islamic bank vs conventional banks

Contents EXECUTIVE SUMMARY ................................................................................................................................................. 3 CHAPTER 1: INTRODUCTION ...................................................................................................................................... 4 1.1 Origin of the Report .............................................................................................................................. 4 1.2 Objectives of the Study ......................................................................................................................... 4 1.3 Methodology ......................................................................................................................................... 4 1.4 Limitations and Restrictions of the Report ........................................................................................... 5 CHAPTER 2: REVIEW OF LITERATURE .................................................................................................................... 6 CHAPTER 3: ISLAMIC BANKING ................................................................................................................................. 8 2.1 Genesis of Islamic Banking in Bangladesh........................................................................................... 8 2.2 What is Islamic Banking ....................................................................................................................... 8 2.3 Why Islamic Banking ........................................................................................................................... 9 2.4 Objectives of Islamic Banking .............................................................................................................. 9 2.5 Why interest is prohibited in Islamic banking system .......................................................................... 9 2.6 Riba (Interest) VS. Profit .................................................................................................................... 10 2.7 Difference between Islamic & Conventional banking ........................................................................ 10 CHAPTER 4: A BRIEF INTRODUCTION OF ISLAMIC BANKS IN BANGLADESH .......................................... 15 CHAPTER 5: INVESTMENT MECHANISM OF ISLAMIC BANKS ....................................................................... 19 1) Bai Mechanism ..................................................................................................................................... 20 2. Ijara Mechanism ................................................................................................................................... 27 3. Share Mechanism.................................................................................................................................. 28 CHAPTER 6: PERFORMANCE ANALYSIS AND DISCUSSION .............................................................................. 29 CHAPTER 7: COMPERATIVE ANALYSIS OF CONVENTIONAL AND ISLAMIC BANKS .............................. 38 6.1 The profitability of Islamic Banking in comparison to Conventional Banking .................................. 38 6.2 Market Share of Islamic Banks ........................................................................................................... 39 6.3 Islamic Banks Liquidity ...................................................................................................................... 40 6.4 Capital adequacy of Islamic Banks and Conventional Banks ............................................................ 41 Page | 1 6.5 NPL of Conventional Banks and Islamic Banks ................................................................................ 42 CHAPTER 8: MICRO-ECONOMIC AND PROFITIBILITY OF ISLAMIC BANKS OF BANGLADESH ............................ 46 CHAPTER 9: PROBLEMS AND RECOMMENDATIONS ......................................................................................... 48 CONCLUSION .................................................................................................................................................................. 51 REFERENECS APPENDICES 2 | Performance Analysis: A Study on the Islamic Banks of Bangladesh EXECUTIVE SUMMARY Islamic banking system was introduced in Bangladesh more than two decades ago. It constitutes an important part of the banking system of Bangladesh. This report focuses on the performance analysis of the Islamic banks working in Bangladesh. The report contains Eight (8) chapters. The first chapter includes the introductory words of the internship report and about the methodology used in the preparation thereof. The second chapter describes concept of Islamic banking and difference between Islamic and conventional banks. The history of Islamic Banking in Bangladesh and brief knowledge about Islamic Banks in Bangladesh are included in chapter three. The investment mechanism of the Islamic banks, modes of investment, its special schemes are described in chapter four. In chapter five, I have shown some trend analysis on performance on Islamic Banks. For example deposit growth, investment growth, profit trend, NPL of Islamic Banks from 2009-2013. From trend analysis I have found that, the Islamic Banks demonstrated steady growth over the years. Some Ratio analysis for example ROE, ROA, Net investment income to total investment etc also done here to see which Islamic bank performed best in respect of profitability among all the Islamic banks of Bangladesh. I have found here Shahjalal Islami Bank Limited performed best in terms of profitability and Al Arafah Islami Bank Limited had got the 2nd position in this case. In Chapter Six I have shown the comparative analysis of Conventional and Islamic Banks and found here that Islamic Banks performed better in terms of NPL but conventional banks performed better in terms of profitability. In Chapter Seven, I‟ve tried to analyze whether profitability of Islamic banks of Bangladesh depends on the macroeconomic factor and whether there is any relationship between these two. This report also shows whether in most of the cases profitability of Islamic Banks is related with the GDP growth rate of Bangladesh. The concluding chapter bearing number eight contains findings, recommendations and the overall conclusion. During the composition of the report proper care and uninterrupted concentration has been invested. Moreover, containing some unintentional mistake and printing error is not usual. I do hope all to be considered in this regard. 3 | Performance Analysis: A Study on the Islamic Banks of Bangladesh CHAPTER 1: INTRODUCTION 1.1 Origin of the Report Now a day, education is not just limited to books and classrooms. In today‟s world, education is not just a tool to understand the real world and apply knowledge for betterment of the society as well as business. From education the theoretical knowledge is obtained from courses of study, which is only the half way of the subject matter. Practical knowledge has no alternative. The perfect coordination between theory and practice is of paramount importance in the context of the modern business world in order to resolve the dichotomy between these two areas. Therefore, an opportunity is offered by Department of Finance, University of Dhaka, for its potential business graduates to get one and a half months practical experience in a business organization, which is known as “Internship Program. I have been assigned by the department to prepare my internship report on the topic “Profitability Analysis: A study on the Islamic Banks of Bangladesh.” I have prepared the same as the graduation prerequisite of the MBA program. 1.2 Objectives of the Study The key objectives of the study are:   To review the distinctive concepts of Islamic banking  To analyze the history of Islamic banking  Bangladesh To evaluate the current practice and performances of the Islamic banks of To see whether profitability of Islamic banks of Bangladesh depends on the macroeconomic factor and whether there is any relationship between these two. 1.3 Methodology This is a secondary data based report. Information has been collected from various secondary sources like journal articles, annual reports of different banks, books and different websites. All the existing Islamic banks of Bangladesh are included in this study. The first two objectives of the research are subject to be achieved through the secondary data review and the qualitative discussion. Current Islamic banking practices and the performances of different Islamic banks are measured and analyzed from the financial statements of the banks and information from different relevant websites. 4 | Performance Analysis: A Study on the Islamic Banks of Bangladesh Statistical analysis tool SPSS and MS Excel had been used for analysis and graphical presentations 1.4 Limitations and Restrictions of the Report From the beginning to end, the study has been conducted with the intention to making it as a complete and truthful one. However, many problems appeared in the way of conducting the study. During the study it was not possible to visit the whole area covered by the bank although the financial statements and other information regarding the study have been considered. The study considers following limitations:   Lack of in-depth knowledge and analytical ability for writing such report.  The time period for this study was short.  Lack of experience. Another limitation of this report is Bank‟s policy of not disclosing some data & information for obvious reason, which could be very much useful. 5 | Performance Analysis: A Study on the Islamic Banks of Bangladesh CHAPTER 2: REVIEW OF LITERATURE A significant level of development had been observed in Islamic banking research since the last decade. The western analysts and economists demonstrated their emphasis on the interest-free business transactions. These western economists discovered the connection between the interest rates and some key macroeconomic instabilities like- unemployment, inflation or negative growth (Bernante and Gertler, 1990; Fisher, 1933; Greenwald and Stiglitz, 1988; Hayek, 1933 & 1939; Minsky, 1977; Smith,1904; Wicksell, 1935). In different parts of the world, Islamic banking researches had been mostly conducted by Muslims and a small portion by the non-Muslims. The works of Erol and El-Bdour (1989)and Erol et al (1990) revealed three key selection criteria for Islamic banks: fast and efficient services, reputation and confidentiality. According to their findings, religious motivation was not a prime criterion. On the contrary, Metawa and Almossawi (1998) and Naser et al (1999) found loyalty to Islamic belief the primary criterion for selecting Islamic banks in countries like Bahrain and Jordan. Similarly, some other scholars discovered same findings in their studies in Indonesia, Kuwait and Malaysia (Kader 1993 & 1995; Osman et al, 2009; Othman and Owen, 2001 & 2002; Wakhid and Efrita, 2007). A study on a large number of respondents by Dusuki and Abdullah (2006) discovered that Islamic bankers should not only rely on promoting the Islamic factors but also the necessary service quality. The three most important factors found in their study were competence, friendliness and customer service quality. Hanif & Iqbal (2010) categorized Islamic modes of financing objectively in two heads; Sharia compliant and Sharia based. Later, Hanif (2011) discussed these terms used for modes of financing briefly. He explained Sharia compliant products as the modes of financing where return of financier is predetermined and fixed but within Sharia constraints. The tools which are relatively harmonizing the operations of Islamic financial system with conventional banking includes Murabaha (cost plus profit sale), Ijara (a rental arrangement), Bai Salam (spot payment for future delivery), Bai Muajjal (sale on deferred payment), Istasna (order to manufacture) and Diminishing Musharaka (house 6 | Performance Analysis: A Study on the Islamic Banks of Bangladesh financing) are all Sharia compliant products. Sharia based transactions means the financing modes adopted by IFIs on profit and loss sharing basis including Musharaka (partnership in capital) and Mudaraba (partnership of capital and skill). Under Sharia based modes of financing returns of financier are not fixed in advance rather it depends upon the outcome of the project. However loss is to be shared according to capital contribution. Following the rule of substance over form one can conclude that the major difference between conventional and Islamic financing is Sharia based modes of financing. Mahal & Rahman (2013) made a comparative analysis between conventional and Islamic banks of Bangladesh. They discussed the distinctions of product or service and the distinctions in terms of business efficiency between Islamic Banks and Conventional Banks. Their key findings on the product or service differences are about the principles of business, variation in goals, variations in deposit etc. The conventional banks of Bangladesh deal with man-made principles or principles provided by Bangladesh Bank. But Islamic banks follow Shariah based principles under the supervision of BB. Conventional banks currently focusing on the CSR activities but Islamic banks are focusing on the IT development though they also consider the CSR issues. Conventional deposit schemes are like the fixed deposit, savings or short notice deposit and current deposit. The Islamic banks offer through Al-Wadeeah principle and Mudaraba principle. These researchers also discussed the distinctions in terms of business efficiency. Profitability of conventional banks depends on loans and investments both; whereas Islamic banks depends on only investments sectors. Conventional banks have to maintain more SLR19%) than the Islamic banks (10.5%). Islamic banks do not collect deposits through conventional methods rather on the basis of profit & loss sharing notion. 7 | Performance Analysis: A Study on the Islamic Banks of Bangladesh CHAPTER 3: ISLAMIC BANKING 2.1 Genesis of Islamic Banking in Bangladesh Bangladesh is one of the largest Muslim countries in the world. The people of this country are deeply committed to Islamic way of life as enshrined in the Holy Qur‟an and the Sunnah. Naturally, it remains a deep cry in their hearts to fashion and design their economic lives in accordance with the precepts of Islam. Bangladesh is the third largest Muslim country in the world with around 135 million populations of which 90 percent are Muslim. The hope and aspiration of the people to run banking system on the basis of Islamic principle came into reality after the OIC recommendation at its Foreign Ministers meeting in 1978 at Senegal to develop a separate banking system of their own. After 5 years of that declaration, in 1983, Bangladesh established its first Islamic bank. At present, out of 49 banks in Bangladesh, 7 full-fledged Islamic Banks and 19 Islamic Banking branches of 9 conventional banks are working in the private sector on the basis of Islamic Shariah. 2.2 What is Islamic Banking Islamic bank is a financial Institution that operates with the objective to implement and materialize the economic and financial principles of Islam in the banking area. The organization of Islamic conference (OIC) defines an Islamic bank as “a financial institution whose statutes, rules and procedures expressly state its commitment to the principals of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operation.” According Islamic banking Act 1983 of Malaysia Islamic bank is a “company, which carries on Islamic banking business. Islamic banking business means banking business whose aims and operations do not involve any element which is not approved by the religion of Islam.” It appears from the above definitions that Islamic banking is system of financial intermediation that avoids receipt and payment of interest in its transactions and conducts its operations in a way that it helps achieve the objectives of an Islamic economy. Alternatively, this is a banking system whose operation is based on Islamic 8 | Performance Analysis: A Study on the Islamic Banks of Bangladesh principles of transactions of which profit and loss sharing (PLS) is a major feature, ensuring justice and equity in the economy. That is why Islamic banks are often known as PLS banks. 2.3 Why Islamic Banking The objective of Islamic banking is not only to earn profit, but also to do good and welfare to the people. Islam upholds the concept that money, income and property belong to Allah and this wealth is to be used for the good of the society. Islamic banks operate on Islamic principles of profit and loss sharing, strictly avoid interest, which is the root of exploitation and is responsible for large scale information and unemployment. An Islamic bank is committed to do away with disparity and establish justice in the economy, trade, commerce and industry, build socio-economic infrastructure and creating working opportunity. 2.4 Objectives of Islamic Banking The primary objective of establishing Islamic banks all over the world is to promote, foster and develop the application of Islamic principles in the business sector. More specifically, the objectives of Islamic banking when viewed in the context of its role in the economy are listed as following:   To offer contemporary financial services in conformity with Islamic Shariah;  principles of Islamic justice; To contribute towards economic development and prosperity within the Optimum allocation of scarce financial resources; and to help ensure equitable distribution of income. 2.5 Why interest is prohibited in Islamic banking system The word used by the Quran concerning „interest‟ is Riba. The literal meanings of„Riba‟ a re money increase, increase of anything or increment of anything from its original amount (Maududi 1979, p.84). However, all increases are not considered as Riba in Islam. Money may increase in business activities as well. This increase is not at all considered as Riba. Islam prohibits only those increases that are charged on the loan with a prefixed rate. 9 | Performance Analysis: A Study on the Islamic Banks of Bangladesh Interest transfers wealth from the poor to the rich, increasing the inequality in the distribution of income & wealth. Islam stands for cooperation & brotherhood. Interest creates an idle class of people who receive their income from accumulated wealth. The society is deprived of the labor & enterprise of these people. Besides interest on productive loan raises the cost of production, hence the prices of goods increase. The income generated by the process of production in form of wages, profits & profit-share are more equitably distributed. 2.6 Riba (Interest) VS. Profit The differences between riba and profit are as follows: Riba Profit 1. By definition, Riba is the premium paid 1. By definition, profit is the difference by the borrower to the lender along with between the value of production and the principal amount as a condition for the cost of production. loan. 2. Riba is prefixed, and hence there is no 2. Profit is post determined, and hence its uncertainty. amount is not known until the activity is done. 3. Riba cannot be negative, it can at best be 3. Profit can be positive, zero or even very low or zero. negative. 4. From the view point of Islamic Shariah, 4. From Islamic Shariah point of view, it is it is Haram. Halal. 5. Riba is not related with the result of 5. Profit is related with business. business. 2.7 Difference between Islamic & Conventional banking Those who devour usury will not stand except as stand one whom the Evil one by his touch Hath driven to madness. That is because they say: "Trade is like usury," but Allah hath permitted trade and forbidden usury. Those who after receiving direction from their 10 | Performance Analysis: A Study on the Islamic Banks of Bangladesh Lord, desist, shall be pardoned for the past; their case is for Allah (to judge); but those who repeat (The offence) are companions of the Fire: They will abide therein (for ever). [2:275] It‟s clear from the verses of the Holy Quran stated above is that, there is a large distinction between trade and usury and that‟s why Islamic banking system is totally different from conventional banking system. The former is based on trade and investment duly approved by Islamic Shariah and the later is based on usury which is strictly prohibited under Islamic Shariah. The distinction is shown elaborately in the following: Islamic Banking Vs. Conventional Banking One must refrain from making a direct comparison between Islamic banking and conventional banking. This is because they are extremely different in many ways. The key difference is that Islamic Banking is based on Shariah foundation. Thus, all dealing, transaction, business approach, product feature, investment focus, responsibility are derived from the Shariah law, which lead to the significant difference in many part of the operations with as of the conventional The foundation of Islamic bank is based on the Islamic faith and must stay within the limits of Islamic Law or the Shariah in all of its actions and deeds. The original meaning of the Arabic word Shariah is 'the way to the source of life' and is now used to refer to legal system in keeping with the code of behaviour called for by the Holly Qur'an (Koran). Amongst the governing principles of an Islamic bank are :   The absence of interest-based (riba) transactions;  The avoidance of economic activities involving speculation (gharar);  The avoidance of economic activities involving oppression (zulm)  The introduction of an Islamic tax, zakat; The discouragement of the production of goods and services which contradict the Islamic value (haram) On the other hand, conventional banking is essentially based on the debtor-creditor relationship between the depositors and the bank on one hand, and between the borrowers 11 | Performance Analysis: A Study on the Islamic Banks of Bangladesh and the bank on the other. Interest is considered to be the price of credit, reflecting the opportunity cost of money. Islamic law considers a loan to be given or taken, free of charge, to meet any contingency. Thus in Islamic Banking, the creditor should not take advantage of the borrower. When money is lent out on the basis of interest, more often that it leads to some kind of injustice. The first Islamic principle underlying for such kind of transactions is "deal not unjustly, and ye shall not be dealt with unjustly" [2:279] which explain why commercial banking in an Islamic framework is not based on the debtor-creditor relationship. The other principle pertaining to financial transactions in Islam is that there should not be any reward without taking a risk. This principle is applicable to both labor and capital. As no payment is allowed for labor, unless it is applied to work, there is no reward for capital unless it is exposed to business risk. Thus, financial intermediation in an Islamic framework has been developed on the basis of the above-mentioned principles. Consequently financial relationships in Islam have been participatory in nature. Lastly, for the interest of the readers, the unique features of the conventional banking and Islamic banking are shown in terms of a box diagram as shown belowConventional Banking Islamic Banking 1. The functions and operating modes of 1. The functions and operating modes of conventional banks are based manmade principles. on fully Islamic banks are based on the principles of Islamic Shariah. 2. The investor is assured of a predetermined 2. In contrast, it promotes risk sharing rate of interest. between provider of capital (investor) and the user of funds (entrepreneur). 3. It aims at maximizing profit without any 3. It also aims at maximizing profit but restriction. subject to Shariah restrictions. 4. It does not deal with Zakat. 4. In the modern Islamic banking system, it has become one of the service-oriented functions of the Islamic banks to be a Zakat Collection Centre and they also pay out their Zakat. 12 | Performance Analysis: A Study on the Islamic Banks of Bangladesh Conventional Banking Islamic Banking 5. Lending money and getting it back with 5. Participation in partnership business is compounding interest is the fundamental the fundamental function of the Islamic function of the conventional banks. banks. So we have to understand our customer's business very well. 6. It can charge additional money (penalty and 6. The Islamic banks have no provision to compounded interest) in case of defaulters. charge any defaulters. extra Only money small from the amount of compensation and these proceeds is given to charity. Rebates are given for early settlement at the Bank's discretion. 7. Very often it results in the bank's own 7. It gives due importance to the public interest becoming prominent. It makes no interest. Its ultimate aim is to ensure growth effort to ensure growth with equity. 8. For interest-based commercial with equity. banks, 8. For the Islamic banks, it must be based borrowing from the money market is relatively on easier. a Shariah approved underlying transaction. 9. Since income from the advances is fixed, it 9. Since it shares profit and loss, the Islamic gives little importance to developing expertise banks pay greater attention to developing in project appraisal and evaluations. project appraisal and evaluations. 10. The conventional banks give greater 10. The Islamic banks, on the other hand, emphasis on credit-worthiness of the clients. give greater emphasis on the viability of the projects. 11. The status of a conventional bank, in 11. The status of Islamic bank in relation to relation to its clients, is that of creditor and its clients is that of partners, investors and debtors. trader, buyer and seller. 12. A conventional bank has to guarantee all its 12. Islamic bank can only guarantee deposits. deposits for deposit account, which is based on the principle of al-wadiah, thus the depositors are guaranteed repayment of their funds, however if the account is based on the mudarabah concept, client have to share in a loss position.. 13 | Performance Analysis: A Study on the Islamic Banks of Bangladesh In fine, the main difference between Islamic and conventional banking is that Islamic teaching says that money itself has no intrinsic value, and forbids people from profiting by lending it, without accepting a level of risk. wealth can only be generated through legitimate trade and investment. Any gain relating to this trading are shared between the person providing the capital and the person providing the expertise. In Islamic Banking system, bank generates all of their profit through sharia‟a compliant trading and investment activities and profits are shared with their customers at a pre-agreed ratio. 14 | Performance Analysis: A Study on the Islamic Banks of Bangladesh CHAPTER 4: A BRIEF INTRODUCTION OF ISLAMIC BANKS IN BANGLADESH After the independence, banking industry in Bangladesh started its journey with 6 nationalized commercialized banks, 2 State owned specialized banks and 3 Foreign Banks. In the 1980's banking industry achieved significant expansion with the entrance of private banks. Of the 56 scheduled banks 4 currently operating in Bangladesh, 8 are Islamic Shariah based banks . Shariah banks have been operating in Bangladesh for three decades alongside with the traditional banks. Islamic banks have certain similarities to the conventional banking system due to working in a similar financial environment, although in terms of operational risks, the challenges are more complex for Islamic banks owing to their particular contractual and financial transactions. Islami Bank Bangladesh Limited is the first bank that introduced commercial banking based on Islamic Shariah with foreign shareholding in Bangladesh in 1983. Since then Islamic banking has been growing progressively together with the conventional banks. Currently, 7 banks are operating as full-fledged Islamic banks with 750 branches, and 9 conventional banks are offering Islamic banking through setting up of 20 Islamic banking branches and 8 more conventional banks are doing so with 30 Islamic banking windows in agriculture sectors. Islamic Banks Scheduled Banks (Not Islamic Shariah Based) 14% 86% Figure : Portion of Islamic Banks in the Industry The 56 scheduled banks include 39 Private Commercial Banks (PCBs), 4 State Owned Commercial Banks (SOCBs), 4 Specialized Banks (SDBs) and 9 Foreign Commercial Banks (FCBs). These banks operate under full control and supervision of Bangladesh 15 | Performance Analysis: A Study on the Islamic Banks of Bangladesh Bank which is empowered to do o through Bangladesh Bank Order, 1972 and Bank Company Act, 1991. As mentioned earlier, Islami Bank Bangladesh Limited is the first Islamic bank in the country and the last inclusion in the list of slamic banks is the Union Bank Limited, which was incorporated recently (2013). Establishment of slamic banks in Bangladesh had been portrayed here along with their year of Incorporation, listing tatus in stock market and year of listing. Islamic Banks‟ Year of Incorporation and Listing: Name of Bank 1. Islami Bank Bangladesh Limited (IBBL) 2. Al-Arafah Islami Bank Limited (AAIBL) 3. Export Import Bank of Bangladesh Limited Incorporation Status Year of Listing 1983 Listed 1985 1995 Listed 1998 1999 Listed 2004 2001 Listed 2007 1987 Listed 1990 1995 Listed 2000 1999 Listed 2008 (EXIM) 4. Shahjalal Islami Bank Limited (SJIBL) 5. ICB Islamic Bank Limited (ICBIBL) 6. Social Islami Bank Limited (SIBL) 7. First Security Islami Bank Ltd. (FSIB) 8. Union Bank Limited (UBL ) 2013 Now a Brief history of Islamic Banks are given below: 3.1 Background of Al-Arafah Islami Bank Limited The content of this section on the Fatwa & Sharia Supervision board sets out the proper position that the Fatwa & Sharia is Supervision Board, Sharia auditing, the Sharia Supervisor and Sharia supervision procedures in general should occupy in an Islamic Banking institution. The Sharia Supervision procedure is similar to the duty of the Muhtaseb, who gains the power of his role and its efficiency in Islamic society from the extent to which 16 | Performance Analysis: A Study on the Islamic Banks of Bangladesh compliance, efficiency, and support are provided by the Muslim leader and those of equivalent status. Otherwise, the Muslim leader would become nothing more than a trusted adviser who directs to virtue and prohibits wrongdoing. (Whoever believes, it is for that person's benefit, and whoever misbelieves, it is to that person's account) 3.2 Background of Export Import Bank of Bangladesh Limited 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.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. 3.3 Background of ICB Islamic Bank The Bank has been incorporated on April, 1987 as a public limited company under the Companies Act, 1913 to undertake and carry out all kinds of banking, financial and business activities, transactions and operations in strict compliance with the principles of Islamic Law (Shariah) relating to business activities in particular avoiding usury in credit and sales transactions and any practice which amounts to usury. Certificate for commencement of business has been issued to the bank on April, 30, 1987. The Bank has been authorized by the Bangladesh Bank to carry on the banking business in Bangladesh with effect from May 4, 1987. However, actual banking operations commenced on May 20, 1987. 3.4 Background of Islami Bank Bangladesh Limited Islami Bank Bangladesh Limited is a Joint Venture Public Limited Company engaged in commercial banking business based on Islamic Shari'ah with 63.09% foreign shareholding having largest branch network ( total 286 Branches) among the private sector Banks in Bangladesh. It was established on the 13th March 1983 as the first Islamic Bank in the South East Asia.It is listed with Dhaka Stock Exchange Ltd. and Chittagong Stock Exchange Ltd. Authorized Capital of the Bank is Tk. 20,000.00 Million 17 | Performance Analysis: A Study on the Islamic Banks of Bangladesh and Paid-up Capital is Tk. 14,636.28 Million having 33,686 shareholders as on 31st December 2013. 3.5 Background of Shahjalal Islami Bank Limited Shahjalal Islami Bank Limited (SJIBL) commenced its commercial operation in accordance with principle of Islamic Shariah on the 10th May 2001 under the Bank Companies Act, 1991. During last thirteen years SJIBL has diversified its service coverage by opening new branches at different strategically important locations across the country offering various service products both investment & deposit. Islamic Banking, in essence, is not only INTEREST-FREE banking business, it carries deal wise business product thereby generating real income and thus boosting GDP of the economy. Board of Directors enjoys high credential in the business arena of the country, Management Team is strong and supportive equipped with excellent professional knowledge under leadership of a veteran Banker Mr. Farman R. Chowdhury. 3.6 Background of Social Islami Bank Limited The SOCIAL ISLAMI BANK LTD (SIBL), a second-generation bank, operating since 22 November, 1995 based on Shariah Principles, has now 94 branches all over the country with two subsidiary companies - SIBL Securities Ltd. & SIBL Investment Ltd. Targeting poverty, SOCIAL ISLAMI BANK LTD. is indeed a concept of 21st century participatory three sector banking model in one. in the formal sector, it works as an Islamic participatory Commercial Bank with human face approach to credit and banking on the profit and loss sharing: it is a Non-formal banking with informal finance and credit package that empowers and humanizes real poor family and create local income opportunities and discourages internal migration; it is a Development Bank intended to monetize the voluntary sector and management of Waqf, Mosque properties and introducing cash Waqf system for the first time in the history. 18 | Performance Analysis: A Study on the Islamic Banks of Bangladesh CHAPTER 5: INVESTMENT MECHANISM OF ISLAMIC BANKS Investment operation of a Bank is vital importance the greatest share of total revenue is generated from it, maximum risk is centered in it and the very existence of a Bank mostly depends on prudent management of its investment Port-folio. As such, for efficient deployment of mobilized resources in profitable, safe and liquid investments, a sound, well-defined, well-planned and appropriate Investment Policy framework is necessary prerequisite for achieving the goal of the Bank. The special feature of the investment policy of islamic Banks is to invest on the basis of profit-loss sharing system in accordance with the tenets and principles of lslami Shariah. Earning of profit is not the only motive and objective of the Bank‟s investment policy rather emphasis is given in attaining social good and in creating employment opportunities. Objectives and Principles of investment The objectives and principles of investment operations of the Bank are:  To invest fund strictly in accordance with the principles of Islami Shariah.  To diversity its investment portfolio by size of investment, by sectors (public and private) by economic purpose, by securities and by geographical area including industrial, commercial & agricultural.  To ensure mutual benefit both for the Bank and the investment client by professional appraisal of investment proposals, judicious sanction of investment close and constant supervision and monitoring thereof.  To make investment keeping the socio economic requirement of the country in view.  To increase the number of potential investors by making participatory and productive investment. 19 | Performance Analysis: A Study on the Islamic Banks of Bangladesh  To finance various development schemes for poverty alleviation, income and employment generation with a view to accelerate sustainable soico-economic growth and for upliftment of the society.  To invest in the form of goods and commodities rather than give out cash money to the investment clients.  To encourage social up liftman enterprises.  To shun even highly profitable investment in fields forbidden under Islamic Shariah and are harmful for the society.  The Bank extends investments under the principles of Bai-Murabaha, BaiMuazzal, Hire Purchase under Shirkatul Meelk and Mudaraba. Investment Mechanism of Islamic Banks: Bai- Mechanism Share Mechanism Ijara Mechanism 1) Bai-Murabaha 1) Mudaraba 1) Hire Purchase 2) Bai-Muajjal 2) Musharaka 2) HPSM 3) Bai-Salam (Hire Purchase under Shirkatul Istisna‟a A brief description of investment mechanisms of the Islamic Banks Islamic Banks invest its money in various sectors of the economy through different modes permitted by Islamic Shariah and approved by the Bangladesh Bank. The Modes of Investment are as follows: 1) Bai Mechanism  Bai-Murabaha  Bai-Salam  Bai-Muazzal Istishna‟a  Bai-Istishana 20 | Performance Analysis: A Study on the Islamic Banks of Bangladesh 2) Ijara Mechanism   Hire Purchase (HP) Hire Purchase under Shirkatul Melk (HPSM) 3) Shirkat Mechanism   Mudaraba Musharaka Bai-Mechanism Bai-Murabaha Bai- Murabaha may be defined as a contract between a buyer and a seller under which the seller sells certain specific goods (permissible under Islamic Shariah and the law of the land) to the buyer at a cost plus agreed profit payable in cash or on any fixed future data in lump sum or by installments. The marked up profit may be fixed in lump sum or in percentage of the cost price of the goods. Important features:  It is permissible for the client to offer an order to purchase by the bank particular goods deciding its specification and committing him to buy same from the bank  on murabaha, i.e. cost plus agreed upon profit. It is permissible to make the promise binding upon the client to purchase from the bank, that is, he is to satisfy the promise or to indemnify the damages caused by  breaking the promise without excuse.  implementation of the promise or indemnify the damages. It is also permissible to take cash / collateral security to guarantee the Stock availability of goods is a basic condition for signing a Bai-murabaha agreement. Therefore, the bank must purchase the goods as per specification of the client to acquire ownership of the same before signing the Bai-Murabaha  agreement with the Client. After purchase of goods the Bank must bear the risk of goods until those are actually sold and delivered to the Client, i.e., after purchase of the goods by the Bank and before selling of those on Bai-Murabaha to the Client buyer, the bank bear the consequences of any damages or defects, unless there is an agreement 21 | Performance Analysis: A Study on the Islamic Banks of Bangladesh with the Client releasing the bank of the defects, that means, if the goods are damaged, bank is liable, if the goods are defective, (a defect that is not included in  the release) the Bank bears the responsibility.  specified place of delivery as per Contract. The Bank must deliver the specified Goods to the Client on specified date and at The bank shall the goods at a higher price (Cost + {profit) to earn profit. The cost of goods sold and profit markup therewith shall separately and clearly be mentioned in the Bai-Murabaha agreement. The profit Mark-up may be mentioned in lump sum or in percentage of the purchase/cost price of the goods. But, under no circumstance, the percentage of the profit shall have any relation with time or   expressed in relation with time, such as per month, per annum etc. The price once fixed as per agreement and deferred cannot be further increased. It is permissible for the bank to authorize any third party to buy and receive the goods on Bank behalf. The authorization must be in a separated contract. Bai-Muazzal Bai-Muajjal may be defined as a contract between a Buyer and a Seller under which the Seller sells certain specific goods (permissible under Shariah and Law of the Country), to the Buyer at an agreed fixed price payable at a certain fixed future date in lump sum or within a fixed period by fixed instalments. The seller may also sell the goods purchased by him as per order and specification of the Buyer. In this Bank, Bai-Muajjal is treated as a contract between the Bank and the Client under which the Bank sells to the Client certain specified goods, purchased as per order and specification of the Client at an agreed price payable within a fixed future date in lump sum or by fixed instalments. Important features It is permissible for the client to offer an order to purchase by the Bank particular goods deciding its specification and committing him to buy the same from the Bank on BaiMuajjal i.e. deferred payment sale at fixed price.  It is permissible to make the promise binding upon the Client to purchase from the Bank, that is, he is to either satisfy the promise or to indemnify the damages caused by breaking the promise without excuse. 22 | Performance Analysis: A Study on the Islamic Banks of Bangladesh   It is permissible to take cash / collateral security to guarantee the implementation of the promise or to indemnify the damages. It is also permissible to document the debt resulting from Bai-Muajjal by a Guarantor, or a mortgage. Or both like any other debt. Mortgage / Guarantee / Cash security may be obtained prior to the signing of the Agreement or at the time  of signing the Agreement. Stock and availability of goods is a basic condition for signing a Bai-Muajjal Agreement, Therefore, the Bank must purchase the goods as per specification of the Client to acquire ownership of the same before signing the Bai-Muajjal  Agreement with the Client.  actually delivered to the Client.  specified place of delivery as per Contract.  profit.  After purchase of goods the Bank must bear the risk of goods until those are The Bank must deliver the specified Goods to the Client on specified date and at The Bank may sell the goods at a higher price than the purchase price to earn The price once fixed as per agreement and deferred cannot be further increased. The Bank may sell the goods at one agreed price which will include both the cost price and the profit. Unlike Bai-Murabaha, the Bank may not disclose the cost price and the profit mark-up separately to the Client. Bai-Salam Bai-Salam may be defined as a contract between a Buyer and a Seller under which the Seller sells in advance the certain commodity (ies)/ product(s) permissible under Islamic Shariah and the law of the land to the Buyer at an agreed price payable on execution of the said contract and the commodity (ies)/ product(s) is/ are delivered as per specification, size, quality, quantity at a future time in a particular place. In other words, Bai-Salam is a sale whereby the seller undertakes to supply some specific Commodity (ies) /Product(s) to the buyer at a future time in exchange of an advanced price fully paid on the spot. Here the price is paid in cash, but the delivery of the goods is deferred. 23 | Performance Analysis: A Study on the Islamic Banks of Bangladesh Important features  Bai-Salam is a mode of investment allowed by Islamic Shariah in which commodity (ies)/product(s) can be sold without having the said commodity(ies)/  product(s) either in existence or physical/constructive possession of the seller. If The commodity (ies)/product(s) are ready for sale, Bai-Salam is not allowed in Shariah. Then the sale may be done either in Bai-Murabaha or Bai-Muajjal mode  of investment. Generally, Industrial and Agricultural products are purchased/sold in advance under Bai-Salam mode of Investment to infuse finance so that production is not  hindered due to shortage of fund/cash. It is permissible to obtain collateral security from the seller client to secure the investment  from any hazards viz. non-supply/partial supply of commodity(ies)/product(s), supply of low quality commodity(ies)/Product(s) etc. It is also permissible to obtain Mortgage and/or Personal Guarantee from a third party as security before the signing of the Agreement or at the time of signing the Agreement. Bai-Istishna’a A contract between a manufacturer/seller and a buyer under which the manufacturer/seller sells specific product(s) after having manufactured, permissible under Islamic Shariah and Law of the Country after having manufactured at an agreed price payable in advance or by installments within a fixed period or on/within a fixed future date on the basis of the order placed by the buyer. In this contract the buyer is called „AlMustasni‟, the seller „Al-Sani‟ and the goods or the subject matter of the contract „AlMasnoo‟. If the ultimate buyer does not stipulate in the contract that the seller will manufacture the product(s) by himself, then the seller may enter into a second Istisna'a contract in order to fulfil his contractual obligations in the first contract. This new contract is known as Parallel Istisna'a, whereby the obligations of the seller in the first contract are carried out. Istisna’a in Islami Bank Islami Bank can utilize Istisna'a in the following ways: 24 | Performance Analysis: A Study on the Islamic Banks of Bangladesh  Islami Bank may buy a commodity under Istisna'a contract and then sell it on cash or deferred payment basis to a Client of the Bank without receiving prior order  from the Client. Islami Bank in the capacity of a seller may receive order from a Client for manufacturing and supplying certain specified goods under an Istisna'a contract and then enter into a Parallel Istisna'a contract in the capacity of a buyer with a Manufacturer for having the product(s) manufactured by him i.e. the Islami Bank may obtain an order from a buyer to supply goods under the obligations of Islami Bank as a „Seller‟ in the first contract and as a „Buyer‟ in parallel contract are as under:  Islami Bank as a seller in the first contract will remain solely responsible for the execution of its obligations as if the parallel contract is nonexistent. Hence, Islami Bank in the first contract would remain liable for any default, negligence or breach of contract ensuing from the parallel  contract. In the parallel Istisna'a, the Manufacturer is accountable to Islami Bank in the way and manner by which he performs his obligations. He has no  direct legal relationship with the ultimate buyer in the first contract. The second Istisna'a is a parallel contract, but not a contingent transaction on the first contract. Legally speaking they are different contracts with  respect to rights and obligations. The Islami Bank as a seller is liable to the ultimate Buyer with regard to any mal-execution of the sub-contractor and any guarantees arising there from. It is this very liability that justifies the validity of the Parallel Istisna'a and which also justifies the charging of profit by the Islami Bank, if any. Rules and conditions 1. There must be a contract between the Manufacturer and the Buyer, which shall be the principal instrument to govern the advance selling and buying under Istisna‟a. 2. The name, specification, brand, quantity, quality, size, etc. of the Product(s) must be clearly specified in the Contract leaving no ambiguity. 25 | Performance Analysis: A Study on the Islamic Banks of Bangladesh 3. Unit price and total price of the product(s) must be fixed and mentioned in the Contract. 4. The time and place of delivery should be mentioned in the contract. 5. Mode of transportation, transportation cost, storage charge/godown rent, insurance etc., if any, should be specified in the Contract. 6. The name of party who will bear the cost of transportation, storage charge/godown rent, insurance etc. also be mentioned in the contract. 7. The seller shall remain responsible for quantity, quality, and specification of the product(s) till physical/constructive delivery of the same to the buyer. 8. Under Istisna'a transaction advance payment of price of the Product(s) under order is not compulsory. The Buyer may pay the price of the goods in advance in full or part as agreed upon, which should be clearly mentioned in the contract. 9. Remaining price if any, may be paid after receipt of the Product(s) or at any future date(s) or in installments, if so agreed, and mentioned in the contract. 10. After taking delivery of the Product(s), the Buyer shall be the owner and shall bear all risks till disposal / sale of the Product(s). Important features of Istisna’a  Istisna'a is an exceptional mode of investment allowed by Islamic Shariah in which product(s) can be sold without having the same in existence. If the product(s) are ready for sale, Istisna'a is not allowed in Shariah. Then the sale may be done either in Bai-Murabaha or Bai-Muajjal mode of investment. In this mode, deliveries of goods are deferred and payment of price may also be deferred.  It facilitates the manufacturer sometimes to get the price of the goods in advance, which he may use as capital for producing the goods.  It gives the buyer opportunity to pay the price in some future dates or by installments.  It is a binding contract and no party is allowed to cancel the Istisna'a contract after the price is paid and received in full or in part or the manufacturer starts the work.  Istisna'a is specially practiced in Manufacturing and Industrial sectors. However, it can be practiced in agricultural and constructions sectors also. 26 | Performance Analysis: A Study on the Islamic Banks of Bangladesh 2. Ijara Mechanism Hire purchase It is practiced for procurement of goods which are mainly of fixed nature. Here purchaser purchases the assets from the seller by paying the price gradually or in lump sum after the rent period and pay for the assets up until making the full payment. In this type of contract the hire has the full ownership of the goods. The ownership is only transferred to the hirer after the price of the goods is fully paid to the Bank. It means ownership has to be manually transferred in this type of contract. Up until ownership of the assets is transferred the client has to pay a fixed rental to the Bank according to the schedule specified in the contract. Hire Purchase under Shirkatul Melk Hire Purchase under Shirkatul Melk is a Special type of contract which has been developed through practice. Actually, it is a synthesis of three contracts: 1. Shirkat 2. Ijarah; and 3. Sale Shirkat Shirkat means partnership and Shirkatul Melk means share in ownership. When two or more persons supply equity, purchase an asset, own the same jointly, and share the benefit as per agreement and bear the loss in proportion to their respective equity, the contract is called Shirkatul Melk contract. Ijara Ijarah has been defined as a contract between two parties, the Hiree and Hirer where the Hirer enjoys or reaps a specific service or benefit against a specified consideration or rent from the asset owned by the Hiree. Sale Sale is a sale contract against which the buyer gets the ownership of the goods from the seller by paying agreed upon price or by agreeing to pay the price at a later date. 27 | Performance Analysis: A Study on the Islamic Banks of Bangladesh Thus, in Hire Purchase under Shirkatul Melk mode both the Bank and the Client supply equity in equal or unequal proportion for purchase of an asset like land, building, machinery, transports etc. Purchase the asset with that equity money, own the same jointly, share the benefit as per agreement and bear the loss in proportion to their respective equity. The share, part or portion of the asset owned by the Bank is hired out to the Client partner for a fixed rent per unit of time for a fixed period. Lastly the Bank sells and transfers the ownership of its share / part / portion to the Client against payment of price fixed for that part either gradually part by part or in lump sum within the hire period or after the expiry of the hire agreement. 3. Share Mechanism Mudaraba Mudaraba is a partnership in profit whereby one party provides capital and the other party provides skill and labour. The provider of capital is called "Shahib Al-Maal" while the provider of skill and labour is called "Mudarib". So, Mudaraba may be defined as a contract of partnership where the Shahib al-maal provides capital to the Mudarib for investing it in a commercial enterprise by applying his labour and endeavor. Both the parties share the profit as per agreed upon ratio and the losses, if any, being borne by the provider of funds i.e. Shahib al-maal except if it is due to breach of trust i.e. misconduct, negligence or violation of the conditions agreed upon by the Mudarib. If there is any loss incurred due to the reasons mentioned above, the Mudarib becomes liable for that. Musharaka Musharaka may be defined as a contract of partnership between two or more individuals or bodies in which all the partners contribute capital, participate in the management, and share the profit in proportion to their capital or as per pre-agreed ratio and bear the loss, if any, in proportion to their capital/equity ratio. In Islami Bank Bangladesh Limited (IBBL), the Bank may take part in a business with its Client(s), where both the Client(s) and the Bank provide capital in fixed proportions, take part in the management of business and share the profit in proportion to their respective capital ratio or at pre-agreed ratio and bear the loss, if any, in proportion to their respective capital/equity ratio. 28 | Performance Analysis: A Study on the Islamic Banks of Bangladesh CHAPTER 6: PERFORMANCE ANALYSIS AND DISCUSSION 5.1 Amounts of deposit and total asset of Islamic Banks Deposit and total asset 3000 2500 2000 1500 Total deposit 1000 Total asset 500 0 2010 2011 2012 2013 This line chart shows the total deposit & total asset of Islamic banks from year 2010 to year 2013. Both the line has increasing trend. . In FY 2010 the deposit and total asset amount was 617.1 million respectively and reached at1133.60 and 1359 million respectively in five years. 5.2 Amounts of Investments of Islamic Banks Total Investments of Islamic Banks 120000 100000 103959.843 80000 81765.142 70144.548 57426.04 60000 44204.38 32157.94 40000 20000 0 2008 2009 2010 2011 2012 2013 In Islamic banks the investment amount was also increasing every year in these six years. Here it is clear that Islamic banks are extending their business in Bangladesh banking industry. In FY 2009 the investment amount was 44204.38 crore and that reached at 103959.843 crore in five years. 29 | Performance Analysis: A Study on the Islamic Banks of Bangladesh 5.3 Amounts of average investment of Islamic Banks Average of Investments 20000 15000 Ave rage of Inve stm ents 14851.414 10000 11680.73 10020.65 8203.72 5000 6314.91 2098.57 0 2008 2009 2010 2011 2012 2013 An upward increasing trend of average investment amounts of islamic banks from FY 2008 to FY 2013. In 2008 the average investment amount was 2098.57 crore, reached at 6314.91 crore in following year and in 2013 the amount became 14851.41 crore. 5.4 Amounts of Profit of Islamic Banks Profit of Islamic Banks 14000 12000 12321.15 11803.43 10000 11007.71 10084.33 8000 Profit of Islamic Banks 6000 4000 5724.24 2000 0 2009 2010 2011 2012 2013 This line chart shows the profit amount of Islamic banks from year 2009 to year 2013. The line is very fluctuating in every year. In 2010 the profit increased at 11803.43 crore from 5724.24 crore in FY 2009. Again the trend of profit decreased to the amount of 10084.33 crore and in following year this amount showed increased figure of 12321.15 crore. Finally in 2013 the profit reduced at 11007.71 crore. This is not a good sign of performance because stability is not ensured throughout these five years. 30 | Performance Analysis: A Study on the Islamic Banks of Bangladesh 5.5 Average Profit in Islamic Banks Average of Profit of Islamic Banks 2000 1500 1686.20 1760.16 1834.62 2012 2013 1440.62 1000 500 817.75 Aver age of Profi t of Isla mic Bank s 0 2009 2010 2011 From year 2009 to year 2010 the average profit increased 1686.20 crore from 817.75 crore. In 2011 the average amount decreased at 1440.62 crore and increased up to 1834.62 crore in following year 2013. 5.6 Trend of Non-performing investments in Islamic Banks Trend of NPL in Islamic Banks 7000 6000 5731.1 5000 4000 3000 1995.76 1996.66 2000 3797.87 2379.8 Trend of NPL in Islamic Banks 2009.78 1000 0 2008 2009 2010 2011 2012 2013 This line chart shows an up and down trend from FY 2008 to FY 2013. NPL increased from year 2008 to 2009; the figures were 1995.76 crore and 2009.78 crore. In year 2010 NPL amount slightly decreased and reached to 1996.66 crore. However this amount again increased in FY 2011. The amount was 2379.8 crore. In FY 2012 there was a large sharp increase in NPL amount and again a sharp fall in FY 2013. The figures were respectively 5731.10 crore and 3797.87 crore. 31 | Performance Analysis: A Study on the Islamic Banks of Bangladesh In Islamic banks NPL trend is fluctuating from 2008 to 2013. Among these six years the NPL was the highest in FY 2012 and the second highest was in FY 2013; this means that in these two years Islamic banks‟ investment performance was not so good. 5.7 Percentage Increase in NPL of Islamic Banks % increase in NPL of Islamic Banks % NPL 1.4082 0.1919 0.007 -0.3373 2010 -0.0065 2009 2011 2012 2013 From FY 2008 to FY 2009 the NPL increase in percentage was about 0.7 where in year 2010 it decreased to 0 .65 percent. However in FY 2011 the default loan amount increased again to 19.19 percent showing its increase in non-repayment loan. Furthermore in FY 2012 the percentage of NPL increased at 140.82 that were more than 100 percent showing the worst situation in loan performance. In year 2013 that percentage decreased and the figure was 33.73%; this a good sign for Islamic banks performance. 5.8 Total Investment Amount and Total NPL Amount of Islamic Banks Total Investments and Total NPL of Islamic Banks 150000 100000 103959.843 57426.0470144.54881765.142 4 4204.38 32157.94 50000 1995.76 2009.78 1996.66 2379.8 0 5731.1 3797.87 2008 2009 2010 2011 2012 2013 In Islamic banks the investment amount was also increasing every year but the NPL amount was not increasing as like the investment amount in these six years. Here it is clear that islamic banks are extending their business in Bangladesh banking industry. In FY 2009 the investment amount was 44204.38 crore and that reached at 103959.843 crore 32 | Performance Analysis: A Study on the Islamic Banks of Bangladesh in five years. However the NPL amount decreased in FY 2010; the amount was 1996.66 crore but it was 2009.78 crore in FY 2009. Again increased in FY 2011 and in FY 2012; the amounts were 2379.8 crore and 5731.1 crore. However it decreased in FY 2013 and stood at 3797.87 crore. 5.9 Amount of Profit of Islamic Banks and NPL NPL and Profit of Islamic Banks 14000 12000 10000 8000 6000 4000 2000 0 12321.15 11803.43 11007.71 10084.33 5731.1 5724.24 3797.87 2009.78 1996.66 2379.8 2009 2010 2011 2012 NPL of Islamic Banks Profit of Islamic Banks 2013 In 2010 the NPL decreased and profit increased at 1996.66 crore and 11803.43 crore repectively. In the following year 2011 the NPL increased and profit decreased; 2379.8 crore and 10084.33 crore accordingly. In year 2012 those trends were not shown same rather in this year NPL and profit both were high because the loan amount was also very big in that year. The figures were 5731.1 crore and 12321.15 crore respectively in year 2012. However in FY 2013 NPL and profit were both decreased at 3797.87 crore and 11007.71 crore accordingly. 5.10 Financial Statement & Profitability In order to measure the profitability of the Islamic banks of Bangladesh, we use financial statement data to calculate several ratios during the period 2000-2005. In this section, we will use the following ratios: a. Return on equity b. DuPont analysis c. Return on assets d. Net investment income to total investments 33 | Performance Analysis: A Study on the Islamic Banks of Bangladesh a. Return on Equity Return on equity measures how much net income after tax is generated against each 100 Taka of stockholders' equity So. here return actually means net income after tax. AL-ARAFAH ISLAMI BANK 20.05% 343.97% EXIM BANK 19.31% 22.43% 7.30% 59.66% ISLAMI BANK BANGLADESH LTD. 15.47% 27.94% SHAHJALAL ISLAMI BANK LTD. 22.88% 20.04% SOCIAL ISLAMI BANK LTD. 11.23% 35.02% INDUSTRY 16.26% 235.41 FIRST SECURITY ISLAMI BANK Here we see that Shahjalal Islami Bank Ltd.had the best performance in return on equity both from the perspective of average value and lowest volatility . Next Al Arafah Islami Bank has highest return but its volatility is also high. On the other hand First Security Islami Bank has lowest ROE.The whole Islami Banking industry in Bangladesh experienced return on equity of 16.25%. on an average, during 2006-2013 b. DuPont Analysis With the help of DuPont analysis, return on equity will be decomposed and segregated into 3 individual ratios . From DuPont analysis, the most contributing factor in determining return on equity will be identified. Here, 3-factor DuPont will be used. That is, return on equity (ROE) will be decomposed into the following 3 factors:    Profit margin Total asset turnover Financial leverage ( Last Five years average) Name of Bank AL-ARAFAH ISLAMI Net Total Total asset ROE Income/Total Income/total /equity Income Asset 32.61% 5.31% 1174.41% 20.05% 32.22% 5.21% 1130.28% 19.31% BANK EXIM BANK 34 | Performance Analysis: A Study on the Islamic Banks of Bangladesh FIRST BANK 13.43% 2.52% 1958.19% 7.30% ICB BANK -125.93% 2.32% -303.96% 23.20% ISLAMI BANK BD 23.01% 4.70% 1440.21% 15.47% 34.41% 5.09% 1286.17% 22.88% 20.58% 4.31% 1334.15% 11.23% LTD. SHAHJALAL ISLAMI BANK LTD. SOCIAL ISLAMI BANK LTD. 0.170623 AVERAGE From the above table, we have the following findings:   Shahjalal Islami Bank Ltd. had the highest return on equity, which is mostly contributed by its highest profit margin (34.41%). Moreover, AL-ARAFAH ISLAMI BANK had the second highest return on equity, which is  mostly contributed by total asset turnover and financial leverage. The ICB had negative profit margin and its average return on equity becomes positive as it had negative values for both profit margin and financial leverage, the multiplication of these two makes the positive value for return on equity of The ICB Bank Limited. But, actually, ICB bank was in severe loss. So, if we consider the absolute value of the ratio and consider it as representing loss, we will get that The ICB Bank's performance was the worst. c. Return on Assets Return on assets is calculated by dividing net income after taxes with total assets . BANK NAME AL-ARAFAH ISLAMI BANK EXIM BANK FIRST SECURITY ISLAMI BANK ISLAMI BANK BANGLADESH LTD. 35 | Performance Analysis: A Study on the Islamic Banks of Bangladesh ROA 1.76% 1.72% 0.39% 1.08% SHAHJALAL ISLAMI BANK LTD. 1.78% SOCIAL ISLAMI BANK LTD. 1.27% Findings   Here we see that SIBL has highest return on asset which is 1.78% and Al Arafah Bank Ltd. has 2nd highest return on asset . On the other hand First Security Islami Bank has lowest return on asset. d. Net investment income to total investments This is one of the most important ratios to judge the extent of profitability of an Islamic bank .This ratio will show how much net investment income has been generated by investing Tk. 100. Here, the components which determine the net investment income are   Investment income Profit paid on deposits, borrowings etc. To find out net investment income, we have to deduct profit paid on deposits, borrowings etc from the investment income. AL-ARAFAH ISLAMI BANK EXIM BANK FIRST SECURITY BANK ISLAMI BANK BD LTD. SHAHJALAL ISLAMI BANK LTD. SOCIAL ISLAMI BANK LTD. 4% 3% 2% 5% 2% 5% 36 | Performance Analysis: A Study on the Islamic Banks of Bangladesh Islami Bank Bangladesh Limited& Social Investment Bank Limited (SIBL had the highest average ratio (5%) for this period (2006-2013). Al Arafah Islami Bank Ltd had got the second position in this case. From financial & profitability analysis we can conclude that although IBBL ranks 1st position in terms of deposit mobilization and investment of fund but in terms of ROE, ROA and net investment income to total investment income SIBL had got the 1st position and then Al Arafah Bank Ltd had got the 2nd position. 37 | Performance Analysis: A Study on the Islamic Banks of Bangladesh CHAPTER 7: COMPERATIVE ANALYSIS OF CONVENTIONAL AND ISLAMIC BANKS 6.1 The profitability of Islamic Banking in comparison to Conventional Banking Classified Investment (Credits) to Capital Classified Investment (Credits) to Investments Capital Adequacy Ratio Investment (Credit)-Deposit Ratio Non-Profit (Interest) Income to Total Assets Islamic Banking Sector Net-profit (Interest) Income to Total Assets Overall Banking Sector Profit (Interest) Income to Total Assets Net Profit Margin ROE ROA 0 10 20 30 40 50 60 70 80 90 The key profitability indicators such as ROA show that Islamic banks' profitability is lower compared with the overall banking industry. However, that performance is affected by the presence of one problem bank in the Islamic bank category. If that particular problem bank is ignored, then the profitability of Islamic banks as measured by both ROA and ROE is higher compared with the overall banking industry. Islamic banks are having superior performance in generating profit income by efficiently using its assets. Since these banks have less stringent liquidity requirements, their investable fund is relatively large, which helps to generate more profit income compared with conventional banks. During CY13, Islamic banks contributed 16.61 percent of profit to the industry. The profit income to total assets ratio of Islamic banks reached 9.79 percent, which is higher than that of the industry average of 7.74percent. On the other hand, the non-profit 38 | Performance Analysis: A Study on the Islamic Banks of Bangladesh income to total assets ratio was only 1.3 percent as compared with the industrial average of 2.75 percent, representing comparatively lower income from off-balance sheet transactions and service and fee-based incomes. The ROA of the Islamic banking industry is lower at 0.89 compared with the overall banking industry of 0.90 in CY13, indicating a relatively inefficient use of assets by the Shari'ah compliant banks. The relative inefficiency might be due to the outlier values of one problem bank. If one problem bank is excluded from the set of Islamic banks, the other Islamic banks as a whole outperformed the overall banking industry. The ROE of the Islamic banking industry, on the other hand, stands at 11.71 percent, which is higher than that of the overall banking industry ROE of 10.70 percent in CY13, indicating the earnings of Islamic banks were higher compared with their equity position. However, part of it may be due to the negative equity of an Islamic bank which has been operating under the restructuring program of Bangladesh Bank. Non-performing investment, the ratio of classified investment to total investment of Islamic banks, is only 4.2 percent, whereas for the overall banking industry it is 8.9 percent. However, if only domestic private banks are considered then the ratio drops to 4.54 percent which indicates that Islamic banks have only slightly less NPL compared with their closest peer group. Classified investment to total capital for Islamic banks is 39 percent, while it is 59.8 percent for conventional banks. These indicators may show better investment management by the Islamic banks in Bangladesh. 6.2 Market Share of Islamic Banks Although the Islamic banking industry has been growing faster than the conventional banks, Shari'ah banks are still a minor proportion of the total banking sector. Compared with the overall banking industry, the combined share of Islamic banks (excluding Islamic banking branches/windows of conventional banks) is17 percent in assets, 20.7 percent in investments 18 percent in deposits, 15.2 percent in equity and 17.2 percent in liabilities as of end-December 2013. There has been a slight increase in most of the ratios in 2013. Despite the inception of 9 new banks most of which are conventional banks, the Islamic banks increased their market share in the banking industry. 39 | Performance Analysis: A Study on the Islamic Banks of Bangladesh 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 8,000.20 7,321.90 6,294.30 Islamic Bank 1133.6 1359 678.3 102.8 Total Deposit Total Equity Total Asset 1,256.20 All Bank Total Liabilities 6.3 Islamic Banks Liquidity In recognition of the low volume of Shari'ah-compliant SLR eligible instruments available in the marketplace, Bangladesh Bank has generally allowed Islamic banks to maintain concessionary SLR requirements compared with other conventional banks. Islamic banks comply with the SLR requirements of 11.5 percent of their total demand and time liabilities. The Investment-Deposit Ratio (IDR) of full-fledged Islamic banks is 85.1 percent as of end-December 2013, a slight lowering from 86.7 percent at the end December 2012 and somewhat below the recommended maximum level of 90 percent. However, the IDR of the banking industry is 71.18 percent and domestic private commercial banks are 77.72 percent. These figures are low due to a higher SLR requirement for conventional banks. Since there are limited sources of Shari'ah-compliant funds, Islamic banks can borrow funds either from the Islamic inter-bank money market, which came into existence in 2012, or from the "Islamic Investment Bond's Fund" issued by the Bangladesh Government. Since the IDR of Islamic banks are below the recommended maximum level of 90 percent, it can be assessed that no liquidity stress existed in these banks . 40 | Performance Analysis: A Study on the Islamic Banks of Bangladesh 7,000.00 6,000.00 5,000.00 4,000.00 Deposits (Excluding Interbank) 3,000.00 Credits (Excluding Interbank) 2,000.00 IDR% 1,000.00 0.00 Islamic Bank Conventional Bank 6.4 Capital adequacy of Islamic Banks and Conventional Banks Given the minimum capital requirement of 10percent under the Basel- accord for CY13, the significantly higher CARs o8 Islamic banks in the banking sector indicate both the financial strength and ample compliance of The stronger capital base ensures that Islamic banks are well equipped to meet various kinds of shocks, if and when they arise. However, several years ago, one Islamic bank's CAR turned into negative on account of a historical huge cumulative loss and provision shortfall and changes in its ownership within a short span of time. This bank has been operating under a restructuring plan since 2008. It is noteworthy that CAR of Islamic banks other than the problem bank is even more impressive. Among 8 there are 6 banks having CAR more than 11 percent in CY13.minimum capital requirements (MCR). Islamic Banks Capital Adequacy Ratio Below 10% 10% to 11% 11% to 13%  13% Total 1 1 2 4 8 41 | Performance Analysis: A Study on the Islamic Banks of Bangladesh 6.5 NPL of Conventional Banks and Islamic Banks NPL of Conventional and Islamic Banks (in crore) 20000 16500.88 15000 Islamic 10191.57 10000 3609.79 3921.12 4343.52 1995.76 2009.78 1996.66 5157.71 5731.1 5000 0 2008 2009 2010 Convent 3797.87 ional 2379.8 2011 2012 2013 This chart represents the comparison between the amount of NPL in conventional banks and NPL in Islamic banks. This maroon colour line shows the trend of NPL of Islamic banks and blue colour line shows the NPL of conventional banks in Bangladeshi banking industry. In this chart it is shown that the total amount of NPL is higher in conventional banks compare to Islamic banks in Bangladesh. In year 2008 the NPL of conventional banks was 3609.79 crore and 1995.76 crore in Islamic banks. Almost 1,614.03 crore was more in conventional banks. The trend showed same for all next five years of this study. One reason of that is there are more banks in conventional banking system than that of Islamic banking system in Bangladesh. Another reason can be Islamic banks are more efficient in investment functioning than conventional banks; this will be proved by this study‟s other graph. 6.7 Percentage Increase in NPL of Conventional Banks and Islamic Banks % increase in NPL in Conventional and Islamic Banks 1.5 Axis Title 1 0.5 0 -0.5 2009 2010 2011 2012 2013 Islamic 0.007 -0.0065 0.1919 1.4082 -0.3373 Conventional 0.0864 0.1077 0.1874 0.022 -0.3824 42 | Performance Analysis: A Study on the Islamic Banks of Bangladesh To compare the loan performance of conventional and Islamic banks this line chart represents the effective outcomes. Here the NPL growth rate of conventional banks was higher in every year than Islamic banks except in FY 2012. In 2012 NPL growth rate was almost 140.82% in Islamic banks where in conventional banks the NPL growth rate was only 2.2%; there was a huge difference. The growth rate in Islamic banks was higher in FY 2012 because the NPL amount in EXIM Bank Ltd and Islami Bank Bangladesh Ltd were very large expressing their inability in investment efficiency and another reason is that Islamic banks invest their fund as loss and profit sharing basis and also buying and selling basis. Therefore it is clear that there is huge possibility of loss in sharing and trading as there is no certain return as like conventional banks. 6.8 Total Amount of Investment of Islamic Banks and Loan of Conventional Banks Total Investment and Total Loan 250000 200013.8 200000 149528.6 150000 114109.5 103959.843 92177.8 100000 50000 204657.2 175723.9 32157.94 44204.38 57426.04 70144.548 81765.142 0 2008 2009 2010 Total Investments 2011 Total Loan 2012 2013 Here both investment of islamic banks and loan of conventional banks were in increasing trend from year 2008 to year 2013. In FY 2009 the investment amount was 44204.38 crore and the loan amount was 114109.5 crore. These amounts reached at 103959.8 crore and 204657.2 crore respectively within six years. Both types of banks business are running successfully as there are demands of these two types of banks‟ products. 43 | Performance Analysis: A Study on the Islamic Banks of Bangladesh 6.9 Percentage of NPL to Total Loan and Investment % NPL to Total Investment and Loan %NPL to Total Loans %NPL to Total Investments 0.061 0.0392 2008 0.0455 0.0348 0.0339 0.0344 0.029 0.0294 2009 2010 0.0825 0.0701 2011 0.0498 0.0365 2012 2013 In FY 2009 the NPL percentage to Islamic banks‟ total investment was lower than that of conventional banks‟ loan; the percentages were 0.0344 and 0.0455. This scenario was same for the year 2010 and year 2011 that is the percentages of NPL to loan of conventional banks was higher than that of the percentage of NPL to investment of Islamic banks. However this has changed in year 2012 and 2013. The percentages of NPL to loan were 0.0701 and 0.0365 respectively. And the percentages of NPL to investment were 0.0825 and 0.0498. Conventional banks maintained their loans well in 2009, 2010 and 2011 compared to Islamic banks but after 2012 Islamic showed efficiency in managing the investment functions compare to conventional banks. 6.10 Average Loan and Investment Average Loan and Investemnt 16000 14000 12000 10000 8000 6000 4000 2000 0 14851.41 10020.65 11680.73 9745.58 8203.72 6314.91 4189.90 2098.57 2008 5186.79 2009 9091.53 6674.80 2010 6674.79 2011 2012 Average of Loans of Conventi onal Banks Average of Investme nts 2013 Average investments of islamic banks were higher than that of conventional banks. However it was not true in the year of 2008. In 2008 the average loan was 4189.90 crore 44 | Performance Analysis: A Study on the Islamic Banks of Bangladesh in conventional banks and 2098.57 crore of islamic banks. Average loan of conventional banks was 14851.41 crore and average investment was 9745.58 crore in islamic banks. 6. 12 Average Profits of Conventional and Islamic Banks Average Profit of Conventional and Islamic Banks 2210.589545 2500 2000 1337.935455 1500 Average of Profit of Convention al Banks 1960.660909 1760.164286 1834.618333 1686.204286 1512.175714 1440.618571 1263.546364 817.7485714 1000 Average of Profit of Islamic Banks 500 0 2009 2010 2011 2012 2013 Conventional banks earned higher profit in compare with Islamic banks from FY 2009 to FY 2013 except in FY 2012; the average amounts of profits for that year were 1263.55 crore for conventional banks and 1760.16 crore in Islamic banks. As we know that in year 2012 was very vulnerable year for banking industry but it is shown here that Islamic banks are more sustainable in vulnerable conditions. 6.60 Amount of NPL and Profit in Conventional and Islamic Banks NPL and Profit in Conventional and Islamic Banks NPL of Conventional Banks 50000 40000 Profit of Conventional Banks 30000 20000 10000 NPL of Islamic Banks 0 2009 2010 2011 2012 2013 An overall comparison on NPL and profit of conventional and Islamic banks from year 2009 to year 2013. The profit of conventional banks was very high in compared with Islamic banks. In year 2010 the profit of conventional banks was 48632.97 crore where the profit of Islamic banks was 11803.43 crore. This trend is same for almost every year in this line chart. 45 | Performance Analysis: A Study on the Islamic Banks of Bangladesh CHAPTER 8: MICRO-ECONOMIC AND PROFITIBILITY OF ISLAMIC BANKS OF BANGLADESH To see whether there is any relationship between macroeconomic factor and profitability of Islamic banks of Bangladesh here I have used GDP growth rate as a macroeconomic factor and net investment income. For this part of analysis, GDP growth rate has been considered as the independent variable and net investment income has been considered as the dependent variable. Year GDP Net Investment Income 2007 6.63 9208.869 2008 6.43 13135.7 2009 6.19 15511.07 2010 5.74 19829.06 2011 6.01 29302.6 2012 6.71 39632.29 2013 6.32 40387.8 SUMMARY OUTPUT Regression Statistics Multiple R 0.583020008 R Square 0.689232172 Adjusted R 0.191729214 Square Standard Error 13860.07546 7 Observations ANOVA df SS MS F Significance F Regression 1 6666078.062 6666078.1 Residual 5 960508458.2 192101692 Total 6 967174536.2 Coefficients Standard Error t Stat 0.034701 P-value 0.859546 Lower 95% Upper 95% Lower Upper 95.0% 95.0% Intercept -4494.66270 104079.6622 0.0431848 0.967226 -263051 272040 -263051 272040 X Variable 1 3078.463548 16525.87307 0.0218628 0.027955 -39402.6 45559.57 -39402.6 45559.57 46 | Performance Analysis: A Study on the Islamic Banks of Bangladesh After running the simple regression model, we have the following findings: The regression equation is Net Investment Income (NIl) = - 4494 + 3078 GDP GR Interpretations  Net investment income depends on GDP Growth rate (GDP GR) in such a way that for I% increase in GDP growth rate, net investment income by Islamic banks of Bangladesh will be increased by Tk.  3078 million and vice versa. The value of constant shows that if there is no growth in GDP (i.e. GDP GR = 0), then net investment income of the Islamic banks in Bangladesh will  decrease by Tk. -4494 million. From the above table, we see that there is a moderate degree of positive relationship between GDP growth rate and net investment income of Islamic banks. However, after analyzing the "P" values for T-test, we can say that at 97.3% confidence level, we can say that GDP growth rate is a significant explanatory variable in this model. So, finally, we can decide that -Our null hypothesis, Ho : p = 0, is rejected at 97.30% confidence level and there exists correlation between net investment income of Islamic Banks of Bangladesh and GDP growth rate. So, the correlation has not come out by  chance. Value of R-square is 68%. So, 68% of the variations in the net investment income have been explained by GDP growth rate. Only 32% variations in net investment income cannot be explained by the GDP growth rate. From the F-ratio, we can justify our findings. The "P" value of ANOVA shows that this regression model is valid and justified at 97.30% confidence level. So, we can again decide that-Our null hypothesis is rejected at 97.30% confidence level and net investment income of Islamic banks in Bangladesh depends positively on GDP growth rate. 47 | Performance Analysis: A Study on the Islamic Banks of Bangladesh CHAPTER 9: PROBLEMS AND RECOMMENDATIONS PROBLEMS Legal reserve requirement Islamic banks in Bangladesh have to keep 10% of its total deposits as liquidity. Of this, 5% is required to be kept in cash with Bangladesh Bank and the rest 5% is to be kept either in approved securities or in cash (in case of problem with securities) with Bangladesh Bank. Legal reserve requirement for conventional banks is 18%. They have to keep 5% in cash with Bangladesh Bank and the rest 13% is invested in Bangladesh Bank approved securities. Traditional banks can earn interest on their deposits with Bangladesh Bank but Islamic banks cannot since they cannot receive interest as earning. Compared to interest-based traditional banking, Islamic banks, in this case, are in disadvantageous position. Lack of opportunity for profitable use of surplus funds Thel bank can invest their excess liquid amount in approved securities and or in other bank in crisis. Islamic banks cannot take this opportunity due to the existence of interest element in the transaction process. Apprehension of liquidity crisis and possibility of liquidity surplus Islamic banks have always left with a sizeable amount of cash as liquidity surplus. Conventional banks can borrow in the form of call money among themselves even at an exorbitant rate of interest. Capital market investment Conventional banks can invest 30% of their total deposits in shares and securities. Islamic banks have their problem in this case as they avoid any transaction based on interest. Following examples may be cited for illustration. (a) Islamic banks do not purchase shares of companies undertaking interest-based business; (b) Shares of companies taking loan from commercial banks on interest are not also purchased by Islamic banks; and, (c) Islamic banks cannot purchase shares of companies involved in businesses not approved by Shariah. The above restrictive environment in the capital market of Bangladesh has limited substantially the investment opportunities for Islamic banks and hence the 48 | Performance Analysis: A Study on the Islamic Banks of Bangladesh avenues of lawful earning. In the absence of Islamic money and capital market these banks cannot obtain funds from capital market at times of need. Absence of inter-bank money market In spite of five Islamic banks have been functioning in Bangladesh, inter-bank money market within Islamic banks has not yet taken place. These banks can take initiative to form a money market among them. This may help minimising pparticularly the call money problem they are suffering from beginnings. Predominance of Murabaha financing Predominance of Murabaha financing in the portfolio management of investment funds by the present day Islamic banks of Bangladesh has been a hot agenda of debate. One study shows that Islami Bank Bangladesh Limited, Al Arafah Bank and Social Investment Bank Limited have used 54%, 76% and 65% respectively of their investment funds by resorting to Murabaha mode (Hoque 1996, p.9). Murabaha though considered as a Shariah approved mode, the Islamic economists have traditionally prescribed for its limited application. Due to legacy of traditional banking, lack of appropriate legal protection and standard accounting practice in business, Islamic banks in Bangladesh find Murabaha financing as suitable and Mudaraba and Musharaka as difficult to apply. Depression of Profit Traditional banks can meet up loss arising from delay in repayment by the clients through charging compound interest. Islamic banks cannot do that. What it does it realises compensation at the rate of profit. But the compensation so realised is not added to the profit income rather credited to Sadaqa account i.e., amount meant for social welfare activities. This depresses profits of Islamic banks. This may place Islamic banks relatively in weaker position in terms of profitability compared to conventional banks Moreover, Islamic banks are to make a compulsory levy equivalent to 2.5% of its profit earned each year and credited to Sadaqa account, which also depresses banks‟ profitability. This is unlikely the case with conventional banks. RECOMMENDATIONS After observing the operation procedure of Islamic Banking, I recommend the following: 49 | Performance Analysis: A Study on the Islamic Banks of Bangladesh Strong marketing of their products To increase the faith of people, Islamic banks should convince them in the best manner, so that market share can be captured. Marketing division should concentrate more on investment strategy. They have to create the environment where people can understand that the Islamic Bank is not only for Muslims, Non-Muslims can also take the facility of the Islamic Bank. Increase IT Facilities Islamic Banks Recently has developed their iBanking, which is obviously a credit added to their business. They have introduced SMS banking as well as other iBanking facilities. But as they are new in this field they have to increase their manpower efficient in this field. And try to increase their IT facilities like other multinational Banks as they have the superior position in the market in market capital. Ensure Proper Division of Labor In The Desk To ensure proper service, proper division should be maintained. Need Personnel having Business Knowledge Most of the personnel have no business education. So selection of employee from business school can give proper solution. 50 | Performance Analysis: A Study on the Islamic Banks of Bangladesh CONCLUSION Banks play a very vital role in the economic development of the country. The popularity of banks is increasing day by day which leads to increase competition as well. Currently 56 Banks are operated in Bangladesh. All the Commercial banks are offering almost the same products and services. But the way they provide the services are different from each other. Islamic banks are committed to run all its activities as per Islamic Shariah. Most of the Islamic banks are performing well except the unexpected negative profitability of the ICB Islamic Bank of Bangladesh.. The Islamic bankers consider that the Profit Loss Sharing (PLS) principle symbolize the financial advantages for the banks and offers benefits for the economy by causing lower interest stimulated instability. Islamic banks must make prudent investments so that their funds used in the investments are properly used. To achieve this purpose, Islamic banks must ensure proper monitoring and controlling of their investments. . As profitability of the Islamic banks of Bangladesh has a moderate degree of positive correlation with the economic condition of the country, Islamic banks should take contingent measures to maintain the profitability to a consistent level, when they predict the overall slack economic condition of the country. 51 | Performance Analysis: A Study on the Islamic Banks of Bangladesh REFERENCES  Annual Reports of Islami Bank Bangladesh Ltd., Shahjalal Islami Bank Ltd., EXIM Bank, Social Islami Bank Ltd., First Security Islami Bank Ltd., Al Arafah              Islami Bank Ltd. Website of Bangladesh Bank (http://www.bangladesh-bank.org) Website of Islami Bank Bangladesh Ltd. (http://www.islamibankbd.com) http://bankinfobd.com/banks/24/Islami_Bank http://ibtra.com/ http://www.shahfoundationbd.org/hannan/article10.html http://en.wikipedia.org/wiki/Islamic_banking http://www.mib.com.mv/blog/guide-to-islamic-banking/difference-betweenconventional-and-islamic-banking Islami Bank Bangladesh Ltd, Head Office Circulars Broachers published by IBBL on its different investment schemes & activities. Reading Materials of Islami Bank Research and Training Academy (IBTRA) Islami Bank 30 Years of Progress published by Public Relations Department, IBBL. The bankers Almanac: World Ranking, 2011, Reed Business Information, U.K. Islamic Banking Scenario of Bangladesh by Salahuddin Yousuf, Md. Ariful Islam, Md. Rayhan Islam published in Journal of Islamic Banking and FinanceVol. 2, No. 1; March 2014 52 | Performance Analysis: A Study on the Islamic Banks of Bangladesh