A Comparative Study on Performance Evaluation of Conventional Banks and Islamic Banks in Bangladesh...

Thoughts on EconomicsVol. 18, No. 05

A Comparative Study on PerformanceEvaluation of Conventional Banks and

Islamic Banks in Bangladesh with SpecialReference to Islami Bank Bangladesh

LimitedAbdullah Al Mahmud1

M. Muzahidul Islam2

Abstract: This paper focuses on the comprehensive comparison aboutthe performance of conventional and Islamic banking systemoperation in Bangladesh. For this analysis we have used some mostcommonly used measures such as general business measures,profitability ratios management soundness, social profitabilitymeasures. Though, both conventional and Islamic banking haveenormous contribution to the economy they have two major functionaldifferences. First one is that whereas the conventional banks followborrowing and lending mechanisms, the Islamic bank does tradingand investment mechanisms and neither accepts nor pays interest inany of its activities. And the other is that the conventional banksprovide and receive interest for deposit and advance but Islamic banksare concerned with profit in case of both deposit and investment. Wehave taken Islami bank Bangladesh Limited as a special reference inthis context. For performance comparison, both financial profitabilityand social profitability aspect of performance have been taken intoconsideration. The study shows that in spite of a few exceptions in

1 Lecturer, Department of Banking, University of Dhaka, Dhaka-1000.2 Professor and Chairman, Department of Banking, University of Dhaka, Dhaka-1000.

26 A ComparativeStudy on Performance Evaluation……………

general Islamic banks’ overall performance was better than theconventional banks.

Keyword: NCBs, PCBs, FCBs, SBs, IBs, Profitability, managementsoundness, general business, social profitability.

1. IntroductionBangladesh is one of the largest Muslim countries inthe world. The people of this country are deeplycommitted to Islamic way of life as enshrined in theHoly Qur'an and the Sunnah. Naturally, it remains adeep cry in their hearts to fashion and design theireconomic lives in accordance with the precepts ofIslam. The establishment of Islami Bank BangladeshLimited on March 13, 1983, as the first of its kindin Southeast Asia, was the true reflection of thisinner urge of its people. It was both a hope and achallenge to the Islam loving people of the countryin general and the pioneers of the Islamic bankingmovement to make it a success. In the beginningthere was some doubt in the minds of many peopleabout the viability as well as the sustainability ofthe Islamic banking system. But the history of twodecades of Islamic banking operation in Bangladeshnot only removed this doubt from the minds of thepeople but also showed how a new banking conceptbased on Islamic values could so rapidly establishitself as the most modern, dynamic, and popular bankof the country. Within this short span of time theworkforce of Islamic banks in Bangladesh in generaland Islami Bank Bangladesh Limited, in particular,by their strong commitment and tireless effort havebeen able to prove the superiority of Islamic

Thoughts on Economics 27

banking over conventional banking in everydepartment of banking operations and services. Thesuccess of Islamic banks not only gave them enoughfloors in the field of banking but also encouragedat least one conventional bank to convert fully allits operations on Islamic principles.In our banking industry we have different types ofbanks with different types of objectives, commitmentand modus operandi. The industry is composed of 5types of banks viz. NCBs, SBs, PCBs, FCBs and IBs.There are 53 scheduled banks (October 2004) inBangladesh. Of them 4 are nationalized commercialbanks, 5 specialized banks, 30 private commercialbanks and 12 foreign banks, 1 co-operative bank, and1 grameen bank .The number of branches of thesebanks is 6242. Different types of banks givepriority to different stakeholders. While theprivate sector banks are guided primarily by profitmotive, NCBs are committed to social and economicconsiderations. Among private banks, Islamic banksare different as they operate beyond the narrowscope of commercial banking. An Islamic bank issimultaneously a commercial bank, an Investment bankand a development bank. So it is very difficult tofind a common and unanimously accepted yardstick tocompare the performance of different categories ofbanks. Bhattacharjee (1989) identified five sets ofindicators, such as general business measures,social profitability measures, branch performancemeasures, employee performance measures, andprofitability measures. In this article, we havetried to measure the comparative performances ofconventional and Islamic banks operating inBangladesh. For that purpose we have used some


common indicators such as general business measures,profitability measures, management soundnessmeasures, and social profitability measures.

2. Objective of the StudyThe main objective of the paper is to explore theextent to which Islamic banks are ahead of theconventional banks and identify the problem areas ofIslami banks as well as their opportunities. Thespecific objectives of this paper are as follows:

1. To measure the performance of cross section ofbanks from various angles.

2. To identify the possible reasons for variationsin the performance of various categories ofbanks especially Islamic banks.

3. To compare the performance of Conventional andIslamic Banks.

4. To suggest possible lines of actions to improvethe performance of Islamic banks.

3. MethodologyThe paper identifies the most widely used indicatorsof bank performance and applies the same to make athorough examination of various performancedimensions of the banking industry of Bangladesh.The sequential steps are discussed below:

Relevant data were collected from variousBangladesh Bank publications, viz., 1. Economic Trends,


2. Scheduled Bank Statistics, 3. Annual Reports of Bangladesh Bank 4. Bangladesh Bank Bulletin.

Five major dimensions of performance viz.general business measures, profitability,management soundness and social profitabilitywere analyzed by using appropriate indicatorsor ratios. A list of the indicators isprovided in the appendix. Market share and growth rate of differentcategories of banks against certain variableswere also provided. In addition, trend values were calculated tofind the absolute changes of the variables andtheir direction of change.

4. General Business MeasuresMobilizing deposits and providing loans/investmentare the principal functions of commercial banks.Therefore, general business dimension gives primaryfocus on these two elements. Deposits are thefoundation upon which banks stand and grow. Theability of a bank to attract deposits fromindividual and businesses is an important measure ofthe bank’s acceptance by the public. Growth of loansand advances/investment, on the other hand, is theprincipal source of income of a bank that ensuresthe viability and sustainability of the bank. Growthof income is nothing but the outcome of a bank’sbasic operations.


Table 1:Total Deposits By Type of Banks(Taka in Crores)

Bank Type 2000 2001 2002 2003 2004 2005

NCBs42585.86

46764.43 50911.8

52792.39 57166.9 59551.2

SBs4615.0

55395.6

1 5925.36 6309.88 7681.42 8709.42

PCBs19579.86

24410.31

29150.03

35684.24

42568.58

46911.74

FCBs5651.9

26130.5

3 6544.56 7894.56 8713.41 9445.49

IBs4687.3

75947.2

4 7997.6210756.0

915764.7

616969.1

1

Total77120.06

88648.12

100529.37

113437.16

131895.07

141586.96

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

Figure 1Table 1 shows a steady growth of the total depositof the IBs. The total deposits of Islamic banks were4687.37 million in 2000 that increased to 16969.11million in 2005 showing a growth of almost 400%within 5 years time. The possible reason foraggregate Deposit of NCBs to be higher than SB, PCB,

020000

40000

60000

80000

100000

120000

140000

160000

Total Deposits

2000

2001

2002

2003

2004

2005Yea

r

Deposit by Type of banks

NCBsSBsPCBsFCBsIBsTotal


FCB and IB was its vast network and huge number ofbranches.

Table 2: Market Share of Deposit By Type of Banks(percent)

Bank Type 2000 2001 2002 2003 2004 2005

NCBs55.22 52.75 50.64 46.54 43.34 42.06

SBs 5.98 6.09 5.89 5.56 5.82 6.15

PCBs25.39 27.54 29.00 31.46 32.27 33.13

FCBs 7.33 6.92 6.51 6.96 6.61 6.67IBs 6.08 6.71 7.96 9.48 11.95 11.98Total 100 100 100 100 100 100

Figure 2

0.00

10.00

20.00

30.00

40.00

50.00

60.00

Ma rk et

Sh ar e of

D e p o s i t s

2000

2001

2002

2003

2004

2005Yea

r

Market Share of Deposits by type of Banks

NCBsSBsPCBsFCBsIBs


Table 2 indicates that the market share of depositby the NCBs has been decreasing over the years. Itcame down from 55.2% in 2000 to 46.02% in 2005.Market share of deposit by Special Banks were almostunchanged while that of Foreign Commercial Bankswere down during the same period. On the other hand,during the same period the market share of Islamicbanks went up from 6.08% in 2000 to 11.98% in 2005.

Table 3: Growth of Deposit by Type of Banks (Percent)

BankType 2001 2002 2003 2004 2005

Averagerate ofGrowth

NCBs 9.81 8.87 3.69 8.29 4.17 6.96SBs 16.91 9.82 6.49 21.74 13.38 13.66PCBs 24.67 19.42 22.42 19.29 10.20 19.2FCBs 8.47 6.75 20.63 10.37 8.40 10.92IBs 26.88 34.48 34.49 46.57 7.64 30.01Total 86.74 79.33 87.72 106.25 43.80 80.76

0.00

10.00

20.00

30.00

40.00

50.00

Grow

th of D

eposits

2000 2001 2002 2003 2004 2005Year

Grow th of Deposit by type of Banks

NCB'sSB'sPCB'sFCB'sIB's

Figure 3


Table 3 indicates that the growth rate of deposit ofthe IBs was the highest of all categories of banks.The average growth of deposit for the period understudy for NCBs, SBs, PCBs, FCBs, and IBs was 6.96,13.66, 19.2, 10.92 and 30.01 percent, respectively.This is a clear indication of how trustworthy theIslamic banks are to the depositors of the country. Inthis connection it is worth mentioning that the growthof deposits of conventional banks relates to bothprimary deposits and derivative deposits while thegrowth of deposits in Islamic banks is based mostly onprimary deposits, which is very much significant interms of stability in the price level. Whileconventional banks expand their deposits bysanctioning loans and advances, Islamic banks forinvestment purpose depends mostly on trading modewhich create little scope for creating derivativedeposits.

Table 4: Total Advances/Investment By Type of Banks(Taka in Crores)

Bank Type 2000 2001 2002 2003 2004 2005

NCBs29795.

432772.85

35586.42

36168.46

38108.89 40245.8

SBs10206.06

10827.64

10921.64

9962.97

10795.33

10637.37

PCBs15371.16

19748.07

24112.13

28037.03

32895.81

37388.08

FCBs3502.5

93776.6

55092.1

36163.7

7 6905.16 7819.82

IBs4297.0

55623.8

77318.5

19204.4

713731.6

215641.1

2

Total63172.26

72749.08

83030.83

89536.7

102436.81

111732.19

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


Figure 4Table 4 shows a spectacular growth of the totalinvestment of the IBs. The aggregate investment ofall Islamic banks were 4297.05 million in 2000 thatincreased to 15641.12 million in 2005 showing anincrease by 364% within a short span of 5 years.During the same period the aggregate deposits of theNCBs, SBs, PCBs and FCBs increased by 35%, 04%, 143%and 123%, respectively.

Table 5: Market Share of Advances /Investment by Type ofBanks (percent)

Bank Type 2000 2001 2002 2003 2004 2005NCBs 47.17 45.05 42.86 40.40 37.20 36.02SBs 16.16 14.88 13.15 11.13 10.54 9.52PCBs 24.33 27.15 29.04 31.31 32.11 33.46FCBs 5.54 5.19 6.13 6.88 6.74 7.00IBs 6.80 7.73 8.81 10.28 13.40 14.00Total 100 100 100 100 100 100

020000

40000

60000

80000

100000

120000

Adv

anc

es

2000

2001

2002

2003

2004

2005Yea

r

Advances by type of Banks

NCBsSBsPCBsFCBsIBsTotal

0.00

10.00

20.00

30.00

40.00

50.00

2000

2001

2002

2003

2004

2005Yea

r

Market share of Total Advances

NCBsSBsPCBsFCBsIBs

T o t a l A d v a n c e s


Figure 5Table 5 indicates that market share of advances bythe NCB has been decreasing over the years. It camedown from 47.17% in 2000 to 36.02% in 2005. Marketshare of deposit by specialized banks also came downfrom 16.16% to 9.52%. FCBs and PCBs also registeredtheir growth of market share from 5.52% to 7.00% and24.33% to 33.46%, respectively. But during theperiod under study Islamic banks altogether grabbedthe market share of deposit quite significantly from6.80% in 2000 to 14% in 2005.

Table 6: Growth of Advances/Investment by Type of Banks(percent)

BankType 2001 2002 2003 2004 2005

Avg.rateof

growthNCBs 9.99 8.59 1.64 5.36 5.61 7.44SBs 6.09 0.87 -8.78 8.35 -1.46 1.02PCBs 28.47 22.10 16.28 17.33 13.66 19.57FCBs 7.82 34.83 21.05 12.03 13.25 17.8IBs 30.88 30.13 25.77 49.18 13.91 29.98Total 83.26 96.52 55.95 92.26 44.95 74.59

-10.00

0.00

10.00

20.00

30.00

40.00

50.00

1 2 3 4 5 6 7Year

Growth of Advances by type of Banks

NCBsSBsPCBsFCBsIBs

Growth of advances


Figure 6Table 6 indicates that the growth rate of advances of theIBs was the highest of all categories of banks. Theaverage growth of advances for the period under study forNCBs, SBs, PCBs, FCBs, and IBs were 7.44%, 1.02%,19.57%,17.8% and 29.98%, respectively. This growth rateof advance (29.98%) is very close to their deposit growthrate (30.01%), which is a clear indication of howefficiently and effectively the Islamic Banks can investtheir funds for the development of business and industry.

Table 7: Total Business (Deposits + Advances) by Type of Banks(Taka in Crores)

BankType 2000 2001 2002 2003 2004 2005

NCBs72381.2

679537.28

86498.22

88960.85

95275.79 99797

SBs14821.1

116223.25 16847

16272.85

18476.75

19346.79

PCBs34951.0

244158.38

53262.16

63721.27

75464.39

84299.82

FCBs 9154.519907.1

811636.69

14058.33

15618.57

17265.31

IBs 8984.4211571.11

15316.13

19960.56

29496.38

32610.23

Total140292.

32161397.2

183560.2

202973.86

234331.88

253319.15

Figure 7

0

20000

40000

60000

80000

100000

Tot

al

Bus

ine

ss

2000

2001

2002

2003

2004

2005Yea

r

Total Business by type of Banks

NCBsSBsPCBsFCBsIBs


In figure 7, we notice that total business of NCBsis higher than any other type of banks, which wasreasonably expected because of their vast network.PCBs closely move with NCBs in the later part of theperiod under study. The condition of Islamic bankswas relatively better than PCBs and FCBs.

Table 8: Market Share of Total Business by Type of Banks(percent)

Bank Type 2000 2001 2002 2003 2004 2005NCBs 51.59 49.28 47.12 43.83 40.66 39.40SBs 10.56 10.05 9.18 8.02 7.88 7.64PCBs 24.91 27.36 29.02 31.39 32.20 33.28FCBs 6.53 6.14 6.34 6.93 6.67 6.82IBs 6.40 7.17 8.34 9.83 12.59 12.87Total 100 100 100 100 100 100

Figure 8

0.00

10.00

20.00

30.00

40.00

50.00

60.00

Mar

ket

Sha

re

of

2000

2001

2002

2003

2004

2005Year

Market Share of Total Business by type of banks

NCBsSBsPCBsFCBsIBs

Tot

al

Bus

ine

ss


Table 8 shows that the market share of totalbusiness by the NCBs has been decreasing over theyears. It came down from 51.59% in 2000 to 39.40% in2005. Market share of deposit by FCBs was almostunchanged while that of SBs was down during theperiod under study. On the other hand during thesame period the market share of total business byIslamic banks went up from 6.40% in 2000 to 12.87%in 2005.

Table 9: Growth of Total Business by Type of Banks (percent)

BankType 2001 2002 2003 2004 2005

Averagerateof

growthNCBs 9.89 8.75 2.85 7.10 4.75 6.67SBs 9.46 3.84 -3.41 13.54 4.71 5.63PCBs 26.34 20.62 19.64 18.43 11.71 19.35FCBs 8.22 17.46 20.81 11.10 10.54 13.63IBs 28.79 32.37 30.32 47.77 10.56 29.96Total 82.70 83.04 70.21 97.94 42.26 75.23

Figure 9

-10.00

0.00

10.00

20.00

30.00

40.00

50.00

2000

2001

2002

2003

2004

2005Yea

r

Growth of Total Business by type of banks

NCBsSBsPCBsFCBsIBs

Gro

wth

of

Tot

al

Bus

ine

ss


Table 9 indicates that during the period under studythe growth rate of total business of the IBs was thehighest of all categories of banks. The average growthrate of total business for the period under study forNCBs, SBs, PCBs, FCBs, and IBs were 6.67%, 5.63%,19.35%, 13.63% and 29.96%, respectively.

Table 10: Total Income By Type of Banks (Taka in Crores)Bank Type 2000 2001 2002 2003 2004 2005

NCBs3726.2

7 3878.16 3665.52 4165.22 4046.132343.

6SBs 598.45 820.34 636.39 738.53 695.92 665.3

PCBs2789.2

2 3715.6 4557 4506.25 52773654.

9FCBs 967.5 1068.91 1061.9 772.93 997.58 787.6

IBs 478.4 605.4 464 1415.2 19391174.

6

Total8559.8

410088.4

110384.8

111598.1

312955.6

3 8626Source: Economic Trends, Bangladesh Bank (2000-2005)

Figure 10In figure 10 we find that total income of PCBs andIBs are relatively higher in the latest year. NCBs’total income was higher in the past but shown adeclining trend in recent years. FCBs are alsoshowing a declining trend of total income.

01000

2000

3000

4000

5000

6000

2000

2001

2002

2003

2004

2005Yea

r

Total Income by type of Banks

NCBsSBsPCBsFCBsIBs

Tot

al

Inc

ome


5. Profitability MeasuresProfitability is an important index of operationalefficiency of an organization. Analysis ofprofitability of an enterprise provides an insightinto the effectiveness in utilization of funds inthe enterprise and also managerial efficiency.Because of shortage of space we have used only oneindicator to measure the profitability performance.

Table 11 shows that SBs and NCBs have a verynegligible return on assets. In recent time theyhave negative ROA. The ROA of FCBs is higher thanany other bank. IBs and PCBs have a moderate but

Table 11: Return On Assets (ROA) By Type of Banks(Percent)

Bank Type 2001 2002 2003 2004

NCBs 0.06 0.1 0.1 -0.1SBs 0.67 0.33 0 -0.2PCBs 1.12 0.75 0.7 1.2FCBs 2.8 2.36 2.6 3.2IBs 1.57 1.95 1.25 1.34Total 0.69 0.52 0.5 0.7

-0.50

0.51

1.52

2.53

3.5

ROA

2001 2002 2003 2004Year

Return on Assets by type of Banks


Figure11

0.000.200.400.600.801.001.201.40

Expenditure-Income

Ratio

2000 2001 2002 2003 2004 2005Year

Expenditure-Incom e Ratio by type of banks



consistent return on assets that indicate theirefficient management of fund.6. Management Soundness Measures 6.1 Ratio of Total Expenditure to Total Income

In Table 12 we see that both IBs and PCBs have afavorable income-expenditure ratio whereas NCBs andSBs have higher expenditure than income causingaccumulated loss and creating burden for thenational economy. The expenditure-income ratio of

Table 12:Total Expenditure to Total Incomeratio By Type of Banks

Bank Type 2000 2001 2002 2003 2004 2005NCBs 0.95 0.96 0.93 0.93 0.92 0.93SBs 1.28 0.90 1.18 1.04 1.12 1.22PCBs 0.74 0.71 0.80 0.74 0.67 0.73FCBs 0.57 0.55 0.54 0.33 0.34 0.47IBs 0.83 0.80 0.64 0.86 0.87 0.75Total 0.85 0.81 0.83 0.81 0.78 0.80

Figure


FCBs is comparatively lower that indicates theirhigh profit margin and less commitment to the peopleand the economy. 7. Social Profitability Measures Social Profitability implies the contribution of abank to the society. NCBs are mainly guided bysocial considerations. It constitutes an integralpart of performance dynamics. Creation ofemployment, expansion of branches etc are the keyindicators of social profitability measures.

Table 13: Market Share of Branches By Type of Banks (percent) Bank Type 2000 2001 2002 2003 2004 2005

NCBs 58.96 58.33 55.90 54.71 54.14 53.62SBs 19.82 19.67 21.02 21.16 21.22 21.11PCBs 17.81 18.42 19.32 19.29 19.54 20.16FCBs 0.56 0.53 0.50 0.52 0.59 0.62IBs 2.84 3.04 3.26 4.32 4.51 4.48Total 100 100 100 100 100 100


Figure 13Table 13 shows that the numbers of Branches of NCBshave a declining trend. SBs, FCBs and PCBs have anincreasing trend in the market share of number ofbranches but the market share of Islamic banksincreased quite significantly from 2.84% in 2000 to4.48% in 2005.

Table 14: Total Employment By Type of BanksBank Type 2000 2001 2002 2003 2004 2005

NCBs 62091 61325 60169 58629 57894 56797SBs 16036 16164 16475 15837 15300 15153PCBs 22072 23521 23279 25980 26640 20367FCBs 1280 1588 1305 1409 1508 1776IBs 3903 4547 5057 6596 7440 7907Total 105382 107145 106285 108451 108782 102000

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

0.00

10.00

20.00

30.00

40.00

50.00

60.00

M a r k e t s h a r e

2000

2001

2002

2003

2004

2005Yea

r

Market Share of total Branch by type of Banks

NCBsSBsPCBsFCBsIBs


Figure 14Table 14 shows a declining trend in the number ofemployees of NCBs, PCBs and SBs over the periodunder study. FCBs have an increase in the number ofemployment during 2000-2005 by 39% while IBs got thehighest increase of employment (51%) during the sameperiod.

Table 15: Rural Branches to Total Branches ratio By Type ofBanks

Bank Type 2000 2001 2002 2003 2004 2005NCBs 62.97 62.98 62.30 63.20 63.37 63.37SBs 87.63 87.75 88.55 88.58 88.63 88.68PCBs 25.60 25.81 25.83 26.21 26.74 25.82FCBs 0.00 0.00 0.00 0.00 0.00 0.00IBs 25.86 25.53 25.62 25.75 25.89 25.80Total 59.80 59.53 59.27 59.49 59.51 59.07

010000

20000

30000

40000

50000

60000

70000

2000

2001

2002

2003

2004

2005Yea

r

Total Employment by Type of Banks

NCBsSBsPCBsFCBsIBs

Tot

al

Emp

loy

ee


Figure 15

Table 15 shows that NCBs and SBs are still dominantin maintaining rural branches. FCBs do not have anyrural branch. IBs and PCBs on the other hand havealmost identical record of maintaining ruralbranches in comparison to their urban branches. 8. A Close Look at the strength and performance of Islami Bank Bangladesh Limited (IBBL)Undoubtedly Islami Bank Bangladesh Limited hasremained at the top of all Islamic banks working inBangladesh. In every department the IBBL isincomparable to any other Islamic bank in thecountry. In fact the IBBL is one of the leadingbanks of country. It needs a separate study toevaluate the overall performance of the IBBL. Inthis article we shall concentrates on a very limitedaspect of its operational performances.

Table 16: Growth of Equity of the IBBL (2001-2005)Taka in crore

SL Particu 2001 2002 Growt 2003 Growt 2004 Growt 2005 Growt

0.00

20.00

40.00

60.00

80.00

100.00

R a t i o

2000

2001

2002

2003

2004

2005Yea

r

Rural Branches to Total Branches by type of Banks

NCBsSBsPCBsFCBsIBs


.No.

lars hover2001

hover2002

hover2003

hover2004

1 Authorized Capital

1,000.00

1000 3000 200.00%

3000 -- 5000 66.67%

2 Paid-upCapital

640 640 1920 200.00%

2304 20.00%

2764.8

20.00%

3 Reserves

1998.04

2852.07

42.74%

3280.37

15.02%

4329.92

31.99%

5450.94

25.89%

4 Total Equity

2993.24

3540.52

18.28%

5266.47

48.75%

6691.11

27.05%

8331.14

24.51%

5 Equity (% To risk Weighted assets)

9.24% 8.64% 9.43% -- 9.21% -- 9.44% --

Table 16 shows the overall growth of equity of IBBLduring 2001-2005. The paid up capital of IBBL hassignificantly increased in 2003. The same thinghappened in the year 2004 and 2005. The reserves ofIBBL is in increasing trend but in 2002 and 2004it’s growth rate is significant which is 42.74% and31.99%, respectively. So the total equity of IBBL isalso increasing which is shown by the increasinggrowth rate in 2003 which is 48.75%.

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

Sl.No.

Particulars

2001 2002 Growth

over2001

2003 Growth

over2002

2004 Growth

over2003

2005 Growth

over2004

1 Total Deposit

41732 56246.4

34.78%

70552.7

25.44%

88452.2

25.37%

108261

22.39%

2 % of Total Deposit

4.23% 5.03% 6.02% -- 6.30% -- 6.67% --


of Banking Sector

3 Total Investments (Gross)

37648.6

49185.9

30.64%

62755.9

27.59%

83893.6

33.68%

102145

21.75%

4 % of Total Investment of Banking Sector

4.43% 4.92% 5.69% -- 6.57% -- 6.67% --

5 Over Due Amount

2235.74

2997.84

34.09%

3294.64

9.90% 3597.66

9.20% 3097.75

-13.90%

6 % of Total investment

5.94% 6.09% 5.25% -- 4.29% -- 3.03% --

7 Classified Investment

3126.63

3730.75

19.32%

4803.41

28.75%

5247.95

9.25% 3047.05

-41.94%

8 % of Total investment

8.30% 7.58% 7.65% -- 6.26% -- 2.98% --

Table 17 shows the growth of deposit of IBBL during2001-2005. The growth of deposit of IBBL issignificant because of increase in confidence ofpeople in Islamic banking. IBBL also efficientlyutilize its’ deposit in different investment purposewhich has been shown by the table 17. Table 18: Growth of Inward Remittance through the IBBL

(2001-2005) Taka in crore

SL.No.

Particulars

2001 2002 Growthover2001

2003 Growthover2002

2004 Growthover2003

2005 Growthover2004


1 Import 25907

33788

30.42% 46273

36.84% 59804 29.34% 74525 24.62%

2 Export 16082

16673

3.67% 21738

30.38% 29192 34.29% 36169 23.90%

3 Remittance

9879 14670

48.50% 16668

13.62% 23669 42.00% 36948 56.10%

4 Total Foreign Exchange Business

51868

65131

25.57% 84643

29.96% 112665

33.11% 147642

31.05%

Table 18 shows the growth of inward remittancesthrough the IBBL during 2001-2005. The growth wassignificant in 2004 and 2005 which are 42% and56.10%, respectively. Because of this increasingrate of growth the total foreign exchange businessof IBBL is also is in increasing trend. Table 19: Growth of Income and Expenditures of the IBBL

(2001-2005)Taka in crore

Sl.No.

Particulars


2003 Growthover2002

2004 Growth

over2003

2005 Growthover2004

1 Total Income

4259.55

4876.73

14.49% 6568.63

34.69% 8024.62

22.17% 10401 29.61%

2 Total Expenditure

3683.43

3433.28

-6.79% 4681.68

36.36% 5630.24

20.26% 7479.66

32.85%

3 Operating Profit

1710.84

1443.45

-15.63% 1886.95

30.72% 2394.38

26.89% 2921.42

17.33%

4 Net Profit 576.12

994.05

72.54% 802.02

-19.32% 1842.99

129.79%

2162.42

17.33%

5 Dividend (%)

25% 25% -- 20% -- 20% -- 25% --

Table 19 shows the growth of income and expenditureof IBBL during 2001-2005. The expenditure of IBBLdecreased significantly in 2001 which is 6.79%.


Because of this the net profit increased to 576.12million in 2001.

Table 20: Growth of the IBBL in terms of SocialProfitability (2001-2005)

Taka in croreSl.No.

Particulars


2003 Growthover2002

2004 Growth

over2003

2005 Growthover2004

1 Number of employees (i+ii)

3831 4249 10.91% 4673 9.98% 5306 13.55%

6202 16.89%

2 i) RegularEmployees

3060 3297 7.75% 3752 13.80% 4261 13.57%

4906 15.14%

3 ii) RDS and others

771 952 23.48% 921 -3.265 1045 13.46%

1296 24.02%

4 Avg. Employee per Branch

32 633 3.13% 33 - 35 6.06% 37 5.71%

Table 20 shows the growth rate of the IBBL in termsof social profitability during 2001-2005. the growthof employees is increasing during 2002 to 2004 whichindicates that IBBL creates the employmentopportunity in the country significantly.Table 21: Growth of Rural Development Scheme of the IBBL

(2001-2005)Taka in crore

Sl.No.

Particulars

2001 2002 Growth

over2001

2003 Growthover2002

2004 Growth

over2003

2005 Growthover2004

1 RDS: Amountof Investment (disbursed)

1323.87

2029.67

11.73%

223954

13.80% 264863 18.27% 297943 43.08%

2 RDS: Amountof Investment (Outstandin

371.1 432.06

16.43%

570.88

32.13% 789.97 38.38% 1106.47

40.06%


g)

3 RDS: No. ofAccounts

100470 107225

6.72% 130465

21.67% 163465 25.29% 217445 33.02%

4 RDS: No. ofVillages

2214 2875 29.86%

3700 28.70% 4230 14.32% 4560 7.80%

The above analysis clearly shows that during theperiod under study the Islamic banks in Bangladeshin general and the IBBL in particular was growing inrespect of most of the indicators of bankingperformance analysis. It was possible partly becauseof the full commitment and sincere effort both ofmanagement and employees of Islamic banks and partlybecause of the huge friendly and motivated customerof Islamic banking system. The goodwill of theIslamic banks was the cause of headache to a sectionthe people and the media. Very recently the admirersof Islamic banking system have noticed a well-orchestrated negative publicity against the Islamicbanking system by a section of media both at homeand abroad. But Alhamdulillah, it was a greatsurprise to both friends and foes of the Islamicbanking system that in spite of all negativepublicity the Islamic banks in Bangladesh arecontinuing to gain in every aspect. In particular,in the almost dead share market of Bangladesh wheremost of the companies are struggling for existence,the share prices of Islamic banks were affected verylittle. Maximization of the value of the company isconsidered as the best goal of a company. In thatsense the Islamic banks have been an all timesuccess story in the history of banking inBangladesh. The shareholders of the Islamic banks


never faced any debacle, not even during the 1996crisis.9. The Problem Area Identification, Conclusion andRecommendationThe biggest problem area for Islamic banks ingeneral and the IBBL in particular is the failure toimplement the Islamic modes of investment in itstruest sense. As depicted in the study, most of theIslamic banks at home and abroad are scared to gofor profit sharing and profit and loss sharing modesof investment. On the other hand, most of thetrading modes like Bai-Murabaha, Bai-Muajjal etc arelacking the fulfillment of all conditions of theshariah. In this connection a famous statement ofDr. Nejatullah Siddiqui is worth mentioning. Hewrote, “We can not claim, for an alternative tointerest system which is not based on sharing, thesuperiority of which could be claimed on the basisof profit-sharing. What is worse, if the alternativein practice is built around predetermined rates ofreturn to investible funds supplied to financetrade, industry, agriculture etc. it will be exposedto the same criticism which was directed to interestas a fixed charge on capital. It so happens that thereturns to finance provided in the modes of financebased on murabaha, bai’salam, leasing and lendingwith a service charge, are all predetermined likeinterest. Some of these modes of finance are said tobe exposed to some risk, but all these risks areinsurable and are actually insured against. Theuncertainty to which the business being so financed


is exposed is, duly passed over to the other party.A financial system built solely around these modesof financing can hardly claim superiority over aninterest based system on grounds of equity,efficiency, stability and growth.” We are happy tolearn that the IBBL authority has taken a decisionto increase investment in Musharakah and Mudarabahmodes. We will further expect from the Islamicbanking legends, specially the central ShariahCouncil, to take necessary steps so that complianceof shariah is ensured at the branch level of all theIslamic banks in all modes of investment.

REFERENCES1. Bangladesh Bank, Annual Report: 2004-2005. Statistics

Department, Bangladesh Bank, Dhaka.2. Bangladesh Bank, Economic Trends, various issues,

Statistics Department, Bangladesh Bank, Dhaka.3. Bangladesh Bank, Quarterly publication of Scheduled

Banks Statistics, various issues, StatisticsDepartment, Bangladesh Bank, Dhaka.

4. Functions of Banks and other FinancialInstitutions, Finance Ministry

5. Barai M.K .and M. Liakat Hossain, “FinancialGlobalization: Banking sector in Bangladesh”.Working paper, presented on March 7, 2002, TSCAuditorium, University of Dhaka.


6. Bhattacharjee, D. and S.K. Saha, ‘An Evaluationof performance of NCBs’, Bangladesh’ Bank Parikrama,Vol. XIV, No.1 and 2, March and June 1989.

7. Bhattacharjee, D. and M.S Islam, “Profit andProfitability of NCBs in Bangladesh: An Analysisof the Dynamics and Casual Relation”. Journal of theInstitute of Bank Management, Vol.9, June1988.

8. Bhattacharjee, D. Productivity Measurement ofNationalized Commercial Banks of Bangladesh: AMultivariate Analysis’, the Dhaka University Studies,Part-C, Vol.XII, No.1, June1991.

9. Bhuiyan M. H., “Managerial Effectiveness ofPrivate Commercial Banks: A Comparative Study”,Journal of Business Studies, Dhaka University, Vol. XVI,No.1, 1995.

10.Chowdhury ,A .A and et al., “Performance ofForeign Banks vis-à-vis Other Commercial BanksOperating in Bangladesh”, Journal of Business Studies,Dhaka University, Vol. XIX, No.2, December 1998.

AppendixTable-22: List of indicators used for measuring performance of

Banking Industry

Performance Dimensions

Measures Operational Definition

General Business Measures

Total Business Total Deposit + Total Advance

Deposit Time Deposit + Demand Deposit

Advances


Advance-Deposit Ratio Advance /Deposit

Total Income

Profitability

Return on Equity Net Income / Total Equity

Management soundness

Total expenditure to total income

Total Expenditure / Total Income

Social Profitability

Branch Expansion Total No of Branches

Employment Generation Total No of Employees

Rural Branch to Total Branch

No of Rural Branches / Total Branches

A Comparative Study on Performance Evaluation of Conventional Banks and Islamic Banks in Bangladesh...

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