Dutch-Bangla Bank top performer in 2023, Jamuna leads Q1 2024: EBL Securities
The criteria considered include earnings per share, net asset value per share, cost-to-income ratio, return on equity, return on assets, spread, net interest margin, capital adequacy ratio, NPL ratio, and dividend yield.
Dutch-Bangla Bank was the top performer among listed banks, receiving the highest rating based on financial results in 2023, while Jamuna Bank led for the January-March 2024 period, according to research by EBL Securities.
EBL Securities, a leading brokerage firm and subsidiary of Eastern Bank, created lists of the top-performing banks for 2023 and the first quarter of 2024. The rankings were based on the financial performance of banks, using research that assigned equal weights to ten specific criteria.
The criteria considered include earnings per share, net asset value per share, cost-to-income ratio, return on equity, return on assets, spread, net interest margin, capital adequacy ratio, NPL ratio, and dividend yield.
Mohammad Rehan Kabir, head of research at EBL Securities, told The Business Standard, "We do not recommend any specific banks for investment purposes based on this ranking."
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According to the research report, Dutch-Bangla Bank received the highest rating of 83.08 for 2023, while Jamuna Bank scored 75.46 points for the first quarter of this year.
We do not recommend any specific banks for investment purposes based on this ranking.
Furthermore, Rupali Bank was the poorest performer, achieving the lowest rating of 24.51 in 2023. Similarly, AB Bank landed in the last position with 21.43 points in the January-March quarter of 2024.
Rehan Kabir said the transition to a market-driven interest rate regime by abolishing the SMART reference rate is expected to facilitate further improvements in the interest rate spread. Moreover, banks allocating more funds to treasury securities is enhancing investment income amid increasing interest rates in the money market.
He noted that the bank interest rate spread surpassed 5% in February 2024, marking the first time in nine years, following the adoption of a market-driven reference lending rate.
Rayhan Ahmed, senior research associate at EBL Securities, raised concern about the rising non-performing loans (NPLs) in the banking sector.
He said rising Non-Performing Loans (NPLs) pose a significant challenge for the banking sector. Classified loans have soared to a record high of 11.11%, amounting to Tk1.82 trillion as of March 2024. This surge is attributed to a range of factors including loan irregularities, lending scams, and inadequate corporate governance within banks, he said.
According to the brokerage firm's report, the Bangladesh Bank has unveiled a roadmap aimed at reducing default loans to below 8% by June 2026, in alignment with an International Monetary Fund (IMF) requirement.
Key measures include easing the loan write-off policy, enabling banks to expedite the write-off process within two years instead of three, and targeting recovery of at least 1% of NPLs through alternative dispute resolution by June 2026, it added.
Additionally, a new exit policy allowing defaulters up to three years to repay loans with a 10% down payment can play a vital role to reduce the non-performing loans, as per the report.
EBL Securities said on the contribution to the stock market, the correlation between the price movements of the banking sector and the stock market index appeared moderately positive throughout 2023.
The capital market faced significant challenges, with around 60% of the total market capitalisation, excluding debt securities, remaining illiquid at the floor price throughout the last fiscal year, it added.
Despite this, the market experienced a modest 0.6% increase, while the banking sector's market capitalisation rose by 3.2% in 2023. This growth was primarily driven by the IPO listings of Midland Bank and NRB Bank.
Moving into 2024, the correlation between the banking sector's price movements and the Dhaka Stocks major index DSEX remained moderately positive in the first quarter of this year.
By the end of March, the banking sector slightly outperformed the DSEX, key index of the Dhaka Stock Exchange, despite both sectors experiencing corrections. This occurred against the backdrop of a persistently bearish market sentiment and subdued investor confidence following the removal of floor prices, EBL Securities cited in the report.
