FIN3322: Bank Management Group Assignment 2016 Analyzing Bank Performance By Department of Finance 2016
FIN3322: Bank Management Group Assignment 2016 Analyzing Bank Performance -Hatton National Bank & Commercial Bank By Department of Finance This Report submitted to the Department of Finance, Faculty of Management Studies and Commerce, University of Sri Jayewardenepura, as a partial fulfillment of the requirement of FIN:3322 Bank Management course 2016
Declaration We certify that this project report does not incorporate without acknowledgement, any material previously submitted for a course or a degree in any university, and to the best of our knowledge and belief it does not contain any material previously published or written by another person, except where reference is made in the text. No.CPM NumberMC NumberName of the MemberSignature 011047370155M.L.N. Premarathne 021196673973W.K.A. Wanniarachchi 031200273388C.A Halambaarachchi 041207973264K.P.M Kumari De Silva 051208973551G.C. Lakshika 061209673649P.I. Nilmini 071222573248D.S.Dahanayake 081236173775R.A.V. Ransinghe 091238673818K.V.D.Sakunika 101252173393K.W.C. Harshima
Acknowledgment First and foremost, we would like to thank our Bank Management lecturer Mr. Wickrama Narayana and our tutorial coordinator Ms. Gayani Kaushalya for the guidance and the understanding provided towards achieving this assignment as a successful one. Then we take this opportunity to convey our sincere gratitude to our beloved parents for being with us. Last but not least, we should acknowledge our group members who work together to get this assignment as a successful one. i
ContentsCommercial Bank of Ceylon PLC.........................................................................................................1 Products.............................................................................................................................................1 Achievements....................................................................................................................................2 Hatton National Bank PLC....................................................................................................................3 Produts...............................................................................................................................................3 Achievements....................................................................................................................................4 Ratio Analysis.......................................................................................................................................5 Ratio calculation of Hatton National Bank........................................................................................5 Ratio calculation of Commercial Bank..............................................................................................9 Common size Financial Statements.................................................................................................12 Interpretation of Ratios....................................................................................................................18 Interpretation of Common Size Statements.....................................................................................22 Due Pont Analysis...............................................................................................................................25 Commercial Bank............................................................................................................................25 Hatton National Bank......................................................................................................................26 CAMELS Framework..........................................................................................................................28 Capital Adequacy............................................................................................................................29 Asset Quality...................................................................................................................................29 Management Quality.......................................................................................................................31 Smart Schools’ initiative..................................................................................................................32 Earnings...........................................................................................................................................33 Liquidity..........................................................................................................................................34 Sensitivity Analysis.........................................................................................................................34 Risk Management Framework.............................................................................................................35 Credit Risk.......................................................................................................................................39 Market risk......................................................................................................................................44 Liquidity risk...................................................................................................................................45 Operational Risk..............................................................................................................................48 Reputational risk..............................................................................................................................50 Legal and Documentation Risk........................................................................................................50 Capital Adequacy Ratio.......................................................................................................................52 Liquidity Management........................................................................................................................54 Non-Performing Loans Management...................................................................................................56 ii
Table of Figures Figure 1 Commercial Bank Logo1 Figure 2 HNB Logo3 Figure 3 Duepont Analysis for Commercial Bank25 Figure 4 Duepont ANalysis for Commercial Bank26 Figure 5 Sectoral Distribution of Loans -Commercial Bank30 Figure 6 - Sectoral Distribution of Loans as a percentage30 Figure 7 Risk Government Strucute for HNB37 Figure 8 HNB's Risk Profile38 Figure 9 Commercial Bank Financial Risk Management Framework39 Figure 10 Non-performing Advances40 Figure 11 Credit Risk Management Cycle41 Figure 12 Loan Portfolio44 Figure 13 HNB Liquidity Gap Analysis46 Figure 14 Liquidity Ratios47 Figure 15 Exposure to Liquidity Risk47 Figure 16 Liquidity Ratios48 Figure 17 Liquidity Reserves48 Figure 18 Key Risk Indicators50 Figure 19 NPA Ratio57 iii
Executive Summary Our report concentrates on analyzing the financial performance of two most private leading commercial banks in Sri Lanka, namely commercial Bank of Ceylon PLC and Hatton National Bank PLC. Instead of comparing two time periods of the same commercial bank, in our report we have comparatively analyzed the same time duration of two different award winning commercial banks in Sri Lanka. Our analysis on commercial bank and HNB bank has covered the areas of, Financial position statement ratios and numbers Comprehensive income statement ratios and numbers Due Pont analysis for each bank CAMELS Framework Risk management framework of each bank Capital adequacy calculation Liquidity management iv
Commercial Bank of Ceylon PLC. Commercial Bank of Ceylon PLC is an award winning Commercial Bank in Sri Lanka with 205 branches and an ATM network of 625 ATMs. It established under the vision of, "To be the most technologically advanced, innovative and customer friendly financial services organization in Sri Lanka, poised for further expansion in South Asia". The birth of the bank occurred in 1920s, during the pre-independence era and currently expanded its operations to Bangladesh as well. The bank has won several awards including ‘The Strongest Bank in Sri Lanka in 2016’award by the Asian Banker and “The Most Respected Bank in Sri Lanka – 2016” by LMD rankings. With the commitment of the bank current Chairman Mr. K. G. D. D. Dheerasinghe and his team, the bank is moving forward being a successful Commercial Bank in Sri Lanka. Products Savings oRegular Savings Account oSuper Saver Account oRFC Savings Account oPower Savings Account oUdara Senior Citizens Account oArunalu Children’s Savings Account oIsuru Minor’s Savings Account oDotCom Youth Savings Account Deposits and Investments oMillionaire Account oMoney Market Accounts oTreasury Bonds oTreasury Bills oFixed Deposits oCall Deposits oRFC Fixed Deposits Current Accounts oCurrent Accounts oAchiever Current Accounts Loans oHome Loans oForeign Currency Home Loans oPersonal Loans Figure 1 Commercial Bank Logo
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