Financial Performance Analysis of Sonali Bank Limited (part-6)

6.6 Risk Analysis

Interpretation: The business risk is that a bank will not have adequate cash flow to meet its operating expenses. The higher CV posses’ higher business risk. Sonali Bank Limited has negative CV which posses its business risk is lower.

Business Risk:

Standard Deviation of Operating Earnings

Mean of Operating Earnings

Year	Operating earnings
2005	208038723
2006	(36275634028)
2007	(1834170743)
2008	1336450387
2009	2244267216
Mean	(6864209689)
SD	16511852169
CV	-2.405499383

Financial Risk:

Debt-Equity Ratio:

Total Long Term Debt

Total Equity

Year	Total Long term liability	Total Equity	Debt equity ratio
2005	331380917072	6306200000	52.54
2006	381338188590	(28444370219)	-13.41
2007	440222504040	21741728899	20.24
2008	468528434181	24417714137	19.18
2009	513493909752	30475358113	16.84

Capture

Graph-9: Debt-equity ratio

Interpretation:A high debt/equity ratio generally means that a Bank has been aggressive in financing its growth with debt. The debt equity ratio of Sonali Bank limited indicates that in 2005 it was highest and in 2006 it was lowest which posses that debt used more than equity.

6.7 Sensitivity Analysis

Particulars	Given Data (2009)	When Interest income is 10% increased	When Interest income is 10% decreased
Interest income	17683108223	19451419045	15914797401
Interest paid on deposit	(15800026939)	(15800026939)	(15800026939)
Net Interest income	1883081284	35251445984	31714824340
Investment income	7709248980	7709248980	7709248980
Commission, exchange & brokerage	6889922752	6889922752	6889922752
Other operating income	283667424	283667424	283667424
Total Operating Income (A)	16765920440	50134285140	46597663496
Salary and allowance	7374257001	7374257001	7374257001
Rent, Taxes, Insurance, electricity etc.	410285295	410285295	410285295
Legal expenses	38782497	38782497	38782497
Postage, stamp, telecommunication etc.	70943693	70943693	70943693
Stationary, Printing, Advertisement etc.	138374104	138374104	138374104
Chief Executive’s Salary and fees	9600000	9600000	9600000
Director’s fees	1729240	1729240	1729240
Auditor’s fees	855000	855000	855000
Charges on loan losses	–	–	–
Depreciation and repair of bank assets	196779376	196779376	196779376
Other Expenses	1213847018	1213847018	1213847018
Total Operating expenses before amortization	9455453224	9455453224	9455453224
Amortization of Intangible Assets	5000000000	5000000000	5000000000
Total operating expenses (B)	14455453224	14455453224	14455453224
Profit/ (Loss) before provision (C=A-B)	2310467216	35678831916	32142210272
Provision for loan	–	–	–
Provision for diminution in value of investments	(11200000)	(11200000)	(11200000)
Other provision	(55000000)	(55000000)	(55000000)
Total Provision (D)	66200000	66200000	66200000
Total Profit/(Loss) before taxes (C-D)	2244267216	35612631916	32076010272
Provision for taxation
Current tax	(981948567)	(981948567)	(981948567)
Deferred tax	274447959	274447959	274447959
	(707500608)	(707500608)	(707500608)
Net Profit after Taxation	1536766608	36320132524	32783510880
Earnings Per Share (EPS)	17.08	403.557028	364.261232

6.8 Scenario Analysis

Particulars	Given Data (2009)	Best Case	Worse Case
Interest income	17683108223	19451419045	15914797401
Interest paid on deposit	(15800026939)	(15010025592)	(16590028286)
Net Interest income	1883081284	34461444637	32504825687
Investment income	7709248980	8480173878	6938324082
Commission, exchange & brokerage	6889922752	7578915027	6200930477
Other operating income	283667424	312034166.4	255300681.6
Total Operating Income (A)	16765920440	50832567709	45899380927
Salary and allowance	7374257001	7005544151	7742969851
Rent, Taxes, Insurance, electricity etc.	410285295	389771030.3	430799559.8
Legal expenses	38782497	36843372.15	40721621.85
Postage, stamp, telecommunication etc.	70943693	67396508.35	74490877.65
Stationary, Printing, Advertisement etc.	138374104	131455398.8	145292809.2
Chief Executive’s Salary and fees	9600000	9120000	10080000
Director’s fees	1729240	1642778	1815702
Auditor’s fees	855000	812250	897750
Charges on loan losses	–	–	–
Depreciation and repair of bank assets	196779376	186940407.2	206618344.8
Other Expenses	1213847018	1153154667	1274539369
Total Operating expenses before amortization	9455453224	8982680563	9928225885
Amortization of Intangible Assets	5000000000	4750000000	5250000000
Total operating expenses (B)	14455453224	13732680563	15178225885
Profit/ (Loss) before provision (C=A-B)	2310467216	37099887146	30721155042
Provision for loan	–	–	–
Provision for diminution in value of investments	(11200000)	(10640000)	(11760000)
Other provision	(55000000)	(52250000)	(57750000)
Total Provision (D)	66200000	62890000	69510000
Total Profit/(Loss) before taxes (C-D)	2244267216	37036997146	30651645042
Provision for taxation
Current tax	(981948567)	(932851138.7)	(1031045995)
Deferred tax	274447959	301892754.9	247003163.1
	(707500608)	(672125577.6)	(42875638.4)
Net Profit after Taxation	1536766608	37709122724	31394520680
Earnings Per Share (EPS)	17.08	418.9902525	348.8280076

In best case, we considered all the income are calculated as an increasing rate of 10% and all the expenses as decreasing rate of 5%.

In worst case, we considered all the expenses as an increasing rate of 5%and all the income as decreasing rate of 10%.

For the considerable percentages in best case EPS has increased 2453.10% and in worst case the EPS is decreased 2042.31%.

IT Financing:

Name

About

Eligibility

Loan Limit

Debt-equity ratio

Period

Security

Interest Rate

Project Financing

For growing international markets for software and data processing this scheme provides long term and short term credit facilities on easier terms to set up and run IT based projects.

Entrepreneurs, of them at least two with recognized degree diploma in computer science or electrical engineering/ telecommunication/applied physics & electronics, forming a private limited company may apply. Experience in related field will be preferred.

Maximum Tk. 1.50 million. In deserving cases, up to Tk. 10.00 million may be considered

80:20

Maximum 6 years including 1 year grace period.

In case of project with own land & building no collateral security other than the personal guarantee of the loaners is required. Entrepreneurs offering collateral security will be preferred or loan may be consider with personal guaranty of worthy person(s) (third party).

11%

Export Financing

For export of software and processed data short term finance is extended to existing IT projects.

Feasibly implemented and properly staffed IT projects with export L/C or firm contract in hand may apply. Export through satellite, BTTB confirmation required.

Tk. 1.00 million. For larger contract higher amount may be considered.

90:10

L/C or contract period plus 21 days but not exceeding 180 days from the date of disbursement.

No collateral security other than the personal guarantee of the loaners is required. But for loan amount exceeding Tk.1.00 million, collateral will be required.

11%

Findings

As a largest commercial bank and the agent of Bangladesh Bank Sonali Bank has to do various types of work without thinking about the profit. For this reason we have seen that in some cases bank has doing loss, but this loss we directly cannot say that bank failing los, this is happening only for helping the nation.

On the other hand we have seen that the bank profit increasing rate is poor but increasing. The bank is highly liquid and earns much profit on owner’s equity. Bank’s operating efficiency is good. EPS is increasing double per year and earning spread is also increasing.

So after all we can say that as a nationalized bank commercial bank Sonali Bank Limited is a bank which is earning better than other nationalized bank.

Conlusion & Recomendation

Conclusion:

As a bank Sonali Bank Limited has to do a lot of things for the betterment of the country. The Bank is strongly positioned in the market and with its core strengths it can match shareholders’ expectations and thus raise their wealth in future through ethical banking and best pricing. Thus, it has to take initiative so that it can fulfill the desire of the govt. as well as people. It will enhance more public services and build up working teams to provide the best services to its valuable customers. It must be run in organized way and discipline must be ensured in all sphere of its performance. Efficient export team, import team and remittance team must be formed and perform duties properly. More training, computerization, data collection, market analysis and swiftness in servicing are essentially required. To do these the recommended suggestions can be used. Although it is theoretical suggestions, it is not valueless. It has great impact on the banking business and other sectors of the economy. For this, govt. help is essential and it is expected that govt. will broaden its hand for implementing the recommendations for the welfare of the people of Bangladesh.

Recommendation:

The Top management of Sonali Bank Limited should be more effective to the employee then current situation. Because they should take care the branch level employee’s benefits, opportunities etc.
The bank has highly skilled employee in the branch level. But the bank should be able to utilize these employees at appropriate way to take out the bank’s output.
The website design is need to improve. Therefore, the website should be changed and can put more information about the bank. The existing design cannot capture the customer’s attention.
The cheque’s design is poor. The good looking cheque design can motivate the customer.
The human resource division can be more effective. Because this human resource department should think about the employee benefit much.
In the training institute, the training process should be used latest technology to provide to the trainee. The bank should give training about the office package, basic idea on computer and internet.
In the branch level when employees could transfer to another department during that time that employee is needed at least ten days training according on the transfer position.
The higher management should be more effective about the employee, to take right strategy, right decision making.
In the branch level employee is working so many extra time, so management should provide some extra incentives to motivate the employee.
On-line banking is coming soon so the responsible employee should be trained effectively.
The training evaluation process and form is to be more modernized.
Physical and technological facilities should be increased in evaluating credit proposals.
Infrastructure should be modernized.
The cost of fund needs to be minimized.
The gap between employees and customers will be reduced through arranging meetings.