role of fundamental determinant on company financial performance the case of lanka bangla finance

Internship Report

On

“The Role of Fundamental Determinants on Company Financial Performance: The Case of LankaBangla Finance.”

Prepared By S. M. Galibur Rahman

Id: 07882710 2nd

Department of Finance Batch

Jagannath University Faculty of Business Studies

Submitted To:

Department of Finance

Jagannath University, Dhaka

Under the Supervision of

Md. Sogir Hossain Khandoker Associate Professor

Department of Finance Jagannath University

Submitted By:

S. M. Galibur Rahman

ID: 07882703

Session: 2007-2008

[i]

This is to certify that the internship on “The Role of Fundamental Determinants on Company Financial Performance: The Case of LankaBangla Finance.” has been submitted for the award of the degree of Bachelor of Business Administration (BBA) from Department of Finance, htannagaJ University, carried out by S. M. Galibur Rahman bearing ID.07882710 under my supervision. To the best of my Knowledge and as per his declaration, any part of this report has not been submitted for any degree, diploma or certificate.

He is permitted to submit the Internship Report.

------------------------------------------

Md. Sogir Hossain Khandoker Associate Professor Department of Finance Jagannath University

D E C L A R A T I O N O F S U P E R V I S O R

[ii]

I, S. M. Galibur Rahman, the student of Bachelor of Business Administration (BBA) 2 P

nd PBatch

bearing ID: 07882710 from Department of Finance, htannagaJ University would like to somberly declare here that an internship report on “The Role of Fundamental Determinants on Company Financial Performance: The Case of LankaBangla Finance.” has been authentically prepared by me. While preparing this internship report, I didn’t breach any copyright act intentionally. I am further declaring that, I did not submit this report anywhere for awarding any degree, diploma or certificate.

_______________________


Id no: 07882710

Batch no.: 2P

ndP

Department of Finance

Jagannath University

D E C L A R A T I O N O F S T U D E N T

[iii]

November 5, 2012

Md. Sogir Hossain Khandoker Associate Professor Department of Finance Jagannath University, Dhaka

Subject: Submission of Internship Report.

Sir,

It is my pleasure to submit the internship report, which is done as a part of academic curriculum, to you for your kind evaluation. The report is prepared on“The Role of Fundamental Determinants on Company Financial Performance: The Case of Lanka Bangla Finance”.

I have put my best effort in preparing this report and to make it a worthy one. Each aspect of the problem is considered and studied as required.

If any confusion arises or any further explanation is needed, I will be readily available to explain the matter to you, as the situation required.

Sincerely yours,

______________________


ID: 07882710

2nd

Session: 2007-08

Batch

Email: [email protected]

L E T T E R O F T R A N S M I T T A L

[iv]

First and foremost, I would like to pay my gratitude to the almighty Allah, the most Merciful, the

Beneficent, for blessing me with good health and tenacity of mind to complete the requirements

for the degree. I am also grateful to my parents who provided me with the basic necessities of

life since my early childhood.

I earnestly thank Md. Sogir Hossain Khandoker, Associate Professor, Department of Finance,

Jagannath University for acting as a mentor round-the-clock and showing me the right direction

whenever I started going off-track.

Nevertheless, I must express my gratitude to the following people for being so accommodative that I never felt left-out during my whole intern journey:

1. Mr. Wali Ul Islam, Chief Executive Officer, LBSL

2. Mr. Md. Ashaduzaman Riyadh, Research Analyst & In-Charge, Research & Analysis Department, LBSL

3. Md. Tareq Ibrahim, Research Analyst, Research & Analysis Department, LBSL

4. Md. Mahmudul Hasan Khan, In-Charge, Human Resource Department, LBSL

Finally, I thank all other LBSL staffs whose cooperation I found to be really kind and supportive.

A C K N O W L E D G E M E N T

[v]

This project examines the determinants of the profitability of firms in the Non Banking Financial Institution (NBFIs) industry of Bangladesh. Profitability of a financial institution basically depends on its some key financial determinants. Specially operating efficiency is main influencing factor which is calculated through operating income. Besides it capital Structure composite of equity and liability, operating expense, total asset significantly affect the profitability of any NBFI company. In addition term deposit also affects the profitability though that is statistically not significant. My research is an attempt to find out the key determinants variable and their level of influence over net profit.

Here in this report there are 5 chapters. In 1st chapter report origin, data sources, methodology, limitation etc. have been given. In 2nd

In case of financial analysis I did two types of analysis. Firstly company analysis where I took LankaBangla Finance Ltd. data of last 4 years to do my company analysis. And then I took whole NBFIs industry’s last 4 years data to do my industry analysis.

chapter the institution, where I did my internee has been discussed. Then literature review of different research has been given in chapter 3. And chapter 4 is the main the part where I put both financial and statistical analysis have been given. And then lastly findings and recommendation have been given in last and final chapter.

And then for statistical Analysis, different Statistical techniques of simple and multiple regressions have been used to determine the relationships between variables. And before doing regression analysis I did normality distribution test by Run test, and K-W test for randomness. Also I did correlation analysis between dependent and different independent variables.

As the result suggest operating revenue has the most significant impact on the net profit of any company so company should increase is operational efficiency. And also operational expense negatively affects the net profit. So it should be controlled effectively. And all other fundamental determinants significantly affect the company net profit. Only the term deposit impact is statistically insignificant.

A B S T R A C T

Table of Contents

Topic Page CHAPTER 1: INTRODUCTION 01-03 1.1 Origin Of The Report 01 1.2 Objectives 01 1.3 Scope Of The Report 02 1.4 Sources Of Information 02 1.5 Methodology 03 1.6 Data Analysis & Presentation Technique 03 1.6 Limitation 03 CHAPTER 2: LITERATURE REVIEW 04-06 2.1 Literature Review 04-06 2.2 Research Gap 06 CHAPTER 3: INTRODUCTION TO LANKABANGLA SECURITIES 07-19 3.1 Company Profile with its History 07-08 3.2 Key Milestone 09 3.3 LBS Organogram 10 3.4 LBS Philosophy 11 3.5 Strategic Priorities 12 3.6 Unique Key Proposition 12 3.7 Services of LBS 13-14 3.8 Products of LBS 14-18 3.9 Financial Highlight of LBS 19 CHAPTER 4: METHODOLOGY & ANALYSIS 20-88 4.1 Company Analysis (LBFL) 20-32 4.1.1 Background of LBFL 20 4.1.2 Shareholding Pattern Analysis 21 4.1.3 Business Growth Analysis 22-23 4.1.4 Detailed Analysis of Key Financials 24-30 4.1.5 Financial Statement Analysis 4.1.6 Common Size Statement

31 32

4.2 Industry Analysis (NBFIs) 33-47 4.2.1 Industry Snap 33-34 4.2.2 Market Capitalization of NBFI 35 4.2.3 Composition of Income 35 4.2.4 Income Growth 36 4.2.5 Industry Growth 37-38 4.2.6 Ratio of NBFIs Industry 39 4.2.7 Key Information of NBFI Industry 40-41 4.2.8 CAGR of all Company under NBFI Industry 42-42 4.2.9 BETA of all Company under NBFI Industry 44 4.2.10 Common Size Statement of NBFI Industry 45-46 4.2.11 Cost of Fund of all Company under NBFI Industry 47 4.3 Statistical Research part 48-88 4.3.1 Descriptive Statistics 51 4.3.2 Graphical Representation of Data & Frequency 52-62 4.3.3 Test of Randomness of all variable (Run Test) 63-66 4.3.4 Goodness of Fit test (K-W Test) 67-70 4.3.5 Mean Test Analysis (T-Test) 71-73 4.3.6 Correlation Test Analysis 74-77 4.3.7 Multiple Regression Model (Including F test) 78-88 Final Multiple Regression Model 88 CHAPTER 5: FINDINGS & CONCLUSION 89-91 5.1 Key Findings 89 5.2 Recommendation 90 5.3 Conclusion 91 BIBLIOGRAPHY 92 - 93

TABLE NO TABLE DESCRIPTION PAGE NO

Chapter 3: Introduction to Lanka Bangla Securities

Table 1 Company Glance (LBS) 07

Table 2 Financial Highlight (LBS) 19

Chapter 4: Methodology & Analysis

Table 3 Company Snapshot (LBFL) 20

Table 4 Share Outstanding Pattern of LBFL 21

Table 5 Sponsor Details of LBFL 21

Table 6 Growth Statistics 22

Table 7 Industry Snap (NBFI) 33

Table 8 Industry Growth Statistics (NBFI) 37

Table 9 Industry Information (NBFI) 40-41

Table 10 CAGR of all Company under NBFI Industry 42-43 Table 11 BETA of all Company under NBFI Industry 44

Table 12 Cost of Fund of all Company under NBFI Industry 47

Table 13 Descriptive Statistics of all Variable 51

Table 14-Table 20 Run Test of all Variable 63-66

Table 21 – Table 27 K-W Test of all Variable 67-70

Table 28 Mean Test of all Variable 71

Table 29 – Table 34 Correlation Test 74-77

Table 35 – Table 36 Multiple Regression Model Analysis 78-79

Table 37- Table 38 F-test, T-Test 80-81

Table 39 Multiple Regression Model at a glance 88

Chapter # 1

Introduction

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This report is prepared to fulfill the requirement for the completion of the Bachelor of Business Administration (BBA), degree of the Jagannath University. The internship program is carried on to provide the students an on the job exposure and to match up the theoretical concepts with the real life situation. I was placed at LankaBangla Securities, Bangladesh for the internship program under the guidance of Moh. Sogir Hossain Khandoker, my faculty advisor. I have joined LankaBangla Finance Limited, Bangladesh for a period of 12 weeks starting from September 10, 2012. As a requirement of the completion of the internship program I need to submit the report, which includes an overview of the organization and both statistical and financial research.

The objective of the study may be viewed as:

General objective Specific objective

This internship report is prepared primarily to fulfill the Bachelor of Business Administration degree requirement under Department of Finance, Jagannath University and get an overall idea of NBFIs sectors and its activity specially the performance of Lanka Bangla Finance.

More specifically, this study entails the following aspects: To make fundamental company analysis To analyze the profitability of LankaBangla Finance Limited with the help of different

statistical tools To test the predetermined hypothesis relating to the financial performances of LankaBangla

Finance Limited, only regarding profitability To make fundamental NBFIs industry analysis Impact of Industry Performance on Lanka Bangla Finance.

1 . 1 . O R I G I N O F T H E R E P O R T

1 . 2 . O B J E C T I V E O F T H E S T U D Y

1. 2. 1 GENERAL OBJECTIVES

1. 2. 2 SPECIFIC OBJECTIVES

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The study would focus on the following areas.

Relationship of Net Profit with its fundamental determinants.

Company Analysis (LBFL) and whole financial industry,

Brief overview of Lanka Bangla Securities.. Each of the above areas would be critically analyzed in order to determine the regression model and to build predetermined hypothesis.

Information collected to furnish this report is both from primary and secondary in nature.

The primary data of this report were collected through:

Direct interview & Conversation with the research analyst of the Research Department.

Practical experiences obtained from the corporate office of LBSL

Expert’s opinion.

Official records.

I have gathered the secondary data via following sources:

Annual report of Lanka Bangla Finance ltd.

Printed outlines and documentation supplied by Lanka Bangla Finance ltd.

Annual Financial Statement of last 4 years of different NBFIs.

Analysis report of LBSL research and analysis department.

Website of Lankabangla Finance (http://www.lankabangla.com/).

1 . 3 . S C O P E O F T H E R E P O R T

1 . 4 . S O U R C E S O F D A T A

1.4.1 PRIMARY SOURCES OF DATA

1.4.2 SECONDARY SOURCES OF DATA

http://www.lankabangla.com/�

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The data for this study was gathered from the annual financial statements published by the LankaBangla Finance Limited in some selected internal magazines to accomplish the aforesaid objectives. The Quarterly and annual data for the selected NBFI during 2008 to 2012 are used in order to assess the profitability of the bank. Any progress of LankaBangla Finance Limited thereafter is thus out of the scope of the report. Help of other sources like annual report, magazines, brochures, journals, newspapers, websites, etc. have also been chosen whenever found necessary. This paper is based on secondary data collection. In processing the data, various methods of conventional statistics were deployed. Frequency distribution, measures of central tendency and dispersion, time series analysis, simple correlation and multiple regression analysis, correlation matrix and ANOVA in some cases calculated data are presented in graph to give the reader a better understanding of financial components. Kearl-Pearson correlation coefficient also used to investigate the correlation between the variables at 5% level of significance according to the SPSS software package. Microsoft excel was also used to produce some graphs and charts.

In order to analyze gathered data, I plan to use statistical software like SPSS that will run z-test, t-test, regression and such. Besides SPSS I will use MS-Excel to generate charts and graph of different ratio analysis. The data will be presented through graphs for better visual understanding.

I have faced some usual constrictions throughout my internship program to some extent that I are

presented as follows:

Primary data is always hard to work on because of authenticity.

Time is another hindrance to prepare a quality report.

Power failure is another main restraint to prepare this report

And scarcity of information is always a common hindrance to prepare any types of report.

1 . 5 . M E T H O D O L O G Y

1 . 6 . D A T A A N A L Y S I S & P R E S E N T A T I O N T E C H N I Q U E

1 . 7 . L I M I T A T I O N

Chapter # 2

Literature Review

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To get an insight of profitability determinants, several studies have been executed up to till date. But the fact suggests that, most of the researches have been conducted on banking industry. So, the evident with regard to profitability is scarce in the NBFI sector.

FadzlanSufian, and RoyfaizalRazali Chong (2008) examined the determinants of Philippines banks profitability during the period 1990–2005. Their empirical findings suggest that all the bank-specific determinant variables have a statistically significantly impact on bank profitability. They also found that size, credit risk, and expense preference behavior are negatively related to banks' profitability, while non-interest income and capitalization have a positive impact. According to their analysis inflation has a negative impact on bank profitability, while the impact of economic growth, money supply, and stock market capitalization have not significantly explained the variations in the profitability of the Philippines banks.

Shah-Noor Rahman and Tazrina Farah (2012), in their research paper on “Non Bank Financial Institution’s Profitability Indicators: Evidence from Bangladesh” examined the indicators of the profitability of firms in the Non Banking Financial Institution (NBFIs) industry of Bangladesh. Their finding was profitability indicator variables have impact upon net profit. And there variable was Net profit as dependent variable and Current Asset, Financial Expense, Long term liability, Interest Income, and Operating revenue as independent variable. According to their report among the independent variables the Liquidity Condition and Operating Efficiency exert significant influence on Profitability of Non Bank sector in Bangladesh.

Fadzlan Sufian (2009) in his research paper title “Determinants of non-bank financial institutions' profitability: empirical evidence from Malaysia” analyzed the determinants of profitability on NBFIs in developed country. He found that “Malaysian NBFIs with a higher risk exhibits lower profitability level. On the other hand, the large Malaysian NBFIs with high operational expenses exhibits higher profitability level, thus supporting the expense preference behavior hypothesis”. He also suggested that specialization has no significant relationship with Malaysian NBFIs profitability.

James W. Scott and José Carlos Arias (2011) in their study” Banking profitability determinants” surveyed top five bank holding companies in the United and concluded that profitability determinants for the banking industry include positive relationship between the return of equity and capital to asset ratio as well as the annual percentage changes in the external per capita income. There was also a virtual consensus identified concerning the effect that the internal factor of size as measured by an organization’s total assets had on its ability to compete more effectively, even in times of economic downturns.

2 . 1 . L I T R E A R A T U R E R E V I E W

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Christos K. Staikouras & Geoffrey E. Wood (2011) examined the factors that that influence the profitability of financial institution in their research paper “The Determinants of European Bank Profitability”. Their main finding was “the rate of return earned by a financial institution is affected by numerous factors. These factors include elements internal to each financial institution and several important external forces shaping earnings performance. The type of explanation would determine possible policy implications and ought to be taken seriously”. Their paper quantifies how internal determinants (“within effects” changes) and external factors (“dynamic reallocation” effects) contribute to the performance of the EU banking industry as a whole in 1994-1998.

Balchandher K. Guru, J. Staunton & B. Shanmugam (2009) in this research paper “Determinants of commercial bank profitability in Malaysia” examined to what extent are the profitability performance disparities due to variations in management controllable internal factors and external factors. He took net profit as his dependent variable and Asset Composition, Capital, Deposit Composition, Expenses Management, Liquidity, Firm Size, Inflation Rate, Market Growth, Market Interest, Market Share and Regulation as his independent variable. He suggested that all variable has significant relationship with net profit. And also he added that in order to increase profitability the Expense Management should be proper as this variable significance is very high.

Demirguc-Kunt & Huizinga (2001) and Bikker and Hu (2002) find a negative relationship between stock market capitalization and banks’ profitability, it means that equity and bank financing acts as substitutes rather than complements. In case of the industry-specific factors, the Structure- Conduct-Performance premise point out that growing market power enhances the profitability (income) of banks.

Antonina Davydenko(2011) surveyed about 3236 bank-quarter observations and concluded that Ukrainian banks suffer from low quality of loans and do not manage to extract considerable profits from the growing volume of deposits. Despite low profits from the core banking activities

James W. Scott and José Carlos Arias (2011) in their study” Banking profitability determinants” surveyed top five bank holding companies in the United and concluded that profitability determinants for the banking industry include positive relationship between the return of equity and capital to asset ratio as well as the annual percentage changes in the external per capita income. There was also a virtual consensus identified concerning the effect that the internal factor of size as measured by an organization’s total assets had on its ability to compete more effectively, even in times of economic downturns.

Nadim Jahangir', Shubhankar Shill and Md. AmlanJahidHaque(2007) surveyed 15 commercial banks in Bangladesh and found that market concentration and bank risk do little to explain bank return on equity, whereas bank market size is the only variable providing an explanation for banks return on equity in the context of Bangladesh. They found that market size

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and bank's return on equity proved to have strong relationship. Also, a strong and significant relationship was identified between market size and bank's return on equity. It suggests that capital adequacy is important for a bank to be profitable.

After reading several research papers I found that no one has yet made any research paper on effect of internal determinants on company’s profitability in Bangladesh. In fulfilling that gap my research paper will play a significant role. As my research paper deals with role of fundamental determinants on company performance, so everyone will get an overall idea about how the fundamental determinants affect the company’s profitability. It never can be taken as the conclusion rather as the beginning of research topic.

2 . 2 R E S E A R C H G A P

Chapter # 3

Introduction to

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Company At a Glance

1 Date Of Corporation 3rd July, 1997

2 Year of Commencement 3rd July, 1997

3 Registration No C 33276(22)/97

4 Authorized Capital (Pre IPO)

Tk. 1,000 million

5 Paid up Capital Tk. 550 million

6 Financial Year January-December

Table #1: Company Glance

LankaBangla Securities Limited (LBSL) is a subsidiary of LankaBangla Finance Limited and a

leading equity brokerage house in the country with a diverse clientele of institutions, high net worth individuals, foreign funds and retail investors. The company commenced stock broking activities in 1997 and has over time become the largest stock broking company in the country having developed a strong team of highly skilled and experienced professionals.

LBSL (Formerly known as Vanik Bangladesh Securities Ltd) started its stock broking business in 1997 trading on the Chittagong Stock Exchange (CSE) Ltd, while commencing trading on the Dhaka Stock Exchange (DSE) in1998. The company was renamed LankaBangla Securities with effect from 27 April 2005 following a restructuring of the company.

Its scrupulous investment in time and labor to create a better investment pathway for investor in the Bangladesh Stock Market has made it become the leading equity brokerage house in the country. It began as Vanik Bangladesh Securities Ltd in 1997 with its activities confined only within the Chittagong Stock Exchange (CSE) Ltd.

A year later, it made a step ahead and introduced itselves to the Dhaka Stock Exchange (DSE). It rebranded itself as LankaBangla Securities Ltd. in 2005 following a restructuring of the company. At LankaBangla Securities Limited, it specializes in developing the country’s most efficient stock brokerage workforce with unmatched skills and consummate perfectionism. Also,

3 . 1 C O M P A N Y P R O F I L E W I T H I T S H I S T O R Y

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whichever corner of Bangladesh customers are in, it has got everyone covered as customer can find its eleven branches spread in the leading cities and towns countrywide.

It is the leader in terms of customer transactions. That’s why it was again crowned as the largest brokerage house in terms of transaction value for the 6th consecutive time in DSE and 7th consecutive time in CSE in 2011. Quality, convenience, and reliability are certain things that it provides its customer at the highest level. Customer can expect from his broker and that is the key to such a strong network of key clients all over the world. Furthermore, the local and international recognitions from financial institutions, custodian banks, corporations, international fund managers, and other fellow brokers for our professionalism has laid the foundation of its future growth and further success.

Its ability to meet the demands considering every client’s time horizon, goals, and risk tolerance has made its settle relations with thousands of retail and institutional clients all over the globe. It is a 90.91% owned subsidiary of LankaBangla Finance Limited (LBFL) which is one of the leading listed non banking financial institutions in Bangladesh engaged in Leasing, Credit Card Services, Merchant Banking, Corporate Financing, and Financial Consultancy. LBFL is owned by a group of highly successful local business entrepreneurs of Bangladesh, the Sampath Bank Limited of Sri Lanka, the One Bank Limited of Bangladesh, and the general public. With all these on the back, our house LBSL is undoubtedly a global one which knows cusotomers preferences and guarantees cusotomer the most comfortable investment environment while anyone choose to invest in Bangladesh.

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1997 • Started Stock Broking Business through CSE

1998• Started Stock Broking Business through DSE

2005• Renamed as LBSL from VBSL with effect from 27th April

2008 • Inaugurate Integrated Back Office Software System first ever in Bangladesh Capital Market in 2008

2009

• Tagged with BDJOBS for stock market training as a part of CSR• Achieved “BEST IT USE AWARD-2009” from Bangladesh Association of

Software & Information Services (BASIS)• Converted from Private Limited to Public Limited Company • Taken Over Directorship of MIDAS Financing Limited • Tagged with BDJOBS for stock market training as a part of CSR

2010 • Sponsor Shareholding of Financial Excellence Limited

2009 • Secured 1st position in DSE in the last consecutive five years and CSE in the last consecutive six years

2011 • Increased paid up capital

2012• Introducing a full-fledged FinancialWeb Portal & OrderManagement Systemfor

the first timein Bangladesh

3 . 2 K E Y M I L E S T O N E

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3 . 3 L B S L O R G A N O G R A M

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Vision of LBSL:

Growing together with our stakeholders by implementing the most comprehensive, efficient and state of the art brokerage platform to maintain the excellence and maximize the wealth of shareholders. Mission of LBSL:

Providing Quality Product and Services Ensuring the Use of State of the Art Technology Being the Hub of International Investment Demonstrating Comprehensive Integrity with Market Maintaining Corporate Governance Promoting Research and Analysis Involving in Continuous Process Improvement

Goals of LBSL:

“To lead by example through a commitment that empowers the organization at every level to

strive for the highest levels of quality, customer care and stakeholder value. To be the most

sought after facilitator in creating wealth. To optimize the value of being our Customer,

Shareholder or Employee. To establish strong regional presence”

3 . 4 L B S L P H I L O S O P H Y

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LBSL has some strategic priorities which it believes to be maintained in operating the

organization. These are

Offloading share to the equity market as soon as possible.

Expand its business all over the country by opening new branches.

Diversifying operation through strategic investment in other organization and in bond

market.

Further improvement of asset quality.

Smooth penetration in the capital market.

Updating back office software as well as develop new software to support internet trading

and swift data processing.

Arranging different business promotion program such as road show in side as well as outside

of the country, international capital market investor conference etc.

Train up employees through attending in national and international training program to

enrich their competence.

To become cost efficient organization.

Increase intrinsic value of the company by strengthening internal controls through

installation of clearly laid down policies, procedures and processes.

Strengthen risk management.

Increased and focused Corporate Social Responsibility (CSR).

Exceptional quality and professionalism in its service offering to clients An experienced and dedicated senior management team A trained and professional sales team A competent equity market research unit The widest network of local branches (Dhaka, Chittagong & Sylhet) Ability to provide a one stop service offering at all its branches State of the art technology utilized in trade execution and back office and reporting systems International affiliation

3 . 6 U N I Q U E K E Y P R O P O S I T I O N O F L B S L

3 . 5 S T R A T E G I C P R I O R I T I E S

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LankaBangla Securities Limited offers various kinds of services all over the country, which

includes the followings:

1. Brokerage Services

“Trade Execution Service” for clients in Dhaka and Chittagong Stock Exchange

Trading of portfolio accounts maintained with the Merchant Banking Division of

LankaBangla Finance Limited and IDLC Finance Ltd.

Custodial Services provided for clients for safe custody of securities.

Extend credit facilities through Margin Trading.

2. Trading Facility through NITA (Non Resident Investor’s Taka Account)

LBSL has successfully launched services of NITA Trading through which Non-Resident

Bangladeshis (NRBs) are able to transact under Non-resident Investor's Taka Account (NITA).

The Company is also dedicated to use extensive recourses to offer new products and services to

the existing clients and also to attract new clients. Our choice of an object oriented approach and

using the latest technology has given us the flexibility to extend our product & service range as

well as ensuring performance, security and scalability.

3. Internet Trading

Since CSE has introduced Internet Trading System in Bangladesh and simultaneously LBSL has

adopted this trading facilities for its distance clients for trade execution. In addition our steps

toward internet trading through CSE TWS not only enriching the door of potential clienteles but

also ensuring our participation in the development of Bangladesh Capital Market.

4. CDBL Services

Full Depository Participant (DP) Service.

BO (Beneficial Owner) account opening and maintenance.

Dematerialization and Re-materialization of securities.

Transfers and transmission of securities through CDBL.

3 . 7 S E R V I C E S O F L B S L

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5. Research Services:

LankaBangla Securities Ltd is supported by a competent research team that provides services

among others included:

Economic, market, sector and listed company research reports.

A daily stock market report and market commentary.

A monthly publication on the equity market.

Customized economic and capital market related research.

Designing of training & development sessions related to the capital markets.

6. Trade Execution Service:

LankaBangla Securities Limited provides Trade Execution Service to the clients in the both Dhaka Stock Exchanges & Chittagong Stock Exchanges.

1. CTA (Cash Trading Account)

Definition:

CTA (Cash Trading Account) is a facility that is provided to clients for trading with their own finance.

Features:

Orders can be received through email, telephone or fax. Trade execution confirmation is provided to client. Regular emailing of Portfolio Statement.

Eligibility:

Any citizen of Bangladesh. Age must be above eighteen.

3 . 8 P R O D U C T S S O F L B S L

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Document Requirement:

For Inst itut ional Trading Account :

Board Resolution. Memorandum and Articles of association. Specimen signature of account operators. Letter of Authorization. A valid photo ID of the Managing Director. Valid photo ID of Account Operator(s).

For Individual Trading Account :

Account Opening Form and Signature Card duly filled up. Valid passport or nat ional ID card photocopy. Two copies passport size photograph of account holder. One copy passport size photograph of authorized person ( if

any).

2. FTA(Foreign Trading Account)

Definition:

FTA (Foreign Trading Account) is a facilit y that is provided to the foreign inst itut ional clients, comprising of different funds, internat ional brokers, banks etc, who are interested in t rading Bangladeshi secur it ies.

Features:

Dedicated booth for foreign trades with access to Bloomberg terminal on the trading desk.

Orders can be received through email, Bloomberg EMSX, IB, fax. Trade execution confirmation can be provided through email, Bloomberg EMSX, IB, fax

(according to client preference). Settlement done through DvP – RvP basis. Execution updates are provided time to time

Eligibility:

Foreign intuit ional clients only.

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Board resolution authorizing the account opening and the signatories to sign on behalf of the company.

Specimen Signature (included separately or in attached account opening form). Copy of the Memorandum and Articles of Association. Copy of the Certificate of Incorporation. One Copy of a valid photo ID of each account operator. Valid photo ID of the CEO/Managing Director of the company

3. MTA (Margin Trading Account)

Definition:

MTA (Margin Trading Account) is a facilit y that is provided to clients for trading with margin loan. The margin loan and interest rate can be var ied with respect to market condit ion.

Features:

Orders can be received through email, telephone or fax. Trade execution confirmation is provided to client. Regular emailing of Portfolio Statement.

Eligibility:

Any cit izen of Bangladesh. Age must be above eighteen.


For Inst itut ional Trading Account :

Board Resolut ion. Memorandum and Art icles of associat ion. Specimen signature of account operators. Letter of Authorizat ion. A valid photo ID of the Managing Director. Valid photo ID of Account Operator(s).

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For Individual Trading Account :

Account Opening Form and Signature Card duly filled up. Valid passport or nat ional ID card photocopy. Two copies passport size photograph of account holder. One copy passport size photograph of authorized person ( if

any).

4. NITA (Non Resident Investors Taka Account)

Definition:

NITA (Non Resident Investors Taka Account) is a facilit y that is provided to non-resident individuals/ inst itut ions including non-resident Bangladeshi nat ionals who are interested in t rading Bangladeshi secur it ies against foreign exchange remit ted from abroad.

Features:

Non-resident portfolio investors have to open a Non-resident Investors Taka Account (NITA) with any authorized dealer in Bangladesh funding the purchase and easy repatriation of the sales and income proceeds.

Securities can be purchased only through a member/registered broker of the stock exchange. E.g. LankaBangla Securities Ltd. (LBSL). However, public issues not yet listed in a stock exchange can be bought directly from the issuing company.

For the purpose of trading securities, investors need to open a security account/trading account with stock broker listed with the exchanges. E.g. LBSL

Funds from NITA can be used to purchase shares and securities listed in a stock exchange.

The balances in this account are freely remittable abroad in foreign exchange.

Eligibility:

Non-Resident individuals (Foreigners and NRBs). Foreign intuitions. Institutions located abroad which are owned by NRBs.

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For Institutional Trading Account:

Company NITA A/C number with custodial bank or A/C statement. Board Resolution. Memorandum and Articles of association. Specimen signature of account operators. Letter of Authorization. A valid photo ID of the Managing Director. Valid photo ID of Account Operator(s)

For Individual Trading Account:

Account Opening Form and Signature Card duly filled up. Individual NITA A/C Number with custodial bank or A/C statement. Valid passport or national ID card photocopy. Two copies passport size photograph of account holder. One copy passport size photograph of authorized person(if any).

19 | P a g e

Million BDT Particulars 2011 2010 2009 2008 2007 Revenue from brokerage 758.51 1886.9 842.74 376.28 204.10 Capital gain from investment in share 11.94 86.38 9.92 5.37 0.00 Interest Income 82.93 69.19 19.32 14.37 22.39 Operating Income 1231.06 2,096.79 877.84 397.30 219.52 Profit before tax 1066.57 1811.05 698.27 277.84 140.07 Profit after tax 747.62 1,530.59 638.15 252.82 126.82 Shareholders’ equity 4716.76 4,402.27 1612.64 481.09 228.27 Total asset 7698.24 6,535.55 2012.44 602.93 291.98 Return on Equity 15.85% 34.77% 39.58% 52.55% 55.56% Table #2: Financial Highlight of LBSL

Analysis:

LankaBangla Securities Limited (LBSL) has lost its net profit in 2011. But it earn an astounding 139.85% growth in Net Profit in 2010 to BDT 1530.58 million largely backed by a quantum growth of 123.91 percent of Brokerage Income. Further analysis of Net Profit in 2011 decrease by 70% reveals that LBSL has been able to control its operating expenses which have decreased by 8% percent only. The balance sheet of the company strengthened in 2011. Shareholders’ Equity increased by 7% in 2011. Finally the Balance Sheet size of LBSL i.e. Net Total Asset increased significantly by 15% and reached at BDT 7698.24 million as on 31 December, 2011.

3 . 9 F I N A N C I A L H I G H L I G H T S O F L B S L

Chapter # 4

Methodology & Analysis

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In this report I divided the research part in to two segments. First is financial analysis and second is statistical analysis.

1. Financial Analysis: Here I include company and industry analysis. i. Under company analysis I did all sorts of fundamental analysis. And all

sorts of graph, growth statistics, common size statement analysis etc. have been included in the company analysis.

ii. Under industry analysis percentage of market capitalization, beta, industry growth, and financial statement analysis etc have been included.

2. Statistical Analysis: Here descriptive analysis of all variable, run test, goodness of fit test, correlation, and a multiple regression model have been included.

Research Introduction

Chapter 4.1: Company Analysis

Company in Focus: Lanka Bangla Finance Limited

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Table #3: Company Snapshot (LBFL)

LankaBangla Finance Limited (LBFL) a joint venture financial institution established with multinational collaboration is in operation since 1997 having license from Bangladesh Bank under Financial Institutions Act, 1993. With institutional shareholding structure, educated & motivated human resources, friendly working environment & dynamic corporate culture has enabled LBFL to be a diversified financial services providing institution of the country. Technical support provided by Sampath Bank Limited, Sri Lanka has been working as a catalyst to emerge LBFL as most innovative financial solution provider strictly in compliance with the rules & regulations of Bangladesh Bank. Under the right direction of the resourceful management the company has emerged as one of the leading Financial Institutions in the country. Lanka Bangla is the lone Non-Banking Financial Institution who operates MasterCard & VISA card including third party processing business with other banks. The company is also involved in dealing with Securities as Broker in Capital Market at both DSE & CSE through its Subsidiary named “Lanka Bangla Securities Limited” who is the business leader in this arena. The Merchant Banking Department has been converted into another subsidiary of Lanka Bangla Finance to comply with the statutory regulations who is catering to the premier investment banking services.

Company Snapshot

Paid-up Capital (BDT mn) 1894.00

No of Securities (mn) 189.41

Float 61.23%

Capitalization (BDT) 13978.34

Reserve and Surplust (BDT) 3558.71

Adjusted Price Range (3rd 107.9 – 67.7 Jan, 10 to 7 Oct, 12)

Face Value 10.00

Average Daily Turnover (3rd 778507.5 Jan, 10 to 7 Oct, 12)

Market Lot 500.00

Category A

Year End 31st December

4 . 1 . 1 . B A C K G R O U N D O F L A N K A B A N G L A F I N A N C E L I M I T E D ( L B F L )

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4 . 1 . 2 . S H A R E - H O L D I N G P A T T E R N A N A L Y S I S

Share-outstanding Pattern Sponsor / Director 38.77 Govt 0 Institute 0 Foreign 0

Public 61.23 Table #4: Share-Outstanding Pattern (LBFL)

Out of 189408450 shares 38.77 percentages of shares which is equal to 73433657 numbers of shares is being held by the sponsor director of the company and rest 61.23% which is equal to 115974793 shares is being regularly traded among the general public people. The government holding and institute investors have no shares in their name. Though it is not a good sign for the company that institutional investors are reluctant to invest in this company but the company is fundamentally very strong. Because of the excessive public holding the share price fluctuation is very high of LBFL.

Sponsor Details a. Foreign Sponsor

Sampath Bank Ltd, Srilanka 9.47% b. Local Sponsor

One Bank Ltd. Bangladesh 4.86% SSC Holding Ltd. Bangladesh 1.07% Shanta Apparel Ltd. 1.84% Individual 21.52% Table #5: Sponsor Details (LBFL)

The shares were listed with Dhaka Stock Exchange Ltd. and Chittagong Stock Exchange Ltd, on 17 October, 2006 and 31 October, 2006 respectively and trading started in the both houses from 1 November 2006.

39%

0%0%0%

61%

Share-Outstanding Pattern

Sponsor / Director Govt

Institute Foreign

Public

24%

76%

Sponsor DetailsForeign Sponsor Local Sponsor

0.0

50.0

100.0

150.0

200.0

250.0

3-Ja

n-10

3-M

ar-1

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ay-1

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ay-1

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1

3-Ja

n-12

3-M

ar-1

2

3-M

ay-1

2

3-Ju

l-12

3-Se

p-12

Adjust price graph for LBFL

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Table #6: Growth Statistics (LBFL)

Last 4 years Lanka Bangla Finance Ltd (LBFL) has seen continuous growth. Due to market fall in 2010, the company has experienced tremendous growth fall in the following year. But if we give a closer look in the table it can be infer that company is growing company. It has significantly maintained a good acceleration rate. Despite world recession and liquidity crisis company has continuously maintained a growth rate which enumerated that management efficiency of the company is excellent.

Outlook for 2012

As the market is running bearish so cost of fund is decreasing so the net interest income will increase significantly. But investment income from investing in share market will decrease which is a big part of income composition. So overall income growth composing of all income sources will decrease. And because of low cost of fund the amount of loan and deposit will increase which will be good for the company.

Business Growth Statistics

2008 2009 2010 2011

Net interest income 73.43% 34.06% 41.62% 64.44%

Investment income 36.99% 77.50% 155.79% -

56.89%

Commission and Brokerage income -

98.09% 16.00% 101.37% -

59.61%

Operating income -

11.80% 78.46% 112.02% -

36.27%

Operating profit 91.69% 86.14% 150.06% -

47.91%

Earnings Growth 80.33% 96.05% 147.19% -

53.29% Assets Growth 39.13% 65.21% 43.74% 15.83% Equity Growth 54.43% 127.71% 128.04% 19.42% Deposits Growth

68.72% 2.87% 16.44%

Loans & Advances Growth

37.70% 17.50% 10.19%

4 . 1 . 3 . B U S I N E S S G R O W T H A N A L Y S I S

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By seeing all the graphical presentation it can be said that due to market crash all the growth is negative in the year 2011 except net interest income and deposit. Which explains that for the market crash or fall public tends to deposit more money which they found more secure than investing in capital market. That ultimately increases the investable fund for the institution which results in increase in net interest income.

Graphical Presentation of Growth Statistics

-150.00%

-100.00%

-50.00%

0.00%

50.00%

100.00%

150.00%

200.00%

2008 2009 2010 2011

Net interest income

Investment income

Commission and Brokerage income

Operating income

Operating profit

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

140.00%

2008 2009 2010 2011

Assets Growth

Equity Growth

Deposits Growth


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4 . 1 . 4 D E T A I L E D A N A L Y S I S O F K E Y F I N A N C I A L S

Operating Income Analysis

LBFL Finance had robust operating income growth like most other NBFIs. It had generated robust operating income growth of -11.80%, 78.46%, 112.02% and -36.27% in the year of 20098, 2009, 2010and 2011. Major part of the operating income was contributed from commission, exchange and brokerage. Second best contributor is net interest income. Most of the operating income came from capital market segment. In total 49.53% of the total operating income was directly contributed from capital market operation.

Outlook for 2012

Net interest income growth will remain slow due to increased cost of fund. Commission exchange and brokerage income for LBFL finance is expected to increase slightly as the average turnover in DSE and CSE has started to increase after the drastic fall occurred in FY2010. There will some investment income as the key benchmark index has increased by more than 25%.

0.00%

100.00%

200.00%

2008 2009 2010 2011

net interest income

Income from investments

-11.80%

78.46%112.02%

-36.27%-50.00%

0.00%

50.00%

100.00%

150.00%

2008 2009 2010 2011

Operation Income Growth

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Net Interest Income Analysis

Paradox in Leasing Business All the leasing companies are facing setback in their once prime business after banks entry into this segment. Low cost of fund has enabled banks to charge low interest against lease and term loan financing. Leasing business of LBFL Finance has gone opposite of market trend. The interest earning of LBFL has increased significantly at increasing growth rate, which is fully a paradox to the market. Robust Margin Loan Growth During the last 4 years like most other NBFIs IDLC Finance disbursed significant amount of margin loan through its capital market wing. Till date IDLC has an accumulated balance of 10,438 million margin loan. Interest income from other segments Finance companies are focusing their business to new interest income generating segments. They are increasing their exposure in SME segment, personal finance, and real estate finance. LBFL Finance trying to capture market share in SME and term finance segments.

0

200

400

600

800

1000

1200

2008 2009 2010 2011

net interest income

Expon. (net interest income)

Amount in ml

0

2000

4000

6000

8000

10000

12000

2008 2009 2010 2011

Loans and advances/Investment

Amount in ml

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Investment Income

LBFL Finance has moderate contribution from investment income compared to other leading NBFIs. Contribution of investment income is much higher in the after tax net income. Most of the trading profits are shown in the income statement. This segment represents the most volatile earning source. We expect this segments return to grow or decline with the market movement. At 2011 the growth rate is negative due to the significant downfall in Bangladesh Capital Market.

Outlook for 2012

As 2012 is the year of getting back the position of Bangladesh capital market, we expect LBFL finance will show increase amount of income from the proprietary income segment.

9.31% 9.26% 11.17% 7.56%

90.69% 90.74% 88.83% 92.44%

2008 2009 2010 2011

Income from investments Others

Commission Exchange and Brokerage

Brokerage division of LBFL has started with large market share. Now it has passed 15 years of its brokerage business. It is in the top position for the last few years. And market share of its brokerage is pretty high. Though the market has faced its greatest fall ever in the year 2010-2011 which results negative growth rate in commission and brokerage income and with its skilled dynamic research department it has achieved a distinct position in the market.

Banks are making their entry into the equity brokerage market. So now a days it is very competitive for all brokerage houses to perform its business and fro LBSL it will difficulty to retain its top position of brokerage field.

Outlook for 2012 In 2012 its contribution of securities brokerage is expected to increase as market is recovering from the bearish trend. Though still it is hard to capture the bullish trend but market is now getting back its normal trend. So it is very much expected that the revenue from brokerage commission is expected to increase.

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0

500

1000

1500

2000

2009 2010 2011

Commission, exchange and brokerage

Amount in ml

Loans and Advances

Overall loan portfolio of LBFL Finance Ltd. has made robust growth during past few years. As the equity market is going on bearish trend the amount of loan disbursement is increasing. Though the acceleration rate is negative but the amount of loan disbursement is increasing at a decreasing rate. And as the market goes well the acceleration rate will tend to be positive. That means the amount of loan disbursement will increase at an increasing rate. Outlook for 2012 Margin loan growth will be positive or higher. Term finance and lease finance growth may revive in 2012.

0%5%10%15%20%25%30%35%40%

0.00

2000.00

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6000.00

8000.00

10000.00

12000.00

2008 2009 2010 2011

Loans and advances/Investment

Growth Rate

Amount in ml

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As the market is gaining its bullish trend so the cost of fund is raising. So we can infer there is a positive correlation between cost of fund and capital market index. As the market index going up so the cost of deposit and vice-versa.

Deposit Growth & Cost of Fund

LBFL is one of the largest public deposits holding NBFI in the industry. Deposit collection growth rate in 2009 was 68.72%, in 2010 it was 2.87% and in 2011 it was 16.44.Cost of fund on 2010 had decline due to the ease of the money market and on 2011 it regain its past cost.

Outlook 2012

In the uncertain and volatile money market both the deposit collection cost and bank borrowing cost will rise significantly. Bank borrowing will be difficult to obtain.

2008 2009 2010 2011

Deposits and other accounts: 2627.30 4432.90 4560.00 5309.62

Growth 68.72% 2.87% 16.44%

00.10.20.30.40.50.60.70.80.91

0.00

1000.00

2000.00

3000.00

4000.00

5000.00

6000.00Deposit Amount With Growth

2008 2009 2010 2011

Cost of deposit 13.83% 11.58% 11.28% 13.98%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

Cost of deposit

Amount in ml

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Asset Quality

LBFL Finance has modest amount of non-performing loan in its portfolio compared to other NBFIs. Overall NPL ratio slightly declined to 6.51% from 7.90% in 2011. Provisioning coverage was also very poor compared to industry average and banking industry. Provisioning coverage was only 1.45% compared to 1.41% in 2009. Though the absolute amount might have increased but relative percentage increase was negative.

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

0.00

100.00

200.00

300.00

400.00

500.00

600.00

700.00

800.00

900.00

1000.00

2008 2009 2010 2011

Non-performing loan (ml)

NPL Ratio

Composition of Capital

By analyz ing the growth rate it can be said that the amount of deposit is increasing but not at an increasing rate. The growth rate was lower in 2010 due to bullish market but as the market goes to bear ish t rend deposit growth rate increased.

0

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2008 2009 2010 2011

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Borrowings from other banks, financial institutions and agents

Growth of Deposit

Amount in ml

Amount in ml

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0.00

5000.00

10000.00

15000.00

20000.00

25000.00

30000.00

2008 2009 2010 2011

Total assets Total assets

Expon. (Total assets)

Total Asset Analysis

By analyz ing the growth rate it can be said that the amount of total asset is increasing but not at an increasing rate. The growth rate was lower in 2010 due to bullish market but as the market goes to bear ish t rend total asset growth rate increased.

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LBFl (company) Ratio

2008 2009 2010 2011

Liquidity Ratios (Times) Current Ratio 1.46 1.32 1.18 1.15

Quick Ratio 1.28 1.17 0.99 0.96

Cash Ratio 0.06 0.26 0.25 0.34

Liquid Assets to Total Deposits 0.32 0.25 0.41 0.40

Loans (Gross)/ Total Deposits 2.23 1.82 2.08 1.97

Asset Quality Ratio

NPL Ratio 6.13% 5.38% 7.90% 6.51%

Provision Coverage 1.96 0.77 1.41 1.45

Non-performing loan (ml) 375.81 496.40 897.56 925.61

Growth Indicators

Net interest income 34.06% 41.62% 64.44%

Investment income 36.99% 77.50% 155.79% -56.89%

Commission and Brokerage income -98.09% 16.00% 101.37% -59.61%

Operating income -11.80% 78.46% 112.02% -36.27%

Operating profit 91.69% 86.14% 150.06% -47.91%

Earnings Growth 80.33% 96.05% 147.19% -53.29%

Assets Growth 39.13% 65.21% 43.74% 15.83%

Equity Growth 54.43% 127.71% 128.04% 19.42%

Deposits Growth 68.72% 2.87% 16.44%

Loans & Advances Growth 37.70% 17.50% 10.19%

Efficiency Ratios

Interest Expense/ Interest Income 74.81% 67.40% 63.46% 59.21%

Investment Income to Investment Assets 31.71% 7.82% 15.34% 4.26%

Interest Yield 14.17% 13.93% 14.25% 18.93%

Cost of Funds 13.83% 11.58% 11.28% 13.98%

Net Spread 0.34% 2.35% 2.97% 4.95%

Net interest margin 3.85% 5.49% 6.01% 7.89%

Profitability Indicators

ROA(Return on Assets) 4.66% 5.54% 8.80% 3.53%

ROAA (Return on Average Asset) 25.34% 33.25% 33.16% 10.50%

Price Earnings Ratio (times) 20.04 22.41 15.56 17.72

ROE (Return on Equity) 40.94% 35.42% 35.49% 13.83%

Net Profit Margin 45.44% 49.92% 58.21% 42.66%

Gross Profit Margin 68.49% 71.43% 84.25% 68.87%

4 . 1 . 5 R A T I O A N A L Y S I S O F L B F L

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Last 4 years common size statement of Lanka Bangla finance Limited:

Common size Statement (percentage of Total Asset)

Statement of financial Position 2008 2009 2010 2011

Property and assets

Cash: 0.44% 0.40% 0.48% 0.53% Balance with other banks and financial institution 10.02 7.70 9.14 9.04

Money at call and short notice/Placement with banks & other financial institution 0.00 0.00 0.00 0.00 Investment in shares & securities 3.01 13.13 11.90 15.95 Loans and advances/Investment 71.95 59.97 49.02 46.64 Land, building, furniture and fixtures (including leased assets) 1.05 0.69 1.01 0.84 Other assets 13.54 18.11 28.45 27.00

Total assets 100.00% 100.00% 100.00% 100.00%

Shareholder's equity & Liability Borrowings from other banks, financial institutions and agents 39.47 37.82 32.87 37.78

Deposits and other accounts: 32.29 32.98 23.60 23.72 Other liabilities 16.90 13.58 16.96 11.27

Total liabilities 88.66% 84.37% 73.43% 72.78%

Shareholder's equity 11.34 15.63 24.79 25.56

Minority Interest 0.00 0.00 1.78 1.66

Total liabilities and shareholders' equity 100.00% 100.00% 100.00% 100.00%

Income Statement 2008 2009 2010 2011

Net interest income 2.93% 5.08% 7.19% 11.82% Income from investments 0.96 1.70 4.34 1.87 Commission, exchange and brokerage 0.00 11.55 23.25 9.39 Other operating income 6.38 0.00 4.06 1.67 Total operating income 10.26 18.32 38.84 24.75 Total operating expenses 3.23 5.23 6.12 7.70 Profit before provision against loans and advances 7.03 13.09 32.72 17.05 Total provision 1.21 1.92 4.07 1.02 Profit for the year before taxation 5.82 11.16 28.65 16.03 Provision for tax 1.16 2.02 6.04 5.47 Net profit after tax for the year 4.66 9.14 22.61 10.56

Source: Annual Financial Statement

4 . 1 . 6 C O M M O N S I Z E S T A T E M E N T O F L B F L

Chapter 4.2: Industry Analysis

Industry in Focus: Financial Institutions

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Industry Snapshot Paid-up Capital (BDT mn) 20438.96 Number of listed Company 22 Capitalization (BDT) 163,911,375,872 Sector PE 19.1 Sertor Earning 8,714,468,569 Sector Beta 0.905396574

Table #7: Industry Snapshot

Financial institution sector is the 4th highest sector in term of market capitalization. Non-Bank Financial Institutions (NBFIs) are those institutions that are licensed and controlled by the Financial Institutions Act of 1993 (FIA 93). NBFIs give loans and advances for industry, commerce, agriculture or housing; carries on business of hire purchase transactions including leasing of machinery or equipment; involves in business of the underwriting or acquisition of, or the investment or re-investment in shares, stocks, bonds, debentures or debenture stock or securities issued by the government or any local authority; finances venture capital; gives loan for house building and property purchases and uses its capital to invest in companies. The major differences of NBFIs with commercial banks are that the former cannot accept any deposit which is payable on demand by cheques, drafts or orders drawn by the depositor and cannot deal in foreign exchange. Starting from the IPDC in 1981, a total of 29 NBFIs are now working in the country as of October, 2012. And out of 29 NBFI 22 companies are listed at DSE and CSE.

The lease financing practices in Bangladesh have grown significantly within the last 10 years. Competition among the leasing companies has grown stronger with the growth of the NBFIs, besides entrance of commercial banks in the lease financing market who have the advantage of lower costs of fund compared to the NBFIs. Currently, out of 29 NBFI, 22 specialize in lease financing. As per central bank data released in May 2011, lease financing constituted 64.5% of total long term assets, with the rest consisting mainly of term financing.

For NBFIs the prime sources of funding are loans from commercial banks and other financial institutions, term deposits from the public, funds from capital market by issuing shares, debentures, bonds etc. and loan facilities from the international agencies like ADB, IDA, IFC etc. NBFIs are mostly dependent on funds from the credit lines of the commercial banks at a relatively higher rate of interest ranging up to 15%. Moreover, they have to provide high and expensive collateral securities like fixed deposits at the time of borrowing fund from the commercial banks. Raising fund from capital market is a prospective way to reduce dependency on borrowed funds and boost up the activities of NBFI’s in an efficient manner.

4 . 2 . 1 . I N D U S T R Y S N A P N O N B A N K I N G F I N A N C I A L I N S T I T U T I O N ( N B F I s )

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The financial system of Bangladesh is comprised of three broad fragmented sectors:

1. Formal Sector, 2. Semi-Formal Sector, 3. Informal Sector.

The sectors have been categorized in accordance with their degree of regulation. The formal sector includes all regulated institutions like Banks, Non-Bank Financial Institutions (NBFIs), Insurance Companies, Capital Market Intermediaries like Brokerage Houses, Merchant Banks etc The semi formal sector includes those institutions which are regulated otherwise but do not fall under the jurisdiction of Central Bank, Insurance Authority, Securities and Exchange Commission or any other enacted financial regulator. This sector is mainly represented by Specialized Financial Institutions like House Building Finance Corporation (HBFC), Palli Karma Sahayak Foundation (PKSF), and Samabay Bank, Grameen Bank etc., Non Governmental Organizations (NGOs and discrete government programs. The informal sector

• NBFIs cannot issue cheques, pay-orders or demand drafts.

includes private intermediaries which are completely unregulated. Non Bank Financial Institutions (NBFIs) are those types of financial institutions which are regulated under Financial Institution Act, 1993 and controlled by Bangladesh Bank. Now, 31 NBFIs are operating in Bangladesh while the maiden one was established in 1981. Out of the total, 2 is fully government owned, 1 is the subsidiary of a SOCB, 13 were initiated by private domestic initiative and 15 were initiated by joint venture initiative. Major sources of funds of NBFIs are Term Deposit (at least six months tenure), Credit Facility from Banks and other NBFIs, Call Money as well as Bond and Securitization. The major difference between banks and NBFIs are as follows:

• NBFIs cannot receive demand deposits, • NBFIs cannot be involved in foreign exchange financing, • NBFIs can conduct their business operations with diversified financing modes like

syndicated financing, bridge financing, lease financing, securitization instruments, private placement of equity etc.

If we consider the case of LankaBangla Finance Limited, it has started its operation in 1996. Since then, the NBFI is excelling in a rapid manner. The growth of capital and cliental base has been tremendous. And LankaBangla not only established its reputation in the market, it is also looking into the other spheres of banking as well. It has already opened merchant banking wing, securities and asset management far. And it has a long term view to convert its total operation into Investment banking system.

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Out of 100% market capitalization 8% is covered by NBFI sector (on 11th

The major source of income for any NBFI is interest income. Because every nbfi's main business is giving different terms loans. so the major portion of income comes from interest income. And as the graph suggests the amount of interest income is increasing day by day. Then second major source is investment income is investment income. From the bar chart it can be clearly see the amount of investment income was high in the year 2010 due to rapid index growth in DSE and CSE. As the market was bearish in year 2011 we can see there is a acute fall of investment income in the year 2011. Almost every major NBFI has brokerage or security extension like lanka bangla finance has lanka bangla securities, IDLC has IDLC securities etc. So it is another big source of income. Then also NBFI has income from dividend income and other operating income.

October, 2012). That is pretty high and ranks as number 4 in Bangladesh Capital Market. .

4 . 2 . 2 M A R K E T C A P I T A L I Z A T I O N O F N B F I I N D U S T R Y

4 . 2 . 3 C O M P O S I T I O N O F I N C O M E

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Amount in ml

Amount in ml

The amount of industry income was highest in the year 2010 as the capital market was bullish but as the market moved to bearish trend the amount of income tends to decrease. But the situation might improve in the year 2012. Because slowly market is getting back its bullish trend. And also world economy is recovering from the recession.

0.00

5000.00

10000.00

15000.00

20000.00

25000.00

30000.00

2008 2009 2010 2011

Other Operating Inocme

Dividend

Commisssion, Exchange & Brokerage

Income from Invesetment

Interest Income

-0.5

0

0.5

1

1.5

0.00

5000.00

10000.00

15000.00

20000.00

2008 2009 2010 2011

Net profit after tax for the year Growth Rate

4 . 2 . 4 I N C O M E G R O W T H

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Industry Growth Statistics

2009 2010 2011


Investment income -4.32% 170.29% -39.80%

Commission and Brokerage income 174.76% 99.64% -38.57%

Operating income 23.08% 91.71% -16.70%

Operating profit 23.05% 104.10% -24.38%

Earnings Growth 51.84% 127.15% -30.66%

Assets Growth 128.42% 135.24% 112.46%

Equity Growth 136.57% 245.89% 115.23%

Deposits Growth 31.30% 20.09% 14.36%


Table #8: Industry Growth

Source: Annual Financial Statement analysis

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

2009 2010 2011

Commission and Brokerage income

Investment income

Net interest income

4 . 2 . 5 I N D U S T R Y G R O W T H

Growth Analysis

By analyzing the growth rate it can be stated that except investment income all other composit ion of income has significant ly fa l l down due to bear ish t rend of market .

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0.00%20.00%40.00%60.00%80.00%

100.00%120.00%140.00%160.00%180.00%200.00%220.00%240.00%260.00%

2009 2010 2011

Assets Growth

Equity Growth

Deposits Growth


Growth Analysis Continues

By analyz ing the growth rate it can be stated that all the major components of balance sheet are in declining t rend. Though the amount of Total asset , deposit , loans, equity are increasing but at a decreasing rate. As the market goes well and income starts generat ing the growth rate will be higher.

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2008 2009 2010 2011

Liquidity Ratios (times)

Current Ratio 3.35 3.42 3.54 3.53

Quick Ratio 2.80 2.91 3.01 3.07

Cash Ratio 0.46 0.42 0.30 0.21

Loans (Gross)/ Total Deposits 1.40 1.33 1.44 1.46

Growth Indicators


Investment income -4.32% 170.29% -39.80%

Commission and Brokerage income 174.76% 99.64% -38.57%

Operating income 23.08% 91.71% -16.70%

Operating profit 23.05% 104.10% -24.38%

Earnings Growth 51.84% 127.15% -30.66%

Assets Growth 28.42% 35.24% 12.46%

Equity Growth 36.57% 145.89% 15.23%

Deposits Growth 31.30% 20.09% 14.36%


Efficiency Ratios

Interest Expense/ Interest Income 74.16% 72.05% 67.93% 68.40%

Investment Income to Investment Assets

30.76% 19.11% 23.06% 11.62%

Interest Yield 15.44% 14.13% 12.50% 14.04%

Profitability Indicators

Net Profit Margin 42.10% 51.94% 61.54% 51.23%

Gross Profit Margin 81.31% 81.29% 86.54% 78.56%


4 . 2 . 6 R A T I O A N A L Y S I S O F N B F I I N D U S T R Y

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Company Name

Basic Ratio Yearly Growth 2011

Price to Book Value

Price to Earnings

Ratio

Non Performing Loan (%)

Net Interest Income (%)

Total Operating

Income (%)

Net Income Growth (%)

Bay Leasing & Investment Limited )

1.73 19.17 17.12 214.90 -68.41 -57.19

Bangladesh Finance and Investment Co.Ltd

2.31 31.43 9.58 -70.03 -79.33 -95.95

Bangladesh Industrial Fin. Co. Ltd.

2.22 -8.2 13.14 100.37 -36.31 -92.72

Delta Brac Housing Finance Corp. Ltd

3.71 16.04 0.14 16.52 22.04 63.35

FAS Finance & Investment Limited

1.91 -69.68 9.28 99.74 -14.62 -91.42

First Lease Finance and Investment Ltd

3.30 16.68 9.28 -4.21 0.08 -40.65

GSP Finance Company (Bangladesh) Limited

2.57 26.34 14.19 -25.19 -53.62 -56.51

ICB 2.07 12.99 6.45 26.23 16.84

IDLC Finance Ltd 3.31 27.41 2.32 24.95 -29.11 -62.30

International Leasing & Financial Serv.L

2.34 57.73 9.27 -24.77 -67.19 -116.49

Industrial Prom. & Dev. Co. of BD Ltd

1.22 -46.09 13.04 -26.27 -23.70 -36.62

Islamic Finance & Investment Ltd

2.64 23.45 32.21 -11.60 -77.71

LankaBangla Finance ltd 2.36 26.56 6.51 64.44 -36.27 -53.29

MIDAS Financing Ltd. 2.91 -16.88 5.58 52.41 7.48 -60.37

National Housing Fin. and 3.42 533.75 6.42 3.74 -14.71 -28.24

4 . 2 . 7 K E Y I N F O R M A T I O N O F N B F I I N D U S T R Y

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Inv. Ltd.

Phoenix Finance and Investments Ltd

2.77 17.58 3.80 -3.78 -44.63 15.60

Peoples Leasing and Fin. Services Ltd

0.35 18.39 11.47 30.28 -25.97 -49.07

Premier Leasing & Finance Limited

0.49 36.17 6.24 70.91 0.16 -47.16

Prime Finance & Investment Ltd

0.52 46.06 6.48 -18.09 -45.43 -55.37

United Leasing 0.73 21.63 4.07 1.35 7.30 -43.60

Union Capital Limited 0.84 254.17 9.52 51.16 -51.60 -68.77

Uttara Finance 0.53 10.96 2.73 104.88 70.56 -4.10

Table #9: Industry Information


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Company Name

4 Year Growth History (CAGR)

Net Profit Growth

Operating Income Growth

Total Asset Growth

Deposit Growth

Loan & Advances Growth

Bay Leasing & Investment Limited )

80.15% 61.13% 19.28% -7.12% 19.10%


-46.29% -8.88% 24.20% 30.29% 29.66%

Bangladesh Industrial Fin. Co. Ltd.

-31.89% 15.18% 25.90% 37.00% 34.22%

Delta Brac Housing Finance Corp. Ltd

41.69% 32.03% 30.55% 21.64% 30.32%

FAS Finance & Investment Limited

-45.15% 25.22% 27.47% 264.28% 22.69%

First Lease Finance and Investment Ltd

-9.66% 8.20% 32.51% 53.17% 31.32%


Not listed

ICB 48.06% 25.19% 28.68% 22.68% 32.75%

IDLC Finance Ltd 7.18% 22.36% 21.58% 26.18% 19.21%

International Leasing & Financial Serv.L

-179.39%

12.25% 14.40% 23.09% 23.24%

Industrial Prom. & Dev. Co. of BD Ltd

2.44% 2.75% 1.35% 14.43% -4.10%

Islamic Finance & Investment Ltd

-21.39% 26.20% 19.91% 20.15% 16.20%

LankaBangla Finance ltd 31.30% 34.09% 40.11% 26.43% 21.26%

MIDAS Financing Ltd.

National Housing Fin. and Inv. Ltd.

9.68% 7.18% -4.34% -14.75% 8.33%

4 . 2 . 8 C O M P O U N D A N N U A L G R O W T H R A T E O F N B F I I N D U S T R Y

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Phoenix Finance and Investments Ltd

35.91% 2.48% 17.10% 16.44% 15.28%

Peoples Leasing and Fin. Services Ltd

41.41% 35.53% 39.38% 40.99% 39.03%

Premier Leasing & Finance Limited

16.00% 20.18% 17.08% 12.40% 10.45%

Prime Finance & Investment Ltd

39.28% 39.04% 39.06% 25.61% 36.92%

United Leasing 11.71% 14.76% 5.60% 10.89% 2.69%

Union Capital Limited 28.09% 26.80% 34.22% 43.20% 25.40%

Uttara Finance 40.56% 28.17% 18.44% 9.80% 13.88%

Table #10: Industry CAGR


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Company Name Beta Company Name Beta

Bay Leasing & Investment Limited ) 1.0173 Islamic Finance & Investment Ltd 1.0833


1.2731 LankaBangla Finance ltd 1.0674

Bangladesh Industrial Fin. Co. Ltd. 1.1285 MIDAS Financing Ltd. 1.0042

Delta Brac Housing Finance Corp. Ltd 0.8694 National Housing Fin. and Inv. Ltd. 0.9910

FAS Finance & Investment Limited 1.0992 Phoenix Finance and Investments Ltd

1.1214

First Lease Finance and Investment Ltd 1.1094 Peoples Leasing and Fin. Services Ltd

1.1832


1.4987 Premier Leasing & Finance Limited 1.1612

ICB 0.6465 Prime Finance & Investment Ltd 1.0987

IDLC Finance Ltd 0.8812 United Leasing 1.0135

International Leasing & Financial Serv.L 1.0480 Union Capital Limited 1.1584

Industrial Prom. & Dev. Co. of BD Ltd 1.1314 Uttara Finance 1.0394

Table #11: Industry’s Company Beta

Source: www.stockbangladesh.com

*Beta is calculated on 12 October, 2012

Beta Decision:

If B < 0, The stock moves contrary to the market in an inverse relationship. As the market increases, the value of this stock is expected to decrease.

If B = 0, The stock’s returns are unrelated to market moves.

If 0 < B < 1, The stock is expected to move more slowly than the market.

If B = 1, The stock should move in a manner very similar to the market as a whole.

If B > 1, The stock has proven over time to be more volatile than the market.

4 . 2 . 9 I N D I V I D U A L B E T A O F N B F I I N D U S T R Y

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Last 4 years common size statement of NBFI Industry:

Statement of Financial Position 2008 2009 2010 2011

Property & Asset

Cash: 11.47% 9.85% 6.37 4.27

Balance with other banks and financial institution 5.57 5.86 6.24 4.60

Money at call and short notice/Placement with banks & other financial institution

0.03 0.00 0.62 0.64

Investment in shares & securities 8.22 9.86 16.33 17.35

Loans and advances/Investment 65.82 63.82 61.23 63.07

Land, building, furniture and fixtures (including leased assets)

0.84 1.16 1.57 1.61

Other assets 8.01 9.42 7.61 8.45

Non-Financial Assets 0.04 0.04 0.02 0.02

Total assets 100.00% 100.00% 100.00% 100.00%

Liabilities and shareholder's equity

Borrowings from other banks, financial institutions and agents

24.73% 23.26% 21.02% 20.55%

Deposits and other accounts: 46.91 47.96 42.59 43.31

Other liabilities 15.36 15.09 11.40 10.39

Long term liability - Bond 0.00 0.00 0.00 0.00

Subordinated Debt/Mudaraba bond 0.23 0.11 0.00 0.00

Deferred Tax Liabilities/(Assets) 0.00 0.00 0.00 0.00

Total liabilities 87.23 86.42 75.01 74.24

Shareholder's equity 12.77 13.58 24.69 25.30

Minority Interest 0.00 0.00 0.30 0.46

Total liabilities and shareholders' equity 100.00% 100.00% 100.00% 100.00%

4 . 2 . 1 0 C O M M O N S I Z E S T A T E M E N T O F N B F I

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Last 4 years common size statement of NBFI Industry (Continues)

Income Statement 2008 2009 2010 2011

Net interest income 2.85% 2.75 2.73 3.03

Income from investments 2.53 1.88 3.77 2.02

Commission, exchange and brokerage 0.67 1.43 2.10 1.15

Dividend 0.17 0.17 0.15 0.19

Other operating income 0.72 0.41 0.67 0.59

Total operating income 6.93 6.64 9.42 6.98

Total operating expenses 1.33 1.39 1.60 1.61

Profit On Merchant Bank Operation 0.03 0.15 0.32 0.10

Profit before provision against loans and advances 5.64 5.40 8.15 5.48

Non Operating Income 0.01 0.00 0.09 0.01

Total provision 1.75 0.85 0.84 0.40

Profit for the year before taxation 3.89 4.55 7.39 5.08

Provision for tax 0.97 1.10 1.59 1.51

Net profit after tax for the year 2.92 3.45 5.80 3.57


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Table #12: Industry Cost of Fund

Source: Annual Financial Report

Cost of Fund Trend in Last Four Years

2008 2009 2010 2011

Bay Leasing & Investment Limited ) 12.38% 10.02% 11.55% 11.87%

Bangladesh Finance and Investment Co.Ltd 6.18% 13.48% 12.05% 12.09%

Bangladesh Industrial Fin. Co. Ltd. 13.43% 12.64% 11.46% 12.03%

Delta Brac Housing Finance Corp. Ltd 13.43% 12.07% 9.55% 14%

FAS Finance & Investment Limited 13.44% 13.28% 13.62% 17.18%

First Lease Finance and Investment Ltd 14.00% 13.00% 0.00% 12.60%

GSP Finance Company (Bangladesh) Limited (Not listed) 13.48%

ICB 0.00% 0.00% 0.00% 0.00%

IDLC Finance Ltd 12.63% 10.44% 10.07% 12.33%

International Leasing & Financial Serv.L 12.62% 12.13% 10.54% 13.79%

Industrial Prom. & Dev. Co. of BD Ltd 12.39% 11.58% 9.91% 11.26%

Islamic Finance & Investment Ltd 0.00% 0.00% 0.00% 0.00%

LankaBangla Finance ltd 13.83% 11.58% 11.28% 13.98%

MIDAS Financing Ltd. 0.00% 11.75% 11.82% 12.22%

National Housing Fin. and Inv. Ltd. 13.45% 10.49% 10.20% 12.42%

Phoenix Finance and Investments Ltd 14.14% 11.90% 11.28% 13.25%

Peoples Leasing and Fin. Services Ltd 11.88% 9.95% 9.75% 10.32%

Premier Leasing & Finance Limited 13.89% 12.23% 12.56% 13.65%

Prime Finance & Investment Ltd 0.00% 11.25% 11.15% 13.39%

United Leasing 12.30% 11.97% 0.00% 12.88%

Union Capital Limited 0.00% 11.96% 11.99% 15.20%

Uttara Finance 13.16% 12.53% 10.14% 11.99%

4 . 2 . 1 1 C O S T O F F U N D O F N B F I I N D U S T R Y

Chapter 4.3.: Statistical Analysis Part

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STATISTICAL RESEARCH TOPIC

The effect of other Independant variables (Total assets, Total liability, Total equity, Term deposit, Operating revenue, Operating expense) on Financial performance (net profit) of LankaBangla Finance Limited.

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Objective of the study: The objective of the study may be viewed as:

General objective Specific objective

General objective: This internship report is prepared primarily to fulfill the Bachelor of Business Administration degree requirement under department of finance, Jagannath University. Specific objective: More specifically, this study entails the following aspects:

Present a brief view of LankaBangla Finance Limited, and its operation in Bangladesh. To analyze the profitability of LankaBangla Finance Limited with the help of different

statistical tools To test the predetermined hypothesis relating to the financial performances of LankaBangla

Finance Limited, only regarding profitability Significance of the Study: Findings of this study can append to the existing body of the literature, and can give out as a starting point on which future studies can be done. On the realistic aspect, this study may possibly facilitate decision makers of LankaBangla Finance Limited to focus on the major financial activities that may amplify the NBFI ranking and financial performance positions comparing with other NBFIs. Such information should assist the management of this NBFI in creating apposite financial strategies for aligning the required planned financial performance.

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Dependent Variable

Variables of the statistical Research:

Independent Variable

Financial Performance (Net profit) Total Assets, Total Liabilities, Total Equity, Term Deposit, Total Investment Portfolio, Operating Revenue and Operating Expense

Hypothesis: I expect that the financial performance of LankaBangla Finance Limited is affected by other factors. Null Hypothesis: There is no correlation between the financial performances measured by Net Profit and the independent variables (Total Assets, Total Liabilities, Total Equity, Term Deposit, Operating Revenue and Operating Expense) Alternative Hypothesis: There is positive correlation between the financial performances measured by Net Profit and the independent variables (Total Assets, Total Liabilities, Total Equity, Term Deposit, Operating Revenue and Operating Expense) Alternative hypothesis will be accepted if the coefficients of correlations of selected variables are significant at ‘0.05’ level of significance. Otherwise, null hypothesis will be accepted.

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Methodology: The data for this study was gathered from the quarterly financial statements published by the LankaBangla Finance Limited in some selected internal magazines to accomplish the aforesaid objectives. The quarterly data for the selected NBFI during 2008 to 2012 are used in order to assess the profitability of the bank. Any progress of LankaBangla Finance Limited thereafter is thus out of the scope of the report. Help of other sources like annual report, magazines, brochures, journals, newspapers, websites, etc. have also been chosen whenever found necessary. This paper is based on secondary data collection. In processing the data, various methods of conventional statistics were deployed. Frequency distribution, measures of central tendency and dispersion, time series analysis, simple correlation and regression analysis and correlation matrix in some cases calculated data are presented in graph to give the reader a better understanding of financial components. The study uses the major banking activities and is comprised of Total Assets, Total Liabilities, Total Equity, Term Deposit, Operating Revenue and Operating Expense. Also this study tries to explore any kind of variance according to its different variables. Pearson correlation coefficient also used to investigate the correlation between the variables at 5% level of significance according to the SPSS software package. Microsoft excel was also used to produce some graphs and charts.

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For the research, descriptive statistics include the numbers, charts and graphs used to describe, organize and present data on each variable. For the research seven variables were determined: Net Profit, Total Assets, Total Liabilities, Total Equity, Term Deposit, Operating Revenue and Operating Expense. Values of the variables were derived from quarterly statement, half yearly statement and annual statement. Minimum, maximum, sum, mean, standard deviation & variance value for each value is shown in the following table.

Descriptive Statistics

N Minimum Maximum Mean Std. Deviation Variance

Net Profit of The company 16 1.33E7 5.25E8 2.3093E8 1.48573E8 2.207E16

Total Asset 16 7.57E9 2.43E10 1.6490E10 5.79717E9 3.361E19

Total Equity 16 8.59E8 6.78E9 3.6303E9 2.13766E9 4.570E18

Total Liability 16 6.72E9 1.71E10 1.2696E10 3.54747E9 1.258E19

Term Deposit 16 8.77E8 5.94E9 4.0734E9 1.58051E9 2.498E18

Operational Revenue 16 2.E8 9.E8 5.32E8 2.119E8 4.490E16

Operating Expense 16 5.43E7 5.63E8 1.8876E8 1.45116E8 2.106E16

Valid N (listwise) 16 Table #13: Descriptive statistics of all variables

This table provides statistical information about the data set, such as showing mean value of all the seven variables individually and its deviation. For this information, for instance we found that minimum value of the variable Net Profit is 1.33e7ml. Its mean is 2.3093e8 and standard deviation is 1.49e8 ml.

4.3.1 Descriptive Statistics

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In this section, we will look into the graphical representation of the data of all the variables and also see the trends of the variables over time. Figure# 1: Histogram showing frequency distribution of Net Profit

Here, 1= 0 to 120,000,000 2= 120,000,000 to 240,000,000, 3= 240,000,000 to 360,000,000 4= 360,000,000 to 480,000,000, 5= 480,000,000 to 600,000,000

4.3.2 Graphical Representation of Data & Frequency Distribution

Net Profit Analysis

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Figure# 2: Trend of Net Profit

Data Analysis: There are data for 16 quarters for the variable Net Profit. These are all Quarterly data and found from the quarterly unaudited report. Data Interpretation: From the sample size 16, more than 5 data are below or equal to 20crore. Values of two quarters are under 10crore. Maximum 7 value are between 20crore and 30crore. From the trend analysis, we can see that the net profit started to increase gradually from quarter 2. It had a drastic jump in the quarter 6 to 8. And dramatically fall at quarter10 due to market capital market crash.

0.00

100,000,000.00

200,000,000.00

300,000,000.00

400,000,000.00

500,000,000.00

600,000,000.00

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Net Profit

Net Profit

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Figure# 3: Histogram showing frequency distribution of Total Assets

Figure# 4: Trend of Total Asset

0.00

5,000,000,000.00

10,000,000,000.00

15,000,000,000.00

20,000,000,000.00

25,000,000,000.00

30,000,000,000.00

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Total Asset

Total Asset

Linear (Total Asset)

Total Asset Analysis

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Data Analysis: There are data for 16 quarters for the variable Total Assets. These are all Quarterly data and found from the quarterly unaudited report. Data Interpretation: As the trend suggest the amount of total asset is gradually increasing and as the liner line suggest the increase is straight. And most of the total asset is over 20crore. Figure# 5: Histogram showing frequency distribution of Total Liabilities

Total Liability Analysis

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Figure# 6: Trend of Total Liability

Data Analysis: There are data for 16 quarters for the variable Total Liabilities. These are all Quarterly data and found from the quarterly unaudited report. Interpretation: In most of the quarters, liabilities are around 50crores. In very few quarters liabilities are between 100-150crores. And the rest of the quarters it is between 200-250crores. In trend analysis, total liability had the biggest jump from quarter 6 to 7. It had quite some ups and downs in the whole trend.

0.00

2,000,000,000.00

4,000,000,000.00

6,000,000,000.00

8,000,000,000.00

10,000,000,000.00

12,000,000,000.00

14,000,000,000.00

16,000,000,000.00

18,000,000,000.00

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Total Liability

Total Liability

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Figure# 7: Histogram showing frequency distribution of Total Equity

Figure# 8: Trend of Total Equity

0.00 1,000,000,000.00 2,000,000,000.00 3,000,000,000.00 4,000,000,000.00 5,000,000,000.00 6,000,000,000.00 7,000,000,000.00 8,000,000,000.00

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Total Equity

Total Equity

Total Equity Analysis

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Data Analysis: There are data for 16 quarters for the variable Total Equity. These are all Quarterly data and found from the quarterly unaudited report. Interpretation: Most of the quarterly Total Equity values are between 30crore to 60crore. Few quarter values are under 20crore. And overall the trend is saying that as the time passed the absolute amount of total equity has increased. Figure# 9: Histogram showing frequency distribution of Term Deposits

Term Deposit Analysis

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Figure# 10: Trend of Term Deposit

Data Analysis: There are data for 16 quarters for the variable Term Deposits. These are all Quarterly data and found from the quarterly unaudited report. Interpretation: Close to 11 values are over 400crore. As the graph suggested the absolute amount is increasing by the time passed. And it has an acute jump in quarter 6 from quarter 5. It reached its peak in quarter 16.

0.00

1,000,000,000.00

2,000,000,000.00

3,000,000,000.00

4,000,000,000.00

5,000,000,000.00

6,000,000,000.00

7,000,000,000.00

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Term Deposit

Term Deposit

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Figure# 11: Histogram showing frequency distribution of Operating Revenue

Figure# 12: Trend of Operating Revenue

0.00

100,000,000.00

200,000,000.00

300,000,000.00

400,000,000.00

500,000,000.00

600,000,000.00

700,000,000.00

800,000,000.00

900,000,000.00

1,000,000,000.00

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Operating Revenue

Operating Revenue

Operating Revenue Analysis

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Data Analysis: There are data for 16 quarters for the variable Operating Revenue. These are all Quarterly data and found from the quarterly unaudited report. Interpretation: Most of the values are in between 30crore to 60crore. At quarter 10 the profit was high due to excessive return from capital market in the year 2010-2011. And due to market fall an acute fall of operating revenue was seen at quarter 11 and 12. Still the trend is downtrend. Figure# 17: Histogram showing frequency distribution of Operating Expense

Operating Expense Analysis

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Figure# 18: Trend of Operating Expense

Data Analysis: There are data for 16 quarters for the variable Operating Expense. These are all Quarterly data and found from the quarterly unaudited report. Interpretation: All values from quarter 5 are around 10crore. Initially operating expense was a bit high. But as the business expanded the expense come to a static level. Due the establishment cost and other operating inefficiency first few quarters expense was a bit high.

0.00

100,000,000.00

200,000,000.00

300,000,000.00

400,000,000.00

500,000,000.00

600,000,000.00

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Operating Expenses

Operating Expenses

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The assumption of randomness of data is essential for all tests. There are several methods for testing the randomness of observed data. Among them the study used run test which is very popular and easy to apply. It is a nonparametric test. Hypothesis: Null Hypothesis (H0): The sample is random. Alternative Hypothesis (H1)

Table #14: Run test for Total Asset

: The sample is not random.

Decision: As the P-value is less than 0.05 ( p= .001) , we can reject the null hypothesis. So the data of the variable is not random.

Runs Test

Total Asset

Test Valuea 1.6490E10

Cases < Test Value 7

Cases >= Test Value 9

Total Cases 16

Number of Runs 2

Z -3.356

Asymp. Sig. (2-tailed) .001

a. Mean

4.3.3 Test of Randomness

Run Test of Total Asset

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Runs Test

Total Liability




Total Cases 16

Number of Runs 2

Z -3.328


a. Mean

Table #15: Run test for Total Liability


Runs Test

Total Equity




Total Cases 16

Number of Runs 2

Z -3.356


a. Mean Table #16: Run test for Total Equity


Run Test of Total Liability

Run Test of Total Equity

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Runs Test

Term Deposit




Total Cases 16

Number of Runs 2

Z -3.276


a. Mean Table #17: Run test for Term Deposit


Runs Test

Operational

Revenue

Test Valuea 5.32E8



Total Cases 16

Number of Runs 7

Z -.776


a. Mean Table #18: Run test for Operational Revenue

Decision: As the P-value is less than 0.05 ( p= .438) , we can not reject the null hypothesis. So the data of the variable is random.

Run Test of Term Deposit

Run Test of Operational Revenue

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Runs Test

Operating

Expnese




Total Cases 16

Number of Runs 10

Z .555


a. Mean Table #19: Run test for Operational Expense

Decision: As the P-value is less than 0.05 ( p= .579) , we cannot reject the null hypothesis. So the data of the variable is random.

Runs Test

Net Profit of The

company




Total Cases 16

Number of Runs 7

Z -.724


a. Mean Table #20: Run test for Net Profit

Decision: As the P-value is greater than 0.05 ( p= .469) , we cannot reject the null hypothesis. So the data of the variable is random.

Run Test of Operational Expense

Run Test of Net Profit

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The goodness of fit test applies to situation in which we want to determine whether a set of data may be looked upon as a random sample from a population having a given distribution. Normally it is done to find out whether values of variable are normally distributed or not. Kolmogorov-Smirnov goodness of fit test is used in the study. Hypothesis: Null Hypothesis (H0): The values are normally distributed. Alternative Hypothesis (H1)

: The values are normally not distributed.

One-Sample Kolmogorov-Smirnov Test

Net Profit of The

company

N 16

Normal Parametersa Mean 2.4464E8

Std. Deviation 1.31687E8

Most Extreme Differences Absolute .147

Positive .147

Negative -.105

Kolmogorov-Smirnov Z .589


a. Test distribution is Normal.

Table #21: K-W test for Net Profit

Decision: As the P-value is greater than 0.05, we cannot reject the null hypothesis. So the values are normally distributed.

4.3.4 Goodness of Fit Test

K-W test of Net Profit

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Total Asset

N 16




Positive .164

Negative -.134


Asymp. Sig. (2-tailed) .782 a. Test distribution is Normal.

Table #22: K-W test for Total Asset



Total Liability

N 16




Positive .146

Negative -.206




Table #23: K-W test for Total Liability


K-W test of Total Asset

K-W test of Total Liability

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Total Equity

N 16




Positive .164

Negative -.156




Table #24: K-W test for Total Equity



Term Deposit

N 16




Positive .155

Negative -.277

Kolmogorov-Smirnov Z 1.110



Table #25: K-W test for Total Asset


K-W test of Total Equity

K-W test of Term Deposit

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Table #26: K-W test for Operational Revenue


Operational

Revenue

N 16




Positive .157

Negative -.107




Decision: As the P-value is greater than 0.05, we cannot reject the null hypothesis. So the values are normally distributed. Table #27: K-W test for Operational Expense


Operating

Expense

N 16




Positive .308

Negative -.198

Kolmogorov-Smirnov Z 1.233




K-W test of Operational Revenue

K-W test of Operational Expense

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Mean Test: Mean test is the way to find whether the mean of every variable is positive or not. For that, in the study mean test for every variable is done. Table #28: Mean test for all Variable

One-Sample Test

Test Value = 0

t df Sig. (2-tailed) Mean Difference

95% Confidence Interval of the

Difference

Lower Upper

Net Profit of The company 7.431 15 .000 2.44642E8 1.7447E8 3.1481E8

Total Asset 11.378 15 .000 1.64897E10 1.3401E10 1.9579E10

Total Equity 6.793 15 .000 3.63028E9 2.4912E9 4.7694E9

Total Liability 14.315 15 .000 1.26959E10 1.0806E10 1.4586E10

Term Deposit 10.309 15 .000 4.07337E9 3.2312E9 4.9156E9

Operational Revenue 10.034 15 .000 5.315E8 4.19E8 6.44E8

Operating Expnese 5.203 15 .000 1.88757E8 1.1143E8 2.6608E8

Null Hypothesis: Mean of Net Profit is equal to zero Alternative Hypothesis: Mean of Net Profit is not equal to zero Decision: The significance level is lower than 0.05. Therefore, the null hypothesis should be rejected. So it can be stated that mean of Net Profit is not equal to zero.

4.3.5 Mean Test Analysis of each variable

Mean Test of Net Profit

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Null Hypothesis: Mean of Total Asset is equal to zero Alternative Hypothesis: Mean of Total Asset is not equal to zero Decision: The significance level is lower than 0.05. Therefore, the null hypothesis should be rejected. So it can be stated that the mean of Total Assets is not equal to zero. Null Hypothesis: Mean of Total Liability is equal to zero Alternative Hypothesis: Mean of Total Liability is not equal to zero Decision: The significance level is lower than 0.05. Therefore, the null hypothesis should be rejected. So it can be stated that the mean of Total Liability is not equal to zero. Null Hypothesis: Mean of Total Equity is equal to zero Alternative Hypothesis: Mean of Total Equity is not equal to zero Decision: the significance level is lower than 0.05. Therefore, the null hypothesis should be rejected. So it can be stated that the mean of Total Equity is not equal to zero.

Mean Test of Total Asset

Mean Test of Total Liability

Mean Test of Total Equity

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Null Hypothesis: Mean of Term Deposit is equal to zero Alternative Hypothesis: Mean of Term Deposit is not equal to zero Decision: the significance level is lower than 0.05. Therefore, the null hypothesis should be rejected. So it can be stated that the mean of Term Deposit is not equal to zero. Null Hypothesis: Mean of Operating Revenue is equal to zero Alternative Hypothesis: Mean of Operating Revenue is not equal to zero Decision: the significance level is lower than 0.05. Therefore, the null hypothesis should be rejected. So it can be stated that the mean of Operating Revenue is not equal to zero. Null Hypothesis: Mean of Operating Expense is equal to zero Alternative Hypothesis: Mean of Operating Expense is not equal to zero Decision: The significance level is lower than 0.05. Therefore, the null hypothesis should be rejected. So it can be stated that the mean of Operating Expense is not equal to zero.

Mean Test of Term Deposit

Mean Test of Operating Revenue

Mean Test of Operating Expense

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Correlation Test: Correlation test is necessary to see how much positively or negatively the dependent variables are correlated with independent variable. Null Hypothesis: No Positive association between Net profit and Total Asset. Alternative Hypothesis: There is Positive association between Net profit and Total Asset. Table# 29: Correlation test of Net Profit & Total Assets

Correlations

Net Profit Total Asset

Net Profit Pearson Correlation 1 .740**

Sig. (2-tailed) .000

N 29 29

Total Asset Pearson Correlation .740** 1


N 29 29

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

Decision: At the significance level lower than 0.05, correlation between the two variables is 0.740 which is different from zero and very close to one. The P-value (.000) is lower than .05 also indicating a strong correlation. So it can be stated that there is positive association between this two variables. Therefore, null hypothesis can be rejected. Null Hypothesis: No Positive association between Net profit and Total Liability. Alternative Hypothesis: There is Positive association between Net profit and Total Liability.

4.3.6 Correlation Test Analysis

Correlation of Net Profit & Total Asset

Correlation of Net Profit & Total Liability

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Table# 30: Correlation test of Net Profit & Total Liability

Correlations

Net Profit Total Liability



N 29 29

Total Liability Pearson Correlation .730** 1


N 29 29


Decision: At the significance level lower than 0.05, correlation between the two variables is 0.730 which is different from zero and very close to one. The P-value (.000) is lower than .05 also indicating a strong correlation. So it can be stated that there is positive association between this two variables. Therefore, null hypothesis can be rejected. Null Hypothesis: No Positive association between Net profit and Total Equity. Alternative Hypothesis: There is Positive association between Net profit and Total Equity. Table# 31: Correlation test of Net Profit & Total Equity

Correlations

Net Profit Total Equity



N 29 29

Total Equity Pearson Correlation .730** 1


N 29 29


Correlation of Net Profit & Total Equity

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Decision: At the significance level lower than 0.05, correlation between the two variables is 0.730 which is different from zero and very close to one. The P-value (.000) is lower than .05 also indicating a strong correlation. So it can be stated that there is positive association between this two variables. Therefore, null hypothesis can be rejected. Null Hypothesis: No Positive association between Net profit and Term Deposit. Alternative Hypothesis: There is Positive association between Net profit and Term Deposit. Table# 32: Correlation test of Net Profit & Term Deposit

Correlations

Net Profit Term Deposit



N 29 29

Term Deposit Pearson Correlation .555** 1


N 29 29


Decision: At the significance level lower than 0.05, correlation between the two variables is 0.555 which is different from zero and very close to one. The P-value (.000) is lower than .05 also indicating a strong correlation. So it can be stated that there is positive association between this two variables. Therefore, null hypothesis can be rejected. Null Hypothesis: No Positive association between Net profit and Operating Revenue. Alternative Hypothesis: There is Positive association between Net profit and Total Revenue.

Correlation of Net Profit & Term Deposit

Correlation of Net Profit & Operating Revenue

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Table# 33: Correlation test between Net Profit & Operating Revenue

Correlations

Net Profit of The

company

Operational

Revenue

Net Profit of The company Pearson Correlation 1 .754**


N 16 16

Operational Revenue Pearson Correlation .754** 1


N 16 16

**. Correlation is significant at the 0.01 level (2-tailed). Decision: At the significance level lower than 0.05, correlation between the two variables is 0.754 which is different from zero and very close to one. The P-value (.000) is lower than .05 also indicating a strong correlation. So it can be stated that there is positive association between this two variables. Therefore, null hypothesis can be rejected. Null Hypothesis: No Positive association between Net profit and Operating Expense. Alternative Hypothesis: There is Positive association between Net profit and Total Expense. Table# 34: Correlation test between Net Profit & Operating Expense

Correlations

Net Profit of The

company

Operating

Expense

Net Profit of The company Pearson Correlation 1 -.348


N 16 16

Operating Expense Pearson Correlation -.348 1


N 16 16

Decision: At the significance level greater than 0.05, correlation between the two variables is -.348 which is different from zero and very close to minus one. The P-value (.000) is higher than .05 also indicating a strong negative correlation. So it can be stated that there is negative association between this two variables. Therefore, null hypothesis cannot be rejected.

Correlation of Net Profit & Operating Expense

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Multiple Regression Model: Multiple regression models was used to formulate a model that explains how 6 independent variables, Total Asset, Total Liability, Total Equity, Term Deposit, Operating Revenue, Operating Expense affect the Net Profit which is the only dependent variable of this research. In other words, the model was formulated to understand how Net Profit is affected because of all independent variable together. Table# 35: Summary of Model Details

Variables Entered/Removed

Model Variables Entered

Variables

Removed Method

1 Operating Expense,

Operational

Revenue, Total

Equity, Term Deposit,

Total Liability, Total

Asseta

. Enter

a. All requested variables entered.

b. Dependent Variable: Net Profit of The company

4.3.6 Multiple Regression Model Analysis

Model Details

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Table# 36: Summary of Multiple Regression Model

Model Summary

Model R R Square Adjusted R

Square Std. Error of the

Estimate

1 .943a .889 .815 5.67037E7

a. Predictors: (Constant), Operating Expense, Operational Revenue, Total Equity, Term Deposit, Total Liability, Total Asset

Explanation: Model summary above shows that correlation, r = .943. That means Net Profit is strongly correlated with Total Asset, Total Liability, Total Equity, Term Deposit, Operating Revenue, Operating Expense. Coefficient of determination or the R-Square value is 0.889. That means only 88.9% changes in the net profit can be explained by this model. Value of adjusted R-Square is 0.815 indicates only 81.5% variation in profit can be measured by this model after considering all related factors.

Model Fit Test

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Null Hypothesis: The model is not adequate or β1 = β2 = β3 = β4 = β5 = β6 = 0 Alternative Hypothesis: The model is adequate or at least one βi ≠ 0

Table# 37: F-test by SPSS

ANOVAb

Model Sum of Squares df Mean Square F Sig.

1 Regression 2.312E17 6 3.853E16 11.983 .001a

Residual 2.894E16 9 3.215E15

Total 2.601E17 15

a. Predictors: (Constant), Operating Expense, Operational Revenue, Total Equity, Term Deposit, Total Liability, Total Asset b. Dependent Variable: Net Profit of The company

Explanation: The SPSS output for ANOVA shows that F value is 1518.033 and the level of significance is .001. Because the F value is greater than the critical F value of 2.31 pr 2.89 and the significance level .001 is lower than acceptable level of significance .05, we can reject the null hypothesis. Therefore the model is adequate.

ANOVA

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Null Hypothesis: Variable Xi is not affecting Y (βi = 0) Alternative Hypothesis: Variable Xi is affecting Y (βi ≠ 0) The coefficient table of the multiple regressions is shown below: Table# 38: Coefficients table for multiple regression model

Coefficientsa

Model

Unstandardized Coefficients

Standardized Coefficients

t Sig. B Std. Error Beta

1 (Constant) (Alpha) -1.197E8 1.223E8 -.979 .353

Total Asset -.632 .199 -27.839 -3.170 .011

Total Liability .664 .201 17.874 3.296 .009

Total Equity .655 .221 10.640 2.966 .016

Term Deposit -.035 .020 -.424 -1.728 .118

Operational Revenue

.344 .082 .553 4.184 .002

Operating Expense -.265 .126 -.292 -2.095 .066 a. Dependent Variable: Net Profit of The company

Explanation: The coefficient table above shows that significance level for Total Asset, Total Liability, Total Equity, Term Deposit, Operation Revenue, Operating Expense are .011, .009, .016, .118, .002, .066. So it can be stated that only term deposit is the variable which has no significant impact on the model. All other variable is affecting the model.

T-test

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The regression model to predict Net Profit is: Net Profit = α + β1 (Total Asset) + β2 (Total Liability) + β3 (Total Equity) + β4 (Term Deposit) + β5 (rating Revenue) + β6 (Operating Expense) Total change in Net Profit can be found after inserting the value of constant, α, all variables and their related beta (β). After inserting the values of constant and related beta of all variables, the multiple regressions model is: Net Profit = -1.197E8 + (-27.83) Total Asset + 17.874 Total Liability + 10.640 Total Equity + (-.424) Term Deposit + .533 Operating Revenue + (-.292) Operating Expense

Model

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Case Processing Summary Cases Valid Missing Total N Percent N Percent N Percent

Unstandardized Residual 16 69.6% 7 30.4% 23 100.0%

Descriptives Statistic Std.

Error

Unstandardized Residual Mean .0000006 1.09806259E7

95% Confidence Interval for Mean

Lower Bound -2.3404650E7

Upper Bound 2.3404650E7

5% Trimmed Mean 2.0310494E6

Median 6.2872052E6

Variance 1.929E15


Minimum -9.73922E7

Maximum 6.08333E7

Range 1.58226E8

Interquartile Range 7.41788E7

Skewness -.485 .564 Kurtosis -.169 1.091

Model Diagnostic Test

Test for Normality Residuals

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Tests of Normality

Kolmogorov-Smirnova Shapiro-Wilk

Statistic df Sig. Statistic df Sig.

Unstandardized Residual .125 16 .200* .945 16 .421

a. Lilliefors Significance Correction

*. This is a lower bound of the true significance.

Explanation:

We now use the examine command to look at the normality of these residuals. All of the results from the examine command suggest that the residuals are not fully normally distributed -- the skewness and kurtosis are near 0, the "tests of normality" are not significant, the histogram looks normal, and the Q-Q plot looks normal. Based on these results, the residuals from this regression appear to conform to the assumption of being normally distributed.

Explanation:

The residuals looked good so there is no problem of heterocedasticy.

Heteroscedasticity

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Coefficientsa

Model

Unstandardized Coefficients Standardized Coefficients

t Sig.

Collinearity Statistics

B Std. Error Beta Tolerance VIF

1 (Constant) -1.197E8 1.223E8 -.979 .353

Total Asset -.632 .199 -27.839 -3.170 .011 .000 6.238E3

Total Liability .664 .201 17.874 3.296 .009 .000 2.379E3

Total Equity .655 .221 10.640 2.966 .016 .001 1.041E3

Term Deposit -.035 .020 -.424 -1.728 .118 .205 4.878

Operational Revenue .344 .082 .553 4.184 .002 .707 1.414

Operating Expense -.265 .126 -.292 -2.095 .066 .636 1.572

a. Dependent Variable: Net Profit of The company

Collinearity Diagnosticsa

Model

Dimension

Eigenvalue

Condition Index

Variance Proportions

(Constant)

Total Asset

Total Liability

Total Equity

Term Deposit

Operational Revenue

Operating Expense

1 1 6.235 1.000 .00 .00 .00 .00 .00 .00 .00

2 .555 3.350 .00 .00 .00 .00 .00 .00 .28

3 .125 7.071 .00 .00 .00 .00 .00 .50 .28

4 .058 10.342 .11 .00 .00 .00 .03 .25 .14

5 .023 16.548 .08 .00 .00 .00 .80 .00 .20

6 .004 41.884 .80 .00 .00 .02 .01 .01 .03

7 1.010E-5 785.622 .01 1.00 1.00 .98 .16 .24 .07

a. Dependent Variable: Net Profit of The company

Explanation: As the VIF Values are less than 10 so there exist no Multi-Collinearity Problem.

Multi-Collinearity

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Multiple Regression Model

Model Net Profit = -1.197E8 + (-27.83) TA+ 17.874 TL + 10.640 TE + (-.424) TD + .533 OR + (-.292) OE

Other Statistics for Model R .889 2

F- test value 11.983

P- value of F test .001a

Table# 39: Multiple Regression Model at a glane

Explanation: Profitability related with performance indicators in the following ways:

1) For 1 unit increases (decreases) in Total Assets (and values for other independent variables remaining the same), Net Profit will decrease by 27.83 units.

2) For 1 unit increase (decreases) in Total Liability (and values for other independent variables remaining the same), Net Profit will increase by 17.874 units.

3) For 1 unit increases (decreases) in Total Equity (and values for other independent variables remaining the same), Net Profit will increase by 10.640 units and vice versa.

4) For 1 unit increases (decreases) in Term Deposit (and values for other independent variables remaining the same), Net Profit will decrease by .424 units and vice versa.

5) For 1 unit increases (decreases) in Operating Revenue (and values for other independent variables remaining the same), Net Profit will increase by 0.533 units.

6) For 1 unit increases (decreases) in Operating Expense (and values for other independent variables remaining the same), Net Profit will decrease by 0.292 units.

The relationship among the variables in relative terms can be estimated with the help of coefficient of multiple correlations (R). R= .943 indicates that there exists a high degree of relationship among the variables. From the value of R2 we can say that all these 5 predictor variables combined explain 88.90% of the variance in Net Profit. The P- value (0.01) of F- test states that the regression is significant.

Final Model

Chapter # 5

Findings & Conclusion

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5 . 1 K E Y F I N D I N G S

According to our analysis it is clear that the chosen profitability indicator variables have impact upon net profit, but among the independent variables the Term Deposit and Operating Revenue exert significant influence on Profitability of Non Banking sector (LBFL) in Bangladesh. As we know that Liquidity is considered as one of the most prominent yardstick of performance measurement of financial institutions. Investors generally perceive the financial institutions to be superior over the others if it has sufficient liquid or current assets. When an NBFI has huge Operating Revenue and Total Equity the investors feel more secured and approach to this NBFI for their investment. The more the number of customers increases the more it becomes profitable. Again we see operating revenue is the another variable which has a major impact on net profit. So it is undoubtedly true that if the revenue increases, ultimately it has a positive effect over the profitability.

The results of multiple regressions suggest that the selected independent variables explain more than 88.9% changes in the net profit. By analyzing the other statistical results of multiple regressions we found that the results are very much consistent with the simple regression. All the results are statistically significant and overall provide an idea that liquidity is the basic determinant of profitability in NBFI sector. So it can be inferred that this promising and potential sector in Bangladesh can flourish very fast and enhance profitability by improving total equity and operating efficiency.

To make the findings easier to understand, summary of the analysis is given below:

There were 7 variables. 6 were independent and 1 was dependent. In total, 16 quarterly data of each variable was taken for analysis. Almost all the independent variables have strong positive relation with the

dependent variable. Total Asset has direct effect on Net Profit. Total Equity has direct effect on Net Profit. Term Deposit has no significant t effect on Net Profit. Operational Revenue has direct effect on Net Profit. Operational Expense has direct effect on Net Profit

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5 . 2 R E C O M M E N D A T I O N

It was very difficult to find out any significant negative sides of LankaBangla Finance Limited among its numerous positive sides in term of profitability. However there are few problems need to be corrected by the management of the institution. Some necessary steps are recommended below on the basis of collected data, observation, expert staffs’ opinion and my knowledge and judgment:

Net profit was in a sharp rise in the recent past. The company should try to keep the momentum going.

Operating revenue has significant effect on net profit. So the company should look to maximize operating revenue as much as possible.

Operating expense has significant effect on net profit. So the company should look to minimize operating expense as much as possible.

Term deposit also has significant effect on net profit. So the company should attract more depositors to deposit with attractive deposit scheme

Total Equity directly affect the NAV of the company and investors pays a huge attention on NAV so company should always try to increase the Total Equity.

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5 . 3 C O N C L U S I O N

The findings of the paper cannot be taken as conclusion and it will be wrong to end here with such a result. Because this study gives a simple picture and leaves room for further study in different areas of NBFI functions such as products of productivity analysis, Data Envelopment Analysis (DEA), CAMELS rating, robust estimation approach based on the competing efficient structure (ES) hypothesis, effect of commercial property price movements, use of statistical tools and more. The impact of government policy in the performance of Standard bank limited is also not studied in this study which must have significant impact on the performance of LankaBangla Finance Limited. Further study also can be concluded on post and performs of NBFI sector.

However, the study provides managers with understanding of activities that would improve their NBFI’s financial performance. The result of this study imply that it might be necessary for the management of LankaBangla Finance Limited to take all the required decisions by consistently observing key financial data and deviations among various elements to enhance the financial position of this NBFI.

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B I B L I O G R A P H Y

Article:

Ali K, Akhter M .F., Ahmed H Z, (2011) ‘Bank-Specific and Macroeconomic Indicators of Profitability - Empirical Evidence from the Commercial Banks of Pakistan’, International Journal of Business and Social Science, 2, 235-242.

Abreu M., Mendes V., ‘Commercial bank interest margins and Profitability: evidence for some eu countries’,, 1-11.

Davydenko A., (2011) "Determinants of Bank Profitability in Ukraine," Undergraduate Economic Review, 7, 1-30.

Gul S., Irshad F., Zaman K, (2011) ‘Factors Affecting Bank Profitability in Pakistan’, The Romanian Economic Journal, no.39, 61-87.

Hays F. H., Lurgio S A D, Gilbert A H, ‘Efficiency Ratios and Community Bank Performance’, Journal of Finance and Accountancy, 1-15

Jahangir N., Shill S. and Haque A. J., (2011) ‘Examination of profitability in the context of Bangladesh banking industry’, ABAC Journal, 27, 36-46.

Shah-Noor Rahman, Tazrina Fara / IJAR-BAE (March 2012) Vol. 1, Issue 1 / Page No: 26 – 32

Fadzlan Sufian, and Royfaizal Razali Chong “DETERMINANTS OF BANK PROFITABILITY IN A DEVELOPING ECONOMY: EMPIRICAL EVIDENCE FROM THE PHILIPPINES”, AAMJAF, Vol. 4, No. 2, 91–112, 2008

Website:

http://bdnews24.com/details.php?id=181733&cid=2 LBS Yearly Market Review, Issue 47, December 2010 http://bdnews24.com/details.php?id=181733&cid=2 http://www.dsebd.org/dse_nrb_pro_usa_2010.pdf DSE Monthly Review, Vol. 267 http://www.lankabangla.com/ http://www.lbsbd.com

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Printed Document:

Annual Statement of Lanka Bangla Finance last 5 years Statistics for Business & Economics by Paul New Bold, William L. Carlson, Betty M.

Thorne Financial Statement Analysis by George Foster (3rd

Essentials of Managerial Finance by Scott Bestly, Eugene F. Brigham (International Student Edition)

Edition)

Introduction to Operations Research by Frederick S. Hillier, Gerald J. Lieberman (8th

Edition)

role of fundamental determinant on company financial performance the case of lanka bangla finance

Economy & Finance