Surveillance Rating Report Bank Asia Limited - Credit Rating ...

CRAB Ratings
Banks
Surveillance Rating Report
Bank Asia Limited
Ratings
Previous Ratings
Long Term : AA 3 Long Term : AA 2
Short Term : ST-1 Short Term : ST-1
Date of Rating : 11 June 2009 Date of Rating : 18 May 2008
Validity
: One Year
Analysts:
Razib Ahmed
Financial Analyst
Razib.ahmed@crab.com.bd
Tahmina Islam
Financial Analyst
Tahmina.islam@crab.com.bd
Highlights:
Amount in BDT million
2008 2007
Loans & Advances 39,974.99 28,456.94
Non Performing Loan 1,072.67 695.66
Deposits 42,435.24 30,004.09
Net Profit After Tax 686.70 725.64
Return on Average Asset 3.06% 3.97%
Net Interest Margin 3.53% 3.63%
Capital Adequacy Ratio 11.25% 11.28%
Internal Capital Generation 39.69% 45.68%
Gross NPL ratio 2.68% 2.44%
Net NPL ratio 0.69% 0.71%
NPL Coverage Ratio 124.67% 120.36%
Loan to Deposit Ratio 94.20% 94.84%
Liquidity Ratio 22.80% 24.77%
60,000.00
50,000.00
40,000.00
30,000.00
20,000.00
10,000.00
-
2005 2006 2007 2008
Asset base Gross NPL Ratio
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
01. RATING DETAILS
1.1 Rating Rationale:
Credit Rating Agency of Bangladesh Limited
(CRAB) has awarded “AA 3 ” (pronounced
Double A Three) rating in the long term
and “ST-1” rating in the short term to
Bank Asia Limited (hereinafter referred to
as Bank Asia, or the Bank). CRAB
performed the present rating of Bank Asia
based on audited financial statements of 31
December 2008 and other relevant
information.
Commercial Banks rated 'AA 3 ' in the long
term have very strong capacity to meet
their financial commitments. AA 3 rated
banks are judged to be of very high quality
and are subject to very low credit risk.
Banks rated ‘ST-1’ in the short term are
characterized with excellent position in
terms of liquidity, internal fund generation,
and access to alternative sources of funds
is outstanding.
The rating takes into account both
qualitative and quantitative indicators.
Qualitative indicators incorporated are good
corporate governance practice, effective
asset-liability management, good franchise
value, experienced top level management,
diversified product line, risk management
practice, standard IT infrastructure of the
Bank etc. The quantitative analysis
identified the financial strengths such as
sound profitability level compared to peers,

CRAB Ratings
Banks
adequate capital adequacy, good liquidity position, adequate provisioning against loans
etc. However, the rating also took cognizance of deteriorated asset quality of the Bank.
The rating has concerns about increase in Bank’s non-performing and special mention
accounts, low recovery rate, moderate market share, dependency on high cost fixed
deposits and call money market, high AD ratio, etc.
The gross NPL of Bank Asia increased to BDT 1,072.67 million in 2008 from BDT 695.66
million in 2007. As a result, gross NPL ratio rose to 2.68% from 2.44% in the same
period. Bank’s credit monitoring and recovery process shows mixed trends. Because of
effective monitoring, where, Bank’s fresh NPL generation was decreased to BDT
1,045.20 million in 2008 from BDT 1,311.80 million; its amount in Special Mention
Accounts increased to BDT 1,512.21 million from BDT 278.50 million in the same period.
Bank’s recovery of delinquent loan shows diminishing trend, amounting BDT 667.10
million in 2008, which was BDT 1,120.40 million in 2007. Major portion of such recovery
was rescheduling in nature. The classification amount provisioned and therefore the net
NPL ration was 0.69% in 2008.
During 2008, Bank Asia achieved growth of deposits by 41.43% compared to 18.64% in
2007. The Bank’s major portion of deposits was fixed in nature, which is of high cost.
Bank Asia’s funding mix also points out Bank’s dependency on inter-bank borrowing in
2008, which is high cost and volatile in nature. The Bank’s AD ratio in 2008 ranged from
85% to 94% throughout the year.
ALM analysis of previous few years shows liquidity mismatch in immediate maturity
bucket (less than one month) in most cases; where liabilities exceed the asset base.
During 2008, such negative gap was 2.72% of total assets.
In 2008, operating profit of Bank Asia increased by 28.33%, which was 41.95% in 2007.
Due to increase in provision amount for rising SMA and delinquent loans, the net profit
increased by only 2.84% in 2008, which was 41.34% in 2007. Bank’s profitability has
been much volatile than its peer.
The loans and advances of the Bank achieved growth of 40.48% in 2008, which was
27.86% in the previous year. Major concentration was in loans against trust receipt
(LTR), secured overdraft, and term loan facilities. Bank’s industry wise loan portfolio is
well diversified. During 2008, among the total credit portfolio, the Bank disbursed BDT
15,909.88 million loans and advances in industry sector with the growth of 14.71% over
previous year. Bank’s major exposures in industrial area were in RMG & Textile, food &
allied, steel, real estate, paper industries etc. Bank Asia defined 17 loan accounts as
large loans, with outstanding amount of BDT 8,958.6 million and no large loan borrower
exceeded the range provided by Bangladesh Bank.
The capital adequacy ratio of the Bank slightly reduced to 11.25% in 2008 from 11.28%
in 2007 due to low growth in retained earnings of the Bank, which is the component of
core capital.
1.2 Rating History
Bank Asia Limited was assigned AA 2 rating in the long term and ST-1 in the short term
by CRAB on 18 May 2008 which had a validity of 1 (one) year from the date of rating
award. The last rating was based on the audited financial statements for the year ended
31 December 2007.
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