Liquidity_Position_Analysis_on_AB_Bank_a

COURSEWORK
Bank Fund Management
NOVEMBER 27, 2016
SUBMITTED BY
Rakibul Hossen
ID – M 160203572, Section – B, EMBA – 7th Batch

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Assignment
On
Liquidity Position Analysis
Of
AB Bank Ltd. & Southeast Bank Ltd.
Submitted To: Shaikh Mashrick Hasan
Assistant Professor
Department of Finance
Jagannath University
Submitted By: Rakibul Hossen
ID: M160203572
Section – B
EMBA – 7th
Batch
Department of Finance
Jagannath University
Date of Submission: 27th November, 2016

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Abstract
This study investigates the liquidity position of AB Bank Ltd. and Southeast Bank Ltd. of
Bangladesh’s commercial banking sector for the period of 2011-2015. Financial ratios are
employed to measure the profitability, liquidity and credit quality performance of these two bank.
The study is mainly focused on the liquidity positions of this two banks. The study found that
Southeast banks performance regarding asset and liability based liquidity indicators are in a flat
line with significant ups and downs where AB banks performance is more vulnerable. A significant
change in trend of short term deposit ratio of Southeast bank is observed in 2014 due to offering
low interest rate. The overall liquidity position of southeast bank is satisfactory where in AB bank
is lack behind because of their conservative approach of banking.

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Table of Contents
Abstract ........................................................................................................................................................2
1. Introduction..........................................................................................................................................4
2. Ratio Analysis .......................................................................................................................................5
3. Liquidity ratio .......................................................................................................................................5
3.1 Cash position indicators:....................................................................................................................6
3.2 Liquid securities indicators ................................................................................................................6
3.3 Riskless assets ratio............................................................................................................................6
3.4 Liquidity assets ratio ..........................................................................................................................7
3.5 Short-term deposits to assets ratio...................................................................................................7
3.6 Core deposit ratio...............................................................................................................................7
4. Southeast Bank Limited Overview.......................................................................................................8
4.1 Liquidity Positions of Southeast Bank ...............................................................................................8
5. AB Bank Limited Overview.................................................................................................................10
5.1 Liquidity Positions of AB Bank .........................................................................................................10
6. Liquidity Position Analysis of Last Five Years....................................................................................12
6.1 Asset Based Liquidity Indicators......................................................................................................14
6.2 Liability Based Liquidity Indicators..................................................................................................15
7. Conclusion ..........................................................................................................................................16
References..................................................................................................................................................17

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1. Introduction
Financial ratios are an acceptable tool for analyzing a firm and its performance over time. Financial
analysts and researchers combine key financial ratios over time and across industries with qualitative
measures to gain insight regarding a firm (Barnes, 1987). Ratios are used to represent outcomes of
decisions made by the firm and results of outside conditions surrounding the firm (Benishay, 1971).
Financial reporting in the banking industry is significantly different than most other industries.
The central objective of a bank is to attract funds at an acceptable cost and reinvest them earning a higher
return. Therefore, measures of liquidity, asset management, capital maintenance, profitability and risk
exposure requires industry specific financial ratios. Bank financial ratio analysis arose in response to this
need.
Selecting key financial ratios from a significant number of possibilities however, presents a
challenge to the analyst, researcher or bank administrator. The large number of ratios derived from
published reports can be a source of confusion rather than clarification (Gombola and Ketz, 1983). The
analytical skill lies not in computing the specific ratio but in determining the primary financial
characteristics of the firm captured in ratios (Barnes, 1987 and Benishay, 1971). Furthermore,
management experiences difficulty in determining which ratio to employ in the decision making process
(Altman and Eisenbeis, 1978). The purpose of this study is to develop a taxonomy of financial ratios to
guide the decision-maker when assessing a commercial bank's performance. The objective of this study is
to determine the liquidity position of two largest commercial banks’ “Southeast Bank Ltd. & AB Bank Ltd.”
in terms of Asset-based liquidity indicators and Liability-based liquidity indicators.

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2. Ratio Analysis
A ratio analysis is a quantitative analysis of information contained in a company’s financial
statements. The journey of the modern ratio analysis was started during 1920s. Bliss Blys first
coherent system of ratios provided that the reasonable and reliable results on important financial
issues. His model “fundamental indicators of status relations within a company” believes that the
standard relationships between companies can be competitive in terms of comparison set.
Ratio analysis is mainly based on line items in financial statements like the balance sheet,
income statement and cash flow statement; the ratios of one item – or a combination of items - to
another item or combination are then calculated. Ratio analysis is used to evaluate various aspects
of a company’s operating and financial performance such as its efficiency, liquidity, profitability
and solvency. The trend of these ratios over time is studied to check whether they are improving
or deteriorating. Ratios are also compared across different companies in the same sector to see
how they stack up, and to get an idea of comparative valuations. Ratio analysis is a cornerstone of
fundamental analysis.
3. Liquidity ratio
Liquidity means how quickly an asset can convert into cash without losing its
significance value. “The ability to convert an asset into cash with little risk of loss of principle
value.” – Grady and Spencer.
Liquidity ratios measure a company's ability to pay debt obligations and its margin of
safety through the calculation of metrics including the current ratio, quick ratio and operating
cash flow ratio. Current liabilities are analyzed in relation to liquid assets to evaluate the
coverage of short-term debts in an emergency. Bankruptcy analysts and mortgage originators use
liquidity ratios to evaluate going concern issues, as liquidity measurement ratios indicate cash
flow positioning.

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Types of Liquidity Ratio
Liquidity ratios are mainly two types, this are- Asset Based Indicators and Liability Based
Indicators. This are defined followings:
Asset Based Liquidity
3.1 Cash position indicators:
A cash position indicator represents the amount of cash that a company, investment fund
or bank has on its books at a specific point in time. In addition to cash itself, this position often
takes into consideration highly liquid assets, such as certificates of deposit, short-term government
debt and other cash equivalents.
Formula: Cash position indicators =
𝐂𝐚𝐬𝐡 + 𝐃𝐞𝐩𝐨𝐬𝐢𝐭𝐬
𝐓𝐨𝐭𝐚𝐥 𝐚𝐬𝐬𝐞𝐭𝐬
3.2 Liquid securities indicators
These are the securities which measure in a short time, the chief representative of which
are the bills of exchange and other forms of paper which come into existence as a result of the
operation of the credit system. These securities have already been referred to as the chief objects
of bank investment, for this purpose their superiority to other forms of securities, such as bond or
stock, has already been pointed out.
Formula: Liquid securities indicators =
𝐆𝐨𝐯𝐞𝐫𝐧𝐦𝐞𝐧𝐭 𝐒𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬
3.3 Riskless assets ratio
This ratio is an asset in which the return is known with certainty. The certainty generally
comes from a supreme amount of confidence in the issuer of the asset; for example, treasury
securities are considered riskless because the government is considered the best possible issuer.
This ratio usually has a low rate of return.
Formula: Riskless assets ratio =
𝐂𝐚𝐬𝐡 + 𝐃𝐞𝐩𝐨𝐬𝐢𝐭𝐬+𝐆𝐨𝐯𝐫𝐭.𝐒𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬

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3.4 Liquidity assets ratio
Liquidity assets ratio can be referred as an asset that can be converted into cash quickly
and with minimal impact to the price received. Generally, liquid assets are considered similar to
cash for their price being relatively stable on being sold in the open market. Liquid assets form the
most basic form of financial resources by consumers, investors and suppliers.
Formula: Liquidity assets ratio =
𝐂𝐚𝐬𝐡 + 𝐆𝐨𝐯𝐫𝐭.𝐒𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬+𝐑𝐞𝐬𝐞𝐫𝐯𝐞
Liability Based Indicators
3.5 Short-term deposits to assets ratio
Short term deposit is putting money standing on bank account to deposit accounts so they
earn higher interest. The short term deposit account means in about 2-3 months you will be given
back the money. On balance sheet those deposits are shown on a separate line from bank accounts
as long as they are deposits.
Formula: Short-term deposits to assets ratio =
𝐒𝐡𝐨𝐫𝐭−𝐭𝐞𝐫𝐦 𝐝𝐞𝐩𝐨𝐬𝐢𝐭𝐬
𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭𝐬
3.6 Core deposit ratio
Core deposits are the deposits made in a bank’s natural demographic market. Banks count
on core deposits as a stable source of funds for their leading base. Core deposit offer many
advantages to banks such as predictable costs and a measurement of the degree of customer loyalty.
Formula: Core deposit ratio =
𝐂𝐨𝐫𝐞 𝐃𝐞𝐩𝐨𝐬𝐢𝐭
𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭
Above mentioned ratios of a bank are compared with the whole banking industry to order
to estimate the liquidity needs.

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4. Southeast Bank Limited Overview
Southeast Bank Limited was established in 1995 with a dream and a vision to become a
pioneer banking institution of the country and contribute significantly to the growth of the national
economy. The Bank was established by leading business personalities and eminent industrialists
of the country with stakes in various segments of the national economy.
The incumbent Chairman of the Bank is Mr. Alamgir Kabir, FCA, a professional Chartered
Accountant. The Bank’s Managing Director is Mr. Shahid Hossain,a creative, experienced and
eminent banker of the country with 32 years of experience in banking to his credit.
The Authorized Capital of the Bank today is BDT 15,000 million. Its Paid-Up-Capital and
Reserve reached BDT 28,481.63 million as on December 31, 2015. The Bank had 2,376 Staff of
whom 204 were Executives, 1,685 were Officers and 487 were other Staff as on December 31,
2015.
Southeast Bank has a diverse array of products and services tailored carefully to cater to
the needs of all segments of customers. The Bank has generated profit of BDT3,069.42 million
after provision and income tax in the year 2015. Its continuous success in operations is making it
one of the leading and most successful banking institutions in Bangladesh with a total asset base
of BDT 260,718.03 million as on December 31, 2015.
Southeast Bank takes pride for bringing women into the banking profession in a significant
number for gender equality. At present, 18.14% of SEBL's employees are women.
4.1 Liquidity Positions of Southeast Bank
Comment: Considering all the bar charts of the mentioned graph it is observed that the asset
based liquidity position of the Southeast Bank Ltd. was increasing trend over the last five years.
But in FY 2015 the asset based liquidity position of Southeast Bank Ltd. was little low
comparison to FY 2012 to FY 2014. This indicates moderate performance of the bank’s asset
based liquidity management & treasury functions.
86.17% 85.60% 86.13% 86.61% 86.85%
16.69% 17.82%
23.02% 21.21% 20.18%
102.86% 103.42%
109.15% 107.82% 107.03%
22.41% 23.48%
28.80% 27.74% 26.32%
2011 2012 2013 2014 2015
Asset-Based Liquidity Indicators of Southeast Bank Ltd.
Cash Position Indicators Liquid Securities Indicators Riskless Asset Position Liquid Asset Ratio

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Comment: Considering all the bar charts of the mentioned graph it is observed that the liability
based liquidity position of the Southeast Bank Ltd. was deteriorated as the result of the metrics
varied significantly over the last 5 years. The core deposit ratio has been declined over last 5
years. Where the short-term liquidity has a plunged by 17% in 2014 but it recovers almost 94%
in year 2015. The underperformance of the metrics occurred due to decline in deposit rate over
last five years. Depositors got less interested to put their cash in banks because of lower deposit
rate offered by the banks. A huge amount of deposit in the banking industry is being kept as idle
and lower credits growth make these deposit unutilized. This indicates underperformance of the
bank’s liability based liquidity management & treasury functions.
56.81%
60.38% 60.01%
43.59%
58.15%
69.39% 68.19% 66.66% 65.22% 63.94%
2011 2012 2013 2014 2015
Liability-Based Liquidity Indicators of Southeast Bank Ltd.
Short-Term Deposit to Asset Ratio Core Deposit Ratio

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5. AB Bank Limited Overview
Introducing Bangladesh to it’s very first private sector bank; AB bank limited was
incorporated on 31st December, 1981. Arab Bangladesh bank as formally known started its
effective operation from 12th April, 1982 with the mission to be the best performing bank of the
country.
With an ambition to secure its place as the leading service provider, creating lasting value
for its clientele, shareholder, and employees and particularly for the community it operates in, AB
bank has formulated a golden heritage and envious legacy that not be imitated by many. Achieving
penalty of milestones and incorporating numerous changes over the last 34 years, AB bank has
always been authentic to its desire of being the technology driven innovative bank of Bangladesh.
AB has successfully introduced internet banking, SMS banking, cutting edge ICT, state-of-art
network solution. 24/7 ATM service and many other e-products.
The bank opens its very first branch at Karwan Bazar on 12th April, 1982 and now has a
successful footprint of 102 branches including one overseas branch in Mumbai, India and 207 plus
ATMs spread across the country. It has associated 6 subsidiary companies including one activity.
The bank opened its representative office at Yangon, Myanmar and at London, UK for expending
its foreign operations.
5.1 Liquidity Positions of AB Bank
Comment: Considering all the bar charts of the mentioned graph it is observed that the asset
based liquidity position of the AB Bank Ltd. was almost stable as the result of the metrics
weren’t vary significantly over the last five years. But in FY 2015 the asset based liquidity
position of AB Bank Ltd. was worse a bit in comparison to FY 2011 to FY 2014. This indicates
underperformance of the bank’s asset based liquidity management & treasury functions.
81.08%
85.19% 82.47% 85.45%
80.40%
10.44% 11.25% 10.65% 10.20% 9.72%
91.51%
96.44% 93.11% 95.65%
90.13%
16.50% 16.73% 16.06% 15.82% 15.66%
2011 2012 2013 2014 2015
Asset-Based Liquidity Indicators of AB Bank Ltd.
Cash Position Indicators Liquid Securities Indicators Riskless Asset Position Liquid Asset Ratio

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Comment: Considering all the bar charts of the mentioned graph it is observed that the liability
based liquidity position of the AB Bank Ltd. was deteriorated as the result of the metrics varied
significantly over the last 5 years. Both the core deposit ratio & short-term deposit ratio have
been declined over last 5 years. The underperformance of the metrics occurred due to decline in
deposit rate over last five years. Depositors got less interested to put their cash in banks because
of lower deposit rate offered by the banks. A huge amount of deposit in the banking industry is
being kept as idle and lower credits growth make these deposit unutilized. This indicates
underperformance of the bank’s liability based liquidity management & treasury functions.
60.69%
67.33%
60.17% 59.82%
54.78%
43.89% 45.84% 43.74%
47.36%
38.94%
2011 2012 2013 2014 2015
Liability-Based Liquidity Indicators of AB Bank Ltd.
Short-Term Deposit to Asset Ratio Core Deposit Ratio

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6. Liquidity Position Analysis of Last Five Years
30.1
20
17.9
19.4
17.6
2.22 1.89
3.68 4.18 3.35
22.19 22.65 23.92
26.77
29.67
2011 2012 2013 2014 2015
Southeast Bank Ltd.
Price EPS NAV
68.3
33.7
26.2
29.9
20.9
3.15 2.95 2.05 2.81 2.42
33.95
32.6
32.51
31.32
39.35
2011 2012 2013 2014 2015
AB Bank Ltd.
Price EPS NAV
Analysis Outcome:
The market price of both the banks has been decreased over last 5 years. The decline in market
price was induced by slow Earnings per Share & Net Assets Value growth. Investors were
losing their interest of holding the common equity of the banks due to lower profitability. In
fact, the profitability of AB Bank Ltd. Became worse as its EPS came down from Tk. 3.15 to Tk.
2.42. Slow credit growth & higher Non Performing Loans melted down the profitability of the
banks. In addition, the operating costs of the banks was forced to push up in terms of
administrative expenses mostly. Banks’ investment income experience slow growth also. The
Net Assets Value of the banks increased in last two years because of partly retained earnings,
revaluation surplus, low dividends & statutory liquidity reserves. As the banking industry of
Bangladesh is experiencing hard time because of non-performing loans & advances, these
banks suffered by poor profitability. The EPS of Southeast Bank was volatile in the last five
years indicating higher risks for the investors & other stakeholders of the bank.

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Comment: Return on Assets of AB Bank Ltd. And
Southeast Bank Ltd. declined sharply in last two years.
Moreover, the poor ROA denotes that the banks’
efficiency had declined over time. The banks were
underperformed to manage its assets as a major portion
of investments was categorized as classified. Higher
provision for these assets causes poor efficiency of the
banks in most cases.
Comment: Return on Equity of AB Bank Ltd. And
Southeast Bank Ltd. declined sharply in last two years.
Moreover, the poor ROE denotes that the banks loses its
merits for the interest of the shareholders. 6.18% ROE
of AB Bank Ltd. In FY 2015 is unattractive in
comparison to alternative investment options like
savings certificate, treasury bond etc. These banks
generated poor shareholders returns in comparison to
the historic ROE.
0.90%
0.83%
0.52%
0.61%
0.51%
1.21%
0.86%
1.53%
1.62%
1.18%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
1.80%
2011 2012 2013 2014 2015
Return on Asset
AB Bank Southeast Bank
9.27% 9.02% 6.35%
7.54%
6.18%
9.87% 8.33%
15.41% 15.63%
11.28%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
2011 2012 2013 2014 2015
Return on Equity

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6.1 Asset Based Liquidity Indicators
The cash position of AB Bank
Ltd has declined in FY 2015
significantly from FY 2014 &
fluctuated over the last 5 years.
In this regard, Southeast Bank
Ltd. experience comparatively
steady performance over the last
five years. This indicates poor
cash management of the AB
Bank Ltd.
Both AB Bank Ltd. & Southeast
Bank Ltd. has declining trend of
Liquid Securities Indicator.
In fact, Southeast Bank Ltd. had
more Liquid Securities than AB
Bank Ltd. referring better
liquidity position of Southeast
Bank Ltd.
According to the graph,
Southeast Bank Ltd. has more
riskless assets than AB Bank Ltd.
Risky assets of AB Bank Ltd.
had increased in FY 2015
warning bad signal for the
stakeholders. More loans of AB
Bank Ltd. would be classified in
future.
81.08%
85.19%
82.47%
85.45%
80.40%
86.17% 85.60% 86.13% 86.61% 86.85%
2011 2012 2013 2014 2015
Cash Position Indicators
10.44%
11.25% 10.65% 10.20%
9.72%
16.69% 17.82%
23.02% 21.21% 20.18%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
2011 2012 2013 2014 2015
Liquid Securities Indicators
91.51% 96.44% 93.11% 95.65% 90.13%
102.86% 103.42% 109.15% 107.82% 107.03%
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
2011 2012 2013 2014 2015
RISKLESS ASSET

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According to the graph,
Southeast Bank Ltd. has more
liquid assets than AB Bank Ltd.
as the liquid asset ratio of
Southeast Bank Ltd. was more
than that of AB Bank Ltd. over
the last five years.
But there existed declining trend
of the liquid asset ratio to some
extent for both of the banks.
6.2 Liability Based Liquidity Indicators
The short term deposit ratio of
both AB Bank Ltd. & Southeast
Bank Ltd. had fluctuated over
last five years.
In FY 2014 the metric of
Southeast Bank was too low
compared to previous years.
Southeast Bank Ltd. offers lower
interest rate on short term deposit
than AB Bank Ltd. which
eventually reflects the graph.
The core deposit ratio of both AB
Bank Ltd. & Southeast Bank Ltd.
had decreased over last 5 years.
As the banking industry offers
lower interest on deposit,
depositors loses their interest to
deposit in the banks.
However AB Bank Ltd. has more
core deposit than Southeast Bank
Ltd. as per the line chart.
16.50% 16.73% 16.06% 15.82% 15.66%
22.41% 23.48%
28.80% 27.74% 26.32%
2011 2012 2013 2014 2015
60.69%
67.33%
60.17% 59.82%
54.78%
56.81% 60.38% 60.01%
43.59%
58.15%
0.00%
20.00%
40.00%
60.00%
80.00%
2011 2012 2013 2014 2015
Short-Term Deposit to Asset Ratio
AB Bank Souteash Bank
43.89% 45.84% 43.74% 47.36%
38.94%
69.39% 68.19% 66.66% 65.22% 63.94%
0.00%
20.00%
40.00%
60.00%
80.00%
2011 2012 2013 2014 2015
Core Deposit Ratio
AB Bank Souteash Bank

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7. Conclusion
The banking industry is significantly different than other industries. Bank financial statements
contain an abundance information and require excessive time to evaluate. Financial ratio analysis
provides easier assessment of financial performance of banks.
This study measured the performance of Southeast bank and AB bank’s liquidity position over the
period of 2011-2015. The result indicates that the overall performance of both the bank in terms
of liquidity is been in a regular trend with significant volatility. It is noted that in cash position
ratio AB bank has grater volatility throughout the past five years and southeast bank has a deep
down in year 2014 regarding short-term deposit ratio. Besides this all the indicators determines
that Southeast bank has a greater liquidity position than AB bank ltd in both Asset-based and
Liability-based liquidity indicators.

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References
Book Sources:
Khan, A R, Dr. (2016-2017), Bank Management, A Fund Emphasis. Brothers Publication
AB Bank, Annul report, 2015
AB Bank, Annual report. 2014
Southeast Bank, Annual Report 2015
Internet Sources:
https://en.wikipedia.org/wiki/Banking_in_Bangladesh
http://www.investopedia.com/terms/r/ratioanalysis.asp
http://www.accountingtools.com/questions-and-answers/what-is-order-of-liquidity.html

Liquidity_Position_Analysis_on_AB_Bank_a

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