Report on the Comparative Performance Analysis between Premier

Bank Ltd. and United Commercial Bank (UCB)

Submitted to:

Kazi Md. Tarique, PhD

Assistant Professor, ULAB School of Business (USB).

Submitted by:

GROUP D

Soniya Rahman (ID: 173011059)

Ansha Ahmed (ID: 172011012)

Noor E Fatema (ID: 172011051)

Omar Sultan (ID: 172011073)

Course title: Banking & Insurance

Course code: BUS 303

Section: 01

Submission date: January 2, 2021.

1
 LETTER OF TRANSMITTAL

Date: January 2, 2021

Kazi Md. Tarique, PhD

Assistant Professor

ULAB School of Business (USB)

University of Liberal Arts Bangladesh.
House 56, Road 4/A, Satmasjid Road,
Dhanmondi R/A, Dhaka 1209.

Subject: Letter of Transmittal

Dear Sir,

It is indeed a great pleasure for us to be able to hand over you the result of our hardship of this
respective course’s (BUS 303 Banking & Insurance) Term report on two of the commercial
banks: Premier Bank Limited and United Commercial Bank Limited.

We have tried our level best for preparing this report to its finest. The information in this report
is mainly based on the Annual Reports. Some other important details were gathered from the
internet as because of the recent pandemic of COVID-19, we could not try contacting the banks’
HR personnel.

Hope you will appreciate our hard work and excuse our minor errors as we have worked
completely virtually. Please feel free for any clarification that you would like us to explain.
Thank you for your cooperation.

Sincerely,

Ansha Ahmed

(On behalf of Group D)

2
 Contents

BANKS’ HISTORY...................................................................................................................................4
MISSION & VISION................................................................................................................................6
CAMELS ANALYSIS...............................................................................................................................8
Capital Adequacy....................................................................................................................................8
Total Risk Based Capital Ratio............................................................................................................8
Tier 1 Risk Based Capital Ratio.........................................................................................................10
Leverage Ratio...................................................................................................................................11
Asset Quality........................................................................................................................................13
Classified Loans................................................................................................................................13
Substandard Loans.............................................................................................................................14
Doubtful Loans..................................................................................................................................15
Loss Loans.........................................................................................................................................17
Management Quality...........................................................................................................................19
Premier Bank Limited........................................................................................................................19
United Commercial Bank (UCB).......................................................................................................21
Profitability Ratio................................................................................................................................23
Return on Equity (ROE)....................................................................................................................23
ROA (Return on Assets)....................................................................................................................24
Net Interest Margin............................................................................................................................25
Net Non-Interest Margin....................................................................................................................27
Net Operating Margin........................................................................................................................28
Earnings Spread.................................................................................................................................30
Liquidity Ratio.....................................................................................................................................33
Cash Position Indicator......................................................................................................................33
Liquid Security Indicator...................................................................................................................34
Net federal funds and repurchase agreements position......................................................................35
Capacity Ratio...................................................................................................................................37
RECOMMENDATION...........................................................................................................................39
CONCLUSION........................................................................................................................................41

3
 BANKS’ HISTORY

Premier Bank Limited

The Premier Bank Limited was incorporated in Bangladesh as banking company on June 10,
1999 under Companies Act.1994. Bangladesh Bank, the central bank of Bangladesh, issued
banking license on June 17, 1999 under Banking Companies Act.1991. The Head Office of The
Premier Bank Limited is located at Banani, one of the main commercial and business areas of
Dhaka city. Premier Bank provides all general banking services and products for its customers.
The products and services may be categorized as Deposit Products, Loan Products and Customer
Services.

The major deposit products of Premier Bank are Fixed Deposit, Premier Genius Account,
Premier 50+ Account, Double Benefit Account, Monthly Income Scheme, Monthly Savings
Scheme, and Education Savings Scheme. Premier Bank’s Loan Products spread over a wide
range of schemes. The schemes are Personal Loan, Consumer Credit Scheme, House Building
Loan, Doctor’s Loan, SME Finance, Women Entrepreneurs Finance, Student Credit Program,
Lease Finance, and VISA Credit Card. Premier Bank also serves Islami Banking to the clients.
Shariah is perfectly followed under strict supervision of a competent committee.

This bank presents many other banking services to its customers. Some of them are Online
Banking, Evening Banking, Brokerage House, Remittance Service and Locker Service. Premier
Bank’s slogan is ‘SERVICE FIRST’. The bank has taken these words as its motto. Since very
inception it is trying hard to uphold the motto. It is serving its clients and the nation
simultaneously.

United Commercial Bank (UCB)

With a firm commitment of the economic and social development of Bangladesh, United
Commercial Bank (UCB) started its journey in mid-1983 and has since been able to establish
itself as one of the largest first-generation banks in the country. With a vast network of 189

4
branches the Bank has already made a distinct mark in the realm of Private Sector Banking
through personalized service, innovative practices, dynamic approach, and efficient
Management.

The Bank has expanded its arena in different and diverse segments of banking like Retail
Banking, SME Banking, Corporate Banking, Off-shore Banking, and Remittance etc. Besides
various deposit and loan products of Retail Banking, the bank caters export and import loan to
deserving candidates which in turn helps the overall economy of the country through increased
earning of foreign exchange. The bank also provides its clients with both incoming and outgoing
remittance services. Thus, the expatriates find an easy way to send money through proper
channel.

This bank aiming to play a leading role in the economic activities of the country, is firmly
engaged in the development of trade, commerce, and industry by investing in network expansion
and new technology adoption to have competitive advantage.

5
 MISSION & VISION

Premier Bank

Mission

 To be the most caring and customer friendly provider of financial services, creating
opportunities for more people in more places.
 To ensure stability and sound growth whilst enhancing the value of shareholders
investments. To aggressively adopt technology at all levels of operations to improve
efficiency and reduce cost per transaction.
 To ensure a high level of transparency and ethical standards in all business transacted by
the Bank.
 To provide congenial atmosphere which will attract competent work force who will be
proud and eager to work for the Bank.
 To be socially responsible and strive to uplift the quality of life by making effective
contribution to national development.

Vision

The Bank has clear vision towards its ultimate destiny – to be the best amongst the top financial
institutions.

United Commercial Bank (UCB)

Mission

"To promote the well-being and prosperity of individuals and businesses in Cambodia by
delivering superior financial products and services in an environment of integrity, openness, and
client centricity; to create value and achieve growth for shareholders based on specialized insight
of local markets; and to foster and reward the talents of our employees and develop meaningful
relationships with the local communities we serve."

6
Vision

"To expand as a financial institution and achieve sustained economic growth while remaining
committed to the prosperity and well-being of our clients and the country of Cambodia and
continuing to exceed our customers' expectations for top-tier service and innovative financial
solutions."

7
 CAMELS ANALYSIS

Capital Adequacy
Capital Adequacy ratio indicated the capitalization position of the bank. According to Basel I,
the capitals of the bank were classified in two types Tier 1(T1) and Tier 2(T2).

Tier 1 (T1) Capitals - common stock, surplus, undivided profits (retained earnings), perpetual
preferred stock and selected identifiable intangible

Tier 2 (T2) Capitals - the allowance for loan and lease losses, subordinated debt convertible debt
and long-term capital instruments that combine both debt and equity features.

Regulatory Assets: the summation of T1 and T2 was called regulatory assets

Risk-Weighted Assets: Bank’s assets mentioned in both balance sheet and off-balance sheet were
multiplied with their risk-weighting factor designed to identify their credit risk exposure. The
accumulated results of that multiplication were called risk-weighted assets possessed by the
bank.

Total Risk Based Capital Ratio

Total risk-based capital ratio expressed the combination of T1 and T2 assets as a percentage of
total risk-based assets. It identified either the bank needs to raise their capital or reduced their
risky assets. Banks were classified as below depending on this ratio, such as -

 At least 10% or greater – well capitalized

 At least 8% or greater – adequately capitalized
 Less than 6% - Significantly undercapitalized
 2% or less – Critically undercapitalized

Total Risk-Based Capital Ratio = (Tier 1 capital + Tier 2 capital)/ Total risk-weighted
assets

8
 Total Risk-Based Capital Ratio
Years Premier Bank UCB
2016 12.48% 11%
2017 12.10% 12%
2018 12% 13%
2019 13% 15%

Premier
Bank

16

14

12

10

0
2016 2017 2018 2019

The growth had been observed in the total risk-based capital ratio of United Commercial Bank.
Their initial total risk-based capital ratio was 11%. Then in consecutive three years the ratio went
upward. Finally, in 2019 the ratio became highest 15%.

In case of Premier Bank in 2016 their total risk-based capital ratio was 12.48%. But next two
year the ratio experienced moderate decline, then in 2019 slight increase had been observed. In
2019 the ratio was 13%.

Comparing both the bank, it had been identified both the banks were well capitalized in terms of
their total risk-weighted assets more than minimum requirement of 10%. But UCB’s higher ratio
indicated they were in terms of capitalization in a better position than Premier Bank.

9
Tier 1 Risk Based Capital Ratio
Tier 1 risk-based capital ratio expressed the Tier 1 capital as a percentage of total risk-based
capital. The depository institutions were classified depending on the percentage of this ratio,
such as -

 At least 6% or greater –well capitalized

 At least 4% or greater –adequately capitalized
 Under 4% - undercapitalized
 Under 3% - significantly capitalized

Tier 1 Risk-Based Capital Ratio = Tier 1 capital/ Total risk-weighted assets

Tier 1 Risk-Based Capital Ratio

Years Premier Bank UCB
2016 7.75% 8%
2017 7.8% 8%
2018 7.9% 8%
2019 8.6% 9%

Premier
Bank

9.5

8.5

7.5

7
2016 2017 2018 2019

10
Tier 1 risk-based capital ratio of Premier Bank was 7.75% in the year 2016. Gradual growth of
the ratio observed in the graph. In last year 2019 the ratio was highest, 8.6%.

On the other hand, United Commercial Bank’s tier 1 risk-based capital ratio remain constant 8%,
for three years from 2016-2018. But in 2019 the ratio increased 1% than last three years ratio,
became 9%.

Both banks maintained their tier 1 risk-based capital ratio more than 6% which was the minimum
requirement to be well capitalized. Though both of them remained well capitalized for four
years, UCB’s overall four years ratios were higher than that of the Premier Bank.

Leverage Ratio
Leverage ratio expressed the Tier 1 capital as a percentage of total assets of the financial
institution. The depository institutions were classified depending on the percentage of this ratio,
such as –

 At least 5% - well capitalized

 At least 4% - adequately capitalized
 Less than 3% - significantly undercapitalized

Leverage Ratio = Tier 1 capital/ Average Total Assets

Leverage Ratio
Years Premier Bank UCB
2016 6.8% 7%
2017 6.7% 7%
2018 7.1% 7%
2019 7% 6%

11
 Premier
Bank

7.2
7
6.8
6.6
6.4
6.2
6
5.8
5.6
5.4
2016 2017 2018 2019

The leverage ratio of United Commercial Bank remained constant 7% from 2016- 2018. But in
the 2019, the ratio decreased 1% from the previous year’s ratios, became 6%.

Premier Bank’s leverage ratio was 6.8% in the year 2016. In 2019 the ratio (7%) remained
closer to ratio of the initial year. In the four years Premier Bank leverage remained similar.

To become well capitalized depository institution’s leverage ratio had to be 5%. Premier Bank
and United Commercial Bank were well capitalized because both maintained leverage ratio more
than 5% in last four years.

Final Interpretation of Capital Adequacy

The minimum requirement to become well capitalized depository unit, the total risk-based
capital ratio had to be 10%, tier 1 risk-based capital ratio 6%and leverage ratio 5%. Premier
Bank and United Commercial Bank in the last four years had maintained these ratios more than
the minimum requirements; so, both of them were well capitalized. But among the three ratios
UCB has maintained higher ratio in the total risk-based ratio and tier 1 risk-based ratio than
Premier Bank. Though both of them were well capitalized, in comparison to each other United
Commercial Bank was higher well capitalized than Premier Bank.

12
Asset Quality
Loans and leases were the main assets of the Banks. Loan were given to the customers could be
classified in two types consumer loans and business loan. The mix of loans provided to the
customers varied from bank to bank. This depended on the market characteristics, policies,
expertise of management, policies, and size of the banks.

Classified Loans
Classified loans were those loans which’s borrower failed to pay back according to schedule
determined by the loan agreement. Recovery of both principal and interest were uncertain in
classified loans. Classified loans were divided into three types a) substandard loans b) doubtful
loans c) loss loans.

Classified Loans
Years Premier Bank UCB
2016 5% 8%
2017 4% 7%
2018 4% 7%
2019 6.7% 4%

Premier
Bank
9
8
7
6
5
4
3
2
1
0
2016 2017 2018 2019

13
In 2016 UCB’s classified loans were highest 8% of their net loans and leases. In the consecutive
three years their classified were declining. In 2019 there were a significant declined had been
observed from 7% to 4% of classified loans.

On the other hand, Premiers banks classified loans were 5% of their net loans and leases in 2016.
After that it declined to its lowest value of 4% and remained same for two years. But in 2019
their classified sharply increased to their highest value of 6.7% on their net loans and leases.

From the graph it has been observed UCB had significantly reduced their classified loans in
these last years. But in case of Premier Bank primarily their classified loans were much lower
than UCB’s classified loans. But in 2019 Premier Bank’s classified loans became almost twice
than UCB’s classified loans. So, performance in regarding controlling classified loans UCB
performed better than Premier Bank.

Substandard Loans
Substandard loans were those classified loans which were inadequately protected due the
weakness in collaterals or borrower’s ability of repayment.

Substandard Loans
Years Premier Bank UCB
2016 0.4% 1.4%
2017 0.09% 0.5%
2018 0.2% 0.3%
2019 1.1% 0.2%

14
 Premier
Bank

1.6

1.4

1.2

0.8

0.6

0.4

0.2

0
2016 2017 2018 2019

Substandard loans of UCB’s were highest 1.4% of net loans and leases in 2016. It had been
observed from then graph UCB’s substandard loans sharply decreased in consecutive year, then
gradually declined became 0.2% which the lowest value among the four years.

Premier Banks substandard loans were lowest in the year 2016 which 0.4% of net loans and
leases. Though in 2017 their substandard loans decreased but sharp increased had been observed
in it resulting highest substandard loans 1.1% in 2019.

UCB’s substandard loans and leases were three and half times more than that of Premier Bank in
2016. But in these four years this situation became exactly reverse. In 2019 Premier Banks
substandard loans were five times more than that of UCB’s. The downward trend in UCB’s
indicated their management efficiently controlled their substandard loans than the Premier Bank.

Doubtful Loans
Doubtful loans were those loans which had an uncertainty of the repayment. Not only was the
interest of the loan, return of the whole principle uncertain in case of doubtful loans.

Doubtful Loans
Years Premier Bank UCB
2016 0.24% 0.32%
2017 0.14% 0.27%
2018 0.35% 0.26%

15
 2019 0.3% 0.1%

Premier
Bank
0.4

0.35

0.3

0.25

0.2

0.15

0.1

0.05

0
2016 2017 2018 2019

Initially Premier Bank’s doubtful loans were 0.24% of their net loans &leases, and then it
declined to 0.14% in 2017. Next year it had reached to its highest value then again declined; in
2019 it was 0.3%.

In 2016 UCB’s doubtful loans were highest 0.32%. Their doubtful loans significantly declined in
last three years. In 2019, it was 0.1% the lowest among the last four years.

Over the four years UCB’s doubtful loans significantly decreased. But in case of Premier bank
their doubtful loans increased in the end of the four years. So UCB had controlled their doubtful
loans better than Premier Bank

Loss Loans
Loss loans were uncollectable and not suitable to be considered as a bankable asset.

Loss Loans
Years Premier Bank UCB

16
 2016 4% 6%
2017 3% 7%
2018 3.5% 6%
2019 5.4% 3%

Premier
Bank

8
7
6
5
4
3
2
1
0
2016 2017 2018 2019

Initially UCB’s loss loan was 6% of net loans & leases, then slight increased observed in 2017.
But in 2019 it significantly declined 3% in 2019.

On the other hand, Premier Bank’s in 2016 loss loan was 4% of net loans and leases. Though it
slightly decreased in next year but after that increased and became highest 5.4% in 2019.

In the classified loans major portion were loss loans. UCB had shown their efficiency in
controlling their loss loan, as it became half (3%) in the end than that of (6%) in the beginning of
the four years. So UCB had performed well than Premier Bank in controlling the loss loans in
last four years.

Final Interpretation of Asset Quality

After analyzing classified, doubtful, substandard and loss loans of both the banks for four years,
UCB was more successful in controlling their classified, doubtful, substandard and loss loans

17
than Premier Bank.

18
Management Quality

Premier Bank Limited

 M. REAZUL KARIM, FCMA

Managing Director & CEO

M. Reazul Karim, carries with him a deep financial services knowledge including Corporate
Sector, Governance as well as regulatory and public policy experience gained from senior
positions in a wide range of financial fronts. His extensive knowledge of financial markets,
treasury, risk management and his qualification as FCMA is of particular value in The Premier
Bank’s Risk and Audit affairs. With over 37 years of experience in the realm of Banking
Industry and related sectors, he is well placed to carry out his role as the right leader for the Bank
refining The Premier Bank’s strategy to focus on growth and resilience. Mr. Karim started his
career as a Management Trainee with National Bank in 1984. The following years saw the
continuous rise of his banking genius. During vast versatile banking career, he has disseminated
his banking excellence in National Bank Limited (1984-1995), Prime Bank Limited (1995-
2012). He joined The Premier Bank Limited as the Additional Managing Director in 2013,
thereafter serving for five years, he has been entrusted the position of the Managing Director &
CEO (In-charge) of the Bank in February 2018. Mr. Karim has obtained his bachelor’s degree in
Commerce (Hon’s) and M. Com in Accounting from University of Dhaka. He is a Professional
Accountant (FCMA) and fellow member of The Institute of Cost and Management Accountants
of Bangladesh. He used to be the part time lecturer of BRAC University and other Training
institute of Banks. He has participated in a round table Conference of World Bank in Washington
DC, USA and presented a technical paper on de- risk and correspondence banking in 2017.

 MD. ABDUL JABBER CHOWDHURY

Additional Managing Director

Md. Abdul Jabber Chowdhury joined The Premier Bank Limited as Additional Managing
Director (AMD) recently. Prior to his joining to Premier Bank as AMD, he was the Deputy

19
Managing Director (DMD) United Commercial Bank Ltd, responsible for Chittagong Division
Business. Earlier to that he was the Deputy Managing Director of Shahjalal Islami Bank Ltd.
from 2009 to 2014 during which period he had been leading Investment Division, International
Division, Financial Administration Division, Common Service Division, Recovery Division,
SME Division, Chief Risk Officer, and CAMELCO etc. at Head office, Dhaka. Mr. Jabber has
completed his master’s from the University of Chittagong and attended various training,
seminars and workshops in banking at home and abroad. Mr. Jabber would be able to contribute
and add value in the development of the Bank by his rewarding experiences and potential. Mr.
Jabber during his long service of 38 years in banking capitalized the opportunity to gain
professional expertise in the field of branch banking, investment banking, international trade,
credit, risk management, legal & recovery with profound managerial leadership as Head of many
branches including corporate branches at Janata Bank Ltd., Shahjalal Islami Bank Ltd. and
Mutual Trust Bank Ltd. He served as Regional Head of those banks as well.

 MR. SYED NOWSHER ALI

Deputy Managing Director

Mr. Syed Nowsher Ali is recently promoted as Deputy Managing Directors at the Premier Bank
Limited. Mr. Syed Nowsher Ali has completed his B. Com (Hons) M. Com from the University
of Dhaka (Management Dept.) and started his Banking Career in AB Bank Ltd in 1986 and
worked up to 2000. He joined The Premier Bank Ltd in 2000 and during his long 30 years of
career, he worked different important Branches and Departments. Mr. Nowsher Ali participated
in many professional trainings, workshop, seminars at home and abroad including NIBM PUNE,
India recently. Mr Nowsher is a life Member of Gulshan Society of Dhaka.

20
United Commercial Bank (UCB)

 MUHAMMED ALI
Managing Director

Mr. Muhammed Ali is currently leading United Commercial Bank Limited (UCB), one of the
most esteemed brands in Bangladesh. Mr. Muhammed Ali is a prominent and professional
banker with 36 years of rewarding multi-dimensional experience in banking and other fields of
management is Managing Director of United Commercial Bank Limited (UCB) joined on 1
November 2012. Mr. Ali is a postgraduate in Economics with honors from the University of
Chittagong and has been interested in CSR. He started his career with Sonali Bank as a
probationary officer in 1977. In the process of career progression, he capitalized the
opportunities to work with many other banks like, National Bank, National Credit Ltd
(Subsequently emerged as NCC Bank), Standard Bank, Shahjalal Islami Bank and Social Islami
Bank. With the leadership and guidance of Mr. Ali, UCB has now turned to the best private
commercial bank in the country in terms of profit, asset quality, risk mitigation and brand value.
The contribution of Mr. Muhammed Ali is acknowledged through Global Brand Excellence
Award A ‘CEO of the Year’ by World Brand Congress 2014. Under his devoted leadership,
United Commercial Bank Limited has also been awarded with ‘International Trophy for Quality’
by Global Trade Leaders’ Club in 2017.

 M. SHAHIDUL ISLAM
Additional Managing Director

Mr. M. Shahidul Islam started his banking career as ‘Management Trainee’ at National Bank
Limited in the year 1984. He holds graduate and post graduate degree in ‘Management’ from
University of Chittagong. He has over 33 years of experience in the Banking Industry. HE served
in National Bank Limited and Prime Bank Limited before joining UCB as Deputy Managing
Director in the year 2008. He has vast experience in almost every key area of banking like
Corporate Credit, SME Credit, Foreign Trade, Consumer Banking, Credit Risk Management, FI,

21
Treasury etc. His contribution in the growth of Corporate & SME Credit and Foreign Trade is
widely acknowledged in the industry. He successfully led the Bank’s Corporate and SME
banking businesses even in the period of recession when the banking sector was facing sluggish
growth in terms of profitability and business. In recognition of his contribution to the Bank, he
was elevated to the rank of Additional Managing Director in March 2011.

 MOHAMMAD SHAWKAT JAMIL

Deputy Managing Director

MR. Mohammad Shawkat Jamil is serving as Deputy Managing Director of United Commercial
Bank Limited from May 30, 2012. Mr. Jamil has completed his MSS from University of Dhaka
in 1982. He started his career as ‘Probationary Officer’ in United Commercial Bank Limited in
1983. He has experience in managerial and leadership positions including 22 years as Branch
manager. Mr. Jamil has attended different training programs on ‘Finance & Banking
Management for South Asia Federation of AOTS Alumni Societies’ held in Osaka, Japan in
1997.

22
Profitability Ratio
Profitability ratio indicates the efficiency of a firm in terms of earning profit. Usually the price of
the stock is considered the best indicator to evaluate firm’s performance. But in case of smaller
bank and financial institution the price of the stocks are not easily available. The reason behind it
they are not actively traded in the secondary markets. To analyze the financial intuition’s
efficiency in earning their profit, profitability ratio would be used where share price of firm was
not available.

Return on Equity (ROE)

Stockholders invest to earn a return on their money. ROE measures the return that the
stockholders get investing their capital in the firm. 10% of ROE indicates, stockholder gets 10tk
return by investing 100tk in a firm.

ROE = Net income/ Total equity capital

Return on Equity (ROE)

Years Premier Bank UCB
2016 13% 10%
2017 15% 9%
2018 14.6% 8%
2019 17.9% 8%

23
 Premier
Bank

20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
2016 2017 2018 2019

The ROE of UCB bank was highest 10% in 2016. Gradually their ROE decreases in the
consecutive years. They had generated lowest ROE of 8%, back-to-back in 2018 & 2019.

On the other hand, Premier bank generated lowest ROE of 13% in 2016. Over the four years,
their ROE gradually increased apart from slight decline observed in 2018; in 2019 it reached the
highest value 17.9%.

In 2019, the ROE of the Premier Bank and UCB are respectively 17.9% and 8%. This indicates
the stockholders of the Premier Bank and UCB respectively earn 18tk and 8tk by investing
100tk. The stockholders of Premier bank get more return on the investment than the stockholders
of the UCB. So, in last four years Premier Bank utilized their stockholder’s investment better
than UCB.

ROA (Return on Assets)

The return on assets indicated how efficiently the managements of the financial institutions were
converting their assets into their net earnings. It was a key ratio for the investors to understand
the efficiency of the management in terms of utilizing their assets.

ROA = Net income/ Total Assets

24
 Return on Assets (ROA)
Years Premier Bank UCB
2016 1% 0.8%
2017 1% 0.7%
2018 1.03% 0.6%
2019 1.3% 0.6%

Premier
Bank

1.4

1.2

0.8

0.6

0.4

0.2

0
2016 2017 2018 2019

UCB’s highest return on assets was 0.8% in 2016. After that their ROA declined in consecutive
three years; became lowest 0.6% in 2019.

Premier Bank maintained 1% ROA form 2016-2018, but there was a slight increase in ROA
1.3% in 2019. In last four years the ROA of Premier Bank showed upward trend but ROA of
UCB showed downward trend. So, the management of Premier Bank was more efficient than
UCB in converting assets to their net income.

Net Interest Margin

Net interest margin is a measurement the shows the difference between the interest revenue and
the interest expense in terms of the assets. The positive net interest margin indicates the
efficiency of the firm. Positive net interest margin denotes that firm’s fund accumulated from
cheapest source in comparison to the source of interest earning.

25
Net Interest Margin = (Interest Income – Interest expense) / Total assets

Net Interest Margin

Years Premier Bank UCB
2016 1.8% 2.6%
2017 2.2% 2.5 %
2018 2.7% 2.3%
2019 2.5% 2.4%

Premier
Bank

2.5

1.5

0.5

0
2016 2017 2018 2019

In the year 2016 Premier Bank had their lowest net interest margin 1.8%. After that their net
interest margin increased gradually became highest 2.7%; but in 2019 it declined to 2.5%.

On the other hand, UCB’s net interest margin was highest 2.6% in 2016 after that it gradually
decreased; became 2.4% in 2019. The growth in net interest margin had been observed in
Premier Bank in last four years. But the UCB’s net interest margin declined in last four years.

Premier Bank’s growth in this ratio suggested that their management had accumulated fund from
cheapest source in comparison to their interest earning source very efficiently. In terms of net
interest margin management of Premier Bank was more efficient than UCB.

26
Net Non-Interest Margin
The revenue generated from fiduciary activities, service charges on deposit accounts, trading
account gains & fees; in short, all sort of fees are non-interest income. The non-interest expense
includes salaries & employee benefits, repair & maintenance of the equipment & premises and
loan loss expenses. The difference between non-interest revenue and non-interest expense in
terms of assets is Net non-interest margin. Net non-interest margin is usually negative, the
overall bank’s fee lower than its non-interest expense.
Net Non-Interest Margin = (Non-interest income – Non-interest expense-Provision for loan
loss)/ Total assets

Non-Interest Margin
Premier Bank UCB
2016 -0.2% 1.7%
2017 -0.4% 1.6%
2018 -0.4% 1.1%
2019 -0.7% 1.3%

Premier
Bank

1.5

0.5

0
2016 2017 2018 2019
-0.5

-1

From the four years data it had been observed the UCB maintained positive net non-interest
margin. The net non-interest margin was highest 1.7% in 2016. Then their ratio declined became
the lowest 1.1%, in 2019 it slightly increased to 1.3%.

27
Premier Bank had negative net non- interest margin throughout last four years. In 2016 their net
non-interest margin was highest -0.2%. In the consecutive three years net non-interest margin
gradually decreased; it became lowest -0.7% in 2019.

The positive net non-interest margin suggested UCB’s non-interest income was higher than their
non-interest expenses and provision for loans and leases. Premiers Bank’s negative net non-
interest margin indicated their non-interest income was lower than their non-interest expenses
and provision for loans and leases. UCB’s non-interest income such as service charge, fiduciary
fees were higher than that of Premier Bank. In terms of net non-interest margin UCB’s
performance better than Premier Bank.

Net Operating Margin

Net operating margin measure the difference between total operating income and total operating
expenses in terms of the assets. Higher value of net operating margin indicates higher profit of
the bank. Though net operating margin is a profitability ration it also indicates the efficiency of
the bank. This indicates how the management maintained the growth of the revenue, keeping the
expenses lower.

Net Operating Margin = (Total operating revenues – Total operating expenses) / Total
assets

Net Operating Margin

Years Premier Bank UCB
2016 1.4% 2.3%
2017 2.4% 2.2%
2018 2.8% 1.8%
2019 2.8% 1.9%

28
 Premier
Bank

2.5

1.5

0.5

0
2016 2017 2018 2019

The lowest net operating margin of Premier Bank was 1.4% in 2016. Growth has been observed
in their net operating margin from 1.4% to 2.8%. It had been observed that in last two years their
operating income significantly increased than their operating expenses which caused the growth
in net operating margin.

On the other hand, UCB’s net operating margin was highest 2.3% in 2016. After that the ratio
declined consecutive three years. Finally, in 2019 the ratio became 1.9%.

The upward trend had been observed in Premiere Bank’s four years net operating margin. But
United Commercial Bank had experienced decline in their net operating margin in last four
years. The management of Premier Bank have efficiently managed the growth of their revenue,
lowered their operating expenses.

Earnings Spread
Bank performs as intermediary, collect money from the surplus unit and provide loans to the
deficit unit. The earning spread indicates how efficiently bank has performed their
intermediation function. Earning spread also indicate the level of competition existed in the
market. Less competition led to higher spread.

29
The difference between the average asset yield and the average liability cost would decline with
high competition.

Earnings Spread = (Total interest income/Total assets –Fixed assets) – Total interest
expenses/ total liability

Earnings Spread
Years Premier Bank UCB
2016 1.7% 2.6%
2017 2.3% 2.5%
2018 2.8% 2.3%
2019 2.6% 2.5%

Premier
Bank

2.5

1.5

0.5

0
2016 2017 2018 2019

The earning spread of UCB was highest 2.6% in 2016. After that it decreased, reached the lowest
value of 2.3% in 2018. Later in became 2.5% in last year. So UCB had maintained the action of
intermediation almost similar throughout last four years.

On other hand Premier Bank’s lowest spread was back in 2016, 1.7%. Their earning spread then
gradually increased, reached to the highest value 2.8% in 2018. In 2019 it slightly decreased; the
earning spread become 2.6%.

30
The growth in earning spread suggested, Premier Bank had improvised their intermediation
function in last four years. UCB kept their earning spread similar, but Premier Bank managed to
improve their intermediation function in the competitive market.

Final Interpretation of Profitability Ratio

There six ratios under the profitability ratio, they were ROE, ROA, net interest margin, net non-
interest margin, net operating margin, earning spread. Among these six ratios apart from net non-
interest margin, Premier Bank had performed well in the rest of the five ratios than United
Commercial Bank. So, in profitability ratio Premier Bank had improvised in these last four years than
United Commercial Bank.

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Liquidity Ratio
Liquid assets had ready market, reasonable selling price and reversible selling quality. Higher
possession of these types of liquid assets assured higher liquidity of the depository institute.
Liquidity ratios indicated the ability to pay the short-term obligation of a financial institution.

Cash Position Indicator

The cash position indicator denotes the amount of cash a financial institute possessed from it
total assets portfolio. The strength and liquidity position of the financial institute could be
identified by the cash position indicator. The bank with higher cash position ratio, it had the
ability to fulfill immediate cash need for any short-term liability.

Cash Position Indicator = Cash and deposits due from depository institutions / Total assets

Cash Position Indicator

Years Premier Bank UCB
2016 6% 17%
2017 6% 12%
2018 7.2% 13%
2019 5.8% 13%

Premier
Bank

18
16
14
12
10
8
6
4
2
0
2016 2017 2018 2019

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UCB’s highest cash position indicator was 17% in 2016. Then consecutive three years it
gradually decreased; in 2019 it became 13%. In last four years their ratio decreased.

On the other hand, Premier Bank’ highest cash indicator ratio was highest 7.2% in 2018 and
lowest was 5.8% in 2019. Though the ratio was highest in 2018 and lowest in 2019; both years
Premier Bank had almost similar amount of cash. The increase in assets caused the decline in
cash position indicator in 2019.

Last four years the cash position indicator of UCB was almost twice than that of Premier Bank.
UCB was in better position in terms of handling immediate needs of cash than Premier Bank.

Liquid Security Indicator

The liquid Security Indicator denoted how much of its total assets were invested in government
securities. Government securities were low risked investments. The financial institutions were
considered more liquid if they possessed more government securities.

Liquid Security Indicator = Government securities / Total assets

Liquid Security Indicator

Years Premier Bank UCB
2016 11% 15%
2017 9% 12%
2018 11.2% 10%
2019 12.8% 11%

33
 Premier
Bank

16

14

12

10

0
2016 2017 2018 2019

From 11% of liquid security indicator ratio in 2016, Premier Bank had experienced decline in
the ratio in 2017.The it gradually increased to its highest ratio of 12.8% in 2019, as their
government securities worth taka 3344 million from their total 3930 million taka securities.

In these last four years UCB experienced decline in the liquid security indicator. But premier
bank experienced growth in the same ratio. So in in terms of the liquid security indicator ratio
Premier Bank gained more liquidity than UCB in the last four years.

Net federal funds and repurchase agreements position

The net federal funds and repurchase agreements position was the ratio of the difference between
federal funds sold & purchase and total assets. The positive ratio indicated the overnight loans
were higher than overnight borrowings of reserves, higher liquidity of the financial initiations.
The negative ratio indicated the overnight loans were lower than the overnight borrowings of
reserves which lower the liquidity of the financial institution.

Net federal funds and repurchase agreements position = (Federal funds sold and reverse
repurchase agreements Federal funds purchased and repurchase agreements) / Total assets

Net Federal Funds and Repurchase Agreements Position

Years Premier Bank UCB
2016 -3% -7%

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 2017 -8% -9%
2018 -6.6% -11%
2019 -4.3% -9%

Premier Bank
Column1

0
2016 2017 2018 2019
-2

-4

-6

-8

-10

-12

From -0.3% net federal fund and repurchase agreement position in 2016, Premier Bank
experienced decline in the ratio, -0.8% in 2017. Then the value of the ratio gradually increased,
in 2019 it became -4.3%. After the next two years growth had been observed in the ratio and in
2019 it became -4.3%.

In 2016 net federal funds and repurchase agreements position of UCB was highest -7%, then it
gradually decreased to the lowest value of -11% in the year 2018. In 2019 the ratio increased
became -9%.

Both the bank maintained negative net federal funds and repurchase agreements position
through out last four years which indicated they had sold less federal fund and bought more
federal fund.

But United Commercial Bank’s net federal funds and repurchase agreements position ratios were
lower than that of Premier Bank. So Premier Bank was at better position in terms net federal
funds and repurchase agreements position ratio than UCB.

35
Capacity Ratio
The capacity ratio was the ratio of net loans & leases and total assets. The loans and leases were
the illiquid assets of the financial institutions. So, this ratio indicated the negative liquidity of the
financial institutions. The higher ration indicated the lower liquidity of the banks.

Capacity Ratio = Net loans and leases / Total assets

Capacity Ratio
Years Premier Bank UCB
2016 74% 68%
2017 75% 72%
2018 72.6% 73%
2019 72.2% 72%

Premier
Bank

76

74

72

70

68

66

64
2016 2017 2018 2019

In 2016 Premier Bank had 74% capacity ratio. Then the ratio increased in 2017 but in next two
years the ratio decreased and became 72.2% in 2019.

But United Commercial Bank had experienced growth in their capacity ratio. From 68% capacity
ratio in 2016, the bank converted 72% of their total assets into loans and leases in 2019.

36
Premier Bank and UCB had experienced respectively decline and growth in the capacity ratio.
End of the four years they had converted the almost similar percentage of assets into loans and
leases.

Final Interpretation of Liquidity Ratio

United Commercial Bank maintained higher ratios in cash position indicator and liquid security
indicator than Premier Bank. But Premier Bank had maintained better net federal funds and
repurchase agreements position. In case of capacity ratio both the bank converted almost 70% of
their assets into loans and leases.

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 RECOMMENDATION

Capital Adequacy

According to Basel 1 agreement, a bank would be considered as well capitalized when its total
risk-based capital ratio would be 10%, tier 1 risk based capital ratio would be 6% and leverage
ratio would be 5%. Premier Bank and United Commercial Bank, both were well capitalized in
last four years.

Researchers had noticed that well capitalized were not free from the risk of failure. Some banks
experienced failure despite of having high capital. Both Premier Bank and United Commercial
Bank must focus on their earning and expenses to sustain in the market.

Asset Quality

United Commercial Bank had significantly reduced their classified, substandard, doubtful and
loss loans than that of the Premier Bank. Premier Bank should investigate and evaluate their
customers more while giving those loans.

Both the bank should review all types of loan especially large loans after certain period, for
example 30days, 60days, and 90days.

Quality of the collaterals, borrower’s payment record, completion of the loan documents and
financial condition of borrowers all should be check while the review was performed.

Probability Ratio

Among the six profitability ratios Premier Bank had experienced growth in five ratios apart from
net non-interest margin than that of United Commercial Bank.

Premier Bank should find out the way to reduce their non-interest expenses to gain or increase
their non-interest margin such as service fees, fiduciary fees to achieve growth in the net-
noninterest margin.

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United Commercial Bank must improvise their profitability ratio. They should seek for those
investments which had higher rate of return on both assets and equity & lower expenses.

Liquidity ratio

It had been observed than United Commercial Bank maintained their cash position indicator and
liquid securities indicator were higher than that of Premier Bank; this made them more capable
for in terms handling the need of immediate cash.

Net federal fund and repurchase agreement of both the banks were negative. It indicated their
federal funds sold were lower in comparison to their federal fund repurchase. Premier bank and
UCB both should improvise their net federal fund and repurchase agreement to become positive.
United Commercial Bank and Premier Bank should sell more federal funds instead of buying
fund from other depository institutions.

39
 CONCLUSION

Premier Bank and United Commercial Bank both the bank’s capital adequacy ratio indicated
they were well capitalized bank in last four years. But UCB capital adequacy ratios were higher
than Premier Bank. United Commercial Bank had showed better performance in controlling their
asset quality by reducing classified loans in the final year. On the other hand, Premier Bank had
better return on both assets and equality than UCB. In terms liquidity ratio, it had been observed
United Commercial Bank had higher cash reserve than that Premier Bank. United Commercial
Bank’s ratio suggested they were in better position than Premier Bank in terms of capital
adequacy, assets quality and liquidity ratio. But Premier Bank had showed better performance in
profitability ratio. Both the bank should be more focus on their profit and expenses because those
were the key factors that actual decide the sustainability of financial institution in the competitive
market.

40