Rating Report GSP Finance Company (Bangladesh) Limited

Banks, Non-bank financial institutions (NBFIs), & General Insurance sector represents the most important parts of a financial system. In Bangladesh, NBFIs are new in the financial system as compared to banking financial institutions (BFIs). Credit rating is an assessment of the creditworthiness of an individuals or firms or it securities which is generally conducted by an independent credit rating agency. It measures the probability of the timely repayment of principal and interest of a bond. We have tried to analyze the credit rating system of Banks, NBFIs & General insurance Company in Bangladesh. And then we analyze the credit rating of IFIC Bank Ltd., GSP Finance (BD) Ltd & Agrani Insurance Company Limited. For this purpose we have done some analysis here.

First- we have tried to show some qualitative analysis. In this segment we have done

• Industry Risk
• Keys to succeeds
• Diversification factors
• Firm Size
• Evaluation of Management
• Accounting Quality: Income recognition, depreciation and inventory  pricing methods and off balance sheet items
• Profitability
• Profit Margins

Second- we have tried to show some quantitative analysis. This segment includes-

• Ratio Analysis
• Credit Rating based on Regression model.

And finally we have tried to show the creditworthiness of the company. After analyzing all aspects of these three sector industry, we have assigned rating what should be awarded.

Non-bank financial institutions (NBFIs) represent one of the most important parts of a financial system. In Bangladesh, NBFIs are new in the financial system as compared to banking financial institutions (BFIs). The NBFIs sector in Bangladesh consisting primarily of the development financial institutions, leasing enterprises, investment companies, merchant bankers etc. The financing modes of the NBFIs are long term in nature.

Traditionally our banking financial institutions are involved in term lending activities, which are mostly unfamiliar products for them. Inefficiency of BFIs in long-term loan management has already leaded an enormous volume of outstanding loan in our country. At this backdrop, in order to ensure flow of term loans and to meet the credit gap, NBFIs have immense importance in the economy. In addition, non-bank financial sector is important to increase the mobilization of term savings and for the sake of providing support services to the capital market.

Building a sound financial system is an immense necessity for the economic development of a country. The main task of the financial system is to mobilize funds from the surplus budget unit to deficit budget unit. Financial system provides a strong mechanism for collection and allocation of financial resources among the various alternatives. However, in a developing country like Bangladesh it is very hard to reach in a sound financial system due to the lack of to ensure discipline in the financial system. For these reasons, careful assessment of the financial system is necessary to determine about which features of the financial system are basic and which features are secondary and the types of institutions that are essential in the process. Actually, financial system is decomposed of into two basic types of institutions.

One is the banking financial institutions (BFIs) and the other is the non-banking financial institutions (NBFIs). These two financial institutions are different in respect of their activities and treatment of the assets and liabilities in the financial market. For a well functioning financial market along with the BFIs, NBFIs have an important role to uplift the economic activity. These two financial sectors can simultaneously build up and strengthen the financial system of the country. This paper analyses the importance and roles of NBFIs in developing economy of Bangladesh. Our study is confined to 25 NBFIs who got license from Bangladesh Bank up to 2001 under the Financial Institution Act-1993 and Financial Institutions regulations –1994. The NBFIs sector in Bangladesh consisting primarily of the development financial institutions, leasing and investment companies, insurance industries, and the corporate debt market account for only around 4% of the financial system. Development of the NBFIs in a sustainable basis contributes to the speed and efficiency of the financial system. The necessity for the development of NBFIs could be best judged with the following issues.

v  Firstly, the NBFIs are markedly different from the banking institutions and with different phenomena. These two kinds of financial institutions are complementary rather than substitute organs in the financial system. Existence of banking and non banking financial institutions, money market and capital market keep the financial sector complete and enhance the overall growth of the economy.

v  Secondly, there is a maturity mismatch in the sources and uses of funds their definition is unsuited for long term lending. Inefficiency of BFIs in long-term loan management has already leaded an enormous volume of outstanding loan in our economy. However, with the present status, expertise and efficiency, the NCBs are barely able to serve the future investment demand of the country. Private commercial banks are less experienced and less equipped in this regard and they would not take the load or be able to take future challenges of term lending of the country. At this backdrop, in order to ensure flow of term loans and to meet the credit gap, development of NBFIs is a compelling necessity for the economy.

v  Thirdly, sophisticated and well-developed capital market is considered as the hallmark for a market economy worldwide. Although our country is moving toward a full market based economy, capital markets are still in infancy. This is due to lack of requisite institutions those are needed in the system. In the last twenty years there has been a tremendous growth worldwide of non-bank financial institutions to provide support services to the capital market. These range from broker dealer to investment banker. The health of the capital market is largely relied upon the health of the banking and non-banking financial institutions. The key players are the non-bank financial institutions in the development of the capital market.

For the credit rating of GSP Finance Ltd. we have considered the guidelines provided by our course teacher. Credit rating is “an objective and impartial opinion on the ability and willingness of an issuer to make full and timely payments of financial obligations.” This opinion is conveyed in a simple alphanumerical scale, for easy reference and comparability.

Rating is essentially an opinion. Here we have also give our opinion within various limitations. For this purpose we have analyzed both the qualitative and the quantitative factors of the banking industry as a whole and also various factor of GSP Finance Ltd. itself. In the part of qualitative analysis we have analyze the industry risk, keys to success, diversification factors, firm size, management quality, quality of the financial reporting, performance in the industry. In the quantitative analysis we consider the profitability, cash flow adequacy, capital structure and financial flexibility. We have assigned some points on both the qualitative and quantitative information to get the exact rating. As for the sustainability of an organization both the quality of the management and quantitative figure that means company’s financial performances are equally important we have assigned equal weights for bother he qualitative part and quantitative part.

Our ratings are based on the mostly to historical data which have been adjusted for future looking and we assume sustainable normal business condition. Nonetheless, changing conditions, new complexities and risks which may emerge could affect the assigned ratings. As such, changes in ratings can happen after the initial assignment.

GSPB incorporated on October, 1995 and commenced its operation on April, 1996. The Company offers loans and lease finance of all types of plant, machinery, equipment and vehicles both for industrial and commercial use. The authorized capital of the Company was BDT 1,000 million. Domestic shareholders hold 61.82% and foreign shareholders hold 38.18% of paid up capital.

The Company also got a separate license from Securities & Exchange Commission (SEC) on August, 1999 for working as a Merchant Bank. GSPB Board took a bold step in line with SEC’s guideline by forming a subsidiary company for merchant banking activities named “GSP Investments Limited” from 2011. The shareholding of this subsidiary company is 51% share held by GSP Finance Company (BD) Ltd. and the remaining 49% held by existing shareholders of GSPB on pro rata basis.

In 2010 investment income of the Company strongly dominated the revenue stream with 77.52% of total income followed by net interest income (10.79%). GSPB‘s net interest income was reduced by 86.71% as the Company could not pass on the higher fund cost to the borrowers timely. As a result, net interest margin decreased by 5.01 percentage points. Return on average assets improved by 1.57 percentage points mainly due to sharp rise in net profit margin backed by higher investment income. GSPB managed to restrict its cost to income ratio in the line of industry average and stood at 21.20% at the end of 2010

The Company was mainly funded by borrowings from other Banks & FIs (66.05%) and by term deposits (33.95%). Of the total borrowings 96.82% was from long term loan. GSPB actively participated in call money market throughout 2010. The Company was net borrower to the call market throughout 2010 except in December. Call money rate picked up in December (avg. rate 33.54%). The Company had assets sensitive position in all the interest sensitive maturity buckets.

Company’s total asset was dominated by loans, advances & leases, 55.81% which experienced negative growth in 2010. Company’s credit portfolio was not reasonably diversified in terms of intrinsic and concentration risk. GSPB’s top 20 large loan exposures was 74.79% of total leases, loans & advances (2009:65.88%) and at the end of 2010 six leases & loans facilities were reported as classified (2 in Bad/Loss category).

The concentration of investment shows an increasing trend. During this period the investment of the Company increased by 167.35% and the yield of investment was 45.95%. Company invested in capital market through portfolio management by merchant banking wing. GSPB made this entire investment in quoted and unquoted securities. But market value (BDT 123.82 million) of quoted shares of which lower than the cost value (BDT 125.45 million) as on 31^st December 2010.

In 2010 GSPB’s NPL decreased but it was still 19.77% in 2010 (2009: 22.04%). However, considering the margin loans in leases, loans & advances portfolio, gross NPL ratio reduced to 14.63% in 2010 (2009: 18.38%). Gross NPL reduced on the back of rescheduling (7.41% of total loans) and cash recovery (3.49% of total loans). During this period the Company also managed to reduce fresh NPL generation which was 5.20% of total loans in 2010 (2009:20.31% of total loans). GSPB’s special mention account (SMA) to leases, loans & advances was 12.12% (2009:12.15%).

As per Bangladesh Bank regulation the minimum paid up capital of any financial institution should be BDT 500 million by 31 December 2010 against which GSPB had paid up capital of BDT 215.99 million. However, total capital (tier1+tier2) of the Company was BDT 476.32 million in 2010 (2009: BDT 403.28 million).

Qualitative analysis deals with the subjective evaluation of both the internal and external factors related to the concerned firm, its peer groups and the industry. Based on the analysis, an overall evaluation is made regarding the concerned firm GSP Finance Limited. While rating GSP Finance Limited, qualitative analysis was performed considering the following areas:

• Industry risk Analysis
• Keys to success
• Diversification factor
• Firm size
• Evaluation of the management
• Accounting quality

Industry Risk Analysis:

This type of risk usually comes from the existing conditions of the industry. These conditions are not an isolated part, rather being affected by various macro economic variables in the industry as well as the country. This type of risk can be estimated by:

• Historical profit and profit prospect
• Risk of the expected profit.

Comparison between Industry and GSP Finance Performance:

GSP Finance Limited is one of the emerging investment banks and fastest growing financial institutions in Bangladesh. GSPB incorporated on October, 1995 and commenced its operation on April, 1996. The Company offers loans and lease finance of all types of plant, machinery, equipment and vehicles both for industrial and commercial use. The authorized capital of the Company was BDT 1,000 million. Domestic shareholders hold 61.82% and foreign shareholders hold 38.18% of paid up capital.

GSP Finance is an entrepreneurial company that prides itself on its speed of through and action. Its ability to make decisions quickly and efficiently and to generate value as an agent and executor sets it apart from all other investment banks and financial institutions in Bangladesh. The company’s strategy is to focus on Bangladesh and to develop a truly global distribution network through the major investment institutions abroad.

GSP Finance is dedicated to provide a high level of professional and personalized service to its domestic and international clients. Preferential treatment and superior service to clients is what the company believes to be its ultimate goal.

Bangladesh will see higher growth through the continuation of reform process, deregulation, privatization and optimal use of its internal and external resources. GSP Finance is at the forefront of providing solutions to some of the continuous funding requirements to support this growth

Senior Management

The management team of GSPB is headed by Mr. A.H. Ekbal Hossain, Managing Director. He joined GSPB in June 2009. He worked in senior positions at various banks over the span of his career. Most notably he served as Managing Director of Basic Bank Ltd, Rupali Bank Ltd and Agrani Bank Ltd.

Mr. Hossain is aided by one Executive Director and in charges of different departments.

Management Committees:

• Credit Committee is comprised of 4 members headed by Managing Director. During the year the Committee met 6 times.

• Asset Liability Management Committee has 4 members chaired by Executive Director. During the year the Committee met 4 times.

• Purchase Committee has 5 members chaired by Mr. Moin U. Haider, Director of the Board. The Committee has 4 meetings in 2010.

• Committee on Merchant Banking is comprised of 6 members headed by Mr. Moin U. Haider, Director of the Board. During the year the Committee met 3 times.

• Management Committee is comprised of 8 members headed by Managing Director. During the year the Committee met 3 times.

• Recovery Review Committee has 5 members chaired by Col. M. Nurul Islam psc. (Retd.) or in his absence any other Director. The Committee has 6 meetings in 2010.

Human Resources Management:

GSPB has a separate HRD & Administration department which is headed by a Manager designated personnel. The Company had total 31 employees. During 2010 at its various departments the Company recruited 9 new employees and 8 employees left the Company. The Company uses both external and internal recruitment channels. When job openings cannot be filled internally, the HRD looks outside the organization through advertising. After recruitment the Company trains fresh employees for few months in various departments and then offers them foundation & other courses conducted by BLFCA, IFC and Bangladesh Bank etc.

Credit Policy & Approval Process:

In order to cater the risk business division has been segregated into (1) Credit & Marketing and (2) Recovery Department. Credit & Marketing Department of the Company generates business as well as they are engaged in exploring and identifying viable clients by way of analyzing the management, market, financial viability and other requisite aspects of proposals incorporating the risk factors involved and identifying mitigating factors. In case of risk assessment the Company follows Credit Risk Grading approach. For approval the credit proposals are sent to the Credit Committee to review but the final approval is given by the Executive Committee of the Board. The Company also has a full- fledged and effective recovery, follow up, collection and monitoring unit for classified Leases & Loans, which is engaged in regular monitoring of clients, to ensure timely collection of installments. Moreover, from 2006 GSPB has a recovery agent named “Multi Promotional Service Ltd.” To monitor the recovery status the department is accountable to the Recovery Committee.

Information Technology:

GSPB has appointed a software firm Technohaven, which is about to complete the implementation process of the automation and it is expected that the full smooth operation will be in place shortly. With the introduction of the software named TeLis, data will be integrated and data security will be ensured. In the meantime the Company has already installed software of Ingenious Technologies in respect of online availability of data from Bangladesh Bank on CIB.

Financial Reporting & Disclosures:

The financial statements of GSPB were audited by chartered accountants firm Kazi Zahir Khan & Co. According to them the financial statements give a true and fair view of the state of the Company’s affairs and comply with the Bangladesh Accounting Standards, the Financial Institution Act 1993, the Companies Act 1994, the Securities and Exchanges Rules 1987, the rules and regulations issued by the BB and other applicable laws and regulations.

Board of Directors:

The Board of GSPB is composed of 11 members who possess a wide range of skills and experience over a range of professional, business and services. Among them 4 members are nominated by their respective institutions. Mr. Feroz U Haider is the Chairman of the Board. Before joining as the Chairman he served as Managing Director of GSPB. Mr. Haider is a renowned international banker with experience in every senior position in financial institutions in South East Asia.  During the year 2010 8 board meetings were held.

Board Committees:

• Executive Committee comprised of 5 members headed by the Chairman of the Board.  The Committee met 29 times during 2010.

• Audit Committee of GSPB is comprised of 4 members chaired by Mr. Siraj U Haider, Director of the Board. The Committee mainly reviewed the financial reporting system, compliance regarding security documentation, recommend the Board regarding the delinquent portfolio, reschedule of facilities etc. During the year 2 meetings of the Board were held.  

Earnings & Volatility:

During 2010 the composition of operating income changed than that of 2009. In 2010 investment income dominated the revenue stream having 77.52% of total operating income. GSPB’s interest income reduced by 23.34% resulted from reduction of lending rate along with reduction of leases, loans & advances portfolio as well as reduced balance with Banks & FIs. Borrowing cost of GSPB accounted for 69.32% of interest expense and the rest was accounted for deposit collection. In 2010, though the borrowings increased marginally and deposit base decreased the interest expenses increased by 10.26% due to increase in cost of deposits & borrowings. In 2010 net interest income reduced by 86.71% 

Exhibit 2: Segregation of Revenue

                                       BDT in million

Investment income 77.52% of the operating income grew by 4.93 times backed by 167.35% increase in investment. Of the total investment income, BDT 66.86 million (59.69% of operational revenue of Merchant banking unit) was from portfolio management income. Other operating incomes which includes different type of charges, interest from FDR and call loan etc reduced by 39.89%.

Exhibit 3: Key Performance Indicators

                                                                                                                                           BDT in million

Operating expenses composed of personnel expenses (about 47.47% of operating expenses), infrastructure cost and other overhead cost. Company’s personnel expenses decreased by 8.37% and other operating expenses reduced by 21.30%. Cost to income ratio was almost stable and staff cost to income ratio increased marginally. 

Exhibit 4: Efficiency Ratios 

GSPB’s pre provision profit decreased by 13.23% and total provision expenses also reduced by 129.97% resulted from lower expenses in specific and general provision. The Company had excess provision in 2009 which eventually helped to reduce the provision expenses in 2010. Therefore, profit before tax increased by 180.66%.

 Profitability:

During 2010 GSPB’s net interest margin decreased by 5.01 percentage points resulted from 86.71% decrease in net interest income. Return on average assets improved by 1.57 percentage points mainly due to sharp rise in net profit margin backed by higher investment income. In 2010 Company marginally improved its leverage position. Return on average equity also soared by 6.48 percentage points backed by higher growth in profit after tax. 

Exhibit 5: Profitability Ratios

 Asset Evaluation:

In 2010 total assets of the Company reached BDT 2,919.24 million registering a growth of 3.16%. Assets of the Company was mainly dominated by leases, loans & advances (55.81% of total assets) and followed by other assets (22.41% of total assets), fixed assets (10.78% of total assets). Major portion (87.35%) of other assets was advance to portfolio account registering a growth of 52.79% 

Exhibit 6: Asset Composition

    BDT in million

 Investment:

In 2010 investment portfolio of the Company reached BDT 125.45 million registering a growth of 167.35%. Company invested in capital market through portfolio management by merchant banking wing. In 2010 the merchant banking wing registered a substantial growth both in terms of client base and size of the fund managed. In 2010 number of client stood 505 (2009:199) and fund managed stood BDT 1,692.32 million (2009: BDT 686.07 million). GSPB made this entire investment in quoted and unquoted securities of 16 different non govt. companies. The market value of quoted shares was BDT 123.82 million against cost value of BDT 125.45 million as on 31^st December 2010. The Company made BDT 2.48 million provision against required provision of BDT 1.69 million for fall in market value of securities. During the year Company realized BDT 40.31 million profits from sale of securities. The yield on average investment was 45.95% in 2010 (2009: 15.61%).

Credit Quality:

In 2010 GSPB’s non-performing loans (NPL) decreased to BDT 322.02 million which was BDT 414.94 million in 2009. Gross NPL ratio of the Company was still 19.77% in 2010 (2009: 22.04%). However, considering the margin loans in leases, loans & advances portfolio, gross NPL ratio reduced to 14.63% in 2010 (2009: 18.38%). Gross NPL reduced on the back of BDT 120.75 million (7.41% of total loans) rescheduling and BDT 56.82 million cash recovery (3.49% of total loans). During this period the Company also managed to reduce fresh NPL generation which was 5.20% of total loans in 2010 (2009:20.31% of total loans). Of the total NPL 94.04% belonged to bad & loss category, 5.69% substandard and 0.27% in doubtful. In 2010 required provision was BDT 107.35 million against which GSPB maintained BDT 107.85 million an excess of BDT 0.50 million. Company’s NPL coverage ratio in 2010 was 33.49% (2009:31.62%) and net NPL ratio was 10.37% (2009:13.53%).

Exhibit 7: Loan Loss Provision

                              BDT in million

We looks at pre-provision profit (PPP) to net leases, loans & advances for assessing GSPB’s ability to survive in future problems. In 2010 PPP to net leases, loans & advances was 7.43% which was 7.35% in 2009. PPP to net leases, loans & advances indicate that 7.43% of currently performing leases, loans & advances can be written off without charging on reserves and equity. On the other hand, special mention account (SMA) to leases, loans & advances was 12.12% (2009:12.15%).

Loan Portfolio Analysis:

In 2010 leases, loans & advances reduced by 13.48% and stood at BDT 1,629.12 million. For last two years leases, loans & advances and NPL was highest in transport sector. In 2010, sector wise NPL rate was highest in food & beverage, 64.52% followed by power & energy (53.55%), garments (46.96%) and real estate & housing (39.07%). 

Exhibit 8: Concentration on Leases, Loans & Advances

  BDT in million

Large Leases, Loans & Advances Exposures:

In 2010 GSPB’s top 20 large loan exposures was BDT 1,218.33 million which was 74.79% of total leases, loans & advances (2009:65.88%). At the end of 2010 six leases & loans facilities were reported as classified (2 in Bad/Loss category).

Capital Adequacy:

As per Bangladesh Bank regulation the minimum paid up capital of any financial institution should be raised to BDT 500 million within 31^st December 2010 against which GSPB had paid up capital of capital of BDT 215.99 million. However, in 2010 total capital (tier1+tier2) of the Company was BDT 476.32 million (2009: BDT 403.28 million).  

Exhibit 9: Capital Adequacy Ratios

In 2010, shareholder’s equity grew by 11.97% to BDT 707.99 million which was 24.25% of total assets and 43.46% of leases, loans & advances. Capital adequacy ratio increased by 3.25 percentage points due to increase in equity. On the other hand, though the profit after tax increased significantly internal capital generation reduced by 6.83 percentage points resulted from proposed bonus share for the year 2009 and 2010 of BDT 82.07 million.

Funding & Liquidity:

Of the total funds of GSPB 66.05% was generated from borrowings from other Banks & FIs and 33.95% was from term deposits. Of the total borrowings 96.82% was from long term loan, 2.55% was from bank overdraft and 0.63% from BB refinancing. In 2010 for the total borrowings Company has made interest expenses of BDT 160.97 million. Of the total term deposits 63.42% was collected from Banks & FIs, 23.72% from general public and 12.87% from different companies. During 2010 GSPB made BDT 71.25 million interest expenses. In 2010 shareholder’s equity was 38.77% of deposits & borrowings (2009:33.65%). Leases, loans & advances to deposits ratio of the Company was 262.81% at the end of 2010 (2009: 277.37%).

GSPB actively participated in call money market throughout 2010. The Company was net borrower to the call market throughout 2010 except in December. Call money rate picked up in December (avg. rate 33.54%). In December the average lending rate of the Company was 40.50% whereas throughout the year Company’s borrowing rate ranged from 6.09%-23.27%.

The Company’s asset liability maturity bucket shows that GSPB possessed positive net liquidity gap in all the buckets except 1-5 years bucket. But the cumulative liquidity gap offset the negative gap. In 2010 liquid assets to total deposit & borrowings were 10.72% (2009: 5.37%).

Exhibit 10: Liquidity Profile

                   BDT in million

Interest Rate Risk

The Company had asset sensitive position in all the buckets. The net gap indicates that the Company will be benefited on rising interest rates and will suffer on decreasing interest rate scenario. For 1 percentage point interest rate increase the GSPB will gain BDT 2.40 million and will lose the same amount for 1 percentage point interest rate decrease

Off Balance Sheet Exposures:

In 2010 the Company did not have any off balance sheet exposures but in 2009 it had an off balance sheet exposure in letter of guarantee of BDT 50 million.

NBFI’s Credit Rating

Here we are analyzing the rating of long-term debt of GSP Finance (BD) Ltd. This is emerging financial institution in Bangladesh. Here we follow following steps for the rating of GSP Finance (BD) Ltd.:

Step: 1

Collect financial information for a sample of comparable firms, because credit rating cannot be done in isolation but can be done only relative to comparable firms. In this case we have collected data for comparable firms from NBFI’s industry.

Step-2

 Compute important financial ratios and compare them across firms in different rating categories.

In ratio calculation we have used following formulas:

Step-3

Assign Score based on regression estimates. Here we fit the regression equation using credit rating as a dependent variables and ratios as independent variables.

Rationale:

We have assigned the long term rating of GSP Finance Company (Bangladesh) Limited (hereinafter called as “GSPB” or “the Company”) to “A2”. We performed the rating based on financial statements up to 31^st December 2010 and other relevant information.

Financial Institutions rated ‘A2’ have strong capacity to meet its financial commitments but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than financial institutions in higher-rated categories. “A2” is judged to be of high quality and are subject to low credit risk.

ANNEXURE-1

CORPORATE INFORMATION          

List of Directors & their Shareholding Position

Rep of Karnaphuli Industries Ltd.

Director

337,660

15.63%

3

Mr. Mohamed Abdul Jalil

Rep of Tai Ping Asian Investment Ltd.

Director

387,698

17.95%

4

Mr. Aziz Al Kaiser

Director

215,985

10.00%

5

Mrs. Tabassum Kaiser

Director

215,985

10.00%

6

Mr. Wolf Reter Berthold

Director

133,485

6.18%

7

Mr. Siraj U. Haider

Director

61,158

2.83%

8

Ms. Silwat A. Haider

Rep of SF Haider Foundation Ltd.

Director

29,603

1.37%

9

Col. M. Nurul Islam PSC. (Retd.)

Director

6,360

0.29%

10

Mr. Moin U. Haider

Alternate Director: Brig. Gen. Gyasuddin A. Chowdhury

Director

50,820

2.35%

11

Mr. Manzur Ur Rahman (Ruskin)

Rep of Amber Hll Global Resources Ltd.

Director

284,720

13.18%

Auditors                    

Kazi Zahir Khan & Co. Chartered Accountants

Senior Management

ANNEXURE-2

Definition & Formula

1. Average Assets, Average investment assets, Average Earning Assets and Average equity are calculated on the basis of opening and year end balances.

1. Interest Earning Assets include total loans, advances & leases, money at call & short notice, balance with other FIs & banks.

1. Net Loans Advances & Leases has been calculated by deducting Specific Provision and Interest Suspense Accounts from Gross Loans Advances & Leases.

1. Net Interest Margin = Net interest income / Average Interest Earning Assets.

1. Net Profit Margin =  Net Profit After Tax / Operating Income

1. Asset Utilization = Operating Income / Average Assets

1. Leverage Multiplier = Average assets / Average Equity

1. Yield on Average Investment = Income from Investment / Average Investment Assets