1.

1Introduction
The general perception that public banks in Bangladesh have failed to play an effective role and are unsuitable in an era of globalization led to the establishment of a handful of private commercial banks in the mid time in Bangladesh. There has been a rapid increase in the number of Private Commercial Banks during the last decade; however, there was no concomitant growth in the numbers of depositors. Given that the economy has continued to grow resulting in a higher level of consumer income, increased amount of savings and a moderate growth of investment mainly from the private sectors, this seems rather paradoxical. The management of every commercial bank must establish a system for assessing investment performance which suits its circumstances and needs and this evaluation must be done at consecutive intervals to ensure the achievement of the Bank's investment objectives of hand; and to know the general direction of the behavior of investment activity in the past and therefore predictable as it in the future on the other hand. Like all businesses, banks profit by earning more money than what they pay in expenses. The major portion of a bank's profit comes from the fees that it charges for its services and the interest that it earns on its assets. Its major expense is the interest paid on its liabilities. The major assets of a bank are its loans to individuals, businesses, and other organizations and the securities that it holds, while its major liabilities are its deposits and the money that it borrows, either from other banks or by selling commercial paper in the money market. Performance evaluation is one of the most important tasks for the bank as it measures the performance of the bank in the different sectors. In this report I tried to explain the performance evaluation from the different point of view. In the report I explain performance evaluation under profitability ratios like net interest income, net noninterest income, net operating income, return on equity, and return on assets and earnings per share. The report also includes the comparative analysis of two different banks performance evaluation.

1.2Origin of the report

This report has been prepared as a means of completion of the requirements of the Internship program of school of Business of Independent University Bangladesh. This report is an outcome of three-month internship program City Bank Limited is the organization where I have gathered experience about the operations of the financial institution. I worked under University supervisor ---------. He approved the topic on which I have prepared my internship report. Page 1 of 31

1.3Objective of the report

1. To understand the profitability of the city bank 2. To evaluate the different banking performance of the City Bank Limited 3. To measure the different risk of City Bank Limited 4. To explain the comparison between City Bank Limited and Prime Bank Limited performance

1.4Scope
The report will mainly focus on the performance evaluation of the City Bank Limited. While doing this report I had the scope to know about the profitability ratios which actually one of the measures of the performance evaluation. I also have scope to work on the risk measurement like credit risk, liquidity risk, and market risk measurement under different point of view. There is a scope of doing work on the comparison of two different banks like City bank and Prime Bank Limited.

1.5Limitations of the report

Due to time shortage, details of many aspects of the Performance evaluation of the City Bank Limited have been skipped in this report. Large-scale research was not possible due to constraints and restrictions posed by the organization. Getting relevant papers and documents were strictly prohibited.

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2.0 Methodology
Methodology comprises of all the activities that is required to conduct the study and generate it into a report. In the following sections the methodology of the research have been described on the basis of research design, sample design, data collection methods, fieldwork and data analysis.

2.1 Research Design

The research design is been described into four different point of views From the view point of the Objective it is an applied research because this report actually based on the objective and tried to explain all the objectives in the different point of view. From the view point of the Nature of data it is both Qualitative research and quantitative research. Qualitative research aims to get a deeper understanding of the performance evaluation of the City Bank Limited. Quantitative research helps to analyze the qualitative information of City Bank by using different tools like financial position. From the view point of the Research place it is both Desk research and Field research. In the field I tried to gather the primary data and in the secondary data I tried collect the secondary data and also to process the primary data. From the view point of function it is a Descriptive research because in the report it basically to explain and to evaluate the financial performance of the City Bank Limited.

2.2Sampling Design
The target population for the research was employees of City Bank Limited. In particular, the researcher has purposively or conveniently chosen all employees who have been personally experienced the subject I discussed in the report. To select the sample respondents, a list of all regular employees of CBL has been obtained and this is the sampling frame.

2.3 Methods of Data Collection

The research is based on a combination of both primary and secondary data. Primary data: Primary data were obtained through face-to-face interviews with the experts and the employees of the City Bank Limited, Bangladesh. Page 3 of 31

Secondary data: Various publications, books, product brochures, websites, Bangladesh Bank Report and Annual report of City Bank Limited and other banks reports with this research were used to collect the secondary data. Finally, some data have also been gathered by observation during the working hours in the bank.

2.4 Method of Data Analysis

There is no specific method of data analysis of the Descriptive research. This report is mainly explaining the financial performance of the City Bank Limited using various tools in a descriptive way.

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3.0 Company Overview

3.1 About City Bank 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 was the visionary entrepreneurship of around 13 local businessmen who braved the immense uncertainties and risks with courage and zeal that made the establishment & forward march of the bank possible. Those sponsor directors commenced the journey with only Taka 3.4 crore worth of Capital, which now is a respectable Taka 330.77 crore as capital & reserve. City Bank is among the very few local banks which do not follow the traditional, decentralized, geographically managed, branch based business or profit model. Under a real-time online banking platform, these 4 business divisions are supported at the back by a robust service delivery or operations setup and also a smart IT Backbone. Such centralized business segment based business & operating model ensure specialized treatment and services to the bank's different customer segments. The bank currently has 90 online branches and 10 SME service centers and 2 SME/Agri branch spread across the length & breadth of the country that include a fully fledged Islami Banking branch. Besides these traditional delivery points, the bank is also very active in the alternative delivery area. It currently has 122 ATMs of its own; and ATM sharing arrangement with a partner bank that has more than 550 ATMs in place; SMS Banking; Interest Banking and so on. It already started its Customer Call Center operation. The bank has a plan to end the current year with 200 own ATMs.

3.2 Vision The Financial Supermarket with a Winning Culture Offering Enjoyable Experiences

3.3 Mission Offer wide array of products and services that differentiate and excite all customer segments Be the Employer of choice by offering an environment where people excel and leaders are created Continuously challenge processes and platforms to enhance effectiveness and efficiency Page 5 of 31

Promote innovation and automation with a view to guaranteeing and enhancing excellence in service Ensure respect for community, good governance and compliance in everything we do

3.4 Values Result Driven Accountable & Transparent Courageous & Respectful Engaged & Inspired Focused on Customer Delight

3.5 Types Banking Activities 3.5.1 Corporate Banking City Bank is a major player in Bangladesh wholesale banking industry to offer the full scope of innovative, customized solutions and services. We offer service at the highest level. Our focus is not on short-term profit, but on building long-term relationships and standing by our clients whenever they need us. We have a unique business focus on enabling project financing, trade, investment and supply chain financing for clients. We aim to be a one-stop gateway for corporate and financial institutions looking to extend their business. And we are committed to using our country wide network to facilitate our clients growing trade and investment flows and supply chain financing needs across our business footprint. We focus exclusively on corporate and institutional clients domiciled or conducting business in our footprint, offering clients access to our extensive branch network and award-winning suite of state of the art services. City Bank fully understands the importance of time, convenience and efficiency to the success of your business. We make easy the complex financial world for you and help you maximize every opportunity.

3.5.2 Retail Banking One of the most remarkable success stories of last 50 years banking industry globally has been the conceptualization and innovative execution of banking with individual customers, their friends & families. The industry has termed it as Retail Banking or Personal Banking or Consumer Banking; and it has now - at a very rapid pace become the major revenue line for Page 6 of 31

most of the top banks in the world. City Bank, too, recently has started its journey in Retail Banking. City Retail - add a little city to your life is the new brand-mantra, the pay-off line for City Retail. Our aim is clear. We want City Bank to become the most preferred bank to all individual clientele of the country, at least of the cities and towns where we operate. We want to provide our customers the best-in-class services, innovative products and financial solutions from smart outlets - all with a big smile that conveys and generates happiness all the way!

3.5.3 SME Banking SME Banking of City Bank is assuming a new and modern dimension. It is entering in to a wider horizon. The philosophy of extending banking services to SME's of the country is to meaningfully push every one of them up to the next level of respective business operations. The upward push would be meaningful as they would be business wise competitive for a sustainable future. It is therefore would be turning in to an abode of SME's to grow to the next level. Hence, the bank has named it City Business - for taking SME's to the next level. For the first time in the history of City Bank, SME Banking business processes are going to be driven thru a centralized platform model. This is a fundamental move away from a 25 years legacy system of decentralized geography based branch banking model.

3.5.4 Islamic Banking City Bank introduces City Manarah - Islamic Banking. City Manarah is here to guide you and manage your finances in a fully Islamic Shariah Compliant way. It offers a wide variety of deposit and investment products such as Manarah Savings, Manarah Current, Manarah Term Deposit and Manarah Monthly Deposit Schemes. Each account is designed to meet your financial needs with best value for your money. For your better understanding please take a closer look at all the Manarah deposit and investment products and also visit any of our Dhaka Branches and Agrabad, Bandar Bazar- Sylhet, Comilla, Rajshahi and Khulna branches for Islamic Banking services and products.

3.6 City Bank Treasury and Market Risk Division City Bank has a dedicated Treasury team who is capable of providing all treasury Solutions. Through our foreign correspondent business partners CBL is providing a wide range of Page 7 of 31

Treasury products. In CBL Treasury, there are four teams who are specialized in their own area to ensure the best possible solution to our customer requirement. CBL has following teams in the Treasury: Foreign Exchange (Local & G7) Money Market Corporate Sales ALM & Market Research

3.7 Anti Money Laundering Anti-Money Laundering & Anti-Terrorist Financing: The City Bank through its Anti-Money Laundering Division is fully compliant with the governments antimoney laundering and anti-terrorist financing legislations, central banks prudential guidelines and also international directives, e.g., USA Patriot Act etc. Anti-Money Laundering Division: City Bank constitutes an Anti-Money Laundering Division at its Head Office under the guidance of Executive Vice President and Head of Internal Control & Compliance Division, who also acts as the Chief Anti-Money Laundering Compliance Officer (CAMLCO) of the bank. AMLD implements and enforces corporate-wide anti-money laundering and anti-terrorist financing policies, procedures and measures to the bank.

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4.0 Literature Review

Part A Define of Concept Profitability Ratio Classes of financial metrics that help investors assess a business's ability to generate earnings compared with its expenses and other relevant costs incurred during a specific period. When these ratios are higher than a competitor's ratio or than the company's ratio from a previous period, this is a sign that the company is doing well. The profitability ratios are used to measure how well a business is performing in terms of profit. The profitability ratios are considered to be the basic bank financial ratios. The profitability ratios can also be defined as the financial measurement that evaluates the capacity of a business to produce yield against the expenses and costs of business over a particular time period. If a bank having a higher profitability ratio compared to its competitor, it can be inferred that the bank is doing better than that particular competitor.

Classification of Profitability Ratio in Banking Return on Equity Capital (ROE) Return on Assets (ROA) Profitability Ratios Net Interest Margin (NIM) Net Non-interest Margin Net Operating Margin Earnings per Share (EPS)

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Return on Equity Capital (ROE) One of the most important profitability metrics is return on equity (or ROE for short). Return on equity reveals how much profit a company earned in comparison to the total amount of shareholder equity found on the balance sheet. The formula of return on equity capital is ROE = Net income after tax/Total Equity Capital

Return on Assets (ROA) Return on assets (ROA) is a financial ratio that shows the percentage of profit that a company earns in relation to its overall resources. ROA is known as a profitability or productivity ratio, because it provides information about management's performance in using the assets of the small business to generate income. The formula of return on assets is ROA= Net income after tax/Total Assets

Net Interest Margin (NIM) A performance metric that 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 formula of Net Interest margin is NIM= Interest Income Interest Expense / Total Assets Net Noninterest Margin The net noninterest margin, in contrast, measures the amount of non-interest revenues stemming from deposit service charges and other service fees the financial firm has been able to collect relative to the amount of noninterest costs incurred. The formula of net noninterest income is Net Noninterest Margin= Noninterest revenues Noninterest expenses / Total Assets

Net Operating Margin Earnings reported by a bank or bank holding company, after deducting normal operating expenses, but before taking gains or losses from sale of securities, other losses and chargeoffs, and additions to the reserve account for possible loan losses. The formula of net operating margin is Net Operating Margin = Operating revenues Operating Expense / Total Assets Page 10 of 31

Earnings per Share (EPS) The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability. The formula of earnings per share is EPS= Net Income / Common equity shares outstanding

Measuring Risk in Banking In finance, risk is the probability that an investment's actual return will be different than expected. This includes the possibility of losing some or all of the original investment. Each risk measure is unique in how it measures risk. When comparing two or more potential investments, an investor should always compare the same risk measures to each different potential investment to get a relative performance.

Credit Risk The risk of loss of principal or loss of a financial reward stemming from a borrower's failure to repay a loan or otherwise meet a contractual obligation. Credit risk arises whenever a borrower is expecting to use future cash flows to pay a current debt. Investors are compensated for assuming credit risk by way of interest payments from the borrower or issuer of a debt obligation. The higher the perceived credit risk, the higher the rate of interest those investors will demand for lending their capital. Credit risks are calculated based on the borrowers' overall ability to repay. This calculation includes the borrowers' collateral assets, revenue-generating ability and taxing authority (such as for government and municipal bonds).

Liquidity Risk Bankers and others financial firm managers are also concerned about the danger of not having sufficient cash and borrowing capacity to meet customer withdrawals, loan demand, and other cash needs. Faced with liquidity risk a financial institution may be forced to borrow emergency funds at excessive cost to cover its immediate cash needs, reducing its earnings.

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Market Risk Market risk is the risk that the value of an investment will decrease due to moves in market factors. The day-to-day potential for an investor to experience losses from fluctuations in securities prices. This risk cannot be diversified away.

Interest Rate Risk The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between two rates, in the shape of the yield curve or in any other interest rate relationship.

Earnings Risk The ratio to a financial institutions bottom line- its net income after all expenses are covered is known as earnings risk. Earning may decline unexpectedly due to factors inside the financial firm or due to external factors, such as changes in economic conditions or in laws and regulations. Capital Risk The risk that a company will lose the amount of an investment. An investor takes on capital risk each time he/she invests in anything other than a risk-free security. Capital risk is limited to the amount one has invested.

Part B Previous Study on Performance Evaluation Comparative Analysis of Korean Banks' Performance The purpose of this paper is to analyze Korean banks performance which is reflected on their financial statements and to provide some comments to improve their banking business. This study is carried out by comparing the eight Korean banks past five years performance results with other banks in the State of California. Other banks include Asian banks other than Korean banks owned by such Asians (e.g., Chinese and Japanese) and American banks owned by other ethnic groups of Americans (e.g., white American). Comparative financial analysis indicates that Korean banks are relatively conservative in managing operations and lending and are more actively involved in their services for international business and sales activities in SBA loans. The analysis also indicates that Korean banks loan quality is

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relatively low and their loan market appears to have been saturated. We recommend on the basis of the analysis that Korean banks adopt a more active marketing strategy to expand and create their own market, consider tighter control for their operations with understanding banking regulations (e.g., Financial Institutions Reform, Recovery, and Enforcement Act) and adopt the loan policy in a way that they can make a loan decision with more reliable cash flow analysis. (Pak & Huh, 1995)

Profitability and Risk Management in Banking: A Comparative Analysis of Egypt and Lebanon Both the writer investigate the profitability and risk management in banking in two prominent countries in Middle East and North Africa (MENA), Egypt and Lebanon, where banks operate under market-oriented economic regimes. The study covers the 1990s which witnessed banking sector reforms towards a more efficient financial system. Noting the differences in the structure of the banking system and the monetary changes in Egypt and Lebanon, we investigate the impact of liquidity, credit, and capital on bank profitability in each country's banking sector. Based on our findings, we draw conclusions on the strength of risk management practices and enforcement of banking regulations. (Hakim & Neaime, 2005)

Bank Ownership, Characteristics and Performance: A Comparative Analysis of Domestic and Foreign Islamic Banks in Malaysia The paper investigates the performance of Malaysian Islamic banking sector during the period of 2001-2005. Several efficiency estimates of individual banks are evaluated using non-parametric Data Envelopment Analysis (DEA). Two different approaches have been employed to differentiate how efficiency scores vary with changes in inputs and outputs. The analysis links the variation in calculated efficiencies to a set of variables, i.e. bank size, ownership, capital, non-performing loans and management quality. The findings suggest that during the period of study, scale inefficiency dominates pure technical inefficiency in the Malaysian Islamic banking sector. We found that foreign banks have exhibited higher technical efficiency compared to its domestic peers. The second stage empirical results based on multivariate Tobit model also suggest that technically more efficient banks are larger, have greater loans intensity, and on average have less non-performing loans. Today, the Malaysia Islamic banking system is becoming an effective means of financial intermediation Page 13 of 31

reflected by its extensive distribution networks comprising 152-full-fledged Islamic banking branches and more than 2,000 Islamic banking counters. The ability of the Islamic banking institutions to arrange and offer products with attractive and innovative features at prices that are competitive with conventional products, has appealed both the Muslim and non- Muslim customers. This has spurred the efforts by other non-bank financial intermediaries such as the development financial institutions, savings institutions and housing credit institutions to introduce Islamic banking schemes and instruments to meet their customer demands. (Sufian & Majid, 2007)

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5.0 Findings & Analysis

5.1 The profitability of the City Bank Limited In the new era of banking profitability management, financial institutions face many challenges: increasing overheads, online lending, compliance regulations, and competitive mortgage brokers. To meet these challenges, banks are consistently placing more emphasis on managing their profitability specifically, on a totally integrated process of profitability management. With the recognition that profitability is the major force that drives the entire organization, banks are according top priority to a company-wide profitability management process based on planning and control. To measure profitability of the bank there are some ratios which actually give the idea hoe the bank is doing in the market. There are six profitability ratios to evaluate the performance of the bank. 1. Net interest margin (NIM) 2. Net non interest margin 3. Net operating margin 4. Return on Assets (ROA) 5. Return on Equity (ROE) 6. Earnings per share (EPS)

5.1.1 Net Interest Margin A performance metric that 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 Net Interest Margin of City Bank Limited is given below Particulars Net Interest Margin 2006 2.54% 2007 1.94% 2008 2.64% 2009 2.71% 2010 3.93%

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There was a mixed trend in the net interest income margin of City Bank

Net Interest Margin Growth

36.08% 2.65% 2009 45.02%

Limited. In the year 2006 and 2007 there was a huge gap and which actually reduces the growth of the
2007 -23.62%

2008

2010

net interest income of City Bank Limited. There was a huge increase of 36.08% in the year 2008, and the rate was 2.64%. The highest net interest margin (NIM) of City Bank Limited come at the year 2010 with the growth rate of 45.02% and the rate was 3.93%.

5.1.2 Net non interest margin The net noninterest margin, in contrast, measures the amount of non-interest revenues stemming from deposit service charges and other service fees the financial firm has been able to collect relative to the amount of noninterest costs incurred. Particulars Net Noninterest Margin There was a negative growth in the net 2006 0.61% 2007 0.63% 2008 0.44% 2009 0.24% 2010 0.58%

noninterest margin of City Bank Limited in the year from the year 2007 to 2009. In the year 2006 the rate was 0.61% whether in

Net Non Interest Margin Growth

141.67% 3.28% 2007

-30.16% 2008

2009-45.45%

2010

the year 2007 it was 1.0.63%% with the growth rate of 3.28%. From the year 2007, the rate started to decrease and in continued up to the year 2009. In the 2009 the net interest margin was only 0.24% with the negative growth of 45.45%. In the year 2010 there was a huge growth in the net non interest margin which was 141.67% and the rate was 0.58%.

5.1.3 Net Operating Margin Earnings reported by a bank or bank holding company, after deducting normal operating expenses, but before taking gains or losses from sale of securities, other losses and charge-

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offs, and additions to the reserve account for possible loan losses. The Net Operating Margin is given below Particulars Net Operating Margin There was a huge variation in net 2006 2.78% 2007 3.25% 2008 2.89% 2009 3.45% 2010 3.68%

Net Operating Margin Growth

16.91% 19.38% 6.67% 2007 2008 -11.08% 2009 2010

operating margin of City Bank Limited in the last five years. The net operating

margin growth in the year 2006 was 2.78% whether in the year

2007 it was 3.25% with the growth rate of 16.91%. There was slight decrease in the year 2008 which was only 11.08%. The bank achieved his highest net operating margin in the year 2010, which was 3.68% and the growth was over 6.5%.

5.1.4 Return on Assets Return on assets (ROA) is a financial ratio that shows the percentage of profit that a company earns in relation to its overall resources. ROA is known as a profitability or productivity ratio, because it provides information about management's performance in using the assets of the small business to generate income. The return on assets of City Bank Limited is given below Particulars Return on Assets (ROA) Return on assets actually depends on two different factors like net income and total assets. If any one of them increases or decreases it actually affects hugely to the return on assets. In the year 2006 the return on asset was Page 17 of 31
16.67% 2007 14.28% 2008 2009 2010 50.00% 83.33%

2006 0.6%

2007 0.7%

2008 0.8%

2009 1.2%

2010 2.2%

Return on Assets Growth

0.6% whether in year 2007 the rate slightly moved to the 0.7% with the growth rate of 16.67%. In the year 2008 the growth was slightly decreased. In the year 2009 and 2010 the rate of return on assets moved up very high. In 2009 the rate was 1.2% with the growth rate of 50% and in the year 2010 the rate was 2.2% with the positive growth of 83.33%.

5.1.5 Return on equity One of the most important profitability metrics is return on equity (or ROE for short). Return on equity reveals how much profit a company earned in comparison to the total amount of shareholder equity found on the balance sheet. Particulars Return on Equity (ROE) City banks total equity has been increased in the recent years. In the year 2006 the rate was 10.7% whether in the year 2007 the rate increased by 18.69%. There was huge increase in 2009 which was 16.2% with the growth rate of 44.64%. The bank has made a good improvement in the year 2010 which was over 21% and the growth was also satisfactory in that particular year, 31.48%.
18.69% 44.64% 31.48%

2006 10.7%

2007 12.7%

2008 11.2%

2009 16.2%

2010 21.3%

Retun on Equity Growth

2007

2008-11.81%

2009

2010

5.1.6 Earnings per Share The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability. The earnings per share of city bank limited for the last five years is shown in the graph. EPS is one of the indicators of the banks growth. In the year 2006 the EPS was only 20.2. In the year 2007 the EPS was increased by almost 25.26%. There was a huge increase in the year 2009. In the year 2009 Page 18 of 31
2010 2009 2008 2007 2006 25.3 25.1 20.2 52.1 59.4

Earnings Per Share

the EPS was Tk. 52.1 with growth rate was 105.92%. In the year 2010 the EPS was jumped at Tk. 59.4 with the growth rate of 14.01%.

5.2 Different Banking Activities Performance of City Bank Limited 5.2.1 Paid Up Capital The total amount of shareholder capital that has been paid in full by shareholders. Paid-up capital is essentially the portion of
2010 2009 2008 2007 2006 3889 1571 1366 1183 1080

Paid Up Capital (in million)

authorized stock that the company has issued and received payment for. The Paid Up Capital of City

Bank Limited for the last five years is given in the graph.

There was positive trend in the

paid up capital of City Bank Limited. In that section City Bank Limited actually uses that capital for the improvement of the banks profitability and also the bank repudiation. In the year 2006 the capital was only BDT 1080 million whether in the year 2010 the capital was BDT 3889 million. In between those years the capital was around BDT 1500 million.

5.2.2 Deposits Money placed into a banking institution for safekeeping. Bank deposits are made to deposit accounts at a banking institution, such as savings accounts, checking accounts and money market accounts. The account holder has the right to withdraw any deposited funds, as set forth in the terms and conditions of the account. The "deposit" itself is a liability owed by the bank to the depositor (the person or entity that made the deposit), and refers to this liability rather than to the actual funds that are deposited. Deposit is the heart of any banking
2010 2009 2008 2007 2006 67,420 62,384 45,034 40,540 40,881

Deposits (in million)

institution. Without deposits any bank will not survive in the market. City Bank Limited made huge impression to their clients which actually help

them to collect huge amount of deposits through different deposit products. In the year 2006, Page 19 of 31

the amount was over BDT 40,000 million. The trend of collecting deposit was positive in the last five years which actually leads them to collect over BDT 67, 000 million in the year 2010.

5.2.3 Loan & Advances The term loan refers to the amount borrowed by one person from another. The amount is in the nature of loan and refers to the sum paid to the borrower. Thus from the view point of borrower, it is borrowing and from the view point of bank, it is lending. Loan may be regarded as credit granted where the money is disbursed and its recovery is made on a later date. It is a debt for the borrower. While granting loans, credit is given for a definite purpose and for a predetermined period. Interest is charged on the loan at agreed rate and intervals of payment. Advance on the other hand, is a credit facility granted by the bank. Loans and advance is the main sources of income for the bank. Bank gives loan to their customer against interest. Interest helps the banks to generate income and also to make profit. In the year 2006 the amount was over BDT 30000 and in the year 2007 the amount decreased by BDT 4001 million. From the year 2008 the amount of loan and advances increased hugely. In the 2010 the amount crossed BDT 60000 million with the growth rate of 38.73% compared to the year 2009.
2010 2009 2008 2007 2006 60,327 43,486 34,421 26,788 30,789

Loan & Advances (in million)

5.2.4 Investments An asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an
6,045 2006 7,551 2007 9,074 10,586 12,474 2008 2009 2010

Investments (in million)

economic sense, an investment is the purchase of goods that are not

consumed today but are used in the

future to create wealth. In finance, an investment is a monetary asset purchased with the idea Page 20 of 31

that the asset will provide income in the future or appreciate and be sold at a higher price. City Bank Limited invested their money in different sector like government bond, share & securities and many other profitable areas. In the year 2006 the amount was over BDT 6000 million. There was an increasing trend of investment of City Bank Limited in the last five years. In the year 2010 the amount crossed over BDT 12400 million.

5.2.5 Total Assets Total asset is the combination of different assets like fixed assets, short term assets and long term assets. In this section, different assets like bank loan and advances, investments, furniture and many other assets been included. The amount of total assets has been increased over last five years. In the year 2006 the amount of total asset was BDT 47,446 million. This total asset increases over the years. In the year 2010 the amount of total asset was almost doubled which was 90,898 million compare to the year 2006.
47,446 2006 48,755 2007 57,115 2008 76,467 2009 90,898

Total Assets

2010

5.2.6 Export A function of international trade whereby goods produced in one country is shipped to another country for future sale or trade. The sale of such goods adds to the producing nation's gross output. If used for trade, exports are exchanged for other products or services. Exports are one of the oldest forms of economic transfer, and occur on a large scale between nations that have fewer restrictions on trade, such as tariffs or
2006 28,211 19,151 14,766 2008 18,646 2010

Export

13,815 2009

2007

subsidies. Export of City Bank Limited shows a mixed trend in the last five years. In the last five years city bank always encourages to export from the abroad and which actually helps

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them to finance the other projects. In the year 2006 the amount was BDT 28,211 million and in the 2010 the amount reduced to the BDT 18,646 million.

5.2.7 Import A good or service brought into one country from another. Along with exports, imports form the backbone of international trade. The higher the value of imports entering a country, compared to the value of exports, the more negative that country's balance of trade becomes. As Bangladesh
32,096 20,309 2007 30,894 28,718 2009 38,155

Import

mostly depends on the import oriented products almost

every banks related with the

2006

2008

2010

import related work. City Bank Limited also needs to concentrate on the import loan as they find more profit from that section. In the year 2006 the amount of import was BDT 32,096 million. In the 2007 there was decrease of over BDT 12000 million. In the year 2010 the amount moved over BDT 38000 million.

5.2.8 Net Income A financial performance ratio, calculated by dividing net

Net Income (in million)

1849 819 240 2006 343 398

income after taxes by net sales. A company's after-tax profit margin is tells

important because it

investors the percentage of money a company actually

2007

2008

2009

2010

earns per dollar of sales. This ratio is interpreted in the same way as profit margin - the aftertax profit margin is simply more stringent because it takes taxes into account. Net income is the indicator of banks overall performance and also the trend of making profit from the different section like interest income, operating income etc. There is an increasing trend of making profit by City Bank Limited over the last five years. In the year 2006 the amount was only BDT 240 million whether in the year 2007 it was over 340 million with the growth rate Page 22 of 31

of over 30%. In the 2010 there was a huge improvement of making profit which was over BDT 1800 million and the growth was 125.75%.

5.2.9 Interest Income Interest income is the main sources of income for the bank. Bank charges the interest against loan and advances given by the bank to their clients. Interest income of City Bank Limited for the last five years is given. Interest income is the main sources of income for the banks. City Bank tries to increase their interest income by giving enough loan and advances to their customers. There was an increasing trend of interest income in the last five years. In the year 2006 the amount was BDT
2006 2007 2008 2009 2010 3772 4183 4669 7090 5743

Interest Income (in million)

3772 million. From the year 2006 the amount was increasing with a good growth rate and continues up to the year 2010. In the amount crossed BDT 7000 million with the growth rate of 23.45% compare to the year 2009.

5.3 Different Risk measurement of City Bank Limited The nature of banking is strongly related to the management and control of risks. A bank has many risks that must be managed carefully, especially since a bank uses a large amount of leverage. Without effective management of its risks, it could very easily become insolvent. If a bank is perceived to be in a financially weak position, depositors will withdraw their funds, other banks won't lend to it nor will the bank be able to sell debt securities in the financial markets, which will exacerbate the bank's financial condition even more.

Bank Risk

Credit Risk

Liquidity Risk

Market Risk

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5.3.1 Credit Risk Credit risk is an investor's risk of loss arising from a borrower who does not make payments as promised. Such an event is called a default. Other terms for credit risk are default risk and counterparty risk. There are four types credit risks faced by the bank in Bangladesh. City Bank also faces those problems regarding credit risk.

Credit Risk
6.09% 5.03% 4.98% 5.09% 5.78%

Ratio of Nonperforming assets to total loans and advances Ratio of net charge-offs to total loans and advances Ratio of annual provision for total loans and advances to total loans and advances Ratio of allowance for loan losses to total loans and advances

1.27% 1.09% 0.24%

1.56% 0.89% 0.19%

1.22% 1.02% 0.26%

1.33% 1.06% 0.28%

1.58% 1.23% 0.29%

2006

2007

2008

2009

2010

In the section of credit risk there are four types of risk faced by the City Bank Limited. Which are ratio of nonperforming assets to total loans and advances, ratio of net charge-offs to total loans and advances, ratio of annual provision for total loans and advances to total loans and advances and ratio of allowance for loan losses to total loan and advances. In our country there is high risk of default as the economy is facing some problem. City bank is trying hard to remove those risks to minimize the credit risk of for the bank. They are trying to manage those risks by taking some serious steps. In the year 2006 the credit risk in the four types were 5.03%, 1.27%, 1.09% and 0.24% which actually gone up in the year 2010 which were 5.78%, 1.58%, 1.23% and 0.29%.

5.3.2 Liquidity Risk Risk relates to the probability of having a realization of a random variable different to the realization preferred by the economic agent. In our context the economic agent would have a preference over liquidity. In that sense, the probability of not being liquid would suggest that

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there is liquidity risk. The higher the probability, the higher the liquidity risk. When the probability equals unity (i.e. the possibility becomes a certainty) liquidity risk reaches a maximum and illiquidity materializes. In that sense, there is a inverse relationship between liquidity and liquidity risk, given that the higher the liquidity risk, the higher the probability of becoming illiquid, and therefore, the lower the liquidity. There are three types of measurement to measure the liquidity risk which are given below Net loans to total assets Cash and due-from deposit balances held at other banks to total assets Cash assets and government securities to total assets

Liquidity Risk
58.46% 62.23% 49.89% 52.19% 56.23%

Net loans to total assets Cash and due from deposit balances held at other banks to total assets Cash assets and government securities to total assets

21.22% 18.23% 18.20% 17.29%

19.80% 11.78%

21.11% 8.94%

17.98% 8.29%

2006

2007

2008

2009

2010

City Bank tries best to maintain enough liquidity to meet the daily obligations of the bank. To measure the liquidity risk bank follows three measurement tools to measure the liquidity risk. Liquidity risk involves net loans to total assets, cash assets and due from deposit balances held at other banks to total assets and cash assets and government securities to total assets. In the year 2006 the liquidity risk was very high which was 58.46%, 18.23, 18.20% whether in the year 2010 the risk reduces a little bit in those three section.

5.3.3 Market Risk Risk which is common to an entire class of assets or liabilities. The value of investments may decline over a given time period simply because of economic changes or other events that impact large portions of the market. Asset allocation and diversification can protect against Page 25 of 31

market risk because different portions of the market tend to underperform at different times also called systematic risk.

Market Risk
2010 2.33% 1.46% 1.98% 1.32% 2.31% 1.67% 2.22% 1.33% 2.12% 1.23%

2009

13.35% The market value of a banks bonds and other fixed-income assets relative to their value as recorded on the banks books 12.78% The ratio of book-value equity capital to the market value of a banks equity capital The ratio of a banks book-value assets to the estimated market value of those same assets

2008

12.32%

2007

11.23%

2006

11.90%

Market risk is one those risks which actually affects the bank both externally and internally. There are three measurement to measure the market risk which are the market value of a banks bonds and other fixed-income assets relative to the value as recorded on the banks books, the ratio of book value equity capital to the market value of a banks equity capital and the ratio of a banks book value assets to the estimated market value of those same assets. In the year 2006 the market risk was very high and the rates were 2.33%, 1.46% and 13.35%. City Bank tried hard to reduce the market risk which has been shown in the year 2010 and the risk was quite less in the year 2010 and the rates were 2.12%, 1.23% and 11.90%.

5.4 Comparison of City Bank Limited to Prime Bank Limited Prime Bank Limited and City Bank Limited both made significant progress in various sections of their banking activities over the years. In the recent years they both made good profit from different sources like investments, loan and advances and many others. In the market they both are very good competitors and competing with good intentions to make profit. I analyzed both the banks annual report, their other banking activities like corporate banking, personal banking, SME banking and many other sections. I also tried to analyze

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their profit trend, their profitability, and their risk management. The comparison of these two banks in different section is given below

5.4.1 Comparison in terms of Profitability Ratio Particulars City Bank Limited The Profitability Ratio Average Profitability Ratio Net Interest Margin Net non-interest margin Net Operating Margin Return on Assets Return on Equity Earnings Per Share 2.752% 0.50% 3.21% 1.10% 14.42% 36.42 2.338% 1.516% 3.794% 1.850% 27.102% 56.784 Prime Bank Limited

In the section of profitability ratio both banks made significant improvement in the last five years. There is a gap between City Bank Limited and Prime Bank Limited in regarding profitability ratios. Almost every profitability ratios Prime Bank Limited are higher than City Bank Limited which indicated that Prime Bank Limited is now more profitable than City Bank Limited. The average net interest margin is 2.752% for the City Bank Limited and 2.338% for the Prime Bank Limited. In regarding earnings per share there is a huge gap of BDT 20 between those two banks.

5.4.2 Comparison in terms of banking activities Particulars City Bank Limited Prime Bank Limited

The Average Performance (BDT in millions) Deposits Loan & Advances Interest Income Non Interest Income Net Income Total Assets Investments 51252 40581 5091.4 2193.6 729.8 64136 9146 45890 42588 4590 1890 678.9 62901 8234

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Export Import

18918 30034

16902 29023

In the different section of banking activities like collecting deposits, loan and advances, investments export, import interest income, non interest income City Bank Limited is quite ahead of Prime Bank Limited. In collecting deposits City Bank average collection is BDT 51252 million and Prime Bank is BDT 45890 million. In the loan section Prime Bank is quite ahead of City Bank Limited. There is gap between those two banks in regarding net income, investments, export and import etc.

5.4.3 Comparison of Risk City Bank Limited Average Credit Risk Ratio of Nonperforming assets to total 5.39% loans and advances Ratio of net charge-offs to total loans 1.39% and advances Ratio of annual provision for total 1.06% loans and advances to total loans and advances Ratio of allowance for loan losses to 0.25% total loans and advances Average Liquidity Risk Net loans to total assets 55.8% Cash and due from deposit balances 12.91% held at other banks to total assets Cash assets and government securities 19.64% to total assets Average Market Risk The ratio of a banks book-value assets 2.19% to the estimated market value of those same assets The ratio of book-value equity capital 1.40% to the market value of a banks equity capital The ratio of banks book value assets 12.32% to the estimated market value of those assets Particulars Prime Bank Limited 6.38% 1.57% 1.03%

0.26%

46.87% 11.89% 18.78%

1.92%

1.23%

11.89%

In terms of managing risk City Bank is slightly better than Prime Bank Limited in terms of Credit Risk. The average credit risk of City Bank Limited is slightly lower than Prime Bank

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Limited. In terms of Liquidity risk and Market risk Prime Bank manages their liquidity risk more efficiently than City Bank Limited.

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6.0 Conclusion
With the recognition that profitability is the major force that drives the entire organization, banks are according top priority to a company-wide profitability management process based on planning and control. Undoubtedly banking industry is the most important segment of the financial system and plays a pivotal role in mobilizing and enhancing resources in Bangladesh. The industry, as a whole has experienced a robust growth in 2010 in line with the trend seen in the last couple of years. There are several quantitative methods used in assessing the performance of investment activity in the commercial banks in terms of profitability and the degree of investment risk. They are a set of traditional financial ratios used in the financial analysis of the investment activity of the bank and the assessment of the change in the schedule of activity and also the relations between different budget items and the items of the profit and loss account.

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7.0 References
1. Pak, Hong S. & Huh, Sung-Kyoo, 1995, Comparative Analysis of Korean Banks' Performance 2. Hakim, Sam & Neaime, Simon, 2005, Profitability and Risk Management in Banking: A Comparative Analysis of Egypt and Lebanon 3. Sufian, Fadzlan & Majid, Muhd-Zulkhibri Abdul, 2007, Bank Ownership, Characteristics and Performance: A Comparative Analysis of Domestic and Foreign Islamic Banks in Malaysia 4. http://www.answers.com/topic/return-on-assets#ixzz1bjJUrv9B 5. http://www.answers.com/topic/net-interest-margin-1#ixzz1bjKLhf85 6. http://www.investorwords.com/4248/Return_on_Equity.html 7. http://beginnersinvest.about.com/od/incomestatementanalysis/a/understanding-returnon-equity.htm 8. http://www.answers.com/topic/earning-per-share#ixzz1bjP94muF 9. http://www.investopedia.com/terms/r/riskmeasures.asp#ixzz1bjROrnJX 10. http://www.investopedia.com/terms/c/creditrisk.asp#ixzz1bjTWGNVZ 11. http://www.investopedia.com/terms/m/marketrisk.asp#axzz1bjQhCpC7

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