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Financial Performance Analysis of Islamic Bank in Bangladesh: A Case Study on Al-Arafah Islami Bank Limited

Article (PDF Available)  · August 2017 with 719 Reads

Cite this publication

Md Nazirul Islam Sarker

Ari n Sultana
7.26 · Sichuan University

A. Z. M. Sha ullah Prodhan

Bangabandhu Sheikh Mujibur Rahman Agricultural University

Abstract

Banking sector is an important sector of an economy of a country, so it is necessary to monitor and evaluate the performance of it. The aim of
this paper was to examine the performance of Islamic banking of Bangladesh in particular the experience for Al-Arafah Islamic Bank Limited.
The paper goes further to explore some experience on the domestic and global challenges which are facing Islamic banking sector.
Performance evaluation methodology used to ascertain the objectives in terms of pro t maximization, capital structure and liquidity ratios.
We used the nancial data of bank from 2010 to 2014 and observed that the trend of all the indicators are positive. The ability, ef ciency and
number of products of Al-Arafah Islamic Bank Limited are increasing gradually. The investment of Al-Arafah Islamic Bank Limited is mostly on
short term basis which is generally similar to other Islamic banks in Bangladesh. Islamic banks are facing some dif culties in their operations
especially for non-shariah structure of their stakeholders. This study suggests that Islamic banks of Bangladesh should increase Islamic
capital market, Islamic nancial instruments, and proper zakat distribution and employment opportunities for the betterment of the society.

Figures

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8/13/2018 (PDF) Financial Performance Analysis of Islamic...

World Journal of Economic and Finance

Vol. 3(1), pp. 052-060, July, 2017. © www.premierpublishers.org, ISSN: XXXX-XXXX x
WJEF

Case Study

Financial Performance Analysis of Islamic Bank

Bangladesh: A Case Study on Al-Arafah Islami B
Limited
Md. Nazirul Islam Sarker1, Arifin Sultana2, A. Z. M. Shafiullah Prodhan3
1
School of Public Administration, Sichuan University, Chengdu, China
2
Department of Psychology, National University, Gazipur, Bangladesh
3
Department of Horticulture, Bangabandhu Sheikh Mujibur Rahman Agricultural University, G
Bangladesh

Banking sector is an important sector of an economy of a country, so it is necessary to monitor

and evaluate the performance of it. The aim of this paper was to examine the performance of
Islamic banking of Bangladesh in particular the experience for Al-Arafah Islamic Bank Limited.
The paper goes further to explore some experience on the domestic and global challenges
which are facing Islamic banking sector. Performance evaluation methodology used to ascertain
the objectives in terms of profit maximization, capital structure and liquidity ratios. We used the
financial data of bank from 2010 to 2014 and observed that the trend of all the indicators are
positive. The ability, efficiency and number of products of Al-Arafah Islamic Bank Limited are
increasing gradually. The investment of Al-Arafah Islamic Bank Limited is mostly on short term
basis which is generally similar to other Islamic banks in Bangladesh. Islamic banks are facing
some difficulties in their operations especially for non-shariah structure of their stakeholders.
This study suggests that Islamic banks of Bangladesh should increase Islamic capital market,
Islamic financial instruments, and proper zakat distribution and employment opportunities for
the betterment of the society.

Keywords: Islamic banking, interest free banking, financial performance, analysis, Al-Arafah Islamic Bank
(AIBL)

INTRODUCTION

Islamic bank is a financial institution which must comply
with the Islamic Shariah rules based in its aims, principles
as well as practices and must avoid the interest in any of
its operations (Ahmed, 2004). Al-Arafah Islami Bank
Limited (AIBL) was established as a private company on
18 June 1995 and launched activities on 27 September
1995. The main objectives of AIBL is to get success here
and hereafter by pursuing the way directed by Almighty
Allah and the way shown by his messenger Muhammad
(PBUH). It is committed to contribute significantly to the
national economy. It is an Islamic bank which is
maintaining the principles of Islamic Shariah which is
based on “Quran” and “Sunnah” and trying to establish
the maximum welfare of the society. The Islamic Shariah
Financial Performance Analysis of Islamic Bank in Bangladesh: A Case Study on Al-Arafah Islami Bank Limited
prohibits interest in any form of banking operatio
concept of Islamic banking develops regardin
establish interest free banking worlds that run ac
to Islamic Shariah (Sarker and Rashid, 2015
definition of Islamic Bank, as approved by the
Secretariat of the OIC, defined as “An Islamic Ba
Financial Institution whose statutes, rules and proc
expressly state its commitment to the principles of
Shariah and to the banning of the receipt and pay
interest on any of its operation.”
*Corresponding author: Md. Nazirul Islam
School of Public Administration, Sichuan Un
Chengdu, China. Email: sarker.scu@yahoo.com

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In the mid-twentieth century, Islamic banking started its
journey and has continued till Today. It is already gained
attention of the whole financial world as a novel
phenomenon. It has been construed and got a better
position in financial world by using Islamic financing
instruments (Siddiqi, 1983). Islamic banking and financial
assets cover almost 1% of total global financial assets
and it is a faster growing sector than conventional finance
since the 2007 to 2008 banking crisis, and this trend is
anticipated to continue into the near future (The
Economist, 2014). The characteristics and features of
Islamic banking in most parts is to be regarded as
significantly distinctive and unique. Though there are
certain linkages in terms of similarities with its
conventional counterpart in a wide arrangement of its
operation. Molla et al. (1988) observed that, the aim of
Islamic banking is not only the elimination of interest from
all operations of bank but also contributes to the poverty
alleviation through introduction of the Zakah system. It is
further supported by Warde (2000) who emphasized to
one of the great features that Islamic banking strives for a
just, fair and balanced society as pictured in the area of
knowledge of Islamic economics, which makes it different
from its conventional counterpart. Islamic banking is
evenly acceptable to Muslim as well as non-Muslim
customers due to its justified and loss-profit-sharing
feature (Dar and Presley, 2000). It has contributed to the
remarkable growth in economy encompassing a
multitude of countries globally in last few decades. For
operating economic activities in a country, banking is an
essential part which controls smooth economic growth
(Teker et al., 2011). Economic activities without the help
of banking system are unthinkable like a human body
without heart (Stankeviciene and Mencaite, 2012).
Islamic banking is growing in number and size all over
the globe. According to some estimates Islamic banking
has grown at an annual rate of 15% over the past few
decades. Tlemsani et al. (2016) reported that “ the
discourse of Islamic banking involves: (a) equity rather
than debt, (b) financing in strict relation to assets rather
than leverage, (c) transparency and information sharing
between investor and the manager, (d) diversification of
risk by risk sharing. In contrast, the discourse of
conventional finance failed as a result of (a) too much
debt, (b) overleveraging of assets and (c) excessive
securitization and creation of new assets that were
neither transparent nor understood”.
In Bangladesh, the banking system consists of a mix of
public, private and foreign commercial banks. Some of
them are conducting Islamic banking at full fledged and
some of them are working by opening Islamic banking
window with adopting modern electronic banking
technology (Sarker et al., 2015). Bangladesh Bank is the
central bank which has the responsibility to control the
monetary policies of the country and control of all
commercial banks that are working in the country. Islamic
banking started it journey in 1983 with the opening of
Islamic Bank of Bangladesh Limited (IBBL). Recent
Financial Performance Analysis of Islamic Bank in Bangladesh: A Case Study on Al-Arafah Islami Bank Limited
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statistical data shows that the growth of Islamic
in Bangladesh is steadily progressing day
following the establishment of the first Islamic com
bank, which is contrary to how conventional b
general are doing at present. Islamic banking is
becoming an established major player in the main
banking industry around the world. Based on the
supporting factors that are in support of Islamic
growth, it does appear that the inclination is l
continue. However it is important that continuous
of improvement in areas that are lacking need
focused on and resolved. Hence, the aim of this
to empirically investigate the performance a
efficiency level of Al-Arafah Islami Bank Limited.
Statement of the problem
There are nine fully fledged Islamic banks wo
Bangladesh. Al-Arafah Islami Bank Limited (AIBL
of the renowned organizations based on Islamic S
The activities of AIBL are different from the acti
other conventional Bank. It follows the Islamic ru
regulations for conducting their banking activit
intensive competition among banks in Banglade
arisen by providing innovative Islamic produc
efficient management in resources allocation and
money due to Islamic banking expansion. It is
known fact that is an effective and efficient
system is important for long-term growth and cru
economy development (Al Khathlan, Gaddamand
2009). So it is necessary to know the answer o
questions related to overall activities and perform
Al-Arafah Islami Bank Limited such as (i) wha
performance status of AIBL? (ii) What are the pr
faced by AIBL in implementing Islamic ban
Bangladesh? (iii) What are the possible w
achieving sustainable banking?
Rationale of the study
The banking system in Bangladesh is mainly tw
such as conventional banking which is interest
another is Islamic banking which is interest free.
bank follows the principles of Islamic Shar
operating their transactions. A lot of research ha
conducted on other banks but almost no researc
on Al-Arafah Islami Bank Limited. Actually, it
difficult to implement Islamic banking where conv
banking already adopted the market, so it is fa
many problems during implementation. Islamic i
may persist only in an Islamic country but in a
where conventional systems of banking prevail. S
necessary to conduct study for fulfillment of the d
of the time.
The Objectives of the Study
The main objective was to examine the perform
Islamic banking of Bangladesh in particul
experience for Al-Arafah Islamic Bank Limited
The other objectives of the study were as follows:
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a) To measure the performance of Al-Arafah Islami Bank
Limited (AIBL).
b) To identify the problems faced by AIBL.
c) To suggest measures based on findings for
sustainable growth of AIBL.
LITERATURE REVIEW
A brief summary of the research relevant to performance
analysis of Al-Arafah Islami Bank Limited is enumerated
below will support this assumption:
Tlemsani et al. (2016) reported that Islamic finance is
explicitly concerned with spiritual values and social
justice, in contrast to conventional finance, which is
based on the maximization of individual utility, welfare
and choice, as expressed for example in the shareholder
value model. Islamic and conventional banks respond
differently to financial shocks. Islamic banking is banking
or banking activity that is consistent with the principles of
Shariah law and its practical application through the
development of Islamic economics. Islamic Shariah
prohibits the fixed or floating payment or acceptance of
specific interest or fees (known as riba, or usury) for
loans of money. Investing in businesses that provide
goods or services considered contrary to Islamic
principles is also Haram (sinful and prohibited). Although
these principles have been applied in varying degrees by
historical Islamic economies due to lack of Islamic
practice, only in the late 20th century were a number of
Islamic banks formed to apply these principles to private
or semi-private commercial institutions within the Muslim
community. Islamic banking has the same purpose as
conventional banking except that it operates in
accordance with the rules of Shariah, known as Fiqh al-
Muamalat. Amongst the common Islamic concepts used
in Islamic banking are profit sharing (Mudarabah),
safekeeping (Wadiah), joint venture (Musharaka), cost
plus (Murabaha), and leasing (Ijara). (Uddin, 2014)
Shompa (2016) found that the performance of Al-Arafah
Islami Bank Limitedwas better in some ratios like cash
conversion cycle, creditors’ payment period, credit risk
and growth. But on the other hand, the performance of
Islami Bank Bangladesh Limited was better in some
ratios like debtors’ payment period and leverage. Overall
results showed that the working capital management of
Al-Arafah Islami Bank Limited is better than Islami Bank
Bangladesh Limited. Islam and Ashrafuzzaman (2015)
found no significant difference between the Islamic banks
and conventional banks regarding capital adequacy,
management capability and earnings but found a
significant difference regarding asset quality.
Uddin MR and Bristy JF (2014) found that all of the
selected banks are in a position to make a sustainable
growth in respect of branches, employees, deposits,
Financial Performance Analysis of Islamic Bank in Bangladesh: A Case Study on Al-Arafah Islami Bank Limited
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World J. Econ. Fin.
loans and advances, classified loan, net incom
earnings per share during the period of 2007-20
some fluctuation. Besides the growth pattern, othe
of calculations have been used for every s
variable and they are trend equation and squ
correlation coefficient. Under trend equation analy
variables named branches, employees, deposits
incomes hold more positive value than the other v
considered. As the value of the slope always sho
positive number, it is a clear indication that Ban
has a very good prospect in case of private com
banks. Abduh et al. (2013) observed that all
banks have shown an improvement on their effi
level with regard to banks’ efficiency. They show
First Security Islami Bank is better in terms of effic
Alkhatib and Harsheh (2012) examined the fi
performance of five Palestinian commercial bank
three indicators: Internal–based, Market-base
Economic–based performance measures. Ret
Assets, Tobin’s Q model and Economic Valu
methods have been used for measuring thes
indicators. Correlation and multiple regression a
have been applied in this study to analyze the in
of bank size, credit risk, operational efficiency an
management on financial performance and to c
good-fit regression model to predict the future
performance of these banks. As findings, the stu
indicated that there is a significant impact of ba
credit risk, operational efficiency and asset mana
on financial performance of Palestinian com
banks. Sehrish et al. (2012) analyzed f
performance of Islamic banks and conventional b
Pakistan over the period 2007-2011 using six fi
ratios on eight banks found that Islamic banks a
risky in loan compare to conventional banks a
efficient in expenses management compa
conventional banks. Sangmi and Nazir (2010) ev
the financial performance of the two major n
Indian banks using CAMEL Parameters. In this st
positions of these two banks have been highlig
sound and satisfactory with respect to their
adequacy, asset quality, management capabil
liquidity.
Within the context of Bangladesh, Roy and Khan
investigated the effect of overall service quality,
quality, and corporate social performance on rep
of private commercial banks. After the survey o
clients and employees of ten private commercial b
Dhaka City area, the study applied correlatio
stepwise regression to assess the hypothes
correlation analysis supported the entire hypothe
the stepwise regression provided partial s
However, the study concluded that overall service
overall product quality, and corporate social perfo
are statistically and significantly correlated wit
reputation (Rahman et al., 2017).
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Karim and Alam (2013) intended to measure the
performance of five selected private banks. Financial
ratios indicating the adequacy of the risk based capital,
credit growth, credit concentration, non-performing loan
position, liquidity gap analysis, liquidity ratio, return on
assets (ROA), return on equity (ROE), net interest margin
(NIM), etc. have been used. Internal–based, Market-
based and Economic–based performance indicators have
been measured by Return on Assets, Tobin’s Q model
and Economic Value add. Employing multiple regression
analysis they also attempted to apprehend the impact of
bank size, credit risk, operational efficiency and asset
management on financial performance and found that the
impact is significant. It has also created a good-fit
regression model to predict the future financial
performance of the selected banks. Using secondary
data for a period of 2005 to 2009 Almazari (2011)
attempted to evaluate the financial performance of seven
selected Jordanian commercial banks. The financial
performance has been studied using financial variables
and ratios and it found that higher total deposits, credits,
assets, and shareholders’ equity of banks do not always
infer better profitability or performance. Besides, simple
regression has been applied to estimate the impact of
bank size, asset management, and operational efficiency
on financial performance (return on assets and interest
income size) and the result showed a highly positive
correlation (Sarker, 2016).
Akhtar et al. (2011) did comparative analysis of Islamic
and conventional banks by focusing the importance of
size of the firm, networking capital, return on equity,
capital adequacy and return on asset with liquidity risk
management. It is found that size of the banks and
networking capital to net assets having positive but
insignificant relationship with liquidity risk. While the
capital adequacy in conventional banks and return on
asset in Islamic banks had a positive and significant
relationship with liquidity risk. Jaffar and Manarvi (2011)
evaluated the performance of Islamic and conventional
banks through CAMEL test during the period of 2005 to
2009. The sample of their research is 5 Islamic and 5
conventional banks. It is found that Islamic banks
performed better and having high liquidity than the
conventional banks, moreover it is realized that
conventional banks have pioneer in the management and
having a good earning ability.
For the period 2003-2004, Kosmidou and Zopounidis
(2008) evaluated and rated the performance and
efficiency of the commercial and cooperative banks in
Greece. They found in this study that commercial banks
are becoming more competitive and maximizing their
profits by increasing their accounts, attracting more
customers and improving their financial indices. But in
case of the cooperative banks, it has been found that,
some are enjoying considerably increased profits and
Financial Performance Analysis of Islamic Bank in Bangladesh: A Case Study on Al-Arafah Islami Bank Limited
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market shares while financial indices have been f
be deteriorating for others.
Chowdhury and Islam (2007) stated that depos
loan advances of Nationalized Commercial
(NCBs) are less sensitive to interest changes tha
of Specialized Banks (SBs). So SBs should no
abrupt change in lending or deposit rates by follow
NCBs. If NCBs change their lending or deposi
their deposits or loans and advances will be affec
than those of SBs. Moreover, deposits of NCB
higher volume and higher volatility than those of S
the other hand, loans advances of NCBs show a
volume and higher volatility than those of SBs. Ho
SBs offer higher deposit rates and charge higher
rates than NCBs. That is why the interest rate sp
SBs was higher than that of NCBs.
Jahangir, Shill and Haque (2007) stated th
traditional measure of profitability through stock
equity is quite different in banking industry from a
sector of business, where loan-to-deposit ratio wo
very good indicator of banks' profitability as it dep
status of asset-liability management of banks. Bu
risk is not only associated with this asset
management but also related to growth oppo
Smooth growth ensures higher future returns to
and there lies the profitability which means n
current profits but future returns as well. So, mar
and market concentration index along with re
equity and loan-to-deposit ratio grab the atten
analyzing the banks’ profitability.
METHODOLOGY
In this study, ratio analysis was used as an indi
measure the performance. Al-Arafah Islami Bank
(AIBL) was selected for this case study because
no research done on the performance analysis
bank. The primary data were collected from d
levels of officers and executives by face to face i
through structured interview schedule. The sec
data were collected from the annual reports of 2
2014. The other published source like scientific j
periodicals, books, magazines, papers and
sources were also consulted for secondary data.
ANALYSIS OF THE STUDY
Credit Performance
We used the following techniques to measure th
performance of the Al-Arafah Islami Bank Limited:
Growth Rate of Total Credit
Growth Rate of Total credit =
(Current year – Previous y
Previous year
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Table 1. Computation of Growth Rate of Total Credit of Al-Arafah Islami Bank Limited (Amount in %).

Year Total credit of respect year Total credit of base year, 2010 Growth rate (%)
(Current year (Amount in Million) (Amount in Million)
2010 53582.96 53582.96 0.00
2011 77714.95 53582.96 45.04
2012 106650.42 53582.96 99.04
2013 125715.39 53582.96 134.62
2014 146740.36 53582.96 173.86
Source: Annual report, 2014

The higher the rate of credit to volume of workin

indicates the better for the organization. On th
hand it is more risky also. The average rate of c
volume of working funds of Al-Arafah Islami Bank
was the higher in 2012, 2013 and 2014 which in
better performance in that year.

Measurement of classified Investment to Total Inves

Classified Investment to Total Investment =

(Total Classified Inves
Total Investment

Figure 1. shows growth rate of total credit. Table 3. Computation of classified investment to total investm
Arafah Islami Bank Limited (Amount in %).
The figure 1 shows that growth rate of Total credit shows
Year 2010 2011 2012 2013
the positive or negative tendency of people to collect their
Classified investment ratio (%) 1.14 0.95 1.63 2.77 4
fund from the respective institutions. The higher the
growth rate of total credits the best for the organization Source: Annual report, 2014
and its profitability. From the table mentioned above it
was found that the highest growth rate of total credit 5
showed in 2014. It is so good for the organization.
4
Measurement of Credit to Volume of Working Fund 3
Ra o
Credit to Volume of Working Fund =
(Current year – Previous year)
Previous year
× 100 2
1
Table 2. Computation of Credit to Volume of Working Fund of Al-Arafah
Islami Bank Limited (Amount in %).
0
Year 2010 2011 2012 2013 2014 2010 2011 2012 2013 201
Total
investment Year
(million) 53582.96 77714.95 106650 125715.39 146740.36
Figure 3. shows classified investment to total investme

In the above figure indicated that the smaller the

classified investment to total Investment the bette
160000
140000
organization. The average rate of classified invest
BDT in mil 120000 total loan of Al-Arafah Islami Bank Limited is to
100000 lower in 20 10, 2011 and 2012 which indicated t
80000 performance of the mentioned year.
60000 Total investment
40000 Measurement of Profitability
20000
0 We used the following techniques to measu
2010 2011 2012 2013 2014 profitability of the bank.
Year
Return on Asset
Figure 2. Measurement of credit to volume of working funds.
Return on Asset = Total Asset Excluding Contra × 100
Net Profit after Tax

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Figure 6. Bar diagram showing number of branch and deposit in million of AIBL.

Table 4. Computation of Return on Asset of Al-Arafah Islami Bank

Limited (Amount in %).
Year 2010 2011 2012 2013 2014 25
ROA 2.65 2.06 1.3 1.31 1.10 20
Source: Annual report, 2014
15
ROE
10
3
5
2 0
ROA 2010 2011 2012 2013 2014
1
Year
0 Figure 5. shows Return on Equity (ROE) of AIBL from 2010 to
2010 2011 2012 2013 2014
Year Measurement of Productivity

Figure 4. shows Return on Asset (ROA) of AIBL from 2010 to 2014. The measurement of productivity is calculated
following techniques:
The average return on asset ratio in 2010 was highest
among the years. It is too much good for organization. Deposit per Branch
But it is decreasing gradually; the institution should
concentrate to improve the situation. Deposit per Branch =
Total Depodit
Total No.of Branch

Return on Equity
Table 6. Computation of deposit per branch of Al-Arafa
Return on Equity = Total equity × 100
Gross profit Bank Limited (Amount in million Taka).

Year 2010 2011 2012 2013 20

Table 5. Computation of Return on Equity of Al-Arafah Islami Bank
Limited (Amount in %). Number of Branch 78 00 88 100 110 11
Year 2010 2011 2012 2013 2014 Deposit in Mil BDT 690.81 933.94 1186.83 1281.64 14
ROE 20.01 18.34 13.85 14.15 12.8 From the above table 6 indicated that the a
Source: Annual report, 2014 deposit per branch ratio of Al-Arafah Islami Bank
was comparatively higher. It was good for organiz
The trend of the return on equity of the bank showed a also indicated lower uncertainty on return on asset
decreasing trend. The management of the bank in similar
trend should concentrate for improving the situation. Profit per Branch
Similar findings obtained by Sarker et al (2015) and Profit per Branch =
Total Profit received on Investment

Chowdhury et al (2015) for other banks . Total No.of Branch

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Table 7. Computation of Interest or Profit per Branch of Al-Arafah decreasing trend. The bank should have tried to i
Islami Bank Limited (Amount in million Taka). the situation. Similar findings found by Sarker et a
and Chowdhury et al (2015) for other banks.
Year 2010 2011 2012 2013 2014
Number of Branch 78 88 100 110 119
Profit per Branch 15.04 45.62 52.88 53.26 59.74
Quick Ratio
Source: Annual Report, 2014
Quick Ratio =
Total Quick Asset
Total Current Liabilities
140
Table 9. Computation of quick ratio of Al-Arafah Isla
120 Limited (Amount in million Taka).
100
Year 2010 2011 2012 2013 2014
Amount in 80
Quick ratio 4.62 0.11 0.07 0.06 0.10
Million 60 No. of Branch Source: Annual Report, 2014
40 Pro t per Branch
20 From the above table 9 it was found that the a
0 quick ratio of Al-Arafah Islami Bank Limited w
2010 2011 2012 2013 2014 highest in 2010. It was good for Al-Arafah Islam
Limited. The bank should maintain a stable trend
Year & no. of branch quick ratio for sustainability. Similar findings obta
Figure 7. Bar Diagram of interest or profit per branch of Al-Arafah Islami Sarker et al 2015 and Chowdhury et al (2015) fo
Bank Limited. banks.
From the above table 7 showed that the average profit
per branch ratio of Al-Arafah Islami Bank Limited was
relatively increasing trend. This trend indicated a good
position of a bank. Similar findings obtained by Sarker et
al. (2015) and Chowdhury et al. (2015) for other banks.

Measurement of Solvency

To measure the solvency of the selected banks to

measure the actual performance of Al-Arafah Islami Bank Figure 9. Bar Diagram of Quick Ratio of Al-Arafah Islami Bank
Limited (AIBL), we used the following techniques:
Risk Measurement
Current Ratio
Debt to Equity Ratio = Total Equity
Total Debt

Current Ratio =
Total Current Asset
Total Current Liabilities
Table 10. Computation of debt to equity ratio of Al-Arafa
Table 8. Computation of current ratio of Al -Arafah Islami Bank Bank Limited (Amount in million Taka).
Limited.
Year 2010 2011 2012 2013 201
Debt -equity ratio 6.12 7.91 9.63 9.76 10.
Year 2010 2011 2012 2013 2014
Current ratio 2.41 2.57 1.88 1.63 1.52 Source: Annual Report, 2014
Source: Annual Report, 2014

Figure 10. Bar diagram of debt-equity ratio of Al-Arafah Isl

Figure 8. Bar diagram of Current Ratio of Al-Arafah Islami Bank Limited Limited.

From the above table 8 it was found that, the average The trend of debt to equity ratio was not more fa
current ratio of Al-Arafah Islami Bank Limited showed than previous performance. It showed a risk
Financial Performance Analysis of Islamic Bank in Bangladesh: A Case Study on Al-Arafah Islami Bank Limited

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institution. Chowdhury et al (2015) found that Islamic
banks in Bangladesh have shown relatively better
performance in terms of loan recovery as compared to its
conventional banking.
RECOMMENDATIONS FOR POLICY IMPLICATION
The findings suggest following recommendations for
overcoming the probable problems:
a) Islamic banks should increase the employment
opportunities for the betterment of welfare of the
society.
b) Islamic Banks should establish available branches all
over the country especially for rural area to bring
most of the rural people under banking.
c) Islamic banks should increase capital market and
financial instruments.
d) Islamic banks should manage cost of information,
control over cost of fund, mark-up financing,
utilization of interest rate for fixing the profit margin in
Murabahah sales, financing social concerns, enabling
those who have no property, providing employment
opportunities to all categories of people.
e) Islamic banks should demonstrate the impact of
Islamic investment on the solution of the
unemployment problem and assisting the state in
confronting these ever increasing problems.
f) The cooperation among Islamic banks should be
increased to disseminate the Islamic banking
knowledge and interest free banking.
g) Islamic banks should be concentrated to finance to
high-return projects and profitable sector.
h) The concentration should be increased to more
favorable capital market investment & inter-bank
money market.
i) Sources of income and expenditure area should be
disclosed in the income statement to ensure that their
income and expenditure were earned according to
Shariah.
j) Zakat collection and distribution should be followed
by Islamic manner sothat poor can get benefit from it.
k) Attention should be given to minimize the risks
associated with profitability.
l) Al-Arafah Islami Bank Limited should try to raise the
more deposit ratio for carrying higher productivity in
future.
m) The risk bearing indicators of bank like return on
equity should be maintained properly.
CONCLUSION
Al-Arafah Islamic Bank Limited (AIBL) is conducting their
business following Islamic Shariah (law). It is trying to
avoid interest in any of its operation. Various financial
ratio analyses show that AIBL get a better position on the
Financial Performance Analysis of Islamic Bank in Bangladesh: A Case Study on Al-Arafah Islami Bank Limited
https://www.researchgate.net/publication/318814763_Financial_Performance_Analysis_of_Islamic_Bank_in_Bangladesh_A_Case_Study_on_Al…
basis of its performance. The bank should be sin
collect deposit and lending money and increas
number of financial products. The findings sugg
cost of fund, markup financing, fixing profit marg
distribution should be based on Islamic Shariah p
for the betterment of the society. This stud
suggests that AIBL should have to increase invest
the capital market and to increase the number of fi
instruments. Not only AIBL but also other Islamic
are facing various difficulties especially for
compliance to their every operation due to un
structure of capital market. If the Islamic banks fo
recommendation properly and central bank ca
initiative for maintaining the Islamic financial inst
properly, they will be the ideal organizations
financial market as well as in the society. Thi
complements other studies which discus
performance and efficiency in Islamic banks, par
in the case of Bangladesh.
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