1.

Introduction

1.1 Objective of the Report

The objectives are mentioned by priority: 1. To gain practical knowledge about the financial performance of banking industries. 2. To have the clear idea about the financial performance of Standard Bank Ltd. 3. To analyze the present financial position of Standard Bank Ltd.

1.2 Scope of the report

We have collected data from the Annual Reports of Standard Bank Ltd. We have mainly tried to cover all the information related to the report. We are benefited by working with such an organization which will help us not only to get good grades but also to gather practical experience.

1.3 Methodology
Sources of collecting data: The report is based on data & information, which have been collected from various sources. They are stated below: a) Primary source - Annual Report - Search through the internet b) Secondary sources - Various books related with Banking.

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1.4 Limitations of Study

Though we are lucky to get the chance to prepare this report but unfortunately we have faced some difficulties. We tried to overcome the difficulties and gave our best effort. When preparing this report, some difficulties we faced:a. Shortage of time: This extensive type of report needs too much time to prepare it. But we had to prepare this report within a very short span of time; moreover we had other term paper submission to do. b. Other problem: Some other problems like, -Load shedding caused trouble to work flawlessly. -Non sufficient information in website made the job more difficult.

2. Literature Review
Financial ratios are contracted by forming of accounting data contained in the banks Reports of Income that is profit or loss and Condition that is balance sheet. A wide range of financial ratios can e calculated to assess different characteristics of financial performance. Types of Ratio a. Liquidity Ratio: Liquidity can be defined as the extent to which the bank funds available to meet cash demands for loans and deposit withdrawals. Banks require different amounts of liquidity depending on their growth rate and variability in lending and deposit activities. 1. Cash position indicator: Cash and deposit due form depository institution / total asset, where greater proportion of cash implies the institution is in a stronger position to handle immediate cash needs. 2. Liquid securities indicators: Govt. securities / total asset, which compares the most marketable securities an institutions can hold with the overall size of its asset portfolio, the greater the portion of the government securities, the more liquid the depository institutions position tends to be.

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3. Temporary Investment Ratio: Temporary Investments are banks most liquid assets. The higher the ratio of temporary investments to total assets the greater the banks liquidity. Temporary Investments Ratio= (Investments =< 1 year + Due from other Bank)/Total Asset 4. Volatile Dependency Ratio: The Volatile Dependency ratio is somewhat complicated but extremely useful in measuring liquidity. The ratio is calculated as volatile liabilities less temporary investments divided by net loans and leases plus long term securities. 5. Deposit Composition Ratio: The ratio is calculated as Deposit Composition Ratio= Demand Deposit/Time Deposit b. Profitability Ratio: The profitability ratios are used to measure how well a company is performing in terms of profit. The profitability ratios are considered to be the basic bank financial ratios. In other words, the profitability ratios give the various scales to measure the success of the firm. 1. Return on Equity (ROE): The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. ROE is expressed as a percentage and calculated as, Return on Equity = Net Income/Shareholder's Equity. 2. Return on Assets (ROA): An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as "return on investment". The formula for return on assets is, Net income divided by total asset. Some investors add interest expense back into net income when performing this calculation because they'd like to use operating returns before cost of borrowing. 3. Net Interest Margin (NIM): Is a measurement of the difference between the interest incomes generated by banks or other financial institutions and the amount of interest paid out to their lenders (for example, deposits). It is considered similar to the gross margin of non-financial companies, which basically measures how large a spread between interest revenue and interest cost management has been able to achieve by close control over earning asset and pursuit of the cheapest sources of funding. Calculated as (interest income interest expense) / Total earning asset. 4. Net Profit Margin (NPM): A ratio of profitability calculated as net income divided by
revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings.

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5. Asset Utilization Ratio: Asset utilization ratios measure how efficient a Bank is at using its assets to make money. It is measured by operating revenue divided by total asset. 6. Equity Multiplier: A measures of financial leverage , that is calculated as: Equity Multiplier: Total asset/Total Equity

c. Asset Quality:
1.

Loan Ratio: The loan ratio indicates the extent to which assets are devoted to loans as opposed to other assets, including cash, securities and plant equipment. Loan Ratio: Net Loans/Total Asset Provision for Loan Loss Ratio: Each bank provides an estimate of future loan losses as an expense on its statement. Provision for loan loss ratio: Provision for loan losses/Net loan and leases

2.

d. Leverage Ratio: Debt Management Ratios attempt to measure the firm's use of Financial Leverage and ability to avoid financial distress in the long run. These ratios are also known as Long-Term Solvency Ratios.
1.

Debt ratio: The ratio of the Total debt to total asset, generally called debt ratio, measures the percentage of funds provided by creditors. Total debt includes both current liability and long term debt. Creditors preferred lower debt ratio because the lower the ratio, the greater cushion against the creditors. On the other hand stockholders want more leverage because it magnifies expected earnings. Debt equity The Debt to Equity Ratio measures how much money a company should safely be able to borrow over long periods of time. It does this by comparing the company's total debt (including short term and long term obligations) and dividing it by the amount of owners equity.

2.

e. Market Ratio: Market ratio, reflect the firms stocks price to it earnings, cash flow and book value per share. This ratio gives management an indication of what investors think of the companys past performance and future prospects. If the liquidity, assets management, debt management and profitability ratios all look good then the market value ratios will be high and the stock price will probably be as high as can be expected.

1. Earnings per Share (EPS): The portion of a company's profit allocated to each outstanding share of common stock, which serves as an indicator of a company's
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profitability. Calculated as, Net Income After Tax / Common Equity Shares Outstanding. 2. Price-Earning (P/E) Ratio: The P/E Ratio indicates how much investors are paying for per dollar of return. It is calculated by dividing current market price of share by the earning per share of common stock.

3. Standard Bank Ltd Profile

Standard Bank Limited (SBL) was incorporated as a Public Limited Company on May 11, 1999 under the Companies Act, 1994 and the Bank achieved satisfactory progress from its commercial operations on June 03, 1999. SBL has introduced several new products on credit and deposit schemes. It also goes for Corporate and Retail Banking etc. The Bank also participated in fund Syndication with other Banks. Through all these myriad activities SBL has created a positive impact in the Market. Objectives To be a dynamic leader in the financial market in innovating new products as to the needs of the society. To earn positive economic value addition (EVA) each year to come. To top the list in respect of cost efficiency of all the commercial Banks. To become one of the best financial institutions in Bangladesh economy participating in the most significant segments of business market that we serve. Core Values Our Shareholders: By ensuring fair return on their investment through generating stable profit. Our customer: To become most caring bank by providing the most courteous and efficient service in every area of our business. Our employee: By promoting the well being of the members of the staff. Community: Assuring our socially responsible corporate entity in a tangible manner through close adherence to national policies and objectives. Vision To be a modern Bank having the object of building a sound national economy and to contribute significantly to the Public Exchequer. Mission To be the best private commercial bank in Bangladesh in terms of efficiency, capital adequacy, asset quality, sound management and profitability.
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4. Findings and Analysis

4.1 Ratio Analysis of Standard Bank Ltd
a. Liquidity Ratio: 1. Cash Position Indicator(CPI) Year CPI 2007 0.08 2008 0.071 2009 0.075 2010 0.076 2011 0.09

Cash Position Indicator

0.100 0.080 (*100)% 0.060 0.040 0.020 0.000 2007 2008 2009 2010 2011 CPI

Time Series Analysis: In 2007 the cash position indicator of the bank shows that it is 8%, which tells us that for every BDT 100 this bank has TK.8 as cash and deposit due from depository institutions. Banks cash deposit indicator increases at 2011 when its cash position indicator ratio was 9%. Standard Bank had a steady ratio from 2007 to 2011 when in increased by 1%, thus we can say that its liquidity position has become better with the passage of time.

2. Liquid Securities Indicator(LSI) Year LSI 2007 0.087 2008 0.083 2009 0.096 2010 0.098 2011 0.099

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Liquid Securities Indicator

0.105 0.1 0.095 (*100)% 0.09 0.085 0.08 0.075 2007 2008 2009 2010 2011 LSI

Time Series Analysis: In 2007 liquid security indicator ratio for Standard Bank was 8.7% i.e. for each TK.100 this bank is holding TK.8.7 worth government securities. There was a steady decrease for this ratio till 2008 when it was 8.3% and then there was an increase in 2009 and then it increased steadily to 2011 when this ratio was 9.9%. By analyzing this we can say that this bank on an average holds 9% liquid assets and its liquidity position has become better in 2011 in compared 2007.

3. Temporary Investment Ratio(TIR) Year TIR 2007 0.084 2008 0.084 2009 0.056 2010 0.036 2011 0.012

Temporary Investment Ratio

0.09 0.08 0.07 0.06 (*100)% 0.05 0.04 0.03 0.02 0.01 0 2007 2008 2009 2010 2011 TIR

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Time Series Analysis: In 2007 the Bank had the highest ratio that is 8.4%. Then the ratio continuously falls from 2008 to 2011. In 2011 it was 1.2%. By analyzing this we can say that the Bank dont had sufficient most liquid asset in 2011 in compared 2007. The investment of Bank in highly liquid asset is decreasing.

4. Volatile Dependency Ratio(VDR): Year VDR 2007 0.13 2008 0.10 2009 0.12 2010 0.14 2011 0.095

Volatile Dependency Ratio

0.16 0.14 0.12 (*100)% 0.1 0.08 0.06 0.04 0.02 0 2007 2008 2009 2010 2011 VDR

Time Series Analysis: The ratio is fluctuating through 2007-2011. In 2010 it has the highest volatile dependency ratio 14%. It shows that Standard Bank funds a moderate proportion of its non liquid asset with volatile liabilities. They have an average of 12% temporary assets relative to volatile liabilities. 5. Deposit Composition Ratio(DCR): Year DCR 2007 0.23 2008 0.20 2009 0.15 2010 0.16 2011 0.16

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Deposit Composition Ratio

0.25 0.2 (*100)% 0.15 0.1 0.05 0 2007 2008 2009 2010 2011 DCR

Time Series Analysis: In 2007 the DCR was 23%. After in 2009 it decreased to 15% and then it again increased to 16% in 2011. From here it can be said that deposit commission ratio of Standard Bank is in good position. Higher Dependency ratio indicates higher dependency on its borrower and more risk, but in Standard Bank the ratio is overall good.

b. Profitability Ratio : 1. Return on Equity(ROE): Year ROE 2007 0.125 2008 0.192 2009 0.183 2010 0.244 2011 0.196

Return on Equity
0.3 0.25 0.2 (*100)% 0.15 0.1 0.05 0 2007 2008 2009 2010 2011 ROE

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Time series Analysis: In 2007 return on equity for Standard Bank was 12.5%, which means that Standard Bank has earned TK 12.5 for their shareholders per BDT 100 equity money. In the next three years this ratio has increased and it became 24.4% in 2010 and then it again decreased in 2011 to 19.6%. From here it can be said that though Standard Bank earned a higher return for its shareholders in 2010.

2. Return on Asset(ROA): Year ROA 2007 0.0151 2008 0.0192 2009 0.0158 2010 0.021 2011 0.0182

Return on Asset
0.025 0.02 (*100)% 0.015 0.01 0.005 0 2007 2008 2009 2010 2011 ROA

Time series Analysis: In 2007 the return on assets (ROA) for this bank was 1.51%, which means that by utilizing BDT 100 the bank can earn a net income of TK 1.51. The return on assets (ROA) increased through 2008 to 2011. In 2010 ROA was the highest 2.1%. Thus it can be said that there was fluctuation in the net income and thus the return on assets (ROA) has also several fluctuations. In normal conditions banks return on asset ratio should exceed more than 1%.

3. Net Profit Margin(NPM) Year NPM 2007 0.497 2008 0.447 2009 0.502 2010 0.495 2011 0.516

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Net Profit Margin

0.54 0.52 0.5 (*100)% 0.48 0.46 0.44 0.42 0.4 2007 2008 2009 2010 2011 NPM

Time Series Analysis: This ratio was 49.7% in 2007. Then decreased to 44.7% in 2008 and in 2009 it increased a greater and became 50.2% in 2009. NPM in 2011 is 51.6%. Thus it can be said that Net income in relation to total operating revenue has fluctuated from 2007 to 2011 within an average of 49%. Thus in this period the Banks profit was more satisfactory and it was most satisfactory in 2009.

4. Asset Utilization Ratio(AUR): Year AUR 2007 0.030 2008 0.043 2009 0.031 2010 0.042 2011 0.035

Asset Utilization Ratio

0.05 0.045 0.04 0.035 0.03 0.025 0.02 0.015 0.01 0.005 0 2007 2008 2009 2010 2011

(*100)%

AUR

Time Series Analysis: In 2007 this banks Asset utilization 3% operating revenue over its total asset. Their performance had been almost stable in following years. There for it had
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3.5% asset management ratio in 2011. Thus we can presume that with the passage of time the bank became more efficient and thus increased its operating revenue by utilizing its assets.

5. Net Interest Margin(NIM): Year NIM 2007 0.0193 2008 0.0306 2009 0.0235 2010 0.0278 2011 0.0298

Net Interest Margin

0.035 0.03 0.025 (*100)% 0.02 0.015 0.01 0.005 0 2007 2008 2009 2010 2011 NIM

Time Series Analysis: In 2007 the bank made a net interest income of TK 1.93 by utilizing TK 100 worth of earning assets. In 2008 this bank made a net interest income rise to 3.06%. In 2009 this bank made a net interest income fall to 2.35%. The ratio decreased because the income from holding asset decreased at a significant rate compare to the decrease in supply cost of funds for holding assets. The ratio Increased in 2010 &2011 by 2.78% and 2.98% respectively. The ratio increased because the difference between interest income & interest expense was increased at a higher proportion compare to the increase in total earning assets.

6. Equity Multiplier(EM) Year EM 2007 8.295 2008 9.986 2009 11.583 2010 11.807 2011 10.739

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Equity Multipier
14 12 10 Times 8 6 4 2 0 2007 2008 2009 2010 2011 EM

Time Series Analysis: Fund management efficiency ratio for Standard Bank has increased over the time and it was highest in 2010 which was 11.807 and then decreased in 2011 this ratio was 10.739. Thus it can be said that though this bank have an average of assets were 10.482 times the total equity from 2007 to 2011. Thus its total equity on an average has increased over the time.

c. Asset Quality

1. Loan Ratio(LR): Year LR 2007 0.727 2008 0.759 2009 0.749 2010 0.744 2011 0.719

Loan Ratio
0.77 0.76 0.75 (*100)% 0.74 0.73 0.72 0.71 0.7 0.69 2007 2008 2009 2010 2011 LR

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Time Series Analysis: In 2007 the loan ratio was 72.7%. It indicates that 72.7 TK are devoted to loans of 100 TK worth asset. The ratio has increased to 75.9% in 2008 then decreased continuously from 2008 to 2011 a little bit to 71.9%. Standard bank need to maintain a consistency over the loan ratio.

2. Loan Loss Ratio(LLR): Year LLR 2007 0.0023 2008 0.011 2009 0.0033 2010 0.0032 2011 0.0034

Loan Loss Ratio

0.012 0.01 0.008

(*100)%

0.006 0.004 0.002 0 2007 2008 2009 2010 2011

LLR

Time Series Analysis: In 2007 loan loss ratio was 0.23%. It has increased to 1.1% in 2008 and then decreased in 2009, 2010 & 2011 to 0.33%, 0.32%, 0.34%. Standard bank enjoyed very lower loan losses over the time except in 2008.

d. Leverage Ratio:
1. Debt Ratio(DR): Year DR 2007 0.874 2008 0.899 2009 0.914 2010 0.915 2011 0.907

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Debt Ratio
0.92 0.91 0.9 (*100)% 0.89 0.88 0.87 0.86 0.85 2007 2008 2009 2010 2011 DR

Time Series Analysis: In 2007 the debt to total assets ratio was 87.4%, which means that for TK 100 of the total asset of the bank it has TK 87.4 provided by creditors. From 2008 the ratio increased to 89.9%, 91.4% in 2009, 91.5% in 2010. Then fall to 90.7% in 2011. Thus from here we can say that on an average the stockholder wealth may go down with the passage of the time as higher debt to total assets. 2. Debt Equity Ratio(DER): Year DER 2007 7.295 2008 8.986 2009 10.583 2010 10.807 2011 9.739

Debt Equity Ratio

12 10 8 Times 6 4 2 0 2007 2008 2009 2010 2011 DER

Time Series Analysis: In 2007 the debt to equity ratio was 7.295 which mean which mean Standard Bank held 7.295 times of total equity as a long term loan. In following years it

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increased and ends up in 2010 by 10.807 times. Then it decreased to 9.739 in 2011. Standard Bank has an average of 9.5 times of total equity provided by creditors.

e. Market Ratio:
1. Earnings Per Share(EPS): Year EPS 2007 17.62 2008 29.8 2009 24.36 2010 3.39 2011 3.36

Earning Per Share

35 30 25 Taka 20 15 10 5 0 2007 2008 2009 2010 2011 EPS

Time Series Analysis: The higher the EPS the higher the earning potential for the banks shareholders and higher the growth. In 2007 EPS was 17.62 TK; it was highest in 2008 with 29.8 TK. In the following years it sharply decreased and ends up in 2011 by 3.36 TK. From that we can say that Standard Banks profitability is declining over the time.

2. Price Earnings Ratio(P/E): Year P/E 2007 21.47 2008 9.15 2009 13.79 2010 19.16 2011 11.35

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Price Earnings Ratio

25 20 15 10 5 0 2007 2008 2009 2010 2011 P/E

Time Series Analysis: In 2007 the price of the share was TK 21.47 for every TK 1 it generates. In 2008 the ratio declined and was TK 9.15 per share but in 2009 and 2010 the ratio rose because price per share decrease at a higher proportion compare to decrease in EPS. But in 2011 the ratio declined because the increase in EPS at a higher proportion compare to the increase in price per share. P/E ratio has fluctuated with the passage of time mainly due to the fluctuation of EPS and change in the market price of the share.

4.2 Industry Analysis of Standard Bank Ltd

Industry analysis reviews industry trends and competitive strategies. Analyzing the industry environment requires an assessment of the competitive structure of the organizations industry. It also requires analysis of the nature, stage, dynamics and history of the industry. Internal analysis serves to pinpoint the strengths and weaknesses of the organization as company strengths lead to superior performance whereas company weaknesses translate into inferior performance. The need is to identify the key emerging factors, trends and threats, opportunities and strategic uncertainties that can guide information gathering and analysis. Porters approach can be applied where the basic idea is that the attractiveness of an industry or market as measured by five factors on which firm depends largely.

Taka

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Porters five forces model

Risk of entry by potential competitors Brand Loyalty Absolute Cost advantage Economies of scale Customer switching costs Government regulation

Bargaining power of suppliers No of substitutes Threat of Forward integration Switching costs No of buyers

Intensity of rivalry among established firms Industry Competitive Structure Industry Demand Exit Barriers

Bargaining power of buyers Threat of backward integration No. of suppliers Switching costs Buyer Concentration and size Large quantity purchase leverage

Threat of substitutes No of close substitutes The relative price and performance of substitutes

Threats of new entrants:

The banking sector of Bangladesh seriously faces the risk of entry by potential competitors. However, the risk is two way in natures. The arrival of the multinational banks and their branch expansion as a result of the booming energy sector and the continuous entry of local banks with lower cost structure pose a severe threat to this industry. The Central bank has approved 9 more Banks in addition to existing 47 commercial banks in Bangladesh.

Degree of Rivalry:
The rivalry refers to the competitive struggle among the competitors and the growth in the industry depends upon the intensity of competition. A high amount of competition is
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observed in the banking sector of Bangladesh. Banks compete against other banks using competitive weapons such as their low cost of operation and syndication. New private banks are snatching share from the SBLs and each others customer base by providing extra benefits.

Bargaining Power of Buyer:

A large number of commercial banks in the banking sector of Bangladesh are providing similar services. Customers have a wide range of options in deciding where to bank. They can either choose multinational banks or turn to new local banks for getting quality service. Nationalized banks are preferred for large credit facilities. In order to attract the customers banks have to pursue them by providing customized packages with attractive interest rates. Standard Bank Ltd. has its own policies to carry out its operations and employees follow those rules to deal with the customers. But while dealing with the clients too much rigidity in the prevailing policies may under cut its client base as well as profitability.

Threats of Substitute product:

Substitutes- products of different businesses or industries that can satisfy similar customer needs that satisfy the same customer needs are important sources of competition. Standard Bank Ltd continuously faces the threat of various substitute products launched by its strong competitors in the market place such as1. Launch of DPS by DHAKA Bank. 2. Various consumer credit schemes offered by other banks with lower interest rates and cost. 3. The lower service charges at other local banks discourage a wide group of customers to hold account in SBL. 4. Mutual Fund 5. Various Insurance policies that provides more facilities and tax exemption.

Bargaining Power of Supplier:

In the context of Standard Bank Ltd. suppliers are those customers and organizations that provide financing to the firm via depository schemes. Companies may pursue vertical integration strategies to reduce the bargaining power of suppliers. If the cost of financing rises, then SBL. will have to decrease the interest rate that it charges to its customer in order to remain in the business. This may result in customer dissatisfaction, which can lead to poor profitability.

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5. Recommendation & Conclusion

After observing all of the ratios we want to suggest investors to buy Standard Banks share as its performance has shown an increase with the passage of time. If we look very closely to its ROA and ROE we come to know that Standard bank has maintained these two ratios better. We find some fluctuation in EPS and P/E of Standard bank, thus we believe that they must be more cautious in maintaining these two ratios and thus try to increase these by increasing market price of the share. Standard bank should do their best to improve their leverage position as all these ratios shows that they have a very high leverage and thus they also have a higher risk, thus in this respect they need to increase the amount of equity capital as too much leverage may be associated with more risk. The other ratios are also well associated with the standard of industry average. In totally Standard Bank Ltd. is performing its activities maintaining all the standard average which will be able to retain all its clients, shareholders, stockholders and will encourage them to invest in the bank.

Bibliography i) Annual Report 2008, 2010, 2011 ii) www.stabdardbankbd.com iii) Commercial Banking. Benton E. Gup,

James W. Kolari

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