Presentation On Ratio Analysis Of AB Bank

Limited
Course Title: Fundamentals of Banking
Subject Code: BNK-201

Name: Ragib Muhib Name: Ms. Shah-Noor Rahman

Student ID: 183-11-6003 Designation: Assistant Professor
Department: Department Of Business Department: Department Of Business
Administration Administration
Faculty: Faculty of Business & Faculty: Faculty of Business &
Entrepreneurship Entrepreneurship
Semester: Fall, 2019 Institution: Daffodil International University
 AB BANK LIMITED
 AB Bank Limited, the first private sector Bank under Joint Venture with Dubai Bank
Limited, UAE incorporated in Bangladesh on 31st December 1981 and started its
operation with effect from April 12, 1982.
 On 14 November 2007 Bangladesh bank approved the name change to AB Bank from
"Arab Bangladesh Bank Limited“
 Number of locations: 104
 Profitability Ratios
1. Return on Equity (ROE)
2. Return on Assets (ROA)
3. Net Interest Margin (NIM)
4. Net Non-Interest Margin (NNIM)
5. Net Operating Margin (OPM)
6. Earning Per Share (EPS)
7. Net Profit Margin (NPM)
8. Assets Utilization (AU in Times)
9. Equity Multiplier (EM in Times)
Ratio Analysis Of AB Bank Limited
Excel Worksheet Findings
 Return on Equity (ROE)
 Return on Equity (ROE) is the ratio of a bank’s net after-tax income
divided by its total equity capital.
 Return on Equity (ROE) is a measure of the rate of return flowing to the
bank’s shareholders.
 It approximates the net benefit that the stockholders have received
from investing their capital in the bank that means placing their funds
at risk in the hope of earning a suitable profit.
Formula:
ROE= Net Income After Tax/ Total Equity %
 Return On Equity
2018 2017 2016 2015 2014
7.00%

6.00% 6.52%
5.65% 5.57%
5.00%

4.00%

3.00%

2.00%

1.00%
0.08%
0.00% 0.13% ROE

In the above graph we see that in year 2017 and 2018 the Return On Equity decreased by 45%
& still decreasing compared to the year 2016 which indicate that AB use less debt than
equity. Which decreases the return to the shareholders but it also decreases risk for the bank.
 Return on Assets (ROA)
Return on Assets is the ratio of a Bank’s net after-tax income divided by its total
assets. Thus ROA is primarily an indicator of managerial efficiency; it indicates how
capably the management of the bank has been converting the institution’s assets
into net earnings.
Formula:
ROA= Net Income After Tax/ Total Asset %
 Return On Asset

2014 0.51%

2015 0.45%

2016 0.41%

0.01%
2017

0.01%
2018

0.00% 0.10% 0.20% 0.30% 0.40% 0.50% 0.60%

Here In above graph we see that the ROA is also decreasing almost as same as the ROE it’s happen because of
the inefficiency of the management level. They have become so inefficient in the years 2017 and 2018 as we see
in the above graph that the ROA has decreased by almost 40 times respectively. It indicates how incapable the
management of the bank has been converting the institution’s assets into net earnings.
 Net Interest Margin
 The Net Interest Margin is efficiency measures as well as profitability measures,
including how well management and staff have been able to keep the growth of
revenues.
 The net interest margin measures how large a spread between interest
revenues and interest costs management has been able to achieve by close
control over the bank’s earnings asses and the pursuit of the cheapest sources
of funding.
Formula:
NIM= (Interest Income-Interest Expense)/ Total Asset %
 Net Interest Margin
1.80%

1.60%
1.62%
1.40%

1.20%

1.00% 1.05%
1.00%
0.80%

0.60% 0.69%

0.40%

0.20%

0.00%
2018 2017 2016 2015

In the above graph we see that the net interest margin is decreasing year by year which indicate the inefficiency
and the incompetence of the management and the staff of the ABBL. It also indicates that the spread between
the income and the cost of ABBL is lessening day by day. It may happen because of bank’s inefficiency to provide
the loan to its client at a reasonable rate of interest which is competitive in the market also.
 Net Non-Interest Margin
The non-interest margin, In contrast, measures the amount of non-interest
revenues stemming from deposit service changes and other service fees the bank
has been able to collect (called fee income) relative to the amount of non-interest
costs incurred (including salaries and wages, repair and maintenance costs on bank
facilities, and loan-loss expenses).
Formula:
NNIM= (Non-Interest Income- Non-Interest Expense)/ Total Asset %
 Net Non-Interest Margin
0.70%
0.64%
0.59%
0.60%

0.50%

0.40%

0.30%

0.20%
0.17% 0.18%

0.10%

0.00%
2018 2017 2016 2015

For most bank the non-interest margin is negative and that the normal. But in case of ABBL the spread between
the non-interest income and the expenses is becoming almost equal day by day. In the above figure we see that
in year 2016 the non-interest margin was 0.64% but in year 2018 it is 0.17% which proves that the bank
generating less income which is not related to the loan or interest than it did before. And in future it could be in
negative figure.
 Net Operating Margin
 The operating margin measures how much profit a company makes on per
currency (Dollar, Taka) sales, after paying for variable costs of production, such
as wages and raw materials, but before paying interest or tax.
 It is calculated by dividing a company’s operating profit by its net sales.
Formula:
Net Operating Margin= (Total Operating Revenue- Total Operating Expense)/Total
Asset %
​
 Net Operating Margin

2014 2.81%

2015 1.74%

2016 1.59%

2017 1.42%

2018 0.95%

0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00%

Net Operating Margin is a measure of how well a company controls its costs. The higher the profit margin is, the
better the company is thought to control costs. But it’s dropping at a regular basis for each year for ABBL, which
shows they have an ineffective cost control, operating expenses are way too high and increasing at an alarming
rate.
 Earning Per Share
 Earning per share is the ratio of bank’s net – income after tax divided by the
total common equity share outstanding which means how much profit will get
the shareholder on their owned share.
 Earning per share is the main indicator of an organization’s wealth. If the EPS is
increasing year by year then we can say that the organization is doing well.
Formula:
EPS= Net Income After Tax/ Number Of Share Outstanding (Per Share Earning)
 EPS
৳ 2.00

৳ 1.80 ৳ 1.72 ৳ 1.68 ৳ 1.66

৳ 1.60

৳ 1.40

৳ 1.20

৳ 1.00

৳ 0.80

৳ 0.60

৳ 0.40

৳ 0.20
৳ 0.02 ৳ 0.04
৳-
2018 2017 2016 2015 2014

More EPS indicates that the organization is doing well. Here in the above graph we see that the EPS of ABBL in
year 2016 was highest but currently ABBL is going through a very bad time. In the years 2017-2018 it’s
declining at a substantial rate. They are in a position which is at an unsatisfactory level.
 Net Profit Margin
 The Net Profit Margin (NPM), or the ration of the net income to total revenues,
is subject to some degree of management control and direction.
 It reflects the effectiveness of expense management (cost control) and service
pricing policies.
 It reminds us that banks can increase their earnings and their return to their
stockholders by successfully controlling expenses and maximizing revenues.
Formula:
NPM= Net Income After Tax/ Total Operating Revenue %
 Net Profit Margin
14.00%

11.84% 12.00%
12.00%
10.37%
10.00%

8.00%

6.00%

4.00%

2.00%
0.21% 0.29%
0.00%
2018 2017 2016 2015 2014

Net profit margin shows the efficiency of the management control and direction on cost control. We can say that
the management of ABBL is doing pretty bad in the recent time than the before. On the year 2017-2018 it has
drastically decreased which is very worrying. ABBL’s low net profit margin means that a company uses an
ineffective cost structure and/or poor pricing strategies. Therefore, a low ratio can result from: Inefficient
management. High costs (expenses)
 Assets Utilization (AU)
 Assets Utilization (AU) ratio is the product of Total Operating Income divided by
the Total Assets that means how much income bank generate by using a single
unite of assets.
 This ratio reflects portfolio management policies, especially the mix and yield on
the bank’s assets.
 By carefully allocating the bank’s assets to the highest-yielding loans and
investments while avoiding excessive risk, management can raise the bank’s
average yield on its assets.
Formula:
AU= Total Operating Revenue/ Total Asset (Times)
 Asset Utilization (Times)
AU (Times)

2014 0.0493

2015 0.0371

2016 0.0350

2017 0.0329

2018 0.0268
0.0000 0.0100 0.0200 0.0300 0.0400 0.0500 0.0600

Assets Utilization ratio shows that how efficiently the bank use their assets to generate
revenue. In above graph we see that ABBL has gradually underdeveloped their assets
utilization ration. Which reveal their poor management team, who’re unable to make the
careful and the effective decision about portfolio investment and by avoiding risk as much as
possible.
 Equity Multiplier (EM)
 The Equity Multiplier (EM), or assets-to-equity-capital ratio, is normally the
largest, averaging about 15* or larger for most bank. The biggest banks in the
industry often operate with multipliers of 20* or more.
 The multiplier is a direct measure of the bank’s degrees of financial leverage–
how many portion of assets must be supported by each amount of equity capital
and how much of the bank’s resources therefore must rest on debt. Because
equity must absorb losses on the bank’s assets, the larger the multiplier, the
more exposed to failure risk the bank is.
 However, the larger the multiplier, the greater the bank’s potential for high
returns for it’s stockholders.
Formula:
EM= Total Asset/ Total Equity (Times)
 Equity Multiplier (Times)
14.5
14.24

14 13.81
13.62

13.5

13
12.75

12.5
12.5

12

11.5
2018 2017 2016 2015 2014

The multiplier ratio tells us that the higher the multiplier is higher the income and also
it lead high risk of bank’s failure. In the above graph we see that the multiplier is
increasing by the time which means that the risk of ABBL is increasing by the time but
the income to the shareholder is increasing with the time.
Thank You