International University of Business Agriculture and Technology

Report on

Two year financial analysis on Islami bank Bangladesh LTD

ACC 101

Section B

Prepared for,

HASAN MOUDUD

Senior lecturer

Prepared by,

Group 5

NAME ID
MD. Ahsanul Kabir 17102103
Fazle Rabbi Shawon 19102057
Khondokar Ashique Elahi 18211010
Udoy Hasan 20111014

Submission date: April 17, 2021

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 Table of content

Introduction 4
History 4
Strategic objectives 6
Main purpose of Financial Performance analysis
on Islami Bank Bangladesh ltd 6

Ratio analysis - 7
 Liquidity analysis
 Profitability analysis
 Solvency ratio
 Market prospect ratio
Liquidity analysis
 Current ratio 7
 Quick ratio 8
Profitability analysis:
 Gross profit margin. 10
 Operating profit margin. 11
 Net profit margin.
 Return on asset.
 Return on equity. 12
Conclusion 13
Recommendation 14

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 Executive Summary

Islami Bank Bangladesh Ltd. (IBBL) started commercial operation on March 30, 1983 under the
ambit of Banking Company’s Ordinance 1962 later on the Banking Companies Act, 1991 as the
first interest free Shariah based commercial bank with an objective of catering Islamic Shariah
based financial products. At present IBBL is operating with 207 Branch different areas of the
country. In conventional bank the investor is assured of a predetermined rate of interest whereas,
IBBL promotes risk sharing between provider of capital investor and the user of funds
entrepreneur.

This report applies Financial Performance of Islami Bank Bangladesh Ltd (IBBL) Different
financial ratios are evaluated such as liquidity ratios, asset management ratios, profitability
ratios, debt management ratios and finally measure the best performance of the company. The
graphical analysis and comparisons are applied for the measurement of all types of financial ratio
analysis we hope this report will help the concerned management to take ideas about the past
performance and avoid the short comes and take the positive aspects to apply in future.

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 Introduction

Banking plays an important role in the economy of any country. In Bangladesh Muslim holds the
majority of the population. Though, no Islamic banking but only traditional banking system was
developed here till 1983. However, interest is absolutely prohibited in Islam. The main aim of
traditional banking is to earn profit by borrowing and lending money in exchange of interest. As
a result there is an unfair competition among the bankers and among the customers. The people
of this country are profoundly committed to Islamic way of life as enshrined in the holy Qur‟an
and the Sunnah. Naturally, it remains deep in their hearts to fashion and design their economic
lives in accordance with the precepts of Islam.

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 373 Branches, 179 Sub-Branches and 2284 Agent Outlets)
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.

History of Islami Bank in Bangladesh ltd

In the late seventies and early eighties, Muslim countries were awoken by the emergence of
Islami Bank which provided interest free banking facilities. There are currently more than 614
interest free institutions all over the world. Today Islami Bank not only operates in almost all
Muslim countries, but have extended their wings to the western world to serve both Muslim and
non Muslim customers. In case of Islami Banking, the establishment of Mitghamar Local
Savings Bank in 1963 is said to be a milestone for modern Islami Banking. In 1974, Bangladesh
signed the Charter of Islamic Development Bank and committed itself to reorganize its economic
and financial system as per Islamic Shariah. In 1978, Bangladesh recommended in Islamic
Foreign Minister Conference in Senegal towards systematic efforts to Islamic Banking. In 1980,
Foreign Minister Conference in Pakistan where Bangladesh Foreign Minister Prof. Shamsul
Hoq, proposed for taking steps for Islamic Banking. Further, Bangladesh Bank sent
representation abroad to study Islamic Banking System. In 1981, President of the Peoples

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Republic of Bangladesh addressed the 3rd Islamic Summit Conference held at Makkah and Taif
suggested, ''The Islamic countries should develop a separate banking system of their own in
order to facilitate their trade and commerce. ''In 1982, IDB visited Bangladesh for study. They
found contributions done by Islamic Economics Research Bureau (IERB) and Bangladesh
Islamic Bankers Association (BIBA); they mobilized the seminars, public opinion through
symposia & workshop. Professional activities reinforced by Muslim Businessman Society (now
reorganized as Industrialists and Businessman Association). The body mobilized mainly equity
capital for emerging Islamic Bank. Finally, in 1983 Islami Bank Bangladesh Limited (IBBL)
came out to take the challenge of doing banking business. Islami Bank Bangladesh Limited
(IBBL) is considered to be the first interest free bank in Southeast Asia. It was incorporated on
13-03-1983 as a Public Company with limited liability under the companies Act 1913. The bank
began operations on March 30th , 1983, with major share by the foreign entrepreneurs. IBBL is a
joint venture multinational Bank with 63.92% of equity being contributed by the Islamic
Development Bank and financial institutions. The total number of branches in 2012 stood at 276.
Now the authorized capital of the bank is Tk. 20,000 million and Paid op capital is Tk. 10007.71
million.

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 Strategic Objectives of Islami Bank in Bangladesh ltd

1. To ensure customers' satisfaction.

2. To ensure welfare-oriented banking.
3. To establish a set of managerial succession and adopting technological changes to ensure
successful development of an Islamic Bank as a stable financial institution.
4. To prioritize the client’s welfare.
5. To emerge as a healthier & stronger bank at the top of the banking sector and continue
stable positions in ratings, based on the volume of quality assets.
6. To ensure diversification by Sector, Size, Economic purpose & geographical location
wise Investment and expansion need based Retail and SME/Women entrepreneur
financing.
7. To invest in the thrust and priority sectors of the economy.
8. To strive hard to become a employer of choice and nurturing & developing talent in a
performance-driven culture.
9. To pay more importance in human resources as well as financial capital.
10. To ensure lucrative career path, attractive facilities and excellent working environment.
11. To ensure zero tolerance on negligence in compliance issues both sharia’h and regulatory
issues.
12. To train & develop human resources continuously & provide adequate logistics to satisfy
customers’ need.
13. To be excellent in serving the cause of least developed community and area.
14. To motivate team members to take the ownership of every job.
15. To ensure development of devoted and satisfied human resources.
16. To encourage sound and pro-active future generation.
17. To achieve global standard.
18. To strengthen corporate culture.
19. To ensure Corporate Social Responsibilities (CSR) through all activities.
20. To promote using solar energy and green banking culture and ecological balancing

Main purpose of Financial Performance analysis on Islami Bank Bangladesh ltd

Main purpose of this report is to analysis two-year Performance of Islami Bank Bangladesh
Limited. Other objectives are analyzing the differences between Islamic banking system and
Commercial banking systems and analyze how an Islami Bank runs its business without interest.
Report also focus on to find out whether the investment mode of the Islami Bank helps economy.
Finally find out the risk and profitability of different modes theoretically.

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 Ratio analysis-
Ratio analysis is defined as the method of gaining insight into a company’s liquidity, operational
efficiency and profitability by studying its financial statement ratio analysis is a cornerstone of
fundamental equity analysis.
Ratio analysis compare line item data from a company’s financial statement to reveal insights
regarding profitability liquidity operational efficiency and solvency.

Types of ratios are given below-

Liquidity ratio: this ratio helps us to measure the ability of a company to take care of its short
term debt obligations. Suppose a high liquidity ratio represents that the current company is
highly rich in cash.
Types of liquidity ratio are-
 Current ratio: current ratio represents the ratio between the current assets and current
liabilities of a company. Current ratio= current assets/ current liabilities.
 Quick ratio: it indicate the capability of a company in paying off its current liabilities on
an immediate basis. Quick ratio= (cash +cash equivalents+ marketable securities +
accounts receivables)/current liabilities.

Profitability ratio: this ratio helps in measuring the ability of a company in earning sufficient
profits.\
Types of profitability ratio are:
 Gross profit margin.
 Operating profit margin.
 Net profit margin
 Return on asset.
 Return on equity

Liquidity analysis: liquid ratio analysis helps in measuring the short term solvency of a
business. It helps in measuring a company’s ability to meet its short term obligations.

Current ratio analysis: the first step in liquidity analysis is to calculate the company’s current
ratio. It shows that how many times over the firm can pay its current debt obligations based on
its assets.

Current ratio of Islami Bank Bangladesh limited in 2020-

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We get, current assets = 1,206,133,745,245
Current liabilities= 1,143,625,371,962
So, current ratio = CA/CL
=1.6
Current ratio of Islami Bank Bangladesh Limited in 2019-
We get, current assets =1,142,181,887,387
Current Liabilities= 1,082,807,663,078
So, current ratio= CA/CL
=1.5
That means the Islami Bank Bangladesh Ltd make its current ration 1.6 in 2020. If we see the
current ratio of year 2020 which is 1.5 so, this bank improved its liquidity in 2020.
1.62

1.6
current ratio of 2019 & 2020
1.58

1.56

1.54

1.52

1.5

1.48

1.46

1.44
2019 2020

Quick ratio analysis-

This is the second step in liquidity analysis is to calculate the company’s quick ratio. Quick ratio
is more stringent test of liquidity than the current ratio.

Quick ratio of islami bank in 2020-

We know, current asset and current liabilities
And Inventory (I)= 97,795,207,647

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So, quick ratio= (CA-I)/CL
= 0.98

Again quick ratio in 2019-

We know, current asset and current liabilities

And inventory (I) =75,853,653,790
So quick ratio= (CA-I)/CL
= 0.96
Now we can say that the current ratio of islami bank in 2020 is 0.98 but in the previous year
which was 0.96 both are less than 1.00. As compare with 2019 the Islami Bank Bangladesh lts
improved its liquidity in 2020. This bank need to improve its quick ratio to above1.0.

0.99
Quicik ratio of 2019 & 2020
0.98

0.98

0.97

0.97

0.96

0.96

0.95
2019 2020

Source https://www.islamibankbd.com/abtIBBL/annual_report01.php?
cat_id=65&cat_name=Half%20Yearly%20Financial%20Statements%20June-2020

Profitability analysis

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Analyzing of the profits which is basically the money remaining from the capital after
subtracting all the overhead costs, will help you keep a track of your business’ performance.
Profitability analysis allows companies to maximize their profit. Profitability analysis helps
businesses identify growth opportunities, fast/slow-moving stock items, market trends, etc

While profitability analysis gives business owners a 360° view of your company’s profits,
different ratios that derive profitability ratios have different roles to play. Let’s take a look at the
importance of these ratios:
Net profit margin-
Net profit margin is the percentage of revenue left after all expenses have been deducted
from sales.  The measurement reveals the amount of profit that a business can extract from
its total sales. The net sales part of the equation is gross sales minus all sales deductions,
such as sales allowances.

Gross margin-
Gross margin is the amount remaining after a retailer or manufacturer subtracts its cost
of goods sold from its net sales.

Gross Profit Margin: (Gross Profit/sales) *100

Gross Margin of islami bank Bangladesh For 2019 and 2020 are given below:

year 2019 2020

Gross Margin 51.30% 46.74%

Operating margin-
Operating margin is a financial metric used to measure the profitability of a business.
The operating margin shows what percentage of revenue is left over after paying for
costs of goods sold and operating expenses (but before interest and taxes are
deducted).

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Operating profit Margin:(Operating profit/sales)*100
2019 = (22466/43791)m*100
= 51.30%
2020 = (20299/43434)m*100
=46.73%

2019 2020

Operating Margin 51.30% 46.73%

Net profit amount of Islami bank ltd

In 2019
We get, net income= 24663000000
Sales = 44891000000
So, net profit margin= (net income/sales)*100
= 54.93

In 2020
We get, net income=24669000000
Asset = 44791000000
So, net profit margin= (net income/ asset)*100
= 55.06
Return on asset-
 Return on assets (ROA) is a financial ratio that shows the percentage of profit a company earns
in relation to its overall resources.
Return on assets:( Net income /Assets)*100
2019= (24663/44791)m*100
= 55.07%
2020= (18703/44219)m*100
= 42.2

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Return on equity -
The return on equity is a profitability ratio that measures the ability of a firm to generate
profits from its shareholders investments in the company.

Return on Equity:(Net income/shareholder)*100

2019= (24663/52271) m*100
=47.18%
2020=(18703/43211)m*100
=43.28%

Conclusion

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 Islamic banking has achieved significant growth in Bangladesh that belongs to 20 percent
share of the whole banking industry. However, investments under Mudaraba and Musharaka are
below 2 percent’s. Investment in socially desirable sectors like microenterprises, small
projects and agricultural sectors are only getting marginal shares in total investment. Islamic
banks are also facing challenges; among them major constraints include absence of separate act,
paucity of money and capital market instruments, and lack of skilled manpower.
Bangladesh has also tremendous potentials for further growth of Islamic banking as she has vast
population with increasing real per capita income and Muslim majority people.
Bangladesh may also bank on Islamic finance specially for financing large infrastructure
projects badly need to achieve higher GDP growth towards bringing poor people out of
poverty cycle. The ground has already been prepared by Islamic banks and its more than ten
million customers. The unlocking of unexplored immense potentials of the Islamic finance
industry depends on the appropriate legal framework, development of customized products
suitable for all segments of customer base, adoption of state-of-the-art technology and
committed skilled human resources.

Finally it should be mentioned that IBBL is still very successful and competitive in their
customer service, banking operation, management process, record keeping and overall activities
of banking.

RECOMMENDATION
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In considering the customer satisfaction on the banking management service the following
recommendations are made, which will benefit IBBL and its customers.

1.   IBBL should increase skilled manpower to do its financial activities more efficiently. So that
many of the employees do not have to do extra work.

2.   The Bank should go aggressive advertising and promotional activities to get a broad
geographic coverage.

3.   The authority of IBBL should introduce more innovative and modern customer service.

4.   Practice amount of doubtful income declined substantially during the year as compared to the
past few years, indicating more carefulness of the Management in complying with Shariah. As a
result, idle money will be invested to increase potential profit of this Bank.

5.   Inclusion of more subjects based on the Quran and Sunnah in the Training courses of the
Islami Bank Training & Research Academy in order to develop human resources having morally.

6.   Arrangement of monthly /quarterly training courses /workshops for the clients selected by the
Branches in order to promote Investment clients of the desired level.

7.   IBBL should initiates different investment modes according to changing /diverse needs of
clients by conducting huge Research and study.

8.   IBBL should utilize “Internship Program” as one kind of promotion policy to encourage its
present and potential investment clients. Because, young generation plays a vital role in our
economy. To do so this Bank should provides facilities to the internees through proper placement
and practical operations as well as job certainty to those who bring introduce themselves the best
performers in doing their particulars.

9.   IBBL should appoint a sufficient number of women employees to deal women entrepreneurs
and professionals and understand their needs and thus create demand for investment.

10. To fulfill the vision of “mass banking” this Bank should grants investment portfolio to new
entrepreneurs /new businessmen new companies etc.

11. For the convenient of Islami Banking, necessary amendment of rules may be recommended.

12. Islami money market may be introduced.

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