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A Study on Performance Evaluation of the Commercial

Banks in Bangladesh: A Comparative Scenario of Private,


Foreign and Islamic Banks
A thesis paper that measures and compares the performaces of three banking
groups in Bangladesh from 2012 to 2018
A Study on Performance Evaluation of the Commercial
Banks in Bangladesh: A Comparative Scenario of Private,
Foreign and Islamic Banks
TABLE OF CONTENTS

Chapters Titles Page


List of Abbreviation ix

Chapter - 1 Introduction
1.1. Origin of the Paper……………………………………………………... 1
1.2. Objectives of the Paper…………………………………………….. 1
1.3. Methodoly…………………………………………………………. 1
1.4. Scope of the Study………………………………………………… 4
1.5. Rationale of the Study……………………………………………… 4
1.6. Report Organization……………………………………………….. 5
1.7. Limitations…………………………………………………………… 5

Chapter - 2 Literature Review and Research Gap


2.1. Literature Review………………………………………………….. 7
2.2. Research Gap……………………………………………………….. 9

Chapter – 3 Industry Overview


3.1. The Current Banking Sector in Bangladesh………………………. 10
3.3. Position, Performance and Market sizes of the Banks………………….. 11

Chapter - 4 Analysis and Interpretation


4.1. Trend Analysis………………………………………………………… 15
4.1.1. General Business Measures…………………………………. 15
4.1.1.1. Total Deposits……………………………………. 16
4.1.1.2. Trend of Market Share of Total Deposits……….... 17
4.1.1.3. Total Assets………………………………………. 17
4.1.1.4. Trend of the market Share of total assets…………. 18
4.1.2. Profitability Measures……………………………………….. 18
4.1.2.1. Net Interest……………………………………….. 19
4.1.2.2. Net Income………………………………………. 19
4.1.2.3. Trend of the Return on Assets…………………. 20
4.1.2.4. The trend of Return on Equity……………………. 20
4.1.3. Social Profitability Measures……………………………….. 21
4.1.3.1. Number of Branches……………………………... 21
4.1.3.2. Trend of the market Share of Branches …………... 22
4.1.3.3. Total Employment………………………………... 22
4.2. Hypotheses Testing…………………………………………………….. 23
4.3. Regression Analysis……………………………………………………. 28
4.3.1. Variables……………………………………………………... 28
4.3.2. Models and Hypothesis………………………………………. 29
4.3.3. Results and Interpretation…………………………………….. 29
4.3.3.1. Private Commercial Banks……………………….. 29
4.3.3.2. Foreign Commercial Banks………………………. 31
4.3.3.3. Islamic Banks…………………………………….. 33

Chapter - 5 Findings and Recommendations


Findings and Recommendations……………………………………………. 35

References 38
Appendices 39

vii
LIST OF CHARTS AND TABLES

PARTICULARS Page
CHARTS
Charts No.
Chart 1 Market Share of Total Assets by Banks……………………………….. 12
Chart 2 Market Share of Total Deposits by Banks…………………………….. 13
Chart 3 ROA of all Banks in CY18…………………………………………………. 13
Chart 4 ROE of all Banks in CY18…………………………………………………. 14
Chart 5 The amount of Total Deposits…………………………………………. 16
Chart 6 Trend of Total Share of Deposits……………………………………… 17
Chart 7 The Amount of Total Assets………………………………………….. 17
Chart 8 Trend of Market Share of total Assets…………………………………. 18
Chart 9 Net Interest Income…………………………………………………….. 19
Chart 10 Net Income……………………………………………………………… 19
Chart 11 Trend of ROA………………………………………………………….. 20
Chart 12 Trend of ROE………………………………………………………….. 20
Chart 13 Number of Branches…………………………………………………… 21
Chart 14 Trend of Market Share of Branches…………………………..…………. 22
Chart 15 Number of Total Employees……………………………………………….. 22

TABLES
Tables No.
Table 1 Name of the Banks, Their Categories and Numbers…………………….. 11
Table 2 Position, Performance and Market Sizes of the Banks…………………... 12
Table 3 Correlation Analysis……………………………………………………... 19

viii
LIST OF ABBREVIATIONS
ANOVA Analysis of Variance
BD Bangladesh
BB Bangladesh Bank
CY Calendar Year
DFIs Developmen Finacial Institutions/Specialized Banks
FCBs Foreign Commercial Banks
IBs Islamic Banks
PCBs Private Commercial Banks
SCBs State-Owned Commercial Banks

ix
CHAPTER CONTENTS

ORIGIN OF THE PAPER

OBJECTIVES OF THE PAPER

CHAPTER - 1
M ETHODOLOGY

SC OPE O F TH E S TU DY

RATIONALE OF THE STUDY

REPORT ORGANIZATION

L IMITATIONS
INTRODUCTION
A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 1

1.1. ORIGIN OF THE PAPER


This report is named as “A Study on Performance Evaluation of the Commercial Banks

inBangladesh: A Comparative Scenario of Private, Foreign and Islamic Banks”. It had to

beprepared as a requirement of thesis paper under the regular MBA program of department of

Accounting Information System, Faculty of Business Studies, Metropolitan University. The

report aimed at making a comparative analysis of different areas of performances among the

Private Commercial Banks (PCBs), Foreign Commercial Banks (FCBs) and Islamic Banks

(IBs). The report was completed under the supervision of our Senior Lecturer Md. Rafiqul

Islam, Department of Business Administration , Faculty of Business Studies, Metropolitan

University.

1.2. OBJECTIVE OF THE PAPER


The study aimed at evaluating and comparising the performances of some selected tools of

private, foreign and Islamic banks of Bangladesh. The key objectives of the study are:

i. To study the current banking structure of Bangladesh

ii. To analyze whether there is any difference regarding the performances of the banks

on the basis of some selected tools

iii. To evaluate the category wise performances of the banks

iv. To understand how the net interest income of the banks are affected by their deposits

and the number of branches

1.3. METHODOLOGY
The research methodology of the selected topic follows in these dimensions:

1.3.1. POPULATION OF THE STUDY


The following three banking groups in Bangladesh:

i. Private Commercial Banks

ii. Foreign Commercial Banks

iii. Islamic Banks

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A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 1

1.3.2. THE PERIOD OF THE STUDY


The study is covered for seven years from the year 2012 to 2018.

1.3.3. DATA SOURCES


This study is based on secondary data. The following sources of data and information have

been used widely for this purpose:

i. Annual Reports of different banks of Bangladesh

ii. Monthly, quarterly and yearly journals and reports published by Bangladesh Bank

iii. Survey Reports published by Bangladesh Bureau of Statistics and Bangladesh Bank

1.3.4. DATA ANALYSIS METHODS AND TOOLS


After collection, data were first carefully scrutinized. Then data gathered from the sources

were arranged orderly and analysed. Bar chart, line chart and pie chart have been used for

graphical representation for performance evaluation. Some statistical tests have been used

according to the nature and objectives of the study for the comparison between the groups.

The collected information is analyzed by ANOVA test and regression model. The

conclusions have been drawn on the basis of 5% level of significance. ANOVA test and

multiple regression test were performed with the help of Microsoft Excel 2007.

1.3.5. VARIABLES
To analyze the financial performance of banking sector different variables are included in this

study, they are as follow:

 Deposits

 Total Assets

 Net Interest Income

 Net Income

 Return on Assets

 Return on Equity

 Branch Expansion

 Employment Generation

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A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 1

1.3.6. HYPOTHESES
The broader hypotheses are as under:

a) HO= There is no significant difference in total deposits among all the three banking

groups during 2012 to 2018.

H1= There is significant difference in total deposits among all the three banking

groups during 2012 to 2018.

b) HO= There is no significant difference in total assets among all the three banking

groups during 2012 to 2018.

H1= There is significant difference in total assets among all the three banking groups

during 2012 to 2018.

c) HO= There is no significant difference in net interest income among all the three

banking groups during 2012 to 2018.

H1= There is significant difference in net interest income among all the three banking

groups during 2012 to 2018.

d) HO= There is no significant difference in net income among all the three banking

groups during 2012 to 2014.

H1= There is significant difference in net income among all the three banking groups

during 2012 to 2014.

e) HO= There is no significant difference in return on assets among all the three banking

groups during 2012 to 2018.

H1= There is significant difference in return on assets among all the three banking

groups during 2012 to 2018.

f) HO= There is no significant difference in return on equity among all the three banking

groups during 2012 to 2018.

H1= There is significant difference in return on equity among all the three banking

groups during 2012 to 2018.

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A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 1

g) HO= There is no significant difference regarding branch expansion among all three

banking groups during 2012 to 2018.

H1= There is significant difference regarding branch expansion among all the three

banking groups during 2012 to 2018.

h) HO= There is no significant difference regarding employement generation among all

three banking groups.

H1= There is significant difference regarding employement generation among all

three banking groups.

i) HO= Deposits of PCBs, FCBs and IBs have no significant relationship with Net

Interest Income.

H1= Deposits of PCBs, FCBs and IBs have significant relationship with net interest

income.

j. HO= The number of branches of PCBs, FCBs and IBs has no significant relationship

with net interest income.

H2= The number of branches of PCBs, FCBs and IBs has significant relationship with

net interest income.

1.4. SCOPE OF THE STUDY


This research paper addresses the performance only of the private, foreign and islamic

commercial banks of Bangladesh. Due to lack of time the non-scheduled banks, the SCBs

and the DFIs of Bangladesh are not included in the population of the study and hence their

performances are not addressed in this research work.

1.5. RATIONALE OF THE STUDY


The thesis paper on - “A Study on Performance Evaluation of Commercial Banks in

Bangladesh: A Comparative Scenario of Private, Foreign and Islamic Banks” will be helpful

especially for the students of banking in many ways. The benefits of the report are that

students can have a clear-cut idea about:

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A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 1

 The current banking system of Bangladesh



 Their performances in different aspects

 Their problems and advantages

 Which banks are better than whom and for which reasons

 What are the differentiating factors among them

 Their prospects as well

These types of information gathered in the process of making the report will be helpful in

corporate life and most probably this is why the thesis paper has been assigned to the

researcher.

1.6. REPORT ORGANIZATION


The report is divided into the following six sections:

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5

• The Introductory part • Literature Review • Industry Overview • Analysis and • Findings and
and Research Gap Interpretation Recommendations

Literature Review and Research Gap deals with the results of the previously

conductedstudies in the similar area. Industry Overview depicts the current banking structure

of Bangladesh in brief. Anlysis and Interpretation is all about data analysis and interpretation.

Finally Findings and Recommendation presents the results of the studies along with their

corresponding suggestions.

1.7. LIMITATIONS
While preparing the research paper, some difficulties had to be faced:

1.7.1. AVAILABILITY OF DATA


Category-wised data of Islamic Banks were found up to 2018 only. From 2018 to onwards,

the data of IBs are included in those of private commercial banks and hence cannot be

separated. For this reason the paper addresses the timeline of 2012 to 2018of all of the three

banking groups.

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A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 1

1.7.2. INDIVIDUAL INCAPABILITY


Nothing in this world is completely perfect. Due to many personal limitations many errors

and mistakes may exist in this report.

PAGE 6
CHAPTER - 2
CHAPTER CONTENTS

LITERATURE REVIEW

RESEARCH GAP

LITERATURE REVIEW
AND RESEARCH GAP
Literature
A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH
Review

2.1. LITERATURE REVIEW


A literature review discusses published information in a particular subject area within a

certain time period. There is a few research works on the evaluation of the comparative

performances among the private commercial banks, foreign banks and Islamic banks of

Bangladesh. From different official journals as well as other reports from unofficial sources,

it was found that the performances of the three types of bank are different from each other.

The research works of Mahmud and Islam (2006), Islam and Ashrafuzzaman (2015), Sujan,

et al. (2013), Islam, Siddiqui, Hossain and Karim (2014) are worth mentioning and their

results are presented below in brie:

Mahmud and Islam (2006) tried to measure the comparative performances of four types

ofconventional banks viz. National Commercial Banks (NCBs), State-owned Commercial

Banks (SBs), Private Commercial Banks (PCBs), Foreign Commercial Banks (FCBs) and

Islamic Banks (IBs) operating in Bangladesh from period 2000 to 2005. They used some

common indicators such as general business measures, profitability measures, management

soundness measures, and social profitability measures. The study found that, NCBs aggregate

deposits, market share of deposits, market share of advances, market share of total business

and total business were higher than any other types of bank during the years. On the other

hand the growth rate of deposits, the growth of the total investments, the growth rate of

advances, the growth rate of total business of Islamic Banks were the highest of all categories

of banks. The incomes of the PCBs and the IBs were relatively higher in the latest year than

any type of bank. That is, in terms of aggregate amount and share, the NCBs were doing well

while in terms of growth rate, the IBs were well.

Islam and Ashrafuzzaman (2015) evaluated the financial performance of Islamic

andconventional banks of Bangladesh through CAMEL test during the period of 2012 to

2016. CAMEL test is a standard test to check the health of financial institutions and to

determine the performance of banks. A sample of five listed conventional banks and five

listed Islamic

PAGE 7
Literature
A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH
Review

banks were selected to study the objectives. The study found that, Islamic banks performed

better in case of capital adequacy, asset quality, earnings ability and liquidity position.

Conventional banks, on the other hand, were found to be more efficient in managing

operating expenses as its mean ratio is lower than Islamic banks ratio.

Sujan, et al. (2013) studied the performance of five conventional and five Islamic banks

ofBangladesh from period 2008 to 2012 on banks profitability and liquidity. T-test and F-test

have been used in determining the significance of the differential performance of the two

groups of bank. The study found difference on the profitability. But they found no significant

difference in the liquidity position of the banks.

Safiullah (2010) focused on the financial performance analysis of both conventional

andislamic banks to measure superiority. The study indicated that financial performance viz.

business developments, profitability, liquidity and solvency, commitment to economy and

community, efficiency and productivity of both types of banks is notable. The study found

that, conventional banks were doing better than Islamic banks. But performance of interest-

free Islamic banks in business development, profitability, liquidity and solvency was superior

to that of conventional banks. That is, comparatively Islamic banks were superior in financial

performance to that of interest-based conventional banks.

Islam, Siddiqui, Hossain and Karim (2014) studied the performance of the overall

bankingsector of the country from period 2004 to 2011. They divided the whole banking

sector into four categories: State-Owned Commercial Banks (SCBs), Development Financial

Institutions (DFIs), Private Commercial Banks (PCBs) and Foreign Commercial Banks

(FCBs) where Islamic Banks were included in the PCBs. The study found that, in terms of

Capital Adequacy Ratio (CAR), NPL to total Loan ratio and Return on Assets, the FCBs

ranked first. The SCBs on the other hand performed better in case of Expenditure-Income

Ratio and maintaining enough Liquid assets.

PAGE 8
Literature
A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH
Review

2.2. RESEARCH GAP


Mahmud and Islam (2006) in “A Comparative Study on Performance Evaluation of

Conventional Banks and Islamic Banks in Bangladesh with Special Reference to Islami Bank

Bangladesh Limited” paper attempted to measure the comparative performances among the

four types of conventional banks and Islamic Banks operating in Bangladesh from period

2000 to 2005. But this new research will address the data from 2008 to 2014. The result of

this research may vary from that of old research because of using newer data. This may

represent the more realistic scenario due to the changes of different macroeconomic variables

those have happened recently.

Islam and Ashrafuzzaman (2015) in “A Comparative Study of Islamic and Conventional

Banking in Bangladesh: Camel Analysis” paper evaluated the financial performance of

Islamic and conventional banks of Bangladesh solely through CAMEL test. This new

research will address various financial key variables. Also the researchers used a sample of

five listed conventional banks and five listed Islamic banks only. In this new research, the

group performance of all of the banks under the three categories (the PCBs, the FCBs and the

IBs) will be evaluated. In short, the newer research will deal with population, not with

samples.

Sujan, et al. (2013) studied the performance of only five conventional and five Islamic banks

of Bangladesh from period 2008 to 2012. This newer research will focus on the categorical

performances of all of the banks belonging to the three categories.

Islam, Siddiqui, Hossain and Karim (2014) in their “Performance Evaluation of the Banking

Sector in Bangladesh: A Comparative Analysis” paper studied the performance of the overall

banking sector of the country from period 2004 to 2011. They divided the whole banking

sector into four categories where Islamic Banks were included in the PCBs. They did not

analyze the performance of the IBs of the country separately. This newer research will

evaluate the performance of the IBs separately.

PAGE 9
CHAPTER CONTENTS

THE CURRENT BANKING

CHAPTER - 3
SECTOR IN BANGLADESH

POSITION, PERFORMANC EAND


MARKET SIZES OF TH E
B ANKS

INDUSTRY OVERVIEW
A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 3

3.1. THE CURRENT BANKING SECTOR IN BANGLADESH


The banking industry of the country has different types of banks with different types of

objectives, commitment and motto. The industry is composed of 6 types of banks; Cenral

Bank, State owned Commercial Banks (SCBs), Specialized banks (DFIs), Foreign

Commercial Banks (FCBs), Private Commercial Banks (PCBs) and Islamic Banks (IBs).

According to the latest schedule published by Bangladesh Bank in 2016, there are 56

scheduled banks are running in the country - 6 SCBs, 2 DFIs, 29 PCBs, 9 FCBs and 8 IBs.

The number of branches of these banks is 9131.

Different types of banks give priority to different stakeholders. While the private sector banks

are guided primarily by profit motive, SCBs are committed to social and economic

considerations. Among private banks, islamic banks are different as they operate beyond the

narrow scope of commercial motive. Table 1 shows the names of the Banks along with their

numbers and categories:

Number of the
Categories of the Banks Name of the Banks
Banks
1. Agrani Bank Limited.
2. Janata Bank Limited
3. Rupali Bank Limited
State Owned 6 4. Sonali Bank Limited
Commercial Banks 5. BASIC Bank Limited
6. BDBL
Specialised Banks 1. Bangladesh Krishi Bank.
2
(DFIs) 2. Rajshahi Krishi Unnayan Bank.
1. Standard Chartered Bank
2. State Bank of India
3. Habib Bank Limited
4. Citi Bank, N/A.
5. Commercial Bank of Ceylon Limited
Foreign Banks 9
6. National Bank of Pakistan
7. Woori Bank
8. The Hong Kong & Shanghai Banking
Corporation Limited
9. Bank Al-Falah Limited
1. AB Bank Limited
2. Bangladesh Commerce Bank Limited
Local Commercial
32 3. Bank Asia Limited
Banks
4. BRAC Bank Limited
5. Dhaka Bank Limited

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A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 3

6. Dutch-Bangla Bank Limited


7. Eastern Bank Limited
8. IFIC Bank Limited
9. Jamuna Bank Limited
10. Meghna Bank Limited
11. Mercantile Bank Limited
12. Midland Bank Limited
13. Modhumoti Bank Limited
14. Mutual Trust Bank Limited
15. National Bank Limited
16. National Credit & Commerce Bank Limited
17. NRB Bank Limited
18. NRB Commercial Bank Limited
19. NRB Global Bank Limited
20. One Bank Limited
21. Prime Bank Limited
22. Pubali Bank Limited
23. Shimanto Bank Limited
24. South Bangla Agriculture & Commerce
Bank Limited
25. Southeast Bank Limited
26. Standard Bank Limited
27. The City Bank Limited
28. The Farmers Bank Limited
29. The Premier Bank Limited
30. Trust Bank Limited
31. United Commercial Bank Limited
32. Uttara Bank Limited
1. Al-Arafah Islami Bank Limited
2. EXIM Bank Limited
3. First Security Islami Bank Limited
4. ICB Islamic Bank Limited
Islamic Banks 8
5. Islami Bank Bangladesh Limited
6. Shahjalal Islami Bank Limited
7. Social Islami Bank Limited
8. Union Bank Limited
Total 56
Table 1: Name of the Banks, their categories and numbers (Source: Bangladesh Bank Annual Report, 2018)

3.2. POSITION, PERFORMANCE AND MARKET SIZES OF THE BANKS


Table 2 below shows the banking structure and market share of various types of banks in

Bangladesh in 2018. It is found that the five SCBs in the country have 3553 branches, which

is the highest among the bank types. Currently thirty one PCBs are operating in the country

but they have 3074 branches which is less than the SCBs. However, PCBs occupy 45.45% of

the total industry assets despite having less number of bank branches than SCBs. SCBs have

only 27.53% of industry assets which is almost half of the PCBs. Three DFIs have 1500 bank

PAGE 11
A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 3

branches which is quite significant in number but they have the least percentage of market

share (3.65%) in the industry assets. Nine FCBs have only 70 bank branches which is the

least among the types of bank but they own almost six percentages (5.52%) of the total

industry assets. Eight Islamic Banks, on the other hand, own 17.85% of the total market asset

in CY2018.

Bank No. of No. of Total % of Depos % of RO RO


Types Banks Branches Assets industry its industry A E
SCBs 5 3553 2517.10 27.53 1952.1 28.03 - -
0 0.6 13.6
0 0
DFIs 3 1500 333.80 3.65 237.60 3.41 - -
0.7 5.97
0
PCBs 31 3074 4155.10 45.45 3099.7 44.50 1.0 10.3
0 0 0
FCBs 9 70 505.00 5.52 326.00 4.68 3.4 17.7
0 0
Ibs 8 843 1632.00 17.85 1349.7 19.38 0.8 11.5
0 0 0
Total 56 9040 9143.00 100.00 6965.1 100.00 3.9 19.9
0 0 3
Table 2: Position, performance and market sizes of the Banks in CY18(Source: Bangladesh Bank Annual Report 2018)

Chart 1 shown below exhibits that the PCBs are currently dominating in terms of market

share of total assets despite having fewer branches than the SCBs. They have occupied the

highest place (45%) in terms of market share and the DFIs occupy the lowest (4%) of that.

Market Share of industry Asset

IBs
18% SCBs
FCBs 28%
5%

DFIs
PCBs 4%
45%

Chart 1: Market Share of Total Assets in CY18

PAGE 12
A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 3

Chart 2 shown reveals that the PCBs own the maximum amount of deposits (45%) of the

market than that of any other banks in the country. The SCBs stand second (28%) in taking

deposits, the IBs are in the third place (19%), the FCBs are in the fourth place (5%) and the

DFIs own the least amount of deposits having 3% of that.

Market Share of Deposits

IBs
SCBs
19%
FCBs 28%
5%

DFIs
PCBs
3%
45%

Chart 2: Market Share of Deposits in CY18

Chart 3 shows the return on assets of all the scheduled banks in CY18. It is noticed that the

return on asset of the FCBs is higher than that of any other commercial banks but the DFIs

and the SCBs incur the negative ROA. The PCBs stand second in terms of the return on

assets and the IBs are in the third place.

Return on Assets in CY18


Return on Assets in CY18

3.40

1.00 0.80

SCBs DFIs PCBs FCBs IBs


-0.60 -0.70

Chart 3: ROA of the banks in CY18

Chart 4 that has been shown below depicts that the FCBs are in the first place in terms

earning the return on equity, the PCBs are in the second place and the IBs are in the third

PAGE 13
A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 3

place. The ROE ratio of the SCBs and the DFIs were negative and as a result they are the

least earners of the return on equity.

Return on Equity in CY18


Return on Equity in CY18
17.70

10.30 11.50

SCBs DFIs PCBs FCBs IBs -5.97

-13.60

Chart 4: ROE of the banks in CY18

PAGE 14
CHAPTER CONTENTS

CHAPTER - 4
TREND ANALYSIS HYPOTH ESES

TESTING REGRESSION ANALYSIS

ANALYSIS AND
INTERPRETATION
A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 4

4.1. TREND ANALYSIS


Mahmud and Islam (2006) opined that the following indicators are generally used for

measuring the profitability and the performance of the banking industry.1

Performance
Measures Operational Definition
Dimensions
Total Business Total Deposit+Total Advances
Total Deposits Time Deposit+Demand Deposit
General Business Total Advances
Measure Total Assets
Advance-Deposit ratio Advance/Deposit
Total Income

Return on Equity Net Income/Equity


Return on Assets Net Income/Total Assets
Profitability
Net Interest Income
Net Income

Total Expenditure to Total


Management soundness Total Expenditure/Total Income
Income

Branch Expansion Total number of Branches


Employment Generation Total number of Employees
Social Profitability Number of Rural Branch/Total
Rural Branch to total Branch
Branch

In this study, the researcher used total deposits and total assets under General

BusinessMeasure to give a brief idea about the positions of the banks. The researcher also

used returnon assets, return on rquity, net income and net interest/profit income under

Profitability and finally branch expansion and employment generation under Social

profitability to make a comparative analysis about the performance of the three banking

groups from 2012 to 2018.

4.1.1. GENERAL BUSINESS MEASURES


Mobilizing deposits is one of the principal functions of commercial banks. Deposits are the

foundation upon which banks stand and grow, as they do business not with their own money

but with others’. The ability of a bank to attract deposits from individual and businesses is an

important measure of the bank’s acceptance by the public. Total assets, on the other hand, are

1 Abdullah Al Mahmud and M. Muzahidul Islam, A Comparative Study on Performance Evaluation of Conventional Banks
and Islamic Banks in Bangladesh with Special Reference to Islami Bank Bangladesh Limited, Thoughts on Economics, Vol. 18,
No. 05, University of Dhaka

PAGE 15
A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 4

the principal source of income of a bank that ensures the viability and sustainability of the

bank. Growth of income is nothing but the outcome of a bank’s basic operations.

4.1.1.1. TOTAL DEPOSITS

Total Deposits
3500
3000
K
T
B

o
n
i
l
l
i

2500
2000 1000

1500
500
0
2012 2013 2014 2015 2016 2017 2018
PCBs 1063.6 1301.4 1350.6 1729.8 2469.5 2821.4 3099.7
FCBs 214.1 215 230.68 247.3 327 359.5 326
IBs 387.1 491 617.12 776.1 961.2 1117.9 1349.7

Chart 5: The amount of total deposits. (Source: Bangladesh Bank Annual Report, 2008-2015)

Chart 5 shows a steady growth of the total deposit of the IBs, FCBs and PCBs. The total

deposits of Islamic banks were 387.1 billion in 2012 that increased to 1349.7 billion in 2018,

showing a growth of almost 249% within seven years. On the other hand, the total deposit of

PCBs increased to 3099.7 billion in 2018, showing a growth rate of almost 191%. But as

FCBs are fewer in number as well as in branches, total deposits of FCBs did not increase

significantly.

PAGE 16
A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 4

4.1.1.2. TREND OF MARKET SHARE OF TOTAL DEPOSITS

Market Share of Deposits


70.00
60.00
50.00
% 40.00
30.00
20.00
10.00
0.00
2012 2013 2014 2015 2016 2017 2018
PCBs 63.89 64.83 61.44 62.83 65.72 65.63 64.91
FCBs 12.86 10.71 10.49 8.98 8.70 8.36 6.83
IBs 23.25 24.46 28.07 28.19 25.58 26.00 28.26

Chart 6: Trend of total share of deposits (%). (Source: Bangladesh Bank Annual Report, 2012-2018)

Chart 6 indicates that the market share trend of deposit by the FCBs has been decreasing over

the years. It came down from 12.86% in 2012 to 6.83% in 2018. Market share of deposit by

the PCBs were down in 2014, but increased in 2015. On the other hand, during the same

period the market share of the IBs went up from 23.25% in 2012 to 28.26% in 2018, showing

an upward slope.

4.1.1.3. TOTAL ASSETS

Total Asset
5000
Billion

4000
3000
2000
1000
0
2012 2013 2014 2015 2016 2017 2018
PCBs 1330 1699.7 1877.7 2282.2 3190 3589.2 4355.1
FCBs 265.8 292.6 308.7 344.2 441.8 488.7 505
IBs 464.5 576 733.57 923.2 1181.5 1359 1432

Chart 7: The amount of total assets. (Source: Bangladesh Bank Annual Reports, 2012-2018)

Chart 7 shows a significant growth of the total assets of the PCBs and the IBs. The aggregate

assets of all Islamic banks were 464.5 billion in 2008 that increased to 1432 billion in 2018

showing a significant increase within a short span of seven years. During the same period the

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A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 4

aggregate deposits of the PCBs increased to 4355.1 billion from 1330 billion. But the assets

of the FCBs did not increas significantly.

4.1.1.4. MARKET SHARE OF TOTAL ASSETS

Market Share of total Asset


80.00
70.00
60.00
50.00
%

40.00
30.00
20.00
10.00
0.00
2012 2013 2014 2015 2016 2017 2018
PCB 64.55 66.18 64.31 64.29 66.27 66.02 69.22
FCB 12.90 11.39 10.57 9.70 9.18 8.99 8.03
IB 22.55 22.43 25.12 26.01 24.55 25.00 22.76

Chart 8: Trend of market share of total assets (%). (Source: Bangladesh Bank Annual Reports, 2012-2018)

Chart 8 indicates that trend of the market share of total assets by the FCBs has been

decreasing over the last four years. It came down from 12.90% in 2012 to 8.03% in 2018. But

during the period PCBs grabbed the market share of deposit quite significantly from 64.55%

in 2012 to 69.22% in 2018. This trend does not show any consistancy in case of the IBs – the

trend is neither upward nor downward.

4.1.2. PROFITABILITY MEASURES


Profitability is an important index of operational efficiency of an organization. Analysis of

profitability of an enterprise provides an insight into the effectiveness in utilization of funds

in the enterprise and also managerial efficiency. Because of shortage of time the researcher

used only three indicators to measure the profitability performance.

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A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 4

4.1.2.1. NET INTEREST INCOME

Net Interest Income


250

Billion
200
150
100
50
0
2012 2013 2014 2015 2016 2017 2018
PCBs 48.5 56.7 82.5 91.4 114.7 118.2 205.8
FCBs 12.6 10.7 13 8.4 19.6 15.8 26.6
IBs 40.26 46.97 55.07 80.7 115.9 133 142.5

Chart 9: Net interest income. (Source: Bangladesh Bank Anual Reports, 2012-2018)

In Chart 9, we find that total interest income (profit income for the IBs) of PCBs, FCBs and

IBs are relatively higher in 2014. The net interest income of the FCBs fell down in 2015 but

they managed to recover it from the next year. On the other hand over the years the IBs kept

showing a gradual increasing trend and upward slope.

4.1.2.2. NET INCOME

Net Income
60
50
Billion

40
30
s

20
10
0
2012 2013 2014
PCBs 23.19 33.77 48.67
FCBs 11.38 7.08 6.46
IBs 5.76 5.71 11.66

Chart 10: Net income. (Source: Bangladesh Bank Annual Reports, 2012-2018))

Chart 10 indicates that the trend of net profit of the IBs and the FCBs fall in 2013. Later, IBs

managed to increase their net profit to 11.66 billion in 2014 from 5.71 billion, but FCBs

showed a decline in the trend of net profit; from 11.38 billion to 6.46 billion. On the other

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A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 4

hand, the profit trend of the PCBs always shows an upward slope. Their profit increased

109% during last three years.

4.1.2.3. TREND OF THE RETURN ON ASSETS

Return on Asset
4
3.5
3
Rati

2.5
o

1.5

2
1
0.5
0
2012 2013 2014 2015 2016 2017 2018
PCBs 1.4 1.6 2.1 1.6 0.9 1 1
FCBs 2.9 3.2 2.9 3.6 3.3 3 3.4
IBs 1.24 0.99 1.59 1 1.1 0.89 0.8

Chart 11: The trend of ROA. (Source: Bangladesh Bank Annual Reports, 2012-2018)

Chart 11 shows that the FCBs have a very significant high return on assets during last seven

CY than any other banks have. It stays always at the top in respect of ROA. Then the PCBs

come. The ratio of the PCBs and the IBs fluctuates very much over the time. From CY12 to

CY18 this ratio both of the PCBs and the IBs are almost same and are heading towards the

same direction.

4.1.2.4. TREND OF RETURN ON EQUITY

ROE
25
20
Rati
o

15
10
5
0
2012 2013 2014 2015 2016 2017 2018
PCBs 16.4 21 20.9 15.6 10.2 9.8 10.3
FCBs 17.8 22.4 17 20.2 17.3 16.9 17.7
IBs 21.46 15.32 21.33 14.46 16.8 11.71 11.5

Chart 12: Trend of ROE. (Source: Bangladesh Bank Annual Reports, 2012-2018)

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A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 4

Chart 12 indicates a severe fluctuation in the trend of return of equity. It is very difficult to

say which bank stays at the top in respect of return on equity. There is no consistency in the

trends.

4.1.3. SOCIAL PROFITABILITY MEASURES


Social Profitability implies the contribution of a bank to the society. Creation of employment,

expansion of branches etc. are the key indicators of social profitability measures.

4.1.3.1. NUMBER OF BRANCHES

Number of total Branches


3500
3000
2500
Num
ber

2000
1500
1000
500
0
2012 2013 2014 2015 2016 2017 2018
PCBs 1724 1784 1840 2290 2589 2800 3074
FCBs 56 58 59 74 65 69 70
IBs 358 501 587 622 750 802 843

Chart 13: The number of total branches. (Source: Bangladesh Bank Annual Reports, 2012-2018)

Chart 13 shows that the numbers of Branches of the PCBs, FCBs and IBs have an increasing

trend. PCBs occupy the maximum number of branches among the three types of Banks. On

the other hand, FCBs occupy the least number of branches. Despite being similar to the FCBs

regarding the number of banks, the IBs hold more branches than those of the FCBs.

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A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 4

4.1.3.2. MARKET SHARE OF BRANCHES

Sahre of Barnches in the market


100.00
80.00
% 60.00
40.00
20.00
0.00
2012 2013 2014 2015 2016 2017 2018
PCB 80.64 76.14 74.01 76.69 76.06 76.27 77.10
FCB 2.62 2.48 2.37 2.48 1.91 1.88 1.76
IB 16.74 21.38 23.61 20.83 22.03 21.85 21.14

Chart 14: Trend of the market share of branches. (Source: Bangladesh Bank Annual Reports,2012-2018)

Chart 14 indicates that, although the PCBs own the highest percentage of branches in the

market, the IBs have the maximum growth rate of branch expansion. The percentage of the

Share of brranches by the IBs increases almost 26% during the last seven CY, while that of

the PCBs and the FCBs increased -4.38% and -32% respectively.

4.1.3.3. TOTAL EMPLOYMENT

Total Employment
30000
mb

25000
Nu

er

20000 10000

15000

5000
0
2012 2013 2014 2015 2016 2017
PCBs 22072 23521 23279 25980 26640 20367
FCBs 1280 1588 1305 1409 1508 1776
IBs 3903 4547 5057 6596 7440 7907

Chart 15: The number of total employment by the banks. (Source: Bangladesh Bank Annual Reports, 2012-2018)

Chart 15 shows a declining trend in the number of employees of the PCBs over the period

under study. The FCBs have an increase in the number of employment during 2012 to 2017

by 39% while the IBs got the highest increase of employment (51%) during the same period.

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A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 4

4.2. HYPOTHESIS TESTING

4.2.1. DEPOSITS
The researcher wanted to find out that if there is any significant difference regarding the

performance related to deposits among all the three banking groups during 2012 to 2018 or

not. This was tested as under:

Null Hypothesis

There is no significant difference in total deposits among all three banking groups during

2012 to 2018.

H0 = µ1 = µ2 = µ3

H1 = µ1 ≠ µ2 ≠ µ3

ANOVA
Source of Variation SS Df MS F P-value F crit
Between Groups 10594690.38 2.00 5297345.19 20.24 0.00 3.55
Within Groups 4710415.29 18.00 261689.74

Total 15305105.67 20.00

The above ANOVA table indicates that the calculated value of F is 20.24, which is more than

the table value of 3.55 at 5% level of significance. Hence, the null hypothesis is rejected. It

means that there is a significant difference in total deposits among all the three banking

groups.

4.2.2. TOTAL ASSETS


The researcher wanted to find out that if there is any significant difference regarding the

performance related to total assets among all the three banking groups during 2012 to 2018 or

not. This was tested as under:

Null Hypothesis

There is no significant difference in total assets among all the three banking groups during

2012 to 2018.

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A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 4

H0 = µ1 = µ2 = µ3

H1 = µ1 ≠ µ2 ≠ µ3

ANOVA
Source of Variation SS df MS F P-value F crit
Between Groups 18941642.77 2.00 9470821.38 20.33 0.00 3.55
Within Groups 8385522.46 18.00 465862.36

Total 27327165.22 20.00

The above ANOVA table indicates that the calculated value of F is 20.33, which is more than

the table value of 3.55 at 5% level of significance. Hence, the null hypothesis is rejected. It

means that there is a significant difference in total assets among all the three banking groups.

4.2.3. NET INTEREST INCOME


The researcher wanted to find out that if there is any significant difference regarding the

performance related to net interest income (profit income for the IBs) among all the three

banking groups during 2012 to 2018or not. This was tested as under:

Null Hypothesis

There is no significant difference in net interest income (profit income) among all the three

banking groups during 2012 to 2018.

H0 = µ1 = µ2 = µ3

H1 = µ1 ≠ µ2 ≠ µ3

ANOVA
Source of Variation SS df MS F P-value F crit
Between Groups 30566.38 2.00 15283.19 9.93 0.00 3.55
Within Groups 27704.35 18.00 1539.13

Total 58270.74 20.00

The above ANOVA table indicates that the calculated value of F is 9.93, which is more than

the table value of 3.55 at 5% level of significance. Hence, the null hypothesis is rejected. It

PAGE 24
A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 4

means that there is a significant difference in net interest income among all the three banking

groups.

4.2.4. NET INCOME


The researcher wanted to find out that if there is any significant difference regarding the

performance related to net income among all the three banking groups during 2012 to 2018 or

not. This was tested as under:

Null Hypothesis

There is no significant difference in net income among all the three banking groups during

2012 to 2018.

H0 = µ1 = µ2 = µ3

H1 = µ1 ≠ µ2 ≠ µ3

ANOVA
Source of Variation SS df MS F P-value F crit
Between Groups 1480.40 2.00 740.20 12.15 0.01 5.14
Within Groups 365.49 6.00 60.92

Total 1845.89 8.00

The above ANOVA table indicates that the calculated value of F is 12.15, which is more than

the table value of 5.14 at 5% level of significance. Hence, the null hypothesis is rejected. It

means that there is a significant difference in net income among all the three banking groups.

4.2.5. RETURN ON ASSETS


The researcher wanted to find out that if there is any significant difference regarding the

performance related to return on asset among all the three banking groups during 2012 to

2018or not. This was tested as under:

Null Hypothesis

There is no significant difference in ROA ratio among all the three banking groups during

2012 to 2018.

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A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 4

H0 = µ1 = µ2 = µ3

H1 = µ1 ≠ µ2 ≠ µ3

ANOVA
Source of Variation SS Df MS F P-value F crit
Between Groups 18.15 2.00 9.07 82.58 0.00 3.55
Within Groups 1.98 18.00 0.11

Total 20.12 20.00


The above ANOVA table indicates that the calculated value of F is 82.58, which is more than

the table value of 3.55 at 5% level of significance. Hence, the null hypothesis is rejected. It

means that there is a significant difference in ROA ratio among all the three banking groups.

4.2.6. RETURN ON EQUITY


The researcher wanted to find out that if there is any significant difference regarding the

performance related to return on equity among all the three banking groups during 2012 to

2018or not. This was tested as under:

Null Hypothesis

There is no significant difference in ROE ratio among all the three banking groups during

2012 to 2018.

H0 = µ1 = µ2 = µ3

H1 = µ1 ≠ µ2 ≠ µ3

ANOVA
Source of Variation SS df MS F P-value F crit
Between Groups 46.66 2.00 23.33 1.55 0.24 3.55
Within Groups 270.98 18.00 15.05

Total 317.64 20.00

The above ANOVA table indicates that the calculated value of F is 1.55, which is less than

the table value of 3.55 at 5% level of significance. Hence, the null hypothesis is cannot be

rejected. It means that there is no significant difference in ROE ratio among all the three

banking groups.

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A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 4

4.2.7. BRANCH EXPANSION


The researcher wanted to find out that if there is any significant difference regarding the

performance related to branch expansion among all the three banking groups during 2012 to

2018 or not. This was tested as under:

Null Hypothesis

There is no significant difference regarding branch expansion among all the three banking

groups during 2012 to 2018


H0 = µ1 = µ2 = µ3

H1 = µ1 ≠ µ2 ≠ µ3

ANOVA
Source of Variation SS df MS F P-value F crit
Between Groups 18879128.00 2.00 9439564.00 88.31 0.00 3.55
Within Groups 1924104.29 18.00 106894.68

Total 20803232.29 20.00

The above ANOVA table indicates that the calculated value of F is 88.31, which is more than

the table value of 3.55 at 5% level of significance. Hence, the null hypothesis is rejected. It

means that there is a significant difference regarding branch expansion among all the three

banking groups during 2012 to 2018.

4.2.8. EMPLOYMENT GENERATION


The researcher wanted to find out that if there is any significant difference regarding the

performance related to employment generation among all the three banking groups or not.

This was tested as under

Null Hypothesis

There is no significant difference regarding employement generation among all three banking

groups.

H0 = µ1 = µ2 = µ3

PAGE 27
A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 4

H1 = µ1 ≠ µ2 ≠ µ3

ANOVA
Source of Variation SS df MS F P-value F crit
Between Groups 1650929021.44 2.00 825464510.72 299.23 0.00 3.68
Within Groups 41379787.50 15.00 2758652.50

Total 1692308808.94 17.00

The above ANOVA table indicates that the calculated value of F is 299.23, which is more

than the table value of 3.68 at 5% level of significance. Hence, the null hypothesis is rejected.

It means that there is a significant difference regarding employment generation among all the

three banking groups.

4.3. MULTIPLE REGRESSION TEST


When the relationship between one dependent variable and two or more independent

variables is intended to test in statistical terms, then multiple regression is used.

4.3.1. VARIABLES
i. Dependent Variable. A dependent variable is the variable that gets changes due to

thechanges occured in other variable(s). It is the variable that a researcher wants to

predict in his research work.

ii. Independent Variable(s). An independent variable is the variable that brings

changesin the dependent variable.

The researcher wanted to analyze the determinants of net interest income of the three banking

groups. For this analysis, three variables are included in this study. One of them is the

dependent and the others are as explanatory or independent variables. The variables are as

follow:

Dependent Variable Independent Variables


Net Interest income 1. Deposits
2. The number of branches

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A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 4

Net Interest Income is the difference between interest earned on loans and advances

minusinterest paid on deposits. Deposits are considered as banks’ main source of funding and

are the lowest cost of funds. The more deposits are transformed into loans, the higher the

interest income and profit. Hence, deposits generally have positive impact on net inerest

income. But if a bank cannot transform its deposits into loans efficiently it may bring

negative impact on net interest income also. The banking business expands by the

establishment of branches. They must have some impact on net interest income.

4.3.2. MODEL AND HYPOTHESIS


Since the researcher wanted to predict the Net Interest Income by deposits and the number of

branches, the regression model was as follows:

Y1 = a+b1X1+b2X2

Where, Y1 = Net Interest Income

a = constant term

b1 = regeression coefficient for deposits

b2 = regression coefficient for number of branches

X1 and X2 = Deposits and Number of Branches respectively.

The researcher predicted the following hypothesized relationships:

Hypothesis H1a: Deposits of PCBs, FCBs and IBs have a significant relationship with

NetInterest Income.

Hypothesis H2a: The Number of Branches of PCBs, FCBs and IBs has a

significantrelationship with Net Interest Income.

4.3.3. RESULTS AND INTERPRETATION


4.3.3.1. PRIVATE COMMERCIAL BANKS
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.91

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A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 4

R Square 0.84
Adjusted R Square 0.75
Standard Error 26.15
Observations 7.00

ANOVA
Df SS MS F Significance F
Regression 2.00 13867.78 6933.89 10.14 0.03
Residual 4.00 2735.28 683.82
Total 6.00 16603.06

Coefficie Standard t P- Lower Upper Lower Upper


nts Error Stat value 95% 95% 95.0% 95.0%
Interce -119.59 139.38 - 0.44 -506.57 267.39 -506.57 267.39
pt 0.8
6
Deposi -0.01 0.09 - 0.90 -0.26 0.24 -0.26 0.24
ts 0.1
3
Branch 0.11 0.14 0.7 0.48 -0.27 0.48 -0.27 0.48
8

Multiple R represents the degree of correlation between the dependent and the

independentvariables. For this regression model the value is 0.91. It means that the degree of

correlation between net interest income and deposits and the number of branches of the PCBs

is positive and strongly correlated.

R Square measures the variance in dependent variable that can be explained by the

varianceof the independent variables. The value for this regression model is 0.84, meaning

that 84% variance in net interest income of PCBs can be explained by the variance of

deposits and the number of branches jointly.

The closer the value of Adjusted R Square to 1, the fewer the independent variables are

needed. The value of adjusted R square for this regression model is 0.75, meaning that the

researcher can include some other independent variables for the proper explanation of the

PAGE 30
A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 4

model. As there are only two independent variables in the model, it is assumed that the

inclusion of other independent variables can make the model more predictory. The multiple

regression model that can be produced from the results is as follows:

NII = -119.59-0.01Deposit+0.11Branch

The slope of deposit is -0.01 in this model. That means one unit increase in deposits of the

PCBs will decrease 1% net interest income, if other things remain the same. On the other

hand the slope of the number of branches is 0.11. That means per unit increase in the number

of branches of the PCBs will increase 11% net interest income, if other things remain the

same. Since the F Value is greater than that of Significance F Value (10.14 > 0.03), we

reject the null hypothesis and accept Hypothesis H1a and H2a that deposits and the number

of branches of the PCBs have a significant relationship with Net Interest Income.

4.3.3.2. FOREIGN COMMERCIAL BANKS


SUMMARY OUTPUT

Regression Statistics
Multiple R 0.73
R Square 0.53
Adjusted R Square 0.30
Standard Error 5.16
Observations 7.00

ANOVA
Df SS MS F Significance F
Regression 2.00 121.36 60.68 2.28 0.22
Residual 4.00 106.40 26.60
Total 6.00 227.76

Coefficient Standar t Stat P- Lower Upper Lower Upper


s d Error value 95% 95% 95.0% 95.0%
Intercep 7.34 20.07 0.37 0.73 -48.39 63.06 -48.39 63.06
t
Branch -0.25 0.39 -0.64 0.56 -1.33 0.83 -1.33 0.83
Deposit 0.09 0.04 2.00 0.12 -0.03 0.21 -0.03 0.21

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A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 4

Multiple R represents the degree of correlation between the dependent and the

independentvariables. For this regression model the value is 0.73. It means that the degree of

correlation between net interest income and deposits and the number of branches of the FCBs

is positive and strongly correlated.

R Square measures the variance in dependent variable that can be explained by the

varianceof the independent variables. The value for this regression model is 0.53, meaning

that 53% variance in net interest income of the FCBs can be explained by the variance of

deposits and the number of branches jointly.

The closer the value of Adjusted R Square to 1, the fewer the independent variables are

needed. The value of adjusted R square for this regression model is 0.30, meaning that the

researcher can include some other independent variables for the proper explanation of the

model. As there are only two independent variables in the model, it is assumed that the

inclusion of other independent variables can make the model more predictory. The multiple

regression model that can be produced from the results is as follows:

NII = 7.34+0.09Deposit-0.25Branch

The slope of deposit is 0.09 in this model. That means one unit increase in deposits of the

FCBs will increase 9% net interest income, if other things remain the same. On the other hand

the slope of the number of branches is -0.25. That means per unit increase in the number of

branches of the FCBs will decrease 25% net interest income, if other things remain the same.

Since the F Value is greater than that of Significance F Value (2.28 > 0.22), we reject the

null hypothesis and accept Hypothesis H1a and H2a that deposits and the number of

branches of the FCBs have a significant relationship with Net Interest Income.

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A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 4

4.3.3.3. ISLAMIC BANKS


SUMMARY OUTPUT

Regression Statistics
Multiple R 0.98
R Square 0.97
Adjusted R Square 0.95
Standard Error 9.66
Observations 7.00

ANOVA
Df SS MS F Significance F
Regression 2.00 10500.31 5250.16 56.27 0.00
Residual 4.00 373.23 93.31
Total 6.00 10873.54

Coefficients Standard t Stat P-value Lower Upper Lower Upper


Error 95% 95% 95.0% 95.0%
Intercept -17.25 23.31 -0.74 0.50 -81.98 47.48 -81.98 47.48
Deposits 0.11 0.04 2.46 0.07 -0.01 0.23 -0.01 0.23
Branches 0.03 0.09 0.34 0.75 -0.21 0.27 -0.21 0.27

Multiple R represents the degree of correlation between the dependent and the

independentvariables. For this regression model the value is 0.98. It means that the degree of

correlation between net interest income and deposits and the number of branches of the IBs is

positive and strongly correlated.

R Square measures the variance in dependent variable that can be explained by the

varianceof the independent variables. The value for this regression model is 0.97, meaning

that 97% variance in net interest income of the IBs can be explained by the variance of

deposits and the number of branches jointly.

The closer the value of Adjusted R Square to 1, the fewer the independent variables are

needed. The value of adjusted R square for this regression model is 0.95, meaning that the

researcher can include some other independent variables for the proper explanation of the

PAGE 33
A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 4

model. As there are only two independent variables in the model, it is assumed that the

inclusion of other independent variables can make the model more predictory. The multiple

regression model that can be produced from the results is as follows:

NII = -17.25+0.11Deposits+0.33Branch

The slope of deposit is 0.11 in this model. That means one unit increase in deposits of the IBs

will increase 11% net profit income, if other things remain the same. On the other hand the

slope of the number of branches is 0.33. That means, per unit increase in the number of

branches of the IBs will increase 33% net profit income, if other things remain the same.

Since the F Value is greater than that of Significance F Value (56.27 > 0.00), we reject the

null hypothesis and accept Hypothesis H1a and H2a that deposits and the number of

branches of the IBs have a significant relationship with Net Profit Income.

PAGE 34
CHAPTER - 5
CHAPTER CONTENTS

FIN D ING S

R ECOMMENDATIONS

FINDINGS AND
RECOMMENDATIONS
A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 5

5.1. FINDINGS AND RECOMMENDATIONS


There are many banks in the country. Among the banks, the PCBs are the best almost in

every cases. But this sector is facing a great competition by the IBs of the country. Despite

being fewer in number, the IBs have the ability to surpass the PCBs in near future. Based on

the overall study the findings found are presented below along with their corresponding

recommendations:

Objective No. 1: To study the current banking structure of Bangladesh

Findnig No. 1: The country’s banking sector is composed of six types of banks – one is

thecentral bank and the rest of them are different kinds of commercial banks. The commercial

banks are divided into five categories – Specialized Commercial Banks (DFIs), State Owned

Commercial Banks (SCBs), Private Commercial Banks (PCBs), Foreign Commercial Banks

(FCBs) and Islamic Commercial Banks (IBs). Currently they are fifty six in number. Six of

these the SCBs, two of these are the DFIs, twenty nine of these are the PCBs, nine of these

are the FCBs and eight of these are the IBs. The total number of the branches of the banks is

9131.

Recommendation No. 1: The number of classical banks in the world has reduced. In

themajority of countries the number of banks does not exceed 200. Many researchers drew

the conclusions of the economic theory about the optimum structure of the banking market.

The empirical analysis shows that the number of banks in a country is influenced by the size

of its territory, population number and GDP per capita. What should be the optimum banking

structure in Bangladesh is subject to a different study and the researcher highly recommends

that a research be conducted on this isuue.

Objective No. 2: To analyze whether there is any difference regarding the performances

ofthe three banking groups of Bangladesh on the basis of some selected tools

Findnig No. 2: Acording to the results produced by ANOVA test at 5% confidence level

itwas found that the performances of the three banking groups are significantly different from

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A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 5

each other in case of deposits, total assets, net interest income, net income, return on assets,

number of branches and employment generation. However the performance of the banks in

case of return on equity is not significantly different from each other. That means, no bank is

better or worse in case of return on equity ratio.

Recommendation No. 2: Return on equityis a measure of profitability that calculates

howmuch profit a company generates with each money of shareholders. The higher the ratio

is the better the company performs. It is the tool that the three banking groups have to

differentiate themselves from each other. Banks who want to improve the ratio must focus on

the balanced use of equity in their capital structure. More equity given some same returns

results in lower return on equity ratio. Lower returns given some same amount of equity also

results in lower return on equity ratio.

Objective No. 3: To evaluate the category wise performances of the banks

Findnig No. 3: In terms of volume and the market share of deposits and assets, the PCBsrank

first. In terms of the growth of deposits and assets, the IBs rank first. In terms of volume of

net interest income the PCBs rank first followed by the IBs. The FCBs on the other hand are

the best in terms of return on assets ratio – they are always at the top in this area. It means

that they are very much efficient in utilizing their assets in order to earn the maximum return.

But no bank is better in terms of return on equity ratio. The PCBs have the maximum number

of branches in the country with an upwarding slope; followed by the IBs. Despite being

similar to the IBs in size the FCBs have very few branches comparatively. The PCBs

generate the maximum amount of employment, followed by the IBs.

Recommendation No. 3: Although the number of the FCBs and the IBs are almost same,the

FCBs always lag behind the IBs except in the case of return on assets. The FCBs must come

forward with the concept of financial inclusion to achieve more market share. Given

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A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Chapter - 5

that no banking group is better in case of return on equity, the banks must focus on the use of

the optimum capital structure.

Objective No. 4: To understand how the net interest income of the banks are affected bytheir

deposits and the number of branches

Findnig No. 4: The researcher wanted to find found if the net interest income of the bankscan

be predicted or not if deposits and the number of branches are already known. The null

hypotheses were rejected and it has been found that deposits and the number of branches are

significantly related with net interest income for every banking group. Deposits are

negatively correlated with net interest income for the PCBs, meaning that they cannot

transform their deposits into loans efficiently, alothough branch expansion is positively

correlated and the explanatory power of the model is very strong (R 0.91, R Square 0.84).

Branch expansion on the other hand is negatively correlated with net interest income for the

FCBs, meaning that they cannot earn net interest income solely by the expansion of branches

and the correlation is moderate to strong (R 0.73 and R Square 0.53). Net Profit income is

positively related with deposits and the number of branches for the IBs and the correlation is

very strong (R 0.98 and R Square 0.97).

Recommendation No. 4: The PCBs must be efficient enough in order to grab the market

forgiving loan since they cannot use their deposits efficiently for converting into loans. The

FCBs must not increase their branches as long as they find out the reason for not increasing

net interest income in response to their branch expansion. This is possibly why they do not

establish branches very frequently.

PAGE 37
A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH References

References:

Mahmud, Al, Abdullah and Islam, Muzahidul, M. (2006). “A Comparative Study on

Performance Evaluation of Conventional Banks and Islamic Banks in Bangladesh with

Special Reference to Islami Bank Bangladesh Limited”, Thoughts on Economics, Vol. 18,

No. 05, University of Dhaka

Islam, Ul, Tanzim, Md., and Ashrafuzzaman, Mohammad (2015). “A Comparative Study of

Islamic and Conventional Banking in Bangladesh: Camel Analysis”, Journal of

BusinessandTechnology (Dhaka), Volume –X, Issue–01, January–June, 2015

Safiullah, M. (2010). Superiority of Conventional Banks & Islamic Banks of Bangladesh: A

Comparative Study. International Journal of Economics and Finance

Islam, Ariful, Md., Siddiqui, Hasan, Mahmudul and Hossain, Fahim, Kh., (2014).

“Performance Evaluation of the Banking Sector in Bangladesh: A Comparative Analysis”,

Business and Economic Research, Macrothink Institute, ISSN 2162-4860, 2014, Vol. 4, No.1

Bank Parikrama, 2008-2015, Bangladesh Bank

Financial Position of Scheduled Banks, 2012-2018, Bangladesh

Bank Bangladesh Bank Quarterly, 2012-2018.

Monthly Economic trend, 2012-2018, Bangladesh Bank

Financial Stability Report, 2012-2018, Bangladesh

Bank Annual Reports, 2012-2018, Bangladesh Bank

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A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Appendices

Appendix 1: Total Deposits of the banks (Billion Tk)

Year PCBs FCBs IBs


2012 1063.60 214.10 387.10
2013 1301.40 215.00 491.00
2014 1350.66 230.68 617.12
2015 1729.80 247.30 776.10
2016 2469.50 327.00 961.20
2017 2821.40 359.50 1117.90
2018 3099.70 326.00 1349.70

Appendix 2: Total Assets of the banks (Billion Tk)

Year PCBs FCBs IBs


2012 1330.00 265.80 464.50
2013 1699.70 292.60 576.00
2014 1877.70 308.70 733.57
2015 2282.20 344.20 923.20
2016 3190.00 441.80 1181.50
2017 3589.20 488.70 1359.00
2018 4355.10 505.00 1432.00

Appendix 3: Net Interest Income of the banks (Billion Tk)

Year PCBs FCBs IBs


2012 48.50 12.60 40.26
2013 56.70 10.70 46.97
2014 82.50 13.00 55.07
2015 91.40 8.40 80.70
2016 114.70 19.60 115.90
2017 118.20 15.80 133.00
2018 205.80 26.60 142.50

Appendix 4: Net Income of the banks (Billion Tk)

Year PCB FCB IB


2012 23.19 11.38 5.76
2013 33.77 7.08 5.71
2015 48.67 6.46 11.66

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A STUDY ON PERFORMANCE EVALUATION OF THE COMMERCIAL BANKS IN BANGLADESH Appendices

Appendix 5: Return on Assets of the banks

Year PCBs FCBs IBs


2012 1.40 2.90 1.24
2013 1.60 3.20 0.99
2014 2.10 2.90 1.59
2015 1.60 3.60 1.00
2016 0.90 3.30 1.10
2017 1.00 3.00 0.89
2018 1.00 3.40 0.80

Appendix 6: Return on equity of the banks

Year PCBs FCBs IBs


2012 16.40 17.80 21.46
2013 21.00 22.40 15.32
2014 20.90 17.00 21.33
2015 15.60 20.20 14.46
2016 10.20 17.30 16.80
2017 9.80 16.90 11.71
2018 10.30 17.70 11.50

Appendix 7: Number of Branches

Year PCBs FCBs IBs


2012 1724.00 56.00 358.00
2013 1784.00 58.00 501.00
2014 1840.00 59.00 587.00
2015 2290.00 74.00 622.00
2016 2589.00 65.00 750.00
2017 2800.00 69.00 802.00
2018 3074.00 70.00 843.00

Appendix 8: Number of Employees

Year PCB FCB IB


2012 22072.00 1280.00 3903.00
2013 23521.00 1588.00 4547.00
2014 23279.00 1305.00 5057.00
2015 25980.00 1409.00 6596.00
2016 26640.00 1508.00 7440.00
2017 20367.00 1776.00 7907.00

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