Regression analysis is one of the most important statistical techniques for business applications.

It’s a statistical methodology that helps estimate the strength and direction of the relationship
between two or more variables. The analyst may use regression analysis to determine the actual
relationship between these variables by looking at a corporation’s sales and profits over the
past several years. The regression results show whether this relationship is valid.

Regression analysis is an indispensable tool, being used around the world by the researcher for
analyzing relationships between. For example, it can:

 Identify the factors that are most responsible for a corporation’s profits
 Determine how much a change in interest rates will impact a portfolio of bonds
 Develop a forecast of the future value of the Dow Jones Industrial Average

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The objectives of the assignment are
 To apply the knowledge of regression in real life business world.
 To enhance decision making process and become effective decision maker by
analyzing different parameters

Method of Data Collection:

The data are fully secondary and covers the period of years. Following sources are
used:
• Statistical Book
• Annual Report of Bank
• Materials regarding regression analysis
• Course material provided by instructor

Data Analysis Tool:

 Microsoft Excel

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History of EXIM Bank
Export Import Bank of Bangladesh Limited was established in the year 1999 under the
leadership of Late Mr. Shahjahan Kabir, Founder Chairman who had a long dream of floating
a commercial bank which would contribute to the socio-economic development of our country.
He had a long experience as a good banker. A group of highly qualified and successful
entrepreneurs joined their hands with the founder chairman to materialize his dream. Indeed,
all of them proved themselves in their respective business as most successful star with their
endeavor, intelligence, hard working and talent entrepreneurship. Among them, Mr. Nazrul
Islam Mazumder who is an illuminated business tycon in the Garments business in Bangladesh
became the Honorable Chairman after the demise of the honorable founder chairman. He is
also the chairman of Bangladesh Association of Banks (BAB). Under his leadership, BAB has
emerged as an effective forum for exchanging views on problems being faced by the banking
sector of Bangladesh and for formulating common policy guidelines in addressing such
problems. The Bank starts functioning from 3rd August, 1999 with its name as Bengal Export
Import Bank Limited. On 16th November 1999, it was renamed as Export Import Bank of
Bangladesh Limited with Mr. Alamgir Kabir as the Founder Advisor and Mr. Mohammad
Lakiotullah as the Founder Managing Director respectively. Both of them have long experience
in the financial sector of our country. By their pragmatic decision and management directives
in the operational activities, this bank has earned a secured and distinctive position in the
banking industry in terms of performance, growth, and excellent management. Under the
leadership of Mr. Lakiotullah, the Bank has migrated all of its conventional banking operation
into Shariah Based Islami Banking in the year July 2004.

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In the year 2006, Mr. Kazi Masihur Rahman became the Managing Director of the bank when
Mr. Lakiotullah left the bank after completion of his successful 7 years as MD. Mr. Kazi served
in the bank for next five years. Under his leadership, the bank has been placed on a state of the
art centralized IT platform with two modern data centers where world renowned core banking
software TEMENOS T24 is running along with some alternate delivery channels like ATMs
and SMS banking.

Dr. Mohammed Haider Ali Miah succeeded Mr. Fariduddin Ahmed on July 25, 2012 and has
created a new dimension in EXIM history becoming the first ever in-house Managing director
and CEO of the Bank. Under his far-sighted leadership, EXIM Bank has not only achieved
uppermost level of performance in almost each arena of its activities but also gained confidence
to place itself as one of the dynamic banks through delivering transparent and standard banking
services to the customers in a compliant manner.

Our Vision
The gist of vision is ‘Together Towards Tomorrow’. Export Import Bank of Bangladesh
Limited believes in togetherness with its customers, in its march on the road to growth and
progress with service. To achieve the desired goal, there will be pursuit of excellence at all
stages with climate of continuous improvement, because, in Exim Bank, we believe, the line
of excellence is never ending. Bank’s strategic plans and networking will strengthen its
competitive edge over others in rapidly changing competitive environment. Its personalized
quality services to the customers with trend of constant improvement will be the cornerstone
to achieve our operational success.

Our Mission
The Bank’s mission gives emphasis to:

 Provide quality financial services especially in Foreign Trade

 Continue a contemporary technology based professional banking environment
 Maintain corporate & business ethics and transparency at all levels
 Sound Capital Base
 Ensure sustainable growth and establish full value to the honorable stakeholders
Fulfill its social commitments and

Above all, to add positive contribution to the national economy

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Prime Operational Area of the Bank

As a full-fledged Islamic bank in Bangladesh, EXIM Bank extended all Islamic banking
services including wide range of saving and investment products, foreign exchange and
ancillary services with the support of sophisticated IT and professional management. The
investment portfolio of the bank comprises of diversified areas of business and industry sectors.
The sectors include textiles, edible oil, ready-made garments, chemicals, cement, telecom,
steel, real estate and other service industry including general trade finance. The bank has given
utmost importance to acquire quality assets and is committed to retain good customers through
customer relationship management and financial counseling. At the same time efforts have
been made to explore/induct new clients having good potentiality to diversify and create a well-
established structured investment portfolio and to minimize overall portfolio risk.

Investment: Bank's investment port-folio are segmented under the following heads:

Retail/Consumers investment.
Micro enterprise investment.
Small and Medium Enterprise investment.
Large and Corporate investment.
Syndicate investment.

Modes of investments:

Murabaha (MTR, MPI, MIB).

Bai Muazzal.
Izara Bil Baia.
Wazirat Bil Wakala .
Bai-Salam.
Quard.
Musharaka Documentary Bills (MDB)/LDBP.
Bai-As-Sarf/FDBP.

EXIM Bank is very much responsive and interested to involve themselves both directly and
indirectly with the development process of the banking industry and national economy. As we
believe the development of small and medium-size enterprises plays a pivotal role in the growth

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and prosperity of a nation. Although large-scale corporations, particularly industrial concerns
contribute sizably/ largely in Gross Domestic Products (GDP) and other economic variables of
prosperity but the significance of SMEs is widely recognized around the globe. SMEs make a
substantial contribution towards GDP, revenue collection in the form of taxes, fostering
entrepreneurship culture, employment opportunities, income generation, skills development of
human resources, poverty alleviation, and improving the standard of living and quality of life.
Above all the prime economic benefits of SMEs development include encouraging perfect
competition and fair distribution of wealth. If there are only large-scale corporations either,
then there will be a monopoly in an industry, with a single suppliers, or oligopoly with only
few suppliers, or monopolistic competition with only some suppliers, then the major portion of
national income and wealth will move within the hands of big capitalists. SME sector, however,
begets fair competition and equitable distribution of wealth.

SME Defined:
Generally, SME means small and medium size enterprises, the definition published by Ministry
of Industries and endorsed by Bangladesh Bank are as follows:

Micro Industry/Enterprise:
Micro Industry/ Total Fixed Assets
Total no. of Employees
Enterprise (Excluding land & factory building)
Service concern Up to Tk.5.00 lac Up to 10 persons
Trading concern Up to Tk.5.00 lac Up to 10 persons
Manufacturing concern Up to Tk.50.00 lac Up to 24 persons

Small Industry/Enterprise:

Small Total Fixed Assets Total no. of

Industry/Enterprise (Excluding land & factory building) Employees
Service concern Not exceeding to Tk.1.00 crore Upto 25 persons
Trading concern Not exceeding to Tk.1.00 crore Upto 25 persons
Manufacturing concern Not exceeding to Tk.10.00 crore Upto 99 persons

Medium Industry/Enterprise:

Medium Total Fixed Assets Total no. of

Industry/Enterprise (Excluding land & factory building) Employees
Service concern Not exceeding to Tk.15.00 crore Upto 100 person
Trading concern Not exceeding to Tk.15.00 crore Upto 100 person
Manufacturing concern Not exceeding to Tk.30.00 crore Upto 250 person

Cottage Industry/Enterprise:

Cottage Total Fixed Assets Total no. of

Industry/Enterprise (Excluding land & factory building) Employees
The concern where the Up to Tk.5.00 lac Up to 10 (family
family members get members)
priority

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Share Information of EXIM Bank

Year of Incorporation 1999

Year of IPO
Year of Denomination of Shares
Authorized Capital
Paid-up Capital
Face Value
Market Lot
Date of listing with DSE
Date of listing with CSE
Instrument Scrip Code
Date of 1st Trading
Opening price on 1st Trading Date
Updated on: October 19, 2014
2004
2010
Tk. 20,000.00 Million
Tk. 14,122.51 Million
Tk.10.00 per share;
100 Shares.
September 26, 2004
September 04, 2004
EXIMBANK (DSE); EXIMBANK (CSE)
October 16, 2004
517.00

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In order to assess the relationship between dependent Variable; Net Profit after tax and other
Independent variables we need to collect and organize the data as follows: Fifteen years
historical data has been collected to depict the relationship level among the variables.

Historical Data: EXIM Bank

Dependent
Independent Variables (Figure in Tk)
Variable
Year Profit Paid on Other
Net Profit Investment Salary &
Deposits, Operating
After Tax Income Allowances
borrowing etc. Income
2002 201,422,785 932,241,186 728,365,599 35,049,507 95,627,987
2003 254,792,156 1,396,081,422 1,121,309,068 54,696,256 134,004,574
2004 381,798,163 1,820,283,897 1,425,511,622 74,325,865 183,089,157
2005 555,335,174 2,461,367,218 1,821,822,543 110,615,092 231,722,416
2006 650,292,342 3,808,085,566 2,953,607,619 155,041,956 330,992,966
2007 1,618,797,086 4,943,468,082 3,587,536,228 216,439,446 515,785,817
2008 1,989,552,799 6,575,384,481 4,807,489,009 368,602,392 544,058,922
2009 1,694,095,372 8,147,113,948 5,942,862,461 618,702,207 644,439,325
2010 3,476,007,955 9,606,185,898 6,020,054,097 872,161,614 1,000,248,831
2011 2,009,372,842 13,122,774,352 9,357,767,130 748,628,692 1,325,173,260
2012 2,157,631,285 17,307,827,684 12,271,789,204 842,186,159 1,440,473,901
2013 1,913,390,101 20,417,497,250 15,458,877,855 864,658,379 1,764,751,197
2014 2,480,927,888 22,511,733,800 15,517,560,189 775,027,634 2,368,225,021
2015 2,192,739,809 24,120,712,483 16,266,679,599 711,715,152 2,513,066,600
2016 2,934,868,057 22,827,134,269 14,979,080,874 735,469,239 2,731,724,763

The example used throughout this “How to” is a regression model of net Profit after Tax,
explained by:
 Investment Income
 Profit Paid on Deposits, borrowing etc
 Other Operating Income
 Salary & Allowances
 Other Operating Expenses

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 The objective is to explain the variation in net profit after tax, using the variation in the
independent variables. Hence, we are using the variation in the independent variables to explain
the variation in the net profit after tax.

The first column the number of observation are taken for study. The 2nd column contains the
observations on the dependent variable and then the other, adjoining columns containing the
observations on the independent variables. Include column headings to make it is easier to
interpret the results

The results of the regression analysis appear as follows:

Regression Statistics
Multiple R 0.953883755
R Square 0.909894218
Adjusted R Square 0.85983545
Standard Error 379588685.4
Observations 15

ANOVA
Significance
df SS MS F F
Regression 5 1.30951E+19 2.61901E+18 18.1765204 0.000182546
Residual 9 1.29679E+18 1.44088E+17
Total 14 1.43918E+19

Standard Lower Upper

Coefficients t Stat P-value Lower 95% Upper 95%
Error 95.0% 95.0%
18967288 2.63669590 0.02705995 71039842.3 929179582. 7103984 9.29E+0
Intercept 500109712.5
2.7 2 7 2 7 2 8
Investment 0.3902759 0.70947338
0.150095036 0.38458691 -0.73277059 1.03296066 -0.73277 1.032961
Income 89 8
Profit Paid on -
0.3887515 0.33493764 0.48338787
Deposits, -0.396029221 1.01872063 -1.27544631 -1.27545 0.483388
45 7 2
borrowing etc 6
Other
4.81276642 0.00095655 5.21861716
Operating 3.550000952 0.7376217 1.88138474 1.881385 5.218617
5 8 4
Income
Salary & 1.9853223 1.36173364 0.20639104
2.703480254 -1.78763094 7.19459145 -1.78763 7.194591
Allowances 6 6 7
Other
2.0602353 0.29019454 2.34536726
Operating -2.315208954 -1.12375944 -6.97578517 -6.97579 2.345367
77 2 1
Expenses

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 INTERPRET REGRESSION STATISTICS TABLE

This is the following output. Of greatest interest is R Square.

Regression Statistics
Multiple R 0.953883755
R Square 0.909894218
Adjusted R Square 0.85983545
Standard Error 379588685.4
Observations 15

Multiple R
The multiple correlation coefficient is 0.953883755. This indicates that the correlation among
the independent and dependent variables is positive. This statistic, which ranges from -1 to +1,
does not indicate statistical significance of this correlation. Multiple R is the Square root of R2.
Multiple R square 0.95 implies that there is a very high positive relationship among the variables

Multiple R can be measured by the following formula:

Multiple R =√𝑹𝟐 =√0.909894218= 0.999489048.

R Square (Coefficient of Determination):

R-squared is a statistical measure of how close the data are to the fitted regression line. It is
also known as the coefficient of determination, or the coefficient of multiple determination for
multiple regression.

From the table it can be observed that the coefficient of determination, R2, is 0.909894218,
which is a very good fit. 91% of the variation in Net Profit after Tax is explained by the
independent variables ; Investment income, profit paid on deposit, borrowing etc , other

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operating income, salary & allowances and other operating expense. The closer to 1, the better
the regression line fits the data. It is also measured by the following formula

𝑆𝑆𝑅
𝑅2 =
𝑆𝑆𝑇
Here SSR = Sum of Squares Regression or Regression Sum of Squares
SST = Sum of Squares Total or Total Sum of Squares
From the an nova table, the value of SSR= 130950531
SST=1439184141
130950531
𝑅2 = 143918414 = 0.9098942
Adjusted R Square
The adjusted R-squared is a modified version of R-squared that has been adjusted for the number of
predictors in the model. Based on the number of independent variables R-square is influenced.
Here the adjusted R square decreases to 0.86 because of predictors improve the model by less than
expected by chance. Adjusted R square is always lower than the R-squared. It can be calculated by
using the following formula:

MSE
Adjusted R2 = 1- 𝑆𝑆𝑇
(𝑛−1)

Here MSE means Mean Squared of Error = 144087570090909 from the Anova Table

SST = Sum of Squares Total or Total Sum of Squares= 143918414143773

n-1= 15-1=14

𝑆𝑆𝑇
(𝑛−1)
=102798867245552

Adjusted 𝐑𝟐 = 0.85983545

Standard Error
This is also referred to as the root mean squared error. It also refers to the estimated standard deviation
of the error term. It is sometimes called the standard error of the regression. The standard error of the

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regression is 379588685.4, which is an estimate of the variation of the observed net profit after tax
about the regression line. We can calculate this standard Error by the following formula

Standard Error = √𝑀𝑆𝐸

Standard Error = √144087570099
= 379588685.4

Observation
Total number of observation equals to 15 considered for conducting the study

INTERPRETATION OF ANOVA TABLE

The analysis of variance information provides the breakdown of the total variation of the
dependent variable in this case net Profit after tax in to the explained and unexplained portions.

ANOVA
Significance
df SS MS F F
Regression 5 1.30951E+19 2.61901E+18 18.1765204 0.000182546
Residual 9 1.29679E+18 1.44088E+17
Total 14 1.43918E+19

Degree of freedom_ Residual = n - (k+1) Here k= No. of Independent Variable

=15-(5+1)
=9

Degree of freedom, df = n -1 =14

SS Regression & SS Residual
The SS Regression is the variation explained by the regression line; SS Residual is the
variation of the dependent variable that is not explained
F-Statistic
The F-statistic is calculated using the ratio of the mean square regression (MS Regression) to
the mean square residual (MS Residual).
𝑀𝑆𝑅
We know that F Ratio=
𝑀𝑆𝐸

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 F Ratio= 18.1765204
This is statistic can then be compared with the critical F value for 5 and 9 degrees of freedom
(available from an F-table) to test the null hypothesis:

H0: β1= β2= β3= β4= β5=0

HA: At least one βi not equal to 0

The column labeled significance F has the associated P-value. At 5.0% significance level,
the model is significant since as the significance value is less than 0.05 which implies rejection
of null hypothesis

INTERPRETATION OF REGRESSION COEFFICIENTS TABLE

The results of the estimated regression line include the estimated coefficients, the standard error
of the coefficients, the calculated t-statistic, the corresponding p-value, and the bounds of both
the 95% and the 90% confidence intervals. The regression output of most interest is the
following table of coefficients and associated output:

Standa
Lower Upper
Coefficients rd t Stat P-value Lower 95% Upper 95%
95.0% 95.0%
Error
18967 2.6366959 0.0270599 71039842. 929179582 7103984 9.29E+0
Intercept 500109712.5
2882.7 02 57 32 .7 2 8
-
Investment 0.3902 0.3845869 0.7094733 1.0329606 1.03296
0.150095036 0.7327705 -0.73277
Income 75989 1 88 6 1
9
Profit Paid
- -
on Deposits, 0.3887 0.3349376 0.4833878 0.48338
-0.396029221 1.0187206 1.2754463 -1.27545
borrowing 51545 47 72 8
36 1
etc
Other
0.7376 4.8127664 0.0009565 1.8813847 5.2186171 1.88138 5.21861
Operating 3.550000952
217 25 58 4 64 5 7
Income
-
Salary & 1.9853 1.3617336 0.2063910 7.1945914 7.19459
2.703480254 1.7876309 -1.78763
Allowances 2236 46 47 5 1
4
Other - -
2.0602 0.2901945 2.3453672 2.34536
Operating -2.315208954 1.1237594 6.9757851 -6.97579
35377 42 61 7
Expenses 4 7

A simple summary of the above output is that the fitted line is

Y = a+ b1*x1 - b2*x2 + b3*x3 + b4*x4 + b5*x5

Y = 500109712.5+ 0.15*X1 - 0.396*X2+ 3.55*X3+ 2.70*X4 - 2.32*X5

From the equation we can say that

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When X1= X2= X3= X4= X5=0 then Y=500109712.5

Explanation for each independent variables’ coefficient & their effect

Investment Income(X1):
The relationship between investment income & net profit after tax is positive which means
the higher the investment income, the higher the net profit after tax.
The coefficient for Investment Income is 0.15. So for every unit increase in investment
income, a 0.15 unit increase in Net Profit after Tax, holding all other variables constant.
Profit Paid on Deposits, borrowing etc. (X2):
For every unit increase in Profit Paid on Deposits, borrowing etc, we expect a -0.396 unit
decrease in Net Profit after Tax, holding all other variables constant.
Other Operating Income (X3):
Keeping all other variable remain same, for every unit increase in other operating income,
The Net profit after tax increases by 3.55
Salary & Allowances(X4):
The coefficient for Salary & allowances is 2.70. So for every unit increase in Salary &
allowances, we expect an approximately 2.70 point increase in the Net Profit after tax,
holding all other variables constant.
Other Operating Expenses(X5):
For every unit increase in other operating expenses, we expect a -2.32 unit decrease in Net
Profit after Tax, holding all other variables constant.
The p-value for each term tests the null hypothesis that the coefficient is equal to zero (no
effect). A low p-value (< 0.05) indicates that you can reject the null hypothesis. In other
words, a predictor that has a low p-value is likely to be a meaningful addition to your model
because changes in the predictor's value are related to changes in the response variable.
From the output stated above, we can see that only other operating income is significant
because of P –value of 0.000956558 is less than 0.05. However, the p-value for other
independent variables is higher than the significance level of 0.05, which indicates that
they are not statistically significant.
We can assume or suspect that probably in this model, the problem of Multicolinearity
exists as the only independent variable has become significant

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 Detecting Multicollinearity
Multicollinearity exists whenever two or more of the predictors in a regression model are
highly correlated or closely related. In other way, we can if the relationship between two or
more variable is highly correlated there is a multicollinearity problem.

Detecting Multicollinearity: Correlation Matrix

The first step in detecting multicollinearity is to examine the correlation among the independent
variables. We do this by looking at a correlation matrix. We can run a correlation matrix in
Excel by using its Data Analysis ToolPak. Looking at the correlation matrix for 5 variables,
we find:

Correlation Matrix:

Profit
Other Other
Net Profit Investment Paid on Salary &
Operating operating
After Tax Income Deposits, Allowances
Income Expenses
(Y) (X1) borrowing (X4)
(X3) (X5)
etc(X2)

Net Profit After Tax 1

Investment
Income(X1) 0.737460693 1
Profit Paid on
Deposits, borrowing
etc(X2) 0.71225442 0.996639 1
Other Operating
Income(X3) 0.887321595 0.853175 0.853904 1
Salary &
Allowances(X4) 0.739003353 0.982577 0.967135 0.798041 1
Other operating
Expenses(X5) 0.741974206 0.984285 0.970105 0.814 0.997285 1

Interpretation of Correlation Matrix

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A correlation of 1.00 means two variables are perfectly correlated; a correlation of 0.00 means
there is absolutely no correlation. The cells in the matrix above, where the correlation is 1.00,
shows the correlation of an independent variable with itself – we would expect a perfectly
correlated relationship. What is most important to us are the numbers below the 1.00
correlations. The first column shows our dependent variable, “Net Profit After Tax”. As you
go down the column, row by row, you see that out of 5 independent variable, other operating
income is closely correlated with the dependent variable. Reaming four independent variables
have high correlation with dependent variable.

In order to detect multicollinearity we need to look for the relationship between two or more
independent variable having correlation is greater than 0.80.

But now, let’s look at the correlations among our independent variables:

ρX2X1 = 0.9965
ρX3X1 = 0.8532
ρX3X2 = 0.8539
ρX4X1 = 0.9826
ρX4X2 = 0.9671
ρX5X1 = 0.9843
ρX5X2 = 0.9701
ρX5X3 = 0.8140
ρX5X4 = 0.9972

Notice that all of our independent variables are highly correlated with one another even
ρX4X3 = 0.7981 is about to 0.80

Hence, we can conclude that multicollinearity is present in this model.

Correcting Multicollinearity: One of the ways is Dropping Variables

Now we will discuss one of the remedies for multicollinearity – dropping a highly correlated
independent variable. If we ignore:

Profit Paid on Deposits, borrowing etc(X2)

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and run our regression with the remaining Four variables, we end up with the following
regression equation:

Y = 445988102.1- 0.24*X1 + 3.88*X3+ 3.83*X4 - 2.43*X5

We get R2 = 0.899504102, suggesting that we don’t lose much explanatory power by excluding
“Profit Paid on Deposits, borrowing etc(X2).” We also get an F statistic of 22.37663737, higher
than the 18.1765204 we had in our original model. A higher F-statistic indicates a model that
is more statistically valid. It also reflects the exclusion of one or more extraneous variables.

Regression Statistics
0.948421
Multiple R
901
0.899504
R Square
102
Adjusted R 0.859305
Square 743
Standard 38030527
Error 4.7
Observatio
15
ns

ANOVA
Significan
df SS MS F
ce F
1.29455E 3.2E 22.3 5.63519E
Regression 4
+19 +18 766 -05
1.44632E 1.4E
Residual 10
+18 +17
1.43918E
Total 14
+19

Coefficient Standard P- Lower Upper Lower Upper

s Error t Stat value 95% 95% 95.0% 95.0%
44598810 18242426 2.44 0.03 3952151 85245469 3952151 85245469
Intercept
2.096 4.717 5 5 0.334 3.857 0.334 3.857
-
Investment 0.01
-0.239 0.081 2.95 -0.419 -0.059 -0.419 -0.059
Income 4
8
Other
5.87 0.00
Operating 3.886 0.661 2.412 5.359 2.412 5.359
7 0
Income
Salary &
2.30 0.04
Allownance 3.823 1.656 0.133 7.514 0.133 7.514
8 4
s
Other -
0.26
operating -2.431 2.061 1.17 -7.023 2.161 -7.023 2.161
6
Expenses 9

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After Dropping the variable “Profit Paid on Deposit & borrowing etc), the investment income,
other operating Income, & Salary & Allowance are significant at 5% level where as we had
only variable significant before dropping the variable.

Dropping “Profit Paid on Deposits and borrowing etc.” from our analysis moderately worked
here. However, dropping variables without a rational decision process can cause new problems.