Research Article, ISSN 2304-2613 (Print); ISSN 2305-8730 (Online)
Copyright ©
CC-BY-NC 2014
, Asian Business Consortium |
ABR
Page 21
Security Analysis of Banking Industry in Bangladesh
Omar Faruque
1*
, Md. Rafiul Islam
2
1
Assistant Professor, Department of Accounting and Information Systems, Begum Rokeya University, Rangpur, BANGLADESH
2
Lecturer, Department of Business Administration, Pundra University of Science & Technology, Bogura, BANGLADESH
*
E-mail for correspondence:
faruque1712@gmail.com
https://doi.org/10.18034/abr.v8i1.4
ABSTRACT
The paper aims to know what about the procedure of analysis for determining the investment decision
in the stock market on by studying different method of the securities analysis. This study is an attempt
to highlight the different securities analysis methods for making the rational decision about the
investment in the stock market. The security analyses show the result of fundamental and technical
tools of analyses. The study reveals that Uttara bank Ltd. among the selected three banks is doing well
and one can go for making an investment decision. The report mainly focuses on the decision criteria
to purchase and to sell the securities and when to do so.
Key words: Security analysis, stock market, banking sector, Bangladesh
INTRODUCTION
The analysis of tradable financial instruments is called
security analysis. It deals with the finding of proper
valuation of individual securities (i.e. stocks and bonds).
It is a method of evaluating security. The security analysis
entails attempting to measure the security’s intrinsic
value. It is done through by the examining of related
economic, financial and other qualitative and quantitative
factors. The fundamental analysts of economics attempt to
study everything that can affect the security's value
including macroeconomic factors and company-specific
factors. The macroeconomic factors are the overall
economy, and industry conditions and the company-
specific factors are the financial condition and
management. The terminated goal of performing this
fundamental analysis is to produce a value that an
investor can compare with the security's current price.
The aim of figuring out what the sort of position is to take
with that security. It may be underpriced = buy,
overpriced = sell or short. The method of security analysis
is considered as the opposite of the technical analysis.
Al Arafah Islami Bank Ltd was established (registered) as
a public limited company on 18 June 1995. The objective
of this bank is to achieve success in life here & hereafter
followed by the way directed by Islam. Its inaugural
ceremony took place on 27 September 1995. On December
31, 2015, the authorized capital of the bank was Tk.
15000.00 million and the paid-up capital was Tk. 9469.58
million.
It has made a positive contribution towards the socio-
economic development of the country with 155 branches
of which 23 is AD throughout the country.
The Uttara Bank Limited was incorporated as a banking
company on 21.8.1983 and obtained business
commencement certificate on 21.8.1983. The bank floated
its shares in the year 1984. It has 233 branches all over the
Bangladesh which is carries out all its activities. The Bank
is listed in the Dhaka Stock Exchange and the Chittagong
Stock Exchange Ltd as a listed company for trading of its
shares.
The One Bank was incorporated as a banking company in
12 May, 1999 and obtained the certificate of business
commencement in 12 May 1999. The One Bank is enlisted
under the both Dhaka and Chittagong Stock Exchange
Limited for trading its shares. The Bank has almost 95
branches all over the country.
OBJECTIVES OF THE STUDY
The main objective of the study is to analyze the Security
of banking industry of Bangladesh. The other objectives
are –
To know the market price status of the selected banks.
To know the yardstick of decision making for
investment in stock market.
To evaluate the performance of the stock experiencing
in the market of the Banking industry.
To suggest some recommendations.
Faruque and Islam: Security Analysis of Banking Industry in Bangladesh (21-24)
Page 22 Asian Business Review ● Volume 8 ●Number 1/2018
METHODOLOGY
Secondary sources of data have been used to conduct the
study, the. To serve the objectives of the study three banks of
Bangladesh have been selected as the sample of the banking
industry and the annual reports (5-year data: 2013-17) of the
selected banks have been studied. To analyze the topic
different fundamental and technical methods (Ratio analyses,
Simple moving average calculation, Relative Strength Index,
etc.) of analyses have been used. To present the data tabular
form and graphical method have been utilized.
LITERATURE REVIEW
According to Rudra and Jaydev (2009), a sensitivity of bank
stocks to Risk management has been analyzed. The general
inference from their analysis is that the returns of Indian bank
stocks appear to be sensitive to the risk management
capability of banks. They suggested the banks focus on risk
management techniques to enhance their shareholder value.
Sinha (2013) studied a comparison was made between
Risk and Return of Banking sector equity with non-
banking sector equity, and she concluded that investing in
Banking stocks include high risk because this sector is
highly affected by market risk factors like a global
recession. She suggested the investors hold the shares for
a long-term to earn good returns in the banking sector.
Limbore and Baban (2014) studied that deals with the
comparative analysis of advances and non-performing
assets in public and private sector banks in the light of
mounting competitive scenario in the banking sector. It
has been observed that there is an increase in advances
over the period of the study.
The Indian banking system is still dominated by the public
sector banks, and the issues of performance and efficiency
have emerged to be the touchstone for the success of such
banks. Vegesna and Dash (2014) stated that there is a need
to develop a comprehensive framework for measuring
their efficiency in transforming their resources for better
performance. Such performance benchmarking has
become extremely relevant to their success. This study
focuses on the technical efficiency of banks in India using
Data Envelopment Analysis (Goncharuk, 2013), to
identify critical factors affecting the efficiency of banks.
Saleheen et al. (2014) showed the findings based on primary
data are giving an opportunity for the industry practitioners
to review their operations’ practice and suggested the
intricacies to improve the operational efficiencies in the IT
platform to upgrade the E-commerce facilities.
Dumontier and Raffournier (2002), studied the classifies
the European literature into three groups: studies of the
market reaction to newly released accounting
information; studies of the long-term association between
stock returns and accounting numbers; studies devoted to
the use of accounting data by investors and to the impact
of market pressure on accounting choices.
DISCUSSION AND FINDINGS
The Fundamental Analyses
Company analysis is the main fundamental analytical
tools. In the company analysis, we can evaluate different
types of ratios for the decision consideration, and some of
these are given below-
Calculation of Price Earnings Ratio:
Price Earnings Ratio =
EPS
ShareperpriceMarket
Times
Table 1: Calculation of Price Earnings Ratio
Price Earnings Ratio
Al Arafah
Bank Ltd.
One
Bank Ltd.
Uttara
Bank Ltd.
2017
7.64
8.03
9.07
2016
5.18
5.89
6.45
2015
6.53
4.69
6.04
2014
6.77
3.95
7.46
2013
7.76
5.58
9.48
Average
6.78
5.63
7.70
Under the company analysis with the ratios if we consider
the Price Earnings Ratio of the three banks as taken with
the consideration of 5 consecutive years, i.e., from 2013 to
2017, we get different percentage at different years and the
average of the 5 years is 6.78 times for the Al Arafah Islami
Bank, 5.63 times for the one Bank Limited and 7.70 times
for the Uttara Bank Limited. So, here the ratio of the Uttara
Bank Limited is higher than others and this bank will be
the selected bank for the investment.
Calculation of Return on Asset (ROA) ratio:
ROA =
sTotalAsset
EAT
Table 2: Calculation of Return on Asset ratio
ROA
Al Arafah
Bank Ltd. (%)
One Bank
Ltd. (%)
Uttara Bank
Ltd. (%)
2017
0.99
1.05
0.87
2016
1.23
1.20
0.94
2015
1.08
1.39
0.99
2014
1.10
1.87
0.99
2013
1.31
1.43
0.99
Average
1.14
1.39
0.96
When we go for the consideration of the ROA ratio of the three
banks, we can see that the ratio is 1.14% for the Al Arafah
Islami Bank, 1.39% for the one Bank Limited And .96%for the
Uttara Bank Limited. So here also the One Bank Limited has
the higher ratio and could be the sector for investment.
Calculation of Return on Equity (ROE) ratio:
ROE =
rsEquityShareholde
EAT
Research Article, ISSN 2304-2613 (Print); ISSN 2305-8730 (Online)
Copyright ©
CC-BY-NC 2014
, Asian Business Consortium |
ABR
Page 23
Table 3: Calculation of Return on Equity ratio
ROE
Al Arafah Bank
Ltd. (%)
One Bank
Ltd. (%)
Uttara Bank
Ltd. (%)
2017
14.07
9.62
11.20
2016
15.70
10.07
11.47
2015
12.82
11.32
11.42
2014
12.80
12.88
11.41
2013
14.15
14.08
12.27
Average
13.91
11.59
11.55
When we go for the consideration of the ROE ratio of the three
banks, we can see that the ratio is 13.91% for the Al Arafah Islami
Bank, 11.59% for the one Bank Limited And 11.55% for the
Uttara Bank Limited. So here the Al Arafah Islami Bank has the
higher ratio and it would be better sector for the investment.
Technical analysis
Table 4: Simple Moving Average calculation of company’s
share value
Simple Moving Average
Day
Al Arafah Bank Limited
One Bank Limited
Uttara Bank Limited
Closing
price (Tk)
Total of
5 days
5 Days
MA
Closing
price (Tk)
Total of
5 days
5 Days
MA
Closing
price (Tk)
Total of
5 days
5 Days
MA
1
18.40
-
-
18.00
-
-
33.30
-
-
2
18.70
-
-
17.60
-
-
33.90
-
-
3
19.20
-
-
18.00
-
-
33.60
-
-
4
19.20
-
-
18.20
-
-
33.80
-
-
5
18.70
94.20
18.84
24.20
96.00
19.20
33.80
168.40
33.68
6
19.80
95.60
19.12
18.60
96.60
19.32
34.10
169.20
33.84
7
20.00
96.90
19.38
18.80
97.80
19.56
34.20
169.50
33.90
8
19.00
96.70
19.34
20.80
100.60
20.12
34.30
170.20
34.04
9
18.90
96.40
19.28
21.80
104.20
20.84
34.50
170.90
34.18
10
19.20
96.90
19.38
22.00
102.00
20.40
34.60
171.70
34.34
11
19.70
96.80
19.36
22.20
105.60
21.12
35.20
172.80
34.56
12
19.10
95.90
19.18
22.20
109.00
21.80
35.30
173.90
34.78
Whenever we go for the simple moving average consideration,
we see that the average of Uttara bank Ltd is better than others
since face value of each company’s share is equal i.e., Tk. 10.
Calculation of Relative Strength Index (RSI)
Traditionally the Relative Strength Index is considered
overbought when above 70 and oversold when below 30.
Table 5: Calculation of Relative Strength Index
Relative Strength Index (RSI)
Day
Al Arafah Bank Limited
One Bank Limited
Uttara Bank Limited
Closing
price (Tk)
Gain
Loss
Closing
price (Tk)
Gain
Loss
Closing
price (Tk)
Gain
Loss
1
18.4
-
-
18
-
-
33.3
-
-
2
18.7
0.3
-
17.6
-
0.4
33.9
0.6
-
3
19.2
0.5
-
18
0.4
-
33.6
-
0.3
4
19.2
-
-
18.2
0.2
-
33.8
0.2
-
5
18.7
-
0.5
24.2
6
-
33.8
-
-
6
19.8
1.1
-
18.6
-
5.6
34.1
0.3
-
7
20
0.2
-
18.8
0.2
-
34.2
0.1
-
8
19
-
1
20.8
2
-
34.3
0.2
-
9
18.9
-
0.1
21.8
1
-
34.5
0.2
-
10
19.2
0.3
-
22
0.2
-
34.6
0.1
-
11
19.7
0.5
-
22.2
0.2
-
35.2
0.6
-
12
19.1
-
0.6
22.2
-
-
35.3
0.1
-
Total
2.9
2.2
Total
10.2
6
Total
2.4
0.3
11 Days
Average
0.26364
0.2
11 Days
Average
0.9273
0.5455
11 Days
Average
0.2182
0.0273
Al Arafah Islami Bank Ltd
RS =
dayperlossAverage
daypergainAverage
RSI =100-(
RS1
100
)
So, RS =
2.0
26.0
=1. 3
RSI =100-(
3.11
100
) =100-43.48, =56.52
Here the RSI value above 70 indicates the overbought
condition and values below 30 are considered to denote
oversold condition for the Al Arafah Islami Bank Ltd. and
should hold up the security of the bank.
One Bank Ltd
RS =
55.0
93.0
=1.69
RSI =100-(
69.11
100
) =100-37.17, =62.83
Here the RSI value 62.83 indicates the perfect value is in
exercising in the security market for the One Bank Ltd.
and should hold up the security of the bank.
Uttara Bank Ltd
RS =
03.0
22.0
=7.33
RSI =100-(
33.71
100
) =100-12, =88
Faruque and Islam: Security Analysis of Banking Industry in Bangladesh (21-24)
Page 24 Asian Business Review ● Volume 8 ●Number 1/2018
Here the RSI value is 88 which indicate the overbought
condition for the Uttara Bank Ltd. and should go for
selling the security in the capital market because the
market will bounce back quickly.
The overall decision for the investment in securities is that
on the basis of the present study we can see that the
fluctuation of the securities prices of the Uttara Bank
Limited is very limited or may be termed as the ripple and
the management body is efficient enough considering the
banking operation. So the investment in Uttara bank
limited will be the lucrative one for the long run.
RECOMMENDATIONS
Considering the changes in the business era and competitive
situation in case of the banking industry and by our analysis
with the gap and weak point in case of market experience,
we can go for recommendation as the way-
Based on the fundamental analysis result go for the
technical analysis because technical analysis is based
on short-term period.
Before going for the investment decision, one should
consider the systematic and unsystematic risk.
Investment decision should be based on the intrinsic
value of the share or the stock.
One should ensure that all the analysis methods have
been conducted with the highly efficient person.
Neither fundamental analysis nor technical analysis is
useful in outperforming the markets.
CONCLUSION
The banking sector in Bangladesh is playing a vital role in
the economic development as a financial intermediary. So
the banking sector of a country is blood for the
development. Now the interest rate, exchange rate,
Inflation rate of the Bangladesh is whatever that could be
the matter for the government to think over the fact
primarily and with the changes of that types of the indicator
of the economy the financial activities of the banking sector
will be hampered but thus the activities of the banking
sector still go for continuing. Economists such as Burton
Malkiel suggest that neither fundamental analysis nor
technical analysis is useful in outperforming the markets.
There are many types of the business sector s in Bangladesh
and they operate their activities for the profit motive is
primarily more vulnerable than the banking sector. So the
investment in the banking sector is compatibly more
favorable than the other sectors in Bangladesh.
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Webpages:
https://issuu.com/lawjuris/docs/al-arafah_islami_bank_ltd.
https://www.coursehero.com/file/p1gcgmp/Page-8-
Directors-consists-of-15-members- The-bank-is-headed-
by-the-Managing/
https://www.investopedia.com/terms/f/fundamentalanalysis.asp
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