Executive Summary

AI-Arafah Islam! Bank Ltd that is the private Commercial Bank in Bangladesh that came in existence
on 18 June 1995. With TK.1000.00 million authorized capital and TK.677,94 million paid up
capital. This report 'is made on the title of "Performance Evaluation of Al- Arafah Islami Bank
Ltd. The objective of the report is to analyze its financial performance, growth of the bank,
measure its foreign exchange business and comparing it with the leading islami bank of Bangladesh,
Islami Bank Bangladesh limited. For this purpose data and information have collected by direct
conversation with the officer and client of the bank and study the annual report, various
books and articles during the period of 2008-2012. The bank had a very rapid growth over
hose years. And I have put findings and recommendation by analyzing the ratio, import,
export, remittance and by comparing these performances with IBBL In 2008 AIBL had its
authorized capital 2500 million and paid up capital Tk.1,383.81 million which was in 2012
Tk.10,000 million and 7,130.98 million. It makes 300% growth in authorized capital and
415.31% growth in paid up capital over the five years. In 2012 AIBL achieve growth in
its deposits 44.41% and in investment 37.23%. The current ratio and debt ratio was also in an
increasing trend from 2010-2012 but the ROA, ROE and EPS was decreasing. Which
highlights that, the bank couldn't able to acquire required return from its assets. The profit
before tax and provision and profit after tax of the bank had increased in 2012, 9.91%
and 11.52% respectively. In the foreign exchange sector AlBL's performance is also
impressive. At present AIBL has 100 Branches throughout the county out of which 21
Branches are authorized to deal in Foreign Exchange Business. AIBL has 28 Nostro
Accounts 281 Relationship Management Application (RMA) with different renowned
Foreign Banks/Foreign Correspondents in 49 countries across the world. At the end of 2012
the total foreign Exchange Portfolio (Import, Export and Remittances) was Tk. 1,53,528.70
million showing a growth of 13.56% of this bank in compare with the corresponding year.
The total export of the bank was Tk. 52,202.10 million in 2011 which was increased by
12.02% to Tk. 58,476.60 million in 2012. Similarly, the amount of import has decreased from
Tk. 76,113.10 million in 2011 to Tk. 71,931.70 million in 2012 a negative growth of
5.49%. The Inward Foreign Remittances Business of the Bank recorded a tremendous
growth rate of 236.04% from Tk. 6,876.20 million to Tk. 23,120.40 million in compare
with last year due to starting live dealing by Treasury and delivery of quality services to the
clients. In the comparison of foreign exchange performance, with Islami Bank Bangladesh
ltd. (IBBL), we have seen the growth rate of AIBL is better than IBBL. In 2008 IBBL total
Foreign exchange were Tk.402669 Billion, in 2012 it became Tk.492834 million. The growth
rate over the five years is 22.39% *here the growth of AIBL over the same period is
176.46%. IBBL has a downward flow in export and import in 2011-2012 where AIBL kept
its upward stream in this period. Though growth is very high, still AIBL couldn't touch the
range of IBBL. So they have to enhance their competitive strengths and skill in banking
business.

Table of Contents
Title

Page

Chapter One: Introduction

1.1 Background of the Study
1.2 Objective of the Report
1.3 Scope of the Report
1.4 Methodology
1.5 Limitations of the report
Chapter Two: Conceptual Issues
2.1 History of Al-Arafah Islami Bank Ltd.
2.2 Mission of Al-Arafah Islami Bank Ltd.
2.3 Vision of Al-Arafah Islami Bank Ltd.
2.4 Objective of Al-Arafah Islami Bank Ltd.
Chapter Three: Database
3.1 Key Financial Data & Key Rations- Al-Arafah Islami Bank Ltd.
3.2 Ration Analysis of Al-Arafah Islami Bank Ltd.
3.3 SWOT Analysis
Chapter Four: Finding
4.1 Findings
Chapter Five: Recommendation & Conclusion
5.1 Recommendation
5.2 Conclusion
References

Chapter One
Introduction
1.1 Background of the Study:
E-a-x and financial institution play an important role in financial inter mediation and
thereby contribute to the overall growth in the economy. At present the financial system in
Bangladesh consists of the central bank, nationalized commercial/specialized banks, private
banks, foreign banks and other non-bank financial institution. This report is based on one
commercial Bank mat is the Al-Arafah Islami Bank Ltd.

1.2 Objectives of the Report:

To examine the overall performance of AIBL.
To analyze the ratio of the bank and measure the performance of the bank.
To measure the export, import & remittance performance of AIBL.
To compare the banks foreign exchange performance with the leading Islamic bank of
Bangladesh, IBBL.
To suggest some possible recommendations to overcome the problems

1.3 Scope of the report

The scope of the organizational part covers the organizational structure, background, and
objectives, functional, departmental and Business performance of AIBL as a whole and the main
part covers foreign exchange department of AIBL

1.4 Methodology:
Is report is based on exploratory recharge. Because, to make Ratio analysis, Comparative
analysis and Findings I required to investigate on general banking and foreign exchange
department. In order to make the report more meaningful and presentable two sources of
data arc information have been used widely:
Primary sources:
The primary sources which are as follows Face-to-face conversation with the Executives and
officers of Bank..
1. Informal conversation with the client.
2. Practical work exposures from the different desks of the various departments of the
Branch covered.

Secondary Sources:
The Secondary Sources of data and information are:
1. Annual Report of AI-Arafah Islami Bank Ltd.
2. Periodicals published by Bangladesh Bank.
3. Various books, articles, compilations etc. Regarding general banking functions.
Relevant file study as provided by the officer's concerned.

1.5 Limitations of the reports

Objective of the practical orientation program is to have practical exposure for the students.
My tenure was for twelve weeks only, which was somehow not sufficient. After working
whole day in the office it was very much difficult, it is not impossible to study again the
theoretical aspects of banking. On the other hand to prepare my internship report I have faced
some imitations as follows.
To collect data and information, it is a common tendency of any departments to keep
back
their departmental data and information.
Unavailability to required published documents.
Lack of my experience and efficiency to prepare the standard report.
I observed that unskilled persons are available in AIBL; they are not able to teach us
various
aspects.

Chapter Two
Conceptual Issues
2.1 Historical Background of Al-Arafah Islam Bank Limited:
AI-Arafah Islam! Bank Ltd was established in 1995 under the companies Act, 1994 as a
banking Company with limited Liability by shares. It is an interest-free Shariah bank of
Bangladesh rendering all types of commercial banking service under the regulation of Bank
Companies Act, 1991. The Bank conducts its business on the principles of Musaraka, BaiMurabaha, Bai-muazzal and Fire Purchase transactions approved by Bangladesh Bank.
Naturally its modes and operations are substantially different from those of other
conventional commercial banks. There is a Shariah Council in the bank who maintains
constant vigilance to ensure that the activities of the bank are being conducted on the
precepts of Islam. The Shariah Council consists of prominent Ulema, reputed Bankers,
renowned Lawyers and eminent Economist.

2.2 Vision:
To be a pioneer in islami banking in Bangladesh and contribute significantly to the
growth of the national economy.

2.3 Mission:

Achieving the satisfaction of Almighty Allah both here & hereafter.

Proliferation of Shariah Based Banking Practices.

Quality financial services adopting the latest technology.

Fast and efficient customer service.

Maintaining high standard of business ethics.

Balanced growth.

Steady & competitive return on shareholders' equity.

Innovative banking at a competitive price.

Attract and retain quality human resources.

Extending competitive compensation packages to the employees.

Firm commitment to the growth of national economy.

Involving more in Micro and SME financing

6

2.4 Objective of AIBL:

All activities of the bank are conducted according to islamic shariah.
The banks investment policy follows different modes approved by Islamic shariah based
on Quraan & Sunnah.
The bank is committed towards establishing welfare oriented banking system, economic
enlistment of the law- income group of people, create employment opportunities.
According to the needs and demands of the society and the country as a whole the bank
invests money to different halal business. The bank participates in different
activities aiming at creating jobs, implementing development projects taken by the
government and developing infrastructure.
The bank is committed to establish an economic system through social justice and equal
distribution of wealth. It is also committed to bring about changes in the
underdeveloped rural areas for

ensuring

balanced

socio

economic

development of the country through micro credit program, according to mudaraba

system
The bank is contributing to economic and philanthropic activities side by side. AIArafah
English Medium Madrasah and AIBL Library are among mention worthy.

Chapter Three
Performance Analysis of Al-Arafah Islami Bank Limited
3.1 Key Financial Data & Key Rations-AIBL:
2011

2012

2013

2014

2015

Growth %

Authorize Capital

2650

2650

6000

6000

6000

Paid up Capital

1228

1289

1547

1934

2128

10

Reserve Funds & Other Reserve

988

1262

1578

2065

2838

37

Shareholders' Equity (Capital &

Reserve)

2216

2551

3125

4000

4966

24

Deposits (Base& Bank excluding Call)

28439

41554

48731

56986

60918

Loans & Advances

23372

34049

39972

49698

52910

Investments

3926

5378

5972

7239

8660

20

Fixed Assets

122

217

291

387

424

10

33072

47594

57443

71137

77767

Import Business

30213

46277

49496

65737

46160

(30)

Export Business

13505

23268

31081

39038

33305

(15)

Guarantee Business

6099

6473

6523

7887

6462

(18)

Inward Foreign Remittance

3377

16764

10609

11834

9786

(17)

Core Capital (Tier 1)

2216

2551

3126

3964

4634

17

Supplementary Capital(Tier 2)

237

373

554

844

1000

18

Interest Income

2897

4342

5636

7171

7466

Interest Expense

2149

3380

4049

5214

5407

Net Interest Income

748

962

1587

1958

2060

Non Interest Income

739

1110

1582

1929

2175

13

Non Interest Expense

594

889

1159

1353

1424

Net Non Interest Income

145

221

423

576

751

30

Profit Before Tax & Provision

893

1183

2010

2533

2810

11

Provision for Loans & Assets

125

233

479

669

675

Provision for Tax (including Deferred

Tax )

305

370

827

1025

1176

15

Profit After Tax

463

580

704

839

959

14

Tier 1 Capital Ratio

9.94

8.23

8.80

9.77

9.30

(5)

Tier 2 Capital Ratio

1.06

1.2

1.56

2.08

2.01

(3)

Total Eligible Capital

2453

2924

3680

4808

5634

17

Total Capital Ratio

11.00

9.43

10.36

11.84

11.31

(4)

Balance Sheet

Total Assets (excluding off-balance

sheet items)
Foreign Exchange Business

Capital Measures

Income Statement

Net Interest Margin

3.43

3.77

4.54

4.60

4.56

(1)

Credit/ Deposit Ratio

82.18

81.94

82.03

87.21

86.85

(0)

Current Ratio (Times)

1.33

1.24

1.38

1.28

2.10

64

Return on Equity (ROE) %

20.89

22.74

22.53

20.97

19.32

(8)

Return on Assets (ROA) %

1.40

1.22

1.23

1.18

1.29

Cost of Deposit (%)

8.13

9.15

8.97

9.40

8.68

(8)

Cost/ Income ratio in operating

Business

75.44

78.14

72.15

72.16

70.85

(2)

Number of Branches

29

37

41

45

50

11

Number of CMS Unit

20

Number of SME Banking

Center

100

688

786

842

898

924

3,677

4,187

5,340

8,198

10,530

28

406

350

350

350

350

Volume of Non-performing loans

351

554

1258

1908

2946

54

% of N/Ls to Total Loans &

Advances

1.51

1.64

3.15

3.84

5.57

45

Provision for unclassified Loans

236

372

465

620

625

Provision for Classified Loans

103

172

439

825

1488

80

Number of Shares Outstanding

12.28

12.89

15.47

19.34

21.28

10

Earning per Share (Taka)

43.99

45.00

46.06

39.42

45.09

Book value per Share (Taka)

180

198

202

207

233

13

Market Price per Share (Taka)

469

466

706

361

484

34

Price Equity Ratio (Times)

10.66

10.32

15.33

9.15

10.72

29

Price Equity Ratio (Times)

2.60

2.35

3.49

1.74

2.07

19

20

10

15

1:20

1:5

1:4

1:1

1:4

Other Information

Number of Employees
Number of Shareholders
Number of Foreign
Correspondents/Banks
Credit Quality

Share Information

Dividend per Share:

Cash Dividend (%)
Bonus Share

3.2 Ratio Analysis of Al Arafah Islami Bank Ltd:

Ratio analysis is an analytical tool that can be applied to a bank's financial statements so that
management and the public can identify the most critical problems inside each bank and
develop ways to deal with those problems. Some selected ratios are analyzed here to give an
insight about AI-Arafah Islami Bank Ltd. For limited information some are analyzed very
briefly.

Net Working Capital

Net working capital is one of the classic measures of a company's liquidity. It is used to
determine the availability of a company's liquid assets by subtracting its current liabilities.
Net Working Capital = Current Assets - Current Liabilities
Year

2011

Net Working

-30095138

2012

2013

2014

2015

3667130639 9897695572 856254823 52481367

Capital

9897695572

3667130639
-30095138

2011

856254823

2012

2013

2014

52481367
2015

Interpretation: From the above graphical representation we can observed that the trend of
working capital was very much unfavorable in 2010. But it had an increasing trend to 2012. It
increases almost 170% from 2011 to 2015.

10

Current Ratio
It is the best known liquidity measure of business firm. Current ratio indicates the ability of
business firm to meet its short term financial obligations. This ratio is determined as follows:

Current Ratio= Current Assests/ Current Liabilities

Year
Current ratio

2011
0.08

2012
0.10

2013
0.12

2014
0.11

2015
0.14

0.14
0.11
0.12
0.1
0.08
2011

2012

2013

2014

2015

Interpretation:
From the above graphical representation we can see that the trend of current ratio was
increasing from the year of 2010 to 2015 but the ratio is not showing a good sign of the bank. It
is showing the bank has very poor amount of liquidity to meet its short term financial
obligations. So, AIBL should take necessary steps to overcome the liquidity problem as
soon as possible.

11

Debt to Total Assets

Debt to total Assets shows the extent to which the firm is using borrowed money. This
ratio is determined as follows:
Debt to Total Assets / Capital Ratio = Total debt / Total Assets
Year
Debt to total Assets

2011
0.90

2012
0.91

2013
0.92

2014
0.90

2015
0.91

0.91
0.9
0.92
0.91
0.9
2011

2012

2013

2014

2015

Interpretation:
The above figure was shown that AIBL is maintaining a wealthy debt ratio all the three
years. The ratio of 2010 was 0.90, 2011 was 0.91 and 2012 was 0.92 which shows their
good manage over the debt financing. It proves that AIBL has good market image with
stable leverage ratio. But the debt financing of AIBL is very high.

12

Net Profit Margin

The net profit margin formula looks at how much of a company's revenues are kept as net
income. The net profit margin is generally expressed as a percentage. Both net income and
revenues can be found on a company's income statement.
Net Profit Margin = Net Profit / Sales Revenue
Year
Non profit margin

2011
2.22

2012
5.55

2011

24%

2012

2013
5.88

2013

2014

2014
5.67

2015
6.00

2015

9%
22%

22%
23%

Interpretation
The net profit margin of AIBL in 2010,2011 & 2012 were 2.22%, 5.55% & 5.88% respectively.
So it is increasing continuously but the growth of 2011 is much better than 2015.

13

Return on Equity (ROE)

Return on equity measure the total earnings from shareholders equity.
Return on Equity (ROE)=Total Return/Total Equity
Year

2011

ROE (%)

24.70

24.7

2011

24.1

2012

2012

2013

24.10

20.01

20.01

18.34

2013

2014

2014
18.34

2015
13.51

13.51

2015

Interpretation:
Here, we can find that AIBL had a good enough ROE of 20.01% in the year 2010, but it was
continuously decreasing up to 2012, which is not a good sign for AIBL. It has got 26.31%
negative growth in this year. As the proposed net income was decreased more than dividend
and paid up capital. So the return on equity ratio of AIBL is not well.

14

Return on Assets
Return on asset measures the overall effectiveness in generating profits with available assets;
earning power of invested fund. This ratio is used frequently for assessing the performance of
fund. So it is important to evaluate how assets are contribution to generate profit. It has been
calculated in the following way:

Return on Assets = Total Return/ Total Assets

Year

2011

ROA (%)

2012

1.80

2013

1.77

2015
14%

2.65

2014
2.06

2015
1.30

2011
19%

2014
21%

2012
18%
2013
28%

Interpretation
From the above chart we can arrive at a conclusion that the ROA scenario of AIBL shows a
consistent fall from 2011 to 2012. 2013 & 2014 was almost constant but in 2010 it grows its
percentage unexpectedly. The ROA figure shows an increasing trend since its inception. AIBL
has lowest ROA in the year 2014 because increases its interest expenditures and other costs and
disable to control over the outflow but at the year 2015 ROA improved because of efficient
asset utilization of cash.

15

Earning Per Share (EPS):

The profit in pence attributable to each ordinary share in a company based on the consolidated
profit for the period, after tax and after deducting minority interests and preference share
dividends. This profit figure is divided by the number of equity shares in issue that rank for
dividend in respect of the period. The EPS scenario of AIBL stands at the following way:
Year
EPS

2011

2012

3.72

2013

2.00

2014

4.14

3.73

2015
2.38

EPS

4.14

3.72

2.38

2011

2012

EPS

3.73

2013

2014

2015

Interpretation
From the above graph, we can conclude AIBL had lowest EPS in 2009, than it increases
dramatically in 2010. But after that it is decreasing constantly. This is very undesirable &
unfortunate that AlBL's EPS obtain 14.70% reduction in 2015..

16

3.3 SWOT Analysis

SOWT analysis is used to measure views of a single issue from different patterns. From
historical data and practical observation, I found the following Strength opportunity,
weakness and threat under SOWT analysis of Al-Arafah Islami Bank Ltd.:

Strength

Weaknesses

Depends on Islamic Shariah

Strong corporate identity

AIBL has a well-educated and

Strong

employee

Encrouging small entrepreneurs

Absence

bonding

of

strong

marketing

activities

trained workforce

High

cost

for

maintaining

an

Account

and

belongings

Low modernized

Strong financial position

Low manpower for service

Investment sector is very well They cannot open sufficient number of L/C
position

in a month. Because they have not enough

with another bank.

exporter and importer. This is another great

Commitment towards quality output

weakness for foreign exchange department

Efficient performance

17

Threats

Opportunity

A few numbers of branches and

Country wide network

Experienced managers

foreign

Usage of efficient modern software

exchange department: this is a threat for Al-

Freedom granted by Bangladesh Bank to Arafahlslami Bank Ltd. Because they

charge discriminatory interest rates on cannot increase their earnings by existing
various account

branches and foreign exchange department.

Recovery of loan: This is a threat for

Scope of new business in SME and

consumer credit scheme.

Opportunity

Al
of

Diversified Arafahlslami

product line.

Bank

Ltd

because

the

financial market strength of our country is

Regulatory environment favoring not so strong. As such to recover the

private sector development

lending money is a great threat. Because in

our country's business chain like other

*High finding cost for lending is great countries is dependable each other. So, if
opportunity for the bank. Due to lack of the monetary flow faces any obstacle it.
poor performance of NCB's in our country
though they are grabbing an huge deposits hampers the running of full chains. As a
from the market, PCB's are fulfilling the result
high demand of the financial marketing recovery face a great threat for commercial
lending money towards deficit sources in

banks and AIBL is not out of this threat.

Classified Loan: Another major obstacle
for

banks is its classified loan. Through this

picture

is not new for this particular bank it is exists

to all commercial banks throughout the
world. But
in our country this bad culture created by the
NCBs and its impacts comes to the PCBs
also.
18

But over viewing the bank's performance we

found that it is still in safe side in comparison
with others but in should be careful to
overcome
this threat.

Electronic Banking: It is the order of the

day to deliver prompt service to the
customers taking
assistance of modern facilities. We have
recognized this and taken all possible steps to
introduce technology-based Banking service
to the customers. It is a greatest threat for
AIBL.
Social Responsibility: We recognize that
Bank's

are

institutions

not
rather

mere

profit

they

have

earning
great

responsibility towards the

society in which they are operating. In this
respect, I am happy that our Bank has been
able
to make its presence felt in the national level.
A
number of seminars have been arranged
under its
auspices on the topics of economic and social
aspects which provided a way of looking at
the
picture from different perspectives.

Upcoming banking
Lack
of
Foreign
department
Political situation.

Remittance

19

Chapter Four
Findings
4.1 Findings
> We have observed that the net working capital (170%), deposit (44.41%) & investment
(37.23%) have increased but the return on asset (36.89%), return on equity (26.34%) &
earning per share (36.19%) have decreased from 2011-2015. That means the company
enhancing its area of business & operation but foiling to achieve required return from its
investment.

> Current ratio and Debt ratio both have increasing trend but these are not in good
proportion. They have very little amount of current asset to meet up their current
liabilities, the ratio from 2011-2015 were 0.08, 0.10 and 0.12 respectively. And though
they have enough assets to meet up their debts, but their debt financing is very high.
From 2010-2012 the ratio were 0.90, 0.91 and 0.92.

> AIBL has an increasing trend in its import and export from 2011-2015. But in 2012 AIBL
has increased its export and decreased its import business. It has imported 5.49% lesser
in 2015 than 2011 where Export is 12.02% higher in 2012 the

> Remittance of AIBL had a steady growth from 2008 -2011, which is around 56%. But in
the period of 2011-2012 it grew 236.24%. Because at that period the number of NRB
account is increased in a good rate. It helps the bank to enhance its remittance
transaction very tremendously at the end of 2011 than 2015.
> Al-Arafah Island Bank Ltd operates foreign business through 21 branches that are not
sufficient to competition in the market.
> After analyzing the performance of AIBL and IBBL from the year 2008-2012, we found
AIBL had 4.25%, 64.15%, 36.09% and (5.49%) and IBBL had (4.22%), 52.75%, 22.30%
and (48.16%) growth respectively. That mean from 2009-2011 both banks increased its
import but in 2012 it reversed in very high range.
> In case of export AIBL has a better trend than IBBL. From 2009-2012 AIBL had 16.70%,
36.08%, 62.91% and 12.02% where IBBL had (4.22%), 52.75%, 22.30%, (48.16%).

20

Chapter Five
Recommendations & Conclusion
5.1 Recommendations
It is clear that the AI-Arafah Islami Bank Ltd. Foreign Exchange Branch has ensured
productive utilization. The branch success has been made possible due to dynamic
leadership of the Branch Management, proper guidelines, good counsel and devotion
and sincerity of all categories of officers and the employees of the Branch. My
recommendations of foreign business related are given bellow:

1. AIBL should enhance their current asset to meet up their current liabilities and decrease
their debt from the market.
2. AIBL should be more concern about utilization of their asset and confirm required
return
from their investment by more observation and analysis. They can employ skilled
investment specialists to increase their profit.
3. The number of exporter and importer who operate through this bank is not enough to
achieve the banks goal. So AIBL should offer more facilities to attract them to be their
client.
4. They should increase their branches & Maintain foreign exchange department in more
branches. Then it will more flexible for their clients to deal internationally.
5. Foreign exchange department should be fully computerized that the exchange process
would be convenient for both the bankers and the clients
6. Though AIBL has better growth trend than IBBL, sill it is not same in amount. IBBL has
a strong goodwill and long run position in market.

So AIBL have to raise their

advertisement, make an easier and faster procedure for their clients and increase their
investment in foreign exchange business.
7. Banking is a service-oriented marketing. Its business profit depends on its service quality.
That's why the authority should always be aware about their service quality.
8. They should establish more ATM booth and on-line facilities for their customers.

21

5.2 Conclusion
Success in the banking business largely depends on managing its assets, liabilities, capital and
effective lending and Advance foreign exchange facilities. Less the amount of loan losses, the
more the income will be from Credit operations. Beside this successful foreign exchange
activities can provide more profit to the Bank and also create a positive image of the country in
the international trade. Though there are some limitations in the foreign exchange department
of al-arafah islami bank, but it is accepted that AI-Arafah Islami Bank is growing day by day.
So, if the AI-Arafah Islami Bank Ltd. takes some action regarding my recommendation stated in
this report, bank may improve its position in the long run.

22

References
Books:
Kothari, C. R.; Research Methodology Methods & Techniques, Second Edition, McGraw Hill Com. Inc.; New York, USA, 2005.
Khan, M.Y. & Jain, P.K, Financial Management, 3rd Edition, Tata McGraw-Hill
Publishing Co. Ltd., New Delhi, 1999.

Reports:
Annual Report of AI-Arafah Islami Bank Ltd, 2015
Annual Report of Islami Bank Bangladesh Ltd, 2014
Prospectus of AI-Arafah Islami Bank Ltd, 2013
Service Rule of AI-Arafah Islami Bank Ltd, 2012

Internet
www.aibl.com.bd
www.wikipedia.com
www.banglapedia.com

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