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Earnings Projection of Banks

December 22, 2010

Sector Overview

The year 2010 has witnessed some unique phenomena in the banking sector of Bangladesh. The major events are listed
below:

 With the wave of extensive upsurge in capital market since late months of last year, banking institutions also rushed to
capitalize this impetus into distributable earnings. Overall industry’s exposure in capital market stood BDT 236.64
billion that is 6.27% of its total liabilities. Mentionable here, 12 banks have already surpassed their limit of investment
in market, that ranges from 10.25% -24.00% of respective total liabilities. Persuadably, this over exposure in market
makes the banks’ operational policy deviate from core banking business besides thwarting real production growth and
injecting excess cash into capital market.
 This year, full year EPS of most banks is expected to augment above 50% in comparison to that of last year. Capital
market is the key behind these enhanced earnings. Besides substantial capital gain from ‘trading’ and ‘available-for-
sale’ securities, brokerage income and gain from transferring stock exchange membership to brokerage subsidiary are
expected to propel this growth. Apart from that, this particular industry enjoyed hefty growth in retail banking, which is
basically loan disbursed toward the unproductive sector.
 With the relative amplification of economic activity and industrial growth, the excess liquidity of banks has been
decreasing and in August 2010 it stood as BDT 299 billion. State Owned Banks, Private Islamic Banks and Foreign Banks
have experienced decline of 16.58%, 9.44% and 25.45% in their excess liquidity from June 2010 to August 2010,
respectively. However, excess liquidity of Conventional Private Banks has increased slightly by 0.07% for the same
period.
 In the face of Bangladesh Bank’s efforts to bind interest spread around 5%, few banks have decided to increase deposit
rate to meet growing cash demand while lending rate suppose to remain more or less same. This phenomenon likely
to decrease % spread in 4th quarter.
 Recently Bangladesh Bank has directed Banking institutions to withdraw around BDT 65 billion from capital market, in
addition to increase both SLR (Statutory Liquidity Reserve) and CRR (Cash Reserve Requirement) that is estimated to
wash additional BDT 20 billion from banking firms to Bangladesh Bank Treasury. All these policies likely to
pessimistically affect capital market in days ahead. As a chain of sequence, banking profitability in following fiscal
might also be linearly effected.

3rd Quarter Total Operating Income Decomposition

Private Islami Banks
Private Conventional Banks
Others
CEB 7%
26% Others
CEB 9%
20%
NIM
44%
CI
60%
II
7% Investment
28%
NIM = Net Interest Margin
CIM = Core Income Margin
II = Income from Investments
CEB = Commission, Exchange and Brokerage
Other = Other Operating Income
Detailed Earnings Projections

Cumulative Quarterly EPS Projected EPS Estimated Growth in Current Price Forwar
Bank Name
(Tk) EPS (Tk) (Tk) EPS (Tk) (Tk) P/E
Q1-2010 Q2-2010 Q3-2010 2010 2009 Y-o-Y Q-o-Q 30 Nov, 2010
BOTH MERCHANT BANKING AND BROKERAGE
ABBANK* 28.82 70.39 103.87 146.46 106.61 37.38% 27.21% 1453.00 9.92
BRACBANK 12.19 30.82 46.76 68.17 46.91 45.32% 34.32% 852.50 12.51
CITYBANK* 6.16 18.53 34.13 58.95 20.76 183.96% 59.08% 924.25 15.68
IFIC* 11.22 32.91 65.15 85.29 41.26 106.71% -37.53% 1433.50 16.81
JAMUNABANK 0.64 1.81 2.69 3.90 3.10 25.81% 37.50% 60.40 15.49
MERCANBANK 4.93 12.81 22.79 27.87 19.83 40.54% -49.10% 617.00 22.14
MTBL 9.48 22.38 33.86 47.68 38.72 23.14% 20.38% 717.50 15.05
PRIMEBANK 12.64 26.02 40.28 57.32 48.88 17.27% 19.50% 892.00 15.56
ONLY MERCHANT BANKING
EXIMBANK 0.09 1.83 3.40 5.08 3.72 36.56% 7.01% 63.70 12.54
FIRSTSBANK 0.35 0.98 1.31 1.81 1.08 67.59% 51.52% 43.60 24.09
SOUTHEASTB 5.22 10.06 16.34 33.65 26.98 24.72% 175.57% 619.00 18.40
STANDBANKL 11.38 21.71 35.64 51.80 24.37 112.56% 16.02% 643.75 12.43
TRUSTBANK 12.95 16.72 46.36 63.90 27.55 131.94% -40.83% 717.00 11.22
ONLY BROKERAGE
ALARABANK* 1.64 3.40 4.51 7.60 3.67 107.08% 178.38% 71.50 9.41
BANKASIA 16.11 34.85 57.29 78.85 44.20 78.39% -3.92% 837.00 10.62
DHAKABANK* 1.21 3.01 3.74 8.07 3.61 123.56% 496.85% 78.70 9.75
EBL 1.53 3.62 6.37 8.00 5.04 58.73% -40.73% 132.10 16.51
ISLAMIBANK 17.78 36.53 47.59 64.38 42.01 53.25% 51.81% 713.00 11.07
NBL* 1.52 2.50 7.51 10.15 4.69 116.42% -47.31% 148.90 14.67
NCCBANK 0.62 2.37 3.08 4.58 3.82 19.90% 111.27% 78.00 17.03
ONEBANKLTD 16.77 50.60 68.93 116.98 35.33 231.11% 162.14% 1078.75 9.22
PREMIERBAN* 0.60 1.63 2.20 4.84 3.73 29.76% 363.16% 67.80 14.01
PUBALIBANK 1.36 3.44 5.00 7.41 4.21 76.01% 54.49% 110.40 14.90
SHAHJABANK* 10.11 26.11 48.08 71.4 31.26 128.41% 6.14% 862.75 12.08
SIBL 0.42 0.52 1.12 1.49 1.66 -10.24% -38.33% 53.50 35.91
NO MERCHANT BANKING AND BROKERAGE
DUTCHBANGL 21.26 53.50 70.50 94.91 56.93 66.71% 43.59% 2219.75 23.39
ICBIBANK -0.60 -1.13 -1.61 -1.54 -3.10 50.32% 114.58% 21.80 -14.16
RUPALIBANK 9.09 64.84 41.78 71.39 133.00 -46.32% - 1898.50 26.59
UCBL 13.98 28.45 54.62 73.47 32.06 129.16% -27.97% 2396.00 32.61
UTTARABANK 19.11 33.13 45.60 56.47 46.13 22.41% -12.83% 1657.75 29.36

Note: a) Banks with (*) marks have transferred their brokerage membership in the year 2010.
b) All quarterly EPS of 2010 and EPS of 2009 have been restated using the latest outstanding number of shares.

Snapshot of Findings
Lowest Projected P/E Multiple
Top Projected EPS Growth
11.00 10.62
231%
250.00%
10.50 184%
9.92 200.00%
10.00 9.75
132% 129% 128%
150.00%
9.41
9.50 9.22
100.00%

9.00 50.00%

8.50 0.00%
ONE BANK AL-ARAFA BANK DHAKA BANK AB BANK BANK ASIA ONE BANK CITY BANK TRUST BANK UCBL SHAHJALAL
BANK
 Brokerage Membership Transference

After Tax Profit From Transfer Pre Transfer Contribution to Post Transfer Contribution to
Bank Name
Of Brokerage Membership EPS (Tk) EPS (Tk) EPS (Tk) EPS (%)
(in mn Tk)
ABBANK 340.00 (est.) 135.85 10.61 146.46 7.24%
ALARABANK 427.97 5.77 1.83 7.60 31.70%
CITYBANK 473.78 46.76 12.02 58.78 25.69%
DHAKABANK 795.51 5.08 2.99 8.07 58.89%
NBL 414.20 9.21 0.94 10.15 9.23%
PREMIERBANK 442.34 3.03 1.52 4.55 33.40%
SHAHJABANK 340.00 (est.) 61.48 9.93 71.40 13.90%

Note: The table is prepared using data up to November 30, 2010.

Methodology

The basis and assumptions that MindSpring followed to estimate the banking sector earnings are as follows:

 Mindspring Research Team assessed the individual items of income and expenses by utilizing historical annual and
quarterly statements as well as applying consensus judgment on the basis of macro and industry related knowledge
store.
 Provision amount for 2010 is estimated considering historical provision rate, growth of loan and advances, and
percentage of provision in comparison to loan in the categories of standard, classified, and special accounts. Besides
that management effort to alter historical NPL% was given value.

 Historical effective tax rate as well as the current tax rate of 42.5% is considered in determination of tax amount for
2010.

 Historical net profit margin, operating profit margin, half-yearly profit margin, and also earning growth of various
periods are considered in estimation of earnings.

ANALYST TEAM

• Mahmudul Bari • Mizanoor Rahman • Noman Ahmed Khan • N.M. Al Hossain • Md. Farjad Siddiqui • Qazi Musaddeq Ahmad

Disclaimer

This material is produced by Mindspring Research (“Mindspring”), an independent research firm registered with Registrar of Joint Stock Companies and Firms, Bangladesh. This document is not to
be used or considered as an offer to sell or a solicitation of an offer to buy any securities, or to enter into any other agreement. Projections of potential risk or return are illustrative, and should not be
taken as limitations of the maximum possible loss or gain. Past performance is not indicative of future results. The information and any views expressed in this document are given as at the date of
writing and subject to change. While the information has been obtained from sources believed to be reliable, Mindspring do not represent that it is accurate or complete and it should not be relied on
as such. Mindspring and its employees accept no liability for any direct or consequential loss arising from the use of this document or its contents or otherwise arising in connection therewith. This
document is not to be relied upon or used in substitution for the exercise of independent judgment. It is being furnished to you solely for your information. By accepting this report you agree to be
bound by the foregoing limitations.

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