the profitability determinants of private commercial
play

The Profitability Determinants of Private Commercial Banks in - PowerPoint PPT Presentation

The Profitability Determinants of Private Commercial Banks in Bangladesh Presented by Md. Sohel Saklain Md. Sohel Saklain Examination Committee: Dr. Sundar Venkatesh (Chairperson) Dr. Juthathip Jongwanich Dr. Yousre Badir Professional


  1. The Profitability Determinants of Private Commercial Banks in Bangladesh Presented by Md. Sohel Saklain Md. Sohel Saklain Examination Committee: Dr. Sundar Venkatesh (Chairperson) Dr. Juthathip Jongwanich Dr. Yousre Badir Professional Master’s in Banking and Finance 1

  2. Agenda 1. Overview of the Banking Sector in Bangladesh 2. Analysis of Profitability: The Case of One Commercial Bank 3. Problem Statement & Objectives of The Research Study Research Study 4. Research Methodology 5. Analysis of The Profitability Determinants of Private Commercial Banks in Bangladesh 6. Conclusion and Recommendations for Policy Implications 2

  3. Financial System of Bangladesh Bangladesh Controller of Rural Securities and Central Bank Insurance Development Micro Credit Exchange (Bangladesh and Cooperative Commission Regulatory (under the Bank) Division Authority ministry of (SEC) commerce) ( RDCD ) State Owned Commercial Banks (SCBs) Life Micro Co-operative Dhaka Stock Insurance finance Private Banks Exchange Institutions Commercial Banks (PCBs) Banks (PCBs) General Chittagong Foreign Insurance Stock Banks (FCBs) Exchange Government -owned Specialized Banks (DFIs) • The Financial sector of Bangladesh, like most in Non-Bank developing countries, is dominated by banking Financial industry. Institution (NBFIs) 3

  4. 1. Overview of the Banking Sector in Bangladesh Number of Banks in Bangladesh (by Type) from 1975 to 2010 35 30 30 27 30 25 20 Nationalised banks 13 13 15 Specialised banks 10 9 9 9 8 7 7 10 6 6 6 5 5 5 5 5 5 Private banks Private banks 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 3 3 2 2 2 2 2 2 5 5 Foreign banks 0 1975 1980 1985 1990 1995 2000 2005 2010 Year • In 1982 license to few Private Commercial Banks (PCBs) were given for the first time. • First Generation- License in early 1980s, Second Generation- license in late 1980s and early 1990s , Third Generation- license in Late 1990s and onward 4

  5. 1. Overview of the Banking Sector in Bangladesh Cont.. Number of Scheduled Banks (by Type) Share of Industry Assets by Type(as on in Bangladesh (as on June, 2010) June, 2010) 40 30 30 FCBs 20 9 7% 10 4 4 SCBs 29% 0 SCBs DFIs PCBs FCBs Bank Type Bank Type Number of Bank Branches by Type(as PCBs DFIs on June, 2010) 57% 7% 3394 4000 2427 3000 1366 2000 1000 59 0 SCBs DFIs PCBs FCBs Bank Type 5

  6. 1. Overview of the Banking Sector in Bangladesh Cont.. Deposit of Scheduled Banks by Types 100 89.45 90 80 70.89 70 62.43 62.07 60.81 55.22 60 46.47 SCBs 50 % 40.52 DFIs 40 40 31.47 31.47 27.85 27.85 27.83 27.83 26.06 26.06 PCBs 30 18.34 20 FCBs 7.14 7.04 7.04 6.21 6.37 6.26 5.98 5.97 5.18 5.1 4.9 4.34 4.4 4.37 10 0 0 1980 1985 1990 1995 2000 2005 2010 Year • The higher interest rate on deposit may be the probable reason for rising trend of PCBs deposit. 6

  7. 1. Overview of the Banking Sector in Bangladesh Cont.. Advances of Scheduled Banks by Types 90 80.2 80 65.39 70 58.26 60 52.78 52.36 49.02 47.17 50 SCBs % 35.25 40 40 31.13 31.13 DFIs DFIs 25.13 21.05 22.94 30 21.8 20.42 PCBs 17.18 16.16 16.16 13.51 20 9.18 FCBs 6.95 6.55 5.75 5.54 5.86 5.29 5.32 3.65 10 0 0 1980 1985 1990 1995 2000 2005 2010 Year • One of the probable reason of increasing trend of advances for PCBs is the quicker and easier loan proce ssing . 7

  8. 1. Overview of the Banking Sector in Bangladesh Cont.. Trend of Net Profit of Scheduled Banks by Type 50000.00 36555.90 40000.00 30000.00 20000.00 9440.30 SCBs 10000.00 Million FCBs 0.00 0.00 Taka Taka PCBs 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009(p) -10000.00 DFIs -20000.00 -30000.00 -40000.00 -50000.00 -44159.20 Year • From the year 2006 the profit of PCBs begun to rise in the rocket high rate and it ended with 36,555.90 million taka in the year 2009. 8

  9. 1. Overview of the Banking Sector in Bangladesh Cont…. Trend of ROA of Scheduled Banks by Type 3.50 3.20 3.18 3.10 3.10 2.90 2.87 3.00 2.60 2.40 2.50 2.20 2.00 2.00 1.55 1.40 1.30 SCBs 1.20 1.50 1.10 1.10 0.96 % 0.80 0.80 DFIs DFIs 0.74 0.74 0.70 0.70 1.00 1.00 0.70 0.70 0.37 0.30 PCBs 0.22 0.50 0.10 0.10 0.00 0.00 -0.10 -0.10 -0.10 FCBs 0.00 0.00 -0.50 -0.20 -0.20 -0.30 -0.60 -1.00 Year • PCBs always maintained the second level of ROA in the industry for the entire period. • From the year 2009 to 2010 the ROA of PCBs rose remarkably. 9

  10. 2. Analysis of Profitability: The Case of AB Bank Ltd. Net Profit of AB Bank Ltd. Total Assets of AB Bank Ltd. 134,003.8 4,500.00 160,000.00 3,989.52 8 107,093.0 4,000.00 140,000.00 3,417.19 3,500.00 1 120,000.00 3,000.00 84,053.61 100,000.00 2,300.62 Taka 2,500.00 1,903.49 80,000.00 63,549.86 2,000.00 (million) 47,989.34 60,000.00 1,500.00 33,065.40 40,000.00 1,000.00 532.19 162.45 20,000.00 500.00 - - - - 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Year Year Net Profit Total Asset • Net Profit of ABBL was only 162.45 million in the year 2005 but it became 3,989.52 million in the year 2010 which is almost 25 times increment. 10

  11. 2. Analysis of Profitability: The Case of AB Bank Ltd. Cont.. Comparative Trend of ROA 3.5% 3.2% 3.0% 3.0% 2.7% 3.0% 2.5% 2.00% 2.0% 1.55% % 1.40% ABBL 1.1% 1.30% 1.5% 1.1% 1.10% 1.6% PCBs 1.4% 1.4% 1.0% 1.0% 1.2% 1.2% Banking Industry 0.5% 0.9% 0.5% 0.8% 0.6% 0.0% 2005 2006 2007 2008 2009 2010* Year • After 2006 AB Bank Ltd. maintained a much higher level of ROA than the banking industry and even the PCBs. 11

  12. 2. Analysis of Profitability: The Case of AB Bank Ltd. Cont.. Comparative Trend of ROE 42.2% 45.0% 40.0% 34.2% 33.2% 35.0% 28.2% 30.0% 24.3% 25.0% 21.0% 20.6% % 18.1% ABBL 16.7% 16.4% 20.0% 15.2% 22.9% 21.7% PCBs 15.0% 10.6% 10.6% 15.6% 15.6% 10.0% 14.1% 13.8% Banking Industry 12.4% 5.0% 0.0% 2005 2006 2007 2008 2009 2010* Year • The ROE of ABBL reached its peak in the year 2007 . In that year the ROE of ABBL was 42.2%. The reason might be the surge in Net Profit of ABBL and lower equity in this year. • In the subsequent years the ROE of ABBL declined continuously but it remained above the ROE of banking industry and PCBs. 12

  13. 2. Analysis of Profitability: The Case of AB Bank Ltd. Cont.. Income Mix of ABBL 7.00% 5.91% 6.00% 5.06% 5.05% 4.90% 5.00% 4.24% 4.00% 3.05% 2.77% 2.68% NIM 2.42% 3.00% 2.26% 2.09% NII 1.64% 2.90% 2.00% 2.34% IIOSBD 1.81% 1.77% 1.00% 1.00% 1.28% 1.28% 0.14% 0.14% 0.00% 2005 2006 2007 2008 2009 2010 Year • NII (Non Interest Income/Total Assets) line always stayed above the NIM line. • The Investment Income from the Investment in Shares, Bonds and Debenture (IIOSBD= Investment Income from the Investment in Shares, Bonds and Debenture/Total Assets) also occupied a significant proportion of the non interest income . • The IIOSBD line has the same shape as NII line which indicates that the IIOSBD had a great influence on the NII. 13

  14. 3. Problem Statement • Private commercial banks in Bangladesh are continuously making a huge chunk of profit . • The profit growth seems to be astonishingly high. • Good sign for an economy but question of sustainability arises. sustainability arises. • Banks are involved in the wide array of other non traditional banking activities . Some of these profit seeking activities may lead banks to take very high exposures to the risk. 14

  15. 3. Objective of the Study This research study only tries to focus on the Private Commercial Banks (PCB) category because of its hefty profit growth. So the main objectives are: So the main objectives are: To identify the major determinants of the • profitability of Private Commercial Banks in Bangladesh in recent years. To address some policy implications and • suggest directions for further study. 15

  16. 4. Research Methodology Data: – Annual data for all the 30 Private Commercial Banks of Bangladesh for the years 2009 and 2010. – Source of data: annual report of each bank. – To capture the recent year’s profitability determinants- only two years’ data has been considered. only two years’ data has been considered. – No sampling has been made to select the banks . Research Method: – One dependent and nine explanatory variables have been taken that may influence the profitability of a bank. – Two multiple regression analyses have been run for the year 2009 and 2010. 16

Download Presentation
Download Policy: The content available on the website is offered to you 'AS IS' for your personal information and use only. It cannot be commercialized, licensed, or distributed on other websites without prior consent from the author. To download a presentation, simply click this link. If you encounter any difficulties during the download process, it's possible that the publisher has removed the file from their server.

Recommend


More recommend