Assignment onMoney & Banking (BBA-315)

Topic: Performance Evaluation of Eastern Bank Ltd.

Submitted to Naznin Sultana Chaity

LecturerSchool of Business

Submitted By

Md. Likhon

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08.01.02.005Farhan Uddin Ahmed

08.01.02.023Md. Atiqul Islam

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08.01.02.025Muhammad Sazzad Hussain Chowdhury

08.01.02.027School of Business

Date of submission03-July-2010

AHSANULLAH UNIVERSITY OF SCIENCE AND TECHNOLOGY

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Executive Summary:

Various groups of individuals are particularly interested in evaluating bank performance. Firstly, bank shareholders are directly affected by bank performance. Investors take advantage of bank information to develop expectations concerning future performance that can used to help price common shares. Secondly, bank management traditionally is evaluated on the basis of how well the bank performs relative to previous years and compared with similar banks. Employees’ salaries and promotions are frequently tied to the performance of the bank. Bankers also need to be informed about the condition of other banks with which they have business dealings. Loan purchases and particularly from poorly managed institutions may be suspect; federal funds sold and repurchase agreements with other banks require that some knowledge of their performance be obtained to prevent loss of funds in the event of their failure and subsequent closure by regulatory authorities. Thirdly, regulators concerned about the safety and soundness of the banking system and the preservation of public confidence, monitor banks using on-site examinations computer-based “early warning system” to keep track of bank performance. Fourthly, depositors may be interested in how well the bank is doing. Fifthly, and lastly, the business community and general public should be concerned about their banks performance to the success or failure of the bank.

We provide a general framework for evaluating bank performance. This framework helps to conceptualize the nature of bank behavior, and to pointing out possible interactions between various aspect of performance and also the internal performance factors that need to be evaluated.

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Table of ContentsObjective:......................................................................................2

Methodology:................................................................................3

Company Profile:...........................................................................4

Vision:........................................................................................4

Mission:.....................................................................................4

Values:.......................................................................................5

Performance Evaluation:...............................................................6

Bank Planning:.........................................................................6

Objectives of EBL:.....................................................................6

Strategic priority of EBL:..........................................................6

Technology:..............................................................................7

Success story:...........................................................................7

EBL with new ICT Infrastructure features:...............................8

Benefits from Changes:............................................................8

Personal Development:...........................................................9

Employee Benefits:..................................................................9

Education Programs:..............................................................11

Bank Profitability:.....................................................................13

Conclusion:..................................................................................22

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Objective:

Evaluate internal performance of the EBL.

Improve the market share of prime grade loans.

Upgrade the quality of management expertise in the area of high-technology.

Expand the financial services being offered to retail customers to increase the size and diversification of the deposit base.

Implement an automated delivery system for payment services.

Help the community grow so that they may grow with it.

Facilitate employee training.

Diversify the loan portfolio to greater extent in terms of different assets and the geographic distribution of these assets.

Cross sell a wide variety of financial services including banking, securities and insurance activities.

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Methodology:

We collect data from Eastern Bank Limited’s website (www.ebl.com.bd) and annual report.

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Company Profile:

Eastern Bank Limited (EBL) is one of the modern, fully online and technologically superior private commercial Banks in Bangladesh. Eastern Bank markets a wide range of depository, loan & card products. These products include different types of Savings & Current Accounts, Personal Loans, Auto Loan, Debit Card, Pre-paid Cards, Internet Banking, Treasury, Syndication, Corporate Banking and SME Banking services through a network of branches & centers countrywide. Eastern Bank has its presence in major cities/towns of the country including Dhaka, Chittagong, Sylhet, Khulna and Rajshahi. Tracing its origin back to 1992, EBL is serving the individual and corporate clientele alike with remarkable success offering innovative banking services since then.

Vision:

To become the bank of choice by transforming the way we do business and developing a truly unique financial institution that delivers superior growth and financial performance and be the most recognizable brand in the financial services in Bangladesh.

Mission:

We will deliver service excellence to all our customers, both internal and external.

We will constantly challenge our systems, procedures and training to maintain a cohesive and professional team in order to achieve

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service excellence.

We will create an enabling environment and embrace a team based culture where people will excel. We will ensure to maximize shareholder's value.

Values:

Openness

Trust

Commitment

Integrity

Service excellence

Responsible Corporate Citizen

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Performance Evaluation:

Bank Planning:

Objectives of EBL:

EBL will deliver service excellence to all his customers, both internal and external.

EBL will ensure to maximize shareholders’ value. EBL will constantly challenge his systems, procedures and training

to maintain a cohesive and professional team in order to achieve service excellence.

EBL will create an enabling environment and embrace a team based culture where people will excel.

Strategic priority of EBL:

Further improvement of asset quality. Further change in deposit mix to increase pie of low cost deposits. To become cost efficient organization. Moderate growth in conventional products. Pursue inorganic growth through merger and acquisition. Increase off-balance sheet business through product innovation. Careful presentation in the capital market. Increase intrinsic value of the company by strengthening internal

controls through installation of clearly laid down policies, procedures and processes.

Diversity corporate business to take advantage of PPP. Increased and focused Corporate Social Responsibility (CSR).

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Increase shareholders’ value. Strengthen risk management. Improve quality of human capital by strengthening their

competencies. Create world class IT infrastructure to deliver superior service to

our customers.

Technology:

EBL started its journey from a meager information technology platform. The branches were operating in a standalone/decentralized environment using local software where limitations were in abundance. It was limited from the delivery channels perspective for providing the customers with maximum benefits in terms of banking products and services. The most private banks in Bangladesh generally have been less competitive with their MNC bank counter parts. The sense of customer support and service at these private banks, literally, were not up to the par with what the customers came to expect from these MNC banks. So, for obvious reasons privates started losing businesses to these MNC banks.

Success story EBL with new ICT infrastructure features Benefits from changes

Success story:

EBL management consisting of dynamic bankers from foreign banks working environment could assess the benefits out of Information Technology [IT] in utilizing it to the maximum through their experience.

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Their guideline and streamlined decision making has played a pivotal role in the implementation process of Flex cube software in the branches. EBL is the pioneer Bank in laying foundation to the world class banking software in Bangladesh. No other private Banks in Bangladesh could implement foreign banking software with success in the past. The concerned IT resources worked relentlessly over the months played a significant role behind the successful implementation of Flex cube banking software in EBL branches.

EBL with new ICT Infrastructure features:

Essentially, EBL was not in a well-connected situation. Data Communication was limited to secluded offices in a very limited fashion. EBL now is a different scenario. EBL HO is now connected with the branches all around Bangladesh. Here is a breakdown of what the data communication infrastructure looks like today:

High Speed DDN and Radio Link connectivity between Branches and the Head Office

Local Area Network (LAN) - providing data network connectivity at the Head Office and the Branches

Metropolitan Area Network (MAN) - connecting the DHK branches with HO, CTG branches with Agrabad and SYL branches with Chouhatta

Wide Area Network (WAN) - enabling the data network circle between Head Office and the Branches

Solid foundation over data and network security implementation

Benefits from Changes:

EBL wanted to stand up in the crowd. For moving out of the ramshackle, EBL management under the dynamic leadership of the honorable

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Directors of the Board switched over to a centralized platform using a world renowned banking software which was the #1 most popular software in the world for the year 2003. The result has been incredible. We list a few of the benefits of centralization here.

At a glance - Benefits from ChangesStandalone systems = > Centralized system

Branch Banking = > Anywhere Banking Anywhere Banking = > EOD at Data Centre

Telegraphic Transfers = > Online Inter-branch transfer Hold accounts = > Online Inter-branch transfer

Produce MIS at Branch = > Centralized MIS Poor ‘Control’ reports = > Improved ‘Control’ reports

Audit needs branch visit = > MIS available at Head Office Information on paper = > Information in CIF

On Card Signature/Pix = > Digital Signature/Pix No Funds Management = > Automatic Sweep-in/Out

Personal Development: Commercial banks require a highly skilled labor force, it is essential that attention be focused on personal development. Human resources play a critical role in the achievement of bank goals and objectives. Banks must provide opportunities for the continuous training of their employees in the latest banking operations and techniques, and must provide means for their employees to keep up with the changes in bank regulations.

Employee Benefits:

At Eastern Bank, they believe compensation and benefits should not be single offerings, but should be integrated into their Total Rewards employee benefits program, which is designed to help their employees achieve their goals in their personal and professional lives. To deliver on this promise, they monitor industry best practices and solicit input from their employees to ensure that their compensation and benefits

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programs are competitive and comprehensive. Below is a brief list of the programs available to their employees:

CompensationTheir compensation plans are performance based and, depending upon your position, may include base salary, incentives, commissions, referral incentives and recognition awards.

Health and WellnessThey offer a choice of high-quality comprehensive plans to meet the diverse needs of their employees:

• Medical insurance – plan options through Tufts • Delta Dental insurance • Eye Med Vision Care insurance • Vision and hearing aid reimbursements • Flexible spending accounts – medical, dependent care, adoption, insurance premiums • Use on-site fitness center in Lynn

Personal ProtectionAvailable at no cost, these benefits provide additional financial security to employees and their families for events that impact their lives and physical well-being.

• Life insurance and AD&D insurance • Supplemental Life and Dependent Life• Sick days • Short-term disability • Long-term disability

Financial Future They provide a blend of retirement benefits, including a) 401(k) plan that lets you make contributions, as well as a non-contributory pension plan for tax-advantaged wealth accumulation.

• Defined benefit pension plan • 401(k) savings and investment plan with company contribution.

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Work/Life Program Their program assists employees with personal and/or work situations.

• Lifeworks Employee Assistance Program

Education They provide financial support to employees to increase their knowledge and skills, and enhance their job performance and career development.

• Tuition reimbursement program • Wide variety of on-site training courses

Time Off They offer paid time off to focus on non-work interests and obligations as well as to relax.

• Vacation • Holidays • Personal days

Other Benefits

• Free or discounted banking services • Discounted group auto and homeowners insurance • T-Pass pre-tax program

Education Programs:

At Eastern Bank, They understand that dealing with personal finances can be overwhelming for anyone. That’s why they have partnered with local nonprofit community organizations and high schools to offer

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education programs that will help you take control of your finances.

FDIC Alliance FDIC News FDIC Guides

FDIC Alliance

As a member of the FDIC Money Smart Alliance, they support financial literacy – the ability to save, budget, spend wisely and invest – in the communities they serve.

The FDIC Money Smart program helps students and adults develop good money management skills and understand financial services and bank accounts.

The money smart program is a standardized banking curriculum consisting of 10 modules covering basic financial topics. In addition to attending a training class led by a certified instructor, class participants receive a course booklet containing resource materials and highlights of the material covered.

Certified InstructorsEastern has a team of over 50 employees that have attended training programs and are certified to teach all 10 of the banking modules. Eastern Bank will send instructors to your organization or school to present one or more of the Money Smart courses. Classes are available in both English and Spanish.

Requesting a Money Smart PresentationWhen requesting a Money Smart Presentation, please provide a minimum of 30 days notice to give them sufficient time to schedule an instructor and obtain training materials.

To request a Money Smart presentation for a school, contact: John Patria keas, Vice President, Eastern Bank at 781-596-4534.

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To request a Money Smart presentation for an organization, please complete our request form.

If your organization is located outside their marketplace, they will connect you with a representative at the FDIC to find Money Smart trainers in your community.

FDIC News

Consumer News is a quarterly newsletter published by the Federal Deposit Insurance Corporation (FDIC) that provides practical guidance on how to become a smarter, safer user of financial services. Each issue offers helpful hints, quick tips, and commonsense strategies to protect and stretch your hard-earned dollars.

FDIC Guides

The Federal Deposit Insurance Corporation (FDIC) has published several special how-to guides on money management. Each guide contains topics designed for a selected age group: senior citizens and their families, young adults just beginning a career or family, and teens.

Bank Profitability:

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

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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.

To analyze performance of Eastern Bank Limited (EBL) by calculating

different financial ratios, we use following ratios-

1. ROE (Return on Equity)2. ROA (Return on Asset)3. Profit Margin4. Asset Utilization5. Net Interest Margin6. Provision for Loss Ratio7. Loan Ratio8. Temporary Investment Ratio9. EPS (Earning Per Share)10. DPS (Dividend Per Share)11. P/E (Price Earning) Ratio

To calculate those ratio of 5 years of Eastern Bank Limited (EBL), we use following data-

Item 2005

(Taka)

2006

(Taka)

2007

(Taka)

2008

(Taka)

2009

(Taka)

Net Income

546,515,028 513,233,680 418,648,150 798,353,1971,458,991,9

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Total Equity

3,071,336,910

3,314,723,164

3,710,912,939

4,733,358,666

8,434,181,804

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Total Asset

27,399,954,469

35,934,833,110

42,507,025,504

54,351,795,983

68,330,333,103

Operating revenue

1,591,610,252

2,110,747,329

2,820,667,205

3,701,632,829

4,617,633,138

Total Interest Income

2,075,412,522

2,829,332,632

3,808,903,036

5,224,413,145

6,186,163,190

Total Interest Expense

1,365,455,642

2,160,078,142

2,498,068,117

3,675,380,751

4,032,711,612

Average Earning Asset

13,602,755,449.5

17,768,026,879

21,062,048,945

26,962,555,829

33,924,417,402

Provision for Loan Losses

88,425,742 223,369,258 584,394,008 452,686,073 262,511,322

Total Loans & Leases

17,757,598,566

25,973,981,280

30,895,706,294

39,427,383,891

46,129,522,083

Net Loan 17,174,528,536

25,046,619,296

30,194,171,436

38,632,083,300

45,277,521,185

Treasury Bill

4,560,000,000

3,680,000,000

1,170,000,000

- -

Investment ≤ 1 year

-2,962,734,7

731,298,180,1

68440,079,520 278,305,675

Due from Other Bank

745,258,450 927,301,7291,540,351,9

873,406,323,9

256,777,216,5

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No. of 8,280,000 8,280,000 10,350,000 13,869,000 24,964,200

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Shares Issue

Proposed Dividend

331,200,000 372,600,000 351,900,000 - -

Market price of

per Share1222.75 792.50 1070.75 589.30 644.25

Now,

ROE (Return on Equity):

ROE= (Net Income ÷ Total Equity) × 100

Year 2005 2006 2007 2008 2009Net Income

546,515,028 513,233,680 418,648,150 798,353,1971,458,991,93

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Total Equity

3,071,336,910

3,314,723,164

3,710,912,939

4,733,358,666

8,434,181,804

ROE 17.79% 15.48% 11.28% 16.87% 17.3%

By this ratio we see that in 2006 & 2007 EBL’s ROE is relatively lower than others. But in 2008 its increasing & also continuous increasing is going on. Therefore, investors will attract more effectively to invest.

ROA (Return on Asset):

ROA= (Net Income ÷ Total Asset) × 100

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Year 2005 2006 2007 2008 2009Net Income

546,515,028 513,233,680 418,648,150 798,353,1971,458,991,93

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Total Asset

27,399,954,469

35,934,833,110

42,507,025,504

54,351,795,983

68,330,333,103

ROA 1.99% 1.43% 0.99% 1.47% 2.14%

Managing asset or handling asset is the most important part of an organization. Here, we see that Eastern Bank Ltd. Managing their asset in average at 1.5%. And also in 2009, ROA is much better than others.

Profit Margin:

Profit Margin= (Net Income ÷ Operating Revenue) × 100

Year 2005 2006 2007 2008 2009Net Income 546,515,028 513,233,680 418,648,150 798,353,197 1,458,991,932

Operating revenue

1,591,610,252 2,110,747,329 2,820,667,205 3,701,632,829 4,617,633,138

Profit Margin

34.34% 24.32% 14.84% 21.57% 31.60%

EBL’s profit margin ratio in 2005 is 34.34% but it decreases in 2006, 2007, 2008 and it’s overcome in 2009. So, EBL is doing well in 2009.

Asset Utilization:

Asset Utilization== (Operating Revenue ÷ Total Asset)

Year 2005 2006 2007 2008 2009Total Asset

27,399,954,469 35,934,833,110 42,507,025,504 54,351,795,983 68,330,333,103

Operating revenue

1,591,610,252 2,110,747,329 2,820,667,205 3,701,632,829 4,617,633,138

Asset Utilization

0.058 0.059 0.066 0.068 0.067

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EBL’s asset utilization capability is increasing 0.058 to 0.067. That’s a very good sign to any financial organization.

Net Interest Margin:

Net Interest Margin= (Total Interest Income – Total Interest Expense) ÷ Average Earning Asset

Year 2005 2006 2007 2008 2009Total

Interest Income

2,075,412,522 2,829,332,632 3,808,903,036 5,224,413,145 6,186,163,190

Total Interest Expense

1,365,455,642 2,160,078,142 2,498,068,117 3,675,380,751 4,032,711,612

Average Earning Asset 13,602,755,449.5 17,768,026,879 21,062,048,945 26,962,555,829 33,924,417,402

Net Interest Margin

0.052 0.038 0.062 0.057 0.063

EBL’s net interest margin standing in 2009 is 0.063, which is much better from previous years.

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Provision for Loss Ratio:

Provision for Loss Ratio= (Provision for Loan Losses ÷ Total loans & Leases) × 100

Year 2005 2006 2007 2008 2009Provision for Loan Losses

88,425,742 223,369,258 584,394,008 452,686,073 262,511,322

Total loans &Leases

17,757,598,566 25,973,981,280 30,895,706,294 39,427,383,891 46,129,522,083

Provision for Loss Ratio

0.5% 0.86% 1.89% 1.15% 0.57%

Provision for loan losses is doing better when it’s decreasing. Here we see that in 2006, 2007, 2008 this rate is increase & in 2009 its rate become lower. So, EBL is standing in a low risk position.

Loan Ratio:

Loan Ratio= = (Net Loan ÷ Total Asset) × 100

Year 2005 2006 2007 2008 2009Net loan

17,174,528,536 25,046,619,296 30,194,171,436 38,632,083,300 45,277,521,185

Total Asset

27,399,954,469 35,934,833,110 42,507,025,504 54,351,795,983 68,330,333,103

Loan Ratio

62.69% 69.7% 71.03% 71.08% 66.26%

EBL use their asset against loan very well like more than 50%. So, it is the good sign to EBL. But in 2009 it decreases. So, EBL must have to concentrate on this & solve the problem.

Temporary Investment Ratio:

Temporary

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Investment Ratio= (Treasury bill + Investment ≤ 1year + Due from other Bank) ÷ Total Asset

Year 2005 2006 2007 2008 2009Treasury bill

4,560,000,000 3,680,000,000 1,170,000,000 - -

Investment ≤ 1year

- 2,962,734,773 1,298,180,168 440,079,520 278,305,675

Due from other Bank

745,258,450 927,301,729 1,540,351,987 3,406,323,925 6,777,216,553

Total Asset 27,399,954,469

35,934,833,110

42,507,025,504

54,351,795,983

68,330,333,103

Temporary Investment Ratio

0.19 0.21 0.094 0.071 0.1

Temporary invest ratio of EBL in 2009 is running low. EBL must have to keep concentrate on it.

EPS (Earning Per Share):

EPS= Net Income ÷ No. of Shares Issue

Year 2005 2006 2007 2008 2009Net Income 546,515,028 513,233,680 418,648,150 798,353,197 1,458,991,932

No. of Shares Issue

8,280,000 8,280,000 10,350,000 13,869,000 24,964,200

EPS 66 61.98 40.50 57.56 58.44

EPS of EBL 2005 & 2006 is good but in 2007 it is too much lower. In 2008 EBL make over the problem for EPS is increasing & also keep it in 2009.

DPS (Dividend per Share):

DPS= Proposed Dividend ÷ No. of Shares Issue

Year 2005 2006 2007 2008 2009

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Proposed Dividend

331,200,000 372,600,000 351,900,000 - -

No. of Shares Issue

8,280,000 8,280,000 10,350,000 13,869,000 24,964,200

DPS 40 45 34 - -

DPS of EBL 2005 & 2006 is good but in 2007 it is much lower. And it is going on in 2008 & 2009. EBL can’t give dividend.

P/E (Price Earning) Ratio:

P/E Ratio= Market Price of per Share ÷ Annual Earnings per share (EPS)

Year 2005 2006 2007 2008 2009Market Price of per Share

1222.75 792.50 1070.75 589.30 644.25

Annual Earnings per Share (EPS)

66 61.98 40.50 57.56 58.44

P/E (Price Earning) Ratio

18.53 12.79 26.44 10.24 11.02

EPS of EBL 2005, 2007 is good but in 2006, 2008, 2009 it is too much lower. Somehow external factors are not work properly for that P/E ratio decreasing.

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Conclusion:

The evaluating of bank performance is a complex process involving interactions between the environment, internal operations, and external activities. The primary method of evaluating internal performance is by analyzing accounting statements. Financial ratios of accounting items permit an historical sketch of bank returns and risks.

At Eastern Bank, they believe that, in order to support the success of their business customers, they need to take the time to understand their unique challenges.

At Eastern Bank, they know that your business is unique with specific financial challenges and opportunities. Their experienced team of business bankers not only will take the time to understand them, but to solve them. So no matter what lies ahead for you and your business, you can count on them to be there for you – every step of the way.

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