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Budget and Financial Statement Analysis of the City Bank
2.1 City Bank at a glance:
The City Bank Limited is the first private sector Bank in Bangladesh. The Bank has been operating since 1983 with an authorized capital of Tk. 1.75 Billion under the entrepreneurship of twelve prominent & leading businessman of the country. The noble intention behind starting this Bank was to bring about qualitative changes In the sphere of Banking and Financial management. Today The City Bank serves it’s customers at home & abroad with 82 branches spread over the country & about three hundred oversea correspondences covering all the major cities and business center of the world.The services encompass wide diversified areas of trade, commerce & industry which tailored to the specific needs of the customers and are distinguished by an exceptional level of prompt and personal attention. Over the years the Bank has expanded the spectrums of Its Services. The extensive and ever growing domestic network provides and carries various products and services to the doorsteps of millions.The City Bank Limited has already introduced some new Banking products like duel currency Credit Cards, ATM and Online services which has created attraction among the clients. The Bank is going to introduce real time Internet, SMS and Phone Banking systems with all modern delivery channels at an early date. For significant performance, The Bank has earned national & international recognition. The City Bank Limited was one of the 12 Banks Of Bangladesh among the 500 Banks in Asia for it’s asset, deposit & profit as evaluated by “ASIA WEEK” In The Year 2000. Other than that, The City Bank Limited received the “Top Ten Company” award from the Prime Minister of the People’s Republic of Bangladesh.The city bank ltd. have a distinguished Board of Directors which consists of thirteen successful and reputed businessmen. Mr. Aziz Al-Kaiser, a top leading businessman, industrialist, pioneer personality & entrepreneur of private sector’s Bank in Bangladesh, is the Chairman of the Bank. Mr. Kazi Mahmood Sattar a dynamic, nationally & internationally reputed Banker is the Managing Director (MD) of the Bank.
Vision of the city bank ltd:To be the leading bank in the country with best practices and highest social commitment.
Mission of the city bank ltd: To contribute to the socioeconomic development of the country. To attain highest level of customer satisfaction through extension of services by dedicated and motivated team professionals. To maximize bank’s profit ensuring its steady growth.To maintain the high moral and ethical standards. To ensure participative management system and empowerment of human resources. To nurture an enabling environment where innovativeness and performance is rewarded.
Total capital of the city bank limited.Capital: a) Authorized Capital——————: Tk. 1,750,000,000 b) Paid up Capital———————-: Tk. 720,000,000 c) Reserve——————————–: Tk. 1,238, 397, 3Total Assets ———————————————–: Tk. 35,303,744,444Number of shareholders: —————————————————-5678
Business Center & Cost Center:
Business Center:Retail: In line with the Bank’s strategy of making banking services more accessible to customers, City Bank is planning to launch proper banking services and business in all branches. All branches or the bank will be brought under sales and service model focusing retail banking business while giving services to all other customer of different business units. City bank towards the end of 2007 opened one new branch at Nikunjo under the Retail Banking Model.Corporate: As a part of its commitment to provide global quality service, City Bank, one of the largest local private banks has launched its Corporate & Investment Banking Division recently. This shift, from branch banking model to business driven matrix, is the first step of the bank’s plan to revitalize its way of doing business in upcoming years.Treasury: In 2007 bank’s Treasury investment portfolio increased substantially due to slow growth of corporate lending portfolio. In 2007 Treasury investment portfolio in creased by almost 80%. At the end of 2007 our total treasury investments were made in areas like Government Treasury bond, Inter-bank Fixed Deposit and Bangladesh Bank Bill. Due to low yield in T-Bill and low demand in secondary security market, Investment in was lower in 2007. SME: It is expected that SME business momentum in the coming years will significantly enhance your bank’s market share in this segment.
Cost Center:HR (Human Resource): In the year 2007, the Bank Appointed 87 employees of whom 23 were executives, 9 junior cash officers and 48 officers of different levels with 8 staff and sub-staff, Total number of employees of the Bank at the close of the year 2007 thus stood at 1991 employees, comprising 239 executives, 1158 officers and 594 other support staff. Compared to 1989 in 2006 of which 200 were executives, 1178 officers and 611 other support staff. ICC (Internal Control & Compliance Division): Good controls encourage efficiency, compliance with laws and regulations, sound information and helps eliminate fraud and abuse. Internal control is not only about getting things done but also about ensuring that they are done properly and that this can be demonstrated and reviewed i.e. maintain transparency and accountability. There are several other division conducting cost center activities, these are Legal Division, Credit Risk Management, Finance Division, Operations & Support Division, Special Asset Management Division, Share Division, DSS, Capital Market Division, Trade Service, Audit & ins, Central Processing Center, Credit Administration Department, Logistic & Support Division, Internal Control & Compliance Division, Information Technology, Brand-Communication & Marketing
Principal activitiesThe principal activities of the bank are to provide all kinds of commercial banking services to its customers through its branches in Bangladesh.
Significant Accounting Policies
Topics Accounting Method of Accounting The financial statements of the Bank are made up to 31st December 2007 and are prepared under the historical cost convention and in accordance with the “ First schedule ( Sec-38) of the Bank Companies Act, 1991, BRPD Circular # 14 Dated 25th June 2003, other Bangladesh Bank Circulars, International Accounting Standards and International Financial Reporting Standards adopted by the institute of Chartered accountants of Bangladesh, Companies Act, 1994, the security and exchange rules 1987, Dhaka & Chittangong stock exchange listing regulations and other laws and rules applicable in Bangladesh.Provision for taxation Provision for current income has been made @ 45% as prescribed in the finance ordinance, 2007 of the accounting profit made by the Bank after considering some of the add backs to income and disallowances of expenditure as per income tax laws in compliance with BAS-12 “Income Taxes”Basis of consolidation A separate set of records for consolidation of the statement of affairs and income and expenditure account of the branches are maintained at Head Office of the Band based on which these financial statement have been prepared.The consolidated financial statement comprises the financial statement of the City Bank Limited in terms of the Bangladesh Accounting Standard 27 on Consolidated financial statements.Fixed asset depreciation Category of fixed assets RateLand NilBuilding 2.50%Furniture and fixtures 10%Office equipment 20%Software 5%Vehicles 20%Minimum Capital Requirement With a view to strengthening the capital base of banks and make them prepare for the implementation of Basel ? Accord, it has been decided that henceforth banks will be required to maintain capital to risk-weighted assets ratio 10 percent at the minimum with core capital not less than 5 percent. This requirement will have to be achieved by December 31, 2007.
Board of director and their share:Name of directors: Position Shares (%)Mr. Aziz Al Kaiser Chairman 4.578Mr. Mohammad Shoeb Director 2.495Mr. Deen Mohammad Director 4.973Mr.; Rubel Aziz Director 4.625Mr. Hossain Khaled Saifullah Director 1.563Location of ATM Booths 1 Dilkhusha 14. Mouchak ATM 2. Satmasjid Road 15. Banani ATM 3. DSE 16. Mohakhali AT4. Uttara 17. Balaka Cinema Hall5. Rifles Square 18. Baily Road6. Pragati Sarani 19. Shyamoli 7. Gulshan Branch 20. Chamber Branch 8. VIP Road Branch 21. Agrabad9. DSE NIKUNJA BRANCH 22. Cox’s Bazar ATM10. Dhanmondi ATM 23. Golpahar11. Bashundhara ATM 24. Lalkhan Bazar 12. Green Road ATM 25. Zindabazar13. Wari ATM 26. Khulna ATM
Credit Rating:Credit rating agency of Bangladesh (CRAB), a premier rating agency of the country, rated your bank “A2” rating for long term and “ST-2” rating for long term. The above rating has been done on the basis of the bank’s performance and capital adequacy, asset quality, operational efficiency and financial performance. Credit rating for the year 2006 was “A-” for long term and ‘ST-3’ for short term.Source: City Bank Annual Report’2007.
2.2 Global Economy in 2008:
The global economy entered a major downturn in the face of severe shock in mature financial markets since 1930s. In their October 2008 issue of World economic Outlook, IMF projected 3.9 percent global output growth in 2008, down from 5.0 percent registered in 2007. Growth rate of advanced economies is projected downward at 1.5 percent compared with 2.6 percent of 2007. Emerging and developing economies is projected to grow at 6.9 percent as against 8.0 percent of 2007. The downward pressure stemmed from the ongoing sub prime mortgage market difficulties in USA and its spillover effect to other areas. China and India are projected to grow at 9.3 percent and 7.9 percent respectively. But it is feared that the continued recession in the developed countries is likely to reduce the growth rate of developing countries further.
Oil prices experienced strong run-up during late August 2007 to early January 2008 sparked by geopolitical concerns about tensions in the Middle East and some weather related production shutdowns. However due to severe global financial crisis the price of oil declined frown $100 per barrel to below $50 per barrel by the end of November 2008. The non-fuel commodity price boom picked up at much higher levels in real terms than at any time in the past 20 years. Consumer price inflation has increased markedly in the advanced economies and is projected to be 3.6 percent in 2008. Consumer price rises have been particularly strong in emerging and developing economies and inflation is projected to increase to 9.4 percent in 2008 reflecting strong growth of domestic demand and greater weight of energy and particularly food in the consumer price index.
The growth of worked trade volume in 2008 is projected to decline to 4.9 percent compared to 7.2 percent in 2007. The growths of exports from both the advanced and other emerging markets are projected to decline in 2008. Due to real effective depreciation of US dollar, US current account deficit was projected to decline by 5 percent. However, dollar appreciated again during October 2008 indicating a possibility of rise in current account deficit in US.
Global financial system came under serious strains and developed into the largest financial shocks since the Great depression. Equity markets have turned down while volatility measures have remained elevated. Risk spread on both corporate and sovereign papers continued to widen. Despite aggressive response by central banks liquidity remained aggressive response by central banks liquidity remained seriously impaired. The concern for credit risk has intensified. The overall balance of risks to the short-term global growth outlook remains tilted to the downside.
The major downside risks include the risk arising from the still-unfolding events in financial markets, growth risks intensified for inflation and oil market and risk of disorderly unwinding of large global imbalances. Global capital markets continue to be fragile and indicators of systemic risk remain strong. Rising losses in the context of global slow down could add to strains on capital and exacerbate the squeeze on credit availability.
Looking forward to 2009, the growth of emerging and developing market is likely to ease and will remain at a high level. China is expected to grow at 9.3 percent in 2009 driven by strong domestic demand and rapidly rising current account surplus. South Asia’s (Bangladesh, India, Pakistan, and Sri Lana) growth rate is expected to be robust. The world trade volume is projected to grow 4.9 percent in 2009.Source: Annual Report of Prime Bank’2008
2.3 Bangladesh Economy in 2008
Bangladesh economy during the year 2008 maintained a satisfactory growth in spite of repeated natural calamities like floods and cyclone. Bangladesh achieved a strong growth of 6.2 percent in fiscal year 2008 slightly slower than 6.4 percent of fiscal year 2007.This performance was facilitated by strong remittances of expatriates from abroad and reasonable export growth. Though Bangladesh Bank took monetary policies to achieve the growth but there are several key challenges they faced:
o Depth and severity of the recession of global financial crisis as well as its impact in Bangladesh economy is still unfolding;o Probable rising inflationary pressure emanating from both domestic and international;o Infrastructure inadequacies particularly in power, gas, ports and transportation,o Probable adverse effect of global recession in RMG sectors due to falling growth prospects in US and other developed trading partners in the west;o Probable adverse effect of global recession foreign direct investments, aid inflow and wage earners remittances;o Disruption in economic activities, especially in agricultural sector and rural economy due to consecutive floods and devastating cyclone.
Agriculture sector achieved a moderate growth of 3.6 percent in fiscal hear 2008 mainly due to lower growth in crops and horticulture sub-sector and spread of avian flu in the country.Source: Annual Report of Prime Bank’2008
2.4 Bangladesh Economy in 2009 (January to June): BB caps interest at13% for banks lending to NBFIs: Referring to the news of daily newspaper, Bangladesh Bank has fixed their lending interest rate to the Non-Bank Financial Institutions at 13%. This will offset the complexity of lending rate for Banks.
BB to monitor banks risk management:Bangladesh Bank has more consent over monitoring risk management of banks.
Shipbuilders demand a waiver of 25% bank guarantees: Shipbuilders of Bangladesh are blocked huge funds with bank, which they can invest further.Sugar sector counts losses.
Source: The Daily Star on 2nd, 3rd .4Th & 7Th of June, 2009
2.5 Prospect and challenges faced by City Bank-2008
Bank made a modest profit in 2007, held an excess provision for loans and advance, maintained a surplus capital as per CAR requirement. Bank’s NPL ratio reduced toward benchmark level. An enormous task of restructuring & realignment process is going on in operations, introduced SMS banking, increased ATM & POS numbers as well as number of Cards in respect of Debit and Credit. Bank’s branch network is well spread within the country with 83 branches. There is a work force of nearly two thousand employees comprised of experienced & dynamic supervisors, hardworking & motivated workers lead by charismatic & successful leaders.
The bank is well positioned to meet the challenges in up coming years and will continue to strive to innovate and capture opportunity for satisfactory growth, improvement of asset quality, customer services and value creation. The bank is focused on its existing customers and will focus on potential customers also. This strategy is supported by wide spectrum of scrumptious products in the bank’s product line up and by offering fast and quality service and pleasant experience to its customers.
The bank will continue to harness the potential of retail operations, SME financing, on line banking channels through out all branches, internet banking, phone banking and NRB remittance market. However, there is continued pressure on interest margins, commission and fee earnings, exchange income and increased provision requirement and compliance issues. In its pursuit for growth, the bank will always adhere to good corporate governance and best practices and sound risk management policies and strict credit evaluation procedure.
Source: City Bank Annual Report’2007
3.1 The Internship Program:
did internship At The city bank Ltd. Head office-Finance division from the 10th May to 10th August, 2009. Got the opportunity to work as an internee in the Bank with the Head and SAVP of finance division.
Table: 01 Working Activities and durations
SL No. Working Activities Duration01 Writing Voucher, Pay slip, IBC, Help in preparing annual report of the city bank ltd.2008. 30 days02 Revenue expenditure of each division from each days vouchers for the month of January to May, 2009. 30 days03 Prepare my report by collecting all information required. 30 days
3.2 The Job Description:It was clearly mentioned in my joining letter that was Suppose to give regular attendance at the place where would be deputed to my project. As an internee was suppose to perform the following works:
• Writing advice.• Finding revenue expenditure for each division• Writing cash debit voucher.• Writing credit Voucher.• Writing pay-slip
3.3 Working in a team:
When I was attending my internship at The city bank Ltd. Head office-Finance division, two other students from different educational institution were also doing there internship. So, I got an opportunity to work in a team.
3.4 Technical features in internship Program:
While doing my internship I did some technical work as an internee;• Experienced more with Ms Excel while preparing revenue expenditure of each division.• How they reconcile their accounts
3.5 Use of office Machinery:
In my Internship do use some office machinery as an internee, this office machinery which do use, are listed below: • Computer for data entry.• Photocopy machine for copying documents.• Printer for printing voucher.
4.1 Budget analysis on financial statementA Budget is a plan that outlines an organization’s financial and operational goals. So a budget may be thought of as an action plan; planning a budget helps a business allocate resources, evaluate performance, and formulate plans. While planning a budget can occur at any time, for many businesses, planning a budget is an annual task, where the past year’s budget is reviewed and budget projections are made for the next three or even five years. The basic process of planning a budget involves listing the business’s fixed and variable costs on a monthly basis and then deciding on an allocation of funds to reflect the business’s goals. Every financial organization has financial projection or business plan for the fiscal year. The City Bank also formulated a business plan for the year 2008.Table: 02 Interest IncomesInterest Income 2006 2007 2008 Budget 2008 Bud Grow Achieved
Loans (General)/ Musharaka 7894629 4280786 2953119 -31.014561Loans against Imported/Murabha 65199468 90847158 31196453 -65.660508Loans against trust receipts 428359970 434098326 531905006 22.5309968Packing credit 35347191 34661086 17091792 -50.688816Interest on EDF 1158620 154465 House building loan 45004246 55921839 33694650 -39.746885Industrial credit 801612877 1194078099 1517222761 27.0622719Transport loan 35323309 34625773 65841013 90.1503051Lease finance/Izara 24349133 34354995 28942397 -15.754908Demand loan 72482084 121300149 202085213 66.5993114Payment against documents 217825218 92550629 54347021 -41.278604cash credit/Bai-Muajjal 892130104 860059080 820188537 -4.6357912Hire purchase shirkatul melk 1371806 35023005 47863604 36.6633274Fully and partly secured overdraft 275362698 299696442 359159125 19.8409706Consumer credit Scheme 6827980 7372803 5620237 -23.770688Interest on SME 36054147 84625415 83779832 -0.9992069Staff loan 24096045 33492273 46037035 37.4556902Documentary bills purchased 454471022 312475397 253318311 -18.931758Interest income from credit card 40629994 38017789 84082652 121.166602Interest on cash incentive 13490968 15410109 4679112 -69.636088Other loans and advances/Invest. 3722477 7363879 73122128 892.983834Total interest/profit on loans& ad. Interest/profit on b/l With other banks 78670768 280840887 368624725 31.2574992Interest on call loans 188656571 83146162 30244151 -63.625319Interest received from foreign banks 22027994 29028631 7217035 -75.138218Total Interest Income 3772069319 4183270712 4669370374 4350570000 3.999 11.62
The City Bank Ltd. Projected 4% interest earnings on their loans & advances over the actual earnings on 2007. But due to some good management of credit department they achieved 11.62% in the year 2008.We see here in profit & loss a/c. interest income achieved well over what is projected/expected due to less income growth in Interest received from foreign banks, Loans against Imported/Murabha, Packing credit, House building loan, Lease finance/Izara, Payment against documents, cash credit/Bai-Muajjal, Consumer credit Scheme, Interest on SME, Documentary bills purchased Interest on cash incentive, Interest on call loans, Loans (General)/ Musharaka.Though the city bank ltd. Have earned more interest on loans & advances than that of their projection, but if they want to increase their growth they have to focus on earnings from, Interest received from foreign banks, Loans against Imported/Murabha, Packing credit, House building loan, Lease finance/Izara, Payment against documents, cash credit/Bai-Muajjal, Consumer credit Scheme, Interest on SME, Documentary bills purchased Interest on cash incentive, Interest on call loans, Loans (General)/ Musharaka.
Table: 03 Interest/profit paid on deposits
Interest/profit paid on deposits 2006 2007 2008 Budget 2008 Bud Grow Achieved
Savings bank 262454676 295575493 365353584 23.607536Mudaraba savings deposits 22298489 34536648 5603223 -83.776008Short term deposits 88137461 99248148 220725861 122.397965Mudaraba short notice deposits 3564819 5695138 2096300 -63.19141Fixed deposits 1600798664 2166124348 1733597747 -19.967764Mudaraba Term Deposits 24928695 37121430 51017214 37.4333209Deposits under scheme 563892875 570924660 601980070 5.43949354Mudaraba monthly benefit scheme 38950 138700 182400 31.5068493Repurchase agreement 11838351 97462844 723.280573Others 576971 2739757 1360629 -50.337603Interest Paid to local Bank 580185 11419982 68220220 497.375898Interest Paid to Bangladesh Bank 15285278 Total Interest Paid on deposits 2567271785 3235362655 3162885370 3133250000 -3.16 -2.24
On the other hand the expected interest expenses to reduce by 3.16%, but they afford to less by 2.24%. It may cause of heavy inflation during the year 2008. But as we know inflation is a systematic risk for any financial institution. So, to avoid these they have to more professionalism in making their decisions. As we see the city bank ltd. wanted to reduce their cost on interest/profit paid on deposits by 3.16%. But they are enabled to make it at 2.24%, because of more cost on Savings bank deposits, Short term deposits, Interest Paid to local Bank, Mudaraba monthly benefit scheme, Repurchase agreement, Mudaraba Term Deposits, Deposits under schemeIn fact the city bank ltd. Had more deposit & scheme comparing to the year of 2007. In 2007 total deposit was 40539.63 but in 2008 it increases largely and it was 45034.33. This is the main reason for not achieving the projected rate.
Table: 04 Deposits for the year of 2007 & 2008
Sl. No. Types of Deposit 2008 2007 Amount Share(%) Amount Share(%)1 Current & Others 7,167 15.91% 7625.59 18.81%2 Savings 8,770 19.47% 7761.12 19.14%3 Short Term 4300.17 9.55% 3229.63 7.97%4 Fixed Deposit 19152.20 42.53% 16308.43 40.23%5 Scheme 5645.11 12.54% 5614.86 13.85% Total Deposit 45034.33 100.00% 40539.63 100%
Graphs/Charts: 01 various deposits
2008 2007
Table: 05 Net Interest Incomes
Here the actual net interest of the bank and budgeted growth have compared,
2006 2007 2008 Budget 2008 Bud Grow Achieved
Net Interest Income(A) 1204797534 947908057 1506485004 1217320000 28.4 58.93
So, the net interest earnings of the city bank ltd. settled by increasing 58.93% what was projected at 28.43%, it happened due to large earnings on loans & advances in the year of 2008.The city bank ltd. achieved above double of net interest income what is projected for the year 2008.This is because they had more income on loans & advances in the year of 2008 comparing to the year 2007. So they are well over what is expected in their budget planning. As they earned a large amount from interest earning their net interest earning also increases. So this position should retain in future.
Table: 06 Investment Incomes
Here the actual Investment of the bank and budgeted growth have compared,
Investment Income 2006 2007 2008 Budget 2008 Bud Grow Achieved
Interest on treasury bills 384614003 791255111 907922669 14.7446198Interest on debentures 33316000 59863055 4293586 -92.827653Dividend on share 13518402 9152956 83873488 816.354105Gain on Government securities 129163 124766936 96496.499Gain on revaluation of HFT securities 28805365 Gain on sale of shares and debentures 22005717 Total Investment Income 431448405 860400285 1171667761 1085000000 26.1 36.18
In the projection for the year of 2008 the city bank ltd. Assumed 26.10% growth over 2007, but they achieved 36.18% on Investment Income.
The city bank ltd. Achieved higher income on their investment. Increased income of Interest on treasury bills, Dividend on share, Gain on Government securities contributed much to achieve this success.
There income from investment is well over their expectation and they have to retain this position.
Table: 07 Commission & Exch. Earning
Here the actual Commission & Exch. Earning of the bank and budgeted growth have compared,
Commission & Exch. Earning 2006 2007 2008 Budget 2008 Bud Grow Achieved
Commission on L/Cs 152536272 104106971 112253458 7.82511192Commission on L/Gs 35690152 26321987 41451928 57.4802389Commission on export bills 28018181 28625585 23771831 -16.955999Commission on bills purchased 6542335 5701070 3218384 -43.54772Commission on accepted bills 72920230 56918980 50327156 -11.581065Commission on OBC, IBC 8733732 6149637 5620698 -8.6011418Commission on PO,DD,TT,TC 37341784 35881317 31215787 -13.002672Other Commission 6434801 3936410 7806177 98.3070107Exchange Gain 408514219 264604487 217355686 -17.856387Total Commission Exchange Earning 756731706 532246444 493021105 687314021 29.13 (7.37)
In the projection for the year of 2008 the city bank ltd. Assumed 29.13% growth over 2007, but they couldn’t achieve what they expected rather they earn 7.37% less comparing to 2007.Total commission & exchange earning is below their expectation. There assumed that they will be able to earn 29.13% more than the year 2007.
But they earned 7.37% less than the year 2007.They earned 16.96% less on Commission on export bills, 43.55% less on Commission on bills purchased, 11.58% less on Commission on accepted bills, 8.60% less on Commission on OBC, IBC, 13% less on Commission on PO, DD, TT, TC and 17.86% less on Exchange Gain which ultimately largely contributed to this.
They have to focus on to income from Exchange Gain, Commission on export bills, Commission on bills purchased, and Commission on accepted bills, Commission on OBC, IBC, and Commission on PO, DD, TT, and TC.
Table: 08 Other Operating Incomes
Here the actual Other Operating Income of the bank and budgeted growth have compared,
Other Operating Income 2006 2007 2008 Budget 2008 Bud Grow Achieved
Rental Income 5604770 4315737 5712664 32.3682143Postage/ Telex/Fax/ SWIFT 40177056 32127062 26235088 -18.339598Incidental charges 37004368 29294060 30348758 3.60038178Service and other charges 54888538 61762456 78676766 27.3860709Profit from sale of fixed assets 2245951 1045899 2564313 145.17788Gain from sale of Treasury 129163 Legal Charges recoveries 446828 962223 2102852 118.541024Credit card income 43484112 41457321 95046727 129.264035Rebate received from foreign banks 8138736 6702798 7602445 13.421962Underwriting commission 13400 78671 413890 426.102376Miscellaneous earnings 65172253 53901707 90389564 67.6933237Total Other operating Income 257176012 231777097 339093067 448036305 93.3 46.3
Again, in the projection for the year of 2008 the city bank ltd. Assumed 93.30% growth on other Operating Income over 2007, but they achieved only 46.30% which is about half of their expectation.
Total operating income growth was estimated at 93.30% but actually they achieved only 46.30%. Here 2 things are mentionable that in 2007 Gain from sale of Treasury was 129163 but in 2008 it was nil & it was expected that other operating income with Postage/ Telex/Fax/ SWIFT will rise but it even lower than 2007. So these things contributed much on that type of situation.
So they have to focus more on Gain from sale of Treasury and earning from Postage/ Telex/Fax/ SWIFT etc.
Table: 09 Totals Income from Investment Exchange & Commissions
Here the actual revenue, Operating expenses, and total operating income of the bank and budgeted growth have compared,
2006 2007 2008 Budget 2008 Bud Grow Achieved
Total Inc from Invst.Exchang&Com(B) 1445356123 1624423826 2003781933 2220350326 36.69 23.35Revenue (C) = (A+B) 2650153657 2572331883 3510266937 3437670326 33.64 36.46Operating Expenses(D) 1155456768 1316315576 1755346344 1724096949 30.98 33.35Total operating Income (C-D) 1494696889 1256016307 1754920593 1713573377 36.43 39.72
Here we see in the projection for the year of 2008 the city bank ltd. Assumed 36.69% growth on Total Inc from Investment, Exchange & Commission earning over 2007, but they achieved only 23.35% which is not up to their expectation.
But they achieved 36.46% growth revenue over 2007, which was expecting to grow by 33.64%. So overall they have success over revenue earning.
On the other hand they expected that their operating expenses will not go over 30.98%, but actually they had to cost 33.35%. Which ultimately effect on the total operating income. Though they have achieved well over their expectation on total operating income. Here the total operating income expected to have 36.43% growth over 2007, but they achieved 39.72%.
They have to focus more on other operating income & Commission & Exch. Earning. Though they have achieved tk. 379358107 more on Total Inc from Investment Exchange & Commissions comparing to 2007, but they have to focus more on Total Income from Investment Exchange & Commission as they expected more than that growth rate.
In this regard they have to choose right investment decisions and at the same time they should accept those projects to invest which are quite profitable. Graphs/Charts: 02 Budget Growth Vs. Achieved
Here, we see total budgeted interest income was estimated at 4%, but they achieved 11.60%. That means they achieved more growth than their projected interest income. But they haven’t achieved actually what they expected; because of in 2008 they successfully collected more deposit than the year 2007.
That is why they can’t able to achieve their projection. But it is a good sign in the sense of deposit collection. On the other hand their net interest income and total investment income achieved quite successfully.
But they have negative growth on commission and exchange earning.
Graphs/Charts: 03 (Budget Growth Vs. Achieved)
Here, we see their other operating income growth was 46.30%, in fact they couldn’t achieve the expected growth to a large extent.
The bank also far behind from their budgeted growth, though they achieved 23.35% growth over 2007. On the other hand they achieved their expected growth over revenue as well as from total operating income.
But they were expecting during the year their operating expenses will no more than 31%, but actually they have to pay 33.35%. The reason behind that they were focusing more on expansion of their banking service. Moreover high inflation rate during the year 2008 may another reason behind that.
4.2 Operating Performance of the city bank ltd.
Table: 10 Operating Performance RatioOperating Performance Ratio 2004 2005 2006 2007 2008 Growth over 2007Return on Equity 34.34% 32.05% 10.69% 12.71% 11.23% -1.48%Return on Assets 1.52% 1.75% 0.58% 0.71% 0.75% 0.04%Yield on Loans and Advances 13.23% 12.67% 13.30% 13.15% 13.93% 0.78%
Return on Equity: PAT/Avg. shareholders’ equity {(Opening + Closing b/s)/2} (2008) =398110184/ {(2874366986+4217476529)/2} =11.23%Return on Equity: PAT/Avg. shareholders’ equity {(Opening + Closing b/s)/2} (2007) = 343463026/ {(2874366986+ 2530903960)/2} =12.71%
Graphs/Charts: 04 Return on Equity Return on equity for the year 2007 was 12.71%, on the other hand in 2008 it was 11.23%. This means Return on Equity (ROE) fall less by 1.48%, because of higher closing balance for the year 2008.
Return on Assets: PAT/Avg. Assets {(Opening + Closing b/s)/2} (2008) =398110184/ {(48755403018+57114576058)/2} =0.75%Return on Assets: PAT/Avg. Assets {(Opening + Closing b/s)/2} (2007) = 343463026/ {(47445751884+ 48755403018)/2} =0.71%Graphs/Charts: 05 Return on Assets Return on Assets (ROA) in 2007 was 0.71% & in 2008 it was0.75%. This means Return on Assets (ROA) increased by 0.04%, Profit after tax in 2007 is lower than 2008.
Yield on Loan & Advances Interest Income from loans/Avg.loans & Adv. (2008) =4263284463/ {(26788466138+34420944980)/2} =13.93% Table: 11 Provision for loans RATE OF PROVISION Particulars Short Term Agri. Credit and Micro -Credit Consumer Financing Small Enterprise Financing (SEF) All other credit Other than HF & LP HF LP UC Standard 5% 5% 2% 2% 2% 1% SMA 0% 5% 5% 5% 5% 5% Classified SS 5% 20% 20% 20% 20% 20% DF 5% 50% 50% 50% 50% 50% B/L 100% 100% 100% 100% 100% 100%
5.1 Learning Point:In the internship period at the city bank Ltd. Head office-Finance division, have learned lots of things. These are listed below:
• Finding revenue expenditure for each division• Writing cash debit voucher.• Writing credit Voucher.• Writing pay-slip• Using the Financial bank Software • Checking balance in Financial bank Software.• Showing Statement in a Financial bank Software.• Writing advice.• Analytical ability improves as did this report• Learn more about the cost center and business center.• Learnt more how to response on a corporate environment. • Banking activities needs more accuracy and professionalism.• Routine work/ Punctuality is must for being successful in this banking industry.• Learnt more about the financial projection and financial analysis of a financial institution like bank. • The organization hierarchy.• Duties and responsibilities of employees of finance division.• Working hour of the organization.• Use of IBC and OBD.• The use of software.• Communication and coordination between different division.
5.2 Findings:
01. We see in the profit & loss a/c. growth on interest income achieved what was projected/expected. But there are less income growth in Interest received from foreign banks, Loans against Imported/Murabha, Packing credit, House building loan, Lease finance/Izara, Payment against documents, cash credit/Bai-Muajjal, Consumer credit Scheme, Interest on SME, Documentary bills purchased Interest on cash incentive, Interest on call loans, Loans (General)/ Musharaka which reduced the more growth.
02. As we see the city bank ltd. wanted to reduce their cost on interest/profit paid on deposits by 3.16%. But they are enabled to make it at 2.24%, because of more cost on Savings bank deposits, Short term deposits, Interest Paid to local Bank, Mudaraba monthly benefit scheme, Repurchase agreement, Mudaraba Term Deposits, Deposits under scheme.In fact the city bank ltd. collected more deposit & scheme comparing to the year of 2007. In 2007 total deposit was 40539.63 but in 2008 it increases largely and it was 45034.33. This is a reason not for achieving the projected/expected rate.
03. The city bank ltd. achieved above double of net interest income what is projected for the year 2008.This is because, they had more income on loans & advances in the year of 2008 comparing to the year 2007. So they are well over what is expected in their budget planning.
04. In the projection for the year of 2008 the city bank ltd. Assumed 26.10% growth over 2007, but they achieved 36.18% on Investment Income. The city bank ltd. Achieved higher income on their investment. Increased income of Interest on treasury bills, Dividend on share, Gain on Government securities contributed much to achieve this success.
05. In the projection for the year of 2008 the city bank ltd. Assumed 29.13% growth on Total commission & exchange earning over 2007, but they couldn’t achieve what they expected, rather they earn 7.37% less comparing to 2007.Total commission & exchange earning is below their expectation..They earned 16.96% less on Commission on export bills, 43.55% less on Commission on bills purchased, 11.58% less on Commission on accepted bills, 8.60% less on Commission on OBC, IBC, 13% less on Commission on PO, DD, TT, TC and 17.86% less on Exchange Gain which ultimately largely contributed to this.
06. Again, in the projection for the year of 2008 the city bank ltd. Assumed 93.30% growth on other Operating Income over 2007, but they achieved only 46.30% which is about half below of their expectation. Total operating income growth was estimated at 93.30% but actually they achieved only 46.30%. Here 2 things are mentionable that in 2007 Gain from sale of Treasury was 129163 but in 2008 it was nil & it was expected that other operating income with Postage/ Telex/Fax/ SWIFT will rise but it even lower than 2007. So these things contributed much on that type of situation.
07. We see in the projection for the year of 2008 the city bank ltd. Assumed 36.69% growth on Total Inc from Investment, Exchange & Commission earning over 2007, but they achieved only 23.35% which is not up to their expectation.But they achieved 36.46% growth revenue over 2007, which was expecting to grow by 33.64%. So overall they have success over the expected growth on revenue earning.On the other hand they expected that their operating expenses will not go over 30.98%, but actually they had to cost 33.35%. Which ultimately effect on the total operating income. Though they achieved well over their expectation on total operating income. Here the total operating income expected to have 36.43% growth over 2007, but they achieved 39.72%.
6.1 Conclusion:
In Bangladesh banking sector has a significant role to our economy. As the city bank is one of the largest participants in this industry, it is contributing to our national economy.
The services encompass wide diversified areas of trade, commerce & industry which tailored to the specific needs of the customers and are distinguished by an exceptional level of prompt and personal attention. Over the years the Bank has expanded the spectrums of Its Services. The extensive and ever growing domestic network provides and carries various products and services to the doorsteps of millions.
Almost all the divisions are working to hold this position an to go ahead, especially finance division is providing more efforts. Some highly qualified and professional are members of the organization who have a vast experience in this industry are performing their duties.
But they have to dedicate more in their working area. During the time of analyzing this report on Budget & Financial Statement Analysis of the city bank ltd. I faced various problems as they didn’t make a proper budget during the year 2007.
Apart from that the city bank ltd. Performance was better than many other banks. But during the year 2008 they earned large amount revenue. The financial performance of CBL is better any other banks in the in this industry. So this position should be retained.
6.2 Recommendations:
01. Though the city bank ltd. Have earned more interest on loans & advances than that of their projection, but if they want to increase their growth they have to focus on earnings Interest received from foreign banks, Loans against Imported/Murabha, Packing credit, House building loan, Lease finance/Izara, Payment against documents, cash credit/Bai-Muajjal, Consumer credit Scheme, Interest on SME, Documentary bills purchased Interest on cash incentive, Interest on call loans, Loans (General)/ Musharaka.
02. They should focus on income from Exchange Gain, Commission on export bills, Commission on bills purchased, and Commission on accepted bills, Commission on OBC, IBC, and Commission on PO, DD, TT, and TC.
03. They should focus more on Gain from sale of Treasury and earning from Postage/ Telex/Fax/ SWIFT etc.
04. They have to focus more on other operating income & Commission & Exch. Earning. Though they have achieved tk. 379358107 more on Total Inc from Investment Exchange & Commissions comparing to 2007.
05. But they have to focus more on Total Income from Investment Exchange & Commission as they expected more than that growth rate. In this regard they have to choose right investment decisions and at the same time they should accept those projects to invest which are quite profitable.
Bibliography
Books:
Gitman, j Lawrence 2003, “Principle of Managerial Finance”, 10th edition, Pearson Education, Singapure Pte. Ltd.Uddin Riaz Mohammad, Alam Shafiul Md, Mahmood Shareef Md., Ahammad Faisal Mohammad, 2002 “Discovering Finance” 1st edition, Prasnanir Publications.
Websites:
www.thecitybank.com accessed on 30/06/2009 at 4:30pm.http://www.thecitybank.com.bd/Deposit.asp-Deposits assessed on 05/07/2009http://www.thecitybank.com.bd/highlights.asp-about city bank assessed on05/07/2009http://sbinfocanada.about.com/od/management/g/budget.htm- Budget definition assessed budget on 07/07/2009
Reports and documents:
The City Bank Ltd,(2008), Annual report, The city Bank Ltd, Dhaka, Bangladesh.The City Bank Ltd,(2008), Annual report, The city Bank Ltd, Dhaka, Bangladesh.The City Bank Ltd,(2008), Business Plan Projection.Prime Bank Ltd., (2008), Annual report, the city Bank Ltd, Dhaka, Bangladesh.
Appendix
o Business Plan Projection of the city bank lt. for-2008o Profit & loss A/c. of 2008o Profit & loss A/c. of 2007o Balance Sheet of 2008o Balance Sheet of 2007o Last five years performance of the city bank ltd.