10.11648.j.ijefm.20150302.14(1) copy

International Journal of Economics, Finance and Management Sciences
2015; 3(2): 99-106
Published online February 14, 2015 (http://www.sciencepublishinggroup.com/j/ijefm)
doi: 10.11648/j.ijefm.20150302.14
ISSN: 2326-9553 (Print); ISSN: 2326-9561 (Online)
Financial Performance Analysis of Islamic Banks in
Bangladesh: A Case Study on Islami Bank Bangladesh
Limited (IBBL)
Jaba Chakraborty1, *
, Farjana Salam1
, Md. Ghulam Rabbany2
1
Department of Business Administration,Bangladesh University, Dhaka, Bangladesh
2
Department of Agribusiness & Marketing, Sher-e-Bangla Agricultural University, Dhaka, Bangladesh
Email address:
j.chakrobarty@yahoo.com (J. Chakrobarty), shazadi_farj@yahoo.com (F.Salam), tonoy_mkt@yahoo.com (Md. G.Rabbany)
To cite this article:
Jaba Chakraborty, Farjana Salam, Md. Ghulam Rabbany. Financial Performance Analysis of Islamic Banks in Bangladesh: A Case Study on
Islami Bank Bangladesh Limited (IBBL). International Journal of Economics, Finance and Management Sciences.
Vol. 3, No. 2, 2015, pp. 99-106. doi: 10.11648/j.ijefm.20150302.14
Abstract: Banking means deposit mobilization and deployment of those deposits into advances or investments in different
sectors. The element of interest has been for long used as main instruments for deposit mobilization and the deployment of
funds therefore.In the Muslim world, it remains a deep cry in peoples` hearts to fashion and design their economic lives in
accordance with the percepts of Islam. It is committed to conduct all banking and investment activities on the basis of interest-
free unveiled a new horizon and ushered in a new silver lining of hope towards materializing a long cherished dream of the
people of Bangladesh for doing their Banking transitions in line with what is prescribed by Islam. That is why, considering the
performance of IBBL, on attempt has been made in this paper to study the financial analysis procedure of IBBL.We have
rendered our knowledge to present this study on all Performance of Islami Bank Bangladesh Limited. In this study, it is shown
that various operational activities can be used in the evaluation of operation of this Bank. Considering the productivity ratio,
current ratio quick ratio, profitability ratio,solvency ratio we can find that this bank is increasing its performance efficiency.
Keywords: Islamic Banking, Riba, Interest Free Banking, Financial Performance, Productivity
1. Introduction
Islami Bank Bangladesh Limited (IBBL) is trying to
establish the maximum welfare of the society by maintaining
the principles of Islamic Shari’ah which is based on “Quran”
and “Sunnah”. Since 13 March 1983, IBBL is the pioneer in
welfare banking in this subcontinent and it is trying to do all
its activities for the betterment of its depositors. The Islamic
Shariah prohibits the payment or acceptance of interest fees
for the lending and accepting of money. In this regard to
establish a banking world that run according to Shariah, the
concept of Islamic Banking Arise. The definition of Islamic
Bank, as approved by the General Secretariat of the OIC, is
stated in the following manner. “An Islamic Bank is a
Financial Institution whose statutes, rules and procedures
expressly state its commitment to the principles of Islamic
Shariah and to the banning of the receipt and payment of
interest on any of its operation.”This study is an attempt to
gain the knowledge of evaluating the performance of Islami
Bank Bangladesh Ltd. in terms of productivity and
effectiveness. Also, analyze and discuss the five years
performance from fiscal year 2006-2010 to evaluate the
position of Islami Bank Bangladesh Ltd.
2. Statement of the Problem
Islami bank Bangladesh ltd. is one of the renowned
organization which is conducted by Islamic shariah. The
activates of Islami Ban are different from the activities of
other conventional Bank. Islami Bank follows the Islamic
rules and regulation for conducting their several activities. So
it is necessary to know the overall activities and performance
of Islami Bank Bangladesh Limited.
3. Rationale of the Study
There are two types of banking system in Bangladesh. One
is conventional which is interest based another is Islamic,
which is interest free. Islamic banks operate their transactions
in accordance with the principles of Islamic Shariah. A lot of

International Journal of Economics, Finance and Management Sciences 2015; 3(2): 99-106 100
research has been conducted on this bank. In feet, Islamic
ideology may persist only in an Islamic country but in a
country where conventional systems of banking prevail, it
may a lot of problems. So, the problems and prospects of
Islamic bank Bangladesh system vis-à-vis. Such study is
considered necessary and this study aims to fulfill this
demand of the time. A study convening all these issues
becomes and expected to be very significant both from the
practical view points to the best of knowledge of the
researcher.
4. The Objectives of the Study
The main objectives of the study are as follows:
1. To measure the growth rate of IBBL.
2. To measure the profitability ratio of IBBL.
3. To measure the productivity of IBBL.
4. To know the financial performance of IBBL.
5. Review of Related Literature
A brief summary of the researcher relevant to Performance
analysis of IBBL is enumerated below will support this
assumption:
Ahmed, Jamil (1990) has showed in his PhD thesis entitled
the contribution of Islamic Banking to economic
Development. A case of the Sudan that the Islamic banks
investment and in short term and finance and have done little
to promote long-term finance.
Alam, Misir (1998) made an important study on “Analysis
of comparative financial performance in banking sector of
Bangladesh. A study of interest free and traditional banks”
the study on Arab Bangladesh banks Ltd. and Islami bank
Bangladesh Ltd. was made in terms of profitability
productivity, liquidity and contribution to National
Exchequer.
Hamid, Abdul (1999) presented a paper at the international
conference on Islamic Economics in the 21st
century (held) in
Malaysia from 09 to 12 August 1999) entitled Islamic
Banking in Bangladesh ; Expectation and realities” and
argued that these to types of banks differ only in appearance
but not in substance.
Shallah (1989) made a study on Islamic Banking in an
interest based economy - A case study of Jordan. The
findings of the research showed that the Jordan Islamic bank
has proved viable compared to interest based banks on
Jordan.
Sources of data collection
The data collected from IBBL are classified into two
categories. Such as:
(I) Collection of Primary Data
The primary data are collected from practical desk work,
face to face conversation with the executives and officers,
face to face conversation with the clients, personal
observation etc.
(II) Collection of Secondary Data
We collected a huge number of secondary data also with a
view to preparing a good research paper. The secondary data
are taken from annual report of IBBL, other published
information such as journals, magazines, papers etc., book let
of Islamic bank etc., branch manager’s conference ranging
2008 to 2010, and thesis on Islamic banking.
6. Analysis of the Study
6.1.Concept of Credit Performance
To measure the credit performance of the IBBL we can use
the following techniques:
6.1.1.Growth Rate of Total Credit
Growth Rate of Total credit
=
(Current year – Previous year)
Previous year
× 100
(Amount in million Taka)
2007 =
165286.32 − 117132.83
117132.83
× 100 = 41.110
2008 =
187586.55 − 117132.83
117132.83
× 100 = 60.148
2009 =
225752.41 − 117132.83
117132.83
× 100 = 92.731
2010 =
275493.94 − 117132.83
117132.82
× 100 = 135.197
Table1.Computation of Growth Rate of Total Credit of IBBL(Amount in %).
Year Total credit of respective year(Current year) Total credit of base year (2006) Growth rate
2006 117132.83 117132.83 -
2007 165286.32 117132.83 41.110
2008 187586.55 117132.83 60.148
2009 225752.41 117132.83 92.731
2010 275493.94 117132.83 135.197
Source: Annual Report 2010
Mean = 63.84
SD = 50.14
CV = 78.537

101 Jaba Chakraborty et al.: Financial Performance Analysis of Islamic Banks in Bangladesh: A Case Study on Islami Bank
Bangladesh Limited (IBBL)
Figure 1.Bar Diagram of Growth Rate of Total Credit.
In the above fig.1 shows that Growth rate of Total credit
shows the positive or negative tendency of people to collect
their fund from the respective institutions. The higher the
growth rate of total credits the best for the organization and
its profitability. From the table mentioned above it is found
that, the highest growth rate of total credit shows in 2010. It
is so good for the organization.
6.1.2.Measurement of Credit to Volume of Working Fund
Credit to Volume of Working Fund
Total Credit Investment
Total Volume of Working Fund
100
2008
187586.55
230879.14
100 81.249
2009
225752.41
278320.84
100 81.118
2010
275493.94
330586.12
100 228.53
Table2.Computation of Credit to VWF of IBBL (Amount in %).
Year 2006 2007 2008 2009 2010 Mean SD CV
Credit to Volume of Working Fund 77.95 86.37 81.25 81.12 228.53 111.05 65.75 59.21
Source: Annual Report 2010(VWF = Total Asset Excluding Contra)
Figure 2.Measurement of credit to volume of working funds.
In the above fig.2 shows that the higher the rate of credit to
volume of working funds the better for the organization. On
the other hand it is more risky also.Taking into consideration
the above table it is found that, the average rate of credit to
volume of working funds of IBBL is the higher in 2010, 2007
and 2008.So it earns best performance in those year.
6.2.Measurement of classified Investment to Total
Investment
Classified Investment to Total Investment
Total Classified Investment
Total Investment
100
2008
4311.13
180053.94
100 2.39
2009
5063.40
214615.80
100 2.36
2010
4655.63
263225.13
100 1.77
0
20
40
60
80
100
120
140
160
2007 2008 2009 2010
IBBL

Table3.Computation of Classified Investment to Total Investment of IBBL(Tk. in %).
Year 2006 2007 2008 2009 2010 Mean SD CV
Classified Investment to Total Investment 3.43 2.93 2.39 2.36 1.77 2.58 3.11 120.58
Figure 3.Measurement of classified Investment to total Investment.
In the above fig.3 shows that the smaller the rate of
classified investment to total Investment the better for the
organization.The above table shows us that the average rate
of classified investment to total loan of IBBL is too much
lower in 2007, 2008, 2009 and 2010.So those years shows
the best performance.
6.3.Measurement of Profitability
To measure the profitability of IBBL we can use the
following techniques:-
6.3.1.Return on Asset
Return on Asset
Net Profit after Tax
Total Asset Escluding Contra
100
2008
2674.8
230879.14
100 1.223
2009
3403.55
278302.84
100 1.350
2010
4655.63
263225.13
100 1.082
Table4.Computation of Return on Asset of IBBL (Amount in %).
Year 2006 2007 2008 2009 2010 Mean SD CV
Return on Asset 0.93 0.75 1.16 1.22 1.35 1.08 0.24 22.31
Figure4. Bar Diagram of Return on Asset of IBBL.
From the above table-4 indicates that, the average return
on asset ratio in 2009 is higher among the year. It is too much
good for organization. But the standard deviation and
coefficient of variation is not smaller. So it does not show
least risky in return on asset.
6.3.2.Return on Equity
Return on Equity
Gross Profit
Total Equity
100

2008
6347.83
18572.08
100 27.594
2009
6517.66
23619.81
100 29.770
2010
8454.7
28400.03
100 28.938
Table5.Computation of Return on Equity of IBBL (Amount in %).
Year 2006 2007 2008 2009 2010 Mean SD CV
Return on Equity 27.872 25.277 34.179 27.594 29.770 28.938 3.336 11.527
Figure5. Bar Diagram of Return on Equity of IBBL.
From the above table-5 implies that, the standard deviation
and coefficient of variation of the
Bank in return on equity is higher. So IBBL shows high
risky in return on equity.
6.4.Measurement of Productivity
The measurement of productivity is calculated by the
following techniques:
6.4.1.Deposit per Branch
Deposit per Branch
Total Depodit
Total No. of Branch
2008
202115.45
206
981.143
2009
244292.14
231
1057.54
2010
291934.6
251
1163.086
Table6.Computation of Deposit Per Branch of IBBL (Amount in million Taka).
Year 2006 2007 2008 2009 2010 Mean SD CV
Deposit per Branch 752.38 894.22 981.14 1057.54 1163.09 969.68 4.15 0.43
Figure6. Bar Diagram of Deposit per Branch of IBBL.
From the above table-7 indicates that, the average deposit
per branch ratio of IBBL is comparatively higher. It is too
much good for organization. But the standard deviation and
coefficient of variation is also smaller. So IBBL shows least
risky in return on asset.
6.4.2.Profit per Branch
Profit per Branch
Total Profit received on Investment
Total No. of Branch

2008
19952.59
206
96.857
2009
21485.69
231
93.012
2010
25224.42
251
100.49
Table7.Computation of Interest or Profit per Branch of IBBL (Amount in million Taka).
Year 2006 2007 2008 2009 2010 Mean SD CV
Profit per Branch 64.18 79.87 96.86 93.01 100.50 86.88 14.89 17.14
Figure7.Bar Diagram of Interest or Profit Per Branch of IBBL.
From the above table-8 shows that, the average profit per
branch ratio of IBBL is higher yearly. It is too much good.
But the standard deviation and coefficient of variation is
comparatively high. So IBBL shows high risky in return on
asset.
6.5.Measurement of Solvency
To measure the solvency of the selected banks to measure
the actual performance of IBBL we can use the following
techniques:
6.5.1.Current Ratio
Current Ratio
Total Current Asset
Total Current Liabilities
2008
230879.14
57138.05
4.041
2009
278302.84
62335.65
4.465
2010
330586.12
113098.67
2.923
Table8.Computation of current ratio of IBBL (Amount in million Taka).
Year 2006 2007 2008 2009 2010 Mean SD CV
Current Ratio 3.97 3.26 4.04 4.47 2.92 3.73 0.42 11.18
Figure8. Bar Diagram of Current Ratio of IBBL.
From the above table-9 it is found that, the average current
ratio of IBBL is highest in maximum year. It is too much
good for IBBL. But the coefficient of variation of IBBL is the
smaller. So IBBL shows least risky as well as more favorable

current ratio than previous.
6.5.2.Quick Ratio
Quick Ratio
Total Quick Asset
Total current Liabilities
Table9.Computation of quick ratio of IBBL (Amount in million Taka).
Year 2006 2007 2008 2009 2010 Mean SD CV
Quick Ratio 3.31 2.26 4.03 4.00 2.12 3.70 0.92 24.78
Figure9.Bar Diagram of Current Ratio of IBBL.
From the above table-10 it is found that, the average quick
ratio of IBBL is the highest among the banks. It is too much
good for IBBL. But the coefficient of variation of IBBL is the
smaller than that of others. So IBBL shows least risky as well
as more favorable quick ratio.
6.6.Risk Measurement
Debt to Equity Ratio
Total Debt
Total Equity
Table10.Computation of debt to equity ratio of IBBL (Amount in million Taka).
Year 2006 2007 2008 2009 2010 Mean SD CV
Debt to Equity Ratio 25.27 20.30 21.10 17.20 20.15 20.80 2.90 13.95
Figure10. Bar Diagram of Debt to equity ratio of IBBL.
From the above table-11 it is found that the average and
coefficient of variation of IBBL in debt to equity ratio is not
more favorable than previous record. So IBBL shows risky
ratio of debt to equity.
7. Findings of the study
After analyzing various data the following findings are
shown:
1. Growth rate has in increasing trend.
2. Though profit of IBBL is increasing but it remains in
risky position.
3. The yearly productivity is greater than ever.
4. The return on asset of IBBL is in hazard.
8. Recommendations
It is not unexpected to have many Problems in any
Organization for this reason already we have found many
problems of financial performance of IBBL. To solve these
problems I can suggest following recommendations.
1. Attention should be given to minimize the risks
associated with profitability.
2. IBBL should try to raise the more deposit ratio for

carrying higher productivity in future.
3. The risk of returned on equity should be reduced.
4. An increasing trend should be obtained in the case of
solvency.
9. Conclusion
In fine we can conclude that, the profit of IBBL is free of
traditional interest. The result of various ratio analysis shows
that financial performance of IBBL is holding a better
position. For economic development of Bangladesh it is
playing a crucial role. For making sustainable profitability
this bank should minimizes its risks. We hope this bank will
increase its financial performance in future for earning a
worldwide reputation and establishing profitable image.
References
[1] Al Quran. (Bangla translate Tafhimul Quran)(Sura: Bakara-
188,275, 278; Rum-39; Al-Imran-161; Nesa-29-30; Kasas-77,
and Hadith (Bukhari& Muslim Sharif)
[2] Annual reports of Islami Bank Bangladesh Ltd. 2010
[3] Dr. M.N Siddiqi: Some Aspects of Islamic Economy.
[4] Horn green, C.T.Cost Accounting.
[5] Islami Bank 5 Years of Progress, Islami Bank Bangladesh
Limited, Based on Islamic Economic Research Bureau:
Thoughts on Islamic Economic Banking.
[6] Khan.M.Y. And Jain, P.K: Financial Management, Tata
McGraw-Hill
[7] Kothari, C.K. Research Methodology.
[8] Mannan M.A.: Islamic Economic: Theory and Practice.
[9] Pandy, I.M: Financial Management.
[10] Rose and westerfield: Financial Management
[11] Sina, Dr.Md.Abu. The Modes of Investment of Islami banks
and Conventional Nationalized Commercial bank (A
comparative study, P.H.D thesis, Department of Account,
Islamic University, Kushtia.)
[12] Hannan, A.S. and Shaheed, A. 1998 Financial Position and
Performance analysis of BangladeshShilpa Bank, Islamic
University Studies, Volume-1, June 1998.
[13] Shekar, K.C.: Bank Management.
[14] Shekar, K.C.: Banking Theory and Practice.
[15] Weston, J.F. & Brigham, F.E.: Managerial Fina

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