This report provides an overview of City Bank Limited and Al-Arafah Islami Bank Limited, the two largest players in the banking sector. In this article, we compared City Bank Limited with one of the Islamic banks called Al-Arafah Islami Bank Limited.
Introduction
Origin of the report
In the private banking sector of Bangladesh, "CITY BANK" is one of the private commercial banks that has been around for a long time. Today, The City Bank has 132 branches across the country and approximately 300 correspondents abroad, covering all the world's business centers and major cities. Over a long period of time, CITY BANK LIMITED has increased its business volume.
THE CITY BANK has already provided its customers with several modern ways to manage their accounts, such as dual cash credit cards, ATMs and online services. In 2000, "ASIA WEEK" stated that out of the top 12 banks of Bangladesh THE CITY BANK has achieved a position based on its assets, deposits and benefits. In addition, City BANK LIMITED was honored with the "Beat Ten Company" award given by the Prime Minister of the People's Republic of Bangladesh.
The city bank has such a Committee of Directors which is well known and consists of thirteen successful and well-known businessmen. Both banks are performing well and their debt to equity ratio is continuously increasing from 2017 to 2018. Arafah's Al debt to equity ratio is also better than that of the city bank. City Bank had a higher Loan to Asset ratio of around 60% every year, as did Al Arafah Islami bank.
This means that the city bank Limited is at the risk of facing loss if they do not collect the loans and Al-Arafah Islami Bank Limited has a higher percentage compared to city bank, also both the banks maintain the percentage lower than 6 %. Still from here we can Al-arafah islami bank has a better current ratio than city bank. It can be observed that the ROA for City Bank limited has continuously decreased compared to Al-Arafah Islami Bank over the years as they have been able to increase their earnings by using their assets more efficiently, therefore the company should definitely use their assets more efficiently utilized.
As an intern, I was assigned to City Bank Limited (JFP Branch), their customer service department.
Objectives of the report
Scope & Limitations of the report
Data Methodology
Company Profile
- Mission, Vision & Values
- City Bank limited General banking division
The bank must provide all forms of business account management, exchange activities and banking services for customers, and serve all branches of the city bank in Bangladesh to comply with its guiding principles. Four distinct business units, including: The bank's headquarters, which vertically oversees the bank's operations and activities.
City Islamic
City Alo
About Al-Arafah Islami Bank Limited
- Mission, Vision, Objective etc
- Corporate Division/Department etc
- Details of the product lines or services
Foreign Trade - Provides necessary financial assistance and checks requirements for companies engaged on an international level. On the same day, the account that the recipient has with Al-Arafah Islami Bank Limited is credited. Centralized Foreign Trade Processing Service: Al-Arafah Islami Bank Ltd.'s Foreign Trade Processing Division (FTPD) provides full cash and back-to-back LC transaction and processing services for exports and imports from a single location.
Guarantee Business: The Bank provides guarantee services on behalf of its customers, including Omra guarantee, with a preference for domestic and international organizations/correspondents. Foreign Exchange Treasury continuously analyzes the bank's inflows and outflows of foreign currency linked to imports, exports and foreign remittances, and buys and sells currencies from clients as necessary, as well as participating in the interbank market to manage the bank's net open position and FX liquidity. Depending on the bank's business situation, there will be a gap in the asset-liability book.
In addition to getting customers to deposit money, money market traders create short- and medium-term funds for the bank at the best price. The Money Market Department ensures that the bank has sufficient liquid assets to meet all of its financial obligations and customer responsibilities as well as SLR and CRR requirements, exposing the bank to minimum risk and cost. Ratio analysis is crucial for any organization as it allows us to understand the profitability situation and the company's strengths and weaknesses.
Return on Asset (ROA)
Ratio analysis is a crucial technique that helps determine the potential and areas of concern for a business or entity. It also includes the ratio analysis required to pinpoint the potential and areas of concern for a business or organization. ROA has decreased for City Bank over the years from 2017 to 2019, which is the lowest return among all the years, and then starts to increase from 2019 to 2021.
While Al-arafah Islami bank, which had the lowest return in 2017, has continuously reduced its ROA from 2017 to 2021. Al-Arafah performed steadily after 2017, but in 2021 recorded the lowest return in the past five years.
Net Profit Margin
Arafah Bank was the highest among its peers in 2017 and over the past five years, but gradually declined and is now one of the worst performing banks in terms of achieving net profit margin in 2021.
Debt to Equity Ratio
Credit to Deposit Ratio
Total Loan to Total Asset
Non-Performing Loan to Total Loan (NPL - Total Loan)
Provision for Loan Loss to Total Loan
Earnings per Share
Current Ratio
Non-Performing Loan
- Permanent Loan
- Demand Loan
- Fixed Loan
- Microcredit and Agricultural Short-Term Loans
A permanent loan is a loan account whose transactions can be limited to a certain limit and have an expiry date, such as overdraft, cash credit, etc. In other words, a demand loan is a loan whose repayment depends on the bank's demand. Fixed term loans are often repaid according to a predetermined repayment plan and within a predetermined time frame.
Short-Term Microcredit and Agriculture: This category includes all microloans under TK 25,000 and includes credit in the microcredit and agriculture sectors that are often repaid in less than a year. The function of the central bank is absolutely necessary for the existence of all other banks. The criteria should be used by policy makers to evaluate banks and any adjustments they make should benefit the entire industry and not just the banks themselves.
Instead of officials changing policies to improve banks' performance, banks should be judged against standards. When assigning a credit rating, it is the credit rating agency that must take responsibility. Based on the findings of the investigation, it appears that the assessments are not evidence-based, as the changes implemented have nothing to do with what is happening in the banking industry in Bangladesh (Chart 1.11).
Causes of Nonperforming Loans from the Banks' Perspective
Banks refused to renew borrowers' current loans or give them new loans when they went bankrupt due to business losses. By making loans to high-risk customers, bankers' greed partly contributes to the fragility of the banking sector. Being too concerned with the loan application process, borrowers did not pay enough attention to that either.
In other cases, bank executives approved loans without adequate collateral or a thorough investigation of the firm based on personal relationships alone. Non-payment of the loan from time to time may result from the ignorance of the bank officials in determining the loan request. Nepotism was often used to favor politically exposed persons (PEPs) in the loan approval process, making the loan riskier, especially when nepotism was exhibited by top-level management.
Loans were granted in these situations without a sufficient credit score or sanctions approach, either in terms of project sustainability or adequate collateral valuation.
Client-side reasons for NPL
Borrowers were then trapped and unable to resolve their predicament, leading to a decline in business morale and a subsequent inability to make timely loan repayments. In addition, money is used for family matters, housing construction, other businesses, repayment of loans from various sources and medical needs. Borrowers cannot take advantage of the rescheduling conditions, as either the payment amount or the rescheduling period is too long.
When they can't manage their firms, they can't get their debtors to pay up on time (or go uncollected altogether).
Ways of Overcoming Non-Performing Loans
The profitability ratio decreases along with ROA; the company would have to sell more of its services to generate much more revenue to stay competitive in the market. It appears that City Bank has exceeded its credit-deposit ratio ceiling in 2021. They could face problems if they lend out more than their reserves, and could even go bankrupt in the future. They should assess liquidity, profitability (return on assets), funding costs and deposits and look for methods to improve or modestly adjust policies and expenditures to improve efficiency.
There must be a system in place to monitor the performance of board members, and board members must be selected and appointed through rigorous evaluation measures. The main task of the department is the handling of internal incoming and outgoing foreign remittances and the purchase and sale of foreign currencies. This term paper offers a thorough investigation of the many characteristics of a city bank and is divided into several chapters. The main purpose of the report is to conduct a comparative analysis and find ways to prevent bad loans of City Bank and Al-Arafah Islami Bank and examine the sources of knowledge also by taking information from the financial statements to find out the relationships.
The company's financials show that the industry is doing well and the business of the entire company is improving day by day. However, for rapid improvement, City Bank needs to make some adjustments such as: City Bank Limited needs to be more effective in managing its resources to increase return on assets by using total assets effectively; The management has to reduce the loan amount for a certain period as the interest on non-performing loans increases year by year. To properly implement the financial plan, City Bank must establish an appropriate action plan and hire more qualified and experienced treasury staff.
