1. INDUSTRY OVERVIEW1
2. CALCULATION OF RISK-FREE, MARKET RETURN AND SYSTEMATIC RISK2 3. DUTCH-BANGLA BANK LIMITED4
3.1 Company overview4
3.2 Calculation of Rate of Return4
3.3 Calculation of present value of the stocks5
4. BRAC Bank9
4.1 Company Overview9
4.2 Calculation of Rate of Return10
4.3 Calculation of present value of the stocks10
5. AB Bank Ltd.12
5.1 Company Overview12
5.2 Calculation of Rate of Return12
5.3 Calculation of present value of the stocks13
6.1 Dutch-Bangla Bank Ltd.15
6.2 AB Bank Ltd.17
6.3 BRAC Bank Ltd.18
1. INDUSTRY OVERVIEW
The banking industry in Bangladesh have flourished over the years making double-digit profit percentages, sustaining growth and surviving cut throat competition while providing attractive return to the shareholder. As a result, many investors are now showing interest in investing in banking sector and government is also supporting banks so that they can play a crucial role in developing the economy. These present scenario of the banking industry has led us to do analysis on three banks which includes Dutch Bangla Bank Ltd. BRAC Bank Ltd. and AB Bank Ltd.
Banking sector of Bangladesh is one of the major sectors, which contributes significantly to the national economy. . It is the most popular industry for the development of social and agricultural sector of Bangladesh. Women, small entrepreneurs and farmers are encouraged and supported by the banking sector. The number of banks in all now stands at 49 in Bangladesh. Out of the 49 banks, four are Nationalized Commercial Banks (NCBs), 28 local private commercial banks, 12 foreign banks and the rest five are Development Financial Institutions (DFIs). Sonali Bank is the largest among the NCBs while Pubali is leading in the private ones. Among the 12 foreign banks, Standard Chartered has become the largest in the country. Besides the scheduled banks, Samabai (Cooperative) Bank, Ansar-VDP Bank, Karmasansthan (Employment) Bank and Grameen bank are functioning in the financial sector. The number of total branches of all scheduled banks is 6,038 as of June 2000. Of the branches, 39.95 per cent (2,412) are located in the urban areas and 60.05 per cent (3,626) in the rural areas. Of the branches NCBs hold 3,616, private commercial banks 1,214, foreign banks 31 and specialized banks. Bangladesh Bank (BB) regulates and supervises the activities of all banks. The BB is now carrying out a reform program to ensure quality services by the banks.
2. CALCULATION OF RISK-FREE, MARKET RETURN AND SYSTEMATIC RISK
There are 30 banks enlisted by the Dhaka Stock Exchange, however we will only focus on three banks. If we want to know about what is the actual price of the market compared to the current market price and if it is high rated or low rated then we have to calculate each of the banks’ intrinsic value of the shares, then we have to calculate their required rate of return and the present value of the shares of the bank they belong. We have chosen 3 banks: Dutch Bangla Bank limited, BRAC Bank and AB Bank for analyzing the price or their shares outstanding.
For calculating the required rate of return, we need to find out the risk premium and the systematic risk existing in the market.
i. Market Return (RM): It is the additional compensation investor’s demand for taking extra risk compared to the risk free asset on their investment. It is the minimum amount of money that overdoes the expected return on the risky assets.
For our calculation, we have used the market index of 27th September and the market index of 7th February from the website of www.stockbangladesh.comto find out the market risk for the year 2012.
|Date |Market Index...