The Trends of Growth, Productivity and Profitability of a First Generation Private Sector Bank: A Case Study on AB Bank Limited

Abstract

Banking system plays a very important role in the economic life of a nation. The health of the economy is closely related to the soundness of its banking system. In a developing country like Bangladesh the banking system as a whole plays a vital role in the progress of economic development. A bank as a matter of fact is just like a heart in the economic structure and the capital provided by it is like blood in it. As long as blood is in circulation the organs will remain sound and healthy. If the blood is not supplied to any organ then that part would become useless. In recent times banking businesses had a sharp change in their character and composition due to the application of a number of measures and growing demand of a variety of customer services. The attention of the bank management is no longer should be concentrated only to the traditional banking business, that is accepting deposits and making loans, rather to the provisions of a number of ancillary services and bringing them risk free or less risky income to sustain profitability. The public and private sector banks are competing with each other. Their healthy coexistence is very much necessary for the growth and development of Bangladesh economy. Now, it is essential to analyse the trends of growth, productivity and profitability of a first generation private sector bank namely AB Bank Limited with a view to analyse its progress as well as to see how it does in the on going development process of the country. That is why, the present study is undertaken. In view of the above inquiries, the following objectives are set: (i) to analyse the growth trends of banking facilities and outputs of ABBL; (ii) to measure and analyse productivity performance of ABBL; (iii) to measure and analyse profitability performance of ABBL; (iv) to examine the factors affecting productivity and profitability of ABBL and (v) to suggest the measures for improvements in the performance of ABBL. The study followed the method of documentary analysis. Justification of adopting documentary method is that it is appropriately applicable in finding out what has happened in course of time and correlating the events. Depending on the nature of the study, data were collected from both primary and mostly secondary sources. AB Bank is one of the first PCBs in Bangladesh. The vision statement of ABBL is "to be the trendsetter for innovative banking with excellence and perfection" and the mission statement is "to be the best performing bank in the country". Since its establishment with the above vision and mission, ABBL has shown as remarkable growth in regards to its activity. In case of the growth of branches of ABBL, it is found in this study that it is all along positive except the single year 2005. The highest growth rate of branches of ABBL was found in 1983 (200 per cent). The remarkable growth also existed in the years of 1984 (50 per cent), 1985 (44.44 per cent) and 1986 (38.46 per cent). The R2 value of . 71 revealed that the independent variable (time) explained for about 71 per cent of the variations in the dependent variable (branches). The trend growth rate of AB Bank's branches is found to be 9.9 per cent. It is found in this study that the productivity coefficients were more than unity (0>1) in the years of 1983 (1.25), 1990 (1.2), 1991 (1.25), 1995 (12), 1996 (13), 2000 (1.28), 2001 (1.44), 2003 (1.04) and 2007 (6.33). It means that productivity was favorable in those years. In other words, 0>1 means that it is a sing of good health of the bank. ABBL experienced a very high level of productivity (13) in the year of 1996. In the year of 1992, the productivity was though unfavorable yet near to 1. In the years of 1984 (0.86), 1985 (0.88), 1986 (0.72), 1987 (0.73), 1988 (0.86), 1989 (0.59), 1993 (0.25), 1994 (0.62), 1997 (0.54), 1998 (0.75), 1999 (0.89), 2002 (0.31 ), 2006 (0.75) and 2008 (0.90), the productivity coefficients were less than one (0<1 ). It means that productivity was unfavorable in those years. Bank recorded negative productivity in the years of 2004 (-.08) and 2005 (-.44). The poor performance of ABBL was occurred in those years. Last of all, we can come to the conclusion that the performance of ABBL depicts mixed results. Out of 27 years, its performance was favorable for 9 years, unfavorable for 15 years and negative or poor performance for 2 years. It is found in this study that the ratio of net profit (P) to total income (I) of ABBL was almost positive during the whole period from 1982 to 2008. It was 3 in 1982, which sharply increased to 8.18 in 1983. In 1984 it suddenly came down to 2.83 from 8.18 in 1983. Again in 1985, it sharply increased to 9.22. It is worthy to note that the lowest ratio was 1.97 in 1989 and the highest ratio was 14.96 in 2005. There were ups and downs of the ratio of net profit to total income of ABBL. It also shows that the average ratio of P to I of ABBL was 27.61, the coefficient of variation was 61.21. It indicates that the profitability performance of ABBL was less consistent during the study period from 1982 to 2008. The correlation between total income (I) and net profit (P) is 0.970 which is positive and highly correlated. It is also found that the regression line indicates that the profit is significantly depending on total income, because the co-efficient of total income is positive (+.094). The study shows that the ratio of spread as percentage of, working funds fluctuated during the study period from 1982 to 2008. At the initial stage, it was 1.71 per cent in 1982, in this case interest earned was higher than interest paid, so spread is positive. In 1983, it increased to 2.17 per cent. In 1984 and 1985, it was the highest, i.e., 3.61 per cent. But interest earned and interest paid gradually increased, so spread gradually increased. In this way, in 2001, spread is zero, that is, both of them are equal. After 2001, spread gradually increased as well as the ratio of spread • as percentage of working funds gradually increased. The highest interest earned was 31.06 per cent in 1984 that leads to the highest spread. In the year 2001, spread is zero, that is, interest earned and interest paid is equal. Except this year, it is always seen that interest earned is greater than interest paid that is spread is always positive. It indicates that ABBL always has made a good profit and it indicates that ABBL is a sound financial institution from the very beginning of its inception. The study offers a set of policy recommendations which is presented here for a quick review. The profitability performance of A.BBL fluctuated during the study period. In this regard, ABBL should immediately arrest the fluctuating trend of profitability. The productivity performance of ABBL showed mixed results. So, ABBL should improve the productivity performance. All the growth trends of ABBL are not so steady, stable, continuous and desirable. So, ABBL should maintain always steady, stable and continuous growth rates for its better performance. Finally, this study has revealed that ABBL is suffering from many problems. So, this study presents some suggestions to overcome the problems.