Amir hamza
- 1. Overview Within the commercial banking sector, ABBANK has achieved an amazing growth since the last 5 years, upgraded from a rural bank to an urban bank. ABBANK now has become a prestigious brand in the Vietnam financial and banking industry. It has an extensive network of 118 transaction offices located in 28 provinces nationwide. With the support of the Electricity of Vietnam (EVN)- the strategic partner in the country and the sharing of experience on professional management models of Maybank – the foreign strategic partner, ABBANK has built up a development plan from now until 2016. ABBANK aims for an annual growth rate at an average of 35% - 40%. In recent years, in order to diversify the range of products and services, ABBANK also enhanced the cooperation with big Vietnamse and international partners such as Agribank, Prudential Vietnam, Deutsche Bank, EVN SPC, Prevoir VN, Postal Corporation of Vietnam (VNPost), Telecom Corporation Viettel .... With the slogan “Provide to solution - Receive the smile", ABBANK stands out in the market becoming a friendly retail bank. ABBANK takes the customer needs and satisfaction as the core element of all business activities. At ABBANK, customers are satisfied not only with the product diversification and flexibility, but also the friendly and professional services. Vision An Binh Commercial Joint Stock Bank(ABBANK) is heading toward becoming a leading commercial bank in Viet nam, operating under the model of universal bank with focus on retailing banking and adoption of best international practice, extensive application of advanced and modern technologies with ability to compete with ather local and foreign banks operating in Vietnam Mission Serving the customers with safe, efficient and value added products and services. Increase benefits for shareholders. Moving towards the comprehensive and sustainable development of the bank. Investing in the human resources as the basis for long-term development.
- 2. Introduction In recent days the Small and Medium Enterprise (SME) Financing has become an important area for Commercial Banks in Bangladesh. To align its corporate policy with the regulation of Central Bank, banks have become more concerned about SME and opened windows to conduct business in this particular area. Small and medium enterprises have been recognized as one of the most important means for providing better economic opportunities for the people of least developing countries like Bangladesh. A developing economy like that of ours suffers from many peculiar problems such as disproportionate pressure of population on agriculture due to lack of rural industrialization, unemployment and underemployment of human and materials resources, unbalanced regional development etc. The contribution of small and medium enterprises in the solution of these problems is beyond doubt, provided they are organized and run on scientific basis. Small and medium enterprises are particularly suitable for densely populated countries like Bangladesh where SME sector can provide employment with much lower investment per job provided. Out of 11% employment of the civilian labor force provided by the manufacturing sector, about two thirds are estimated to be provided by the small and cottage industries sector. Again, development of small industries facilitates the effective mobilization of capital and labor resources. They also help in raising standards of living of people in rural areas. Contribution of SME sector to GDP remained above 4% during the period from 1985-86 to 1999-00. Moreover, the present contribution of SME sector to GDP is approximately 5% and SME sector employs 25% of the total labor forces, thus this sector is the present available sector for creation of jobs. The recent private sector survey estimates the contribution of the micro, small, and medium enterprises (MSMEs) is 20-25% of GDP (Daniels, 2003). While SMEs are characteristically highly diverse and... Board of Directors of AB Bank Limited (ABBL) takes immense pleasure in presenting the 25th Annual Report of the Bank to you. It is also the privilege of the Board to present the audited accounts of the Bank for the year ended 31st December, 2006 and the Auditors' Report thereon. Your Bank reached a milestone on 12th of April, 2011 when AB reached 29 years of its journey which started with a single Branch operation at Karwan Bazar, Dhaka way back in 1982. AB being the pioneer in private sector banking in Bangladesh will be the first to achieve this milestone. Over the years, your Bank has contributed in many ways towards development of the private sector banking in the country. Many of the big industries in different fields of the economy has AB's name attached and your Bank remains a proud development partner of these industrial houses over the years. AB thrived on customer service and relationship banking which brought new dimensions to this particular service sector and many more new entrants to banking sector followed AB. AB's Sponsors set a vision for the Bank which reads: "To be the Trendsetter for innovative banking with excellence and perfection". Throughout these 29 years your Bank raised the bar for itself through services, initiatives, products, customer support and performance towards that visionary path.
- 3. At the beginning of the year 2005, Board took the mission for the year as "a year of consolidation and growth". In line with that, year 2006 was identified to be the year of "financial re-structuring and growth". Sponsors of the Bank remain committed to take AB into next higher level of banking on a strong financial footing and with appropriate systems and processes in place. Being a financial institution, your Bank is exposed to the entire gamut of economic developments and activities both within and outside the country. Hence to start with, we will throw some brief insights in to the economic scenario of the year 2006. Global Economy World economic growth strengthened in the year 2006 as the global gross domestic product (GDP) registered a growth of 3.9 percent compared to 3.5 percent in 2005. Despite rising oil prices (that topped $75 a barrel during the course of the year), rising short-term interest rates, and a bout of volatility of financial market, the global growth accelerated in the overall. This strong global performance was driven by very rapid expansion in developing economies, which grew by 7 percent - more than twice as fast as high income countries (3.1 percent). In the overall, 38 percent of the increase in global output originated in developing countries which far exceeded these economies 22 percent share in world GDP. Although broadly based, strong performance by China (10.4 percent growth) played a significant role in the recent expansion of developing economies which grew by 7 percent. It is of significance that excluding China and India (8.7 percent growth), developing countries grew by 5.5 percent thereby playing important roles in the global economic performance. Fast growth of developing countries over the past five years has been fueled by low interest rates and abundant global liquidity. This has led to rising commodity prices and over-heating in some high-income and developing countries. This, in turn, has provoked a tightening of monetary policy that is in part is responsible for slowdown at the global level towards the later part of the year. However, in most countries strong productivity growth, due in part to the absorption of China and the former Eastern Block countries into the global economy, has checked inflationary pressures. In the United States, the acceleration of industrial output began at a torrid pace of 5.6 percent during the year. As a result US GDP had a positive growth in 2006. However, responding to higher short-term interest rates, spending in the housing sector declined and also had a moderating effect on the consumer demand. This resulted in the slowing down of the economy to 1.6 percent annualized growth rate in the third quarter of 2006. However, profit, foreign investment and consumption remained robust while inflation and unemployment remained low. Consequent upon all these factors, US economy is expected to grow by 3.2 percent as a whole. European economy also experienced growth in 2006 after several years of weakness. Growth
- 4. accelerated in the first half of the year as GDP expanded by about 3.3 percent over that period. This is mostly driven by private consumption and increased investment spending. However, slower growth in the third quarter for France had an impact on the overall growth but the full year GDP growth in Europe is estimated to be 2.5 percent. In Japan, the GDP was estimated to have expanded by 2.9 percent in 2006. A slowdown in exports contributed to weaker growth in the second quarter of the year, but growth rebounded in the third quarter led by a surge in investment spending. High oil prices and the rapid pace of global growth have contributed to a gradual increase in inflation among developing countries. These countries experienced rising inflation in response to higher oil prices, but it has since declined, reflecting both solid productivity growth and the impact of more credible monetary policies. In contrast, in high-income economies inflation rose to about 2.7 percent from 1.3 percent before falling towards the end of the year matching with the falling oil prices. In the overall, limited inflationary pressures and high savings among oil exporters and in Europe are expected to keep long term interest rates low. Moreover, improved fundamentals have boosted growth rates in many developing countries. All these factors cumulatively suggest the continuation of robust economic performance in 2007 barring unanticipated reversals. Bangladesh Economy Bangladesh economy continued on the growth path in 2006 and achieved a higher growth compared to the year 2005 mainly driven by a strong post-flood agriculture recovery. Growth was also fuelled by notable expansion of the manufacturing sector. Economic growth was also aided by strong growth of exports and remittances from abroad. This is a noteworthy performance in the face of rising oil price, rise in import costs and also the phase out of the Multi -Fiber Arrangement (MFA). GDP growth was registered at 6.7 percent in the year 2006. Growth performance of the economy was led by the post-flood recovery of the agriculture sector which was 4.5 percent in 2006 compared to 2.2 percent in the year before. Strong growth in crops, horticulture and fishing were mainly responsible for such growth. At the same time, industrial sector attained 9.6 percent growth during the year which is way above the previous year's growth of 8.3 percent. This higher growth rate was sustained through strong performances in the manufacturing arena facilitated by strong and sustained growth in export oriented manufacturing activities and expansion of domestic demands. In the overall, service sector of the economy grew by 6.5 percent. The growth was fairly spread in different sub-sectors which in turn were related to increase in industrial out put and increase in trade related activities. Structural transformation of economy was aimed at through giving new focus on the development of the Small & Medium Enterprises (SMEs) sector. A credit line was established in the Bangladesh Bank with the support of the Asian Development Bank (ADB) and the World Bank (WB), respectively. In the
- 5. year 2006, SME sector experienced sizeable growth in the field of rice mills, dairy products, knitwear, leather products, paper and paper products, light engineering, etc. Country's foreign exchange reserve crossed the US $ 4.0 billion mark for the first time in the history at the beginning of the year 2007. Present level of reserves covers for over three months of imports of the country. Exports and remittances from the Non-resident Bangladeshis (NRBs) continued to achieve strong growth in the year 2006 while import growth slowed down to a sustainable level. Exports grew 21.6 percent to US$ 10,422 million over the previous year. At the same time, remittances by the NRBs grew by 24.8 percent at US$ 4,802 million. While, total import was registered at US$ 13,301 million showing a growth of 12.1 percent during the year. Export earnings achieved more than expected growth in the post MFA situation due to higher export demand in the US and the European markets. Impressive growth of 35.4 percent was achieved in the knitwear sector driven by a volume growth of 37.4 percent. Country's export of raw Jute also experienced significant growth of 54 percent over the year 2005. More significantly, country is gradually shifting towards a diversified export base. Bangladesh has been included in the "next eleven" a group of nations having economic growth potential by Goldman Sachs. Relative slowdown of total import was mainly attributable to the reduced import of food grains, milk products, spices and most other edible products. However, import of industrial raw materials and capital machineries increased signifying the dynamism in investment activities in the country. The commodities whose import payments, however, increased significantly include crude petroleum and POL reflecting the volatile international market for those. The overall balance of payments recorded a significant surplus of US$ 365 million (US$67 million in 2005) at the end of the year 2006 reflecting a notable improvement in the current account balance and a larger surplus in the capital account. Despite noteworthy performance of the external sector, the foreign exchange market experienced substantial pressure in the year 2006. Pressures on Taka-US Dollar exchange rate generated by continued price hike for import of petroleum and many other major commodities coupled with higher growth of lending to the private sector (18.3 percent) created all such pressure situation. In 2006, the nominal Taka-US Dollar exchange rate depreciated by 8.6 percent in the overall. However, the real effective exchange rate of Taka depreciated by 5.3 percent providing a boost to the country's external competitiveness. Inflation in the economy showed upward trend in 2006. Pressures on consumer prices emerged mainly through rising import prices of fuel, food items, other consumer items and production inputs feeding into domestic prices. Depreciation of Taka further contributed to rising consumer prices. The annual average inflation increased to 7.2 percent in June, 2006. Bangladesh Bank continued to pursue a restrained monetary policy stance with a view to curb excess demand from inflationary expectations while supporting the sustainable real GDP growth. During the year, the Cash Reserve Requirement (CRR) and the Statutory Liquidity Ratio (SLR) were raised from 4.5
- 6. and 16.0 percent respectively to 5.0 and 18.0 percent towards slowing down of the growth of domestic credit. Besides, repo and reverse repo interest rates and treasury bills / bond yield rates were kept at an uptrend towards slowing down the credit growth rate. Broad money (M2) grew by 19.3 percent during the year which was much higher than 2005 growth of 16.7 percent and far exceeded the projection of 14.3 percent growth. Public sector credit grew substantially by 30.6 percent mainly to finance higher cost of imports of fuel. Total domestic credit grew by 21.1 percent, while credit to private sector grew by 18.3 percent reflecting acceleration of economic activities. The declining trend of interest rates that persisted over a period till year 2005 reversed in 2006 keeping pace with the tightened monetary policy. Country's revenue collection scenario through the National Board of Revenue (NBR) remains much lower than the projection. Among other factors low tariff rates on many importable items, lower import volume due to political crisis were mainly responsible for such a situation. Despite stronger growth of some macroeconomic indicators, Bangladesh economy faced some challenges originating from price hike of oil, some imported commodities in the international market causing fluctuations in real sector and foreign exchange market. As a result, the financial market was volatile during the year. The call money market was also volatile for a period of time due to increase of Government borrowing from the banking system for financing higher priced imports. Till December 2006, Government borrowing stood at Taka 63.50 billion. Due to such a development, banks and financial institutions were forced to mobilize deposit at a higher rate resulting in higher pricing on credit and forcing restrains, at times. Overall Banking Sector Financial sector reforms to strengthen the regulatory and supervisory framework for banks made headway in 2006 although at a slower than expected pace. Overall health of the banking system showed improvement since 2002 as the gross Non-performing Loans (NPL) declined from 28 percent to 14 percent while net NPL (less Provision) reduced to 8 percent from 21 percent. This led significant improvement in the profitability ratios. Although the Private Commercial Banks (PCB) NPL ratio registered a record low of 6 percent, the four Nationalized Commercial Banks (NCB) position are still weak and showed very high NPL at 25 percent. The NCBs have large capital shortfalls with a risk- weighted capital asset ratio of just 0.5 percent (June 2006) as against the required 9 percent. For the PCBs risk-weighted capital asset ratio stood at 10 percent. Bangladesh Bank issued a good number of prudential guidelines during the year 2006 and the first quarter of 2007 which among others relate to (i) rationalization of prudential norms for loan classification and provisioning, (ii) policy for rescheduling of loans, (iii) designing and enforcing an "integrated credit risk grading manual", (iv) credit rating of the banks, and (v) revisions to the make-up of Tier-2 capital. Besides, recent decision of the Government to corporatize the remaining three NCBs along with the
- 7. initiative to sale the Rupali Bank are bound to usher in changes in the banking sector competitiveness aspect. Bangladesh Bank has also taken up the task of implementing the Basel II capital accord. Further, the recent enactment of the Micro-credit Regulatory Authority Act (MRAA) for the regulation of the Micro Finance Institutions (MFI) has been a major development in the year 2006. Since 1998 CAMEL rating of banks gradually improved and in 2006 Bangladesh Bank updated this rating model by incorporating the market risk and the new model is known as CAMELS. Capital Market Bangladesh capital market is still quite small in terms of size compared to countries like India or Pakistan. Present market capitalization accounts for roughly 6 percent of the GDP. During the first half of the year 2006, liquidity crises had its affect in the market and towards the end of the year, the market had to weather unstable and volatile political situation. Besides, relatively higher rates on Government and bank saving instruments were challenging factors towards expansion of investment in the capital market. Yet, the market showed remarkable stability in the face of the above. Market capitalization registered a rapid growth of over 38 percent which was fuelled by entry of 13 new companies and flow of stock dividends, rights shares among others. At the end of the year DSE general price index stood at 1609.51 and the all shares price index closed at 1321.39 while CSE general price index stood at 2432.51 and the all shares price index closed at 3724.39. Future for the capital market looks bright as government is planning to off-load profitable state owned enterprises. Moreover, enlistment of telecommunication and inclusion of various companies under oil and gas sector will contribute towards increasing the size of the market. Economic outlook The 6 percent plus growth of GDP over the past four years has been underpinned by more market- oriented economic policies, a dynamic garment sector, and substantial inflow of overseas workers' remittances. The lead-up to the parliamentary election was generally expected to be rough ride for the country as a whole and the economy in particular. However, deepening political deadlock culminated with the declaration of state of emergency in January. The new caretaker Government continued with the established economic policies and expedited structure and sector reforms. It has taken a broad agenda of activity, including an extensive anti-corruption drive that it sees necessary to establish better foundations for the future besides establishing the atmosphere for a truly democratic system to unfurl in the future. Economic forecasts for the fiscal year 2007-8 are based on several policy assumptions towards preserving the macroeconomic stability and ensuring GDP growth of around 7 percent. However, some of the significant challenges include increased competition, high interest rate environment, rising inflationary pressure, sustained high global oil price, power shortage etc.
- 8. The economy has started to come back on track after months of political instability which at times had the risk of irretrievable consequences. With the economic course outlined in the budget for 2007-8, Bangladesh should be able to drive full steam towards the desired growth. Executive summary Banking sector stocks faced significant correction in the recent past following dividend and earnings declaration for the year 2010. The tide is against the sector, valuations are high and looming threat of rising delinquencies put the banking stocks in a tight spot. We find that only a few well‐balanced banks could swim in the troubled water, whereas others are either challenged by their profit sustainability, asset-liability management, asset quality or capital. In the year 2010, we experienced many developments in the banking sector. Liquidity crisis and a downward correcting capital market were key concerns in the financial system. Most of the banks suffered severe liquidity crisis at the end of the year. Moreover, managing asset quality became a challenge after the recent correction in the stock market, particularly for banks specialized in consumer and SME banking. Although we think Q1 2011 bottom line numbers would be challenging for Bangladeshi banks, concerns seem to be overdone. Despite sharp cut in expectations, banks will be the primary driver of the market’s earnings growth on our view. Operating income of the banking sector grew by 50% in FY10. However, with regards to YTD the financial sector has underperformed the DGEN by –26.31%. (Banking sector, –33.53%).Liquidity crisis, credit-deposit ratio and rising NPAs are the major concerns in this fiscal. We expect NPAs to rise for some banks more exposed to consumer and SME business. This will not be the scenario for large corporate bankers having relatively strong corporate balance sheets, well capitalized, broad-based credit growth, better asset quality and management. This note focuses on listed private sector banks. Our conclusion is that listed banks are likely to underperform over the next 6 months. In this environment, limited cost flexibility and elevated directed lending are our key concerns. We initiated coverage on 10 listed banks: AB Bank, Bank Asia, BRAC Bank, The City Bank, Eastern Bank, Islami Bank Bangladesh Limited, IFIC Bank, National Bank, NCC Bank and Prime Bank. We like Islami Bank for its asset base, unique franchise concept, management quality and superior operational profile, high Tier 1 ratio, superior margin and flexibility in managing asset quality risks, and Prime Bank for its strong corporate presence, asset quality, stable business growth, high capital adequacy and management. Amongst mid size corporate-consumer banks our picks are Eastern Bank and NCC Bank. Still