Cost and Efficiency of Ucbl in Bangladesh

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Cost and Efficiency of UCBL in Bangladesh

United Commercial Bank Limited (UCBL), one of the first generation private sector banks in Bangladesh, commenced its commercial operation from June 1983 and capital market operation from 1986. In this report, we have analyzed the cost structure, profitability and operating efficiency of this bank and the relationship of cost with the profitability.

|Interest Expenses |2002 |2003 |2004 |2005 | |Total Interest Expense |738,689,189 |853,809,953 |971,684,083 |1,195,364,906 | |Non-Interest Expenses |2002 |2003 |2004 |2005 | |Chief Executive’s Salary including other fees |1,550,000 |2,479,481 |2,685,000 |3,457,500 | |Rent, Taxes, Insurance, Lighting etc. |62,881,265 |66,941,975 |69,418,169 |81,512,694 | |Legal Expenses |6,707,605 |6,069,882 |3,238,667 |5,122,133 | |Postage, Stamps, Telegram, Telephone etc. |28,611,384 |24,127,525 |20,107,259 |23,413,092 | |Stationary, Printing, Advertisement etc. |10,908,300 |14,312,858 |11,428,313 |18,496,793 | |Director’s Fee and other expenses |6,707,605 |6,170,466 |1,798,936 |1,225,328 | |Auditors fees |125,000 |140,000 |145,000 |1,645,000 | |Depreciation and repair of Fixed Assets |42,372,131 |47,006,050 |52,750,930 |56,899,102 | |Other Expenses |48,513,817 |55,207,787 |59,033,895 |65,381,462 | |Total Non-Interest Expense |572,724,818 |638,691,206 |723,225,321 |840,165,065 |

Cost Structure:

|Provision for Loan & Advances |2002 |2003 |2004 |2005 | |Total Provision |294,291,000 |283,956,807 |231,154,000 |300,000,000 |

In these tables, we can see that- the Interest Expense, Non-Interest Expense and Provision for Loan and Advances are increasing every year. The cost structure of UCBL for 2002-2005 is given in a chart below:

[pic]

Figure: Cost Structure of UCBL

UCBL has paid higher interest to their deposit holder and lenders and it has also paid a lot of money in operating expenses. Moreover, for facing future potential risks of loan and advances, they have kept reserve of higher amount of money as provision.

Profitability:

|Profitability Ratios |2002 |2003 |2004 |2005 | |ROA |0.45% |1.00% |0.67% |1.45% | |Net Interest Margin |2.31% |2.78% |2.99% |3.85% | |Net Non-Interest Margin |- 0.10% |0.31% |0.43% |0.15% | |Net Operating Margin...
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