exposure ceiling set

by Bangladesh Bank (BB) which is 50% of banks’ consolidated core capital. As a

result, capital market volatility will not significantly hurt the bank in coming years.

UCBL has started its capital market operations in recent years and thus has

relatively low overall exposure through capital market investment. Other than a

United Commercial Bank Ltd. Fair Value Estimate in Dec 2015: BDT 34.70 per share [15.7% upside]

Rating: Market Perform, Sector: Banking

Source : Company Report, DSE and CBCRL Research , Feb 2015

* Disclosures: A section at the end of the report is furnished for important required disclosures, including potential conflict of interests.

UCBL relative price performance with DSEX (DSE market)

Company Insight

UCBL:BD Market Perform

52-week Price Range BDT 22.6 - 30.6

YTD % 2.4

Price, 08 Feb 2015 BDT 30.0

11-month Target Price (Dec 2015) BDT 34.7

Upside/Downside (Price return) % 15.7

Year of Listing 1986

Financial Year End December

Market Cap BDT mn 25,098

Market Cap USD mn 322.7

Free Float % 62.8

6M Avg. Turnover USD' 000 494.6

Number of shares on issue mn 836.6

Investment Fundamentals

Year end 31 Dec 2013A 2014e 2015e 2016e

Assets USD mn 2,901 3,349 3,776 4,278

Assets BDT mn 225,610 260,513 293,696 332,758

Loan and advances BDT mn 148,667 174,684 203,507 234,033

Deposits BDT mn 183,997 198,716 227,530 261,660

Investments BDT mn 36,091 40,506 42,531 44,703

Equity BDT mn 20,505 22,984 25,305 28,293

Net interest income BDT mn 8,757 10,658 11,414 13,529

Non interest income BDT mn 3,655 4,330 4,032 4,420

Operating income BDT mn 12,412 14,989 15,446 17,949

Profit before provision BDT mn 7,132 8,336 8,394 10,262

Profit After Tax (PAT) BDT mn 3,069 3,316 3,158 3,825

PAT growth, YoY % 93.6% 8.0% -4.8% 21.1%

Restated EPS BDT 3.7 4.0 3.8 4.6

PE Ratio X 5.5 6.8 7.9 6.6

DPS BDT 2.0 1.0 1.0 1.0

Dividend Yield % 6.7 3.3 3.3 3.3

ROA % 1.42 1.36 1.14 1.22

ROE % 18.3 17.3 14.6 15.8

Tangible BV BDT 21.5 24.4 27.2 30.8

P/TBV X 1.4 1.2 1.1 1.0

Selective banks– loan market share (% of industry loan), Sep’14

2

United Commercial Bank Ltd.


08 February 2015

prop book of about BDT 3.7 bn it does not have much additional exposure. The

bank is out of any additional pressure since it does not hold any negative equity

portfolio (margin loan provided for stock broking). However, UCBL holds about

0.8% of its loan book (BDT 1.2 bn as of Dec 2013) in margin lending to other

capital market intermediaries.

UCBL is in the process of implementing a core banking solution that should help in

cost control.

Being a non-primary dealer bank, UCBL has less pressure in deploying additional

fund in rise of government borrowing demand from PCBs.

The outlook for external sector in 2015 looks reversing and so the fee based

income of UCBL to experience a moderate growth.

The bank is trading at an attractive 2015 P/TBV of 1.1x

Key risk and challenges:

The private sector credit growth in 2014 was 13.5% YoY (Jan-Dec 2014 period)

while UCBL’s growth was 14.8% (Jan-Sep 2014) and we assume the 2014 YoY

growth to be about 17.5%. However, given the recent political instability, the loan

growth in 2015 may remain subdued and some cases lower than the

2014-number. So, there is a risk that loan growth could suffer if political instability

is not resolved shortly.

UCBL took the benefit of central bank’s relaxed rescheduling guidelines and can

thus the loan book of the bank seems not cleaned yet and as a result the bank will

require to book additional provisioning in the days ahead..

Overall NPL pressures can continue longer than expected, particularly in real

estate segment of the portfolio.

Imposition of cap on agri-lending rate to 11% (from 13%) by BB will squeeze the

spread to some extent since UCBL has about 1.5% loan exposure in agri sector.

Though government borrowings from banking sector saw a large cut (more than

50% in July-Nov’Fy2014-15 period), any large shortfall in financing including tax

revenues, foreign financing and selling of savings certificates can push govt. for

bank borrowing further. This can cause the banks to earn suboptimal returns on

their funds invested in govt. bills and bonds.

Overview of United Commercial Bank

United Commercial Bank Limited (UCBL), one of the first generation private

commercial banks, was incorporated in 1983 and commenced its operations in the

same year. The bank primarily offers services for all commercial banking needs of the

customers, which includes deposit banking, loans and advances, export import

financing, inland and international remittance facility, SME banking etc. The bank got

listed in the bourse in 1986. It has 148 branches and 101 ATMs at present across the

country to cater its services.

Through over 30 years of banking journey, the bank has successfully positioned itself

among the large tier banks with total assets of BDT 252.4 bn as of September 2014. It

is presently the fifth largest PCB in Bangladesh and holding about 3.4 % of the banking

sector loan market share. Even with such large asset size in balance sheet, UCBL has

been enjoying healthy growths in its L&A and deposits. Its 5-year CAGR in L&A and

deposits are 23.1% and 20.8% respectively during 2009-14 period. Its product portfolio

has about 40 different offerings including credit cards, money transfer facility with

Western Union. It has one offshore banking unit located in Dhaka.

The bank has two fully owned subsidiary companies namely UCB Securities Limited

and UCB Investment Limited - dedicated for capital market operations. The subsidiaries

have started their operations very recently (since 2012), so fortunately they were out of

the stock market debacle effect. UCB is holding about 2%-3% market share in mobile

banking and the mobile banking division is very active in recent time; so part of the fees

income is expected to generate from this segment. Moreover, the mobile banking

segment will also help in improving CASA ratios.

Loan growth –5 year CAGR (%) (2008-13)


Deposit growth –5 year CAGR (%) (2008-13)


Gross NPL of selective banks (%), as of Dec 2013



Shareholding Structure of UCBL (as per DSE data)

3



08 February 2015

Shareholders

With paid-up capital of BDT 8.4 bn (USD 107.6 mn), UCBL is the seventh largest among

the 30 PCBs and over four-times of the regulatory required paid-up capital of two billion.

The sponsors‟ and directors‟ shareholding is also in compliance with the BSEC directive

of minimum 30.0% share holding cumulatively.

At present, UCBL has 19 directors (excluding the CEO&MD) in its board. Sponsor and

directors hold 37.2% ownership while institution and general public holding stands at

11.4% and 50.6% respectively. UCBL also has government ownership of 0.8%. Its free

float stands at 63.0%.

Board and management

UCBL board comprises of 19 members. Mr. M. A. Hashem is the Chairman of the Board

of Directors of the bank. Mr. Hashem is a prominent business tycoon of the country and a

former Member of Parliament. He is the founder of Partex Group, one of the largest

conglomerates in the private sector manufacturing and service based enterprises in

Bangladesh. He is also the founder and member of Trusty Board of North South

University, and member of Board of Trustees of the IBAIS University.

The present management team of UCBL is led by Mr. Muhammed Ali, an Economics

graduate, having over 35 years of experience in banking arena. Mr. Ali joined UCBL back

in Nov 2012 and prior to joining UCBL he served in the position of CEO in two other

banks, namely Social Islami Bank and Shahjalal Islami Bank. He has proven track record

in leading various teams in different banks contributing in business policy formulation and

strategic management.

In addition, one of the UCBL’s Additional Managing Director (AMD) is Mr. A. E. Abdul

Muhaimen, who earlier worked as CEO& MD of BRAC Bank (a leading SME focused

bank). He also held senior management positions in ANZ Grindlays Bank, Standard

Chartered Bank. He has about 30 years of banking experience and joined UCBL in July

2013. Mr. Muhaimen has a post graduate degree in MBA from Institute of Business

Administration (IBA), Univerist of Dhaka. He has trained at INSEAD in Singapore, Mount

Eliza of Monash University, Australia and Harvard University, USA.

The other members of top level management have an average experience of above 25

years.

Outlook for United Commercial Bank

The banking industry since 2012 has been facing challenges both from macro front and

regulator - Bangladesh Bank (BB). The schedule banks operating in Bangladesh were

directed to implement the stringent loan classification and provisioning guidelines (in late

December 2012) to bring the sector in line with international best practice. Moreover,

industry wide few loan scams (with government and few private sector banks) and at the

same time political turmoil during second half of 2013 (pre-election period, general

election held on 5th January 2014), put the banking sector as one of the poor-performers

in recent history. The private sector credit growth hit its 13-year low in Feb 2013 and

banks faced excess pile of loanable fund owing to slower credit demand and asset quality

fear by banks. Now though the private sector credit growth revived to 13.5% YoY in Dec

2014, the recent political tension may hamper the banking sector growth further. As such

even the well-managed banks may need to charge additional provisioning.

Given the macro and regulatory challenges we expect UCBL to perform better among the

banks. The recent restructure helped the bank to be poised as one of the key emerging

banks in Bangladesh. UCBL is one of the few bank that had sensed much earlier to cut

the high cost deposits and avoided excess pile of liquidity. The recent better asset liability

management (ALM) by UCBL is expected to improve its performance in the upcoming

years. However, UCBL will need additional capital support to grow its loan book further

since the capital adequacy ratio (CAR) of the bank seems not that high (CAR was 11.3%

as of December 2013). In addition to this, there will be additional capital need for UCBL

since the Basel III implementation is already in place from January 2015. Given such

pressure (for additional capital requirement), we see very little room for UCB in

distributing healthy cash dividend for the coming years.

Source : Company Report and CBCRL Research , Feb 2015

Source : Bangladesh Bank and CBCRL Research , Feb 2015

UCBL has relatively a large board (no of board

members excluding the CEO & MD)

Gross NPL- Private Commercial Bank (% of loan)


3-Year avg ROE of selective banks, %(2001-13)


3-Year avg ROA of selective banks, %(2001-13)

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08 February 2015

Key Ratios and Growth Indicators

*Turnover and Market Cap data for 2015 is for January to 08 Feb 2015 period only (YTD basis). Source : Company Report, DSE and CBCRL Research , Feb 2015

% 2011A 2012A 2013A 2014e 2015e 2016e 2017e

MRKET SHARE

Loan and advances (as % of Industry) - - 3.4 - - - -

Loan and advances (as % of PCBs) - - 4.3 - - - -

FRANCHISE VALUE

Employees 2,982 3,374 3,445 - - - -

Branches 115 130 139 - - - -

ATMs 77 81 101 - - - -

GROWTH, YoY

Growth in Net Interest Income (BD standard) 62.1 38.9 7.9 3.8 15.7 14.3 14.5

Growth in Net Interest Income (Int. standard) 32.5 23.9 10.3 21.7 7.1 18.5 14.6

Growth in Operating Income 18.3 9.5 22.0 20.8 3.0 16.2 13.2

Growth in Operating Expenses 6.3 32.9 19.6 26.0 6.0 9.0 10.0

Growth in Pre Provision Profit 26.3 (3.5) 23.8 16.9 0.7 22.3 15.7

Growth in Net Profit 35.1 (46.2) 93.6 8.0 (4.8) 21.1 22.4

Growth in Investments 28.6 36.4 35.7 12.2 5.0 5.1 5.1

Growth in Assets 30.0 22.9 8.9 15.5 12.7 13.3 13.2

Growth in Shareholders' Equity (adjusted) 96.8 8.0 15.0 13.8 11.4 13.1 14.9

ASSET ANALYSIS

Net Interest Income / average assets (Int. standard) 4.3 4.2 4.0 4.4 4.1 4.3 4.4

Earning assets / Total assets 74.0 72.4 70.5 69.6 70.5 71.9 72.9

Return on average earning assets 2.7 1.2 2.0 2.0 1.6 1.7 1.8

LOAN & DEPOSIT ANALYSIS

Loan growth 23.5 17.8 9.3 17.5 16.5 15.0 15.0

Deposits growth 23.3 22.3 8.0 8.0 14.5 15.0 14.5

CASA Ratio 22.4 20.2 21.9 27.8 27.8 27.8 27.8

LIQUIDITY ANALYSIS

Gross LDR 82.9 79.9 80.8 87.9 89.4 89.4 89.8

Loans / Assets 70.0 66.9 65.8 66.5 68.2 69.8 70.9

Earning Assets to Customer Deposits 87.5 87.9 86.1 88.4 91.6 92.1 92.1

Statutory Liquidity Ratio (required 19.5%) 25.2 27.9 28.2 28.2 28.2 28.2 28.2

Cash Reserve Ratio(required 6%-6.5%) 6.5 6.0 6.3 6.5 6.5 6.5 6.5

ASSET QUALITY

Gross NPL (% of L&A) 1.8 3.7 4.0 4.8 5.1 5.4 5.6

LLP or Cost of Risk (% of L&A) 0.7 1.1 0.7 1.0 0.9 0.9 0.8

NPL Coverage 125.5 81.3 72.2 58.3 57.4 59.1 61.1

Provision to Assets 0.5 1.0 0.5 0.7 0.7 0.7 0.6

CAPITAL ADEQUACY

Capital Adequacy Ratio (CAR) 10.9 10.4 11.5 11.9 11.4 11.1 11.0

Core Capital (Tier I) 9.2 8.5 8.7 8.6 8.5 8.6 8.7

Avg. Adjusted Equity to Avg. Assets 7.3 8.0 7.8 7.9 7.8 7.7 7.8

SPREAD ANALYSIS

Net Interest Margin (Int. standard) 5.2 5.2 5.0 5.4 5.0 5.2 5.3

Loan-Deposit Spread 6.2 6.7 6.9 7.0 7.0 7.0 7.0

Interest rate received on interest earning assets 13.9 15.7 15.1 14.1 14.1 14.0 14.0

Interest rate paid on interest bearing liabilities 8.1 9.5 8.9 7.9 8.3 8.0 8.0

OTHER GROWTH ANALYSIS

Growth in Non Interest Income (Int. standard) (4.4) (22.4) 63.0 18.5 (6.9) 9.6 9.1

Fees to non interest income (Int. standard) 53.8 63.8 51.9 55.2 68.2 69.7 70.9

Fees to total income 16.7 14.0 15.3 16.0 17.8 17.2 16.8

OPERATING EFFICIENCY

Cost to Income Ratio 35.7 43.4 42.5 44.4 45.7 42.8 41.6

Cost to Assets 2.2 2.3 2.4 2.7 2.5 2.5 2.4

Int. bearing Liabilities / Total Liabilities 91.8 90.9 91.1 91.4 91.6 92.2 92.7

PROFITABILITY

ROA 2.0 0.8 1.4 1.4 1.1 1.2 1.3

ROE 27.0 10.5 18.3 17.3 14.6 15.8 16.9

Pre-Provision ROE 50.2 33.8 36.9 38.3 34.8 38.3 39.3

Pre-Provision ROA 4.3 4.0 3.1 3.3 3.4 3.0 3.3

Dividend Yield 2.5 3.7 10.0 3.7 3.4 3.4 3.4

Dividend Payout Ratio 29.6 52.8 54.5 25.2 26.5 21.9 17.9

Restated EPS 3.5 1.9 3.7 4.0 3.8 4.6 5.6

Restated BVPS 19.1 21.7 24.5 27.5 30.2 33.8 38.4

Restated Tangible BVPS 17.3 18.7 21.5 24.4 27.2 30.8 35.4

Dividend Per Share 1.2 1.0 2.0 1.0 1.0 1.0 1.0

VALUATIONS

PE Ratio, X 13.6 14.4 5.5 6.8 7.9 6.6 5.4

PB Ratio, X 2.5 1.3 0.8 1.0 1.0 0.9 0.8

P/TBV Ratio, X 2.8 1.5 0.9 1.1 1.1 1.0 0.8

Deposit to Mkt Cap, X 3.5 7.5 11.0 8.8 9.1 10.4 11.9

MARKET DATA

Market Cap (yearly average), BDT mn 40,026 22,759 16,748 22,464 24,944 - -

Market Cap (yearly average), USD mn 514.6 292.6 215.3 288.8 320.7 - -

Turnover (yearly average), BDT mn 149.0 60.3 38.5 53.2 16.4 - -

Turnover (yearly average), USD' 000 1,915.8 775.1 494.4 684.0 210.3 - -

Adj. Market Price (yearly average), BDT per share 47.8 27.2 20.0 26.9 29.8 - -

5



08 February 2015

Loan book of UCBL’ as of Dec’13

Source : Company Report and CBCRL Research , Feb 2015 Source : Company Report and CBCRL Research , Feb 2015

Loan book with growth trend of UCBL

Deposit book of UCBL’ as of Sep’14


Deposit book with growth trend of UCBL

Liability book composition’ as of Sep’14


Gross advance to deposit ratio and CASA ratio trend

Loan book of UCBL is fairly diversified and mostly tilted towards SME and corporate sector...

The nature of aggressive growth in loan book is eased recently and most importantly the average growth is targeted to the private sector credit growth….

UCBL historically sourced its financing from fixed term deposits, however the CASA ratio is improving...

The bank avoided high cost deposits to cut the excess liquidity piling off; in fact it also helped in improving low cost CASA ratio….

The liability book of UCBL is mostly sourced from deposits taking and this is in line with industry norms...

UCB is eyeing on improving its gross advance deposit ratio (ADR) and we expect stability in recent political turmoil will help in rising ADR….

6



08 February 2015

Asset book of UCBL’ as of Sep’14


Capital adequacy is in line wit h minimum regulatory threshold

Weight of Gross NPL for UCBL’ as of Dec 2013


Capital adequacy ratio (CAR) is above of minimum 10% threshold, but not enough

Gross non performing loan (NPL) - PCBs and UCBL


Gross non performing loan (NPL) - for UCBL to go up in coming years

Asset book of UCBL is well diversified and a reasonable amount is tied in the form of risk free assets and cash...

UCBL came out from the legacy of a bank with capital shortage and now it is fairly capitalized; nevertheless the bank will need additional capital to support its loan book growth and to implement the BASEL III, which is already in place from Jan 2015...

The bad/loss portion of Gross NPL is dominating the pie and its clearly indicating why required provision should be going up in days ahead..

Capital adequacy ratio (CAR) of both UCBL and private commercial bank suffered on pressure from piling up of delinquent assets ...

Gross NPL of UCBL is below that of the PCBs, but loan rescheduling in recent quarters will push the number for future periods, so our estimate for gross NPL is a bit high and which is realistic. It is worth mentioning here that UCBL took the advantage of Central Bank’s relaxed loan provisioning facility (for Dec’2013 to June’2014 period). So, NPL number for UCBL should go up and so required provision in the process.…..

% of L&A Dec'13

Sub-standard 0.4%

Doubtful 0.3%

Bad/loss 3.4%

Gross NPL 4.0%

7



08 February 2015

Combination of Operating Income (3-Y average, 2011-13)


Interest spread is at higher end for SME and corporate focused loan portfolio

Composition of Commission, and Fees Income , 2013


Operating income composition with historical trend

Composition of Operating expenses, 2013


Cost to Income and Cost to Asset Ratio - trend is up tick

Net interest income is the dominant field of operating income, so any fluctuation in interest rate spread will affect the operating income.

The rate of falling in deposit cost is relatively higher than that of lending rate, so some improvement in spread for UCBL is expected and it should persist since the loan book is highly exposed to SME lending (which requires high yield for offsetting risk)...

19% of the operating income is coming form commission and fees and this is largely dependent on external sector outlook.

Fee based income (mainly investment income) squeezed on sluggish capital market performance and suboptimal yield in gov. bill/bonds. However, fee based income should go up on improved outlook in external sector (export, import and remittances)..

Both cost to income and cost to assets are on increasing trend since the operating income sources are affected easily (due to many external factors) but cost (like salary, rent and deprecation) is usually not downward trending...only higher efficiency can reign such ratio to expected level. Our view is that the recent restructuring of UCB will yield better efficiency in the medium-to-long run; and so some improvement in cost ratios.

8



08 February 2015

Composition of provision (3-year average, 2011-13)


Provision and cost of risk — not sufficient to cover stressed assets

Exposure composition (BDT 4.94 bn as of Dec’13)


Capital market exposure is within the regulatory limit

Per share basis earning (restated)..


PAT and growth trend (one of provision impact is already reflected)

The average cost of risk (~1.2%) for UCBL is relatively higher compared to the top tier banks’ (~1%). Such cost can be lowered through stringent loan approval policy. However UCBL’s cost is also in higher end for its SME focused loan book...

UCBL’s capital market operations is in the regulatory limit and so any unpredictable volatility in stock market should have tolerable impact in its book (lower required provision). So far, UCB holds no negative equity portfolio and this a great relief - thanks that it started its capital market subsidiary opera-tion after the stock market bubble burst and debacle. Moreover, UCBL holds a proprietary investment book of BDT 3.7 bn as of Dec 2013...

Both cost to income and cost to assets are on increasing trend since the operating income sources are affected easily (due to many external factors) but cost (like salary, rent and deprecation) is usually not downward trending...only higher efficiency can reign such ratio to expected level. Our view is that the recent restructuring of UCB will yield better efficiency in the medium-to-long run; and so some improvement in cost ratios.

9



08 February 2015

Interest margin improved on deposit rate cut


Average ROE for UCBL is well above of PCBs number

Pre provision ROE and ROA


Average ROA for UCBL is well above of PCBs number

The Return on Equity (ROE) in recent years suffered mainly due to higher provision charge and sluggish performance of both capital market and external sector. However, UCBL’s ROE number is comparatively higher than that of the private commercial banks’ (PCBs) number. We expect the ROE of UCBL to rebound from 2014 and onward and should continue at around 15% (sustainable basis). UCBL is one of the few banks that cut the deposits rate at first hand and it helped to realize some improvement in margin (though we expect such transitional improvement in spread is not persist in long-run)...

Efficient loan book management can accelerate the return numbers for long–term. UCBL’s stock performance will highly be dependent on the ROE number which is now close to the cost of capital (not less than 14%). We expect better balance sheet management for UCBL is not much challenging since its management team is well-equipped with seasoned bankers of the country….

Adjusted price and turnover trend (till 08 Feb 2015)

Source : Company Report , DSE and CBCRL Research , Feb 2015

10



08 February 2015

Consolidated Income Statement and Balance Sheet United Commercial Bank Limited

Income Statement (Consolidated basis)

MM BDT 2010A 2011A 2012A 2013A 2014E 2015E 2016E

Interest Income 9,468 15,352 21,319 23,006 23,874 27,624 31,587

Interest paid 5,633 10,203 14,705 15,924 15,977 19,175 21,171

Net Interest Income 3,835 5,148 6,614 7,082 7,897 8,449 10,416

Fee Based Income 4,020 4,146 3,564 5,330 7,091 6,997 7,533

Income from investment 1,973 1,834 1,419 2,666 3,896 3,411 3,583

Commission & Brokerage 1,360 1,554 1,429 1,899 2,392 2,751 3,081

Other Income 688 758 716 765 803 835 868

Total Operating Income 7,856 9,294 10,178 12,412 14,989 15,446 17,949

Operating Expenses 3,125 3,322 4,416 5,280 6,653 7,052 7,687

Profit Before Provision 4,730 5,972 5,761 7,132 8,336 8,394 10,262

Provision 1,101 800 2,023 1,239 1,910 2,003 2,286

Pre-Tax Profit 3,630 5,172 3,738 5,893 6,425 6,391 7,976

Tax 1,450 2,227 2,153 2,824 3,109 3,232 4,150

Minority interest - - - - 1 1 2

Profit After Tax (PAT) 2,180 2,945 1,585 3,069 3,316 3,158 3,825

Restated EPS 2.61 3.52 1.89 3.67 3.96 3.77 4.57

Balance Sheet (Consolidated basis)

MM BDT 2010A 2011A 2012A 2013A 2014E 2015E 2016E

Cash 10,029.5 13,034.2 16,211.5 15,275.2 19,542.2 21,003.0 25,525.2

Balance with other Bank & FIs 1,824.5 3,740.0 4,713.3 7,027.9 5,240.5 5,087.7 5,850.8

Money at call 1,120.0 5,070.0 7,160.0 1,570.0 1,020.5 1,071.5 1,125.1

Investment 15,171 19,507 26,605 36,091 40,506 42,531 44,703.1

Loan & Advance 93,561 115,506 136,072 148,667 174,684 203,507 234,033

Fixed Assets 1,966 3,288 5,223 7,958 8,515 8,941 9,388.1

Other Assets 6,102 8,543 11,261 9,020 11,005 11,555 12,132.7

Total Assets 129,774 168,689 207,244 225,610 260,513 293,696 332,758

Borrowing from other FIs - - 1,200 1,617 16,171 16,980 17,828.9

Deposits 112,971 139,285 170,331 183,997 198,716 227,530 261,660

Subordinated Bond - - - 2,000 2,000 2,000 2,000

Other Liability 8,989 13,441 17,547 17,492 20,640 21,879 22,972.7

Total Liabilities 121,960 152,725 189,077 205,106 237,528 268,389 304,461

Paid-up Capital 2,910 7,275 8,366 8,366 8,366 8,366 8,366

Retained Earnings & others 4,905 8,688 9,801 12,139 14,619 16,941 19,931

Shareholder's Equity 7,815 15,963 18,167 20,505 22,985 25,307 28,297

Total Liabilities & Equities 129,774 168,689 207,244 225,610 260,513 293,696 332,758

Restated BVPS 9.3 19.1 21.7 24.5 27.5 30.2 33.8

Restated Tangible BVPS 8.8 17.3 18.7 21.5 24.4 27.2 30.8

Dividend and Right on Paid up Cap:

Bonus Share 25.0% 15.0% 0.0% 0.0% - - -

Cash Dividend 0.0% 12.0% 10.0% 20.0% 10% 10% 10%

Right Share issue 0.0% 100.0% 0.0% 0.0% - - -


11



08 February 2015

This Document/Report has been prepared and issued by City Bank Capital Resources Limited (CBCRL) on the basis of the public information available in the market, internally developed data and other sources believed to be reliable. Whilst all reasonable care has been taken to ensure that the facts and information stated in the Documents are accurate as on the date mentioned herein. Neither CBCRL nor any of its director, shareholder, member of the management or employee in the research team or employee represents or warrants expressly or impliedly that the information or data of the sources used in the document are genuine, accurate, complete, authentic, and correct. Moreover, none of the director, shareholder, member of the management or employee in the research team or employee represents in any way be responsible about the completeness, authenticity and correctness of the sources that are publicly available to prepare the Document. It does not solicit any action based on the materials contained herein and should not be construed as an offer or solicitation to BUY or SELL or SUBSCRIBE to any security. If any person takes any action relying on this Document, shall be responsible solely by himself/herself/themselves for the consequences thereof any claim or demand for such consequences shall be rejected outright by CBCRL or by any court of law.

Disclaimer

Analyst

Name Contact E-mail

Mehedee Hasan +88 01730 727 941 [email protected]

Moinul Amin +88 01911 993 469 [email protected]