EBL performance evaluation assignment

1. Assignment on
Money & Banking (BBA-315)
Topic: Performance Evaluation of Eastern Bank Ltd.
Submitted to
Naznin Sultana Chaity
Lecturer
School of Business
Submitted By
Md. Likhon
1

2. 08.01.02.005
Farhan Uddin Ahmed
08.01.02.023
Md. Atiqul Islam
2

3. 08.01.02.025
Muhammad Sazzad Hussain Chowdhury
08.01.02.027
School of Business
Date of submission
03-July-2010
AHSANULLAH UNIVERSITY OF SCIENCE AND TECHNOLOGY
3

4. 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.
4

5. Table of Contents
Methodology:........................................................................................................................................7
Company Profile:...................................................................................................................................8
Vision:................................................................................................................................................8
Mission:.............................................................................................................................................8
Values:.............................................................................................................................................10
Performance Evaluation:.....................................................................................................................13
Bank Planning:.................................................................................................................................13
Objectives of EBL:........................................................................................................................13
Strategic priority of EBL:..............................................................................................................13
Technology:.....................................................................................................................................14
Success story:...............................................................................................................................15
EBL with new ICT Infrastructure features:...................................................................................15
Benefits from Changes:................................................................................................................16
Personal Development:...................................................................................................................17
Employee Benefits:......................................................................................................................17
Education Programs:....................................................................................................................19
Bank Profitability:............................................................................................................................21
Conclusion:..........................................................................................................................................30
5

6. 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.
6

7. Methodology:
We collect data from Eastern Bank Limited’s website (www.ebl.com.bd)
and annual report.
7

8. 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:
8

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9

10. Values:
10

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11

12. 12

13. 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.
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14.  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).
 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
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15. 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.
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
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16. 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
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 Changes
Standalone 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
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17. 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:
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18. 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
programs are competitive and comprehensive. Below is a brief list of the
programs available to their employees:
Compensation
Their compensation plans are performance based and, depending upon
your position, may include base salary, incentives, commissions, referral
incentives and recognition awards.
Health and Wellness
They 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 Protection
Available 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
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19. 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
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 Instructors
Eastern has a team of over 50 employees that have attended training
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20. 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 Presentation
When 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.
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
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21. 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
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 Margin
4. Asset Utilization
5. Net Interest Margin
6. Provision for Loss Ratio
7. Loan Ratio
8. Temporary Investment Ratio
9. EPS (Earning Per Share)
10. DPS (Dividend Per Share)
11.P/E (Price Earning) Ratio
21

22. To calculate those ratio of 5 years of Eastern Bank Limited (EBL), we use
following data-
Item 2005 2006 2007 2008 2009
(Taka) (Taka) (Taka) (Taka) (Taka)
Net 1,458,991,9
546,515,028 513,233,680 418,648,150 798,353,197
Income 32
Total 3,071,336,91 3,314,723,1 3,710,912,9 4,733,358,6 8,434,181,8
Equity 0 64 39 66 04
Total 27,399,954,4 35,934,833, 42,507,025, 54,351,795, 68,330,333,
Asset 69 110 504 983 103
Operating 1,591,610,25 2,110,747,3 2,820,667,2 3,701,632,8 4,617,633,1
revenue 2 29 05 29 38
Total
2,075,412,52 2,829,332,6 3,808,903,0 5,224,413,1 6,186,163,1
Interest
2 32 36 45 90
Income
Total
1,365,455,64 2,160,078,1 2,498,068,1 3,675,380,7 4,032,711,6
Interest
2 42 17 51 12
Expense
Average
Earning
13,602,755,4 17,768,026, 21,062,048, 26,962,555, 33,924,417,
Asset
49.5 879 945 829 402
Provision
for Loan 88,425,742 223,369,258 584,394,008 452,686,073 262,511,322
Losses
Total
17,757,598,5 25,973,981, 30,895,706, 39,427,383, 46,129,522,
Loans &
66 280 294 891 083
Leases
22

23. Net Loan 17,174,528,5 25,046,619, 30,194,171, 38,632,083, 45,277,521,
36 296 436 300 185
Treasury 4,560,000,00 3,680,000,0 1,170,000,0
- -
Bill 0 00 00
Investme
2,962,734,7 1,298,180,1
nt ≤ 1 - 440,079,520 278,305,675
73 68
year
Due from
1,540,351,9 3,406,323,9 6,777,216,5
Other 745,258,450 927,301,729
87 25 53
Bank
No. of
Shares 8,280,000 8,280,000 10,350,000 13,869,000 24,964,200
Issue
Proposed
331,200,000 372,600,000 351,900,000 - -
Dividend
Market
price of 1222.75 792.50 1070.75 589.30 644.25
per Share
Now,
ROE (Return on Equity):
ROE= (Net Income ÷ Total Equity) × 100
Year 2005 2006 2007 2008 2009
Net 1,458,991,93
Incom 546,515,028 513,233,680 418,648,150 798,353,197
2
e
Total 3,071,336,91 3,314,723,16 3,710,912,93 4,733,358,66 8,434,181,80
Equity 0 4 9 6 4
ROE 17.79% 15.48% 11.28% 16.87% 17.3%
23

24. 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
Year 2005 2006 2007 2008 2009
Net 1,458,991,93
Incom 546,515,028 513,233,680 418,648,150 798,353,197
2
e
Total 27,399,954,4 35,934,833,1 42,507,025,5 54,351,795,9 68,330,333,1
Asset 69 10 04 83 03
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 2009
Net Income 546,515,028 513,233,680 418,648,150 798,353,197 1,458,991,932
Operating 1,591,610,252 2,110,747,329 2,820,667,205 3,701,632,829 4,617,633,138
revenue
Profit 34.34% 24.32% 14.84% 21.57% 31.60%
Margin
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.
24

25. Asset Utilization:
Asset Utilization== (Operating Revenue ÷ Total Asset)
Year 2005 2006 2007 2008 2009
Total 27,399,954,469 35,934,833,110 42,507,025,504 54,351,795,983 68,330,333,103
Asset
Operating 1,591,610,252 2,110,747,329 2,820,667,205 3,701,632,829 4,617,633,138
revenue
Asset 0.058 0.059 0.066 0.068 0.067
Utilization
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 2009
Total
Interest 2,075,412,522 2,829,332,632 3,808,903,036 5,224,413,145 6,186,163,190
Income
Total
Interest 1,365,455,642 2,160,078,142 2,498,068,117 3,675,380,751 4,032,711,612
Expense
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26. 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 0.052 0.038 0.062 0.057 0.063
Margin
EBL’s net interest margin standing in 2009 is 0.063, which is much better
from previous years.
Provision for Loss Ratio:
Provision for Loss Ratio= (Provision for Loan Losses ÷ Total loans &
Leases) × 100
Year 2005 2006 2007 2008 2009
Provision
for Loan 88,425,742 223,369,258 584,394,008 452,686,073 262,511,322
Losses
Total
loans 17,757,598,566 25,973,981,280 30,895,706,294 39,427,383,891 46,129,522,083
&Leases
Provision
for Loss 0.5% 0.86% 1.89% 1.15% 0.57%
Ratio
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 2009
Net 17,174,528,536 25,046,619,296 30,194,171,436 38,632,083,300 45,277,521,185
loan
Total 27,399,954,469 35,934,833,110 42,507,025,504 54,351,795,983 68,330,333,103
Asset
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27. Loan 62.69% 69.7% 71.03% 71.08% 66.26%
Ratio
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
Investment Ratio= (Treasury bill + Investment ≤ 1year + Due from other
Bank) ÷ Total Asset
Year 2005 2006 2007 2008 2009
Treasury 4,560,000,000 3,680,000,000 1,170,000,000 - -
bill
Investmen - 2,962,734,773 1,298,180,168 440,079,520 278,305,675
t ≤ 1year
Due from 745,258,450 927,301,729 1,540,351,987 3,406,323,925 6,777,216,553
other Bank
Total Asset 27,399,954,46 35,934,833,11 42,507,025,50 54,351,795,98
68,330,333,103
9 0 4 3
Temporary
Investmen 0.19 0.21 0.094 0.071 0.1
t Ratio
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 2009
Net Income 546,515,028 513,233,680 418,648,150 798,353,197 1,458,991,932
No. of
Shares 8,280,000 8,280,000 10,350,000 13,869,000 24,964,200
Issue
EPS 66 61.98 40.50 57.56 58.44
27

28. 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
Proposed 331,200,000 372,600,000 351,900,000 - -
Dividend
No. of 8,280,000 8,280,000 10,350,000 13,869,000 24,964,200
Shares Issue
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 2009
Market Price
1222.75 792.50 1070.75 589.30 644.25
of per Share
Annual
Earnings per 66 61.98 40.50 57.56 58.44
Share (EPS)
P/E (Price
Earning) 18.53 12.79 26.44 10.24 11.02
Ratio
28

29. 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.
29

30. 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.
30