Credit Rating of Uttara Bank Limited Essay

1.1. Rationale of the ReportIn todays institution, vernacularing sector has become an integral part of over any preservation al intimately the world. Millions of people atomic number 18 involved in banking sector. In Bangladesh, banking sector has see enormous growth over the past few decades. Millions of restoreors, borrowers and other think parties s beam interest in this sector. recogniseworthiness of banks is rated by CRAB and CRISL in Bangladesh.The fancy behind our embrace on commendation Rating Report on Uttara curse Limited (UBL) is to give recognition grade of UBL by considering both(prenominal) soft and denary factors with judgement.1.2 Origin of the ReportThis report has been lively as a requirement for completion of MBA program chthonic University of metropolis of Bangladesh. We cook prepargond the report downstairs course F-504(Fixed Income Securities) with directions and valuable guide seams from our honorable course teacher Muhammad Mujibul Kabi r, Associate Professor, Department Of Finance, University Of Dhaka.3. Objectives of the ReportBroad Objective To do address grade of Uttara slang Limited (UBL) by considering important qualitative and quantitative discip lineage along with application of proper judgment.Specific Objectives The objectives of the report are- To film an over whole picture regarding the mention grade procedure of banking sector. To be sensible with the trend and performance of the bank. To get an idea of factors affecting assurance rating score of UBL.4. Scope of the ReportThis report has been depositd to do credit rating of a particular bank (UBL) as assigned by our course teacher.5. Methodology1.5.1 Data Collection The report is primarily ground on secondary and publish knowledge. The major sources of information are published research reports and papers, DSE library, newspapers, data from annual report of UBL and peer banks, rating methodological analysis of S&P etc.1.5.2 Techniques of D ata AnalysisBoth qualitative and quantitative statistical techniques were used for this research. qualitative tools bar graphs and trend line were used to present the collected data. bundle used Microsoft Excel 2007, Microsoft record 2007, stata software version 10.6. LimitationsIn preparing the report, the main limitations that we faced were- Reliance on secondary data, mainly annual reports of banks. Sometimes, published data suffer from story manipulation. We had to prepare the credit rating report within a pithy time frame. Taking more time would see made the report more comprehensive.SECTION-II THEORETICAL DISCUSSION ON CREDIT RATING2.1. why Credit Rating Is NecessaryA credit rating evaluates the credit worthiness of a debtor, ee limited(a)ly a pipeline ( connection) or a government. It is an evaluation made by a credit rating fashion of the debtors ability to pay back the debt and the likelihood of default. Credit ratings are markd by credit ratings agencies. The credi t rating represents the credit rating situations evaluation of qualitative and quantitative information for a company. The credit rating is used by individuals and entities that purchase the bonds give upd by companies and governments to determine the likelihood that the government will pay its bond obligations. A poor credit rating indicates a credit rating agencys opinion that the company or government has a game risk of defaulting, based on the agencys analysis of the entitys history and analysis of long term economic prospects.2.1. embodied Credit RatingsThe credit rating of a corporation is a fiscal indicant to capability investors of debt securities such as bonds. Credit rating is usually of a monetary instrument such as a bond, rather than the social unit corporation. in that respect are two types of corporate credit rating 1. entity rating2. issue ratingIn Bangladesh, credit rating agencies conduct entity rating. However, issue rating may be different from or simila r to or better than entity rating. Issue rating may be graduate(prenominal)er than entity rating if a particular issue is backed by sufficient collateral, three party guarantee. 2.3. Rating MethodologyFor the credit rating of the selected companies we have considered the guidelines provided by our course teacher. Credit rating is an objective and impartial opinion on the ability and willingness of an issuer to make full and timely payments of financial obligations. This opinion is conveyed in a simple alphanumerical scale, for easy reference and comparability.We have examine both the qualitative and the quantitative factors of the banking attention as a upstanding and also various factors of the companies itself. In the part of qualitative analysis we have analyze the patience risk, keys to success, diversification factors, buckram size, management quality, quality of the financial reporting, performance in the diligence. In the quantitative analysis we consider the gainfu lness, currency flow adequacy, capital structure and financial flexibility. We have assigned about points on both the qualitative and quantitative information to get the admit rating. As for the sustainability of an organization both the quality of the management and quantitative invention that means companys financial performances are equalisely important. We have assigned more weight for qualitative part than quantitative part.2.4. caller-up BackgroundUttara bank building is one of the man-sizedst and oldest private-sector commercial banks in Bangladesh, with years of experience. readjustment of modern technology both in terms of equipment and banking practice ensures effective service to clients. 215 branches at home and 600 affiliates worldwide create efficient networking and finish off capability. Uttara is a bank that serves both clients and country.The Bank had been a nationalized bank in the name of Uttara Bank under the Bangladesh Bank (Nationalization) order 1972 , formerly cognise as the Eastern Banking Corporation Limited which started functioning on and from 28.01.1965. sequent upon the amendment of Bangladesh Bank (Nationalization) order 1972, the Uttara Bank was converted into Uttara Bank Limited as a public limited company in the year 1983. The Uttara Bank Limited was incorporated as a banking company on 29.06.1983 and obtained traffic commencement certificate on 21.08.1983. The Bank floated its shares in the year 1984. It has 215 branches all over Bangladesh finished which it carries out all its banking activities. The Bank is listed in the Dhaka Stock tack and Chittagong Stock Exchange Ltd. as a listed company for trading of its shares.At present, the authorized capital of the bank was Tk 5000 million divide into 500 million shares of Tk 10 each. The issued and paid up capital is Tk 3306 million.Since beginning, the bank acquired confidence and trust of the public and business line houses by rendering mellow quality service i n different areas of banking trading operations, professional competence and profession of the state of art technology. During the last 47 years, UTTARA Bank Limited has exposed 215 disseveres in different Business Centers of the countrySECTION-III QUALITATIVE ANALYSISQualitative analysisA. patience RiskIn preparing credit rating report, assiduity analysis is a subject of great importance. Level of competition in the assiduity affect the profitability of a company. Different industries react otherwise to economic changes. Cyclical industries do much better than the aggregate economy during the expansion whereas they suffer more during contraction. In contrast, non-cyclical industries such as banking industry would experience a significant decline during a recession and also would do better during an economic expansion. Competitive advantage and disadvantage of banking industry can be examined by Michel Porters 5 factors model.The potential threat of new entrants is moderate for banking industry due to following reasons exploitation of the industry is very high which is creating field for the new company that is discovered during the past several years. Huge population of the country provides a deep customer base. Entry into the banking sector requires huge equity capital enthronement for establishing branches and related infrastructures. Established companies have absolute cost advantage carnal knowledge to potential entrants. There exists Government regulation to enter into the industry.The level of profitability is primarily influenced by the nature of rivalry among firms within the industry. Several factors determine the intensity of competition among existing players in an industry. The rivalry among existing competitors is high for banking industry due to following reasons Price and non-price Competition among banks has increased new-fashioned years. High fixed costs. Exit barriers are high as the firm cant exit as they wish and there is regulative burden. Banks are trying to grab foodstuff share by offering various price and non-price products Banking products are not differentiated and easy to facsimile by other banks.The third dimension of competition in an industry is the threat of substitute products or services. The threat of substitute product in banking industry is high for the following reasons New Products are easily and pronto adopted by other competing banks. Non-bank financial institutions (NBFIs) offer many of products and services offered by banks.There are two factors which determine the bargaining indicator of buyers price sensitivity and relative bargaining power of buyers. By stress these two issues, the bargaining power of buyers in banking industry is discussed below There are large numbers of banks. Banks depend on the buyers for a large percentage of its total revenue. Customer switching cost is low. Inability to inverse integration. Buyers are exceedingly price sensitive.The bar gaining power of suppliers is high for banking industry due to following reasons Banks depend on loan and deposits as their special products. There are a large number of banks already run in the country.Assigned RatingRating Rating Score Industry Risk 7.5 B. Key to success Factors Strategic focusUttara Bank has prioritized the areas depending upon the business need and regulatory requirements with the change in technologies and delivery process. The Bank rendered special focus on growth and expansion to comply with the changing characteristics of capital market. As a result of this, UB Capital and Investment Limited a fully owned subsidiary company has been formed in 2010 to adopt out merchant banking operation in compliance with the regulation of the Securities and Exchange Commission. In the meanwhile the company is operating its activities in related field. vision mobilization was centered round delivery channels, technology, people and brand. Banks operation has achieved the confidence of its customers with sound fundamentals in respect of deposit accumulation, loans and advances, export-import business, remittance collecting from abroad and profitability. The Bank has also put special emphasized on SME financing considering the sector as a tool of diversifying portfolio to minimize risk. Again the bank has also rendering its services in Women Empowerment Development Scheme, Agricultural sector and Rural Financing sector. Corporate CreditUttara Banks business is focused to a grand extent on the corporate clients by maintaining a relationship and extending financial assistance based on a deep understanding of the clients business environments, financial needs and internal strategies for growth. The bank extends its financial support to the corporate clients either from own finance or by arranging syndicated/ guild finance. The investment in corporate sector is the combination of a commingle and balanced allocation in various natures of business based on the socio-economic perspectives and long term planning.The bank distributed Tk. 2774.1 million as funded and non-funded facilities in Syndication Finance. The prominent balance of uniform was as on 31.12.2011 was Tk. 1596.2 million. The Bank participated in syndication finance with 21 companies. Some of them were BSRM Steels Ltd., Pacific Telecom Bangladesh Tel Ltd.(Citicell), Ranks Tel Ltd., Samuda Chemical Complex Ltd., Banga construct Materials Ltd., Pran Foods Ltd., Capital Board Mills Ltd., Creative Paper Mills Ltd., Everest authority Generation Company Ltd., Appolo Ispat Complex Ltd., PHP Float Glass Ind. Ltd., Dhaka ring Co. Ltd. (DTCL), Tele Barta Ltd.(TBL), Orascom Telecom Bangladesh Ltd. (Banglalink), Venture Capital Energy Ltd and many other reputed organization. The Bank worked as a participating financial institution in syndication finance. Branch NetworkAs on 31 December 2011, Uttara Bank Ltd had 211 branches in different geographical locations of the country. Branches are classified under different zonal office. Out of these 211 branches, 23 branches are under Dhaka Central Zone, 23 branches are under Dhaka North Zone, 20 branches are under Dhaka South Zone, 13 branches are under Narayangonj Zone, 08 branches are under Mymensingh Zone, 17 branches are under Camilla Zone, 19 branches are under Chittagong Zone, 21 branches are under Sylhet Zone, 16 branches are under Khulna Zone, 18 branches are under Barisal Zone, 12 branches are under Rajshahi Zone and 19 branches are under Bogra Zone. TechnologyAs one of the oldest commercial banks in the country, Uttara Bank uses latest information and communication technology. The extensive use of ICT in banking operations is increasingly a matter of concern about the risk associated with information technology. The bank has formulated well defined ICT policy in line with the international best practices and prudential guidelines of Bangladesh Bank on ICT Security. In all branches of the bank, banking operations are conducted through computerized system to minimize cost and to perfect benefits and increase overall capability for improved services. The branches have ability to prepare the financial statements at the end of the day. Bank has a guideline named signpost on information and Communication Technology (ICT) as per Bangladesh Bank BRPD aeronaut 14 dated 23.10.05.The bank has signed an agreement with LEADS Corporation limited, Software Company, for implementation of Core Banking Solution Bank Ultimas in the Bank.The Bank continues sustenance of the latest financial service products REUTERS-3000 Xtra and REUTERS Dealing System (RDS) for collecting dead-on(prenominal) information of rapid changing position of international money market with Banks own independent Dealing Room. As a result the Bank has been able to render Treasury service up to the international standard through its Treasury percentage which is equipped with most modern technology and expertise manpower .At present International Division of Head Office and 38 branches are under SWIFT operation. As a result the bank has been able to conduct international merchandise including transmission of letter of credit, fund and message instantly throughout the world at low cost. tender-hearted ResourceThe Bank has always recognizes the contributions of its gentlemans gentleman resources as they individually and collectively render their force to the achievement of the objectives of the organization. Human Resources Division of UBL worked with the business as the core strategic partner through performing the job of recruitment, training, placement, and through introduction of the performance management tools. UBL is an employer of equal opportunity irrespective of gender equality. The total manpower of the Bank as on 31 December, 2011 is 3,780 out of which 2,687 are officers and 1,093 are the supporting staffs. Efforts have been made to rationalize the use of manpower by improving their eff iciency and productivity.The Banks own cookery Institute is nicely beautify and equipped with the sophisticated instruments has been striving to bring about a qualitative change and improvement in human resources of the Bank by conveyance continuous different raining throughout the whole year. Guest speakers specialize in Banking participate in each of the training program excluding highly educated faculty members of the bank. Besides, a number of decision makers and officers were sent to various Training Institutions including BIBM and abroad for higher training.In 2011, the training institute of the bank lay 17 different training courses and 13 workshops for the officers and members of the staff of the Bank in which as many as 628 and 845 officers and members of the staff of the bank participated respectively. At the same time, 92 officers and members of the staff of the bank attended training courses arranged by BIBM, 44 officers received training from Bangladesh Bank, 22 o fficers received others and 2 executive received training from abroad.