6. The recent performance of the institution
From the ratios that we have calculated, there are favorable trends going on with the institution. Return on equity was 10% in the year 2003 but it had a nearly 2% growth in the next year. But we see that return on equity had declined to 5.45% in year 2005. This is the year they had a major revolutionary structural change in the organization. They were given a sector which is not performing well which is small and medium enterprise loan scheme. Due to this we see that the return had drop dramatically.
Even though their profit dropped, the board of directors had decided to give a dividend of RM 3.76 as dividend in the year 2005. But they did not give any dividend in previous year i.e., 2004. But in 2003 they paid a high dividend which is RM 5 per share.
When we go through the return on assets the ratios are 1.02, 2.09, 1.85 for year 2005, 2004, 2003 respectively. We need to check the industry average, if we want to go for a real conclusion. From the trend we see an increasing trend followed by the decreasing trend. In 2005, even though number of assets increased there was a slightly lower increase in the Net profit of the firm.
There liquidity ratio stands at 1.3:1 in 2005, which is quiet low for a financial institution. They are highly exposed to the liquidity risk. They are advised to rise it to 1.5:1 which is advisable according to professionals.
7. Major events happening
17/08/2007
Source: BPMB: They have launched an advertising campaign in the occasion of the 50th Merdeka celebration.
04/11/2006
Source: New Straits Times: They wanted to finance half of the Pinang Outer Ring road bridge project which is RM 0.51 Billion It cost a total of RM 1.02 Billion. Other half is expected to be financed by issuing bond. This project consists of a monorail system and a second bridge. Which is to reduce the traffic congestion is the Pinang current bridge.
But the contractor peninsular metro works sdn bhd have not signed the concession agreement. This agreement consists of terms and condition of how long they are going to collect tolls as well as the tolling rates. It is believed that the signing is going to be held in a near future.
The 12km interior segment will connect Jalan Tunku Kudin to Persiaran Gurney and the coastal part Jalan Tanjong Tokong to Persiaran Gurney.
18/10/2006
Source: BPMB
Kumpulan Bank Pembangunan Menyampaikan Sumbangan Aidil Fitri Kepada 5 Buah Rumah Aanak Yatim Persendirian
07/10/2006
Source: BPMB
Bank Pembangunan Hosts An International Collaborative Training On 'Executive Development Programme (EDP-II)'
Bank Pembangunan Malaysia Berhad ("Bank Pembangunan") has been appointed by United Nations Development Programme (UNDP) to be the implementing agency to host a training program, 'Executive Development Programme (EDP-II) ("Programme"), under the project called 'Inter-Regional South-South Program in Capacity Building In Credit Analysis and Development Finance' ("Project").
This is a training program targeted to African countries namely Ethiopia, Ghana, Malawi, Uganda, Zimbabwe, Cameroon, Nigeria, Tanzania and Mozambique. The aim is to strengthen the financial capacity and knowledge of those countries financial sector which is crucial to those countries. This 5 days training program is conducted in Malaysia and related financial officers from Africa is invited.
This program is funded by Japan human resource development fund and consultant for this program is UNDP Malaysia.
14/08/2006
Source: BPMB
Bank Pembangunan Group Launch RM1.0 Billion SME Growth Acceleration Fund
Bank Pembangunan had launched RM 1 billion fund which is targeted to medium and small business owners. It is related to the announcement during the presentation of the 2006 budget where government promised to boost the growth of the small and medium firms buy fuelling them with capital.
A venture capital company named SME Growth Acceleration Fund Sdn Bhd to be formed for this purpose under bank Pembaguanan and they will undertake the distributing the fund to SMEs.
SME Growth Acceleration Fund Sdn. Bhd. will invest in SMEs that are involved in current and emerging businesses, have good operating track records and led by competent entrepreneurs. Amongst the focus of investment will be in the following domains:
• Components Manufacturing & Assembly
• Oil & Gas Products and Services
• Food Processing
• ICT Products and Services and
• General Services
04/08/2006
Source: New StraitsTimes
SME Bank Plans to Lend More to Professionals
The plan of developing SME has come with a new promise to professionals, where it has agreed to lend up to RM 10 million for those firms. This is 20 times more than the current lending amount. This will really help the professional business to find its capital.
This is likely to happen with the approval of Bank Negara expected to happen April 2007. This decision is followed by feedback from professional who claimed that current burrowing is too low for their expansion and growth. Those funds are targeted to healthcare, academic, business consultancy, building and construction, legal services and information and technology. The current burrowing amount is limited to RM 0.5 million. Thought there is some argument that this will not make a big difference compared with the conventional lending facilities provided by the commercial banks.
Other news includes
04/06/2006 Source: New StraitsTimes: Biotech, Agro-Based Sectors Get Priority
17/04/2006 Source: The Edge Daily: Bank Pembangunan's RM1b MTN attracts RM9.6b in bids
22/02/2006 Source: The Star : SME Bank To Lend Out RM2b
18/02/2006 Source: The Star :SME Bank Expects To Approve RM2B Loans
28/01/2006 Source: The Star :SMEs Given Loans Valued At RM335mil
25/01/2006 Source: Business Times :Malaysia's Largest Bond Issue Launched
24/01/2006 Source: BPMB : Bank Pembangunan INKS RM7.0 Billion Deal
24/01/2006 Source: Bernama :Bank Pembangunan's RM7 Bln MTN Programmes Biggest Ever
8-Has the size and contribution of current institution decline or improve? Why
The year 2005 was a golden year for the Bank Pembangunan in term of finance since the Bank Industri & teknologi Malaysia Berhad was rationalized by the government and as a result Bank Perusahaan Kecil & Sederhana Malaysia Berhad (SME Bank) was formed. SME is now fully owned by the Bank Pembangunan.
According to the financial statement of 2005, there was vast increase in the size of the whole group. Total assets increased by 33% which is a fact that its dominance in the financial sector had grown in the 2005. This is due to injection of shareholders capital by 33% in the year 2005.
SME scheme granted loan to small and medium enterprises. It helps lot of individual who are unable to expand their business due to financial tightness. Not only small business owners are benefited from this scheme. Professional such as law firms, accounting and auditing firms are given up to RM 10 million as loan.
Since it is part of the government it uses Bank Pembangunan are an instrument to adjust it monetary policy. Probably government step to push more money to the economy is to accelerate the growth of the economy. Economist believes that there will be multiplier effect of investment.
But on the other hand, government joined a non performing institution with bank pembangunan had lead them to decline in there profit and return on equity. Probably the main aim of the government might not be to maximize the profit and to serve the people. This could be accepted by people as long as they don’t make any huge loss in the long term.
9. Compute the following ratios of your institution and comment
2005 2004 2003
9)a. Return on Equity=net income /shareholder's equity 5.45% 12.27% 10.14%
b. Return on Asset=(Net Income/Total operating income)*(T.O.I/T.Asssets) 1.02% 2.09% 1.85%
where,
Net income/T.operating income 36.32% 65.30% 49.99%
T.Operating income /T.assets 2.81% 3.20% 3.70%
c. Asset Utilization= total operating income/assets 2.81% 3.20% 3.70%
d. Equity Multiplier = Total Assets / Total Equity Capital 534X 587X 548X
e. Profit Margin=Net profit / Total Turnover 36.32% 65.30% 49.99%
f. Interest Expense Ratio = Interest Expense / Total Operating Income 94.37% 108.13% 77.21%
g. Provision for Loan Losses=PFLL/Total operating Income 39.56% 17.50% 23.63%
h. Non Interest Expense Ratio = NIER / Total Operating Income 22.93% 14.07% 14.68%
i. Spread - - -
j. Overhead efficiency = Non Interest Income / Noninterest expense 85.88% 59.33% 96.25%
There was a rapid decrease in the profit of the firm even though its shareholders fund increase. Due to the major structural change, they were force to enter into completely new area of the market apart from the normal business which is maritime, infrastructure and some extend the financial activity. Due to this major change, company return on equity fallen by almost half of last year. The same effect is with the Return on Asset. This is all related to decrease in profit of the bank.
On the other hand they have achieved less interest expense ratio compare with the 2004. Therefore we come to know that the loss is due to unmanaged other overhead expense and an increase in the provision for loan and other defaults.
From the available information we are unable to calculate spread.
Over all, we can conclude that it is doing an average job. Due to the shift in its operation the management will face cultural differences when acquiring a new sector or new market of business. But the recent trend doesn’t show any favorable performance since other company also performed well in the period of 2005. Since, there was no blow to the industry in any way. The Ringgit Malaysia value fall and it was in a strong position and it was becoming stronger and stronger in the end of 2005.
Since the banking side of the economy is the most volatile industry they will hit every strong wave in the economy. Financial sector is really sensitive to the economy. After the Asian crisis in 1997, Malaysia is still in a recovery stage, but Bank Pembangunan did well during this period. Former president rules a ceiling on the Ringgit and it is to be lifted off in the year end of 2006. Since then world has considered Malaysia as a potential market for there investment. This had lead to major shift in the countries RGDP. With those radical changes, Bank Pembangunan had adopted Islamic banking concept into its operation. They are doing pretty good with Islamic banking since Malaysia had become a financial hub in Asia-Pacific.
We need more industry averages to compare the performance of Bank Pembangunan, since it is not so accurate to go for a conclusion without looking what their rivals doing in the business.
It is not only the financial statement that is considered when measuring the performance. The management skills are the biggest asset of the company which is not included in the financial statement. Over the years the management had done a pretty well job since Bank Pembangunan had run with a profit. It have not face over all loss which is a good sign. Even though they go bankrupt government will push it up by financing from the reserve. But it is not what most of the Malaysian’s wants. A loss in its opration means that it is going to cost the public money in the form of tax. Thank to Bank Pembangunan!
10. Run productivity and efficiency tests for this institution
2005 2,004 2003
10)Total Assets 22,860,218 17,250,081 14,109,844
Deposits from customers 4,165,629 4,269,510 3.753,330
Deposits placed with financial institutions 1,604,544 710,293 637,911
Interest Expenses 605,655 596,345 403,266
Overhead expenses 147,196 77,609 76,665
Personnel Expenses (this is from the notes to the account) - - -
The asset quality of the banking system improved further in 2005, as non-performing loans (NPLs) continued to decline. The improvement in loan quality was mainly attributed to higher reclassification of NPLs to performing status following overall improvement in the repayment capacity of borrowers and write-offs during the year.
NOTE : APENDIXEX (All the workings )in the Excel file ‘tables’
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