EXECUTIVE SUMMERY

The main objective of this project was to find out the performance of South East Bank ltd. Thus to conduct the research I have gone through a series of qualitative analysis and a few quantitative analysis to find out the trend and opportunities of the bank. The report starts with the general overview of South East Bank Ltd. I have discussed about the objective, scope & limitations, functions and finally discuss findings and analysis based on the time series ratio analysis the bank. According to the data available in secondary sources such as Annual report we calculate the different ratio such as leverage, efficiency, profitability, market position and try to relate it with the theory. Based on the findings I compared the results for the years starting from 2006 to 2009 and locate the main reason behind its increase or decrease. Finally, I have tried my level best as to gist up the lacking of the South East Bank limited and come up with some recommendations about how the bank can send positive signal in the investors mind and thus maximize the market price of the share or maximize the value of shareholders wealth.

INTRODUCTION
Banking industry is one of the private sectors that have been attracting the investors so much to invest in the financial market. To ensure economic stability, and to develop the rural and urban areas with necessary financial assistance, government nationalized commercial banking. Previously only government banks were here to serve the financial needs of consumers, but later private banks started dominating the market with lots of branches and many services all over the country. They have joined the banking industry to serve the common and corporate sector and to enhance their profitability in the economy. The Bangladesh Bank has created a favorable environment for the private banking sector. It has encouraged investments in banking in a way that most of the private banks have been running their operation profitably. Rules and regulations are implemented by the government to ensure accountability of the banks, and also to ease the process of the customers to deal with banking activities. To evaluate bank performance I was given the South East Bank Ltd, Bangladesh. South East bank has been established in the private sector to provide all banking services and financial services to facilitate Bangladeshi people. The Bank offers services for all commercial banking needs of the customers, which includes deposit banking, loans and advances, export import financing, inland and international remittance facility etc. It has been growing rapidly as one of the leaders of the new generation banks in the private sector.

OBJECTIVE:
Here my objective is to find out the performance of the bank. . Ratios have been used as instrument to analyze the financial performance of the bank. But that is not all, I will provide with explanations for the performance of the company, whether it is performing well or not and reason as well. This will allow a greater insight into both the company and also the industry where it is operated. I further will recommend on what needs to be done for the betterment of the bank. The evaluation will help investors to make a choice, and will help them to decide whether to invest in South East bank or not. The objective of a company is to maximize shareholders wealth. I will identify on behalf of the investors whether the company is actually doing it or not using ratio analysis as tools. By preparing this report, I will be able to show my strong grasp of ratio analysis and this report will expand my knowledge about ratio analysis as well. After the main objective of determining the performance level of the Bank, there are some recommendations are also given in the report. So overall objective is to find out the performance stage, and suggest steps to improve poor condition. There is another academic objective is involved which is having a good marks in the assignment.

METHODOLOGY:
Various data has been used to prepare the report. Most of the data collected are from secondary sources. Specifically, annual reports of the company have been collected from Dhaka Stock Exchange and the banks website. The annual reports provided all the financial data required to find the necessary ratios for the four years. Some data such as yearend market price of the share were collected from the DSE library. I used ratio analysis, and I gathered it from internet. I also used MS Excel to draw the graphs and analyze the data to come up with a conclusion.

LIMITATION:
The major limitations are:
Ratio analysis does not tell everything. For example, the effect of inflation.

The time frame for writing this report was really not enough. It is an individual

report, so I had to manage everything in a very limited time. I could have done it in way better if I got more time. The ratio analysis was really difficult sometimes to interpret since there was very little change in some years for few ratios.
My recommendations may contradict with professional as I am still learning. The report does not have liquidity ratio as it was asked.

Overview of Southeast Bank Limited:

Southeast Bank Limited is a scheduled commercial bank in the private sector established under the ambit of Bank Company Act, 1991 and incorporated as a Public Limited Company under Companies Act, 1994 on March 12, 1995. The Bank started commercial banking operations on May 25, 1995. During this short span of time the Bank is successful in positioning itself as a progressive and dynamic financial institution in the country. The bank had been widely acclaimed by the business community, from small entrepreneurs to large traders and industrial conglomerates, including the top-rated corporate borrowers for its forward - looking business outlook and innovative financial solutions. Thus within this very short period of time it has been able to create animate and earn significant reputation in the country's banking sector as a Bank with Vision. Presently, it has 59 branches all over the Bangladesh. Southeast Bank Limited has been licensed by the Government of Bangladesh as a Scheduled commercial bank in the private sector in pursuance of the policy of liberalization of banking and financial services and facilities in Bangladesh. In view of

the above, the Bank within a period of 15 years of its operation achieved a remarkable success and met up capital adequacy requirement of Bangladesh Bank. Southeast Bank is run by a team of efficient professionals. They create and generate an environment of trust and discipline that encourages and motivates everyone in the Bank to work together for achieving the objectives of the Bank. The culture of maintaining congenial work - environment in the Bank has further enabled the staff to benchmark themselves better against management expectations. A commitment to quality and excellence in service is the hallmark of their identity. Southeast Bank takes pride for bringing women into the banking profession in a significant number for gender equality. At present, 32% of SEBL's employees are women that will rise to 45% over the next five years.

Vision: To be a premier banking institution in Bangladesh and contribute significantly to the national economy. Missions: High quality financial services with state of the art technology, Fast customer service, Sustainable growth strategy, Follow ethical standards in business, Steady return on shareholders equity, Innovative banking at a competitive price, Attract and retain quality human resource, Commitment to Corporate Social Responsibility.

Literature Review:
Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a company's financial statements. The level and historical trends of these ratios can be used to make inferences about a company's financial condition, its operations and attractiveness as an investment. Ratio Analysis enables the business owner/manager to spot trends in a business and to compare its performance and condition with the average performance of similar businesses in the same industry. Financial ratio analysis groups the ratios into categories which tell us about different facets of a company's finances and operations. An overview of some of the categories of ratios is given below: Profitability Ratios which use margin analysis and show the return on sales and capital employed.

Efficiency Ratio which measures how efficient the company is. Leverage Ratios which show the extent that debt is used in a company's capital structure.

Liquidity Ratios which give a picture of a company's short term financial situation or solvency.

Market Position which relates the firms market value as measured by its current

share price to certain accounting values.

Profitability ratios Return on Equity (ROE):

The return on equity ratio measures how much the shareholders earned for their investment in the company. The higher the ratio percentage, the more efficient management is in utilizing its equity base and the better return is to investors.

Return on Assets (ROA):

The return on assets (ROA) ratio illustrates how well management is employing the company's total assets to make a profit. The higher the return, the more efficient management is in utilizing its asset base. The ROA ratio is calculated by comparing net income to average total assets, and is expressed as a percentage.

Net Interest Margin:

The net interest margin measures how large spread between interest revenue and interest costs management has been able to achieve by close control over earning assets and pursuit of the cheapest sources of funding.

Net Non Interest Margin:

The net non interest margin measures the amount of non interest revenue stemming from service fees the financial firm has been able to collect relative to amount of non interest costs incurred.

Net Bank Operating Margin:

It is the ratio between the difference between operating revenue & operating expense compare to the total assets. The net operating margin measures that how efficiently the assets are utilized to get the operating margin. That means it indicates banks operating efficiency.

Earning Per Share (EPS):

The portion of a company's profit allocated to each outstanding share of common stock.

Net Profit Margin:

It is calculated by finding the net profit as a percentage of the operating revenue. NPM shows the effectiveness of expenses management or cost control. It indicates the management control and directions. Any bank can increase their earnings and returns to the stakeholders if they successful control expense and maximize revenue.
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Efficiency Ratios Operating Efficiency Ratio:

It is a ratio between operating expense & operating revenue.

Employee Productivity Ratio:

It is calculated by dividing net operating income with number of employees. It shows how productive or efficient the employees are. Only the numbers of full time employees are used to calculate this ratio.

Degree of asset utilization/ Asset management efficiency:

Asset utilization measures a companys ability to make best use of its resourcesand by inference, the quality of its management. It is calculated by dividing total operating revenues with total assets.

Equity Multiplier/Fund Management Efficiency:

This ratio shows a company's total assets per dollar of stockholders' equity. A higher equity multiplier indicates higher financial leverage, which means the company is relying more on debt to finance its assets.

Tax Management Efficiency:

It is a ratio between net income before tax & net income after tax. It shows how well the company is managing its tax expense.

Expense Control Efficiency:

It is a ratio between net income before tax & operating revenue. It shows how well the company is controlling its expenses.

Leverage Ratio Debt-Equity Ratio:

It is calculated by dividing total debt with total equity capital. It indicates the extent to which the business is reliant on debt financing. The higher this ratio, the more risky a creditor will perceive its exposure in your business.

Market Position Dividend per Share (DPS):

Dividend per share ratio measures the return that the share holders get against each share. It depends on the net income and dividend policy of the bank.

Dividend Yield:
The dividend yield shows the return that the share holder gets against each taka of investment. Its a comparison of dividend and market share price.

Market-Book Ratio:
The Market-to-Book Ratio relates the firm's market value per share to its book value per share. Since a firm's book value reflects historical cost accounting, this ratio indicates management's success in creating value for its stockholders. This ratio is used by "valuebased investors" to help to identify undervalued stocks. Market book value ratio indicates what the investors are giving against each taka value of share. Its a market worthiness of the share. It also reflects overall performance of the company.

P/E Ratio:
The P/E Ratio indicates how much investors are willing to pay per dollar of current earnings.

Finding and Analysis Profitability Ratio: Return on Assets:

2006 South east Bank 1.69 % 2007 1.90 % 2008 1.09 % 2009 1.67 %

SEB is generating return to its assets in highly deviated manner. Sometimes it went up, sometimes it went down. That means management is not able to use its assets in an efficient manner. In 2006 and 2007 it earned very high return using its resources. This clearly indicates that investors who are risk lovers will be looking for SEB whereas this inefficiency makes poor impression about the bank to the other investors.

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Return on Equity:
2006 South bank east 17.98% 19.90% 12.06% 16.51% 2007 2008 2009

In the case of ROE, it decreased continuously through out the years except 2007. That is not a very good indicator for a company continuously losing rate of return to the equity holders. The management actually could not match the both rate of increasing net income and equity. This will surely discourage investors to make an investment decision in South East Bank. So this bank needs to work hard in order to increase the ratio.

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Net Interest Margin:

2006 South East Bank

2007

2008

2009

1.98%

2.42%

1.63%

0.99%

Net interest margin of SEB is not stable at all. If we see the trend of this ratio closly, than it indicates on average a decresing trend except 2007. So banks position is getting worse. Therefore they need to improve their efficiency, in the case of hedging , to sanction loan and receiving deposit.Investors should be careful investing in SEB as the management is ineffecient in managing net interest margin.

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Net Non-Interest Margin:

2006 South East Bank 2007 2008 2009

1.86%

2.11%

2.08%

3.10%

Net non interest margin have a positive trend with a high growth rate. It is continously increasing throughout the years except slight decrease in 2008. That means the bank is effeiciently conducting its non banking fee generating activites. Even though the bank is not earning stable net interest margin, it is increasing non interest margin, which can cover up their net profit.

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Net bank operating margin:

2006 South East Bank

2007

2008

2009

2.40%

4.53%

3.71%

4.10%

High growth rate and positive trend of net non interest margin help to offset the unstable and on average decreasing trend of net interesrest margin a small portion, but that help to give batter shape to net operating margin. SEB net operatin margin had decreased

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darastically in 2006 and then it kept increasing except 2008. But SEB growth rate is very high from year to year especially in 2007 it has managed its total expenses very well.

Net profit margin:

2006 South East Bank 2007 2008 2009

33.00%

32.00%

22.00%

32.00%

Net profit margin of SEB has an on average decreasing trend, except the year 2009 . In 2008 it has fall at a high rate. Bank need to restructure their cost of deposit and mimimize loan default by matintaining high standard for senctioning loan to check this decreasing trend. Becasuse, this trend will decrese the ability of offering attracting loan offer and people also will become less interested about the bank for taking loan and investing in banks stock.

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Earning per share:

2006 South East Bank 59.74 2007 53.59 2008 31.11 2009 54.64

EPS of SEB also has an average decreasing trend, except the year2009. It directly indicates the banks bad condition of net interest margin and high rate of loan provision. In 2008 it went down in a higher rate then 2007. Because the bank earning after tax is decreasing at a higher rate and this has an effect on their stock price. Inveostors will lose their interest about the bank.

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Leverage Ratio Debt ratio:

2006 South East Bank 2007 2008 2009

90.58%

90.45%

90.10%

90.00%

SEB is a highly leveraged bank. On an average it is holding 90% of leveraged fund of total asset. This bank is in high risk because it is using too much leverage as well as holding low range of liquidity. It is also a reason of having high cost of capital and lower net profit margin. A highly leveraged bank is more vulnerable to different market risks. If anything goes wrong the chance of getting bankrupt is very high. High level of leverage is one cause of getting high cash position indicator. Management should concentrate
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seriously on different issues such as quality of loan, income generating sources, duration of assets and liabilities, liquidity requirements and cost of capital.

Debt equity Ratio:

2006 South East Bank 9.62 2007 9.48 2008 10.03 2009 8.95

SEB is has a decreasing trend of the Debt to Equity ratio except 2008. That indicates that the bank is concerned about the confidence of investors which was getting down year by year for higher leverage. They increased the equity capital in later years which pulled it down.

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Efficiency Ratio Operating efficiency ratio

2006 South East Bank 2007 2008 2009

24.21%

23.62%

25.42%

21.00%

Most of years operation efficiency ratio of SEB have been improved, except year 2008. Other than 2008, its ratio is decreasing that means management are well capable of

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managing its expenses and income And that have a direct effect on operating profit margins profitability.

Employee productivity ratio

2006 South East Bank

2007

2008

2009

2066791 2613082 2447262 3291482

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To get a good operating margin, a bank needs a good operating efficiency and for getting a good operating efficiency, the bank need to have a good employee productivity ratio. SEBs employee productivity ratios have been increased in year 2007 and 2009. It seems like in 2009 employees were more productive than the other years. And this effect as a chain reaction to operating productivity and operating profit margin.

Degree of asset utilization

2006 South East Bank 5.07% 2007 5.93% 2008 4.98% 2009 5.20%

SEB asset utilization ratio has a fluctuating trend. It increased in 2007 and then again decreased in 2008 which is not a good sign. This is happened because of fluctuating

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operating income and its total assets. The increase in 2007 and 2009 indicates that the bank has a good management but they are not serious in their jobs all the years. Whenever the bank performs badly they start concentrating more. But unstable asset utilization rate makes a bad impression to the investors.

Market position:

Dividend per share

2006 South East Bank 20.00% 2007 15.00% 2008 15.00% 2009 0.00%

DPS tells what is the return primary share holders are getting from the stock. From the graph we can see that southeast bank didnot pay regular dividend and the amount of dividend is constant in 2007 and 2008. May be bank is doing this for checking the decreasing trend of profitability by reinvesting profit. Banks profit decreased from 2006

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to next two years .But the last year the bank did not pay any cash dividend which may frustrate the shareholders.

Dividend Yield
2006 South East Bank 2007 2008 2009

6.24%

2.62%

4.72%

0.00%

From the graph we can see that SEBs dividend yeild is not stable. It flactuates too much. This will make secondary investors confused and if they see the profitability position of

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the bank than their confidence level will flactuate at higher degree. Beside this it has no dividend yield in 2009 because of paying no dividend in this two year.

Market Book ratio

2006 South East Bank 0.97

2007 2.13

2008 1.23

2009 1.01

Market price is detemined by secondary market .Market book positions are not stable at SEB so investors are are confused about the true market value of the stock against the book value as it flactuates to much. If it continues like this then investors will lose interest about the bank. On an avarage SEB has decreasing market book ratio.

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P/E Ratio
2006 South East Bank 5.42 2007 13.46 2008 10.13 2009 6.13

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Price earnings ratio of SEB is not steady or increasing. From the graph we see that there was huge fluctuation form year 2006 to year 2009. It was not a good sign for SEB, because investors will hesitate to invest in this bank as the P/E ratio is very misleading. This means their confidence for investing in these bank is decreasing. The earning per share decrased from 2007 to 2008 but this effect was outweighed by a great decrease in the market price per share of the bank. In 2006, the situation was very frustrating for shareholders. The management should take steps to improve the situation to reduce risk of the bank. Overall SEB P/E ratio has average decreasing trend except 2007.

Recommendation:
SEBs overall performance is not satisfactory. The management cannot make stable interest income; earning per share and dividend policies is not so good. Bank is heavily leveraged and market perception regarding the bank is poor. In this scenario, I would like to recommend SEB to have a good management consists of good managers. The current managers are not utilizing the assets properly; they are focusing on non interest income rather than interest income which is supposed to be the core concern. As a result noninterest income is going up and interest income is fluctuating. I also recommend SEB to lower their debts as the cost of debts could be a good factor for their lesser interest income. Finally the company should build good impressions to their investors by giving more dividends thus increasing the market price of the company.

Conclusion:
From my analysis I have found that the bank is trying to improve its position in order to be preferable in the minds of investor. But from overall analysis I have found that SEB is

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not generating profit at a good rate and is not very attractive for the investors. It might have happened because of economic slowdown all over the world and unstable political condition in Bangladesh. The bank is trying to do its level best to face different obstacles including inefficient management.

Bibliography:

http://www.dsebd.org www.sebankbd.com. http://www.investopedia.com Peter S. Rose & Sylvia C. Hudgins, Bank Management & Financial Services,7th edition, 2008, McGraw-Hill publications. R. A. Howlader & Syed Ashraf Ali, Banking Law and Practice, 1st Edition, Agamee Prokashani
Financial Formulas and Calculators. Web. 15 Apr. 2011. <http://www.financeformulas.net/>.

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Appendix:

South East Bank Ratio related data

net income after tax total equity capital total asset interest earnings interest expense non-int earnings non-int expense operating revenue operating expense no. of share outstanding No. of full time employees

2006 909880784 5059290638 5370612479 5 5107779714 4044631543 1658333790 658824277 2721481961 658824277 15238232 998

2007 1222960037 6144469101 6437069004 0 6408962292 4852499171 2261510577 901774925 3817973689 901774926 22520733 1,116

2008 887235037 7357274431 8118152791 9 7530737516 6210696470 2719393315 1026854672 4039434361 1026854672 28520288 1,231

2009 1870185240 11329117287 112676984923 8962092478 7843236025 4740358466 1244556149 5859214918 1244556147 34227402 1402

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market price per share book value per share dividend paid fixed asset

324 332.19 422.550 1300385135

577 269.26 342.260 1708110172

315 257.97 427.830 268557650

345 331.01 0 4338345035

South East Bank Ratio Calculation

2006 1.69% 17.98% 1.98% 1.86% 3.84% 33.43% 59.74 90.58% 9.62 24.21% 2007 1.90% 19.90% 2.42% 2.11% 4.53% 32.03% 53.59 90.45% 9.48 23.62% 2008 1.09% 12.06% 1.63% 2.08% 3.71% 21.96% 31.11 90.94% 10.03 25.42% 2009 1.66% 16.51% 0.99% 3.10% 4.10% 32% 54.64 90% 8.95 21%

ROA ROE Net Interest Margin Net Non Interest Margin Net Operating Margin Net Profit Margin EPS(million tk./ share) Debt ratio Debt-Equity Ratio Operating Efficiency Ratio Employee Productivity Ratio Price Earning Ratio Market/Book Ratio DPS( tk./share) Dividend Yield

2,066,79 1
5.37 0.97 20 8.65%

2,613,08 2
10.7 2.13 15 2.62%

3291482 2,447,262
10.22 1.23 15 4.72% 6.13 1.01 0 0

RATIOS

Profitability Ratios/ Asset utilization ratios:

1) Return on equity(ROE): Net income after tax/Total equity capital 2) Return on assets(ROA): Net income after tax/Total assets
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3) Net interest margin: (Interest income from loans and security investments-Interest expenses on deposits & on other deposits)/Total assets 4) Net non interest margin: (Non interest revenues-Noninterest expenses)/Total assets 5) Net bank operating margin: (Total operating revenues-total operating expenses)/Total assets
6) Banks net profit margin(NPM): Net income/Total operating revenues

Efficiency Ratio:
1) Operating Efficiency Ratio =Total Operating Expense/Total Operating Revenues 2) Employee Productivity Ratio = Net Operating Income/Number of Full-time Employee.

Leverage Ratios:
1) Debt-Equity : Total Debt/Total Equity

Market Ratio / Market Position Ratio:

1) Earning per share (EPS): Net income after tax/Common equity shares outstanding 2) Dividend per share (DPS): Total dividend for the ordinary shareholders/Number of ordinary shares outstanding 3) Dividend yield ratio: (DPS/Current share price)*100 4) P/E multiple ratios: Current price of the share/EPS 5) Market/Book value ratio: Current share price/Book value per share

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