DHAKABANK LTD. An LBSL / JKSB Research Publication BDT : Yolan Seimon PROFILE FINANCIAL PERFORMANCE.

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1 BDT : BDT DHAKABANK Adjusted Price / Volume Graph Volume Price BDT 01-Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan-09 Yolan Seimon yolan@lbsbd.com yolan@jkstock.keells.com LankaBangla Securities Ltd DSE Annex building (1st Floor) 9/E, Motijheel C/A, Dhaka-1000 Bangladesh. Tel: , , Fax: lbsldhk@accesstel.net John Keells Stock Brokers (Pvt) Ltd Company No. PV , Glennie Street, Col. 2 Sri Lanka. Tel: /5, /7, Fax: jkstock@keells.com January 2009 Volume 140, , ,000 80,000 60,000 40,000 20,000 DHAKABANK LIMITED Share Price BDT Issued Share Capital (Shares) Ordinary Voting Shares Free Float 19,342, % 12 mth High/Low (BDT.) Average Daily Volume (Shares) Market Capitalisation (Voting) BDT. mn / ,816 6,775 Price Performance (%) 1 mth 6 mth 12 mth DSI 8.08 (12.06) (7.87) DHAKABANK 1.23 (27.41) (36.66) * Adjusted for bonus and rights issues 0 Bangladesh Equities DHAKABANK LTD PROFILE Corporate Update Financial Net Income PAT EPS EPS Year (Dec) (BDT.mn) (BDT.mn) (BDT) Growth % PER (x) P/BV , , , E 3, E 4,503 1, E 5,272 1, Dhaka Bank Limited commenced its commercial banking operations in 1995 and has steadily expanded to operate a network of 44 branches at present. The bank started out predominately as a corporate lender with exposure weighted toward the garment and textile sector but has however begun to grow its retail and SME loan portfolio in recent years with the roll out of retail lending and savings products. Dhaka bank has a stock broking subsidiary which provides steady earnings as well as offers clients Islamic banking products. FINANCIAL PERFORMANCE Earnings for the bank grew by 24% in FY07 and is expected to record earnings growth of 25% for 2008 with the bank continuing to record strong loan book growth of 29%. This was partially a result of lowering rates and thus narrowing of spreads stemming from instructions requesting commercial banks to reduce spreads. Approximately 88% of the banks loan book is weighted toward corporate clients with an 9% exposure to retail lending with 3% exposed to the SME segment. The bank is expected to open 5 new branches in 2009 in addition to 5 SME business centres to expand its retail lending portfolio and sustain its growth in deposits. Loan growth is expected to moderate to approximately 22% in 2009 with the bank continuing to service its corporate lending base toward industries and in particular the textile and garment sectors. The bank continued to record healthy earnings from fee based activities arising primarily from fees and commissions from trade finance activities along with regular investment income from its government treasury bills and bonds. The banks non interest income arising from foreign remittances is comparatively lower in comparison to its earnings from trade finance activities and routine bank charges. An LBSL / JKSB Research Publication Page 1 of 5

2 INTEREST INCOME Dhaka Bank Ltd has witnessed a marginal decline in spreads in 2008, while assisting it to sustain loan growth expected to amount to 29% for the year. Net interest margins are expected to decline as a result, with steady loan growth expected to contribute to a growth in net interest income of 7% in Loan growth is expected to moderate in 2009 as the bank exercises greater prudence in 2009 given the impact an economic slowdown may have on its corporate clients and in particular export manufactures. Loan growth is expected to amount to 23% in 2009 and 24% in The banks deposit base is expected to have grown by 24% in 2008 above moderate growth in 2007 of just 17%. Deposit growth is expected to pick up to 28% in 2009 with the opening of 5 new branches as well as concerted efforts to grow the banks retail deposit base with variations made to a number of its savings products to attract fresh deposits to the bank. NON INTEREST INCOME The banks non interest income is expected to continue to arise primarily from fees and commission income from trade finance activities. Non interest income is expected to grow by 30% in 2008 and 28% in 2009 with moderate growth in investment income and foreign exchange gains. Non interest income is expected to continue to account for over 50% of total operating income of the bank going forward. OPERATING EXPENSES Dhaka Banks cost to income ratio has declined from about 40% in 2005 over the last few years to 36.6% in 2007 and is expected to remain at 36.4% in 2008 declining marginally in 2009 to 36% and comparing favourably with other private commercial banks. Controls on operating costs is expected to result in total operating costs increasing by just 18% in 2008, while costs are expected to increase moderately in 2009 and going forward in line with the banks expansion of branches, SME banking centres and newly installed ATM machines. CREDIT RISK Absolute NPLs have increased over the last few years with the NPL ratio increasing to 3.40% in 2007 and is expected to rise further in 2008 to 4.5% while being expected to moderate in 2009 at these levels given the prospect of increased recoveries. The bank has already implemented a core banking software connecting its entire network of branches which has helped improve credit monitoring in the bank. Page 2 of 5

3 The banks provision cover for 2007 stood at 71.9% and is expected to increase to 77% in The bank adopts a policy of making provisions in line with Bank of Bangladesh regulations and does not prudently make surplus provisions over and above requirements of regulators. FUNDING AND CAPITAL The banks lending portfolio is primarily funded by its deposit base which amounted to 89.7% of liabilities in 2007, while the banks loan to deposit ratio stood at 75.9% in the same year. Asset growth is expected to be in line with growth in deposits in over the next few years except for 2009 where deposit growth is expected at 28% with the bank making a concerted effort towards gathering fresh deposits. Term deposits constituted 78% of the banks deposit mix in 2007, with low cost savings accounting for 9% and current deposits accounting for 13%. 1H results for 2008 indicate that the deposit mix remains relatively the same. The banks intends to grow its savings deposit base in its current drive to attract fresh deposits in The bank comfortably complies with the 5% cash reserve ratio while recording a statutory liquidity ratio of 19.38% in December 2007 above the base requirement of 18%. The banks capital adequacy continues to remain healthy with Tier 1 capital amounting to 8.80% and Total Capital Adequacy at 10.36% comfortably above the minimum requirement of 5% and 10% for Tier 1 and Total Capital Adequacy respectively. The bank does not require any significant capital infusion at present with retained earnings boosting its capital base. The bank has a history of distributing a 10% cash dividend over each year as well as announcing a stock dividend each year. VALUATIONS Dhaka Bank Ltd remains primarily a corporate lender with its retail and SME lending portfolios still at a nascent stage. The bank has consistently exhibited steady growth and sound fundamentals. The bank has recorded earnings of BDT mn for the 1H of 2008, up 7%. An expected full year earnings growth of 24% and 20% for FY08 and FY09 respectively correspond to a forecast P/E of 7.78x and 6.48x respectively and a price to book value of 1.64x and 1.31x at a current market price of BDT The counter is currently trading at a 31% discount to the sector and a 45% to market. Page 3 of 5

4 Ratio Analysis E 2009E 2010E ROE 20.9% 22.3% 22.5% 21.3% 20.3% 20.6% ROAE 20.9% 23.9% 24.8% 24.2% 22.6% 23.0% ROAA 1.40% 1.41% 1.34% 1.34% 1.27% 1.31% NIM 2.43% 2.54% 3.19% 2.66% 2.32% 2.06% Fee Income / Operating Income 50% 53% 50% 56% 59% 62% Cost / Income Ratio 39.9% 43.1% 36.6% 36.4% 36.0% 36.8% Cost / Average Assets 1.80% 2.20% 2.21% 2.08% 1.96% 1.89% Loan Growth 0.7% 22.8% 28.9% 23.7% 25.6% 23.6% Asset Growth 1.3% 43.9% 20.7% 28.1% 25.2% 23.2% Loan/ Deposits 82.2% 69.1% 75.9% 76.0% 74.9% 74.4% Loan / Assets 70.7% 60.3% 64.4% 62.2% 62.4% 62.6% Deposit / Liabilities 92.2% 92.3% 89.7% 86.7% 88.3% 89.3% Equity / Assets 6.7% 5.4% 5.4% 5.6% 5.6% 5.8% NPL Ratio 1.50% 1.93% 3.40% 4.51% 4.69% 4.43% NPL Coverage 140.0% 98.2% 71.9% 77.0% 88.5% 97.2% Cost / Branch Rev. / Employee Personnel Cost / Average Assets 0.9% 1.0% 1.0% 0.9% 0.8% 0.8% Income Statement E 2009E 2010E For the Year Ended 31st December BDT. 'mn BDT. 'mn BDT. 'mn BDT. 'mn BDT. 'mn BDT. 'mn Interest Income 2,897 4,342 5,636 6,865 8,595 10,513 Interest Expense (2,149) (3,380) (4,049) (5,209) (6,760) (8,487) Net Interest Income ,587 1,656 1,836 2,026 Investment Income ,184 Commission, exchange and brokerage ,065 1,342 1,678 Other Operating income Total Operating Income 1,487 2,060 3,169 3,746 4,503 5,272 Less Operating Expenses Salaries and Allowances Rent taxes insurance electricity etc Postage stamp telecommunication etc Depreciation and repairs to Bank's property Stationary printing advertisements etc Other Expenses Total Expenses ,159 1,365 1,623 1,940 Profit from Operations Before Provisions 893 1,172 2,010 2,381 2,880 3,332 Provision Expenses Profit before Tax ,531 1,612 2,010 2,596 Less : Tax ,246 Net profit for the year ,053 1,350 Page 4 of 5

5 Balance Sheet E 2009E 2010E As at 31st December BDT. 'mn BDT. 'mn BDT. 'mn BDT. 'mn BDT. 'mn BDT. 'mn Assets Cash in Hand Balance with Bangladesh Bank 1,317 2,042 3,281 1,884 2,392 3,043 Balance with other banks and FI's 1,067 2,042 3,281 5,179 7,898 9,093 Money at call notice 1,420 1,623 3,416 4,099 5,001 6,101 Investment in Government securities 3,581 5,161 5,355 7,414 9,292 11,670 Investment in other securities ,066 Loans, cash credits, overdrafts etc. 22,613 32,890 38,706 49,931 61,415 76,154 Bills purchased and discounted 760 1,159 1,266 1,633 2,009 2,491 Fixed assets Other assets 1,635 1,843 1,471 1,765 2,118 2,542 Total Assets 33,072 47,594 57,443 73,568 92, ,473 Liabilities and Capital Liabilities Borrowings ,114 1,281 1,473 Current Deposits 3,535 4,043 4,625 5,966 7,696 9,697 Bills Payable 443 1,189 1,716 2,196 2,811 3,514 Savings Deposits 3,540 3,363 4,393 5,710 7,366 9,282 Fixed Deposits 20,921 32,959 37,998 46,357 58,874 73,003 Other Liabilities 1,838 2,839 5,056 8,090 8,899 9,967 Total Liabilities 30,856 45,043 54,318 69,434 86, ,936 Shareholders Funds Paid up Capital 1,228 1,290 1,547 1,934 1,934 1,934 Statutory Reserve ,170 1,170 1,170 1,170 Other Reserve Retained earnings ,019 2,073 3,422 2,216 2,551 3,126 4,134 5,188 6,537 Total Liabilities and Shareholders funds 33,072 47,594 57,443 73,568 92, ,473 This document is published by LankaBangla Securities Ltd and John Keells Stock Brokers (Pvt) Ltd for the exclusive use of their clients. All information has been compiled from available documentation and LBSL's and JKSB s own research material. Whilst all reasonable care has been taken to ensure the accuracy of the contents of this document, neither LBSL or JKSB nor its employees can accept responsibility for any decisions made by investors based on information herein. Page 5 of 5