In this
part of the "Financial Management of Prime Bank Limited" blog series
(Part 01, Part 02, Part 03) the discussion is made over treasury performance,
capital adequacy, liquidity gap and financing gap of PBL.
Treasury
Performance Analysis
Treasury Division of Prime Bank primarily focuses
on expanding transaction volume, utilizing different market opportunities,
strengthening Asset Liability Management (ALM) operations and creating a diversified fund management channel
by accurate assessment of domestic and overseas market trends and movements.
Through proper ALM and efficient trading
operations, Treasury strives to minimize market and liquidity risks. Besides,
for profitability enhancement, Treasury makes proper assessment of the market
trend and allocation of its assets and liabilities in line with the market
trend.
Table 13 shows the treasury income of PBL for
2012-14. PBL’s maximum treasury income comes from interest income on Govt.
Securities about 66%-69%. The reason is as PBL is a PD, they have to buy government securities devolved by Bangladesh Bank
in addition to their SLR requirements, and therefore, their investment
portfolio is dominated by government securities. Interest Income on Govt. Securities was the highest Tk. 4,998.19
million in 2014 due to the highest investment in government securities about
Tk. 70,928.31 million (97.64% of total investment). After that, comes the income from foreign
exchange gain, gain on discounted bond/bills and other including Interest
Income Call Loan, Placement /Deposit, Debenture/Bonds, Capital Gain from Sell of
Govt. Securities, and Underwriting Commission against Treasury Bill/Bond. All
of these incomes are increasing over the years except Foreign Exchange Gain.
Table 13: Treasury Income of PBL
(amount in million Tk)
|
||||||
Particulars
|
2012
|
2013
|
2014
|
|||
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
|
Interest Income on
Govt. Securities
|
3,806.59
|
66.36
|
4,650.71
|
68.81
|
4,998.19
|
66.52
|
Foreign Exchange
Gain
|
1,123.57
|
19.59
|
930.44
|
13.77
|
876.41
|
11.66
|
Gain on discounted
bond/bills
|
497.41
|
8.67
|
672.17
|
9.94
|
1,029.56
|
13.70
|
Others Treasury
Income
|
308.66
|
5.38
|
505.87
|
7.48
|
609.84
|
8.12
|
Total Treasury
Income
|
5,736.23
|
100.00
|
6,759.19
|
100.00
|
7,514.00
|
100.00
|
Regulatory
Requirement Management
To comply with regulatory requirement imposed by Bangladesh
Bank, PBL had to maintain Cash Reserve Requirement (CRR) of 6% up to 2013 and
6.5% in 2014 and Statutory Liquidity Ratio (SLR) of 19% (11.5% for Islamic
Banking) including cash reserve till 2013 and 13% (5.5% for Islamic
Banking) excluding cash reserve from
2014 on PBL’s time and demand liabilities.
From table 14, it can be observed that for the last five years, PBL has
maintained a continuous stream of surplus balances in both CRR and SLR.
Table 14: CRR and SLR Management of
PBL
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|||||
Particulars
|
2010
|
2011
|
2012
|
2013
|
2014
|
Cash Reserve Ratio
(CRR)
|
|||||
·
Required
|
6%
|
6%
|
6%
|
6%
|
6.50%
|
·
Maintained
|
6.70%
|
6.22%
|
6.06%
|
6.97%
|
6.71%
|
Surplus
|
0.70%
|
0.22%
|
0.06%
|
0.97%
|
0.21%
|
Statutory Liquidity
Ratio (SLR)
|
|||||
·
Required
|
19%
|
19%
|
19%
|
19%
|
13%
|
·
Maintained
|
26%
|
32.96%
|
34.02%
|
38.39%
|
29.83%
|
Surplus
|
7.00%
|
13.96%
|
15.02%
|
19.39%
|
16.83%
|
Peer
Group Ratio Analysis
From table 15 it can be seen that overall loan to
deposit is decreasing over the years which is due to PBL’s increasing focus to
investment than loans and advances. Borrowed funds to total assets ratio are
also showing mixed patterns over the years. Both of these ratios indicate the
banks lesser reliance on short-term money market and more on core deposits to
fund its loans in recent years.
Table 15:
Peer Group Ratios of PBL
|
|||||
Peer
Group Ratios
|
2010
|
2011
|
2012
|
2013
|
2014
|
Loans-Deposits
|
95.46%
|
88.73%
|
90.70%
|
76.07%
|
71.94%
|
Borrowed
funds-total assets
|
3.38%
|
5.49%
|
8.73%
|
1.58%
|
3.01%
|
Capital Adequacy Analysis
During 2010 to 2014, PBL has maintained an increasing Tier-I capital
(core capital) reaching the highest in 2014 of Tk. 22,611 million and highest
regulatory capital of Tk. 27,424 million in the same year also. In percentage composition (shown in table 16), on average, maximum
portion of PBL’s Tier-I capital comes from Paid-up Capital (43%) followed by
Statutory Reserve (33%), Retained Earnings (13%), Share Premium (11%) and
General Reserve (0.13%).
Table 16: Tier-I Capital of PBL (amount in million Tk)
Table 17 shows that maximum portion of Tier-II Capital (supplementary
capital) comes from Subordinated Bond
(36%) followed by General
provision maintained against unclassified loans / investments (32%) and General
provision maintained against off-balance sheet exposure (19%) and Revaluation reserve for fixed assets (8%).
Table 17: Tier-II Capital of PBL (amount in
million Tk)
From table 18 it can be observed that in all years PBL has maintained
higher total CAR than the required 10%. In addition, it has also complied with
the Tier-I CAR of 5% in all years while the Tier-II was not held to the required
amount in any years but they’ve met the gap by holding more reliable Tier-I
capital which indicates the banks financial strength and stability.
Table 18: Core and Supplementary Capital of PBL (in million Tk)
Liquidity Gaps Management
Liquidity gap measures the maturity wise difference
between assets and liabilities of a bank as represented by liquidity statement.
From table 19, it can be observed that PBL has maintained positive gap in all
years in all categories except up to 1 month in 2012 and 1-3 months in 2013 and
2014. It means that PBL has the capacity to meet the liquidity needs when
arises.
Table 19: Liquidity Gap of PBL (in
million Tk)
|
||||||
Up to 1 month
|
1-3 months
|
3-12 months
|
1-5 years
|
Above 5 years
|
Total
|
|
2010
|
565.11
|
538.62
|
6,244.81
|
5,078.06
|
571.53
|
16,768.52
|
2011
|
994.70
|
396.42
|
870.42
|
461.11
|
16,416.08
|
19,138.72
|
2012
|
(1,518.59)
|
3,719.54
|
7,972.75
|
2,921.43
|
15,130.99
|
20,787.04
|
2013
|
9,430.78
|
(13,021.47)
|
18,613.20
|
3,154.38
|
4,852.74
|
23,029.62
|
2014
|
5,391.87
|
(7,470.08)
|
23,142.57
|
153.48
|
3,242.88
|
24,460.71
|
Estimation
of Financing Gap/Surplus
Table 20 shows the financing gap/surplus for PBL
which is the difference between average loan and average deposit of a bank. It
is evident here that PBL has financing surplus is every years as its average
loans is lower than the average deposit, therefore, loans can be financed by
core deposits without costing its cash and other liquid assets or borrowing
funds on the money market those are more costly. It indicates financial
soundness of the bank in terms of liquidity and there may be less need for the
bank to reach for borrowed funds with high premium in future.
Table 20: Financial Gap/Surplus of PBL (in million Taka)
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