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Thoughts on Economics Vol. 18, No.

05

A Comparative Study on Performance Evaluation of Conventional Banks and Islamic Banks in Bangladesh with Special Reference to Islami Bank Bangladesh Limited
Abdullah Al Mahmud1 M. Muzahidul Islam2

Abstract: This paper focuses on the comprehensive comparison about the performance of conventional and Islamic banking system operation in Bangladesh. For this analysis we have used some most commonly used measures such as general business measures, profitability ratios management soundness, social profitability measures. Though, both conventional and Islamic banking have enormous contribution to the economy they have two major functional differences. First one is that whereas the conventional banks follow borrowing and lending mechanisms, the Islamic bank does trading and investment mechanisms and neither accepts nor pays interest in any of its activities. And the other is that the conventional banks provide and receive interest for deposit and advance but Islamic banks are concerned with profit in case of both deposit and investment. We have taken Islami bank Bangladesh Limited as a special reference in this context. For performance comparison, both financial profitability and social profitability aspect of performance have been taken into consideration. The study shows that in spite of a few exceptions in general Islamic banks overall performance was better than the conventional banks. Keyword: NCBs, PCBs, FCBs, SBs, IBs, Profitability, management soundness, general business, social profitability. 1. Introduction 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
1 2

Lecturer, Department of Banking, University of Dhaka, Dhaka-1000. Professor and Chairman, Department of Banking, University of Dhaka, Dhaka-1000.

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A Comparative Study on Performance Evaluation

Islam. The establishment of Islami Bank Bangladesh Limited on March 13, 1983, as the first of its kind in Southeast Asia, was the true reflection of this inner urge of its people. It was both a hope and a challenge to the Islam loving people of the country in general and the pioneers of the Islamic banking movement to make it a success. In the beginning there was some doubt in the minds of many people about the viability as well as the sustainability of the Islamic banking system. But the history of two decades of Islamic banking operation in Bangladesh not only removed this doubt from the minds of the people but also showed how a new banking concept based on Islamic values could so rapidly establish itself as the most modern, dynamic, and popular bank of the country. Within this short span of time the workforce of Islamic banks in Bangladesh in general and Islami Bank Bangladesh Limited, in particular, by their strong commitment and tireless effort have been able to prove the superiority of Islamic banking over conventional banking in every department of banking operations and services. The success of Islamic banks not only gave them enough floors in the field of banking but also encouraged at least one conventional bank to convert fully all its operations on Islamic principles. In our banking industry we have different types of banks with different types of objectives, commitment and modus operandi. The industry is composed of 5 types of banks viz. NCBs, SBs, PCBs, FCBs and IBs. There are 53 scheduled banks (October 2004) in Bangladesh. Of them 4 are nationalized commercial banks, 5 specialized banks, 30 private commercial banks and 12 foreign banks, 1 co-operative bank, and 1 grameen bank .The number of branches of these banks is 6242. Different types of banks give priority to different stakeholders. While the private sector banks are guided primarily by profit motive, NCBs are committed to social and economic considerations. Among private banks, Islamic banks are different as they operate beyond the narrow scope of commercial banking. An Islamic bank is simultaneously a commercial bank, an Investment bank and a development bank. So it is very difficult to find a common and unanimously accepted yardstick to compare the performance of different categories of banks. Bhattacharjee (1989) identified five sets of indicators, such as general business measures, social profitability measures, branch performance measures, employee performance measures, and profitability measures. In this article, we have tried to measure the comparative performances of conventional and Islamic banks operating in Bangladesh. For that purpose we have used some common indicators such as general business

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measures, profitability measures, management soundness measures, and social profitability measures. 2. Objective of the Study The main objective of the paper is to explore the extent to which Islamic banks are ahead of the conventional banks and identify the problem areas of Islami banks as well as their opportunities. The specific objectives of this paper are as follows: 1. angles. 2. 3. 4. To identify the possible reasons for variations in the performance of various categories of banks especially Islamic banks. To compare the performance of Conventional and Islamic Banks. To suggest possible lines of actions to improve the performance of Islamic banks. 3. Methodology The paper identifies the most widely used indicators of bank performance and applies the same to make a thorough examination of various performance dimensions of the banking industry of Bangladesh. The sequential steps are discussed below: 1. 2. 3. 4. Relevant data were collected from various Bangladesh Bank publications, viz., Economic Trends, Scheduled Bank Statistics, Annual Reports of Bangladesh Bank Bangladesh Bank Bulletin. Five major dimensions of performance viz. general business measures, profitability, management soundness and social profitability were analyzed by using appropriate indicators or ratios. A list of the indicators is provided in the appendix. Market share and growth rate of different categories of banks against certain variables were also provided. To measure the performance of cross section of banks from various

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In addition, trend values were calculated to find the absolute changes of the variables and their direction of change. 4. General Business Measures Mobilizing deposits and providing loans/investment are the principal functions of commercial banks. Therefore, general business dimension gives primary focus on these two elements. Deposits are the foundation upon which banks stand and grow. The ability of a bank to attract deposits from individual and businesses is an important measure of the banks acceptance by the public. Growth of loans and advances/investment, on the other hand, is the principal source of income of a bank that ensures the viability and sustainability of the bank. Growth of income is nothing but the outcome of a banks basic operations.
Table 1:Total Deposits By Type of Banks Bank Type NCBs SBs PCBs FCBs IBs Total 2000 42585.86 4615.05 19579.86 5651.92 4687.37 77120.06 2001 46764.43 5395.61 24410.31 6130.53 5947.24 88648.12 2002 50911.8 5925.36 29150.03 6544.56 7997.62 100529.37 2003 52792.39 6309.88 35684.24 7894.56 10756.09 113437.16 (Taka in Crores) 2004 57166.9 7681.42 42568.58 8713.41 15764.76 131895.07 2005 59551.2 8709.42 46911.74 9445.49 16969.11 141586.96

Source: Bangladesh Bank, Scheduled Bank Statistics, (1996-2005)


Deposit by Type of banks
160000 140000 120000 100000 Total Deposits 80000 60000 40000 20000 0 2000 2001 2002 2003 2004 2005 Year

NCBs SBs PCBs FCBs IBs Total

Figure 1

Table 1 shows a steady growth of the total deposit of the IBs. The total deposits of Islamic banks were 4687.37 million in 2000 that increased to 16969.11 million in 2005 showing a growth of almost 400% within 5 years time. The

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possible reason for aggregate Deposit of NCBs to be higher than SB, PCB, FCB and IB was its vast network and huge number of branches.
Table 2: Market Share of Deposit By Type of Banks (percent) Bank Type NCBs SBs PCBs FCBs IBs Total 2000 55.22 5.98 25.39 7.33 6.08 100 2001 52.75 6.09 27.54 6.92 6.71 100 2002 50.64 5.89 29.00 6.51 7.96 100 2003 46.54 5.56 31.46 6.96 9.48 100 2004 43.34 5.82 32.27 6.61 11.95 100 2005 42.06 6.15 33.13 6.67 11.98 100

Market Share of Deposits by type of Banks


60.00 DM e ar p ke ot si Sh ts ar e of 50.00 40.00 30.00 20.00 10.00 0.00 2000 2001 2002 2003 2004 2005 Year NCBs SBs PCBs FCBs IBs

Figure 2

Table 2 indicates that the market share of deposit by the NCBs has been decreasing over the years. It came down from 55.2% in 2000 to 46.02% in 2005. Market share of deposit by Special Banks were almost unchanged while that of Foreign Commercial Banks were down during the same period. On the other hand, during the same period the market share of Islamic banks went up from 6.08% in 2000 to 11.98% in 2005.
Table 3: Growth of Deposit by Type of Banks (Percent) Bank Type NCBs SBs PCBs 2001 9.81 16.91 24.67 2002 8.87 9.82 19.42 2003 3.69 6.49 22.42 2004 8.29 21.74 19.29 2005 4.17 13.38 10.20 Average rate of Growth 6.96 13.66 19.2

30 FCBs IBs Total 8.47 26.88 86.74

A Comparative Study on Performance Evaluation 6.75 34.48 79.33 20.63 34.49 87.72 10.37 46.57 106.25 8.40 7.64 43.80 10.92 30.01 80.76

Growth of Deposit by type of Banks


50.00 Growth of Deposits 40.00 30.00 20.00 10.00 0.00 2000 2001 2002 2003 2004 2005 NCB's SB's PCB's FCB's IB's Year

Figure 3

Table 3 indicates that the growth rate of deposit of the IBs was the highest of all categories of banks. The average growth of deposit for the period under study for NCBs, SBs, PCBs, FCBs, and IBs was 6.96, 13.66, 19.2, 10.92 and 30.01 percent, respectively. This is a clear indication of how trustworthy the Islamic banks are to the depositors of the country. In this connection it is worth mentioning that the growth of deposits of conventional banks relates to both primary deposits and derivative deposits while the growth of deposits in Islamic banks is based mostly on primary deposits, which is very much significant in terms of stability in the price level. While conventional banks expand their deposits by sanctioning loans and advances, Islamic banks for investment purpose depends mostly on trading mode which create little scope for creating derivative deposits.
Table 4: Total Advances/Investment By Type of Banks
Bank Type NCBs SBs PCBs FCBs IBs Total 2000 29795.4 10206.06 15371.16 3502.59 4297.05 63172.26 2001 32772.85 10827.64 19748.07 3776.65 5623.87 72749.08 2002 35586.42 10921.64 24112.13 5092.13 7318.51 83030.83 2003 36168.46 9962.97 28037.03 6163.77 9204.47 89536.7

(Taka in Crores)
2004 38108.89 10795.33 32895.81 6905.16 13731.62 102436.81 2005 40245.8 10637.37 37388.08 7819.82 15641.12 111732.19

Source: Bangladesh Bank , Scheduled Bank Statistics, (1996-2005)

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Advances by type of Banks


120000 100000 Adv ance s 80000 60000 40000 20000 0 2000 2001 2002 2003 2004 2005 Year NCBs SBs PCBs FCBs IBs Total

Figure 4

Table 4 shows a spectacular growth of the total investment of the IBs. The aggregate investment of all Islamic banks were 4297.05 million in 2000 that increased to 15641.12 million in 2005 showing an increase by 364% within a short span of 5 years. During the same period the aggregate deposits of the NCBs, SBs, PCBs and FCBs increased by 35%, 04%, 143% and 123%, respectively.
Table 5: Market Share of Advances /Investment by Type of Banks (percent) Bank Type 2000 2001 2002 2003 2004 2005 NCBs 47.17 45.05 42.86 40.40 37.20 36.02 SBs 16.16 14.88 13.15 11.13 10.54 9.52 PCBs 24.33 27.15 29.04 31.31 32.11 33.46 FCBs 5.54 5.19 6.13 6.88 6.74 7.00 IBs 6.80 7.73 8.81 10.28 13.40 14.00 Total 100 100 100 100 100 100
Market share of Total Advances
50.00 40.00 30.00 NCBs SBs PCBs FCBs IBs 2000 2001 2002 2003 2004 2005 Year

T ot al A dv an ce s

20.00 10.00 0.00

Figure 5

Table 5 indicates that market share of advances by the NCB has been decreasing over the years. It came down from 47.17% in 2000 to 36.02% in 2005. Market share of deposit by specialized banks also came down from 16.16% to 9.52%. FCBs and PCBs also registered their growth of market share from 5.52% to 7.00% and 24.33% to 33.46%, respectively. But during the period under study

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A Comparative Study on Performance Evaluation

Islamic banks altogether grabbed the market share of deposit quite significantly from 6.80% in 2000 to 14% in 2005.
Bank Type NCBs SBs PCBs FCBs IBs Total Table 6: Growth of Advances/Investment by Type of Banks (percent) Avg. rate 2001 2002 2003 2004 2005 of growth 9.99 8.59 1.64 5.36 5.61 7.44 6.09 0.87 -8.78 8.35 -1.46 1.02 28.47 22.10 16.28 17.33 13.66 19.57 7.82 34.83 21.05 12.03 13.25 17.8 30.88 30.13 25.77 49.18 13.91 29.98 83.26 96.52 55.95 92.26 44.95 74.59
Growth of Advances by type of Banks
50.00 40.00 Growth of advances 30.00 20.00 10.00 0.00 -10.00 1 2 3 4 Year 5 6 7 NCBs SBs PCBs FCBs IBs

Figure 6 Table 6 indicates that the growth rate of advances of the IBs was the highest of all categories of banks. The average growth of advances for the period under study for NCBs, SBs, PCBs, FCBs, and IBs were 7.44%, 1.02%, 19.57%,17.8% and 29.98%, respectively. This growth rate of advance (29.98%) is very close to their deposit growth rate (30.01%), which is a clear indication of how efficiently and effectively the Islamic Banks can invest their funds for the development of business and industry.
Table 7: Total Business (Deposits + Advances) by Type of Banks (Taka in Crores) Bank Type 2000 2001 2002 2003 2004 2005 NCBs 72381.26 79537.28 86498.22 88960.85 95275.79 99797 SBs 14821.11 16223.25 16847 16272.85 18476.75 19346.79 PCBs 34951.02 44158.38 53262.16 63721.27 75464.39 84299.82 FCBs 9154.51 9907.18 11636.69 14058.33 15618.57 17265.31 IBs 8984.42 11571.11 15316.13 19960.56 29496.38 32610.23 Total 140292.32 161397.2 183560.2 202973.86 234331.88 253319.15

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Total Business by type of Banks


100000 Tota l Busi ness 80000 60000 40000 20000 0 2000 2001 2002 2003 2004 2005 Year NCBs SBs PCBs FCBs IBs

Figure 7

In figure 7, we notice that total business of NCBs is higher than any other type of banks, which was reasonably expected because of their vast network. PCBs closely move with NCBs in the later part of the period under study. The condition of Islamic banks was relatively better than PCBs and FCBs.
Table 8: Market Share of Total Business by Type of Banks (percent) Bank Type 2000 2001 2002 2003 2004 2005 NCBs 51.59 49.28 47.12 43.83 40.66 39.40 SBs 10.56 10.05 9.18 8.02 7.88 7.64 PCBs 24.91 27.36 29.02 31.39 32.20 33.28 FCBs 6.53 6.14 6.34 6.93 6.67 6.82 IBs 6.40 7.17 8.34 9.83 12.59 12.87 Total 100 100 100 100 100 100
Market Share of Total Business by type of banks
60.00 Tota l Mark et Busi Shar ness e of 50.00 40.00 30.00 20.00 10.00 0.00 2000 2001 2002 Year 2003 2004 2005 NCBs SBs PCBs FCBs IBs

Figure 8

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A Comparative Study on Performance Evaluation

Table 8 shows that the market share of total business by the NCBs has been decreasing over the years. It came down from 51.59% in 2000 to 39.40% in 2005. Market share of deposit by FCBs was almost unchanged while that of SBs was down during the period under study. On the other hand during the same period the market share of total business by Islamic banks went up from 6.40% in 2000 to 12.87% in 2005.
Table 9: Growth of Total Business by Type of Banks (percent) Bank Type NCBs SBs PCBs FCBs IBs Total 2001 9.89 9.46 26.34 8.22 28.79 82.70 2002 8.75 3.84 20.62 17.46 32.37 83.04 2003 2.85 -3.41 19.64 20.81 30.32 70.21 2004 7.10 13.54 18.43 11.10 47.77 97.94 2005 4.75 4.71 11.71 10.54 10.56 42.26 Average rate of growth 6.67 5.63 19.35 13.63 29.96 75.23

Growth of Total Business by type of banks


50.00 40.00 Gro wth of Tota l Busi ness 30.00 20.00 10.00 0.00 -10.00 2000 2001 2002 2003 2004 2005 NCBs SBs PCBs FCBs IBs Year

Figure 9

Table 9 indicates that during the period under study the growth rate of total business of the IBs was the highest of all categories of banks. The average growth rate of total business for the period under study for NCBs, SBs, PCBs, FCBs, and IBs were 6.67%, 5.63%, 19.35%, 13.63% and 29.96%, respectively.
Bank Type NCBs SBs PCBs Table 10: Total Income By Type of Banks (Taka in Crores) 2000 2001 2002 2003 2004 3726.27 3878.16 3665.52 4165.22 4046.13 598.45 820.34 636.39 738.53 695.92 2789.22 3715.6 4557 4506.25 5277 2005 2343.6 665.3 3654.9

Thoughts on Economics FCBs 967.5 1068.91 1061.9 772.93 IBs 478.4 605.4 464 1415.2 Total 8559.84 10088.41 10384.81 11598.13 Source: Economic Trends, Bangladesh Bank (2000-2005)
Total Income by type of Banks
6000 5000 4000 Tota l Inco me 3000 2000 1000 0 2000 2001 2002 2003 2004 2005 Year NCBs SBs PCBs FCBs IBs

35 997.58 1939 12955.63 787.6 1174.6 8626

Figure 10

In figure 10 we find that total income of PCBs and IBs are relatively higher in the latest year. NCBs total income was higher in the past but shown a declining trend in recent years. FCBs are also showing a declining trend of total income. 5. Profitability Measures Profitability is an important index of operational efficiency of an organization. Analysis of profitability of an enterprise provides an insight into the effectiveness in utilization of funds in the enterprise and also managerial efficiency. Because of shortage of space we have used only one indicator to measure the profitability performance.
Table 11: Return On Assets (ROA) By Type of Banks (Percent) Bank Type NCBs SBs PCBs FCBs IBs Total 2001 0.06 0.67 1.12 2.8 1.57 0.69 2002 0.1 0.33 0.75 2.36 1.95 0.52 2003 0.1 0 0.7 2.6 1.25 0.5 2004 -0.1 -0.2 1.2 3.2 1.34 0.7

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R eturn on Assets by type of Banks


3.5 3 2.5 2 ROA 1.5 1 0.5 0 -0.5

NCB's S B's P CB's FCB's IB 's 2001 2002 Ye a r 2003 2004

Figure 11

Table 11 shows that SBs and NCBs have a very negligible return on assets. In recent time they have negative ROA. The ROA of FCBs is higher than any other bank. IBs and PCBs have a moderate but consistent return on assets that indicate their efficient management of fund. 6. Management Soundness Measures 6.1 Ratio of Total Expenditure to Total Income
Table 12:Total Expenditure to Total Income ratio By Type of Banks Bank Type NCBs SBs PCBs FCBs IBs Total 2000 0.95 1.28 0.74 0.57 0.83 0.85 2001 0.96 0.90 0.71 0.55 0.80 0.81 2002 0.93 1.18 0.80 0.54 0.64 0.83 2003 0.93 1.04 0.74 0.33 0.86 0.81 2004 0.92 1.12 0.67 0.34 0.87 0.78 2005 0.93 1.22 0.73 0.47 0.75 0.80

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Expenditure-Income Ratio by type of banks


1.40 Expenditure-Income Ratio 1.20 1.00 0.80 0.60 0.40 0.20 0.00 NCB's SB's PCB's FCB's IB's 2000 2001 2002 2003 2004 2005 Year

Figure 12

In Table 12 we see that both IBs and PCBs have a favorable incomeexpenditure ratio whereas NCBs and SBs have higher expenditure than income causing accumulated loss and creating burden for the national economy. The expenditure-income ratio of FCBs is comparatively lower that indicates their high profit margin and less commitment to the people and the economy. 7. Social Profitability Measures Social Profitability implies the contribution of a bank to the society. NCBs are mainly guided by social considerations. It constitutes an integral part of performance dynamics. Creation of employment, expansion of branches etc are the key indicators of social profitability measures.
Table 13: Market Share of Branches By Type of Banks Bank Type NCBs SBs 2000 58.96 19.82 2001 58.33 19.67 2002 55.90 21.02 (percent) 2003 54.71 21.16 2004 54.14 21.22 2005 53.62 21.11

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PCBs FCBs IBs Total

17.81 0.56 2.84 100

18.42 0.53 3.04 100

19.32 0.50 3.26 100

19.29 0.52 4.32 100

19.54 0.59 4.51 100

20.16 0.62 4.48 100

Market Share of total Branch by type of Banks


60.00 M ar ke t sh ar e 50.00 40.00 30.00 20.00 10.00 0.00 2000 2001 2002 2003 2004 2005 NCBs SBs PCBs FCBs IBs Year

Figure 13

Table 13 shows that the numbers of Branches of NCBs have a declining trend. SBs, FCBs and PCBs have an increasing trend in the market share of number of branches but the market share of Islamic banks increased quite significantly from 2.84% in 2000 to 4.48% in 2005.
Table 14: Total Employment By Type of Banks 2000 2001 2002 2003 2004 62091 61325 60169 58629 57894 16036 16164 16475 15837 15300 22072 23521 23279 25980 26640 1280 1588 1305 1409 1508 3903 4547 5057 6596 7440 105382 107145 106285 108451 108782

Bank Type NCBs SBs PCBs FCBs IBs Total

2005 56797 15153 20367 1776 7907 102000

Source: Economic Trends, Bangladesh Bank (1996-2005)

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Total Employment by Type of Banks


70000 Tota l Emp loye e 60000 50000 40000 30000 20000 10000 0 2000 2001 2002 2003 2004 2005 Year NCBs SBs PCBs FCBs IBs

Figure 14

Table 14 shows a declining trend in the number of employees of NCBs, PCBs and SBs over the period under study. FCBs have an increase in the number of employment during 2000-2005 by 39% while IBs got the highest increase of employment (51%) during the same period.
Table 15: Rural Branches to Total Branches ratio By Type of Banks Bank Type 2000 2001 2002 2003 2004 NCBs 62.97 62.98 62.30 63.20 63.37 SBs 87.63 87.75 88.55 88.58 88.63 PCBs 25.60 25.81 25.83 26.21 26.74 FCBs 0.00 0.00 0.00 0.00 0.00 IBs 25.86 25.53 25.62 25.75 25.89 Total 59.80 59.53 59.27 59.49 59.51
Rural Branches to Total Branches by type of Banks
100.00 R ati o 80.00 60.00 40.00 20.00 0.00 2000 2001 2002 2003 2004 2005 NCBs SBs PCBs FCBs IBs

2005 63.37 88.68 25.82 0.00 25.80 59.07

Year

Figure 15

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A Comparative Study on Performance Evaluation

Table 15 shows that NCBs and SBs are still dominant in maintaining rural branches. FCBs do not have any rural branch. IBs and PCBs on the other hand have almost identical record of maintaining rural branches in comparison to their urban branches. 8. A Close Look at the strength and performance of Islami Bank Bangladesh Limited (IBBL) Undoubtedly Islami Bank Bangladesh Limited has remained at the top of all Islamic banks working in Bangladesh. In every department the IBBL is incomparable to any other Islamic bank in the country. In fact the IBBL is one of the leading banks of country. It needs a separate study to evaluate the overall performance of the IBBL. In this article we shall concentrates on a very limited aspect of its operational performances.
Table 16: Growth of Equity of the IBBL (2001-2005) Taka in crore
SL. No. Particulars 2001 2002 Growth over 2001 2003 Growth over 2002 200.00% 200.00% 15.02% 48.75% -2004 Growth over 2003 -20.00% 31.99% 27.05% -2005 Growth over 2004 66.67% 20.00% 25.89% 24.51% --

1 2 3 4 5

Authorized Capital Paid-up Capital Reserves Total Equity Equity (% To risk Weighted assets)

1,000.00 640 1998.04 2993.24 9.24%

1000 640 2852.07 3540.52 8.64% 42.74% 18.28%

3000 1920 3280.37 5266.47 9.43%

3000 2304 4329.92 6691.11 9.21%

5000 2764.8 5450.94 8331.14 9.44%

Table 16 shows the overall growth of equity of IBBL during 2001-2005. The paid up capital of IBBL has significantly increased in 2003. The same thing happened in the year 2004 and 2005. The reserves of IBBL is in increasing trend but in 2002 and 2004 its growth rate is significant which is 42.74% and 31.99%, respectively. So the total equity of IBBL is also increasing which is shown by the increasing growth rate in 2003 which is 48.75%.

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Table 17: Growth of Deposits of the IBBL (2001-2005) Taka in crore


Sl. No. Particulars 2001 2002 Growth over 2001 2003 Growth over 2002 2004 Growth over 2003 2005 Growth over 2004

1 2

Total Deposit % of Total Deposit of Banking Sector Total Investments (Gross) % of Total Investment of Banking Sector Over Due Amount % of Total investment Classified Investment % of Total investment

41732 4.23%

56246.4 5.03%

34.78%

70552.7 6.02%

25.44% --

88452.2 6.30%

25.37% --

108261 6.67%

22.39% --

37648.6

49185.9

30.64%

62755.9

27.59%

83893.6

33.68%

102145

21.75%

4.43%

4.92%

5.69%

--

6.57%

--

6.67%

--

5 6 7 8

2235.74 5.94% 3126.63 8.30%

2997.84

34.09%

3294.64 5.25%

9.90% -28.75% --

3597.66 4.29% 5247.95 6.26%

9.20% -9.25% --

3097.75 3.03% 3047.05 2.98%

-13.90% --41.94% --

6.09%

3730.75

19.32%

4803.41 7.65%

7.58%

Table 17 shows the growth of deposit of IBBL during 2001-2005. The growth of deposit of IBBL is significant because of increase in confidence of people in Islamic banking. IBBL also efficiently utilize its deposit in different investment purpose which has been shown by the table 17.
Table 18: Growth of Inward Remittance through the IBBL (2001-2005) Taka in crore
SL. No. 1 2 3 4 Particulars 2001 2002 Growth over 2001 30.42% 3.67% 48.50% 25.57% 2003 Growth over 2002 36.84% 30.38% 13.62% 29.96% 2004 Growth over 2003 29.34% 34.29% 42.00% 33.11% 2005 Growth over 2004 24.62% 23.90% 56.10% 31.05%

Import Export Remittance Total Foreign Exchange Business

25907 16082 9879 51868

33788 16673 14670 65131

46273 21738 16668 84643

59804 29192 23669 112665

74525 36169 36948 147642

Table 18 shows the growth of inward remittances through the IBBL during 2001-2005. The growth was significant in 2004 and 2005 which are 42% and

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A Comparative Study on Performance Evaluation

56.10%, respectively. Because of this increasing rate of growth the total foreign exchange business of IBBL is also is in increasing trend.
Table 19: Growth of Income and Expenditures of the IBBL (2001-2005) Taka in crore
Sl. No. Particulars 2001 2002 Growth over 2001
14.49% -6.79%

2003

Growth over 2002


34.69% 36.36%

2004

Growth over 2003


22.17% 20.26%

2005

Growth over 2004

1 2

Total Income Total Expenditure Operating Profit

4259.55 3683.43

4876.73 3433.28

6568.63 4681.68

8024.62 5630.24

10401 7479.66

29.61% 32.85%

1710.84

1443.45

-15.63%

1886.95

30.72%

2394.38

26.89%

2921.42

17.33%

4 5

Net Profit Dividend (%)

576.12 25%

994.05 25%

72.54% --

802.02 20%

-19.32% --

1842.99 20%

129.79% --

2162.42 25%

17.33% --

Table 19 shows the growth of income and expenditure of IBBL during 20012005. The expenditure of IBBL decreased significantly in 2001 which is 6.79%. Because of this the net profit increased to 576.12 million in 2001.
Table 20: Growth of the IBBL in terms of Social Profitability (2001-2005) Taka in crore
Sl. No. Particulars 2001 2002 Growth over 2001 10.91% 2003 Growth over 2002 9.98% 2004 Growth over 2003 13.55% 2005 Growth over 2004

Number of employees (i+ii) i) Regular Employees ii) RDS and others Avg. Employee per Branch

3831

4249

4673

5306

6202

16.89%

2 3 4

3060 771 32

3297 952 633

7.75% 23.48% 3.13%

3752 921 33

13.80% -3.265 -

4261 1045 35

13.57% 13.46% 6.06%

4906 1296 37

15.14% 24.02% 5.71%

Table 20 shows the growth rate of the IBBL in terms of social profitability during 2001-2005. the growth of employees is increasing during 2002 to 2004 which indicates that IBBL creates the employment opportunity in the country significantly.

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Table 21: Growth of Rural Development Scheme of the IBBL (2001-2005) Taka in crore
Sl. No. Particulars 2001 2002 Growt h over 2001
11.73%

2003

Growth over 2002


13.80%

2004

Growth over 2003


18.27%

2005

Growth over 2004

RDS: Amount of Investment (disbursed) RDS: Amount of Investment (Outstanding) RDS: No. of Accounts RDS: No. of Villages

1323.87

2029.67

223954

264863

297943

43.08%

371.1

432.06

16.43%

570.88

32.13%

789.97

38.38%

1106.47

40.06%

3 4

100470 2214

107225 2875

6.72% 29.86%

130465 3700

21.67% 28.70%

163465 4230

25.29% 14.32%

217445 4560

33.02% 7.80%

The above analysis clearly shows that during the period under study the Islamic banks in Bangladesh in general and the IBBL in particular was growing in respect of most of the indicators of banking performance analysis. It was possible partly because of the full commitment and sincere effort both of management and employees of Islamic banks and partly because of the huge friendly and motivated customer of Islamic banking system. The goodwill of the Islamic banks was the cause of headache to a section the people and the media. Very recently the admirers of Islamic banking system have noticed a wellorchestrated negative publicity against the Islamic banking system by a section of media both at home and abroad. But Alhamdulillah, it was a great surprise to both friends and foes of the Islamic banking system that in spite of all negative publicity the Islamic banks in Bangladesh are continuing to gain in every aspect. In particular, in the almost dead share market of Bangladesh where most of the companies are struggling for existence, the share prices of Islamic banks were affected very little. Maximization of the value of the company is considered as the best goal of a company. In that sense the Islamic banks have been an all time success story in the history of banking in Bangladesh. The shareholders of the Islamic banks never faced any debacle, not even during the 1996 crisis. 9. The Problem Area Identification, Conclusion and Recommendation The biggest problem area for Islamic banks in general and the IBBL in particular is the failure to implement the Islamic modes of investment in its truest sense. As depicted in the study, most of the Islamic banks at home and abroad are scared to go for profit sharing and profit and loss sharing modes of investment. On the other hand, most of the trading modes like Bai-Murabaha, Bai-Muajjal etc are lacking the fulfillment of all conditions of the shariah. In this connection a famous statement of Dr. Nejatullah Siddiqui is worth

44

A Comparative Study on Performance Evaluation

mentioning. He wrote, We can not claim, for an alternative to interest system which is not based on sharing, the superiority of which could be claimed on the basis of profit-sharing. What is worse, if the alternative in practice is built around predetermined rates of return to investible funds supplied to finance trade, industry, agriculture etc. it will be exposed to the same criticism which was directed to interest as a fixed charge on capital. It so happens that the returns to finance provided in the modes of finance based on murabaha, baisalam, leasing and lending with a service charge, are all predetermined like interest. Some of these modes of finance are said to be exposed to some risk, but all these risks are insurable and are actually insured against. The uncertainty to which the business being so financed is exposed is, duly passed over to the other party. A financial system built solely around these modes of financing can hardly claim superiority over an interest based system on grounds of equity, efficiency, stability and growth. We are happy to learn that the IBBL authority has taken a decision to increase investment in Musharakah and Mudarabah modes. We will further expect from the Islamic banking legends, specially the central Shariah Council, to take necessary steps so that compliance of shariah is ensured at the branch level of all the Islamic banks in all modes of investment. REFERENCES 1. 2. 3. 4. 5. Bangladesh Bank, Annual Report: 2004-2005. Statistics Department, Bangladesh Bank, Dhaka. Bangladesh Bank, Economic Trends, various issues, Statistics Department, Bangladesh Bank, Dhaka. Bangladesh Bank, Quarterly publication of Scheduled Banks Statistics, various issues, Statistics Department, Bangladesh Bank, Dhaka. Functions of Banks and other Financial Institutions, Finance Ministry Barai M.K .and M. Liakat Hossain, Financial Globalization: Banking sector in Bangladesh. Working paper, presented on March 7, 2002, TSC Auditorium, University of Dhaka. Bhattacharjee, D. and S.K. Saha, An Evaluation of performance of NCBs, Bangladesh Bank Parikrama, Vol. XIV, No.1 and 2, March and June 1989. Bhattacharjee, D. and M.S Islam, Profit and Profitability of NCBs in Bangladesh: An Analysis of the Dynamics and Casual Relation. Journal of the Institute of Bank Management, Vol.9, June1988.

6.

7.

Thoughts on Economics

45

8.

Bhattacharjee, D. Productivity Measurement of Nationalized Commercial Banks of Bangladesh: A Multivariate Analysis, the Dhaka University Studies, Part-C, Vol.XII, No.1, June1991. Bhuiyan M. H., Managerial Effectiveness of Private Commercial Banks: A Comparative Study, Journal of Business Studies, Dhaka University, Vol. XVI, No.1, 1995.

9.

10. Chowdhury ,A .A and et al., Performance of Foreign Banks vis--vis Other Commercial Banks Operating in Bangladesh, Journal of Business Studies, Dhaka University, Vol. XIX, No.2, December 1998.
Appendix
Table-22: List of indicators used for measuring performance of Banking Industry

Performance Dimensions General Business Measures

Measures Total Business Deposit Advances Advance-Deposit Ratio Total Income

Operational Definition Total Deposit + Total Advance Time Deposit + Demand Deposit

Advance /Deposit

Profitability Management soundness Social Profitability

Return on Equity Total expenditure to total income Branch Expansion Employment Generation Rural Branch to Total Branch

Net Income / Total Equity Total Expenditure / Total Income Total No of Branches Total No of Employees No of Rural Branches / Total Branches