Evaluation of Financial Performance of Commercial Banks in Bangladesh: Comparative Study Based On CAMEL Approach

See discussions, stats, and author profiles for this publication at: https://www.researchgate.
net/publication/338371360
Evaluation of Financial Performance of Commercial Banks in Bangladesh:

Comparative Study Based on CAMEL Approach
Article · December 2017
CITATIONS READS
0 2,396
2 authors:
Sk Alamgir Hossain K. M. Anwarul Islam

Jagannath University - Bangladesh UNISEL | Universiti Selangor
13 PUBLICATIONS 50 CITATIONS 104 PUBLICATIONS 185 CITATIONS
SEE PROFILE SEE PROFILE
Some of the authors of this publication are also working on these related projects:
RESEARCH PAPER View project
List of Journals in Islamic Finance & Banking and Business View project
All content following this page was uploaded by K. M. Anwarul Islam on 05 June 2020.
The user has requested enhancement of the downloaded file.

The Millennium University Journal
Vol. 2, No. 1; 2017
ISSN 2225-2533
Published by The Millennium University
Evaluation of Financial Performance of Commercial Banks in

Bangladesh: Comparative Study Based on CAMEL Approach
Sk Alamgir Hossain
Assistant Professor
Department of Finance
Faculty of Business studies
Jagannath University
Dhaka, Bangladesh
E-mail:alamgir2783@yahoo.com
Md. Nazmul Islam

Assistant Professor
Department of Business Administration,
Mawlana Bhashani Science and Technology University
Tangail, Bangladesh
Md. Shahed Mahmud

Assistant Professor
Department of Business Administration
Mawlana Bhashani Science and Technology University
Tangail, Bangladesh
K. M. Anwarul Islam
Associate Professor
Department of Business Administration
The Millennium University
Dhaka, Bangladesh
Abstract
Banking industry plays a very important role to the economy of Bangladesh and the financial performance
measurement is one of the major considering factors for the banks. The study attempts to analyses and compares the
financial performance of Islamic and Conventional commercial banks operating in Bangladesh during 2011 to 2015
using secondary data by applying CAMEL model and other relevant statistical tools. The study revealed that Islamic
banks perform better than Conventional banks in terms of capital adequacy, assets quality, and management quality
and earnings ability. However, Islamic banks had a weaker liquidity position in comparison to Conventional banks.
This study also found that, there is no significant difference between the two banking categories except liquidity
position. This study also revealed that under Islamic banking system Al-Arafah Islamic Bank and Exim Bank
Limited performed better than other Islamic banks and under Conventional banking system Mercantile Bank
Limited and Dutch-Bangla Bank Limited performed better than other conventional banks among the selected banks
in the selected time period. The findings of the study will help to increase the confidence and consciousness in the
partaking banks in Bangladesh. Finally, some suggestions and recommendations have been provided to increase
financial performance of selected banks which will insure those banks sound positioning in banking sector of
Bangladesh.
Keywords: Financial Performance, CAMEL, Islamic banks, Conventional banks, Bangladesh.

54
www.themillenniumuniversity.edu.bd/journal/index.php/TMUJ The Millennium University Journal Vol. 2, No. 1; 2017
1. Introduction
Banks are extremely old financial organizations that promote and treated as vital service sector in the advanced
world for the growth of every economy. The banks are mobilizing the savings of the people for the investment
purpose (Islam, 2012).The bank's role is now not limited to any country's same geographic boundary. At present
private commercial banks are dominant in respect of market share and profitability in the banking industry of
Bangladesh (Islam, 2013).For most of the companies, it is the significant source of funding. The banking services
(here after, BS) sectors of Bangladesh play a significant role to the socio-economic development as the prime part
of the development and progress of a country (Ibrahim et al., 2014). Harker & Zenios (1998) stated that a nowadays
BS sector has been considered as the vital economic sectors all over the verse. Highly advanced financial
intermediaries have been observed in the developed nation such as USA, Japan, Singapore, Germany, Italy and other
European Union. Malik & Awadallah (2013) reported that robust BS sectors not only promotes the economy of a
country but also plays a substantial role to the growth of economic development and stability of a country.
Consequently, it is important to know about the financial performance of BS sectors for the academicians, BS
designer and policy maker Merton (1991).In a developing country like Bangladesh the banking system as a whole
play a vital role in the progress of economic development (Islam, 2016).
At present 59 Scheduled and 5 non-scheduled banks has been providing the financial services to strengthen
the economy in Bangladesh. Islam (2017) reported that among these there are 54 commercial banks including
National Commercial Banks, 31 domestic conventional private commercial banks, 08 Shariah based Islamic
commercial banks and 9 foreign commercial banks. In Bangladesh Islamic commercial banks have been operating
their services based on the Islamic Shariah since 1980 and conventional banks are also trying to offer Islamic based
financial products and services.
Miah Md (2015) reported that the government of Bangladesh has recently approved a few more banks and
foreign commercial banks are also growing their operations day by day through investing significant funds in our
economy. Hence, BS sectors are more competitive sectors in the country that enforced the banks to be more strategic
to achieve the significant profit as well as to survive in the competitive market This rivalry also reinforces the need
for banks to evaluate their performances. Harker & Zenios (1998) found in their study such numerous changes cause
tremendous competitive pressure on financial institutions to evaluate the value chain of their results and to work
constantly to strengthen the present condition.
Now financial institutions are more diverse, more fast-moving than any other moment in the world's
history. Hezri & Dovers (2013) stated that business environment is a tool for the massive regeneration of the
industry. Therefore, the global financial crisis, global financial recession and digital financial crime have focused
more on the performance of commercial banks all around the globe. The general assumption that drives most
studies and discussions on financial performance is to enhance the organization's operations and activities by
increasing financial performance (Duncan, 2004). Before judging the performance, have to have clear idea about the
functions of commercial bank and their distinct criteria.
The commercial banks are categorized as conventional commercial banks and Islamic commercial banks
based on their offering financial services to customers. The major difference between Islamic and conventional
banking system is the way they treat interest Alzghoul (2015) stated that calculation of interest on the deposited
amount by the clients and loan provided to the clients is the main difference between Islamic and conventional
banking systems. Whether a bank is operating under conventional banking system or under Islamic banking system,
ultimately financial performance is one of the major indicators for analyzing a bank’s performance. Analyzing the
financial performance is not only enable banks to know about its financial strength moreover transmit confidence
among different stakeholders of the bank especially investors and customers. Thus, measuring the financial
performance is one of the prime concerns for the banks. For the measurement of financial institutional performance
various quantitative techniques are being used by the researchers and the practitioners (Nimalathasan, 2008). Among
different model CAMEL is one of the most popular model employed by the scholars for measuring the bank’s
financial performance. Among the components of CAMELS Capital Adequacy is the first and most fundamental
tool to measure the performance (Islam, 2014). Faizulayev (2011) stated that CAMEL is rating system which
measure financial performance of financial institutions and banks that gives information about financial validity.
CAMEL model which representing the Capital adequacy, Assets quality, Management Quality, earning ability and
Liquidity position was employed in measuring the financial performances. So the main purpose of this study is to
compare the financial performance of Islamic and Conventional banks in Bangladesh during the period of 2011-
2015 by applying CAMEL model and statistical approach.
The reason behind conducting this research as Bangladesh is a Muslim but secular country where both
Islamic and conventional commercial banks are operated following same set of banking regulations and banking act.
There are many studies available in existing literature that measure financial performance of commercial banks. But,
55
very few studies are undertaken to compare the financial performance of conventional and Islamic banks in
Bangladesh. So the researchers undertake this study to contribute new knowledge in the existing literature.
The general objective of this study is to measure and compare the financial performance of Islamic banks
and Conventional banks in Bangladesh.
Based on the general objectives the specific objectives are:

 To investigate if there is any significant difference in the financial performance of two banking domain;
 To find out whether the Islamic or conventional banks are operating efficiently
 To provide suggestions based on the obtained results to the banks authorities.
The memento of the study is designed as follows. In the next section literature review of prior similar
studies are presented, hypothesis, and are developed. After that methodology and suggested CAMEL approach are
described. Then the next section is analyzing results and discussion. Finally, the last section contains the conclusions
and policy guidelines from the results obtained.
2. Literature Review
In last couple of decades, financial performance analysis has been getting a premium attention. Some of the prior
studies are being listed in below:
Tlemsani & Al Suwaidi (2016) in their study on the performance of Islamic and conventional banking
systems in UAE found that during the time of financial crush the financial crisis was limited to Islamic banks only
affected in terms of ROA and ROE. In terms of liquidity risk mitigation and insolvency, Islamic banks outperformed
conventional banks as Islamic banks managed to have a high volume of liquid assets.
Ibrahim (2015) conducted a study to analyze the financial position and performance of state banks using
CAMEL model. They found that there is no significant difference in performance on the basis of ratio analysis and
showed that banks ranks varied on the basis of ratios of state group. Likewise, Gupta (2014) performed a research to
examine the performance of Indian public sectors banks using CAMEL method during the year 2009-2013. The
study found that there is a significant difference between CAMEL ratios of all Indian public sector banks and the
overall performance of the public sectors banks is different.
Ibrahim (2015) claimed that Dubai Islamic bank had better performance and stability as compared to bank
of Sharjah. But bank of sharja had higher level of liquidity, capital structure, profitability and management capacity.
It was found by Ibrahim et al., (2014) that bank performance differ among the banks using various ratios and the
Islamic banks overall performance was satisfactory. On the other hand Akhter, Raza, and Akram (2011)found that
there was no significant difference between Islamic and conventional banks in Pakistan in case of profitability,
liquidity and performance. They also found that Islamic banks’ balance sheet had a good trend but income
statements did not differ meaningfully between two types of bank. Aziz et al., (2016) in their study on comparison
of financial performance of Islamic and conventional banks operating in Pakistan during the year of 2006-2014, they
took five Islamic and five similar sized conventional bank as the sample of the study. They found that Islamic banks
performance has been better in terms of efficiency, return and asset quality.
However Islamic banks are suffering in terms of advances, investment, liquidity, deposits and capital as
conventional banks performance is better in these areas. Similarly, Jaffar & Manarvi (2011) found that Islamic
banks have done better to have adequate capital and a better liquidity position, where conventional banks have
pioneered in quality management and earning capacity. Conventional banks recorded slightly smaller loan loss ratios
showing improved loan recovery policy whereas, UNCOL ratio analysis showed a nominal better performance for
Islamic banks. Similarly, Alzghoul (2015) found that Islamic banks are performing well in management efficiency,
liquidity management and ROA than conventional banks. Their study showed that there exists a significant
difference between conventional and Islamic bank in Bangladesh on profitability, credit risk, capitalization and bank
size. On the other hand, Noman et al., (2015) found that Islamic banks' productivity, performance, liquidity and
volume are lower than conventional banks in Bangladesh. Conventional banks were on top of the list and Islamic
banks stood mostly after 12th rank in terms of performance over the period. yet, the progress ratio depicted that
Islamic banks had better performance in 2012 as compared to 2006 (Rashid et al., 2015). Kakakhel et al., (2013)
claimed that In addition, the overall result of the study was that Conventional banks in Pakistan performed their jobs
more effectively in 2008-2010 than Islamic banks. .
On the other hand, Chowdhury (2013) in their a rigorous comparative study, profitability, liability and
liquidity ratios of Islamic banks and conventional banks were used during the period from 1995 to 2009 found that
the Islamic banks have high liquidity power over conventional banks. Chakraborty, Salam, & Rabbany (2015) in
their study on the financial analysis procedure of Islami Bank Bangladesh Limited (IBBL). They considered the
56
productivity ratio, current ratio quick ratio, profitability ratio, solvency ratio as the measure of efficiency and
profitability and found that this bank is increasing its performance efficiency and also conclude that, the profit of
IBBL is free from traditional interest. Hassan & Bashir (2003) claimed that interest free banks were less efficient on
performance base operations as compared to conventional banks. However, there is negative relationship between
market share and profitability (Ansari & Rehman, 2011). Kader & Asarpota (2006) found that traditional banking
profitability exist in Islamic banking. Conventional banks were superior on its profitability, liquidity and credit risk
management than Islamic banks (Fayed, 2013). Hanif et al.,(2012) found that credit risk management and solvency
maintenance Islamic banking dominates the convention banking. Motivating factors for customers of Islamic
banking were the location and Shari’a compliance, while in case of conventional banking it was the wide range of
products and services. Again Samad (2004) found that conventional banks registered growth in revenue during the
period, but could not achieve improved profitability on account of higher provisions towards credit losses.
All the above studies conducted in different countries deal with common problem. Most of them were
conducted to analyze the performance of Islamic and conventional banks. All studies have not same result because
of differences in selected time periods, analytical tools and cultural perspective. Concerning the Bangladeshi
Commercial banks, available studies were not done for comparative financial performance analysis of Islamic and
Conventional banks. Very few studies were done related to this topic in Bangladesh. Considering the research gap
we undertake this study to measure financial performance of Islamic and Conventional banks using CAMEL rating
approach.
2.1 Hypothesis
Based on the above literature review the following hypothesis have been developed
H0: There is no significant difference between Islamic Banks (IBs) and Conventional Banks (CBs) regarding
financial performances in Bangladesh
H1: There is a significant difference between Islamic Banks (IBs) and Conventional Banks (CBs)) regarding
financial performances in Bangladesh.
3. Methodology
3.1 Population
The population of this research study is the entire Islamic and Conventional commercial banks in Bangladesh.
3.2 Sample Size

For these study five Islamic banks and five Conventional banks, total 10 commercial banks were selected as sample.
A purposive sampling was employed for selecting the sample banks. These banks are Islami Bank Bangladesh
Limited, Shahjalal Islami Bank Limited, EXIM Bank Limited, Al-Arafah Islami Bank Limited, First Security Islami
Bank Limited (05 Islamic Banks) and Agrani Bank Limited, Janata Bank Limited, Dhaka Bank Limited, Dutch-
Bangle Bank Limited and Mercantile Bank Limited (05 Conventional banks).
3.3 Data and Time Periods

Secondary data were collected from the annual reports of selected banks for the year 2011 to 2015.
3.4 Analysis tool and Techniques

This study analyses the financial performance of Islamic banks and Conventional banks of Bangladesh by using the
CAMEL rating and to get the significant differences among the variables, the independent t-test is used for each of
the CAMEL ratios. There are five category variables of CAMEL model. These are capital adequacy, assets quality,
management quality, earning ability and liquidity position.
4. Findings and Analysis

Analysis under CAMEL Model
4.1 Capital Adequacy

Through capital adequacy ratio we have analyzed and dignified the bank’s financial strong point. Capital adequacy
ratios comprise of equity to asset, equity to net loans and capital adequacy ratio.
57
4.1.1 Equity to Asset

The relative part of equity used to finance a firm’s assets is indicated by equity to total assets ratio. The division of
total equity by total assets is calculated equity ratio.
Table 1. Equity to Assets ratio positions of selected banks (2011– 2015)
Islamic Banks
Year IBBL Shahjalal EXIM First Al-Arafah Average
Security
2011 7.09 7.34 11.15 5.00
11.23 8.36%
2012 8.22 7.20 9.96 4.40
9.41 7.84%
2013 8.01 8.37 10.55 4.08
9.29 8.06%
2014 7.15 9.04 8.71 4.22
7.89 7.40%
2015 6.52 9.50 9.54 3.76
7.64 7.34%
Conventional Banks
Year Dhaka DBBL Mercantile Janata Agrani Average
2011 8.85% 7.25 8.29 7.63 7.35 7.87%
2012 7.32 6.96 7.16 3.42 1.80 5.33%
2013 8.34 6.81 8.68 6.33 7.98 7.63%
2014 8.17 6.72 8.02 6.28 7.96 7.43%
2015 7.76 6.86 8.49 6.15 7.88 7.43%
Source: Calculated from annuals study during the periods 2011-2015
Table no. 1 shows the Equity to Assets ratio of both IBs and CBS banks from the period of 2011 to 2015.
The sequence of the analysis from the above table and graph it has been observed that the Equity to Assets Ratio of
all Islamic and Conventional banks were at a satisfactory level. From analysis it was also observed that the Equity to
Assets ratio of Islamic Banks is higher than the Conventional banks. Hence, the result proved that Islamic banks
were efficiently managing its capital to protect the interest of depositors as well as lenders.
Table 2. Equity to Assets Ratios for the Period 2011-2015

Ratios Banks 2011 2012 2013 2014 2015 Mean Mean Rank
Difference
Equity to Assets IBs 8.36 7.84 8.06 7.40 7.34 7.80 .66 1
NIBs 7.87 5.33 7.63 7.43 7.43 7.14 2

Source: Compiled by MS-Excel
Table 2 depicts that, the average Equity to Assets ratio of Islamic and CBs are 7.80% and 7.14% along with
mean variance .66%. Therefore, Islamic Banks executed better than CBs in term of Equity to Assets ratio during the
stipulated time.
Table 3. T-Test: Paired Two Sample for Means

Mean IBs CBS
Variance 7.8 7.138
Observations 0.1886 1.05432
Pearson Correlation 5 5
Hypothesized Mean Difference 0.120201
Df 0
t Stat 4
P(T<=t) two-tail 1.389016
t Critical two-tail 0.24
2.77
Source: Calculated from table no. 1
58
From Table 3, depicts that the sample calculated t-value is 1.389 and the sample tabulated t-value is 2.776. So,
the position is like that t-value < t-value and P-value is greater than 0.05 (level of significance) that indicated that
null hypothesis was accepted. There is no significant difference in Capital adequacy of IBs and CBs in Bangladesh.
4.2.1 Equity to Total Loans

This ratio is used to measure an entity's monetary leverage. The soundness of this ratio indicates the bank’s higher
capabilities of inquiring losses.
Table 4. Equity to Loans ratio of IBs and CBs (2011– 2015)

Islamic Banks
Year IBBL Shahjalal EXIM First Security Al-Arafah Average
2011 9.03 9.59 14.15 6.55 15.43 10.95%
2012 10.64 9.81 14.07 5.93 13.17 10.72%
2013 10.86 12.45 14.33 5.78 12.80 11.24%
2014 10.12 13.56 12.98 5.67 11.31 10.69%
2015 9.01 12.40 12.89 5.15 10.77 10.04%
Conventional Banks
2011 12.23% 11.22 12.07 13.21 13.25 12.39%
2012 10.78% 11.84 11.67 5.72 3.23 8.65%
2013 12.00% 11.88 12.87 12.98 17.77 13.50%
2014 12.52% 11.67 11.55 12.33 16.88 12.99%
2015 11.58% 11.00 12.28 12.01 18.33 13.04%
Table 4 shows the Equity to Loans ratios of both selected banks from the period of 2011 to 2015.From the
analysis it is observed that the Equity to Loans ratio of Conventional banks is higher than the Islamic Banks. The
result proves that CBs are more capable of digesting loan losses as compared to IBs.
Table 5. Equity to Loans Ratios for the Period 2011-2015
Difference
Equity to Loans IBs 10.95 10.72 11.24 10.69 10.04 10.73 1.38 2
(%)
NIBs 12.39 8.65 13.50 12.99 13.04 12.11 1
In tables 5, the average Equity to Loans ratio of IBs and CBs are 10.73% and 12.39% in that order with
mean difference 1.38%. Therefore, CBs performed better than IBs in term of Equity to Loans ratio during the study
period.
Table 6. T-Test: Paired Two Sample for Means of equity to loan ratio
Particulars IBs CBS

Mean 10.728 12.114
Variance 0.19657 3.90533
Observations 5 5
Pearson Correlation 0.036591
Hypothesized Mean Difference 0
Df 4
t Stat -1.54233
59
From Table 6, it has been shown that the calculated t-value is 1.542 and the tabulated t-value is 2.776 while
P-value is 0.1978. Since the t-value is less t-value and P-value is greater than 0.05 (level of significance) which
means that null hypothesis is accepted. That is there is no significant difference between IBS and CBs based on
equity to loans ratio.
4.1.3 Capital Adequacy Ratio (CAR)

CAR represents the association of risk-weighted assets of a bank and its equity.The Bank for International
Settlement (BIS) set minimum capital ratio is 10.
Capital Adequacy Ratio = Total Capital/ Total risk weighted assets.
Table 7. Capital Adequacy ratio of Islamic and Conventional Banks (2011-2015)
Islamic Banks
2011 13.09 11.40 10.88 9.07 13.47 11.58%
2012 13.49 12.81 10.94 10.20 11.75 11.84%
2013 14.25 12.56 13.30 10.13 14.66 12.98%
2014 12.83 13.61 11.80 11.73 14.03 12.80%
2015 11.66 13.52 12.15 10.27 16.65 12.85%
Conventional Commercial Banks
2011 10.70 11.20 10.52 10.20 10.99 10.72%
2012 10.74 12.00 10.83 3.70 (6.15) 6.24%
2013 12.18 13.70 11.43 10.27 10.04 11.52%
2014 11.20 13.80 12.95 10.30 10.44 11.74%
2015 10.46 13.70 11.87 10.16 9.54 11.14%
The Capital Adequacy Ratio of Islamic banks in 2011 were 11.58%. Then it increased to 11.84% in 2012.
Afterward it also increased till 2015. The average performance of IBs was good. Al-Arafah Islami Bank Ltd done
well than other Islamic banks during the study period. The CAR was not satisfactory of Conventional banks during
the study period. In 2011, it was 10.72% and then it decreased to 6.24% in 2012. It was below the standard. In 2013,
it again increased to 11.52%. Dutch Bangla Bank Limited performed better among the selected Conventional banks.
Table 8. Capital Adequacy for the Period 2011-2015
Difference
Capital IBs 11.58% 11.84% 12.98% 12.80% 12.85% 12.41 2.14% 1
Adequacy
Ratio NIBs 10.72% 6.24% 11.52% 11.74% 11.14% 10.27 2
Table-8, depicts that the Capital Adequacy Ratio of selected groups of banks are 12.41% and 10.27%
respectively with mean difference 2.14%. Therefore, IBs performed is superior to CBs in term of equity to assets
ratio during 2011-2015.
Table 9. t-Test: Paired Two Sample for Means

Particulars IBs CBS
Mean 0.1241 0.10272

Variance 4.21E-05 0.000523
Observations 5 5
60

Df 4
t Stat 2.434606
Table-9 represents that the calculated t-value of sample and tabulated t-value of sample are 2.434 and 2.776
respectively where P-value is 0.0716. As tabulated t-value is greater than the calculated value and P-value is also
greater than .05 that leads the accepted of null hypothesis. Therefore, there is no substantial difference between the
Capital Adequacy Ratio (Capital adequacy) of Islamic and Conventional banks in Bangladesh.
4.2 Asset Quality

This study uses Non-performing loans to Total Loans ratio to measure the assets quality of Islamic banks and
Conventional banks as well.
4.2.1 Non-performing loans to Total Loans ratio

Non-performing loans to total loans ratio measures the portion of Non-performing loans in loan portfolio. This ratio
is measured by using the following formula:
Non-performing loans to Total loans and Advances= Non-performing loans/Total loans and Advances.
Table 10. Non-performing loan (NPL) to Loan ratio for the Period 2011-2015
Islamic Banks

Security
2011 2.37 1.84 4.01 7.4 .95 3.31%
2012 3.80 2.89 3.01 .88 1.63 2.43%
2013 3.70 6.29 4.18 .84 2.77 3.55%
2014 4.92 7.65 3.78 .18 4.50 4.21%
2015 4.22 6.31 3.73 .19 4.66 3.82%
Conventional Banks

2011 3.45 3.70 2.61 5.83 1.11 3.34%
2012 6.28 4.40 4.37 17.42 2.55 7.00%
2013 4.15 3.90 4.77 11.12 1.79 5.15%
2014 5.49 3.00 5.09 11.69 1.70 5.39%
2015 4.66 2.70 4.95 12.24 1.91 5.29%
Table 10 represents the NPL to Total Loans ratios of both banking systems. The smaller of this ratios leads
to better financial performance of the bank. The analysis shows that NPL to Total Loans ratios of the Islamic Banks
is lesser than the Conventional banks. Therefore, asset quality is well managed by Islamic banks compared to
Conventional banks.
Table 11. Assets Quality Ratios for the Period 2011-2015
Difference
Assets Quality IBs 3.31 2.43 3.55 4.21 3.82 3.46% 1.36% 1
Ratio (%)
NIBs 3.34 7.00 5.15 3.39 5.20 4.82% 2
61
The above mentioned table represents that during the period of 2011-2015 Islamic Banks did perform better
compared to conventional bank in terms of Asset quality ratios. We concluded this results through the following
ratios. Non-Performing Loans (NPL) to Total Loans ratios of conventional banks is 4.82 % and Non-Performing
Loans (NPL) to Total Loans ratios of Islamic Banks is 3.46%. The mean difference is 1.36%.
Particulars IBs CBs
Mean 0.03464 0.05234

Variance 4.46E-05 0.000169
Observations 5 5
Pearson Correlation -0.4053
Df 4
t Stat -2.35118
Table-12 represents that the calculated t-value of sample and tabulated t-value of sample are -2.351 and
2.776 respectively where P-value is 0.078. As tabulated t-value is greater than the calculated value and P-value is
also greater than .05 that leads the accepted of null hypothesis. Therefore, there is no substantial difference between
the Assets Quality Ratio of Islamic and Conventional banks in Bangladesh.
4.3 Management Capability

The management performance of banks is determined by several ratios. To examine the efficiency of management
this study treats Operating Expenses to Operating Income ratio, Operating Expenses per Employee and Earnings per
Employee.
4.3.1 Operating Expenses (OE) to Operating Income (OI)

Operating Expenses (OE) tells about how bank is efficient in its operations. The smaller OE to OI ratio is the better
financial performance of the bank. This ratio is calculated by using the following formula: Operating Expenses to
Operating Income ratio = Total Operating Expenses/ Total Operating Income.
Table 13. Operating Expenses to Operating Income ratio (2011-2015)
Islamic Banks
Security
2011 36.23% 36.64 38.61 41.9526.25 35.94%
2012 36.03 29.55 34.01 48.4231.89 35.98%
2013 43.70 46.58 39.57 54.3635.02 43.85%
2014 44.06 52.83 51.03 56.8134.00 47.75%
2015 48.10 52.78 41.50 60.1537.79 48.06%
Conventional Banks
2011 30.62 47.42 42.74 31.19 29.95 36.38%
2012 38.81 53.91 46.11 33.98 41.09 42.78%
2013 41.67 63.90 38.88 41.86 42.34 45.73%
2014 42.95 61.61 49.09 47.65 44.93 49.25%
2015 46.83 58.78 50.76 50.58 55.94 52.57%
62
Table 13 shows OE to OI ratios of both banking systems. The smaller OE to OI ratios are, the better the
financial performance of the bank. The above analysis indicates that OE to OI ratios of Conventional banks are
higher than the Islamic Banks. Therefore, based on the OE to OI ratio Islamic banks did perform better compared to
conventional banks.
Table 14. Operating Expenses to Operating Incomes Ratios for the Period 2011-2015
Difference
OE to IBs 35.94 35.98 43.85 47.75 48.06 42.32 3.02% 1
OI (%)
NIBs 36.38 42.78 45.73 49.25 52.57 45.34 2
compared to conventional bank in terms of Operating Expenses to Operating Income ratios. We concluded this
results through the following ratios. Operating Expenses to Operating Income ratios of conventional banks is 45.34
% and Operating Expenses to Operating Income ratios of Islamic Banks is 42.32%. The mean difference is 3.02%.
Particulars IBs CBs

Mean 0.42316 0.45342
Variance 0.003642 0.003864
Observations 5 5
Df 4
t Stat -2.6153
Table-15 represents that the calculated t-value of sample and tabulated t-value of sample are 2.615 and
the Operating Expenses to Operating Income Ratio (Management Efficiency) of Islamic and Conventional banks in
Bangladesh.
4.3.2 Operating Expenses per Employee

Operating expenses per employee shows the relationship between total operating expenses and total number of
employee for a period.
Operating Expenses per employee = Total operating expenses/ Total number of Employee
Table 16. Operating Expenses per employee for the Period 2011-2015
Islamic Banks
Security
2011 .64 1.05 1.44 .86 .85 .97 million
2012 .73 1.03 1.44 .88 1.05 1.03
2013 .85 1.18 1.45 1.02 1.11 1.12
2014 .88 1.29 1.71 1.12 1.23 1.25
2015 .99 1.33 1.68 1.36 1.24 1.32
63
Conventional Banks
2011 1.58 1.07 1.58 .47 .52 1.04 million
2012 1.49 1.16 1.45 .49 .51 1.02
2013 1.92 1.74 1.73 .56 .56 1.30
2014 2.07 1.54 1.87 .67 .65 1.36
2015 2.14 1.76 1.93 .77 .83 1.48
Table-16 represents that the operating expenses per employee had been shown rising indices of Islamic
banks and Conventional banks d during the study period. It also shows that operating expenses per employee of
Islamic banks is lower than the Conventional banks except the year of 2012. On the basis of the operating expenses
per employee Islamic banks shows efficient management efficiency compared to Conventional banks.
Table 17. Operating Expenses per employee for the Period 2011-2015
Difference
OE per Employee IBs .97 1.03 1.12 1.25 1.32 1.14 .10 1
(Millions)
NIBs 1.04 1.02 1.30 1.36 1.48 1.24 2
The above mentioned table represents that during the period of 2011-2015 Islamic Banks did perform
slightly good compared to conventional bank in terms of the average operating expenses per employee ratios. We
concluded this results through the following ratios. The average earnings per employee ratios of conventional banks
is Tk. 1.24 million and the average expenses per employee ratios of Islamic Banks is Tk. 1.14 million. The mean
difference is Tk. 0.10 million.

Particulars IBs CBs
Mean 1.138 1.24
Variance 0.02147 0.041
Observations 5 5
Df 4
t Stat -3.0026
P(T<=t) one-tail 0.01992
2.776 respectively where P-value is 0.0394. As tabulated t-value is less than the calculated value and P-value is less
than .05 that leads the rejection of null hypothesis. Therefore, there is a substantial difference between the Operating
Expenses per Employee Ratio (Management Efficiency) of Islamic and Conventional banks in Bangladesh.
4.3.3 Earnings per Employee

This ratio shows net income of per employee. The higher ratio is the better the financial performance of the bank.
Earnings per Employee = Net Income/ Number of Employee
64
Table 19. Earnings per employee for the Period 2011-2015
Islamic Banks
2011 .42 .79 1.16 .43 1.22 .80
million
2012 .44 .93 1.13 .36 .92 .76
2013 .38 .60 .86 .33 .95 .62
2014 .30 .34 1.01 .26 .88 .57
2015 .22 .61 .81 .30 .88 .56
Conventional Banks
2011 1.81 .54 1.05 .30 .21 .78
million
2012 .54 .44 .69 (1.01) (1.34) (.14)
2013 1.36 .43 1.09 .62 .65 .83
2014 1.39 .39 .59 .26 .15 .56
2015 .99 .58 .65 .34 .05 .52
Table-19 represents that the earnings per employee of Islamic banks and Conventional banks. In 2012,
Conventional banks shows average earnings per employee is negative value whereas Islamic banks was in a parallel
way. Therefore, during the period of 2011-2015 Islamic Banks did perform better confirmed to Conventional banks.
Table 20. Earnings per employee for the Period 2011-2015
Difference
Earnings per IBs .80 .76 .62 .57 .36 .62 .11 1
Employee NIBs .78 (.14) .83 .56 .52 .51 2
(Millions)
slightly good compared to conventional bank in terms of the average earnings per employee ratios. We concluded
this results through the following ratios. The average earnings per employee ratios of conventional banks is Tk. 0.62
million and the average earnings per employee ratios of Islamic Banks is Tk. 0.51 million. The mean difference is
Tk. 0.11 million.
Table 21. t-Test: Paired Two Sample for Mean

Particulars IBs CBs
Mean 0.622 0.51
Variance 0.03052 0.1501
Observations 5 5
Df 4
t Stat 0.55398
65
the Earnings per Employee Ratio (Management Efficiency) of Islamic and Conventional banks in Bangladesh.
4.4 Earning Ability

Earnings ability determines the profitability of an organization. Earnings ability is the major concern of an
organization. This study uses following key ratios to measure the earnings ability of Islamic banks and Conventional
banks.
 Net Interest Margin (NIM) Ratio
 Cost Income Margin (CIM) ratio
 Return on Assets (ROA)
 Return on Equity (ROE)
 Return on Deposits (ROD)
4.4.1 Net Interest Margin Ratio (NIM)

Net Interest Margin Ratio shows the direct relationship between the taka volumes of Interest Received and paid
during a specific period. A relatively higher NIM ratio indicates the higher earnings ability of a commercial bank
(Chowdhury, 2013). It is measured by the following formula:
NIM Ratio = (Interest Income – Interest Expense)/ Total Assets
Table 22. Net Interest Margin Ratio for the Period 2011-2015
Islamic Banks
Security
2011 4.02 2.68 2.90 4.26 3.76 3.52%
2012 4.49 3.14 2.99 4.46 3.54 3.72%
2013 3.95 2.32 2.53 4.57 3.38 3.35%
2014 3.85 2.36 3.00 2.11 3.37 2.94%
2015 4.01 2.61 3.07 2.11 2.92 2.94%
Conventional Banks
2011 2.22 4.02 2.93 1.90 3.83 2.98%
2012 1.97 4.49 2.99 1.13 1.61 2.44%
2013 2.29 3.95 3.58 .34 3.43 2.72%
2014 1.78 3.86 3.82 (.35) 3.90 2.60%
2015 1.14 4.01 3.27 (.48) 3.40 2.27%
The above mentioned table represents the NIM Ratio of all Islamic and Conventional banks were at a
satisfactory level. In 2012 Islamic banks achieved highest NIM and in 2011 Conventional banks achieved height net
interest margin. Islami Bank Bangladesh Ltd. Performed very well among the Islamic banks. On the other hand,
Dutch Bangla Bank Ltd. Performed very well among the Conventional banks. Generally, the Islamic Banks
performed better compared to Conventional banks.
Table 23. Net Interest Margin Ratio for the Period 2011-2015
Difference
IBs 3.52 3.72 3.35 2.94 2.94 3.29% .69% 1
NIBs 2.98 2.44 2.72 2.60 2.27 2.60% 2
slightly good compared to conventional bank in terms of NIM ratio. We concluded this results through the following
66
ratios. Net Interest Margin ratio of conventional banks is 2.60 % and Net Interest Margin ratios of Islamic Banks is
3.29 %. The mean difference is 0.69%.
Particulars IBs CBs

Mean 0.03294 0.02602
Variance 1.22E-05 7.33E-06
Observations 5 5
Df 4
t Stat 4.389428
2.776 respectively where P-value is 0.0117. As tabulated t-value is less than the calculated value and P-value is less
than .05 that leads the rejection of null hypothesis. Therefore, there is a substantial difference between the Net
Interest Margin Ratio (Earnings Ability) of Islamic and Conventional banks in Bangladesh.
4.4.2 Cost Income Margin Ratio (CIM)

Cost Income Margin Ratio shows the direct relationship between the total Income and Expenditure during a specific
period.
Cost Income Margin Ratio = (Total Income- Total Expenses)/ Total Expenses
Table 25. Cost Income Margin Ratio for the Period 2011-2015
Islamic Banks
Security
2011 36.88 75.03 33.39 138.30 26.25 61.97%
2012 31.25 68.77 35.51 106.5 31.89 54.78%
2013 24.53 82.74 26.37 83.92 35.02 50.52%
2014 22.16 82.36 30.42 76.02 33.99 48.99%
2015 18.56 80.35 30.56 66.24 36.44 46.43%
Conventional Banks

2011 30.62 47.40 42.62 63.10 55.34 47.82%
2012 39.67 53.90 45.17 41.54 72.78 50.61%
2013 42.38 63.90 41.66 28.23 74.15 50.06%
2014 44.47 61.6 44.84 23.37 74.25 49.71%
2015 47.77 58.8 50.46 23.77 79.52 52.06%
The Cost Income Margin Ratio of all Islamic and Conventional banks were at a satisfactory level during the
study period. The CIM ratio of Islamic banks was 61.97% in 2011 and then it gradually decreased till 2015. The
First Security Islamic Bank Limited performed better among the Islamic banks. The CIM ratio of Conventional
banks was 47.825 and then it increased to 50.61% in 2012. It also decreased to 50.06% and 49.71% respectively in
2013 and 2014. 2015 was the significant year for Conventional banks and it was 52.06%. Agrani bank Limited
performed better among the Conventional banks.
67
Table 26. Cost Income Margin Ratio for the Period 2011-2015
Difference
CIM (%) IBs 61.97 54.78 50.52 48.99 46.43 52.52% 2.47% 1
NIBs 47.82 50.61 50.06 49.71 52.06 50.05% 2
slightly good compared to conventional bank in terms of CIM ratio. We concluded this results through the following
ratios. The average Return on Equity of conventional banks is 50.05 % and average Return on Assets of Islamic
Banks is 52.52 %. The mean difference is 2.47%.

Particulars IBs CBs
Mean 0.52538 0.50052
Variance 0.003699 0.000236
Observations 5 5
Df 4
t Stat 0.751031
t Critical one-tail 2.131847
Cost Income Margin Ratio (Earnings Ability) of Islamic and Conventional banks in Bangladesh.
4.4.3 Return on Assets (ROA)

The ratio measures the net income produced by total assets during a period. The higher the Return on Assets ratio is,
the better the financial performance of the organization.
Return on Assets = Net income/ Average Total Assets
Table 28. Return on Assets Ratio for the Period 2011-2015
Islamic Banks
Security
2011 1.35 1.26 1.65 1.75 2.06 1.61%
2012 1.27 1.44 1.45 .69 1.30 1.23%
2013 .96 1.00 1.06 .53 1.13 .95%
2014 .67 .59 1.16 .35 1.10 .77%
2015 .44 .98 .88 .35 1.08 .75%
Conventional Banks
2011 2.22 1.90 1.70 1.12 .72 1.53%
2012 .59 1.70 1.03 (3.50) (4.92) (1.02)%
68
2013 1.39 1.20 1.33 1.42 2.04 1.48%

2014 1.34 1.10 .76 .61 .40 .84%
2015 .86 1.30 .79 .70 .12 .75%
From the table 28, the Return on Assets (ROA) ratio of Conventional banks was unstable during the study
period. In 2011 it was 1.53% then it declined to (1.02%) in 2012, again it increases in 2013 and there was ups and
downs till 2015. Conventional banks achieved most ROA ratio in 2013. On the other hand, from above table and
figure it is observed that ROA of Islamic banks are at a satisfactory level during the period of study. In 2011, it was
1.61% and it was the significant year for Islamic banks.
Table 29. Return on Assets Ratio for the Period 2011-2015

Difference
ROA IBs 1.61 1.23 .95 .77 .75 1.06% .34% 1

NIBs 1.53 (1.02) 1.48 .84 .75 .72 2
slightly good compared to conventional bank in terms of Return on Assets. We concluded this results through the
following ratios. The average Return on Equity of conventional banks is 0.72 % and average Return on Assets of
Islamic Banks is 1.06 %. The mean difference is 0.34%.
Table 30. T -Test: Paired Two Sample for Means

Particulars IBs CBs
Mean 0.01062 0.00716

Variance 1.31E-05 0.000107
Observations 5 5
Df 4
t Stat 0.70952
the Return on Assets Ratio (Earnings Ability) of Islamic and Conventional banks in Bangladesh.
4.4.4 Return on Equity

Return on equity represents how efficiently an organization manages and uses the money from shareholders to
generate profit.
Return on Equity= Net Income/ Total Shareholders’ Equity
Table 31. Return on Equity Ratio for the Period 2011-2015
Islamic Banks
2011 17.42 13.80 14.91 12.74 18.34 15.44%
69
2012 13.42 17.01 13.86 13.45 13.85 14.32%

2013 11.36 12.67 10.27 11.95 14.15 12.08%
2014 8.85 6.60 11.35 7.78 12.80 9.47%
2015 6.28 10.78 9.06 8.28 12.82 9.44%
Conventional Banks

2011 23.49 27.00 20.59 16.32 9.64 19.41%
2012 7.24 23.40 13.42 (49.74) (259.94) (53.12)%
2013 16.21 17.00 16.84 30.09 25.39 21.11%
2014 15.92 16.20 9.11 9.66 5.02 11.18%
2015 10.74 19.30 9.60 11.44 1.46 10.51%
The above mentioned table represents that the Return on Equity of Islamic bank were at an adequate level
during the period of study 2011-2015. In 2011, it was 15.44%% and it was the substantial year for Islamic banks. On
the other hand, Conventional banks ROE were ups and downs throughout the period. Conventional banks achieved
height ROE ratio in 2013 and it was 21.11%. The situation went worst in 2012 and it was (53.12%). This reduces
the average ROE of the Conventional banks. In a nutshell, in term of Return on Equity the Islamic banks did better
compared to Conventional banks.
Table 32. Return on Equity Ratio for the Period 2011-2015
Difference
ROE (%) IBs 15.44 14.32 12.08 9.47 9.44 12.15% 10.33% 1
NIBs 19.41 (53.12) 21.11 11.18 10.51 1.82% 2
compared to conventional bank in terms of Return on Equity. We concluded this results through the following ratios.
The average Return on Equity of conventional banks is 1.82 % and average Return on Equity of Islamic Banks is
12.15%. The mean difference is 10.33%.
Particulars IBs CBs
Mean 0.1215 0.01818

Variance 0.000752 0.096576
Observations 5 5
Df 4
t Stat 0.720234
the Return on Equity Ratio (Earnings Ability) of Islamic and Conventional banks in Bangladesh.
70
4.4.5 Return on Deposit

This ratio represents that the amount of net income returned as a percentage of total deposits.
Return on Deposit = Net Profit/ Total Deposits
Table 34. Return on Deposit Ratio for the Period 2011-2015
Islamic Banks

2011 1.42 1.56 1.87 .74 2.68 1.60%
2012 1.28 1.72 1.48 .69 1.64 1.36%
2013 1.16 1.36 1.14 .55 1.61 1.16%
2014 .71 .76 1.23 .36 1.39 .89%
2015 .50 1.21 .92 .34 1.45 .88%
Conventional Banks

2011 2.63 2.14 1.70 1.23 1.00 1.74%
2012 .73 1.84 1.05 3.73 (6.38) .19%
2013 1.71 1.38 1.59 1.99 2.60 1.85%
2014 1.68 1.32 .85 .74 .70 1.05%
2015 1.09 1.62 .90 .85 .15 .92%
From Table 34 it is observed that Islamic banks earned height Return on Deposits (ROD) ratio in 2011 and
it was 1.60%. In 2014 and 2015, Islamic banks performance was not stable. But overall Islamic banks performance
was good. On the other hand conventional banks performance ups and down throughout the study period. 2013 was
the significant year for the Conventional banks. In this year Conventional banks achieved height ROD ratio and it
was 1.85%. Conventional banks performance heavily decreased to .19% in 2012 and it affected average earnings on
deposit.
Table 35. Return on Deposit Ratio for the Period 2011-2015
Difference
ROD IBs 1.60 1.36 1.16 .89 .88 1.18% .03% 1
(%) NIBs 1.74 .19 1.85 1.05 .92 1.15% 2
The above mentioned table represents that during the period of 2011-2015 no significant difference exist
between Islamic Banks and conventional bank in terms of Return on Deposits ratio. We concluded this results
through the following ratios. The average Return on deposit ratio of conventional banks is 1.18% and are and
average Return on deposit ratio of Islamic Banks is 1.15%. The mean difference is 0.03%.
Particulars IBs CBs
Mean 0.01178 0.0115

Variance 9.58E-06 4.56E-05
Observations 5 5
Df 4
71
t Stat 0.091135
Return on Deposits Ratio (Earnings Ability) of Islamic and Conventional banks in Bangladesh.
4.5 Liquidity Ratio

Another terminology is short-term Solvency ratio. The s following key ratios measure the liquidity position of
Islamic banks and Conventional banks: a) Cash to Deposit Ratio b) Loans to Deposit Ratio and c) Loans to Total
Assets Ratio.
4.5.1 Cash to Deposit Ratio

It is the ratio of a company's total cash and cash equivalents to its customer’s deposits.
Cash to Deposit Ratio = Cash in Hand and Bank/ Total Deposits
Table 37. Cash to Deposit Ratio for the Period 2011-2015

Islamic Banks

Security
2011 11.89 11.53 13.81 9.14 8.93 11.06%
2012 10.00 12.63 18.61 9.57 10.69 12.30%
2013 10.37 10.62 13.33 8.27 12.47 11.01%
2014 8.26 8.60 14.23 8.92 12.39 10.48%
2015 8.99 8.51 11.54 11.77 15.73 11.31%
Conventional Banks

2011 11.15 10.56 6.79 6.67 7.54 8.52%
2012 10.18 14.98 9.09 7.76 7.11 9.82%
2013 10.26 14.89 8.35 7.01 7.57 9.62%
2014 12.74 14.12 9.18 7.72 7.92 10.33%
2015 10.76 12.23 8.85 7.48 7.72 9.41%
From the sequence of the analysis from the above table it has been observed that the Cash to Deposit Ratio
of all Islamic and Conventional banks were at a satisfactory level. The cash ratio of Islamic banks was 11.06% in
2011. Then it increased to 12.30% in 2012. Subsequently this ratio was stable till 2015. Among the Islamic banks
EXIM bank performed very well. On the other hand, the Cash to Deposits ratio was 8.52% in 2011. Then it
increased to 9.82%. It decreased to 9.63% in 2013. Subsequently it increased pointedly to 10.33% in 2014. Dutch
Bangla Bank Limited was the best performer among the Conventional banks. In a nutshell, the Islamic banks did
better compared to Conventional banks in term of Cash to Deposits ratio.
Table 38. Cash to Deposit Ratio for the Period 2011-2015
Ratios Banks 2011 2012 2013 2014 2015 Mean Mean Difference Rank
Cash to IBs 11.06 12.30 11.01 10.48 11.31 11.23% 1.69% 1
Deposits
(%) NIBs 8.52 9.82 9.62 10.33 9.41 9.54% 2
72
compared to conventional bank in terms of Cash to Deposit ratio. We concluded this results through the following
ratios. The average Cash to Deposit ratio of conventional banks is 9.54% and are and average Loan to Deposit ratio
of Islamic Banks is 11.23%. The mean difference is 1.69%.
Particulars IBs CBs
Mean 0.11232 0.0954

Variance 4.48E-05 4.42E-05
Observations 5 5
Df 4
t Stat 3.855285
t Critical one-tail 2.131847
respectively where P-value is 0.01822. As tabulated t-value is less than the calculated value and P-value is less than
.05 that leads the rejection of null hypothesis. Therefore, there is a substantial difference between the Cash to
Deposit Ratio (Liquidity Position) of Islamic and Conventional banks in Bangladesh.
4.5.2 Total Loans to Customer Deposits Ratio

Loan to Deposit Ratio = Total Loans/ Total Customer Deposits
Table 40. Loan to Deposit Ratio for the Period 2011-2015
Islamic Banks

Security
2011 89.45 82.77 92.42 88.90 89.07 88.52%
2012 89.25 80.82 84.22 87.62 90.56 86.49%
2013 94.34 84.32 86.79 82.14 88.74 87.26%
2014 82.25 89.64 88.84 83.72 88.89 86.67%
2015 85.40 93.00 87.22 81.15 87.32 86.82%
Conventional Banks

2011 89.10 79.10 78.23 71.28 76.95 78.93%
2012 83.91 73.10 70.87 74.52 72.72 75.02%
2013 84.22 73.30 78.42 69.71 58.21 72.77%
2014 81.26 74.60 83.33 61.97 61.23 72.48%
2015 84.74 81.50 81.58 61.15 55.64 72.92%
The above mentioned table represents that the Loans to Deposit Ratio of Islamic and Conventional banks
were not at a satisfactory level. Because Loans to Deposits ratio was too high for both Islamic and Conventional
Banks. Islamic bank achieved height Loans to Deposit ratio in 2011 and it was 88.52%. Islamic bank achieved
73
height Loans to Deposit ratio in 2011 and it was 78.93%. If the Loans to Customer Deposits ratio is too high, it
means that banks might not have enough liquidity. Therefore, in term of Loans to Deposits ratio the Conventional
banks did better than Islamic banks.
Table 41. Loan to Deposit Ratio for the Period 2011-2015
Difference
Loans to IBs 88.52 86.49 87.26 86.67 86.82 87.15% 12.73% 2
Deposits
NIBs 78.93 75.02 72.77 72.48 72.92 74.42% 1
The above mentioned table represents that during the period of 2011-2015 conventional banks did perform
better compared to Islamic Banks in terms of Loans to Deposit ratio. We concluded this results through the
following ratios. The average Loan to Deposit ratio of conventional banks is 87.15% and average Loan to Deposit
ratio of Islamic Banks is 74.42%. The mean difference is 12.73%.
Particulars IBs CBs

Mean 0.87152 0.74424
Variance 6.66E-05 0.000736
Observations 5 5
Df 4
t Stat 13.39965
respectively where P-value is 0.00017. As tabulated t-value is less than the calculated value and P-value is less than
.05 that leads the rejection of null hypothesis. Therefore, there is a substantial difference between the Loans to
Deposit Ratio (Liquidity Position) of Islamic and Conventional banks in Bangladesh.
4.5.3 Loan to Total Assets

The ratio helps to evaluate the loans position compared to asset of the bank. If the ratio is large, it indicates that the
bank is less proficient to manage it. Loan to Total Assets Ratio = Total Loans / Total Assets.
Table 43. Loan to Assets Ratio for the Period 2011-2015
Islamic Banks
2011 78.53 76.59 76.77 76.32 72.79 76.20%
2012 77.27 73.43 70.77 74.23 71.42 73.42%
2013 73.75 67.27 73.61 70.82 72.60 71.61%
2014 70.66 66.68 76.42 89.24 69.73 74.55%
2015 72.35 70.22 74.04 90.52 70.93 75.61%
Conventional Banks
2011 72.34 64.62 68.58 57.78 55.50 63.76%
2012 67.46 58.78 60.72 59.73 55.71 60.48%
74
2013 68.97 57.36 67.32 48.75 44.91 57.46%

2014 64.97 57.60 69.22 50.88 47.17 57.97%
2015 66.82 63.39 68.74 51.21 43.30 58.69%
The Loans to Total Assets ratio of Islamic banks was 76.20% in 2011 than it decreased to 73.42%. Then
the ratio further decreased to 71.61% in 2013. In 2014, it slightly increased to 74.55% and it also increased to
75.61%.2011 was the significant year for the Islamic banks. On the other hand, the Loans and Deposits ratio of
Conventional banks was 63.76% and then it decreased to 60.48% in 2012. Then the ratio gradually decreased till
2015. Shahjalal Islamic Bank Ltd. was in good position among the Islamic banks and Agrani Bank was in good
position among the Conventional banks. The low Loans to Total Assets ratio is beneficial for the bank. That’s why
Conventional banks better than Islamic Banks in term of Loans to Total Assets ratio.
Table 44. Loan to Assets Ratio for the Period 2011-2015
Difference
Loans to IBs 76.20 73.42 71.61 74.55 75.61 74.28% 14.61% 2
Assets
NIBs 63.76 60.48 57.46 57.97 58.69 59.67% 1
The above mentioned table represents that during the period of 2011-2015 conventional banks did perform
better compared to Islamic Banks in terms of Loans to Total Assets ratio. We concluded this results through the
following ratios. The average Loan to Total Assets ratio of conventional banks is 74.28% and average Loan to Total
Assets ratio of Islamic Banks is 59.67%. The mean difference is 14.61%.
Particulars IBs CBs
Mean 0.74278 0.59672

Variance 0.000335 0.000653
Observations 5 5
Df 4
t Stat 15.87687
P(T<=t) two-tail 9.2E-05
Source: Calculated from table no.43
2.776 respectively where P-value is 9.2E-.05. As tabulated t-value is less than the calculated value and P- value is
less than .05 that leads the rejection of null hypothesis. Therefore, there is a substantial difference between the Loans
to Assets Ratio (Liquidity Position) of Islamic and Conventional banks in Bangladesh.
6. Conclusion and Recommendation

The findings of the paper hold that Islamic banks performed better than Conventional banks in terms of Capital
adequacy, Assets quality, Management quality and Earning Quality. Conventional banks performed better in term of
liquidity position. Although in some ratios performance of Conventional banks are also good but overall results of
Islamic banks are more efficient than Conventional banks during the study period 2011 to 2015. However, except
for Liquidity position, there were no significant differences between the two banking categories in term of Capital
adequacy, Assets quality, Management quality and Earnings ability. Among the Selected banking categories Al-
Arafah Islami Bank Limited and Mercantile Bank Limited performed better than those of others. The study was
75
limited in terms of small sample size and short period of study. The study recommends that management of Islamic
banks should endeavor to achieve a stable liquidity position in order to enhance the banks performance. The
management of conventional banks should establish an optimal capital structure for their banks in order to ensure
good capital adequacy. Conventional banks should increase its investment. Both banking categories need to improve
their managerial efficiency in order to enhance banks performance and should try to expand their target market.
Inter-bank relation should be build up among the banks. The results should be taken only as indicative rather than
conclusive. It is hoped that further empirical research will be done to arrive at more definitive results and empirical
realities.
References
Akhter, W., Raza, A., & Akram, M. (2011). Efficiency and performance of Islamic Banking: The case of Pakistan.
Far East Journal of Psychology and business, 2(2), 54-71.
Alzghoul, M. O. (2015). Performance analysis of Conventional banks Vs. Islamic banks in Jordan. Eastern
Mediterranean University (EMU)-Doğu Akdeniz Üniversitesi (DAÜ).
Ansari, S., & Rehman, A. (2011). Financial performance of Islamic and conventional banks in Pakistan: A
comparative study. Paper presented at the 8th international conference on Islamic economics and finance.
Aziz, S., Husin, M., & Hashmi, S. H. (2016). Performance of Islamic and Conventional Banks in Pakistan: A
Comparative Study. International Journal of Economics Financial Issues, 6(4), 1383-1391.
Chakraborty, J., Salam, F., & Rabbany, M. G. (2015). Financial Performance Analysis of Islamic Banks in
Bangladesh: A Case Study on Islami Bank Bangladesh Limited (IBBL). International Journal of
Economics, Finance Management Sciences, 3(2), 99-106.
Chowdhury, F. (2013). A comparative study of Islamic vs. conventional banks and financial performance in context
of Malaysian banks.
Duncan, E. (2004). Efficiency, customer service and financial performance among Australian financial institutions.
International Journal of Bank Marketing, 22(5), 319-342. doi:10.1108/02652320410549647
Faizulayev, A. (2011). Comparative analysis between Islamic banking and conventional banking firms in terms of
profitability, 2006-2009. Eastern Mediterranean University (EMU).
Fayed, M. E. (2013). Comparative performance study of conventional and Islamic banking in Egypt. Journal of
Applied Finance Banking, 3(2), 1.
Gupta, P. (2014). An analysis of Indian public sector banks using CAMEL approach. IOSR Journal of Business
Management, 16(1), 94-102.
Hanif, M., Tariq, M., & Tahir, A. (2012). Comparative performance study of conventional and Islamic banking in
Pakistan. International Research Journal of Finance Economics(83).
Harker, P. T., & Zenios, A. (1998). What drives the performance of financial institutions?
Hassan, M. K., & Bashir, A.-H. M. (2003). Determinants of Islamic banking profitability. Paper presented at the
10th ERF annual conference, Morocco.
Hezri, A., & Dovers, S. (2013). 13 Shifting the policy goal from environment to sustainable development.
Malaysia's Development Challenges: Graduating From The Middle 11, 276.
Islam, K. M. A. (2012). Performance evaluation of the banking industry in Bangladesh: A comparative analysis.
IOSR Journal of Business and Management, 3(4), 9–19.Retrieved from http://www.iosrjournals.org/iosr-
jbm/pages/v3i4.html
Islam, K. M. A. (2014). Measurement of Capital Adequacy of AB Bank Limited. International Journal of Novel
Research in Marketing Management and Economics,1(1),24-39.Retrieved from
http://www.noveltyjournals.com/journal/IJNRMME/Issue-1-September-2014-December-2014/0
Islam, K. M. A. (2013). Examination of Profitability in Private Commercial Banks in Bangladesh: An Empirical
Investigation.Bangladesh Research Foundation Journal,2(2),68-83.Retrieved from
http://www.researchfoundbd.org/journal.php
Islam, K. M. A. (2016). Financial Performance Comparison of Top Rated Banking Financial Institutions (BFIs) of
Bangladesh, Indian Journal of Science, 23(85),669-697.Retrieved from
https://discoveryjournals.org/science/current_issue/2016/index.htm
Ibrahim, M. (2015). A comparative study of financial performance between conventional and Islamic banking in
United Arab Emirates. International journal of economics financial issues, 5(4), 868-874.
Ibrahim, M., Mohammad, K. D., Hoque, N., & Khan, M. A. (2014). Investigating the performance of Islamic banks
in Bangladesh. Asian Social Science, 10(22), 165.
Islam, M. N., Akter, K. M., & Khan, A. G. (2017). Efficient and Effective Operations of Commercial Banks in
Bangladesh: An Evaluation. Journal of Science and Technology, 02(1), 93-108.
76
Jaffar, M., & Manarvi, I. (2011). Performance comparison of Islamic and Conventional banks in Pakistan. Global
Journal of Management Business Research 11(1).
Kader, J. M., & Asarpota, A. K. (2006). Comparative Financial Performance of Islamic vis-à-vis Conventional
Banks in the UAE.
Kakakhel, S. J., Raheem, F., & Tariq, M. (2013). A study of performance comparison between conventional and
Islamic banking in Pakistan. Abasyn University Journal of Social Sciences, 6(2), 91-105.
Malik, A., & Awadallah, B. (2013). The Economics of the Arab Spring. World Development, 45, 296-313.
doi:https://doi.org/10.1016/j.worlddev.2012.12.015
Merton, R. C. (1991). The Financial System and Economic Performance. In M. H. Kosters & A. H. Meltzer (Eds.),
International Competitiveness in Financial Services: A Special Issue of the Journal of Financial Services
Research (pp. 5-42). Dordrecht: Springer Netherlands.
Miah Md, D. (2015). Relationship between capital, risk and efficiency: A comparative study between Islamic and
conventional banks of Bangladesh. International Journal of Islamic and Middle Eastern Finance and
Management, 8(2), 203-221. doi:10.1108/IMEFM-03-2014-0027
Nimalathasan, B. (2008). A comparative study of financial performance of banking sector in Bangladesh. An
application of CAMELS rating system. Universitatii Bucuresti. Analele. Seria Stiinte Economice si
Administrative, 2, 133.
Noman, A. H. M., Pervin, S., Chowdhury, N. J., Hossain, M. A., & Banna, H. (2015). Comparative performance
analysis between conventional and islamic banks in Bangladesh-an application of binary logistic
regression. Asian Social Science, 11(21), 248.
Rashid, A., Khaleequzzaman, M., & Jabeen, S. (2015). Analyzing performance of banks in Pakistan: Conventional
versus Islamic banks. Journal of Islamic Business Management Decision, 219(3327), 1-26.
Samad, A. (2004). Performance of Interest-free Islamic banks vis-à-vis Interest-based Conventional Banks of
Bahrain. International Journal of Economics, Management Accounting, 12(2).
Tlemsani, I., & Al Suwaidi, H. (2016). Comparative analysis of Islamic and conventional banks in the UAE during
the financial crisis. Asian Economic Financial Review 6(6), 298.
Copyrights
Copyright for this article is retained by the author(s), with first publication rights granted to the journal. This is an
open-access article distributed under the terms and conditions of the Creative Commons Attribution license
(http://creativecommons.org/licenses/by/4.0/).
77
View publication stats

Evaluation of Financial Performance of Commercial Banks in Bangladesh: Comparative Study Based On CAMEL Approach

Uploaded by

Copyright:

Available Formats

You might also like

Evaluation of Financial Performance of Commercial Banks in Bangladesh: Comparative Study Based On CAMEL Approach

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Evaluation of Financial Performance of Commercial Banks in Bangladesh: Comparative Study Based On CAMEL Approach

Uploaded by

Copyright:

Available Formats

See discussions, stats, and author profiles for this publication at: https://www.researchgate.

Evaluation of Financial Performance of Commercial Banks in Bangladesh:

Article · December 2017

Sk Alamgir Hossain K. M. Anwarul Islam

SEE PROFILE SEE PROFILE

RESEARCH PAPER View project

The user has requested enhancement of the downloaded file.

Evaluation of Financial Performance of Commercial Banks in

Md. Nazmul Islam

Md. Shahed Mahmud

Keywords: Financial Performance, CAMEL, Islamic banks, Conventional banks, Bangladesh.

Based on the general objectives the specific objectives are:

3.2 Sample Size

3.3 Data and Time Periods

3.4 Analysis tool and Techniques

4. Findings and Analysis

4.1 Capital Adequacy

4.1.1 Equity to Asset

Table 1. Equity to Assets ratio positions of selected banks (2011– 2015)

Table 2. Equity to Assets Ratios for the Period 2011-2015

NIBs 7.87 5.33 7.63 7.43 7.43 7.14 2

Table 3. T-Test: Paired Two Sample for Means

4.2.1 Equity to Total Loans

Table 4. Equity to Loans ratio of IBs and CBs (2011– 2015)

Table 5. Equity to Loans Ratios for the Period 2011-2015

Particulars IBs CBS

4.1.3 Capital Adequacy Ratio (CAR)

Table 7. Capital Adequacy ratio of Islamic and Conventional Banks (2011-2015)

Table 8. Capital Adequacy for the Period 2011-2015

Table 9. t-Test: Paired Two Sample for Means

Mean 0.1241 0.10272

Hypothesized Mean Difference 0

4.2 Asset Quality

4.2.1 Non-performing loans to Total Loans ratio

Year IBBL Shahjalal EXIM First Al-Arafah Average

Year Dhaka DBBL Mercantile Janata Agrani Average

Table 11. Assets Quality Ratios for the Period 2011-2015

Table 12. T-Test: Paired Two Sample for Means

Particulars IBs CBs

Mean 0.03464 0.05234

4.3 Management Capability

4.3.1 Operating Expenses (OE) to Operating Income (OI)

Table 13. Operating Expenses to Operating Income ratio (2011-2015)

Table 15. t-Test: Paired Two Sample for Means

Particulars IBs CBs

4.3.2 Operating Expenses per Employee

Table 18. t-Test: Paired Two Sample for Means

4.3.3 Earnings per Employee

Table 19. Earnings per employee for the Period 2011-2015

Table 20. Earnings per employee for the Period 2011-2015

Table 21. t-Test: Paired Two Sample for Mean

4.4 Earning Ability

4.4.1 Net Interest Margin Ratio (NIM)

Table 24. t-Test: Paired Two Sample for Means

Particulars IBs CBs

4.4.2 Cost Income Margin Ratio (CIM)

Year Dhaka DBBL Mercantile Janata Agrani Average

Table 27. T-Test: Paired Two Sample for Means