Profit function of Commercial banks

LETTER
July 31, 2012

OF

TRANSMITTAL

Quazi Sagota Samina Senior Lecturer Department of Business Administration East West University Aftab nogor Dhaka . Subject: Submission of term paper on Profit function of Commercial bank

Dear Madam It is a great pleasure for us to have the opportunity to submit a report on Profit function of Commercial bank, which had been a great experience for us to work with such a practical & real life issue to study with. We tried utmost to make & let it look like a professional one. Any shortcomings are expected to have a kind view for our encouragement. Thank you for your sincere & honest try to let us make easy & get familiar with the terms & facts of the issue to help us make the report a successful one.

Our efforts will be valued, if this report can serve for what its been meant for & our assistance will be there for any queries. Sincerely yours

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Profit function of Commercial banks

ACKNOWLEDGEMENT

All praises to almighty Allah for enabling us to complete the report on an overall study on Profit function of Commercial bank. We are very happy to prepare this assignment. The outcome of our Term paper would not have been made possible without the help we received from several people that have been central throughout the whole process. With this, we would like to give our gratitude and thanks to everyone who has contributed with inputs throughout the duration of the Term paper. There are a few key persons and organizations we specifically would like to thank. First of all we express our gratitude to our respectable instructor Quazi Sagota Samina. We are pleased to her for her warm hearted supervision, advice and suggestion in the Commercial Bank Management course. Last but not the least, we would like to thank to all group members that directly or indirectly helped us to provide and accumulate all the necessary information for the accomplishment of this report. However, we hope that this course as well as this report work experience will help us in further courses and precise way in this arena.

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Profit function of Commercial banks

Table of Contents
.................................................................................................................................. 3 EXECUTIVE SUMMARY.................................................................................................3 Introduction................................................................................................................ 4 Origin of the Report:...................................................................................................5 Objective of the Study:...............................................................................................5 Develop Our Course Knowledge.................................................................................5 To Work for An Assignment Properly..........................................................................6 Doing Group Work......................................................................................................6 Methodology............................................................................................................... 6 Primary Data........................................................................................................... 6 Secondary Data.......................................................................................................6 Method Used........................................................................................................... 7 Preparation and Submission of Report....................................................................7 Limitation................................................................................................................... 7 Short Profile of the Sample Banks..............................................................................7 South East Bank Limited.............................................................................................7 Standard bank limited............................................................................................8 Eastern Bank Limited..............................................................................................9 Findings & Analysis...................................................................................................10 Performance of The Banks During The Period From 2007 to 2011...........................15 Regression Analysis..................................................................................................16 Correlation Matrix.....................................................................................................17 Effect on profit..........................................................................................................27 Conclusion................................................................................................................ 28 Bibliography.............................................................................................................29

EXECUTIVE SUMMARY
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Profit function of Commercial banks Banking system plays a very important role in the economic life of the nation. The health of the economy is closely related to the soundness of its banking system. In a developing country like Bangladesh the banking system as a whole play a vital role in the progress of economic development. The banking industry of Bangladesh has been a major contributor to the countrys service sector with increased number of banks operating fuelled by both domestic and foreign investments. Under the active jurisdiction and control of the Bangladesh Bank, the central bank of Bangladesh, there have been four types of scheduled banks include nationalized commercial banks (NCBs), government owned development financial institutions (DFIs), private commercial banks (PCBs) and foreign commercial banks (FCBs)in Bangladesh. Out of a total of 48 banks a majority 30 were the PCBs, with 54.2% of total industry assets and 56.6% of industry deposits. This indicates that PCBs have dominated the banking industry. The major objective of the report is to identify the profit function of commercial banks. This also identifies the efficiency and productivity growth of various banks in Bangladesh in recent years. We took three banks to see the overall profit function of commercial banks in Bangladesh. Southeast Bank Limited, Standard Bank Limited (SBL) , Eastern Bank Ltd. (EBL) are offering online banking, mobile banking, SMS banking, Banking POS, Credit card, Debit card, Prepaid card, ATM service, NBR account etc which create a great impact on their profit analyzing. These profit function improve their performance & enhance their efficiency.

Introduction

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Profit function of Commercial banks The country's private commercial banks (PCBs) witnessed remarkable growth in their aggregate operating profits in the just-concluded calendar year 2010 compared to the same of the previous year. Most of the PCBs saw their profits bulging in 2010 riding on higher import payments and an enhanced credit flow to the private sector including capital market, bankers said. "Higher import payments along with the capital market investment have contributed to the hefty profit growth in 2010," a senior official of a leading private commercial bank told the FE Friday. Operating profit, however, does not indicate the real financial picture of a bank. Because, the banks have to leave aside provisioning against bad debts and taxes that are paid to the government from the operating profits. Among the top-performers, Southeast Bank Ltd., made operating profits worth Tk. 6.80 billion in 2010 against Tk. 4.64 billion in 2009. The operating profit of the Standard Bank Ltd. rose to Tk. 3.11 billion in 2010 from Tk. 1.81 billion 2009.

Origin of the Report:

While doing the Commercial Bank Management course, our course instructor Quazi Sagota Samina assigned us to do a term paper on Profit function of commercial bank As a matter of fact we have done our workings on Annual report 2007 to 2010 of three Commercial banks of Bangladesh. We analyze by doing the correlation between the Commercial banks profitability and deposit amount, loan amount, investment, net profit before tax etc.

Objective of the Study:

Our primary objective of the study is to identify profit of the commercial banks of our country. For these reason we have selected three banks they are Southeast Bank Limited, Standard Bank Limited, and Eastern Bank Limited. From this study we are going to see weather the different factors affect their profit or not.

Develop Our Course Knowledge

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Profit function of Commercial banks As we said before in this study we need identify three banks performance and for that we should analyze their profit calculation. We want to get overall scenario of these banks performance by applying all the theory into their steps for banking. Through that we can clear our knowledge and can get some additional knowledge also.

To Work for An Assignment Properly

We have to have good skill in banking assignment. This assignment helps us to know how to make an assignment and presentation for a banking analysis.

Doing Group Work

We have to make the assignment by doing team work. That is why we can easily know how to do team work and this is very much important for every sort of work.

Methodology

Primary Data
We have collected information of Eastern Bank from Banani 11 brunch, Standard bank from Motijil head office and Southeast Bank from Gulshan branch. They helped us to know about their profits by giving us their valuable time and information that helped us to make our assignment.

Secondary Data
We have used Southeast Bank Limited, Standard Bank Limited and Eastern Bank Limited official website to gather some valuable information and their annual reports.

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Profit function of Commercial banks We also collected information from Dhaka Stock Exchange about the financial statement of those three commercial banks to make an effective assignment.

Method Used

For analyzing purpose we have used the correlation and regression analysis of SPSS software.

Preparation and Submission of Report

This report has been prepared and submitted to the honorable instructor Quazi Sagota Samina under whom we have done this term paper.

Limitation

1. Lack of in-depth understanding of certain terms and concepts about the issue. 2. Time was short against the weight of the issue.
3. We went to branch office of Standard bank to collect some information regarding their

balance sheet information but they were reluctant to provide us those information. They did not give useful information within the short period of time they have given us.

Short Profile of the Sample Banks South East Bank Limited

Profile 7 |Page

Profit function of Commercial banks Southeast Bank Limited was established in 1995 with a dream and a vision to become a pioneer banking institution of the country and contribute significantly to the growth of the national economy. The incumbent Chairman of the Bank is Mr. Alamgir Kabir, FCA, a professional Chartered Accountant. Mr. M. A. Kashem a member of the Board and Mr. Yussuf Abdullah Harun were past Presidents of the Federation of Bangladesh Chamber of Commerce and Industries (FBCCI). 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. 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.
Mission

High quality financial services with state of the art technology Fast customer service and sustainable growth strategy Follow ethical standards in business and steady return on shareholders equity Innovative banking at a competitive price Attract and retain quality human resource

Standard bank limited

Profile

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Profit function of Commercial banks

Standard Bank Limited (SBL) was incorporated as a Public Limited Company on May 11, 1999 under the Companies Act, 1994 and the Bank achieved satisfactory progress from its commercial operations on June 03, 1999. SBL has introduced several new products on credit and deposit schemes. It also goes for Corporate and Retail Banking etc. The Bank also participated in fund Syndication with other Banks. Through all these myriad activities SBL has created a positive impact in the Market.

Vision

To be a modern Bank having the object of building a sound national economy and to contribute significantly to the Public Exchequer.
Mission

To be the best private commercial bank in Bangladesh in terms of efficiency, capital adequacy, asset quality, sound management and profitability.

Eastern Bank Limited

Profile

With a vision to become the bank of choice and to be the most valuable financial brand in Bangladesh, Eastern Bank Ltd. (EBL) began its journey in 1992. Over the years EBL has established itself as a leading private commercial bank in the country with undisputed leadership
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Profit function of Commercial banks in Corporate Banking and a strong Consumer and SME growth engines. EBLs ambition is to be the number one financial services provider, creating lasting value for its clientele, shareholder, and employees and above all for the community it operates in. Consistency in business and financial performance has become a hallmark for EBL. Their financial soundness lies in adding value to shareholders wealth in whatever they do, rather than just making short term profits. Despite having corporate loan portfolio of around 80%, they continued our effort to reduce NPL ratio year over year. Reduced loan provision helps increase profit after tax and distributable profit. Therefore, EBLs returns to its shareholders have been consistent over the years.
Vision

To become the most valuable brand in the financial services in Bangladesh creating long-lasting value for our stakeholders and above all for the community we operate in by transforming the way we do business and by delivering sustainable growth.
Mission

The bank will deliver service excellence to all our customers, both internal and external It will ensure to maximize shareholders' value. It will constantly challenge our systems, procedures and training to maintain a cohesive and professional team in order to achieve service excellence.

Findings & Analysis

Here we found three different commercial banks five year average deposit amount, average loan amount and average market expense.
Deposits Figure in Million Taka 2008 2009 2010 68,714.67 96,669.05 107,253.19 29,304 42,548 58,345 41,573 49,190 56,425 46,530.56 62,802.35 74,007.73

Year Southeast Bank Standard Bank Eastern Bank Average

2007 55,474.05 19,214 30,092 34,926.68

2011 127,178.22 63,871 75,536 88,861.74

Table 1-1 : Average Deposit Amount

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Profit function of Commercial banks From the table 1-1, we see that average deposit of those three banks were Tk.34926.68 million in 2007, Tk.46530.56 million in 2008, Tk.62802.35 million in 2009, Tk.74007.73 million in 2010 and Tk.88861.74 million in 2011.

Year Southeast Bank Standard Bank Eastern Bank Average

2007 48,164.6 0 17,310.0 0 30,092.0 0 31,855.5 3

Loans Figure in Million Taka 2008 2009 2010 60,281.26 27,190 39,662 42,377.75 77,497.57 38,057 47,668 54,407.52 93,981.20 51,758 58,607 68,115.40

2011 107,288.5 6 55,346 81,774 81,469.52

Table 1-2 : Average Loan Amount

From the table 1-2, we see that average loan of those three banks were Tk. 31,855.53 million in 2007, Tk. 42,377.75 million in 2008, Tk. 54,407.52 million in 2009, Tk. 68,115.40 million in 2010 and Tk. 81,469.52 million in 2011.

Year Southeast Bank Standard Bank Eastern Bank Average

2007 18 12 71 33.81281

Marketing Expenses Figure in Million Taka 2008 2009 2010 32 30 36 15 24 25 11 124 116 19.57793 59.6226713 59.2144573

2011 45 47 138 76.407052

Table 1-3: Average of Marketing Expenses

From the table 1-3, we see that average marketing expense of those three banks were Tk. 33.812810 million in 2007, Tk. 19.577930 million in 2008, Tk. 59.622671.3 million in 2009, Tk. 59.2144573 million in 2010 and Tk. 76.407052 million in 2011.
No. of Branches 201 Year 11 | P a g e 2007 2008 2009 0 2011

Profit function of Commercial banks

Southeast Bank Standard Bank Eastern Bank Average 38 29 28 31.66666667 46 32 34 37.33333333 56 41 39 45.33333333 76 58 49 61 84 75 59 72.66666667

Table 1-4: Average No. of Branches

From the table 1-4, we see that average no. of branch of those three banks were 31 in 2007, 37 in 2008, 45 in 2009, 61 in 2010 and 72 in 2011.
Average Deposit 2009 9.16% 9.33% 8.55% 9.01% rate 2010 7.63% 7.83% 8.66% 8.04%

Year Southeast Bank Standard Bank Eastern Bank Average

2007 9.40% 9.67% 8.40% 9.16%

2008 9.65% 9.29% 6.74% 8.56%

2011 9.58% 9.98% 8.05% 9.20%

Table 1-5: Average Deposit rate

From the table 1-5, we see that average deposit rate of those three banks were 9.16% in 2007, 8.56% in 2008, 9.01% in 2009, 8.04% in 2010 and 9.20% in 2011.
Year Southeast Bank Standard Bank Eastern Bank Average 2007 14.11% 14.38% 13.40% 13.96% Average Lending 2008 2009 14.86% 13.42% 14.50% 13.59% 12.75% 13.69% 14.04% 13.57%
Table 1-6: Average Lending rate

Rate 2010 12.83% 13.03% 13.90% 13.25%

2011 14.90% 15.30% 13.76% 14.65%

From the table 1-6, we see that average lending rate of those three banks were 13.96% in 2007, 14.04% in 2008, 13.57% in 2009, 13.25% in 2010 and 14.56% in 2011.
Managerial Expense Figure in Million 2009 2010 9 10 4 6 11 13 8 10

Year Southeast Bank Standard Bank Eastern Bank Average

2007 7 4 10 7

2008 8 3 11 7

2011 11 7 14 11

Table 1-7: Average managerial expense

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Profit function of Commercial banks From the table 1-7, we see that average managerial expense of those three banks were Tk. 7 million in 2007, Tk. 7 million in 2008, Tk. 8 million in 2009, Tk. 10 million in 2010 and Tk. 11 million in 2011.
Year Southeast Bank Standard Bank Eastern Bank Average 2007 3.77% 1.52% 4.30% 3.20% 2008 4.12% 1.87% 3.30% 3.10% Non-Performing Loan 2009 2010 3.73% 1.83% 2.46% 2.67% 4.26% 1.96% 1.99% 2.74% 2011 3.51% 2.19% 1.91% 2.54%

Table 1-8: Average non-performing loan rate

From the table 1-8, we see that average non-performing loan rate of those three banks were 3.20% in 2007, 3.1% in 2008, 2.67% in 2009, 2.74% in 2010 and 2.54% in 2011.
Equity Capital Figure in Million 2009 2010 9,927.16 4,222 8,429 7,526.05 17,196.80 5,625 12,084 11,635.27

Year Southeast Bank Standard Bank Eastern Bank Average

2007 6,468.36 2,767 3,829 4,354.79

2008 7,657.01 3,246 4,733 5,212.00

2011 19,000.06 6,871 14,407 13,426.02

Table 1-9: Average equity capital

From the table 1-9, we see that average equity capital of those three banks were Tk. 4,354.79 million in 2007, Tk. 5,212.00 million in 2008, Tk. 7,526.05 million in 2009, Tk. 11,635.27 million in 2010 and Tk. 13,426.02 million in 2011.
Liquidity Figure in Million 2009 2010 7295.5826 726.436007 9,686 8204.32379 04 13,637 7553.3108

Year Southeast Bank Standard Bank Eastern 13 | P a g e

2007 340.73719 4,715 958.763752

2008

2011 9031.96399 1 17,343 13937.0159

457.86792 6,291 7299.70144

Profit function of Commercial banks

Bank 2004.83364 Average 7 4 4682.85645 5 9 6205.58660 2
Table 1-10: Average liquidity

11 9495.2978 05

5 13437.3266 5

From the table 1-10, we see that average liquidity of those three banks were Tk. 2004.833647 million in 2007, Tk. 4682.856455 million in 2008, Tk. 6205.586602 million in 2009, Tk. 9495.297805 million in 2010 and Tk. 13437.32665 million in 2011.
Investment Figure in Million 2009 2010 21,350.23 5,340 8,806 11,832.08 12,299.61 7,624 9,827 9,916.87

Year Southeast Bank Standard Bank Eastern Bank Average

2007 29,846.60 2,014 3,457 11,772.53

2008 18,869.07 3,218 5,325 9,137.36

2011 8,462.86 9,534 16,910 11,635.62

Table 1-11: Average investment

From the table 1-11, we see that average investment of those three banks were Tk. 11,772.53 million in 2007, Tk. 9,137.36 million in 2008, Tk. 11,832.08 million in 2009, Tk. 9,916.87 million in 2010 and Tk. 11,635.62 million in 2011.
Net Profit Before Taxes Figure in Million 2008 2009 2010 2154.8216 3451.7647 4923.2364 89 1,084 1,931 1723.2738 96 71 1,285 2,701 2479.2549 24 68 2,376 3,992 3763.7454 89

Year Southeast Bank Standard Bank Eastern Bank Average

2007 4345.1508 41 613 1,286 2081.3836 14

2011 4345.15084 1 2,350 4,129 3608.05028

Table 1-12: Average net profit before tax

From the table 1-12, we see that average net profit before tax of those three banks were Tk. 2081.383614 million in 2007, Tk. 1723.273896 million in 2008, Tk. 2479.254924 million in 2009, Tk. 3763.745489 million in 2010 and Tk. 3608.05028 million in 2011.
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Profit function of Commercial banks

Net Profit Figure in Million 2009 2010 1870.1852 2763.13646 4 765 1455 1363.3950 8 8 1369 2425 2185.71215 6

Year Southeast Bank Standard Bank Eastern Bank Average

2007 1222.96903 7 347 419 662.989679

2008

2011 1943.27955 5 1297 2521 1920.42651 8

887.235037 657 798 780.745012 3

Table 1-13: Average net profit after tax

From the table 1-13, we see that average net profit after tax of those three banks were Tk. 662.989679 million in 2007, Tk. 780.7450123 million in 2008, Tk. 1363.39508 million in 2009, Tk. 2185.712156 million in 2010 and Tk. 1920.426518 million in 2011.

Performance of The Banks During The Period From 2007 to 2011

Every bank attempted to mobilize deposits and to invest them as loans and investment in govt. securities, so that it could earn more profits during the financial year.

Year 2007 2008 2009 2010 2011

Average deposit 34,926.68 46,530.56 62,802.35 74,007.73 88,861.74

Average loan 31,855.53 42,377.75 54,407.52 68,115.4 81,469.52

Average deposit rate 0.091567 0.0856 0.090133 0.0804 0.092033

Average lending rate 0.139633 0.140367 0.135667 0.132533 0.146533

Average profit 662.9897 780.745 1,363.395 2,185.712 1,920.427

From the table we can see that the weighted average profit is higher in 2010 than other financial years. Because of the higher amount of loan then relatively lower amount of deposit there was a great impact on profit in 2008, for that profit there was lower profit in 2008 which was 780.745 million. The average lending rate also creates an impact on average profit. In 2008 the lending
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Profit function of Commercial banks rate was 14% but the deposit rate was 8.5% so it also a great reason for making lower profit. In 2011 the lending rate also 14% but bank increase the deposit rate for that there was more deposit in 2011 than that of other years. There were 1,920.427 million profits in 2011. If we focus on change of the deposit rate (9.20% - 8.56%) or 0.64%, than there was a huge change in profit, which was increased by 1,139.682 million though there was a little change in lending rate. So in 2011 when bank its deposit rate the deposit amount will increase 88,861.74 million as well as the lending amount also increase 81,469.52 million and at last profit also increase 1,920.425 million. So we can say that if bank change its deposit rate then there will be huge impact on profit. A small change in deposit rate can make large change in profit of the bank. Because when bank provide lower interest the depositor deposit less amount of money in the bank which indicate lower capability to lend the money so income will be low. Low income indicates lower profit.

Regression Analysis
By regression analysis, kept net profit as dependent variable and kept the average deposit, loan, marketing expense, number of branch, average lending rate, average deposit rate, managerial expense, non-performing loan, equity capital, liquidity, investment and net profit before tax as independent variables, we find the Mean and Standard deviation for these variables for 5 years Descriptive statistics
Statistics N.PROFIT DEPOSIT LOAN MKT.EXP BRANCH LENDING A.DEPOSI MGT.EXP N.P.LOAN E.CAPITA LIQUIDIT N Valid 5 5 5 5 5 5 5 5 5 5 5 Mean Missing 0 0 0 0 0 0 0 0 0 0 0 1382.654 61425.81 55645.15 49.727 49.6 0.138947 8.79E-02 8.4856 2.85E-02 8430.826 7165.18 Std. Deviation 673.551 21430.13 19785.77 22.7046 16.9729 5.29E-03 4.93E-03 1.5434 2.84E-03 3969.066 4429.481

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Profit function of Commercial banks

INVEST NPB.TEX 5 5 Table 1-14 0 0 10858.89 2731.142 1248.622 913.3276

From this table1-4, we can see that the mean amount of net profit is Tk. 1382.654 million, for average deposit Tk. 61425.81 million, for average loan Tk. 55645.15 million, for average marketing expense Tk. 49.727 million, for average branch 49.6, for average lending rate 13.8947% for average deposit rate 8.79%, for average management expense Tk. 8.4856 million, for non performing loan 2.85%, for equity capital Tk. 8430.826 million, for liquidity Tk. 7165.18 million, for investment Tk. 10858.89 million and for net profit before tax Tk. 2731.142 million. The standard deviation amount of net profit is Tk. 673.551 million, for average deposit Tk. 21430.13 million, for average loan Tk. 19785.77 million, for average marketing expense Tk. 22.7046 million, for average branch 16.9729, for average lending rate 5.29%% for average deposit rate 4.93%, for average management expense Tk. 1.5434 million, for non performing loan 2.84%, for equity capital Tk. 8430.826 million, for liquidity Tk. 4429.481 million, for investment Tk. 1248.622 million and for net profit before tax Tk. 913.3276 million.

Correlation Matrix
Correlations N.PROFIT Pearson Correlation Sig. (2-tailed) N DEPOSIT Pearson Correlation Sig. (2-tailed) N LOAN Pearson Correlation Sig. (2-tailed) N MKT.EXP Pearson Correlation N.PROFIT 1.000 . 5 .916 .029 5 .920 .027 5 .840 DEPOSIT .916 .029 5 1.000 . 5 .997 .000 5 .892 LOAN .920 .027 5 .997 .000 5 1.000 . 5 .876 MKT.EXP .840 .075 5 .892 .042 5 .876 .052 5 1.000

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Profit function of Commercial banks

Sig. (2-tailed) N .075 5 .042 5 .052 5 . 5

Correlation is significant at the 0.05 level (2-tailed). Correlation is significant at the 0.01 level (2-tailed).

From the table we find the correlation among average net profit, average deposit, average loan and average marketing expense. There is a correlation (.916), positive relationship between average net profit and average deposit and correlation (.920), positive relationship between average net profit and average loan and correlation (.840), positive relationship between average net profit and average marketing expenses. So, with the above information we can say that net profit is affected positively by the deposit, loan and marketing expenses of a bank.
Correlations N.PROFIT Pearson Correlation Sig. (2-tailed) N BRANCH Pearson Correlation Sig. (2-tailed) N LENDING Pearson Correlation Sig. (2-tailed) N A.DEPOSI Pearson Correlation Sig. (2-tailed) N N.PROFIT 1.000 . 5 .917 .028 5 -.165 .790 5 -.384 .523 5 BRANCH .917 .028 5 1.000 . 5 .240 .698 5 -.111 .859 5 LENDING -.165 .790 5 .240 .698 5 1.000 . 5 .685 .202 5 A.DEPOSI -.384 .523 5 -.111 .859 5 .685 .202 5 1.000 . 5

Correlation is significant at the 0.05 level (2-tailed).

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Profit function of Commercial banks

From the table we find the correlation among average net profit, average deposit rate, average loan rate and average branch. There is a correlation (-.384), negative relationship between average net profit and average deposit rate and correlation (-.165), positive relationship between average net profit and average lending rate and correlation (.917), positive relationship between average net profit and average deposit and average branch. So, with the above information we can say that net profit is affected by the deposit rate, lending rate and branches of a bank.

Correlations N.PROFIT Pearson Correlation Sig. (2-tailed) N MGT.EXP Pearson Correlation Sig. (2-tailed) N N.P.LOAN Pearson Correlation Sig. (2-tailed) N E.CAPITA Pearson Correlation Sig. (2-tailed) N N.PROFIT 1.000 . 5 .898 .038 5 -.854 .065 5 .949 .014 5 MGT.EXP .898 .038 5 1.000 . 5 -.826 .085 5 .986 .002 5 N.P.LOAN -.854 .065 5 -.826 .085 5 1.000 . 5 -.881 .048 5 E.CAPITA .949 .014 5 .986 .002 5 -.881 .048 5 1.000 . 5

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Profit function of Commercial banks

Correlation is significant at the 0.05 level (2-tailed). Correlation is significant at the 0.01 level (2-tailed).

From the table we find the correlation among average net profit, average managerial expenses, average non-performing loan rate and average equity capital. There is a correlation (.898), positive relationship between average net profit and average managerial expenses and correlation (-.858), negative relationship between average net profit and average non-performing loan and correlation (.949), positive relationship between average net profit and average equity capital. So, with the above information we can say that net profit is affected by managerial expenses, non-performing loan rate and equity capital of the bank.

Correlations N.PROFIT Pearson Correlation Sig. (2-tailed) N LIQUIDIT Pearson Correlation Sig. (2-tailed) N INVEST Pearson Correlation Sig. (2-tailed) N NPB.TEX Pearson Correlation Sig. (2-tailed) N N.PROFIT 1.000 . 5 .877 .051 5 .006 .992 5 .967 .007 5 LIQUIDIT .877 .051 5 1.000 . 5 .059 .925 5 .865 .058 5 INVEST .006 .992 5 .059 .925 5 1.000 . 5 .133 .832 5 NPB.TEX .967 .007 5 .865 .058 5 .133 .832 5 1.000 . 5

Correlation is significant at the 0.01 level (2-tailed).

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Profit function of Commercial banks

From the table we find the correlation among average net profit, average liquidity, average investment, and average net profit before taxes. There is a correlation (.877), positive relationship between average net profit and average liquidity and correlation (.006), positive relationship between average net profit and average investment and correlation (.967), positive relationship between average net profit and average net profit before tax. So, with the above information we can say that net profit is affected by liquidity, investment, and net profit before taxes.

Model Summary Model R R Square Adjusted R Square .427 Std. Error of the Estimate 509.9405

1 .926 .857 Predictors: (Constant), MKT.EXP, LOAN, DEPOSIT

Here, R2 is the coefficient of multiple determinations, which measures the relationship between two variables. Here, R2 = .857 or 85.7%. So, 85.7% of the total variation of in the dependent variable average net profit is explained or accounted for by the variation in the independent variables mainly average marketing expense, average loan and average deposit.

ANOVA Model Regression Residual Total

Sum of Squares 1554644.483 260039.270 1814683.753

df 3 1 4

Mean Square 518214.828 260039.270

F 1.993

Sig. .470

Predictors: (Constant), MKT.EXP, LOAN, DEPOSIT Dependent Variable: N.PROFIT

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Profit function of Commercial banks Here, probability value is .470 which is greater than alpha value = .05. So, null-hypothesis is accepted. That means there is no enough evidence so that there is difference in the mean average net profit of the bank among the average deposit & average loan amount & average marketing expense at the .05 significance level.

Coefficients Unstandardize d Coefficients Standardized Coefficients t Sig.

Model (Constant) DEPOSIT LOAN MKT.EXP Dependent Variable: N.PROFIT

B -263.672 -3.899E-02 6.613E-02 7.267

Std. Error 841.931 .197 .200 27.491

Beta -.313 -1.240 1.943 .245 -.198 .330 .264 .807 .876 .797 .835

Here, Tk. -263.672 million is the intercept value that indicates the regression equation intersects the dependent variable which is net profit , when other independent variables average deposit & loan& marketing expense amount are zero. If average deposit amount is increased by Tk. 1 million the net profit will decreased by an amount of Tk.1.240 million per year, keeping other independent variable constant. If average loan amount is increased by Tk. 1 million the net profit will increased by an amount of Tk.1.943 million per year, keeping other independent variable constant. If average marketing expense is increased by Tk. 1 million the net profit will increased by an amount of Tk. 245 million per year, keeping other independent variable constant.

Model Summary Model R R Square Adjusted R Square .994 Std. Error of the Estimate 52.4539

1 .999 .998 Predictors: (Constant), A.DEPOSI, BRANCH, LENDING

Here, R2 is the coefficient of multiple determinations, which measures the relationship between two variables. Here, R2 = .998 or 99.8%. So, 99.8% of the total variation of in the dependent
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Profit function of Commercial banks variable average net profit is explained or accounted for by the variation in the independent variables mainly average deposit rate, average lending rate and average branch.

ANOVA Model 1 Regression Residual Total Sum of Squares 1811932.344 2751.410 1814683.753 df 3 1 4 Mean Square 603977.448 2751.410 F 219.516 Sig. .050

Predictors: (Constant), A.DEPOSI, BRANCH, LENDING Dependent Variable: N.PROFIT

Here, probability value is .05 which is equal than alpha value = .05. So, null-hypothesis is accepted. That means there is no enough evidence so that there is difference in the mean average net profit of the bank among the average deposit rate & average lending rate & average branches at the .05 significance level.
Coefficients Unstandardize Model 1 d Coefficients B 6631.782 40.508 -53941.661 2691.062 Std. Error 696.679 1.728 7563.251 7934.915 Standardized Coefficients Beta 1.021 -.424 .020 9.519 23.438 -7.132 .339 .067 .027 .089 .792 t Sig.

(Constant) BRANCH LENDING A.DEPOSI

Dependent Variable: N.PROFIT

Here, Tk. 6631.782 million is the intercept value that indicates the regression equation intersects the dependent variable which is net profit , when other independent variables average deposit rate & loan rate& branch are zero. If average deposit rate amount is increased by 1% the net profit will increase by an amount of .020 % per year, keeping other independent variable constant. If average lending rate is increased by 1% the net profit will decrease by .424% per year, keeping other independent variable constant. If average branches is increased by 1% the net profit will increased by 1.021% per year, keeping other independent variable constant.
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Profit function of Commercial banks

Model Summary Model R R Square Adjusted R Square .845 Std. Error of the Estimate 264.9253

1 .980 .961 Predictors: (Constant), E.CAPITA, N.P.LOAN, MGT.EXP

Here, R2 is the coefficient of multiple determinations, which measures the relationship between two variables. Here, R2 = .961 or 96.1%. So, 96.1% of the total variation of in the dependent variable average net profit is explained or accounted for by the variation in the independent variables mainly average equity capital, average non-performing loan rate and average managerial expense.
ANOVA Model 1 Regression Residual Total Sum of Squares 1744498.330 70185.423 1814683.753 Df 3 1 4 Mean Square 581499.443 70185.423 F 8.285 Sig. .249

Predictors: (Constant), E.CAPITA, N.P.LOAN, MGT.EXP Dependent Variable: N.PROFIT

Here, probability value is .249 which is greater than alpha value = .05. So, null-hypothesis is accepted. That means there is no enough evidence so that there is difference in the mean average net profit of the bank among the average equity capital & average non-performing rate & average managerial expenses at the .05 significance level.

Coefficients Unstandardize Model 1 d Coefficients B 1992.186 -762.610 Std. Error 3507.370 615.858 Standardized Coefficients Beta -1.748 .568 -1.238 .671 .432 t Sig.

(Constant) MGT.EXP

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Profit function of Commercial banks

N.P.LOAN E.CAPITA Dependent Variable: N.PROFIT 60315.136 .492 117497.935 .285 .255 2.896 .513 1.722 .698 .335

Here, Tk. 1992.186 million is the intercept value that indicates the regression equation intersects the dependent variable which is net profit , when other independent variables average deposit & loan& marketing expense amount are zero. If average equity capital is increased by Tk. 1 million the net profit will increased by an amount of Tk. 2.896 million per year, keeping other independent variable constant. If average non-perfoming loan amount is increased by Tk. 1 million the net profit will increased by an amount of Tk. .255 million per year, keeping other independent variable constant. If average managerial expense is increased by Tk. 1 million the net profit will decreased by an amount of Tk. 1.748 million per year, keeping other independent variable constant.

Model Summary Model R R Square Adjusted R Square .820 Std. Error of the Estimate 285.4676

1 .977 .955 Predictors: (Constant), NPB.TEX, INVEST, LIQUIDIT

Here, R2 is the coefficient of multiple determinations, which measures the relationship between two variables. Here, R2 = .977 or 97.7%. So, 97.7% of the total variation of in the dependent variable average net profit is explained or accounted for by the variation in the independent variables mainly average net profit before tax, average investment and average liquidity.

ANOVA Model Regression Residual Total Sum of Squares 1733191.991 81491.762 1814683.753 df 3 1 4 Mean Square 577730.664 81491.762 F 7.089 Sig. .268

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Profit function of Commercial banks

Predictors: (Constant), NPB.TEX, INVEST, LIQUIDIT Dependent Variable: N.PROFIT

Here, probability value is .268 which is greater than alpha value = .05. So, null-hypothesis is accepted. That means there is no enough evidence so that there is difference in the mean average net profit of the bank among the average ner profit before taxes & average investment & average liquidity at the .05 significance level.

Coefficients Unstandardize d Coefficients Model 1 (Constant) LIQUIDIT INVEST NPB.TEX Dependent Variable: N.PROFIT B 173.775 2.056E-02 -6.280E-02 .638 Std. Error 1283.563 .065 .116 .316 Standardized Coefficients Beta .135 -.116 .866 .135 .318 -.541 2.020 .914 .804 .684 .293 t Sig.

Here, Tk. 173.775 million is the intercept value that indicates the regression equation intersects the dependent variable which is net profit , when other independent variables average liquidity, investment, and net profit before tax are zero. If average liquidity is increased by Tk. 1 million the net profit will increase by an amount of Tk. 135 million per year, keeping other independent variable constant. If average investment is increased by Tk. 1 million the net profit will decreased by an amount of Tk.116 million per year, keeping other independent variable constant. If average net profit before tax is increased by Tk. 1 million the net profit will increased by an amount of Tk. 866 million per year, keeping other independent variable constant.

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Profit function of Commercial banks

Effect on profit
For changing in different variable, like average deposit, loan, marketing expense, number of branch, average lending rate, average deposit rate, managerial expense, non-performing loan, equity capital, liquidity, investment and net profit before tax, there are some impact on profit calculation.

Change in deposit creates change in profit. When deposit increase though there also increase the expense but profit also increase As same as profit loan increase the amount of profit. Loan and profit have a positive relationship. Marketing expense reduce the profit. When marketing expense increases that reduce the profit of a bank. Average lending and deposit rate create the most significant effect on profit. When deposit rate decrease than profit also decrease. Though deposit rate is a cost for the bank but in terms of deposit rate deposit also decrease so profit decrease. On the other hand when increase in lending rate there is a declining trend in profit.
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Profit function of Commercial banks In case of managerial expense when it increases bank has more expense cost so profit is declining. When investment increases than profit also increase. For the increasing trend of net profit before tax, net profit after also increase but when there are more profit before tax then bank need to pay more tax to the government.

Conclusion
Banks make money by lending money to borrowers, things like mortgage, consumer loans, etc. While banks can raise rates on the loans when interest rate goes up, they usually do not raise as much, since they might lose business if interest rate is too high. Banks also have loans and mortgages in fixed rates, which they cannot change even if interest rate goes up. So in general, high interest rate hurts bank profits. Our aim was to find out the correlation among net profit, average deposit, average loan, marketing expense, number of branch, average lending rate, average deposit rate, managerial expense, non-performing loan, equity capital, liquidity, investment and net profit before tax of sample commercial banks over last 5 years in terms of some commonly used indicators of financial system in our economy. Our analysis reveals that four sample banks in Bangladesh in our financial system including deposit and loan amount of last five years. We need to know the average deposit amount, average loan amount, average deposit rate, average loan rate that influence the net profit of banks. Here we find that the analysis explores a moderate and also positive relationship between average deposit amount and net profit; on the other hand there is also positive relationship between average loan amount and net profit.

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Profit function of Commercial banks At last we can say that, because of deposit and loan of the bank, profit is (upward) fluctuating within single digit in recent years. So, profit is affected by banks average deposit amount, average loan amount, average deposit rate and average loan rate.

Bibliography

Dhaka Stock Exchange Library, 9/F Motijheel C/A, Dhaka, Bangladesh. http://www.dsebd.org/ http://www.standardbankbd.com/ http://www.standardbankbd.com/index.php/balance_sheet/show/year_bsheet/2 http://www.standardbankbd.com/index.php/cards/gold http://ebl-bd.com/home/EBL_Profile http://ebl-bd.com/home/Internet_Banking#Deposits http://ebl-bd.com/home/Annual_Reports http://ebl-bd.com/home/Financial_Statements https://www.southeastbank.com.bd/atm.php https://www.southeastbank.com.bd/swift.php https://www.southeastbank.com.bd/westernunion.php https://www.southeastbank.com.bd/virtual_card.php

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https://www.southeastbank.com.bd/ATM_Card.php https://www.southeastbank.com.bd/upload/annual_report/annual_report_2010.pdf http://www.bangladesh-bank.org/fnansys/interestlending.php http://www.bangladesh-bank.org/fnansys/interestdeposit.php

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