FIN3322: Bank Management - Analyzing Bank Performance Report 2016

This report provides a comprehensive analysis of the financial performance of Hatton National Bank (HNB) and Commercial Bank of Ceylon PLC, two leading commercial banks in Sri Lanka. The analysis includes a comparative study of their products, achievements, and financial ratios, covering profitability, activity, leverage, and market ratios. The report delves into common-size financial statements, interpretation of ratios, and Due Pont analysis for both banks. Furthermore, it examines the CAMELS framework, assessing capital adequacy, asset quality, management quality, earnings, liquidity, and sensitivity. The risk management frameworks, including credit, market, liquidity, operational, reputational, and legal risks, are also evaluated. The report also includes a detailed examination of capital adequacy and liquidity management, along with non-performing loans management. The report is based on the FIN3322 Bank Management course at the University of Sri Jayewardenepura.

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 Number MC Number Name of the Member Signature
01 10473 70155 M.L.N. Premarathne
02 11966 73973 W.K.A. Wanniarachchi
03 12002 73388 C.A Halambaarachchi
04 12079 73264 K.P.M Kumari De Silva
05 12089 73551 G.C. Lakshika
06 12096 73649 P.I. Nilmini
07 12225 73248 D.S.Dahanayake
08 12361 73775 R.A.V. Ransinghe
09 12386 73818 K.V.D.Sakunika
10 12521 73393 K.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.
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Contents
Commercial 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
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Table of Figures
Figure 1 Commercial Bank Logo 1
Figure 2 HNB Logo 3
Figure 3 Duepont Analysis for Commercial Bank 25
Figure 4 Duepont ANalysis for Commercial Bank 26
Figure 5 Sectoral Distribution of Loans -Commercial Bank 30
Figure 6 - Sectoral Distribution of Loans as a percentage 30
Figure 7 Risk Government Strucute for HNB 37
Figure 8 HNB's Risk Profile 38
Figure 9 Commercial Bank Financial Risk Management Framework 39
Figure 10 Non-performing Advances 40
Figure 11 Credit Risk Management Cycle 41
Figure 12 Loan Portfolio 44
Figure 13 HNB Liquidity Gap Analysis 46
Figure 14 Liquidity Ratios 47
Figure 15 Exposure to Liquidity Risk 47
Figure 16 Liquidity Ratios 48
Figure 17 Liquidity Reserves 48
Figure 18 Key Risk Indicators 50
Figure 19 NPA Ratio 57
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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
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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
o Regular Savings Account
o Super Saver Account
o RFC Savings Account
o Power Savings Account
o Udara Senior Citizens Account
o Arunalu Children’s Savings Account
o Isuru Minor’s Savings Account
o DotCom Youth Savings Account
 Deposits and Investments
o Millionaire Account
o Money Market Accounts
o Treasury Bonds
o Treasury Bills
o Fixed Deposits
o Call Deposits
o RFC Fixed Deposits
 Current Accounts
o Current Accounts
o Achiever Current Accounts
 Loans
o Home Loans
o Foreign Currency Home Loans
o Personal Loans
Figure 1 Commercial Bank Logo

o Education Loans
o Professionals’ Loans
o Pensioners’ Loans
o Gold Loans
 Cards
o Platinum Credit Cards
o Credit Cards
o Debit Cards
 Services
o Online Banking
o Mobile Banking
 Islamic Banking
 Elite Banking
Achievements
Declared Best Private Sector Bank in Sri Lanka and best for CSR, Brand Excellence and
Sustainability in the Banking industry
The Commercial Bank of Ceylon won four top awards including Best Private Sector Bank in
Sri Lanka at the 2016 South Asian Partnership Summit & Business Awards presented by
World HRD Congress and endorsed by the Asian Confederation of Businesses.
Ranked amongst ‘500 Strongest Banks’ in Asia Pacific region by The Asian Banker
The Commercial Bank of Ceylon PLC has been adjudged ‘The Strongest Bank in Sri Lanka
in 2016’ following a detailed and transparent scorecard compiled and analyzed by The Asian
Banker, a leading provider of strategic intelligence on the financial services industry.
Wins Sector Award for Banking, leads all listed companies in total assets; placed second
overall on PAT
The Commercial Bank of Ceylon has topped the LMD 100 ranking of Sri Lanka’s leading
listed companies in terms of Assets, taken second place overall on Profit After Tax (PAT)
and fifth place overall on Turnover in the magazine’s just published rankings for 2014-15.
The Bank also won the Sector Award for Banking at the ceremony.
The Commercial Bank of Ceylon PLC has become the only Sri Lankan bank to be ranked
among the Top 1000 Banks of the World for the sixth year running, setting yet another
benchmark for consistency.
This prestigious ranking is published annually by ‘The Banker’ magazine of the UK, and the
2016 list is based on the Bank’s key performance indicators for FY 2015.
2

Hatton National Bank PLC.
Hatton National Bank PLC is also an award winning private commercial bank in Sri Lanka
currently operating with 249 branches island wide. It has been internationally recognized as
the “Best Retail Bank in Sri Lanka” by Asian Banker Magazine many times as well as “The
Bank of the Year” in both 2012 and 2013 by The Banker Magazine of UK. It operates under
the vision of,
“To be the acknowledged leader and chosen partner in providing financial solutions through
inspired people.”
Its 1st branches were opened at Pussellawa, Gampola and Maskeliya and the Recently opened
HNB bank in Jaffna became the 1st green building of Northern Region.
HNB was able to achieve an international credit rating by becoming the first Sri Lankan bank
to obtain an international credit rating while maintaining a national long-term rating by Fitch
Ratings (Lanka) Ltd as AA-.
Produts
 Savings
o General Savings
 Regular Savings
 Capital Savings
 HNV Adhishtana
o Minor Savings
 Singithi Kirikatiyo
 Singithi Lama
 Singithi Surakum
 Diri Daru
o Youth Savings
 HNB Teen
 HNB Yauwanabhimana
 HNB You
o Senior Citizens
 Senior Citizens Scheme
 Sathkara for Gov. Servants
o Term Deposits
 Fixed Deposits
 Call Deposits
o Foreign Currency Savings
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Figure 2 HNB Logo

 Loans
o Vehicle Loans
o Personal Loans
o Shanthi Home Loans
o Educational Loans
o Sathkara for Gov. Servants
o Debt Consolidation Loans
 Cards
o International Debit Cards
o HNB Credit Cards
o HNB Travel Cards
o HNB Affinity Cards
 Remittance
 Current Accounts
o Privilege Current Account
o Shareline Current Account
o Current Account
 Promotions
o General Promotions
o Card Promotions
o Shanthi Loyalty Card Discounts
 Leasings
Achievements
'The Best Retail Bank' for the 8th time by the 'Asian Banker'
HNB was once again recognized as 'The Best Retail Bank', in Sri Lanka at the 'Asia at the
'Asian Banker' International Excellence in Retail Financial Services 2016 Awards ceremony
held in Hong Kong recently. This is the 8th time that HNB has been bestowed with the 'Best
Retail Bank Award' by the 'Asian Banker'.
The 'Best Retail Bank in Sri Lanka'
HNB was once again recognized as the 'Best Retail Bank in Sri Lanka' for the seventh time
by the prestigious ‘The Asian Banker’ at the Asian Banker Excellence in Retail Financial
Services Awards ceremony held recently in Singapore.
The International Excellence in Retail Financial Services programme is the most rigorous,
prestigious and transparent awards programme for retail banking in Asia Pacific, Central
Asia, the Middle East and Africa. The programme evaluates over 250 banks in 42 countries
in a thorough evaluation process.
HNB MOMO wins international award for Marketing Campaign of the Year
4

HNB won the 'Marketing Campaign of The Year' category award for the marketing and
communications campaign developed for HNB MOMO the mobile POS solution introduced
by the bank for the first time in Sri Lanka in 2013.
Ratio Analysis
Ratio calculation of Hatton National Bank
Profitability Ratios
Return on Assets = Profit for the yr = 10,448,786 = 1.61%
Ave total assets 649029529
Return on Equity = Profit for the yr = 10,448,786 = 16.59%
Ave Equity 62974858
Net Income Ratio = Profit for the yr = 10,448,786 = 17.09%
Gross Income 61,153,466
Cost to Income = Operating Exp. = 15,978,634 = 45.95%
Operating Income 34,774,910
Net Interest Margin = Net Interest Income = 26,335,529 = 4.49%
Ave Earning Assets 586,695,42
2
Spread = Interest Income - Interest Exp
Ave Earning Assets Ave Interest
bearing
Liabilities
52,615,463 - 26,279,934 = 4.10%
586,695,422 539,499,588
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