TERM PAPER

Bank Management (FIN 464)

SECTION-02

PERFORMANCE ANALYSIS OF A PRIVATE COMMERCIAL BANKS IN BANGLADESH

Prepared By: Touhidul Huq Khan ID:071627030

Prepared For: M. Morshed Senior Lecturer School Of Business North South University

TABLE OF CONTENTS
Executive Summary............03 Introduction.04 Objectives.......04 Methodology...05 Limitations......05 Overview of The Bank06 Literature Review...09 Profitability Ratios09 Efficiency Ratios..11 Liquidity Ratios12 Leverage Ratios13 Market Position Ratios.14 Findings and Analysis.15 Time Series Analysis: From 2007 to 2010...15 Cross sectional analysis: DBBL vs City Bank.24 Recommendation31 Conclusion......32 Bibliography...33 Appendix.34

EXECUTIVE SUMMARY:
This report focuses on many theories, models, ratios, ratio interpretations and how these ratios are contributing to evaluate the performance of Dutch-Bangla Bank Limited and its rival bank, City Bank Limited. Time series analysis was done to analyze the performance of Dutch-Bangla Bank Limited which is followed by a cross-sectional analysis of DBBL with its competitor City Bank Limited. According to the project outline a systematic breakdown of components have been shown in the report. During the analysis in the report, various calculations and visual applications (i.e usage of charts) of the ratios have been provided which provide further assistance in analyzing the performance of the two banks. At the end of the analysis, recommendation is provided to potential and existing investor regarding their investment decision on DBBLs stock.

INTRODUCTION
Banking industry is a crucial part of the financial system of an economy. The smooth operation of the financial system and in turn, the smooth operation of the overall economy is heavily dependent on the performance of the banking industry. As a result, there high level of government scrutiny over banks activity makes careful evaluation crucial for a bank in order to safeguard its stakeholders. Analyzing a commercial banks performance is unlike evaluating other conventional companies. The composition of a commercial banks financial statements is diverse and often much more critical than any other organization and thereby, demand extra care. We will employ specific mechanics to evaluate the performance of the opted bank.

OBJECTIVES
The purpose of this report is to analyze the performance of Dutch-Bangla Bank Limited whereby, its performance would be analyzed using a time series analysis for a period of four years, from 2007 to 2010, and also a cross sectional analysis of the same bank would be done with its closest competitor, The City Bank Limited, for the same stated time period. By analyzing the performance of Dutch-Bangla Bank Limited, it would be indicated whether the performance of the bank is improving or deteriorating from individual standpoint and also in relative to its competitor, The City Bank Limited. Based on the findings, recommendation would be made to Dutch-Bangla Bank Limited and also to a potential investor regarding the investment decision on the stock of either of the two stated banks. The main analysis of these banks would be done using the bank management theories and ratios. The performance has been analyzed based on the following five major criteria:

Liquidity: Liquidity for a bank means the ability to meet its financial obligations as they come due. Bank lending finances investments in relatively illiquid assets, but it fund its loans with mostly short term liabilities. Thus one of the main challenges to a bank is ensuring its own liquidity under all reasonable conditions.

Leverage: Leverage of a bank refers to the use of funds purchased in the money market or borrowed from depositors to finance interest-bearing assets, principally loans. We have to analyze the extent of leverage used by our respective bank.

Efficiency/activity: The efficiency of the commercial banks activity. Its utilization of funds and available resources.

Profitability: The essential function of a bank is to provide services related to the storing of deposits and the extending of credit. The evolution of banking dates back to the earliest writing, and continues in the present where a bank is a financial institution that provides banking and other financial services. The profitability measure indicates the relative capability of a bank of making profit.

Market Position: The market estimation, value and position of the bank.

METHODOLOGY
This report is based on data collected from secondary sources. Annual reports of the banks and as well as relevant stock data were collected from Dhaka Stock Exchange. Also, relevant information regarding the concerned banks background and service offerings were gathered from the respective banks web site. Moreover, textbooks regarding bank management and investment theory were used as references.

LIMITATIONS
The major limitation that I faced in preparation of this report is time constraint. Due to hectic schedule and other projects and assignments that were due on about the same date of submission as this project, I was not able to give my best effort on this assignment. However, it must be said that I worked to the best of my ability to finish this project on time and in a presentable manner in spite of other responsibilities. Moreover, lack of excess to banks

internal information was another notable limitation as I was not able to calculate some key ratios such as pledged securities ratio, brokered deposit ratio etc.

OVERVIEW OF THE BANK

As mentioned earlier, the report would focus on analyzing the performance of The DutchBangla Bank Limited. Following is a brief overview of the bank:

Dutch-Bangla Bank Ltd.

Dutch-Bangla Bank Limited (DBBL) is Bangladesh's most innovative and technologically advanced bank. DBBL stands to give the most innovative and affordable banking products to Bangladesh. Amongst banks, DBBL is the largest donor in to social causes in Bangladesh. It stands as one of the largest private donors involved in improving the country. DBBL is proud to be associated with helping Bangladesh as well as being a leader in the country's banking sector.

Mission
Dutch-Bangla Bank engineers enterprise and creativity in business and industry with a commitment to social responsibility. "Profits alone" do not hold a central focus in the Bank's operation; because "man does not live by bread and butter alone".

Vision
Dutch-Bangla Bank dreams of better Bangladesh, where arts and letters, sports and athletics, music and entertainment, science and education, health and hygiene, clean and pollution free environment and above all a society based on morality and ethics make all our lives worth living. DBBL's essence and ethos rest on a cosmos of creativity and the marvel-magic of a charmed life that abounds with spirit of life and adventures that contributes towards human development.

Core Objectives
Dutch-Bangla Bank believes in its uncompromising commitment to fulfill its customer needs and satisfaction and to become their first choice in banking. Taking cue from its pool esteemed clientele, Dutch-Bangla Bank intends to pave the way for a new era in banking that upholds and epitomizes its vaunted Marques "Your Trusted Partner".
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Brief History
Dutch-Bangla Bank Limited (DBBL) is a Bangladeshi-European private joint venture scheduled commercial bank, incorporated in Bangladesh in the year 1995. This public limited bank commenced its formal operation from June 3, 1996. The Netherlands Development Finance Company (FMO) of the Netherlands is the international co-sponsor of this bank with 30% equity holding. Out of the rest 70%, 60% equity has been provided by prominent local entrepreneurs and industrialists and the rest 10% shares is the public issue. Dutch-Bangla Bank started operation as Bangladesh's first joint venture bank. The bank was an effort by local shareholders spearheaded by M Sahabuddin Ahmed (founder chairman) and the Dutch company FMO. From the onset, the focus of the bank has been financing high-growth manufacturing industries in Bangladesh. The rationale being that the manufacturing sector exports Bangladeshi products worldwide. Thereby financing and concentrating on this sector allows Bangladesh to achieve the desired growth. DBBL's other focus is Corporate Social Responsibility (CSR). Even though CSR is now a clich, DBBL is the pioneer in this sector and termed the contribution simply as 'social responsibility'. Due to its investment in this sector, DBBL has become one of the largest donors and the largest bank donor in Bangladesh. The bank has won numerous international awards because of its unique approach as a socially conscious bank. DBBL was the first bank in Bangladesh to be fully automated. The Electronic-Banking Division was established in 2002 to undertake rapid automation and bring modern banking services into this field. Full automation was completed in 2003 and hereby introduced plastic money to the Bangladeshi masses. DBBL also operates the nation's largest ATM fleet and in the process drastically cut consumer costs and fees by 80%. Moreover, DBBL choosing the low profitability route for this sector has surprised many critics. DBBL had pursued the mass automation in Banking as a CSR activity and never intended profitability from this sector. As a result it now provides unrivaled banking technology offerings to all its customers. Because of this mindset, most local banks have joined DBBL's banking infrastructure instead of pursuing their own.
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Even with a history of hefty technological investments and even larger donations, consumer and investor confidence has never waned. Dutch-Bangla Bank stock set the record for the highest share price in the Dhaka Stock Exchange in 2008.

Services and Products

Given below is the list of services and products offered by the bank: Card Products o DBBL-NEXUS Classic Card (debit) o DBBL-NEXUS Maestro card (debit) o DBBL-NEXUS VISA Electron card (debit) o DBBL-NEXUS Silver OD card (credit) o DBBL-NEXUS Gold OD card (credit) IT Products o Truly Online Banking o Wide range of ATM & POS o Internet Banking o SMS & Alert Banking Retail Banking Products(DBBL Life Line) Retail Banking Products(DBBL Future Line) Banking Products o Deposit Savings Deposit Account Current Deposit Account Short Term Deposit Account Resident Foreign Currency Deposit Foreign Currency Deposit Convertible Taka Account Non-Convertible Taka Account Exporter's FC Deposit(FBPAR) Current Deposit Account-Bank
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Short Term Deposit Account-Bank

o Loan & Advances Loan against Trust Receipt Transport Loan Consumer Credit Scheme Real Estate Loan (Res. & Comm.) Loan against Accepted Bill Industrial Term Loan Agricultural Term Loan Lease Finance Other Term Loan FMO Local Currency Loan for SME FMO Foreign Currency Loan Cash Credit (Hypothecation) Small Shop Financing Scheme Overdraft

LITERETURTE REVIEW
In theory, the behavior of a stocks price is regarded as the best indicator of a financial firms performance because it reflects markets evaluation of that firm. But often, due to market imperfection, analyst may have to consider on ratio analysis for a fair assessment of a financial firm. Ratio analysis provides only a single snapshot, the analysis being for one given point or period in time. In the ratio analysis it is possible to define the company ratio with a standard one. Below are the various ratios used in time series and cross sectional analysis of Dutch-Bangla Bank Limited:-

PROFITABILITY RATIOS:
Return on Equity (ROE)
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Return on equity measures a Bank's profitability by revealing how much profit a bank generates with the shareholders invested money. The equation for ROE is = Net income after tax/ shareholders equity It measures the return on the money the investors have put into the company. This is the ratio potential investors look at when deciding whether or not to invest in the company. Net income comes from the income statement and stockholders equity comes from the balance sheet. In general, the higher the percentage is the better. Return on Assets (ROA) ROA measures the efficiency with which the company is managing its investment in assets and using them to generate profit. It measures the amount of profit earned relative to the firms level of investment in total assets. Net Income is taken from the income statement, and total asset is taken from the balance sheet. 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 = Net income after tax/total asset Net Interest Margin Net Interest Margin (NIM) is a measurement of the difference between the interest income generated by banks or other financial institutions and the amount of interest paid out to their lenders. It is expressed as a percentage of what the financial institutions are earning minus the interest that it pays on borrowed funds to its investors. It examines how successful a firm's investment decisions are compared to its debt situations. A negative value denotes that the firm did not make an optimal decision, because interest expenses were greater than the amount of returns generated by investments. The equation for NIM is = (Interest Revenue - Interest Expense)/Total Asset Net Non Interest Margin Non interest margin in calculated by: = (Non Interest Revenue Non Interest Expense)/Total Assets It is expressed as a percentage of how much non-interest revenue the financial institutions are earning minus the non interest expense. Non-interest income includes revenues earned from loan and investments or fee income from fiduciary activities, services charges on deposit accounts, trading account gains and fees, revenues income from investment banking, security brokerage and insurance services. Noninterest expenses include salaries, wages and employee benefits.
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Net Operating Margin A measure of how profitably the firm is operating. The ratio tells how well a company converts revenue from core operations into actual profit - how many cents of profit it gets from every dollar of sales. The operating margin shows how well the company controls costs. The equation is = (Total Operating Revenue Total Operating Expenses)/Total Assets Earnings Per share (EPS) The portion of a company's profit allocated to each outstanding share of common s tock. Earnings per share serve as an indicator of a company's profitability. It tells an investor how much of the company's profit belongs to each share of stock. The equation is = Net income/ Common Equity Shares Outstanding Net profit margin It tells investors the percentage of money a company actually earns per dollar of sales. This number is an indication of how effective a company is at cost control. The higher the net profit margin is, the more effective the company is at converting revenue into actual profit. The net profit margin is a good way of comparing companies in the same industry. The equation is = Net Income/ Total Operating Revenue Overhead Margin It is the proportion of total non interest expense with respect to total assets. An increase in overhead margin ratio indicates that there is inefficiency in controlling expenses. = Total Non-interest Expense/ Total Assets

EFFICIENCY RATIOS:
Tax Management Efficiency It reflects the use of security gains or loss to minimize tax exposure. It indicates what portion of operating income generates net income after tax. The equation is = Net Income After Tax/Pre-tax Net Income Expense Control Efficiency It indicates the portion of revenue after the operating expense is deducted. Its a measure of operating efficiency and expense control. The equation is
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= Pretax Net Operating Income/ Total Operating Revenue Asset Utilization Ratio It measures the speed at which a business is able to turn assets into sales, and hence cash. The higher the ratio, the more effectively assets are used to generate revenue. The equation is = Total Operating Revenue/Total Assets Equity Multiplier The ratio shows a company's total assets per dollar of stockholders' equity. A higher equity multiplier indicates higher financial leverage, which means the company is relying more on debt to finance its assets. The equation is = Total Asset/ Total Equity Capital

Operating Efficiency ratio The efficiency ratio gives us a measure of how effectively a bank is operating. It is the cost required to generate each dollar of revenue. The equation is = Total Operating Expense/ Total Operating Revenue An increase means the company is losing a larger percentage of its income to expenses. If it is getting lower, it is good for the bank and its shareholders. This measures non-interest expenses as a proportion of operating revenue. Costs include salaries, technology, buildings, supplies, and administrative expenses. Revenue includes net interest income (interest revenue less interest expenses) plus fees. Employee productivity Ratio The equation is = Net Operating Income/Number of full time employees The ratio measures the level of income that each employee generates. It helps to determine the efficiency of a bank in terms of employees.

LIQUIDITY RATIOS
Cash position indicator Greater proportion implies bank is in a strong position to meet immediate cash needs. The equation is
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= Deposits due from depository institutions/Total Assets Liquidity securities indicator The greater the proportion of govt. securities the more liquid the bank is. The equation is = Govt. Securities/Total Assets Core Deposit ratio Have lower liquidity requirements and are usually small-denominated checking accounts and savings account which are unlikely to be drawn. The equation is = Core Deposits/ Total Assets Deposit Composition Ratio A decline suggests greater deposit stability and lesser need for liquidity. The equation is = Demand Deposits/Term Deposits

Capacity Ratio It is the proportion of total loans & leases with respect to total assets. So a lower value indicates a higher liquidity and less profitability and vise versa. = Net loans & leases / Total Assets.

LEVERAGE RATIOS
Debt-Equity Ratio It indicates what proportion of equity and debt the company is using to finance its assets. A high debt-equity ratio generally means that a company has been aggressive in financing its growth with debt. The equation is = Long Term Debt/Total Stockholders Equity Total Debt Ratio The debt ratio is measure of the level of liabilities held in relation to total assets. Increase in this ratio means higher risk and more leverage.
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= Total Liabilities/Total assets

MARKET POSITION RATIOS

Price Earnings Ratio (P/E) It is a measure of the price paid for a share relative to the annual profit earned by the firm per share. A high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. It gives us an indication of the confidence that investors have in the future prosperity of the business. The equation is = Market Value Per Share/ Earning per Share Market-Book Ratio It measures how much a company is worth at present, in comparison with the amount of capital invested by current and past shareholders into it. This ratio is used by some investors or analysts as an indicator of over- or undervaluation. If the balance sheet assets per share are much larger than the share price, this is taken to be a buy signal. The equation is = Market Value Per Share/ Book value Per Share

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FINDINGS AND ANALYSIS:

In this part of the report, the financial performance of Dutch-Bangla Bank would be analyzed using a time-series analysis over the period of 2007 to 2010. Followed by a time-series analysis, a cross sectional analysis would also be done with its rival, City Bank Limited over the same period.

Time-series Analysis: From 2007 to 2010 Profitability Ratios

The following ratios would indicate Dutch-Bangla Banks ability to meet its debt obligations, the rate of growth of its assets, reserves and ultimately the shareholders' value.

Above illustration shows Dutch-Bangla Banks return on asset and return on equity for the period of 2007 to 2010. Its return on asset on asset had steady growth over this period. DBBL also managed to achieve growth on its return on equity. However, its return on equity was higher from 2007 to 2010, indicating that DBBL was able to efficiently make profit by using its shareholders investment. The steady growth of ROA indicated DBBLs effectiveness in asset management to generate profit. Although DBBL was able to generate acceptable return from its assets, its growth in earnings and its growth in assets was almost similar. Hence, there was a steady growth in return on asset.

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There was an increase in net interest income over the four year for DBBL. The ratio decreased only on the year 2009, mainly because of increase in the total assets of the bank. Moreover, net interest income has also increased for the company over the year, which also contributed to the increase of net interest income, which is a good sign for an investor. Although, it is common for banks to have negative net non-interest margin but DBBL has been able to keep it positive throughout the four year period, except 2007. It suggests the companys ability to generate high fee income mainly through its non-interest related activities such as investments in securities and ATM fees. This also indicates high efficiency of operating expense control.

Although, overhead margin increased over the years but as mentioned earlier, DBBLs ability to generate considerable amount of revenue from non-interest expense, thus having positive net non-interest margin indicated that the is safe from increase in overhead margin.

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Net profit margin of a company is one the most important determinant of profitability regardless of whether the company is financial or non-financial company. DBBL was able to keep a stable increase in net-profit margin over the year. This suggests the banks management has been substantial control over the expenses of the bank and can generate fair amount of revenue by properly utilizing its assets.

Efficiency Ratios
The efficiency ratio is a measure for a banks productivity. Efficiency or activity ratios indicate a

banks efficiency in controlling expenses to generate return.

Tax management efficiency of DBBL has been in a stable level during the first two year of the analyzing period. However, in the third year of the analyzing period, the ratio increased and remained stable for the rest of the analyzing period indicating the banks effectiveness in using security gains and extraordinary items to minimize the companys overall tax effect. There was a sharp increase in expense control efficiency ratio of DBBL during the analyzing period of 2007 to 2010. Although there was a slight fall in the expense control efficiency ratio in 2009 in comparison to 2008, but a substantial increase of the expense control ratio in 2010, which is the highest for the four years analyzing period, indicates DBBLs management efficiency in control of the operating expenditure. This is a good sign for an investor because the bank is able to manage its expenses and make sure operating expenses doesnt eat up operating revenues.
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The operating efficiency ratio showed positive scenario for DBBL. Although operating efficiency ratio had an incremental increase in 2008, but during the 2009 and 2010 period, the operating efficiency ratio had a substantial steady decline. From the pattern of the ratio during the analyzing period, suggest that DBBL has been able to maintain substantial level of operating revenue to cover up the operating expenses. It also has good command over it operating expenses as the expense control efficiency ratio also suggest this trend.

There is a steady increase in asset management ratio of DBBL during the analyzing period which indicates DBBLs efficiency in investing good portfolio of asset and getting a good return from its investment in those assets. Moreover, this sends a positive signal to potential investors.

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As mentioned earlier, fund management efficiency or equity multiplier depicts the leverage or financing policies of a bank. Banks are usually highly leveraged as in the case of DBBL too. From the analysis period, it can be deduced that DBBLs fund management efficiency ratio has decreased steadily over the analyzing period. The reason behind this is increasing the level of equity by DBBL during this period. The good sign for investor is that DBBLs decreased dependency on leverage will constitute to decrease the level of risk assumed by the bank. On the contrary, it might affect the DBBLs profitability. But in this case the profitability was not affected as seen in the profitability ratios the profit has increased which are excellent sign for an investor. These ratios constitute the return on equity for a bank and it gives a clear idea to a investor about a banks performance in terms of its policies to maintain efficiency and as of the period DBBL has been in good shape for investment.

During the analyzing period, the ratio was somewhat steady during the period of 2007 to 2009. However, in 2010, there was a shap increse in employee productivity of DBBL which suggest that DBBL has got a quality management for its operation as in the previous part of the analysis, it was found that DBBLs profitability and the managements control over the expenditure was high in 2010.
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Liquidity Ratios:
Liquidity analysis considers the banks ability to meet its obligations and is very critical for a bank to remain a going concern.

Cash position indicator of DBBL has remained somewhat steady during the period of 2007 to 2009. However, there was a substantial increase in the cash position indicator in 2010 which was higher due increase in the level of cash and securities held in Bangladesh bank. High cash position ratio also indicates that DBBL is better off in handling immediate cash needs. Moreover, this increased level of liquidity did not affect the profitability of DBBL.

Over the analysis period, there was a cyclic movement of the liquidity security indicator. There was decline in the ratio from year 2007 to 2008 and again from year 2009 to 2010 due to increase in lending activity by DBBL in those respective years which weaken the liquidity position of the bank and hence could be a concern for potential investor. The increase in profitability, in recent years of the analysis period, was mainly a consequence of the decrease of securities held for liquidity and could be invested in higher yielding investment. Due to this, profitability of DBBL raised but at the expense of increased level of liquidity risk.
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The deposit composition ratio of DBBL was at the rise during the analysis period with sharp increase in 2009 and 2010. This suggest that the banks liquidity has gradually gone down during the analysis period and DBBLs exposure to liquidity risk has increaed as a result. However, the increase in DBBLs demand deposit liabilty in comparison to fixed deposit liability have resulted in higher profit as less have to be paid on demand deposits in comparison to fixed deposits.

The above illustration shows DBBLs core deposit ratio has a gradual decline over the analysis period. There is a sharp decline in the core deposit ration of DBBL in year 2009 and 2010. The gradual decline in this period is DBBLs approach in attracting more demand deposits over core deposit. Although such approach has increased profitability of DBBL in recent years of the analysis period, however, the bank is more exposed to liquidity risk which is in conjunction to deposit composition ratio discussed earlier.

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Leverage ratios:
Leverage ratios examine how assets of the business are financed. By nature, banks are highly leveraged. As a result it is important for an investor to assess any increase in leverage of a bank they are interested in investing in.

The above illustration shows that DBBLs debt to equity ratio have declined over the analysis period which suggest that the DBBL leverage have declined over the period and it is subject to less bankruptcy risk exposure as a result. This has happened because of issuance of new equity capital by DBBL. It is common to have lower profitability due to lower level of leverage but however, DBBL have managed to increase its profitability in the years where its debt to equity ratios has declined which is a positive indication to investors.

Debt ratio of DBBL has declined over the analysis period indicating that the bank is exposed to less risk due to lower leverage. This is because of DBBL issuance new equity capital in recent years of the analysis periods. Hence is gives a positive indication to investors for investment.
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Market Position Ratios:

DBBLs price earnings ratio is depicted above. During the analysis period, the banks P/E ratio increased up to 52.47, in 2008, which indicated fabulous market perception of the bank. However, due to issuance of new shares by DBBL in the form of bonus issue, in recent years of the analysis period, the P/E ratio declined as the numbers of shares outstanding in the market have increased. This could send a negative signal to a potential investor.

The market-Book ratio has remained somewhat steady during the analysis period with an exception to 2008. This can suggest negative market perception of the company and hence, it sends a negative sign for a potential investor.

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Cross-Sectional Analysis: DBBL vs City Bank

As mentioned earlier, performance of Dutch-Bangla Bank Limited would also be analysed on a cross sectional basis with one of its closest rival City Bank Limited for the period fo 207 to 2010. Given below is a brief overview of City Bank Limited: City Bank is one of the oldest private Commercial Banks operating in Bangladesh. It is a top bank among the oldest five Commercial Banks in the country which started their operations in 1983. The Bank started its journey on 27th March 1983 through opening its first branch at B. B. Avenue Branch in the capital, Dhaka city. It is one of the leading banks of Bangladesh which has kept pace with the growing demands of its customers and clients by introducing latest products and services.
Vision Statement

"To be the leading bank in the country with best practices and highest commitments"

Mission

To contribute to the socio-economic development of the country To attain highest level of satisfaction through extension of services by dedicated and motivated team of professionals To maintain continuous growth of market share ensuring quality To maximize banks profit by ensuring its steady growth To maintain the high moral and ethical standards To ensure participative management system and empowerment of human resources To nurture an enabling environment where innovativeness and performance are rewarded

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The following is a cross-sectional analysis between DBBL and City Bank from an investors point-of-view with selective profitability, liquidity, leverage, efficiency and market positon ratios: Profitability

In terms of return on equity DBBLs ratio was significantly higher than that of City Bank during the analysis period. DBBLs ROE has experienced more stable growth which suggests less riskiness of the bank. City Bank has also enjoyed noticeable growth rate in the analysis period except 2008, where its ROE fell from 11.95% to 9.44%, but its growth rate is slower than that of Dutch Bangla Bank as well. High leverage use of DBBL, compared to City Bank result in such growth rate. However, DBBLs increase in equity capital in recent years with high and constant growth rate makes it more attractive options for an investor to invest compared to City Bank.

Unlike the case of ROE, the return on asset for City Bank and DBBL has been following different pattern. During the analysis period, DBBL had higher return on asset in earlier years compared to City Bank while in recent years, City Bank made more efficient utilization of its
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assets and hence in 2010 it overtook DBBL to get higher ROA. But changes in City Banks ROA are more volatile than that of DBBL. Hence, investment in DBBL is more attractive than that of City Bank

The net interest margin indicates same trend as ROA. During the analysis period, DBBL had higher net interest margin in earlier years compared to City Bank while in recent years, City Bank overtook DBBL to get higher net interest margin. Hence its difficult to draw conclusion on superiority base on net interest margin ratio.

Based on the compariosn of earnings per share between DBBL and City Bank, DBBL is a much beter proposition as during the analysis period, its earnings per share was constantly higher than that of City Banks. Hence making it more attrative investment option than that of City Bank.

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From net operating ratio perspective, DBBL is superior than City Bank, although City Bank had higher net operating margin compared to DBBL in 2010. Profitability of City bank is more volatile while profitability of DBBL is more stable. Therefore, from profitability perspective DBBL has taken over City Bank due to stability of return and hence less risky proposition. Efficiency:

From degree of asset utilization perspective, DBBL comparatively better than that of City Bank during the the firtst three years of the analysis period although the difference was very little. However, in 2010, City Bank has overtaken DBBL, in asset utilization efficiency by a substancial margin. Hence it is superior than that of DBBL in this criteria.

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From operating ratio criteria, it can be said that efficiency ratio of City Bank has decreased over the years for which inefficiency of management can be responsible. However, same can be said for DBBL as its operating ratio has also declined. But during the analysis period, operating ratio of City Bank was constantly higher than that of DBBL. Hence, making it a more attractive option for investment than DBBL. Thus, from efficiency criteria, City Bank is a more attractive option for an investor to invest. Liquidity:

As shown in the above illustration, DBBLs liquid position has been better than City bank in terms cash position indicator on all the years of the analysis period. DBBL has gradually increased its cash and deposits over the years. On the other hand, having a lower cash position makes City Bank, a concern to any potential investor and hence less attractive than that of DBBL. However, on the liquidity security Indicator, scenario is opposite. City Bank is having a higher level of securities than that of DBBL throughout the analysis period. Hence, City Bank indicates better liquid position than its counterpart.
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In terms of capacity ratio, DBBL was constantly higher than that of City Bank during the analysis period. High use of leverage use by DBBL compared to City bank could be a reason for this. This suggests potential liquidity problem is more likely for DBBL than City Bank. On the contrary, the high level of loans and leases will replicate higher level of profitability which has been shown earlier that DBBLs profitability was better than City Banks. In terms of the Deposit composition, DBBL is highly dependent on demand deposits and was significantly over City Bank in terms of deposit composition ratio as shown in the illustration. High levels demand deposit suggests more needs for liquid assets and more potential for liquidity crisis. Therefore, it can be derived that from the liquid position, DBBL is worse than City Bank but it may give higher returns to investors.

Leverage

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As depicted in the above illustration, City Banks use of leverage has declined significantly over the years. DBBL has been using more stable level of leverage which resulted in more stable profitability and more stable basis for the company. Although, City bank replicates lower risk because of less leverage, this will potentially impact the return and also the drastic changes have to be taken into account before investment. On the other hand, more stable decrease of leverage in DBBL might be a safer option for an investor because though the leverage level was higher than City Bank it is decreasing at a reasonable rate.

Market Position Market position ratio is the most important ratio for analysis and making investment decision in a bank or any other company. This ratio gives an idea about the market perception of the bank.

As depicted above, the market perception of DBBL is much better than AB bank in term of P/E ratio. Although there was a significant increase of P/E ratio of DBBL in 2008, there was a sharp fall in the P/E ratio of DBBL in 2009 and a further decrease in 2010. Such high
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volatility causes uncertainty regarding DBBL market perception and continuous decline is nothing but the replication of that uncertainty. However, City Bank also had a noticeable volatility in its P/E ratio over the analysis period. Its P/E ratio was nevertheless, lower compared to that of DBBL. But due to volatility in its P/E ratio, its also not a viable option for investment. Hence from market position perspective, due to uncertainty and volatility involved in P/E ratios of both DBBL and City bank, investment decision would be based on the risk preference of an investor.

RECOMMENDATION AND CONCLUSION:

Based on the above findings and analysis of Dutch-Bangla Bank Limited, here are some recommendations towards potential existing and potential investors: Asset-quality of DBBL has shown improvement over the years of the analysis period which indicates good asset management. Continuous enhancement of quality asset means investing will generate return from less risky assets and reducing uncertainty. DBBL has been providing sufficient level of earnings which indicate good future prospects. However, profitability of DBBLs major competitor was also better nevertheless DBBLs provided more stable growth in profit which also indicates less risk. Liquidity position of DBBL is a concern for the bank as its competitor has better liquidity. However, less liquidity into higher profitability for DBBL and hence it was superior in terms of profitability compared to its competitor and also made the bank an attractive option for investment. Therefore, based on the investors risk-preference, decision should be made on whether investing in the bank or not. As Although the market perception of DBBL is not favorable, as indicated in the banks declining P/E ratio, however, it also has to be considered that the bad performance of the market during the end of 2010 could lead to a misperception about the banks risk exposure and hence declining of its P/E ratio. It also need to be considered that in recent years, DBBL has increased it its equity capital, thereby, reduced its risk exposure from higher leverage. At the same time, the bank managed to sustain its growth in profitability. Hence, the prosperity in aspect of the bank suggests an investor should invest in the bank regardless of their risk preferences.
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As mentioned previously, usage of leverage by DBBL has decreased over the time period indicating fewer amounts of risks which made investment in the bank less risky.

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Conclusion:
Based on the evaluation done on DBBL, it can be concluded that the financial performance of Dutch-Bangla Bank Limited has been satisfactory. The bank was able to maintain good levels of return with efficient use of its quality assets. Moreover, the bank was able to decrease its leverage and overall risk exposure during the analyzing period by increasing its equity capital. Liquidity has been a concern for the bank as it has decreased over time. The management should take proper action to address the problem in order to avoid any future distress. DBBL also earned constant profit during its analysis period and also sustained its respectable profitability growth rate despite is lowering in leverage. Therefore, investing in DBBL can be a very attractive opportunity for potential investor.

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BIBLIOGRAPHY:
(n.d.). Retrieved June 12, 2010, from Dhaka Stock Exchange: http://www.dsebd.org/displayCompany.php?name=CITYBANK
http://dsebd.org/displayCompany.php?name=DUTCHBANGL

Bodie, Z., Kane, A., & Marcus, A. (2009). Investments (8th ed.). New York: Mc Grow Hill. Rose, P. S., & Hudgins, S. C. (2008). Bank Management & Financial Services (8th ed.). New York: Mc Graw Hill. Ross, S. A., Westerfield, R. W., & Jaffe, J. (2007). Corporate Finance (7th ed.). New Delhi: Tata McGraw Hill. (n.d.). Retrieved June 12, 2010, from Dhaka Stock Exchange:

Annual reports, 2007-2010, (Dutch-Bangla Bank Limited)

Annual reports, 2007-2010, (City Bank Limited)

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