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Internship Report
On
Comparative Analysis of Return on Deposits and Return
from Lending Activities between Islamic and Conventional
Banks
&
Financial Performance Analysis of Shahjalal Islami Bank
Limited









Submitted By:
Touhidul Huq Khan
BBA
School of Business
North South University

ii

Date: 10
th
May, 2012

To
The Senior Vice President
Head of HRD
Human Resources Division
Shahjalal Islami Bank Ltd.
Head Office
2/B Gulshan South Avenue,
Gulshan - 1, Dhaka-1212

Through- The SEVP & Manager, Shahjalal Islami Bank Ltd., Dhanmondi Branch.

Subject: Submission of Internship Report.

Dear Sir,
I am hereby submitting to you, my internship report as required by my internship
appointment letter (SJIBL/HRD/HO/2011/93/1) dated 19 January, 2012.

Im really thankful to you for giving me the opportunity to execute my internship
program at the bank. I respectfully acknowledge your help that you so kindly accorded to me
during the course of my internship program. Im also grateful for allowing my access in
necessary information for preparing this report.

Working for this report during my internship program has definitely enriched my
knowledge and experience in practical field. Despite some limitations Ive tried my best to
prepare this report as a decent one.

Your kind acceptance of this report will be highly appreciated and should you need
any assistance in interpreting the report, please call me; I am at your service.

Sincerely yours

_________________
Touhidul Huq Khan
BBA
School of Business
North South University
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Acknowledgement

I would like to thank my internship program supervisor Mr. Sharif Nurul Ahkam for his
prudent guidance and instruction that enabled me to accomplish the internship report
successfully.

I would like to thank the manager of Shahjalal Islami Bank Limited (Dhanmondi Branch) for
giving me the opportunity to execute my internship program at the bank and for allowing my
access in necessary information for preparing this report. I would also like to express my
immense gratitude to all of the officers of Shahjalal Islami Bank Limited who not only helped
me a lot to prepare this report but also helped me with their guidance and by sharing their
invaluable knowledge throughout my entire internship program.

Finally, I would like to thank my parents whose influence and inspiration has enabled me to
complete this report.

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Executive Summary

This report is based on comparison of the analysis of Islamic banks with conventional banks
in respect to the rates of return from deposit and lending products. Moreover, since this report
is partially based on Shahjalal Islami Bank, which an Islamic bank which is operating in the
banking sector for the last eleven years, its financial performance analysis would also be
analyzed.
This report is broadly categorized in six different parts. At the first part, introduces the reader
to the report, mentioning the primary objectives, the methodology applied and the limitations
faced in preparation of the report. Second part gives a brief overview of the origination of
Islamic banking has been mentioned along with differences between conventional and
Islamic banking. The third part of the report gives an overview of Shahjalal Islamic Bank,
which includes the company profile, history, vision, mission and strategy, products and
services & SWOT analysis. Part four of the report discuss about the activities conducted
under different departments of a branch of Shahjalal Islami Bank. Although, there are three
departments in a branch at Shahjalal Islami Bank, this report would discuss about the
activities of only two of the departments. The fifth part of the report is about one of the
primary of objective of the report whereby there would be a comparative analysis of the rate
of return of deposits and lending activities of Islamic banks and conventional banks. It also
includes summary of the findings. The sixth and the last part of the report is about the other
primary objective, which is the financial performance analysis of Shahjalal Islami Bank. This
part of the report focuses on financial theories, ratios, ratio interpretations and how these
ratios are contributing to evaluate the performance of Shahjalal Islami Bank Limited. Time
series analysis was done to analyze the performance of Shahjalal Islami Bank Limited. At the
end of the analysis, summary of the findings and recommendation is provided for any
deficiency.
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TABLE OF CONTENTS
ACKNOWLEDGEMENT ................................................................................................ III
EXECUTIVE SUMMARY ............................................................................................... IV
PART 1: INTRODUCTION ............................................................................................... 8
1.1 ORIGIN OF THE REPORT .................................................................................................................... 9
1.2 OBJECTIVES ..................................................................................................................................... 9
1.3 SCOPE ............................................................................................................................................ 10
1.4 METHODOLOGY ............................................................................................................................. 10
1.5 LIMITATIONS OF THE STUDY............................................................................................................ 11
1.6 SIGNIFICANCE OF THE STUDY .......................................................................................................... 11
PART 2: INTRODUCTION TO ISLAMIC BANKING ................................................. 12
2.1 CONCEPT OF ISLAMIC BANKING ...................................................................................................... 13
2.2 EMERGENCE OF ISLAMIC BANKING .................................................................................................. 14
2.3 DIFFERENCES BETWEEN ISLAMIC AND CONVENTIONAL BANKS ......................................................... 16
2.4 ISLAMIC BANKING IN BANGLADESH ................................................................................................ 18
PART 3: ORGANIZATIONAL PROFILE ..................................................................... 19
3.1 ABOUT SHAHJALAL ISLAMI BANK LTD. (SJIBL) .............................................................................. 20
3.2 VISION ........................................................................................................................................... 20
3.3 MISSION......................................................................................................................................... 20
3.4 STRATEGIES ................................................................................................................................... 21
3.5 MOTTO .......................................................................................................................................... 21
3.6 CORPORATE INFORMATION ............................................................................................................. 22
3.7 MANAGERIAL HIERARCHY OF SJIBL............................................................................................... 23
3.8 DIVISIONS OF SHAHJALAL ISLAMI BANK LTD. ................................................................................. 25
3.9 SWOT ANALYSIS ........................................................................................................................... 26
3.10 CORPORATE SOCIAL RESPONSIBILITY (CSR) ................................................................................... 28
3.11 PRODUCTS ..................................................................................................................................... 29
3.11.1 Deposit Accounts ................................................................................................................... 29
3.11.2 Investment Schemes ............................................................................................................... 30
3.11.3 Services ................................................................................................................................. 30
PART 4: DEPARTMENT ACTIVITIES OF A BRANCH ............................................. 31
4.1 INTRODUCTION .............................................................................................................................. 32
4.1.1 General banking department ...................................................................................................... 32
4.1.2 Account opening section ............................................................................................................ 33
4.1.3 Cash Section.............................................................................................................................. 33
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4.1.4 Cheque clearing section ............................................................................................................. 35
4.1.5 Remittance section ..................................................................................................................... 36
4.1.6 Accounts Department................................................................................................................. 38
4.2 FOREIGN EXCHANGE DEPARTMENT................................................................................................. 39
4.2.1 Import Procedures ..................................................................................................................... 39
4.2.1.1 Types of Letter of Credit (L/C) ......................................................................................................... 40
4.2.2 Export Procedure ...................................................................................................................... 41
4.2.2.1 Mode of Payment of Export Bill Under L/C ...................................................................................... 43
4.2.3 Foreign Remittance ................................................................................................................... 44
4.2.3.1 Foreign Currency Accounts .............................................................................................................. 45
4.2.3.2 Miscellaneous Remittances .............................................................................................................. 45
4.2.3.3 Reasons for Foreign Remittances...................................................................................................... 46
PART 5: COMPARISON OF LENDING AND DEPOSIT RATES ............................... 47
5.1 INTRODUCTION .............................................................................................................................. 48
5.2 DEFINITION OF HYPOTHESIS TEST .................................................................................................... 49
5.3 REASON FOR USING HYPOTHESIS TESTING ........................................................................................ 49
5.4 METHODOLOGY ............................................................................................................................. 50
5.5 HYPOTHESIS TEST FOR THE COMPARISON OF RETURN ON DEPOSITS ................................................... 51
5.5.1 Hypothesis test of the deposit products ....................................................................................... 52
5.5.1.1 Savings Account .............................................................................................................................. 52
5.5.1.2 SND (Short Notice Deposit) ............................................................................................................. 53
5.5.1.3 Fixed Deposit/Term Deposit............................................................................................................. 54
5.5.1.4 Deposit Double Scheme ................................................................................................................... 56
5.5.2 Summary of the findings............................................................................................................. 57
5.6 HYPOTHESIS TEST FOR THE COMPARISON OF RETURN ON LENDING ACTIVITIES .................................. 57
5.6.1 Hypothesis test of lending products ............................................................................................ 58
5.6.1.1 Lease/Ijara ....................................................................................................................................... 58
5.6.1.2 Car Purchase Investment .................................................................................................................. 59
5.6.1.3 Household Durables Investment ....................................................................................................... 60
5.6.1.4 Housing Investment ......................................................................................................................... 60
5.6.2 Summary of the findings............................................................................................................. 61
PART 6: FINANCIAL PERFORMANCE ANALYSIS OF ............................................ 63
SHAHJALAL ISLAMI BANK LIMITED ....................................................................... 63
6.1 INTRODUCTION .............................................................................................................................. 64
6.2 METHODOLOGY ............................................................................................................................. 65
6.3 FINDINGS AND ANALYSIS ................................................................................................................ 67
6.3.1 Time-series Analysis: From 2008 to 2010 .................................................................................. 67
6.3.1.1 Profitability Ratios ........................................................................................................................... 67
6.3.1.2 Efficiency Ratios ............................................................................................................................. 70
6.3.1.3 Liquidity Ratios ............................................................................................................................... 74
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6.3.1.4 Leverage ratios ................................................................................................................................ 77
6.3.1.5 Credit risk indicators ........................................................................................................................ 79
6.3.1.6 Market Position Ratios ..................................................................................................................... 82
6.4 SUMMARY OF THE FINDINGS AND RECOMMENDATION ...................................................................... 86
CONCLUSION ................................................................................................................. 88
BIBLIOGRAPHY ............................................................................................................. 90
APPENDIX ........................................................................................................................ 92


LIST OF FIGURES
FIGURE 1: ORGANOGRAM OF SHAHJALAL ISLAMI BANK ................................................................................... 24
FIGURE 2: DIVISIONS OF SHAHJALAL ISLAMI BANK .......................................................................................... 26
FIGURE 3: TYPES OF DEPOSIT SCHEMES ........................................................................................................... 29
FIGURE 4: TYPES OF INVESTMENT SCHEMES ..................................................................................................... 30
FIGURE 5: TYPES OF SERVICES ......................................................................................................................... 30
FIGURE 6: DIFFERENT SECTIONS OF GENERAL BANKING .................................................................................... 32


LIST OF TABLES
TABLE 1: DIFFERENCE BETWEEN CONVENTIONAL AND ISLAMIC BANKING SYSTEM............................................. 16
TABLE 2: SWOT ANALYSIS OF SHAHJALAL ISLAMI BANK ................................................................................ 26
TABLE 3: CHEQUE CLEARING PROCEDURE OF SJIBL ......................................................................................... 35
TABLE 4: SAVINGS A/C RATES .......................................................................................................................... 52
TABLE 5: HYPOTHESIS TEST STATISTICS (SAVINGS A/C) .................................................................................... 52
TABLE 6: SND A/C RATES ................................................................................................................................ 53
TABLE 7: HYPOTHESIS TEST STATISTICS (SND A/C) .......................................................................................... 53
TABLE 8: FIXED DEPOSITS A/C RATES .............................................................................................................. 54
TABLE 9: HYPOTHESIS TEST STATISTICS (FIXED DEPOSITS A/C) ......................................................................... 55
TABLE 10: DEPOSIT DOUBLE SCHEME A/C RATES ............................................................................................. 56
TABLE 11: HYPOTHESIS TEST STATISTICS (DEPOSIT DOUBLE SCHEME A/C) ........................................................ 56
TABLE 12: LEASE/IJARA RATES........................................................................................................................ 58
TABLE 13: HYPOTHESIS TEST STATISTICS (LEASE/IJARA) .................................................................................. 58
TABLE 14: CAR PURCHASE INVESTMENT RATES ............................................................................................... 59
TABLE 15: HYPOTHESIS TEST STATISTICS (CAR PURCHASE INVESTMENT) .......................................................... 59
TABLE 16: HOUSEHOLD DURABLES INVESTMENT RATES ................................................................................... 60
TABLE 17: HYPOTHESIS TEST STATISTICS (HOUSEHOLD DURABLES INVESTMENT) ............................................. 60
TABLE 18: HOUSING INVESTMENT RATES ......................................................................................................... 60
TABLE 19: HYPOTHESIS TEST STATISTICS (HOUSING INVESTMENT) ................................................................... 61
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PART 1: INTRODUCTION

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1.1 Origin of the Report
Shahjalal Islami Bank Limited, one of the few Islamic commercial banks in Bangladesh to be
established in recent years, is slowly emerging to be one most competitive Islamic bank in the
banking sector. I have done my internship at the Dhanmondi Branch of Shahjalal Islami
Bank. As a mandatory requirement for successful completion of BBA program under North
South University, it is required to prepare an internship report as this provides an opportunity
to an internee student to minimize the gap between theoretical and practical knowledge.
Hence this report is prepared.

1.2 Objectives
The broader objective of this report is to present a comparative analysis between Islamic
banks and conventional banks. However, to be more specific, the objective of this report can
be deduced as follows:
a comparative analysis of the return on deposits among Islamic banks and
conventional banks
a comparative analysis of the cost of borrowings fund among Islamic and
conventional banks
Finally, this report would present the analysis of the financial standpoint of Shahjalal
Islamic Bank Limited and provide recommendations where required for remedial
measurement for the improvement.
Moreover, keeping the above primary objectives in consideration and as mentioned earlier
that Shahjalal Islami Bank operates following the system of Islamic Shahriah, this report,
hence, would also provide a general description of the Islamic Shahriah system in respect to
the conventional banking system. As the operations of Shahjalal Islami Bank are divided into
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three departments, which are general banking, investment and credit and foreign exchange,
this report would provide an overview of the activities of each of the three departments.

1.3 Scope
The scope of the report is to find out the difference in rates of return of deposits and lending
activities among the banks that are currently operating in the banking sector, following the
Islamic Shariah and conventional banking system respectively. Moreover, financial
performance of Shahjalal Islami Bank will also be assessed.

1.4 Methodology
The report would be prepared based on the primary and secondary sources of data which are
as follows:
Primary sources: For the primary sources of data I would have to rely on my personal
observation while working at different desks of the bank. Moreover, informal
conversations and interviews with various officers of the banks would also be integral
methods in gathering information from primary sources.
Secondary sources: As for secondary resources, I would use relevant journals and
various publications of Shahjalal Islami Bank Limited. Also, I would like to collect
data from the NSU library, newspaper and the Internet. Also, some of the published
statistics by the Bangladesh Bank would also be used as a reference for the
preparation of this report.


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1.5 Limitations of the study
In preparation of this report, the following limitations were encountered:
Three months time is not enough for an extensive study. It is very difficult to collect
all the required information in such a short period.
Due to some legal obligation and business secrecy, banks are reluctant to provide
data. For this reason, the study limits only on the available published data and certain
degree of formal and informal interview.
The bankers are very busy with their jobs, which lead might limit or reduce
consultation opportunity.
As the report would be prepared based on a bank which follows Islamic Shahriah, this
might create difficulty and confusion for me to work with the financial statements of
SJIBL for financial analysis due to the differences in presentation of the financial
statements items in comparison to the financial statement items of conventional
banks.

1.6 Significance of the study
The significance of the report is multi-dimensional. In preparation of this report, I was
benefited by gaining a firsthand experience into the corporate world. Daily inspection of the
host organization will also help me to understand the cultural attributes, understand the whole
banking process and learn how they actually do everyday banking Moreover, this report
would provide a general idea to an individual about the nature of activities that occurs in the
day-to day operations of a commercial bank. The report would also provide my host
company, an opportunity to get an overview of their financial standpoint from my findings of
the financial analysis which they could take into account for future reference.

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PART 2: INTRODUCTION TO ISLAMIC
BANKING


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2.1 Concept of Islamic Banking
Islamic Banking, a new type of banking that operates on principles following of the Quranic
norms forbidding usury and transactions, including granting of loans or credits for interest.
The philosophy of Islamic banking takes the lead from Islamic Shariah.
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 (Islamic rules on
transactions). According to Islamic Shariah, Islamic banking cannot deal in transactions
involving interest/riba (an increase stipulated or sought over the principal of a loan or debt).
Further, they cannot deal in the transactions having the element of Gharar
1
or Maiser
2
.
Moreover, they cannot deal in any transaction, the subject matter of which is invalid (haram
in the eyes of Islam). Islamic banks focus on generating returns through investment tools
which are Shariah compliant as well. Islamic Shariah links the gain on capital with its
performance. Operating within the field of Shariah, the operations of Islamic banking are
based on sharing the risk which may arise through trading and investment activities using
contracts of various Islamic modes of finance. The prohibition of a risk free return and
permission of trading makes the financial activities asset-backed in an Islamic set-up with
ability to cause value addition. The basic principle of Islamic banking is the sharing of
profit and loss and the prohibition of riba (usury). Amongst the common Islamic concepts
used in Islamic banking are profit sharing (Mudaraba), safekeeping (Wadiah), joint venture
(Musharakah), cost plus (Murabahah), and leasing (Ijarah).
The origins of Islamic banking can be traced back to the practice of mudaraba by the Prophet
Muhammad (SM) himself. The Prophet (SM) was mudarib (agent) for his wife, who
entrusted her capital or merchandise to him for trading and got back the principal plus an

1
Excessive level of uncertainty or ambiguity created due to the lack of information or control in a contract.
2
Game of Chance
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agreed share of the profit. As a reward for his labour (and entrepreneurship), the Prophet
(mudarib) received his share of the same. The mudarib, however, was not liable for losses
resulting from the exigencies of travel or from an unsuccessful business venture. This form of
partnership is called mudaraba. There is another form of partnership called musharaka, in
which the musharik (agent) has a contribution to the capital and can therefore, claim a higher
percentage of profit.
Modern Islamic banking concepts came from the historical practice of the concept of a three-
tier mudaraba. On the first tier, there is the individual, rab-al-mal, who wishes to invest
capital. The second tier is the mudarib (agent), to whom the rab-al-mal entrusts his capital
by contract and finally, on the third tier, there is the entrepreneur, with whom the mudarib
signs a contract, and to whom the mudarib passes the capital originally entrusted to him by
the rab-al-mal.

2.2 Emergence of Islamic banking
For an expanding economy, a developed and efficient banking system is crucial. Among
others, it helps transfer of financial resources from surplus units to deficit units. Institutional
supply of credit has been made possible by a system of financial intermediation organized in
a way where conventional banks collect small savings from the public by offering them a
fixed rate of interest and advancing the loan able funds out of the deposited money to
enterprising clients charging relatively higher rates of interest. Despite the outstanding
contribution of the conventional banking system (interest based), several ancient and modern
economists are critical about its efficiency level. Some economists consider the role of
interest in the conventional banking mechanism as a major negative factor that contributes to
cyclical fluctuations in the economy (Minsky 1982). Specifically, the ineffectiveness of
interest rate as a stabilization tool during the period of the Great Depression is a case to note.
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This eventually called for Keynesian prescription of government intervention (Keynes 1964).
Similar concern was expressed in a story published in Newsweek where it was mentioned
that - The instability has persisted and the uncertainty has continued. After going through
the throes of painfully high levels of inflation, the world economy has experienced a deep
recession and unprecedented rate of unemployment, complicated further by high level of real
interest rates and unhealthy exchange rate fluctuations (Newsweek, 1983). This called for
the emergence of a new system of banking capable of tackling new challenges that the
present world economy, particularly the financial sector, has been facing.
In response, though not exactly to that exigency but for quite a few other reasons, the second
half of the twentieth century witnessed a distinctly separate line of thinking on banking. This
was institutionalized at the end of third quarter and subsequently emerged as a new system of
banking called Islamic Banking (also called Profit-Loss-Sharing Banking; PLS). There are
religious as well as economic reasons, which have contributed to the emergence of PLS-
banking as an alternative to its conventional counterpart. The prohibition of 'Riba' was the
source of inspiration for establishing banks in line with Islamic Shariah (Muslehuddin 1987,
pp.24-27).
The basic intention behind establishing Islamic banks was the desire of Muslims to
reorganize their financial activities in a way that do not contradict the principles of Shariah
and enable them to conduct their financial transactions without indulging into Riba (Ahmad
1992). The economic reason for the establishment of Islamic banking is that the Quran,
provided inspiration to devise an interest-free financial system that has been substantiated
such a way that interest, instead of increasing wealth, reduces it. Such a hard approach
towards interest is that, Islam stands for establishing a just economic system free from all
kinds of exploitation. Moreover, Muslim economists consider depression and stagflation,
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very often found in the capitalist world, as an outcome of the financial system based on
interest (Rahman 1976).
Thus, Islamic banking emerged as a response to both religious and economic needs. While
religious requirement was to avoid any transaction based on interest, economic requirements
were to provide a new outlook to the role of banking in promoting investment in productive
activities, influencing distribution of income and adding stability to the economy.

2.3 Differences between Islamic and conventional banks
The following table illustrates the differences between conventional banks and Islamic banks:
Table 1: Difference between conventional and Islamic banking system
Conventional Banks Islamic Banks
1. The functions and operating modes of
conventional banks are based on fully
man made principles.
1. The functions and operating modes of
Islamic banks are based on the
principles of Islamic Shariah.
2. The investor is assured of a
predetermined rate of interest.
2. In contrast, it promotes risk sharing
between provider of capital (investor)
and the user of funds (entrepreneur).
3. It aims at maximizing profit without
any restriction.
3. It also aims at maximizing profit but
subject to Shariah restrictions.
4. It does not deal with Zakat. 4. In the modern Islamic banking
system, it has become one of the
service-oriented functions of the
Islamic banks to be a Zakat
Collection Centre and they also pay
out their Zakat.
5. Lending money and getting it back
with compounding interest is the
fundamental function of the
conventional banks.
5. Participation in partnership business
is the fundamental function of the
Islamic banks. So we have to
understand our customer's business
very well.
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6. It can charge additional money
(penalty and compounded interest) in
case of defaulters.
6. The Islamic banks have no provision
to charge any extra money from the
defaulters. Only small amount of
compensation and these proceeds is
given to charity. Rebates are given for
early settlement at the Bank's
discretion.
7. Very often it results in the bank's own
interest becoming prominent. It
makes no effort to ensure growth with
equity.
7. It gives due importance to the public
interest. Its ultimate aim is to ensure
growth with equity.
8. For interest-based commercial banks,
borrowing from the money market is
relatively easier.
8. For the Islamic banks, it must be
based on a Shariah approved
underlying transaction.
9. Since income from the advances is
fixed, it gives little importance to
developing expertise in project
appraisal and evaluations.
9. Since it shares profit and loss, the
Islamic banks pay greater attention to
developing project appraisal and
evaluations.
10. The conventional banks give greater
emphasis on credit-worthiness of the
clients.
10. The Islamic banks, on the other hand,
give greater emphasis on the viability
of the projects.
11. The status of a conventional bank, in
relation to its clients, is that of
creditor and debtors.
11. The status of Islamic bank in relation
to its clients is that of partners,
investors and trader, buyer and seller
12. A conventional bank has to guarantee
all its deposits.
12. Islamic bank can only guarantee
deposits for deposit account, which is
based on the principle of Al-Wadiah,
thus the depositors are guaranteed
repayment of their funds, however if
the account is based on the
mudarabah concept, client have to
share in a loss position.

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2.4 Islamic Banking in Bangladesh
Islamic banking started in Bangladesh through establishment of the Islami Bank Bangladesh
Ltd. (IBBL), which is considered to be the first interest-free bank in Southeast Asia. Al-
Baraka Bank Ltd. often called the second Islamic bank of Bangladesh, commenced banking
business on 20 May 1997. It is a joint-venture enterprise of Al-Baraka Investment and
Development Company, a renowned financial and business house of Saudi Arabia, Islamic
Development Bank, a group of eminent industrialists of Bangladesh, and the government of
Bangladesh.
In 1996, two more Islamic banks were given clearance to operate under Islamic
banking principles. They were the Al-Arafah Islami Ltd. and Social Investment Bank. The
fifth Islamic bank of the country is a foreign bank named the Shamil Bank of Bahrain, which
was created through merger of the Faisal Islamic Bank of Bahrain and an Islamic Finance
Company.
Now 7 (seven) local Private Commercial Banks (PCBs) are working at Bangladesh. These are
as follows:
a. Al-Arafa Islami Bank Ltd.
b. Export-Import/EXIM Bank Ltd.
c. First Security Islami Bank Ltd.
d. ICB Islami Bank Ltd.
e. Islami Bank Bangladesh Ltd.
f. Shahjalal Islami Bank Ltd.
g. Social Islami Bank Ltd.

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PART 3: ORGANIZATIONAL PROFILE

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3.1 About Shahjalal Islami Bank Ltd. (SJIBL)
Shahjalal Islami Bank Limited is based on Islamic Shariah. SJIBL is named after the name of
a saint Hajrat Shahjalal (R) who dedicated his life for the cause of peace in this world and
hereafter and served the humanity. It was incorporated as a Public limited company on 1st
April 2001 under companies Act 1994. It commenced its commercial operation in accordance
with principle of Islamic Shariah on the 10th May 2001 under the Bank Companies Act,
1991. During last ten years SJIBL has diversified its service coverage by opening new
branches at different strategically important locations across the country offering various
service products both investment and deposit. Islamic Banking, in essence, is not only
interest-free banking business, it carries deal wise business product thereby generating real
income and thus boosting GDP of the economy. Board of Directors enjoys high credential in
the business arena of the country. Management Team is strong and supportive equipped with
excellent professional knowledge under leadership of a veteran Banker Mr. Md. Abdur
Rahman Sarker.

3.2 Vision
To be the unique modern Islami Bank in Bangladesh and to make significant contribution to
the national economy and enhance customers' trust and wealth, quality investment,
employees' value and rapid growth in shareholders' equity.

3.3 Mission
To provide quality services to customers
To set high standards of integrity
To make quality investment
To ensure sustainable growth in business
To ensure maximization of Shareholders' wealth
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To extend our customers innovative services acquiring state-of-the-art technology
blended with Islamic principles
To ensure human resource development to meet the challenges of the time.

3.4 Strategies
To strive for customers best satisfaction and earn their confidence
To manage and operate the Bank in the most effective manner
To identify customers needs and monitor their perception towards meeting those
requirements
To review and updates policies, procedures and practices to enhance the ability to
extend better services to the customers
To train and develop all employees and provide them adequate resources so that the
customers needs are reasonably addressed
To promote organizational efficiency by communicating company plans, polices and
procedures openly to the employees in a timely fashion
To cultivate a congenial working environment
To diversify portfolio both the retail and wholesale markets

3.5 Motto
Committed to Cordial Service

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3.6 Corporate Information
Name of the Company Shahjalal Islami Bank Limited
Legal Form
A public limited company incorporated in Bangladesh on 1st April
2001 under the companies Act 1994 and listed in Dhaka Stock
Exchange Limited and Chittagong Stock Exchange Limited.
Commencement of
Business
10th May 2001
Head Office
Uday Sanz, Plot No. SE (A)
2/B Gulshan South Avenue,
Gulshan - 1, Dhaka-1212.
Telephone No. 88-02-8825457, 8828142, 8824736, 8819385, 8818737
Fax No. 88-02-8824009
Website www.shahjalalbank.com.bd
SWIFT SJBL BD DH
E-mail sblho@shahjalalbank.com.bd
Chairman Alhaj Anwer Hossain Khan
Managing Director Md. Abdur Rahman Sarker
Auditors
M/S. Hoda Vasi Chowdhury and Co.
Chartered Accountants
Ispahani Bhaban
14-15 Motijheel C/A
Dhaka-1000
Phone: 88-02-9555915, 9560332
Tax Advisor
M/S K.M Hasan and Co.
Chartered Accountants
87, New Eskaton Road
Dhaka.
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Phone: 88-02-9351457, 9351564
Legal Advisor
Hasan and Associates
Chamber of Commerce Building
(6th floor), 65-66 Motijheel C/A, Dhaka
No. of Branches 74
No. of ATM Booth 18
No. of SME Centers 06
Off-Shore banking Unit 01
No. of Employees 1,671
Stock Summary:
Authorized Capital Tk. 6,000 million
Paid up Capital Tk. 4452.655 million
Face Value per Share Tk. 10

3.7 Managerial Hierarchy of SJIBL
Chairman
Board of Directors
Executive Committee
Managing Director

Additional Managing Director
Deputy Managing Director
Senior Executive Vice President
Executive Vice President
Senior Vice President
Vice President
Senior Assistant Vice President
Assistant Vice President
Top Management
Executive Level
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First Assistant Vice President
Senior Executive Officer
Executive Officer
Principal Officer

Senior Officer
Management Trainee Officer
Junior Officer
Mid-Level Management
Junior Level
Figure 1: Organogram of Shahjalal Islami Bank
25

3.8 Divisions of Shahjalal Islami Bank Ltd.
Shahjalal Islami Bank Ltd. has some major divisions comprising of various departments. The
major divisions are as follows:
a. Investment Division: This division has the authority to determine the party or the
client who will get the credit facility from the bank. The credit clients are selected
according to the criteria of credit policy. This division has the full authority to take
any decision against or favor the client and these divisional works is supported by the
Credit Services Division.
b. Financial Administration Division: This division can handle the credit proposal,
disbursement, monitoring and credit recovery position that is given by all branches.
Each branch has their own credit division and all branch-wise activities are supported
to the head office credit services division.
c. Audit and Inspection Division: This division can control all the financial position,
activities of overall organization. They provide the total budgetary limitation to every
department for the respective year. They also carry out the financing activities with
the access and operational activities.
d. Marketing and Public Relation Division: This division mainly works for:
o Improving the marketing network throughout the country.
o Implementing the marketing strategies and the concept of Trade Marketing.
o Improving the procedure which is ultimately provided data regarding to
competition and relative market.
o Arranging the several workshops and seminar this can improve the
quality of existing officers as a competitive edge position.
26

e. Common Service Division: This division can handle all the genera activities except
the credit and financial sector. All the administration activities are designed and
implemented by this division.
f. Human Resource Division (HRD): This division deals with the employees as the
core resources of the organization. This division mainly emphasis on the recruitment
of employees and the benefits and services of employees. The main philosophy of this
division is to motivate the employee to work with efficiently and effectively.
g. Computer (IT) Division: This division can handle the IT activities. Each branch has
their own IT division and all branch-wise activities are reported to the head
office IT division.
h. International Division: This division can work on internationally. The entire branch-
wise international work is controlled and monitored by this division.





Figure 2: Divisions of Shahjalal Islami Bank

3.9 SWOT Analysis
Shahjalal Islami Bank has the following strength, weakness, opportunity and threat:
Table 2: SWOT Analysis of Shahjalal Islami Bank
Strengths Weaknesses
1. SJIBL has better management
system which is always responsible
for better service.
2. All of the employees of SJIBL are
1. Despite of showing strong financial
growth, SJIBL has faced a declining
trend of profit margin.
2. The bank has high funding cost.
Divisions of SJIBL
Financial
Administrati
on
Audit &
Inspection
Market &
Public
Relation
Common
Service
Human
Resource
Computer
(IT)
Investment
Internation
al
27

sincere reliable. They are always
devoted themselves to the works for
better customer service.
3. The Bank has already achieved a
goodwill among the clients thats
helps it to retain valuable clients.
4. It has strong capital adequacy,
financial performance and sound
credit profile.
5. It has increasing trend market share.
6. It has achieved high performance in
non-funded business.
7. The bank has increased its branch
network.
3. It has an investment concentration
risk.
4. The bank has limited independent
ATM network.
Opportunities Threats
1. SJIBL has an opportunity to expand
its branch.
2. The bank will contribute more to the
capital market development of the
economy through Capital Market
Operation branches which will be
opened in different potential places
of the country.
3. It has a higher growth opportunity
of business in 2010 which can be
generated from the diversified
corporate sector, Retail Banking,
Treasury Operations, Syndication
and Structured Financing, Export
Oriented initiatives and capital
market operations.
4. Regulatory environment favoring
private sector development.
1. Experience intensified competitive
pressure as the national and
international banks operating in
Bangladesh.
2. Rates of profit became very
competitive for deposit and lending.
3. Customers are demanding higher
rate of return against their deposits.
4. Bangladesh bank is also asking the
banks to reduce their lending rates
without the profit on deposits.
5. The common attitude of
Bangladeshi clients to default.
6. Bangladesh bank sometimes
requires private commercial banks
to be abide by such rules and
regulation which may not be
suitable for every commercial bank.
28

3.10 Corporate Social Responsibility (CSR)
As an Islamic bank and body corporate, Shahjalal Islami Bank is quite conscious of its social
responsibility. Having due regards to this the bank has already formed Shahjalal Islami Bank
Foundation with the aim to serve humanity through different welfare activities giving
emphasis on Health, Habitat and Education.
Education: The banks foundation has planned to establish Shahjalal Islami Bank
International School and College. It may further be mentioned here that the bank has declared
permanent education award for the students who secure first, second and third place in MBA
Examination with Islamic Economics and Banking as one of the subject under the department
of Banking of the University of Dhaka. Besides, the bank has started its scheme of awarding
Scholarship to poor but meritorious students with outstanding result in Secondary School
Certificate (SSC) and Higher Secondary Certificate (HSC) Examinations for pursuing their
higher studies on a regular basis. The bank is also offering investment scheme for education.
Health: The Bank has a plan to establish Shahjalal Islami Bank Hospital. In various disasters
like flood, tornado, etc. bank has come forward with relief for the affected people. Besides,
for this purpose bank has donated BDT 4.0 million to Prime Ministers Relief Fund and has
also donated BDT 2.0 million to Armys Relief Fund.
Rural Development: Through the rural branches of the bank, Shahjalal Islami Bank Ltd. is
conducting Rural Investment Program (RIP). Under this program the bank is giving loans in
agro processing and in setting up agro-based industry in the rural area. The bank is
providing more and more SME loans for generating more and more employment
opportunity, ensuring higher income of people and high living standard.
Shahjalal Islami Bank is offering various investment schemes which are very much
appropriate for individuals, doctors, engineers, and other salaried people. More and more
29

welfare activities and Institutional Development Programs are planned to be performed by the
bank and its foundation in future in a view to serve the countrys people.

3.11 Products
3.11.1 Deposit Accounts
Following are some account services provided by this bank:
a. Al Wadiah Current Deposit Accounts
b. Mudaraba Saving Deposit Accounts (MSD)
c. Mudaraba Short Notice Deposit Accounts (MSND)
d. Mudaraba Term Deposit Receipt Accounts (MTDR)
e. Scheme Deposit Accounts

Figure 3: Types of Deposit Schemes

Deposit Schemes
Mudaraba Monthly Income Scheme
Mudaraba Double Money Scheme
Mudaraba Monthly Deposit Scheme
Mudaraba Millionaire Scheme
Mudaraba Haji Deposit Scheme
Mudaraba Bibaho Deposit Scheme
Mudaraba Sikhkha Deposit Scheme
Mudaraba Housing Deposit Scheme
Mudaraba Small Business Scheme
Mudaraba Cash Waqf Deposit Scheme
Mudaraba Lakhopoti Deposit Scheme
Mudaraba Mohor Deposit Scheme
Mudaraba Special Term Deposit Scheme
30

3.11.2 Investment Schemes
The bank entertains good investment-clients having credit-worthiness and good track record.
The bank has got few Investment Schemes to provide financial assistance to comparatively
less advantaged group of people which are:

Figure 4: Types of investment schemes

3.11.3 Services
SJIBL offers the following services to its customers:

Figure 5: Types of services

Investment Schemes
Household Durable Scheme
Small Business Investment Programe
Small Entrepreneur Investment
Programe
Medium Entrepreneur Investment
Programe
Housing Investment Scheme
Rural Investment Program Car Investment Scheme
Investment for self-employment
Investment Scheme for Executives
Investment Scheme for Doctors
Investment Scheme for Marriage
Investment Scheme for CNG
Investment Scheme for Overseas
Investment Scheme for Education
Women Entrepreneur Investment
Scheme
Services
Online Banking Services
SMS/Push Pull Services
Foreign Remittance Services SME Services
SJIBL VISA Card Services
Capital Market Services
Other Services
31








PART 4: DEPARTMENT ACTIVITIES OF A
BRANCH

32

4.1 Introduction
As mentioned earlier that there are about 74 branches of Shahjalal Islami Bank Limited,
scattered throughout the country which are committed to provide the above mentioned
products and services to their customers. However, each branch of Shahjalal Islami Bank are
usually composed of three departments general banking, foreign exchange and
investment/credit department, which provides the above products and services to the
customers respectively. The following section of the report would provide a brief overview
the activities conducted under general banking and foreign exchange departments in
providing the banks products/services to its customers.

4.1.1 General banking department
It is the heart of each branch as it conducts one of the vital functions which also are common
to a basic function of a bank, i.e. taking deposits from customer and withdrawing deposits of
customer upon demand. It is the department, which provides day-to-day services to the
customers through receiving deposits from the customers and meeting their demand for cash
by honoring cheques. It opens new accounts, remit funds, issues bank drafts and pay orders
etc. Since bank is confined to provide the services every day, general bank is also known as
retail banking.






General Banking
Account opening
section
Cash section
Cheque clearing
section
Remittance
section
Accounts
Department
Figure 6: Different sections of general banking
33

4.1.2 Account opening section
This department is responsible for opening new deposits accounts which varies from typical
saving deposits accounts, current accounts to various scheme accounts. Customers are
provided with accounts opening forms from this department along with assistance and
information regarding filling up the account opening forms necessary documentation that
they need to provide along with when submitting account opening forms. This department is
also responsible for closure of accounts in the event when a customers scheme account
matures or the customer simply wishes to close the account that he/she is maintaining with
the bank. Apart from the account opening/closure function, this department also provides
additional account related services like issuance/re-issuance of debit card, debit card PIN,
issuance of cheque book for savings and current account, issuance of solvency certificate,
accepting and processing standing order instruction for transfer of funds from one account to
another account and making arrangement for the customer to take loan against fixed deposit
account that he/she is maintaining with the bank. However, in the event where serving a
customer involves cash deposit or withdrawal, a customer is guided toward cash counter for
making deposits or taking withdrawals.
4.1.3 Cash Section
Cash department is the most vital and sensitive organ of the branch as it deals with all kinds
of cash transactions. Cash department receives and pays cash directly. This department starts
the daily transaction with cash balances that are transferred from the vault to the respective
officers at different cash counters. However, there is limit imposed to all the cash counters
regarding cash balances. If in the event, during a daily cash transaction, a cash counters cash
balance exceed above fifty (50) lac taka, the excess amount should be transferred to the vault.
Moreover, there is also a limit imposed on the amount of cash balances that can be kept
inside a vault. The limitation depends on the regular transaction of the branch. If the amount
34

exceeds its limit, the extra money should be sent to the Bangladesh Bank. At most of the
branches of SJIBL, vault limit have been imposed at Tk. 1.5 crore. A systematic procedure is
maintained for receiving cash through different vouchers and payment against different
cheques and vouchers and there are various registers kept in cash section for keeping records
of every inward and outward cash transaction from the counter and as well as from the vault.

Cash may be received by the following ways:
Current/Savings account pay-in-slip
Credit voucher
Different types of instrument remittance (TT, DO, PO etc.) are received by respective
forms.
Bills payment (utility bills, etc.)
Share collection
Different types of scheme
Cash is paid in payment counter against the following instrument:
Cheques
Cash debit voucher
Pay-in-slip
Pay Order, DD etc.
Banks expense also paid to outsider through cash debit voucher.
At the end of the days transaction:
Sum of total received
Sum up total payment
Total receiving + Opening balance Total payment = Closing balance for that day
and opening balance for the next day.
Check it with computer sheet.
Counting cash.
Entry the cash balance register.
Write cash position memo with denomination.

35

4.1.4 Cheque clearing section
This section receives all kinds of cheques in favor of the client for clearing as the part of their
banking service. After receiving the cheque it is necessary to endorse it and cross it specially.
Basically the cheques for clearing are of following types:
Table 3: Cheque clearing procedure of SJIBL
Types Explanation Clearing Process
Inward Clearing Cheque
Cheques received from the
Clearing House, of our bank
Partys A/C ----------------Dr.
General Account ---------Cr.
Outward
Clearing
OBC
(Outward
Bills for
Collection)
Cheques of
other
branch of
Shahjalal
Islami Bank
within
our clearing
house area
These Cheques are directly
sent to the respective
branch and request them to
send IBCA. When IBCA
comes, then customers
accounts are credited for the
amount of the Cheque.
Clearing
Cheque
Cheques of
another bank
within our
clearing
house area
These Cheques are sent to
clearing house via the
Motijheel Branch. When
drawee bank honor the
Cheques, then the account of
Cheque depositors are
credited.
OBC
(Outward
Bills for
Collection)
Cheques of
another bank
which is
situated
outside the
clearing area
These Cheques are cleared in
two ways:
Firstly, if any branch of
our bank exists within the
clearinghouse area of drawee
bank, then we send the
Cheque to that branch of our
bank and that branch collects
the proceeds through clearing
36

house formalities and sends
an IBCA to us.
In second way, if there is no
branch of our bank, then we
directly sends the Cheque to
the drawee bank and request
them to send the proceeds by
TT, MT, or DD or by in any
other means
Inward Bills for
Collection (IBC)
From other branch of Shahjalal
Islami Bank
These Cheques are settled by
sending IBCA, i.e. debiting
depositors account and
crediting senders branch
account.

From another bank outside the
clearinghouse
These Cheques are settled
debiting depositors account
and sending DD, MT, TT in
favor of senders bank

4.1.5 Remittance section
This section receives and transmit fund both locally and in abroad. Funds that are received or
transmitted abroad, i.e. foreign remittance, are conducted using the services of Western
Union, Kushiara, etc. In most cases, customers usually use the services of Western Union,
Kushiara, etc. to withdraw funds that are remitted within the country. The bank provides the
remitted fund net of service charge to the customer. Apart from foreign remittance, funds that
are transmitted locally, i.e. local remittance, are handled using the following instruments:
Demand Draft (DD)
Demand Draft is an order of issuing bank in another branch of the same bank to pay specified
sum of money to the payee on demand. It is generally issued when customer wants to remit
money in any place which is out of the clearinghouse area of issuing branch payee can be
37

purchaser himself or another. Bearing money may be risky. It is a negotiable instrument and
it can be crossed or not. For payment of DD, paying branch first has to be confirmed that the
DD is not forged one. For verification, the bank checks the Test Code mentioned on the
draft. If Test Code agrees then it indicates that DD is not forged and the bank makes
payments. For further confirmation, the issuing bank sends an advice about the DD to the
paying branch. For DD, Commission is taken in the following way:
Particulars Changes
Issuance @ 0.15% Minimum Tk. 25.00
Telex Charge At actual/Minimum Tk. 50.00
Issuance of Duplicate Tk. 150.00

Pay Order (PO)
This is very important instrument of the bank. Pay Order gives the payee the right to claim
payment from the issuing bank. It can be en-cashed from issuing bank only. Unlike cheque,
there is no possibility of dishonoring pay order because before issuing pay order banks takes
out the money of the pay order in advance. Pay order cannot be endorsed or crossed and so it
is not negotiable instrument. Pay order commission is like this:
Pay Order Amount (Taka) Commission and VAT (Taka)
Up to 1.00 Lac 50+8=58
Up to 5.00 Lac 100+15=115
Above 5.00 Lac 150+23=173

Telegraphic Transfer (TT)
Telegraphic Transfer is the quick service system than others. By this method money is
transfer to another place by telegraphic message. Generally for such kind of transaction
payees should have account with the paying bank. Otherwise it is very difficult for the paying
bank to recognize the exact payee. Test code is also furnished on the TT message for the
38

protection of it. When sending money is urgent, then the bank uses telephone for remittance.
This service is only provided for valued customers. Who is very reliable and have long-
standing relationship with bank, TT commissions are:
Particulars Charges
Issuance @ 0.15% or minimum Tk. 25.00
Cancellation Tk. 100.00

4.1.6 Accounts Department
Account department is responsible of keeping track of all the transaction vouchers and
receipts generated from the day to day operations of the bank. From the activities of all the
three departments of the branch general banking, investment/credit and foreign exchange
department, transaction vouchers are generated which at the following day, are matched with
the supplementary listing and summary and are sorted together in a systematic manner and
kept for future references and audit purposes.

39

4.2 Foreign Exchange Department
Foreign Exchange department involves activities of foreign exchange operation. Mainly
transactions with overseas countries in respect of import; export and foreign remittance come
under the preview of foreign exchange operations.
There are three kind of foreign exchange transaction:




4.2.1 Import Procedures
For engaging in international trade every trader must maintain the following steps:
Registration of Importer:
In terms of the importers, exporters and indenters (Registration) order 1981, no person can
import goods into Bangladesh unless he is registered with the chief controller of import and
export. So the following documents are required to be submitted to the licensing authority for
registration as importers.
Income tax registration certificate.
Trade License from the municipal or local authority.
Bank certificate.
Nationality certificate.
Partnership Deed where applicable.
Certificate of registration with the Registrar of joint stock companies and
Memorandum and Articles of Association in case of private and public Ltd.
Company.
Certificate from the chamber of Commerce/Registered Trade Association.
Ownership documents or rent receipts of the place of business.
Any other documents required under the relevant import policy
Foreign
Transaction
Foreign
Remittance
Export Import
40

After submission of the above documents and payment of requisite fees, if the documents are
found in order, the import Registration certificate (IRC) is issued to the applicant- importer.
Purchased Contract Between Importers and Exporters:
Now the importer has to contact with the seller outside the country to obtain the pro-forma
invoice/indent, which describes goods. After the importer accept the pro-forma invoices, he
makes a purchase contract with the exporter declaring the terms and conditions of the import.
Import procedure differs with different means of payment. In most cases import payment is
made by the documentary letter of credit (L/C) in our country.
Then the importer collects a letter of credit Authorization (LCA) from SJIBL Foreign
Exchange Branch. Banks gives export guarantee that it will pay for the goods on behalf of the
buyer. This guarantee is called letter of credit. The buyer and seller conclude a sales contract
providing for payment by a documentary credit.
4.2.1.1 Types of Letter of Credit (L/C)
Letter of Credit may be:
1. Revolving Letter of Credit (L/C): This is useful when shipping a variety of
goods to an established customer. It normally runs for a period less than one year.
2. Assigned Letter of Credit (L/C): This type is the same as the normal letter of
credit (L/C) except that is includes the phrase and/or assignees following the
names of the beneficiary. This allows the exporter to make his or her domestic
purchase by using the overseas buyers credit. This is a way for an exporter to
conduct business with limited capital.
3. Bankers Acceptances: After agreeing to the terms (e.g. 90 days at sight) the
importer opens a draft (check) under a L/C in favor of the exporter (beneficiary).
The exporter presents the draft and the requested shipping documents to the
paying bank. The bank review the documentation for correctness, then accept
41

the draft to become payable (mature) in 90 days, or if the exporter requires the
draft he may discount the amount because of the need for immediate funds.

However, letter of credit (L/C) also may be:
Revocable Credit: A revocable credit is a credit, which can be amended or cancelled by the
issuing bank at any time without prior notice to the seller.
Irrevocable Credit: An irrevocable credit constitutes a definite undertaking of the issuing
bank (Since it cannot be amended or cancelled without the agreement of all parties), provided
that the stipulated documents are resented and the terms and conditions are satisfied by the
seller.

4.2.2 Export Procedure
There are a number of formalities, which an exporter has to fulfill before and after shipment
of goods. These formalities or procedures are enumerated as follows:
Obtaining Export Registration Certificate (ERC): No exporter is allowed to export any
commodity permissible for export from Bangladesh unless he is registered with Chief
Controller of Imports and Exports (CCI and E) and holds valid Export Registration
Certificate (ERC).
Securing the Order: After getting ERC, the exporter may proceed to secure the export order.
An exporter can do this by contracting the buyers directly through correspondence.
Obtaining EXP: After having the registration, the exporter applies to SJIBL with the trade
license, ERC and the Certificate from the concerned Government Organization to get EXP. If
the bank is satisfied, an EXP is issued to the exporter.
42

Signing of the contract: After communicating with buyer, the exporter has to get contracted
for exporting exportable items from Bangladesh detailing commodity, quantity, price,
shipment, insurance and mark, inspection, arbitration etc.
Receiving the Letter of Credit: After getting contract for sale, exporter should ask the buyer
for Letter of Credit clearly stating terms and conditions of export and payment. After
receiving L/C, the following points are to be looked for:
The terms of the L/C are in conformity with those of the contract.
The L/C allows sufficient time for shipment and a reasonable time for registration.
If the exporter wants the L/C to be transferable, divisible and advisable, he should
ensure those stipulations which are specially mentioned in the L/C.
Procuring the Materials: After making the deal and on having the L/C opened in his favor,
the next step for the exporter is to set about the task of procuring or manufacturing the
contracted merchandise.
Endorsement on EXP: Before the export forms are lodged by the exporters with the
customs/postal authorities, they should get all the copies endorsed by SJIBL. Before
shipment, exporter submits EXP form with commercial invoice. Then SJIBL officer checks it
properly, if satisfied, certifies the EXP. Without it exporter cannot make shipment.
Shipment of Goods: Exporter makes shipment according to the terms and condition of L/C.
Presentation of Export Documents for Negotiation: After shipment, exporter submits the
following documents to SJIBL for negotiation:
a. Bill of exchange and Bill of lading
b. Commercial Invoice and Consular Invoice
c. Insurance Certificate and Inspection Certificate
d. Certificate of origin and Packing List
e. Quality Control Certificate and G.S.P Certificate
43

Cash Against Document (CAD) Contract:
In lieu of export LC export can also be made against execution of contract of sale and
purchase between the buyer and seller. Usually a CAD contract is made in case of exporting
Jute goods.
Examination of Document:
Banks deal with documents only, not with commodity. As the negotiating bank is giving the
value before repatriation of the export proceeds it is advisable to scrutinize and examine each
and every document with great care whether any discrepancy(s) is observed in the
documents.
Negotiation of Export Documents:
Negotiation stands for payment of value to the exporter against the documents stipulated in
the L/C. If documents are in order, SJIBL purchases (negotiates) the same on the basis of
banker-customer relationship. This is known as Foreign Documentary Bill Purchase (FDBP).
If the bank is not satisfied with the documents submitted to SJIBL, gives the exporter
reasonable time to remove the discrepancies or sends the documents to L/C opening bank for
collection. This is known as Foreign Documentary Bill for Collection (FDBC).

4.2.2.1 Mode of Payment of Export Bill Under L/C
There are four types of credit. These are as follows:
a. Sight Payment: In a Sight Payment Credit, the bank pays the stipulated sum
immediately against the exporters presentation of the documents.
b. Deferred payment: In deferred payment, the bank agrees to pay on a specified future
date or event, after presentation of the export documents. No bill of exchange is
involved.
c. By acceptance: In acceptance credit, the exporter presents a bill of exchange payable
to himself and drawn at a specified future date or event on the bank that is to accept it.
44

The bank signs its acceptance on the bill and returns it to the exporter. The exporter
can then represent it for payment on maturity. Alternatively he can discount it in order
to obtain immediate payment.
d. Negotiation: In Negotiation credit, the exporter has to present a bill of exchange
payable to him in addition to other documents that the bank negotiates.

4.2.3 Foreign Remittance
Foreign remittance means remittance of foreign currencies from one place to another place.
In broad sense, foreign remittance includes all sale and purchase of foreign currencies on
account of Import, Export, Travel and other purposes. However, specifically foreign
remittance means sale and purchase of foreign currencies for the purposes other than export
and import.
All foreign remittance transactions are grouped into two broad categories- Outward
Remittance and Inward Remittance.
Outward Remittance: The term Outward remittances include not only remittance i.e. sale
of foreign currency by TT, MT, Drafts, Travelers Cheque but also includes payment against
imports into Bangladesh and Local currency credited to Non-resident Taka Accounts of
Foreign Banks or Convertible Taka Account.
Inward Remittance: The term Inward Remittance includes not only purchase of Foreign
Currency by TT, MT, Drafts etc. but also purchases of bills, purchases of Travelers cheques.


45

4.2.3.1 Foreign Currency Accounts
The Shahjalal Islami Bank Limited opens the following accounts for dealing remittances-
NFCD Accounts: Non-resident Foreign Currency Deposit (NFCD) accounts may
now be maintained as long as the account holders desire. Amounts brought in by
non-resident Bangladeshis can be deposited in foreign currency account any time
after return to Bangladesh.
RFCD Accounts: Persons ordinarily resident in Bangladesh may maintain foreign
currency accounts with foreign exchange brought in at the time of their return to
Bangladesh from visits abroad. These accounts are termed as Resident Foreign
Currency Deposit (RFCD) accounts. The amount brought in with declaration to
customs authorities on form FMJ and up to US $ 5000 brought in without
declaration may be credited to this account.
F.C Accounts of Other Entities: The following parties do not require prior
permission of Bangladesh Bank for opening of foreign currency accounts:
- Non-resident foreign persons/firms;
- Diplomatic missions in Bangladesh and their expatriates;
- Diplomatic bonded warehouses (duty free shops);
- Local and joint venture contracting firms employed to execute projects
financed by foreign donors/international donor agencies.

4.2.3.2 Miscellaneous Remittances
Remittance of membership fees
Evaluation and Visa Processing Fee
Visa fee
Family maintenance

46

4.2.3.3 Reasons for Foreign Remittances
Investment in shares/securities by non-residents
Remittance of profits
Remittance of dividend/capital gain
Remittance of salaries and savings by expatriates
Remittance on account of training and consultancy
Remittance by shipping lines, airlines, courier service companies

47







PART 5: COMPARISON OF LENDING AND
DEPOSIT RATES


48

5.1 Introduction
As mentioned earlier in the report, that the main difference between Islamic and conventional
banks lies in the fact that Islamic bank operates following the principles of Islamic Shariah.
Where conventional banks pay interest against deposits, Islamic banks pay profit against
deposit. However a point to be noted here is, although Islamic Shariah states that in deposit of
funds, there is risk sharing between provider of capital (depositor) and the user of funds
(banks), in our country, most banks provides profits to their customers irrespective to making
profit/loss from the investment of the deposited fund.
Another point to be noted here among the difference between Islamic and conventional
banking is conventional banks lend money and gets it back with compounding interest
whereas, Islamic banks lend money in the form of participation in partnership business.
However, in general sense, considering the perspective of our country, conventional banks
take deposits or invest money in return for interest and Islamic banks takes deposits or invest
money in return for profit but using a somewhat different mechanism in respect to
conventional banks. Since both the type of banks are competing against each other in the
same market to offers their product and services to the same group of customers, the return
from deposits and the lending activities of Islamic and conventional banks can be similar.
As a result, for the objective of the report, as mentioned earlier, the return from deposits and
lending activities of Islamic and conventional banks would be compared and tested to see if
the return from deposits and lending activities of both these type of banks are different.
Due to time limitation and limited availability of data, the test cannot be conducted taking
whole population data, i.e. taking rates of return from deposits and lending activities of all the
conventional and Islamic banks. The test would be conducted using a sample banks from
both Islamic banks and conventional banks. Statistical inferences would be drawn using these
49

sample data using a hypothesis test about the difference between the mean sample of the two
populations, i.e. conventional and Islamic banks.
5.2 Definition of hypothesis test
Test of hypothesis is an inferential statistics which is used to test a certain given theory or
belief about a population parameter. Using some sample information, hypothesis test may be
used to find out whether or not a given claim or statement about a population parameter is
true.
The test procedure, called the two-sample t-test, is appropriate when the following conditions
are met:
The sampling method for each sample is simple random sampling.
The samples are independent.
Each population is at least 10 times larger than its respective sample.
Each sample is drawn from a normal or near-normal population. Generally, the
sampling distribution will be approximately normal if any of the following conditions
apply:
o The population distribution is normal.
o The sample data are symmetric, without outliers, and the sample size is 15 or
less.
o The sample data are slightly skewed and without outliers.

5.3 Reason for using hypothesis testing
Since the population data fulfills the above criteria, i.e. rates of return from deposits and
lending activities of all the conventional and Islamic banks are normally distributed and the
sample data are independent, a two population hypothesis test can be conducted to access the
objective of whether the rates of return from deposits and lending activities of the
conventional and Islamic banks are indeed different or not.

50

5.4 Methodology
The hypothesis test for the comparison of return on deposits among conventional and Islamic
banks, twelve (12) sample banks were selected from the population based on availability and
convenience in collecting data. Among the twelve sample banks, six of the banks are
conventional banks while the rest six banks are Islami banks.
The following parameters have been used throughout the hypothesis testing of the rates of
return of deposits and lending products of conventional banks and Islamic banks:
Let mean return from conventional banks be
CB

Since population
CB
and o
CB
are unknown, let x
1
be sample mean and s
1
be sample
standard deviation of return from Conventional Banks
Let average return from Islamic banks be
IB

Since population
IB
and o
IB
are unknown, let x
2
be sample mean and s
2
be sample
standard deviation of return from Islamic Banks
As the standard deviation of the two populations are not know, s
x
1
-x
2
would be used
as a point estimator of o
x
1
x
2
. The following formula is used to calculate the
standard deviation s
x
1
-x
2
of x
1
x
2
:
s
x
1
-x
2
=_
s
1
2
n
1
+
s
2
2
n
2

df=
_
s
1
2
n
1
+
s
2
2
n
2
_
2
_
s
1
2
n
1
_
2
n
1
-1
+
_
s
2
2
n
2
_
2
n
2
-1

51

Test statistic t for x
1
-x
2
: t =
(x
1
-x
2
)-(
1
-
2
)
s
x
1
-x
2

The hypothesis test would be done using a 5% significant level (i.e. =.05)
E
0
:
CB
-
IB
0
E
1
:
CB
-
IB
> 0

5.5 Hypothesis test for the comparison of return on deposits
The following are the six sample conventional banks, whose return from deposit rates would
be used for conducting the hypothesis testing:
Dhaka Bank
The City Bank
Prime Bank Limited
EBL (Eastern Bank Limited)
IFIC (International Finance Investment and Commerce) Bank
NCC (National Credit and Commerce) Bank
Similarly, the following are the six sample Islamic banks, whose return from deposit rates
would be used for conducting the hypothesis testing:
Shahjalal Islami Bank Limited
Islami Bank Bangladesh Limited (IBBL)
Social Islami Bank Limited (SIBL)
Al-Arafah Islami Bank Limited
EXIM Bank Limited
ICB Islami Bank
For the purpose of the hypothesis test, four deposit product are selected which are common
among these Islamic and conventional banks.
The deposit products are:
Savings A/C
52

SND (Short Notice Deposit)
Fixed Deposit or Term Deposit
Double Benefit Scheme
The interest/profit rates vary within the SND (Short Notice Deposits) product due to different
deposit amount, each of the SND products would be considered independently for hypothesis
testing. Similarly, as the interest/profit rates vary within the fixed deposit product due to
different maturity duration, only the interest/profit rates of fixed deposit products, having
maturity duration of 3 months, 6 months and 1 year, will be used for hypothesis testing as all
the twelve banks have fixed deposit products of these three maturity duration in common.
Null hypothesis: mean difference in the rate of return from deposit products between
conventional and Islamic banks is 0
Alternative hypothesis: mean difference in the rate of return from deposit products
between conventional and Islamic banks is > 0
5.5.1 Hypothesis test of the deposit products
5.5.1.1 Savings Account
Table 4: Savings a/c rates
Conventional Banks Islamic Banks
7.50% Dhaka Bank SJIBL 4.00%
4.00% The City Bank IBBL 5.50%
5.50% Prime bank SIBL 4.00%
5.50% EBL Al-Arafah Islami Bank 4.00%
6.50% IFIC EXIM 5.00%
6.50% NCC Bank ICB Islami Bank 5.00%

Table 5: Hypothesis test statistics (Savings a/c)
Conventional Banks Islamic Banks
Mean 5.9166667% 4.5833333%
Variance 0.0144167% 0.004417%
Observations 6 6
Hypothesized Mean Difference 0
53

Df 8
t Stat 2.379856469
P(T<=t) one-tail 0.022277828
t Critical one-tail 1.859548038
As the value of the test statistic t 2.3798 for x
1
-x
2
is greater than the t critical value 1.8595, it
falls in the rejection region, and therefore I would reject the null hypothesis and say that the
data supports the alternative hypothesis. Hence, it can be concluded that there is difference in
the mean return from saving deposit a/c among conventional banks and Islamic banks.

5.5.1.2 SND (Short Notice Deposit)
Table 6: SND a/c rates
Average balance
less than 1 cr.
Average balance 25
cr. to less than 50 cr.
Average balance 50
cr. to less than 100 cr.
Average balance 100
cr. and above
Conventional Banks
Dhaka Bank 5.00% 6.00% 9.00% 10.00%
The City Bank 2.50% 4.50% 9.75% 10%
Prime bank 3.00% 5.50% 8.00% 11.00%
EBL 6.00% 7.50% 7.75% 9.50%
IFIC 2.00% 4.00% 2.00% 2.00%
NCC Bank 6.00% 7.50% 9.00% 11.00%
Islamic Banks
SJIBL 5.00% 8.00% 8.50% 9.00%
IBBL 5.00% 5.00% 5.00% 5.00%
SIBL 4% 7% 8% 10%
Al-Arafah Islami Bank 3.50% 3.50% 3.50% 3.50%
EXIM 3.00% 5.00% 6.00% 10.00%
ICB Islami Bank 5.00% 5.00% 5.00% 5.00%

Table 7: Hypothesis test statistics (SND a/c)

Conventional Bank Islamic Bank
Mean Variance Mean Variance df t Stat
t Critical one-
tail
Average balance less
than 1 cr.
4.0833% 0.0324% 04.25 0.0078% 7 -0.2037 1.8946
Average balance 25 cr.
to less than 50 cr.
5.8333% 0.0217% 5.5833% 0.0264% 10 0.2792 1.8125
54

Average balance 50 cr.
to less than 100 cr.
0.0758 0.0008 0.06 0.00037 9 1.1330 1.8331
Average balance 100
cr. and above
8.9166% 0.1184% 7.0833% 0.0844% 10 0.9971 1.8125
As the above data suggests, rate of return from SND a/c varies according to the amount of
deposited balance. As a result, there are four rate of return from SND a/c based of the
deposited balance. Hence four different hypothesis tests have been done respectively to
access any difference in return between conventional and Islamic banks.
o For the first SND product, t statistic is less than the t critical value; hence the result
from the hypothesis test fall in the nonrejection region, providing evidence that the
data supports the null hypothesis. Hence the return from the first product supports the
null hypothesis.
o For the second SND product, t statistic is less than the t critical value; hence the return
from the second product supports the null hypothesis.
o For the third SND product, t statistic is less than the t critical value; hence the return
from the third product supports the null hypothesis.
o For the fourth and the final SND product, t statistic is also less that the t critical value;
hence the return from the fourth product also supports the null hypothesis.
Taking the hypothesis test results of all the four SND products together, it can be said that the
outcomes of the test result of these four SND products are identical. Hence a general
conclusion can be drawn that the mean difference in return from SND deposit between
conventional and Islamic banks is less than or equal to zero. Thus, it can be said that the
return that conventional banks and Islamic banks provides on SND products are similar.

5.5.1.3 Fixed Deposit/Term Deposit
Table 8: Fixed Deposits a/c rates
3 Months 6 Months 1 year
55

Conventional Banks
Dhaka Bank 12.50% 12.50% 12.50%
The City Bank 12.50% 12.50% 12.50%
Prime bank 12.50% 12.50% 12.50%
EBL 12.25% 12.25% 12.00%
IFIC 12.50% 12.50% 12.50%
NCC Bank 12.25% 12.25% 12.00%
Dhaka Bank 12.50% 12.50% 12.50%
Islamic Banks
SJIBL 12.25% 12.25% 12.25%
IBBL 10.50% 10.50% 10.50%
SIBL 12.50% 12.50% 12.50%
Al-Arafah Islami Bank 12.50% 12.50% 12.50%
EXIM 12.50% 12.50% 12.50%
ICB Islami Bank 12.50% 12.50% 12.50%

Table 9: Hypothesis test statistics (Fixed Deposits a/c)

Conventional Bank Islamic Bank
Mean Variance Mean Variance
df t Stat t Critical one-
tail
3 Months 12.4167% 0.0001667% 12.125% 0.00644% 5 0.8791 2.015
6 Months 12.4167% 0.0001667% 12.125% 0.0064375% 5 0.8791 2.015
1 Year 12.3333% 0.0006667% 12.125% 0.00644% 6 0.6054 1.9432
Like SND product, the data for fixed deposit product suggest different rates of return based
on maturity. Hence three different hypothesis tests have been done respectively to access any
difference in return between conventional and Islamic banks.
o For the first fixed deposit product, t statistic is less than the t critical value; hence the
return from the first product supports the null hypothesis.
o For the second fixed deposit product, t statistic is less than the t critical value; hence
the return from the second product supports the null hypothesis.
o For the third and the final fixed deposit product, t statistic is also less than the t critical
value; hence the return from the third product supports the null hypothesis.
56

Taking the hypothesis test result of all the three fixed deposit products together, it can be said
that the outcomes of the test result of these three fixed deposit products are identical. Hence a
general conclusion can be drawn that the mean difference in returns from fixed deposit
product between conventional and Islamic banks is less than or equal to zero. Thus, it can be
said that the return that conventional banks and Islamic banks provides on fixed deposit
products are similar.

5.5.1.4 Deposit Double Scheme
Table 10: Deposit Double Scheme a/c rates
Conventional Banks Islamic Banks
12.25% Dhaka Bank SJIBL 12.12%
12.24% The City Bank IBBL 11.00%
11.61% Prime Bank SIBL 12.50%
12.25% EBL Al-Arafah Islami Bank 12.50%
12.24% IFIC EXIM Bank 12.25%
12.25% NCC Bank ICB Islami Bank 12.12%

Table 11: Hypothesis test statistics (Deposit Double Scheme a/c)
Conventional Banks Islamic Banks
Mean 12.1400000% 12.0816667%
Variance 0.0006744% 0.0031026%
Observations 6 6
Hypothesized Mean Difference 0
df 7
t Stat 0.232498868
P(T<=t) one-tail 0.41140099
t Critical one-tail 1.894578605
As the value of the test statistic t 0.2345 for x
1
-x
2
is less than the t critical value 1.8595, it
falls in the nonrejection region, and therefore I would accept the null hypothesis and say that
the data supports the null hypothesis. Hence, it can be concluded that the mean return from
deposit double scheme product among conventional banks and Islamic banks are similar.

57

5.5.2 Summary of the findings
Taking the above eight hypothesis test results together into consideration, it can be seen that
one of the tests out of the eight tests rejects the null hypothesis. However, since all the tests
did not come up with an identical result, no generalized conclusion can be drawn. Hence to
make a generalized inference about the rate of return from deposits, we need to work with a
large data sample or if possible, work with the population data to make a generalized
inference about the null hypothesis.
However, taking the deposit products into consideration individually, since return from one
of the deposit product rejects the null hypothesis, i.e. savings deposits, it can be said that
conventional banks offer higher return for that particular product. As for the other deposit
products, as hypothesis test results support the null hypothesis, it can be said that for those
deposits products, conventional banks and Islamic banks offer similar return.

5.6 Hypothesis test for the comparison of return on lending activities
The following are the six sample conventional banks, whose return from lending activities
would be used for conducting the hypothesis testing:
Dhaka bank
Prime Bank
EBL (Eastern Bank Limited)
IFIC (International Finance Investment and Commerce) Bank
City Bank
Bank Asia
Similarly, the following are the six sample Islamic banks, whose return from deposit rates
would be used for conducting the hypothesis testing:
Shahjalal Islami Bank Limited
Islami Bank Bangladesh Limited (IBBL)
Social Islami Bank Limited (SIBL)
Al-Arafah Islami Bank Limited
58

EXIM Bank Limited
ICB Islami Bank
For the purpose of the hypothesis test, four lending product are selected which are common
among these Islamic and conventional banks.
The lending products are:
Lease/Ijara
Car Purchase Investment
Household Durables Investment
Housing Investment

Null hypothesis: mean difference in rate of return from lending products between
conventional and Islamic banks is 0
Alternative hypothesis: mean difference in rate of return from lending products
between conventional and Islamic banks is > 0
5.6.1 Hypothesis test of lending products
5.6.1.1 Lease/Ijara
Table 12: Lease/Ijara rates
Conventional Banks Islamic Banks
18.00% Dhaka bank SJIBL 15.00%
15.50% Prime Bank IBBL 15.50%
16.00% EBL SIBL 15.00%
18.00% IFIC Al-Arafah Islami Bank 15.00%
16.50% City Bank EXIM 16.50%
17.00% Bank Asia ICB Islami Bank 14.00%

Table 13: Hypothesis test statistics (Lease/Ijara)
Conventional Banks Islamic Banks
Mean 16.8333333% 15.1666667%
Variance 0.0106667% 0.0066667%
Observations 6 6
Hypothesized Mean Difference 0
59

df 9
t Stat 3.100868365
P(T<=t) one-tail 0.006352321
t Critical one-tail 1.833112933
As the value of the test statistic t 3.1009 for x
1
-x
2
is greater than the t critical value 1.8331, it
falls in the rejection region, and therefore I would reject the null hypothesis and say that the
data supports the alternative hypothesis. Hence, it can be concluded that the mean return from
lease/ijara lending product among conventional banks and Islamic banks are different.

5.6.1.2 Car Purchase Investment
Table 14: Car Purchase Investment rates
Conventional Banks Islamic Banks
18.00% Dhaka bank SJIBL 15.00%
15.50% Prime Bank IBBL 15.50%
15% EBL SIBL 15.00%
15.50% IFIC Al-Arafah Islami Bank 15.00%
16.50% City Bank EXIM 16.50%
17.00% Bank Asia ICB Islami Bank 14.00%

Table 15: Hypothesis test statistics (Car Purchase Investment)
Conventional Banks Islamic Banks
Mean 16.2500000% 16.1666667%
Variance 0.0127500% 0.0106667%
Observations 6 6
Hypothesized Mean Difference 0
df 10
t Stat 0.133392632
P(T<=t) one-tail 0.448264543
t Critical one-tail 1.812461123
As the value of the test statistic t 0.1334 for x
1
-x
2
is smaller than the t critical value 1.8125, it
falls in the nonrejection region, and therefore I would accept the null hypothesis and say that
the data supports the null hypothesis. Hence, it can be concluded that the mean return from
car purchase lending product among conventional banks and Islamic banks are indifferent.
60


5.6.1.3 Household Durables Investment
Table 16: Household Durables Investment rates
Conventional Banks Islamic Banks
18.00% Dhaka bank SJIBL 16.00%
18.50% Prime Bank IBBL 18.00%
19.50% EBL SIBL 16.00%
16.50% IFIC Al-Arafah Islami Bank 18.50%
19.50% City Bank EXIM 16.50%
18.00% Bank Asia ICB Islami Bank 17.00%

Table 17: Hypothesis test statistics (Household Durables Investment)
Conventional Banks Islamic Banks
Mean 18.3333333% 17.0000000%
Variance 0.0126667% 0.0110000%
Observations 6 6
Hypothesized Mean Difference 0
df 10
t Stat 2.12297957
P(T<=t) one-tail 0.029861626
t Critical one-tail 1.812461123
As the value of the test statistic t 2.1229 for x
1
-x
2
is greater than the t critical value 1.8125, it
falls in the rejection region, and therefore I would reject the null hypothesis and say that the
data supports the alternative hypothesis. Hence, it can be concluded that the mean return from
household durable purchase lending product among conventional banks and Islamic banks
are different.

5.6.1.4 Housing Investment
Table 18: Housing Investment rates
Conventional Banks Islamic Banks
17.00% Dhaka bank SJIBL 13.00%
16.50% Prime Bank IBBL 18.00%
13.50% EBL SIBL 16.00%
16.50% IFIC Al-Arafah Islami Bank 13.50%
61

16.50% City Bank EXIM 16.50%
16.00% Bank Asia ICB Islami Bank 14.00%

Table 19: Hypothesis test statistics (Housing Investment)
Conventional Banks Islamic Banks
Mean 16.0000000% 15.1666667%
Variance 0.0160000% 0.0386667%
Observations 6 6
Hypothesized Mean Difference 0
Df 9
t Stat 0.87303787
P(T<=t) one-tail 0.202666481
t Critical one-tail 1.833112933
As the value of the test statistic t 0.873 for x
1
-x
2
is smaller than the t critical value 1.8331, it
falls in the nonrejection region, and therefore I would accept the null hypothesis and say that
the data supports the null hypothesis. Hence, it can be concluded that the mean return from
housing purchase lending product among conventional banks and Islamic banks are
indifferent.

5.6.2 Summary of the findings
Taking the above four hypothesis test together into consideration, it can be seen that two of
the tests reject the null hypothesis while the rest two of the tests supports the null hypothesis.
Since all the tests did not come up with an identical result, no generalized conclusion can be
drawn. Hence to make a generalized inference about the rate of return from lending activities,
we need to work with a large data sample or if possible, work with the population to make a
generalized inference about the null hypothesis.
However, taking the lending products into consideration individually, since two of the
hypothesis tests result rejected the null hypothesis, inferences can be made that, for only
those two types of lending products, Islamic banks tend to charge lower rate of return in
62

comparison to conventional banks. Hence, from a customers standpoint, he/she will better-
off in purchasing those two types of lending products from Islamic banks.
63






PART 6: FINANCIAL PERFORMANCE
ANALYSIS OF
SHAHJALAL ISLAMI BANK LIMITED

64

6.1 Introduction
Banking industry is a crucial part of the financial system of an economy. The smooth
operation of the financial system and in turn, the smooth operation of the overall economy is
heavily dependent on the performance of the banking industry. As a result, there high level of
government scrutiny over banks activity makes careful evaluation crucial for a bank in order
to safeguard its stakeholders. Analyzing a commercial banks performance is unlike
evaluating other conventional companies. The composition of a commercial banks financial
statements is diverse and often much more critical than any other organization and thereby,
demand extra care. We will employ specific mechanics to evaluate the performance of the
opted bank.
The purpose of this part of report is to analyze the performance of Shahjalal Islami Bank
Limited, whereby, its performance would be analyzed using a time series analysis for a
period of three years, from 2008 to 2010. By analyzing the performance of Shahjalal Islami
Bank Limited, it would be indicated whether the performance of the bank is improving or
deteriorating over this period of time. Based on the findings, recommendation would be
made. The main performance analysis of the bank would be done using the bank management
theories and ratios.
The performance would be analyzed based on the following five major criteria:
Liquidity: Liquidity for a bank means the ability to meet its financial obligations as
they come due. Bank lending finances investments in relatively illiquid assets, but it
fund its loans with mostly short term liabilities. Thus one of the main challenges to a
bank is ensuring its own liquidity under all reasonable conditions.
65

Leverage: Leverage of a bank refers to the use of funds purchased in the money
market or borrowed from depositors to finance interest-bearing assets, principally
loans. We have to analyze the extent of leverage used by our respective bank.
Efficiency/activity: The efficiency of the commercial banks activity. Its utilization
of funds and available resources.
Profitability: The essential function of a bank is to provide services related to the
storing of deposits and the extending of credit. The evolution of banking dates back
to the earliest writing, and continues in the present where a bank is a financial
institution that provides banking and other financial services. The profitability
measure indicates the relative capability of a bank of making profit.
Market Position: The market estimation, value and position of the bank.

6.2 Methodology
Ratios for the performance analysis of Shahjalal Islami Bank would be calculated based on
data collected from secondary sources, i.e. from the past years annual reports of Shahjalal
Islami Bank. Moreover, textbooks regarding bank management and investment theory were
used as references.
Below are the various ratios used in time series and cross sectional analysis of Shahjalal
Islami Bank Limited:-

Profitability ratios:
Return on Equity (ROE)
Return on Assets (ROA)
Net Interest Margin
Net Non Interest Margin
66

Net Operating Margin
Earnings Per share (EPS)
Net profit margin
Overhead Margin

Efficiency ratios:
Tax Management Efficiency
Expense Control Efficiency
Asset Utilization Ratio
Equity Multiplier
Operating Efficiency ratio
Employee productivity Ratio

Liquidity ratios:
Cash position indicator
Liquidity securities indicator
Deposit Composition Ratio
Capacity Ratio

Leverage ratio:
Debt-Equity Ratio
Total Debt Ratio

Market position ratios:
Price Earnings Ratio (P/E)
Market-Book Ratio

Credit risk ratios:
Loan loss reserve to Total Loans
Provision for Loans to Total Loans
Credit-Deposit Ratio
Cost of Fund
67

6.3 Findings and analysis
In this part of the report, the financial performance of Shahjalal Bank Limited would be
analyzed using a time-series analysis over the period of 2008 to 2010. The above stated
ratios would applied be to access the performance of the bank.
6.3.1 Time-series Analysis: From 2008 to 2010
6.3.1.1 Profitability Ratios
The following ratios would indicate Shahjala Islami Bankss ability to meet its debt
obligations, the rate of growth of its assets, reserves and ultimately the shareholders' value.

Return on equity measures a bank's profitability by revealing how much profit a bank
generates with the shareholders invested money. It measures the return on the money
the investors have put into the company. This is the ratio potential investors look
at when deciding whether or not to invest in the company. In general, the higher the
percentage is the better.
Return on asset measures the efficiency with which the company is managing its
investment in assets and using them to generate profit. It measures the amount of
profit earned relative to the firms level of investment in total assets. The higher the
percentage is better, because that means the company is doing a good job using its
assets to generate sales.
2008 2009 2010
Return on Equity 22.68% 21.73% 30.71%
Return on Asset 1.66% 1.82% 2.63%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
P
e
r
c
e
n
t
a
g
e
Return on Asset and Return on Equity
68

Above illustration shows Shahjalal Islami Banks return on asset and return on equity for the
period of 2008 to 2010. Its return on asset had steady growth over this period. However,
SJIBL return on equity was less in 2009 in comparison to 2008 but against increased
substantially in 2010. The growth in earnings in 2009 was not substantial in comparison to
that years growth in equity which resulted in lowest ROE in these three years period. The
massive increase of ROE in 2010 indicated that the bank was able to efficiently make
substantial amount of profit by using its shareholders investment. The steady growth of ROA
indicated SJIBLs effectiveness in asset management to generate profit. Although SJIBL was
able to generate acceptable return from its assets, its growth in earnings and its growth in
assets was almost similar. Hence, like the ROE of 2010, there was a sharp increase in return
on asset of 2010.

Net interest margin is a measurement of the difference between the interest income
generated by banks or other financial institutions and the amount of interest paid out
to their lenders. It examines how successful a firm's investment decisions are
compared to its debt situations. A negative value denotes that the firm did not make
an optimal decision, because interest expenses were greater than the amount of
returns generated by investments.
Non interest margin indicates how much non-interest revenue the financial institutions
are earning minus the non-interest expense. Non-interest income includes revenues
2008 2009 2010
Net Interest Margin
(NIM)
3.19% 2.47% 2.62%
Net Non interest Margin 1.18% 1.32% 2.56%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
P
e
r
c
e
n
t
a
g
e
Net Interst Margin & Net Non-Interest Margin
69

earned from loan and investments or fee income from fiduciary activities, services
charges on deposit accounts, trading account gains and fees, revenues income from
investment banking, security brokerage and insurance services. Noninterest expenses
include salaries, wages and employee benefits.
The above illustration shows that SJIBLs net interest margin have declined steadily over the
three year period. An examination of the balance sheet and the income statement revealed
that the there was a positive growth in net interest income from 2008 to 2010, with 2010
registering the highest growth among these three years period. However, there was an
increase in total asset as well over the same period and in 2010, the bank has acquired
substantial amount of asset.
Unlike net interest margin, net non-interest margin of SJIBL have increased over the period
of 2008 to 2010, with 2010 registering a sharp increase in comparison to the previous two
year, which is a good sign for an investor. It suggests the companys ability to generate high
fee income mainly through its non-interest related activities such as investments in securities
and ATM fees. This also indicates high efficiency of operating expense control.

Overhead Margin is the proportion of total non-interest expense with respect to total
assets. An increase in overhead margin ratio indicates that there is inefficiency in
2008 2009 2010
Overhead Margin 1.04% 1.49% 1.68%
Net Operating
Margin
3.67% 3.46% 4.48%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
P
e
r
c
e
n
t
a
g
e
Overhead Margin & Net Operating Margin
70

controlling expenses.
Net Operating Margin is a measure of how profitably the firm is operating. The ratio
tells how well a company converts revenue from core operations into actual profit, i.e.
how many cents of profit it gets from every dollar of sales. The operating margin
shows how well the company controls costs.
Although, overhead margin increased over the years but as mentioned earlier, SJIBLs ability
to generate considerable amount of revenue from non-interest expense, thus having positive
net non-interest margin indicated that the bank is safe from increase in overhead margin.
Net profit margin of a company is one the most important determinant of profitability
regardless of whether the company is financial or non-financial company. SJIBL was able to
keep a stable increase in net-profit margin over the year, with 2010 registering the highest net
operating margin among the three years. This suggests the banks management has
substantial control over the expenses of the bank and can generate fair amount of revenue by
properly utilizing its assets.

6.3.1.2 Efficiency Ratios
The efficiency ratio is a measure for a banks productivity. Efficiency or activity ratios
indicate a banks efficiency in controlling expenses to generate return.

2008 2009 2010
Tax management
efficiency
52.22% 59.64% 70.01%
Expense control
efficiency
67.40% 61.55% 61.02%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
P
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Tax Management Efficiency & Expense Control
Efficiency
71

Tax Management Efficiency reflects the use of security gains or loss to minimize tax
exposure. It indicates what portion of operating income generates net income after
tax.
Expense Control Efficiency indicates the portion of revenue after the operating
expense is deducted. Its a measure of operating efficiency and expense control.
Tax management efficiency of SJIBL has been steadily increasing over the period of 2008 to
2010 indicating the banks effectiveness in using security gains and extraordinary items to
minimize the companys overall tax effect.
There was a sharp fall in expense control efficiency ratio of SJIBL during the analyzing
period of 2008 to 2010. Although, there was a negligible fall in the expense control efficiency
ratio in 2010 in comparison to 2009. A point to be noted here is the fact that the liability of
the bank have increased massively during the period of 2009 and 2010 due to the amount of
deposited fund that the bank has received which also raised the banks interest expenditure.
But since the decrease in expense control efficiency was little in 2010 in comparison to 2009,
it indicates SJIBL is not at an alarming situation from the fall of the expense control
efficiency. However, the bank was able to achieve business growth and also made sure
operating expenses doesnt eat up operating revenues.

Operating Efficiency ratio gives us a measure of how effectively a bank is operating.
2008 2009 2010
Operating
Efficiency Ratio
22.09% 30.02% 27.26%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
P
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Operating Efficiency Ratio
72

It is the cost required to generate each taka of revenue. An increase means the
company is losing a larger percentage of its income to expenses. If it is getting lower,
it is good for the bank and its shareholders. This measures non-interest expenses as a
proportion of operating revenue. Costs include salaries, technology, buildings,
supplies, and administrative expenses. Revenue includes net interest income (interest
revenue less interest expenses) plus fees.
The operating efficiency ratio showed positive scenario for SJIBL. Although operating
efficiency ratio had a sharp increase in 2009, but during the 2010 period, the operating
efficiency ratio had a substantial steady decline. From the pattern of the ratio during the
analyzing period, suggest that SJIBL has been able to maintain substantial level of operating
revenue to cover up the operating expenses. However, its command over the operating
expenses is not substantially firm as ratio had a decline on 2010 in comparison to previous
year.

Asset utilization ratio measures the speed at which a business is able to turn assets
into sales, and hence cash. The higher the ratio, the more effectively assets are used to
generate revenue.
There is a steady increase in asset management ratio of SJIBL during the analyzing period
which indicates SJIBLs efficiency in investing good portfolio of asset and getting a good
2008 2009 2010
Asset management
efficiency
4.70% 4.95% 6.16%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
P
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Asset Management Efficiency
73

return from its investment in those assets. Moreover, this sends a positive signal to potential
investors.

Fund Management efficiency/equity multiplier ratio shows a company's total
assets per dollar of stockholders' equity. A higher equity multiplier indicates higher
financial leverage, which means the company is relying more on debt to finance its
assets.
Banks are usually highly leveraged as in the case of SJIBL too. From the analysis period, it
can be deduced that SJIBLs fund management efficiency ratio has decreased steadily over
the analyzing period. The reason behind this is increasing the level of equity by SJIBL during
this period. The good sign for investor is that SJIBLs decreased dependency on leverage will
constitute to decrease the level of risk assumed by the bank. On the contrary, it might affect
the SJIBLs profitability. But in this case the profitability was not affected as seen in the
profitability ratios that the profit has increased, which is excellent sign for an investor. These
ratios constitute the return on equity for a bank and it gives a clear idea to an investor about a
banks performance in terms of its policies to maintain efficiency and as of the period SJIBL
has been in good shape for investment.
2008 2009 2010
Funds
management
efficiency
13.70 11.96 11.68
10.50
11.00
11.50
12.00
12.50
13.00
13.50
14.00
P
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Funds Management Efficiency
74


Employee productivity ratio measures the level of income that each employee
generates. It helps to determine the efficiency of a bank in terms of employees.
During the analyzing period, the ratio employee productivity ratio had declined from 2008 to
2009. However, in 2010, there was a sharp increase in employee productivity of SJIBL which
suggest that SJIBL has got a quality management for its operation as in the previous part of
the analysis, it was found that SJIBLs profitability and the managements control over the
expenditure was high in 2010.

6.3.1.3 Liquidity Ratios
Liquidity analysis considers the banks ability to meet its obligations and is very critical for a
bank to remain a going concern.
2008 2009 2010
Employee
Productivity Ratio
2,061,275.74 1,571,335.12 2,111,735.04
0.00
500,000.00
1,000,000.00
1,500,000.00
2,000,000.00
2,500,000.00
Employee Productivity Ratio
75


Cash position indicator implies how well, the bank is in a position to meet immediate
cash needs.
From the above illustration, it can be seen that the cash position indicator of SJIBL had a
sharp decline from 2008 to 2009 and had an incremental increase in 2010, in comparison to
2009. Over the period of 2008 to 2010, the bank have undergone into acquisition of new
assets and involved into new investment opportunities. Hence, although the banks cash and
bank balance have increased yearly, greater acquisition of asset and new investment in recent
years, have led to the decline of cash position ratio.

Liquidity securities indicator represents the proportion of govt. securities in respect to
2008 2009 2010
Cash position
indicator
18.65% 10.54% 10.61%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
P
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Cash position indicator
2008 2009 2010
Liquid security
indicator
1.62% 1.87% 1.78%
1.45%
1.50%
1.55%
1.60%
1.65%
1.70%
1.75%
1.80%
1.85%
1.90%
P
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Liquid security indicator
76

total asset. It represents the level of liquid assets held by a bank to serve depositors.
The greater the proportion of govt. securities the more liquid the bank is.
Over the analysis period, there was a cyclic movement of the liquidity security indicator.
There was an increase in the ratio from year 2008 to 2009 and then, a decline in the ratio
from year 2009 to 2010 due to increase in lending activity by SJIBL which may weaken the
liquidity position of the bank and hence could be a concern for a potential investor. The
increase in profitability, in recent year of the analysis period, was mainly a consequence of
the decrease of securities held for liquidity and could be invested in higher yielding
investment. Due to this, profitability of SJIBL raised but at the expense of increased level of
liquidity risk.

Deposit composition ratio is ratio of demand deposits, which are subject to immediate
withdrawal via check writing, and time deposits, which have fixed maturities with
penalties for early withdrawal. This ratio measures how stable funding bases the bank
possess. A decline of the ratio suggests greater deposit stability and lesser need for
liquidity.
From the above illustration, there was a sharp fall in the deposit composition ratio of SJIBL
from 2008 to 2009 and then a substantially sharp increase of deposit composition ratio from
2009 to 2010. This suggests that the banks liquidity has gradually gone down during the
2008 2009 2010
Deposit
composition ratio
4.67% 4.31% 5.12%
3.80%
4.00%
4.20%
4.40%
4.60%
4.80%
5.00%
5.20%
P
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Deposit composition ratio
77

analysis period and SJIBLs exposure to liquidity risk has increased as a result. Moreover, the
indication from this ratio is quite similar from liquidity standpoint in comparison to the
previous ratio. However, this increase has inevitably contributed to the banks profitability
because time deposits earn more return than their counterpart. As a result, the bank had to pay
less interest/profit on demand deposits in comparison to fixed deposits.

Core deposit ratio is ratio of net loans and leases to total asset. A lower ratio value
indicates a higher liquidity and less profitability.
As shown in illustration, SJIBLs capacity ratio had a sharp increase from 2008 to 2009 and it
remained somewhat steady from 2009 to 2010, which corresponded to lower levels of
profitability in 2008 compared to 2009 and 2010. The risk level for the bank raised from
2009 as the ratio increased but it was compensated with higher profit margins.

6.3.1.4 Leverage ratios
Leverage ratios examine how assets of the business are financed. By nature, banks are highly
leveraged. As a result it is important for an investor to assess any increase in leverage of a
bank they are interested in investing in.
2008 2009 2010
Capacity ratio 59.13% 68.51% 68.90%
54.00%
56.00%
58.00%
60.00%
62.00%
64.00%
66.00%
68.00%
70.00%
P
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Capacity ratio
78


Debt-equity ratio indicates what proportion of equity and debt the company is using to
finance its assets. A high debt-equity ratio generally means that a company has been
aggressive in financing its growth with debt.
The above illustration shows that SJIBLs debt to equity ratio have increased over the
analysis period which suggest that the SJIBLs leverage have increased over the period and it
is subject to more bankruptcy risk exposure as a result. This has happened because of massive
increase of deposits from customers and other institutions. However, since the profitability of
the bank have also increased over time, it indicates that the bank have managed to capitalized
on debt to generate satisfactory revenue which would be a positive indication for a potential
investor. SJIBL should also be aware of the fact the liquidity of the bank have declined over
this period as well, but not to an alarming level. Hence the bank should be careful about
liquidity risk as well as interest rate risk as well.
2008 2009 2010
Debt Equity Ratio 11.23 10.96 17.79
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
20.00
Debt Equity Ratio
79


Total debt ratio is measure of the level of liabilities held in relation to total assets.
Increase in this ratio means higher risk and more leverage.
Debt ratio of SJIBL has increased over the analysis period indicating that the bank is exposed
to more risk due to higher leverage. This is because of SJIBLs increase in massive deposits
in recent years of the analysis periods. Hence, similar to the above ratio, it indicated the
banks high dependency on financial leverage making it potentially vulnerable to liquidity
risk and interest rate risk. However, as mentioned earlier that the bank was able to reap-off
satisfactory revenue by taking advantage of the financial leverage, it should give a positive
indication to potential investor as long as the bank is not in an alarming situation from
liquidity and interest risk standpoint.

6.3.1.5 Credit risk indicators
Credit risk ratio accesses the probability that some of a financial institutions assets,
especially its loans will decline in value.
2008 2009 2010
Total Debt To Total
Asset
0.82 0.92 1.52
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
Total Debt To Total Asset
80


Loan loss reserve to total loans and provision for loan to total loans reveal the extent
to which a lender is preparing for loan losses by building up its loan loss reserves (the
allowance for loan losses) though annual charges against current income (the
provision for loan losses)
From the above illustration, it can be seen that SJIBL has an increasing loan loss reserve to
total loans and provision for loan to total loans ratio. However a point to be noted here is the
fact that there was a gradual increase on the banks deposit level which also led to increase
provisions for loan losses (PLL) and eventually allowance for loan losses (ALL). Moreover,
it is commonly seen in Bangladesh that Islamic banks have better recovery rates than most of
the conventional banks. SJIBL is no different from this trend as its loan loss reserve to total
loans and provision for loan to total loans ratio is less in comparison to other conventional
banks. This also allowed SJIBL to keep less provision for loan losses each year in
comparison to conventional banks, which helped it to maximize its profitability.

2008 2009 2010
Loan loss reserve to
Total Loans
1.16% 1.36% 1.61%
Provision for Loans to
Total Loans
0.44% 0.47% 0.63%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
1.80%
P
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Loan Loss Reserve To Total Loans & Provision For
Loan To Total Loans
81


Credit-Deposit ratio indicates the amount of a bank's loans divided by the amount of
its deposits at any given time. The higher the ratio, the more the bank is relying on
borrowed funds, which are generally more costly than most types of deposits.
Cost of fund ratio measures the average cost of the banks borrowed funds. The ratio
also shows whether the bank have gained access to low cost funding sources.
The above illustration shows that the credit-deposit ratio of SJIBL had a noticeable decline
from 2008 to 2009 but again increased substantial from 2009 to 2010. From the investigation
of the balance sheet, it was found that there was a massive increase in deposits which the
bank has mostly utilized to create its most of the investment assets and hence the ratio had an
increase in the recent year.
However, the cost of fund ratio gives a different scenario, although the banks deposits fund
have increased massively in the analysis period, the banks was able to maintain a favorable
cost of fund ratio and even in its recent year, where its deposit level and investment assets are
highest among these three years period. This indicates that the bank have managed to get
access to low cost funding which contributed to its profitability and as well lowered credit
risk.
2008 2009 2010
Credit-Deposit Ratio 96.03% 92.62% 97.58%
Cost of Fund 8.64% 8.85% 7.40%
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
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Credit-Deposit Ratio & Cost of Fund Ratio
82

6.3.1.6 Market Position Ratios

Market-book ratio measures how much a company is worth at present, in comparison
with the amount of capital invested by current and past shareholders into it. This ratio
is used by some investors or analysts as an indicator of over or undervaluation. If the
balance sheet assets per share are much larger than the share price, this is taken to be a
buy signal.
From the above illustration, there was noticeable increase in market-book ratio from 2008 to
2009. Moreover, the ratio further increased at a substantial amount from 2009 to 2010, which
suggests a very positive market perception of the company. Higher profitability and regular
payment of dividend during the analysis period could be the reason for which stock prices of
SJIBL were very favorable. Hence, it sends a positive sign for a potential investor.

2008 2009 2010
Market book
ratios
3.1131 3.825 7.932
0
1
2
3
4
5
6
7
8
9
Market book ratios
83


Price Earnings Ratio (P/E) is a measure of the price paid for a share relative to the
annual profit earned by the firm per share. A high P/E suggests that investors are
expecting higher earnings growth in the future compared to companies with a lower
P/E. It gives us an indication of the confidence that investors have in the future
prosperity of the business.
The above illustration shows SJIBLs price earnings ratio. There was a steady increase of P/E
ratio from 2008 to 2009. However, in 2010, P/E ratio had a substantial increase over 2009,
which is the highest among these three years analysis period. A point to be noted here is that
although SJIBL issued bonus shares in each of these three years, it was able achieve a growth
in its EPS. Favorable revenue for the bank, especially for the year 2010, could be one of the
main reasons for such achievement. Hence, the bank was able to achieve such performance in
its P/E ratio. This should indicate a fabulous market perception of the bank and could send a
positive signal to a potential investor.
However, to better access SJIBLs market performance and perception, its P/E ratios would
be compared with the P/E ratios of five other Islamic banks, which are a major competitors of
SJIBL, over the same period of 2008 to 2010.
2008 2009 2010
Price earnings ratio (
P/E ratios)
10.43 12.24 17.04
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
Price earnings ratio ( P/E ratios)
84

Before actually comparing the P/E ratio of SJIBL with its competitors, here's how SJIBL is
faring with its competitors in terms its earnings per share which has been discussed above:

From the above illustration, it can be seen that SJIBL have had a very mediocre EPS in
comparison to its competitors where majority of its competitors had better EPS than SJIBL.
However, in 2010, SJIBL have managed to boost its EPS by a significant amount and hence it
was having the third highest EPS, after EXIM bank, in 2010 among the comparing banks. As
mentioned earlier, SJIBLs significant growth in revenue in recent years have led it to get to
this position. A point to be noted here, is its closest competitor, IBBL had been maintaining a
stable and healthy EPS during the analysis period from 2008 to 2010. As a result, SJIBL
would also have to sustain its growth in its revenue in its upcoming years in order to compete
with EXIM bank and IBBL to secure best position in respect to its competitors in terms of
EPS.
2008 2009 2010
Al-Arafah Islami Bank 4.83 4.78 4.14
EXIM Bank 4.1 4.99 5.33
First Security Islami Bank 7.35 1.42 2.33
Islami Bank Bangladesh Limited 5.63 5.51 6.05
Social Islami Bank Limited 1.72 1.84 2.14
Shahjalal Islami Bank Limited 2.98 3.13 4.65
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
Earnings Per Share (EPS)
85

Based on the above EPS, here is the comparison of P/E ratio of SJIBL with five other Islamic
banks:

From the above comparison, it can be seen that SJIBLs P/E is not very favorable as
compared to its competitors. Majority of its competitors had better EPS than that of SJIBL.
Hence, SJIBLs market perception in terms of its competitors is not much appealing.
Although, it can be said that SJIBL had a steady increase of P/E over the analysis period and
indicated less volatility whereas, two of its competitors had significant volatility in P/E ratio.
Moreover, among the banks compared, SJIBL it the latest Islamic bank in terms of
commencement of the business. With high growth in profitability, rising EPS and steady rise
of P/E could still make it attractable to a potential investor provided that the bank would be
able to sustain or improve its ongoing performance.

2008 2009 2010
Al-Arafah Islami bank 11.96 14.61 20.3
EXIM Bank 9.95 10.13 15.41
First Security Islami Bank 23.74 16.93 25.22
Islami Bank Bangladesh Limited 14.03 12.87 17.86
Social islami Bank Limited 12.49 16.74 28.09
Shahjalal Islami Bank Limited 10.43 12.24 17.04
0
5
10
15
20
25
30
P/E Ratio
86

6.4 Summary of the findings and recommendation
Based on the above performance analysis of Shahjalal Islami Bank Limited, here are some
findings and recommendations:-
SJIBLs annual growth rate of total assets, loan, deposits, equity, and operating profit
were higher in its recent year in comparison to its previous years of the analysis
period which indicates that the growth rate of the business of bank is very
competitive.
SJIBL was efficient in asset and deposit generation as indicated by its higher annual
growth rate of total assets and deposits.
Asset-quality of SJIBL has shown improvement over the years of the analysis period
which indicated good asset management. Continuous enhancement of quality asset
means investing will generate return from less risky assets and reducing uncertainty.
SJIBL has been providing sufficient level of earnings during the analysis period. In its
recent year, the bank was able to generate a very respectable amount of return in
respect to its asset and equity.
SJIBL have increased its debt level in respect to its equity in the analysis period
which indicated the bank was leaning towards more financial leverage. However, high
revenue and return from its assets showed that the bank was able to capitalize
efficiently on its financial leverage.
The market perception of SJIBL was also favorable, as indicated in the banks rising
P/E and market-book ratio. It also need to be considered that in recent years, SJIBL
has increased it its equity capital, thereby, reduced some its risk exposure from higher
leverage. At the same time, the bank managed to sustain its growth in profitability.
Hence, the prosperity in aspect of the bank suggests an investor should invest in the
bank regardless of their risk preferences.
87

Liquidity position of SJIBL is a concern for the bank as suggested by cash position,
demand composition and debt to equity ratio respectively. Although the bank was
able to generate high return in recent years at the expense of lower liquidity, it should
address the liquidity situation now before it becomes alarming for the bank and the
bank more vulnerable to bankruptcy risk.
SJIBLs control on its expenditure and cost have gradually decreased as suggest by
overhead margin, expense control efficiency and operating efficiency ratio. Although
the bank was able to generate significant amount of profit in recent years of the
analysis period, its loosening control on cost and expenditure may restrict its profit
maximization and growth in the future. Hence the bank should take measures to
increase control on expenditure and cost without compromising on its profitability.
As mentioned earlier that the banks investment activities have increased greatly in
recent years of the analysis period, the cost of funding these investment activates have
also increased, as the cost of fund ratio suggest. Since majority of banks revenue
comes from these investment activities, the bank should look for more cheaper
sources of fund these activities which in turn would make it more efficient in its cost
control and also maximize its return from its investment.

88

Conclusion
Islamic banks in Bangladesh have a very high potential to excel in the banking sector. The
better lending recovery rates of Islamic banks in comparison to conventional banks and high
profitability are few of the prime reasons for such performance. However, services of Islamic
banks such as ATM facilities, online banking, etc., should be improved to make it more
competitive in respect to commercial banks and attract more customers to capture more
market share from conventional banks.
Although the banking philosophy of conventional and Islamic banks differs, their banking
practices are very much alike. With that in consideration, the study of this report tried to find
out if there is any similarity in the rates of return from deposit and lending activities by
conducting hypothesis test. However, since the test results were not identical, generalized
conclusion cannot be made regarding any differences among the deposit and lending rates of
conventional and Islamic bank. A point to be noted is, majority of the hypothesis tests
conducted for deposit rates indicated the deposit rates are not different among conventional
and Islamic banks. Nevertheless, from a customers standpoint, there is no problem to deposit
or borrow money from either of the conventional or Islamic banks.
Shahjalal Islami Bank Ltd is one of the most potential Islami banks in the Islami banking
sector. Its recent years high profitability and increased deposit level indicates that its
performance is on par with the industry performance of Islami banks. It has a large portfolio
with huge assets to meet up its liabilities and the management of this bank is equipped with
the expert bankers and managers in all level of management.
Based on the evaluation done on SJIBL, it can be concluded that the financial performance of
Shahjalal Islami Bank Limited has been satisfactory. The bank was able to maintain good
levels of return with efficient use of its quality assets. However, such high profitability came
89

at the expense of increased leveraged. In general, as banking institutions are highly leveraged,
this should not be a concern as long as the institution is sustaining favorable profitability and
SJIBL is exactly in such position. Liquidity has been a concern for the bank as it has
decreased over time. Moreover, the bank funding costs have also risen over time. The
management should take proper action to address the problem in order to avoid any future
distress. The bank is maintained favorable P/E which have increased in recent years, hence
should send a positive signal in market and thus, making SJIBL, a very attractive opportunity
for potential investor.

90

BIBLIOGRAPHY
(2008). Annual Report. Dhaka: Shahjalal Islami Bank Limited.
(2009). Annual Report. Dhaka: Shahjalal Islami Bank Limited.
(2010). Annual Report. Dhaka: Shahjalal Islami Bank Limited.
Ahmad, I., & Shabbir, G. (n.d.). Frequently Asked Questions (FAQs) on Islamic Banking.
Karachi: Islamic Banking Department, State Bank of Pakistan.
Akhter, J., & Sultana, N. (2012). Senior Officer. (T. H. Khan, Interviewer)
Anowar, M. I., & Hafiz, H. I. (2012). (T. H. Khan, Interviewer)
Bangladesh Bank. (2012). Announced interest rate chart of the scheduled banks (lending
rate). Retrieved April 5, 2012, from Bangladesh Bank Web Site:
http://www.bangladesh-bank.org/fnansys/interestlending.php
Bangladesh Bank. (2012). Interest rate of scheduled banks (deposit rate). Retrieved April 5,
2012, from Bangladesh Bank Web Site: http://www.bangladesh-
bank.org/fnansys/interestdeposit.php
Banglapedia. (2006). Islami Banking. Retrieved April 16, 2012, from Banglapedia:
http://www.banglapedia.org/httpdocs/HT/I_0113.HTM
Dhaka Stock Exchange (DSE). (2008). Trade Information. Dhaka, Bangladesh.
Dhaka Stock Exchange (DSE). (2009). Trade Information. Dhaka, Bangladesh.
Dhaka Stock Exchange (DSE). (2010). Trade Information. Dhaka, Bangladesh.
Dhaka Stock Exchange (DSE). (2011). Trade Information. Dhaka, Bangladesh.
EXIM Bank. (2012). Deposit Rates. Retrieved March 2012, from EXIM Bank:
http://www.eximbankbd.com/index.php/deposit/Deposit_Rates
91

Islami Bank Bangladesh Limited. (2012, January 1). Provisional Rates of Profit on Different
types of Mudaraba Deposits. Retrieved March 2012, from Islami Bank Bangladesh
Limited.
Islami Bank Bangladesh Limited. (2012, January 1). Rate of PROFIT/RENT on Banks
investment in different sectors .
Mann, P. S. (2004). Introductory Statictics. Singapore: John Wiley & Sons, Inc.
Munirruzzaman, M. (2012). Customer Relationship Officer. (T. H. Khan, Interviewer)
Newbold, P., Carlson, W., & Thorne, B. (2003). Statistics for Business and Economics.
Prentice Hall.
Rose, P. S., & Hudgins, S. C. (2010). Bank Management & Financial Services. Singapore:
McGraw Hill.
Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2008). Fundamentals Of Corporate
Finance. New Delhi: Tata Mcgraw-Hill.
Shahjalal Islami Bank Ltd. (2012). Provisional Rate of Profit. Retrieved March 2012, from
Shahjalal Islami Bank Ltd.: http://www.shahjalalbank.com.bd/profit_rate.php
Social Islami Bank Limited. (2012). Profit Rate. Retrieved March 2012, from Social Islami
Bank Limited: http://www.siblbd.com/php/profitrate/profitrate.php
Statistical hypothesis testing. (n.d.). Retrieved April 2012, from Wikipedia:
http://en.wikipedia.org/wiki/Statistical_hypothesis_testing


92







APPENDIX
93

Shahjalal Islami Bank Limited
Balance Sheet
2008 2009 2010
Taka Taka Taka
Property And Assets
Cash
Cash in hand 449,615,577 562,922,561 757,585,771
Balance with BB and Sonali Bank 2,773,858,394 3,515,663,193 6,442,098,480
3,223,473,971 4,078,585,754 7,199,684,251
Balance with other Banks and Financial Institutions
Inside Bangladesh 5,816,388,532 1,729,470,208 684,337,121
Outside Bangladesh 168,432,590 404,441,115 473,022,125
5,984,821,122 2,133,911,323 1,157,359,246

Placement with other Banks & Financial Institutions 5,270,089,600 4,287,781,041 4,336,581,235

Investments in Shares & Securities
Government 800,000,000 1,100,000,000 1,400,000,000
Others 344,189,400 2,383,146,682 828,851,599
1,144,189,400 3,483,146,682 2,228,851,599

Investments
General Investments 29,197,016,442 40,369,639,045 54,295,073,642
Bills Purchased and Discounted 3,721,757,226 3,588,621,666 7,145,002,263
32,918,773,668 43,958,260,711 61,440,075,905

Fixed Assets Including Premises 338,806,004 620,466,461 1,472,502,085
Other Assets 499,438,757 358,743,429 965,347,663
Non-Banking Assets
Total Assets 49,379,592,522 58,920,895,401 78,800,401,984


Liabilities And Capital
Liabilities
Placement from other banks & Financial institutions 4,654,500,000 4,500,000,000 53,732,190,000
Deposits and Other Accounts
Mudaraba Savings Deposits 1,863,522,467 3,072,788,942 3,861,423,717
Mudaraba Term Deposits 18,985,664,403 27,578,741,808 38,104,072,325
Other Mudaraba Deposits 10,191,759,337 12,489,742,364 14,806,640,228
Al-Wadeeah Current & Other Deposits Accounts 2,975,717,377 3,966,538,988 5,665,293,559
Bills Payable 263,076,409 351,419,391 527,518,236
34,279,739,993 47,459,231,493 62,964,948,065
Other Liabilities 1,549,568,372 1,995,596,548 3,278,501,504
Deferred Tax Liabilities 20,253,883 39,434,092 76,413,085
Total Liabilities 40,504,062,248 53,994,262,133 120,052,052,654

Capital/Shareholders' Equity
Paid-up Capital 2,245,980,000 2,740,095,600 3,425,119,500
Statutory Reserve 823,552,175 1,182,585,039 1,774,626,888
Retained Earnings 535,908,499 753,328,328 1,548,602,942
Asset Revaluation Reserve 250,624,301
Total Shareholders' Equity 3,605,440,674 4,926,633,268 6,748,349,330
Total Liability & Shareholders' Equity 44,109,502,922 58,920,895,401 126,800,401,984
94


Shahjalal Islami Bank Limited
Income Statement


2008 2009 2010

Taka Taka Taka
Investment Income 4,236,170,670 5,530,882,252 6,416,784,885
Less: Profit paid on Deposits 2,962,395,290 4,200,278,401 4,657,924,658
Net Investment income 1,273,775,380 1,330,603,851 1,758,860,227
Income from Investment in Shares/securities 192,717,942 409,019,391 1,104,473,288
Commission, Exchange and Brokerage 693,074,139 926,165,551 1,721,532,422
Other Operating Income 163,423,896 250,973,073 266,097,427

1,049,215,977 1,586,158,015 3,092,103,137
Total Operating Income 2,322,991,357 2,916,761,866 4,850,963,364
Salaries and Allowances 271,249,767 466,715,391 701,531,898
Rent, Taxes. Insurance, Electricity etc. 69,802,239 100,478,972 174,301,419
Legal Expenses 521,683 724,909 1,071,775
Postage, Stamps, Telecommunication etc. 9,398,720 11,315,142 16,487,698
Stationery, Printings, Advertisements etc. 29,702,471 40,536,536 53,811,688
Chief Executive's Salary & Fees 3,900,000 5,350,000 6,428,387
Directors' Fees & Expenses 2,302,983 4,040,999 6,468,972
Shariah Supervisory Committee's Fees & Expenses 144,610 152,557 134,600
Auditors' Fees 200,000 200,000 250,000
Depreciation & Repairs of Bank's Assets 31,862,115 52,631,301 76,787,732
Zakat Expenses

22,330,358 32,277,403
Other Expenses 94,106,670 171,121,380 252,702,548
Total Operating Expenses 513,191,258 875,597,545 1,322,254,120
Profit before Provision 1,809,800,099 2,041,164,321 3,528,709,244
Specific provisions for Classified Investments (5,000,000) (80,000,000) (150,000,000)
General Provisions for Unclassified Investment (140,000,000) (125,000,000) (240,000,000)
General Provisions for Off-Balance Sheet (70,500,000) (40,000,000) (130,000,000)
Provisions for diminution in value of Investments in Shares (27,500,000)

(47,500,000)
Provisions for Other Assets (1,000,000) (1,000,000) (1,000,000)
Total Provision (244,000,000) (246,000,000) (568,500,000)
Total Profit before Provisions for Taxation 1,565,800,099 1,795,164,321 2,960,209,244
Deferred Tax Expenses 13,472,886 19,180,209 36,978,993
Current Tax Expenses 734,617,680 705,415,819 850,889,888

748,090,566 724,596,028 887,868,881
Net Profit after Taxation 817,709,533 1,070,568,293 2,072,340,363

Appropriations

Statutory Reserve 313,160,020 359,032,864 592,041,849
Retained Earnings 504,549,513 711,535,429 1,480,298,514

817,709,533 1,070,568,293 2,072,340,363
Profit available for distribution

Retained Earnings from previous year 31,358,986 41,792,899 68,304,428
Add: Retained Earnings of Current year 504,549,513 711,535,429 1,480,298,514

535,908,499 753,328,328 1,548,602,942
Earnings Per Share (EPS) 2.98 3.13 4.65


95

Additional info:
2008 2009 2010
Taka Taka Taka
Provision on classified investment:
Provisions held at the beginning of the year 23,009,403 28,009,403 118,009,403
Fully provided debts written off

Provision against Recoveries of Classified Investment

Provision transferred from provision for Investment in Securities

10,000,000

Net Charge to Profit & Loss Account 5,000,000 80,000,000 150,000,000
Provision held at the end of the year 28,009,403 118,009,403 268,009,403


General Provision on Unclassified Investment:

Provision held at the beginning of the year 215,479,000 355,479,000 480,479,000
Addition during the year 140,000,000 125,000,000 240,000,000
Balance at the end of the year 355,479,000 480,479,000 720,479,000
Total Provisions for Investments 383,488,403 598,488,403 988,488,403


Provisions For Loan losses (PLL) 145,000,000 205,000,000 390,000,000
Allowance For Loan losses (ALL) 383,488,403 598,488,403 988,488,403




2008 2009 2010
Taka Taka Taka
Maturity wise classification of Deposits:
Repayable on demand 1,529,635,991 1,961,368,366 3,068,712,298
Within 1 month 4,337,790,413 7,316,339,730 10,598,300,458
Over 1 months but not more than 6 months 10,715,884,756 13,363,533,189 13,803,421,887
Over 6 months but not more than 1 year 6,429,530,854 8,018,119,913 11,831,504,474
Over 1 year but not more than 5 years 9,797,380,348 12,218,087,487 14,296,401,239
Over 5 years 3,674,017,631 4,581,782,808 9,366,607,709
36,484,239,993 47,459,231,493 62,964,948,065



Demand Deposits 1,529,635,991 1,961,368,366 3,068,712,298
Time Deposits 34,954,604,002 45,497,863,127 59,896,235,767


96


Financial Summary


2,008 2009 2010

Taka Taka Taka
Paid up Capital 2,245,980,000 2,740,095,600 3,425,119,500
Total Capital (Core + Supplementary) 4,069,092,335 5,429,972,779 7,746,828,330
Capital surplus 1,122,702,335 1,546,690,779 826,836,330
Total Assets 45,216,968,653 58,920,895,401 78,800,401,984
Total Deposits 36,484,239,993 47,459,231,493 62,964,948,065
Total Investment (Loan & Advance) 32,918,773,668 43,958,260,711 61,440,075,905
Total Contingent Liabilities and Commitment 10,771,113,500 16,936,837,526 27,665,046,113
Investment Deposit Ratio (%) 96.03% 92.62% 97.58%
Percentage of Classified Investment against total investments 0.44% 0.94% 1.91%
Profit after Tax and Provision 817,709,533 1,070,568,293 2,072,340,363
Amount if Classified Investment 143,243,000 413,234,220 1,173,125,000
Provisions kept against Classified Investment 28,009,403 118,009,403 268,009,403
Provisions surplus 20,801,366 98,703,708 88,682,384
Cost of Fund 10.99% 11.07% 10.15%
Profit Earning Assets 39,889,424,692 53,131,793,268 67,139,417,931
Non-Profit Earning Assets 5,327,543,961 5,789,102,133 11,660,930,053
Return on Investment in Securities (ROI) 16.84% 11.74% 38.67%
Return on Assets (ROA) 1.66% 1.82% 2.63%
Income from Investment in Securities 192,717,942 409,019,391 1,104,473,288
Earnings Per Share 2.98 3.13 4.65
Net Income Per Share 2.98 3.13 4.65
Price Earnings Ratio (Times) 10.43 12.24 17.04
Number of Employees 878 1299 1671


EPS
2008 2009 2010
Al-Arafah Islami Bank 4.83 4.78 4.14
EXIM Bank 4.1 4.99 5.33
First Security Islami Bank 7.35 1.42 2.33
Islami Bank Bangladesh Limited 5.63 5.51 6.05
Social Islami Bank Limited 1.72 1.84 2.14
Shahjalal Islami Bank Limited 2.98 3.13 4.65


P/E Ratio
2008 2009 2010
Al-Arafah Islami Bank 11.96 14.61 20.3
EXIM Bank 9.95 10.13 15.41
First Security Islami Bank 23.74 16.93 25.22
Islami Bank Bangladesh Limited 14.03 12.87 17.86
Social Islami Bank Limited 12.49 16.74 28.09
Shahjalal Islami Bank Limited 10.43 12.24 17.04


97

2008 2009 2010

Liquidity

1 Cash position indicator
Cash and deposit due form depository institution 9,208,295,093 6,212,497,077 8,357,043,497
Total Assets 49,379,592,522 58,920,895,401 78,800,401,984
18.65% 10.54% 10.61%
2 Liquid security indicator
Govt. securities 800,000,000 1,100,000,000 1,400,000,000
Total Assets 49,379,592,522 58,920,895,401 78,800,401,984
1.62% 1.87% 1.78%
3 Capacity ratio
Net loans and leases 29,197,016,442 40,369,639,045 54,295,073,642
Total Assets 49,379,592,522 58,920,895,401 78,800,401,984
59.13% 68.51% 68.90%
4 Core deposit ratio
Core deposit 29,177,423,740 40,068,484,172 52,910,712,553
Total Assets 49,379,592,522 58,920,895,401 78,800,401,984
59.09% 68.00% 67.15%
5 Deposit composition ratio
Demand Deposits 1,529,635,991 1,961,368,366 3,068,712,298
Time Deposits 32,750,104,002 45,497,863,127 59,896,235,767
4.67% 4.31% 5.12%

Leverage


1 Total Debt To Total Asset
Total Debts 40,504,062,248 53,994,262,133 120,052,052,654
Total Assets 49,379,592,522 58,920,895,401 78,800,401,984
0.82 0.92 1.52
2 Debt Equity Ratio
Total Liabilities 40,504,062,248 53,994,262,133 120,052,052,654
Stockholders' Equity 3,605,440,674 4,926,633,268 6,748,349,330
11.23 10.96 17.79
3 Interest Coverage Ratio
EBIT 5,801,970,769 7,326,046,573 9,376,994,129
Interest Expenses 4,236,170,670 5,530,882,252 6,416,784,885
136.96% 132.46% 146.13%

98


Activity (Efficiency)


1 Operating Efficiency Ratio
Total Operating Expenses 513,191,258 875,597,545 1,322,254,120
Total Operating Revenues 2,322,991,357 2,916,761,866 4,850,963,364
22.09% 30.02% 27.26%
2 Expense control efficiency
Pretax Net Operating Income 1,565,800,099 1,795,164,321 2,960,209,244
Total Operating Revenue 2,322,991,357 2,916,761,866 4,850,963,364
67.40% 61.55% 61.02%
3 Employee Productivity Ratio
Net operating income 1,809,800,099 2,041,164,321 3,528,709,244
Number of Full-time employee 878 1299 1671
2,061,275.74 1,571,335.12 2,111,735.04
4 Tax management efficiency
Net income After tax 817,709,533 1,070,568,293 2,072,340,363
Net income Before tax 1,565,800,099 1,795,164,321 2,960,209,244
52.22% 59.64% 70.01%
5 Expense management efficiency/Overhead margin
Operating expenses 513,191,258 875,597,545 1,322,254,120
Total Assets 49,379,592,522 58,920,895,401 78,800,401,984
1.04% 1.49% 1.68%
6 Asset management efficiency
Operating revenues 2,322,991,357 2,916,761,866 4,850,963,364
Total Assets 49,379,592,522 58,920,895,401 78,800,401,984
4.70% 4.95% 6.16%
7 Funds management efficiency
Total Assets 49,379,592,522 58,920,895,401 78,800,401,984
Total Equity Capital 3,605,440,674 4,926,633,268 6,748,349,330
13.70 11.96 11.68

Profitability


1 Return on Equity (ROE)
Net income after tax 817,709,533 1,070,568,293 2,072,340,363
Total Equity Capital 3,605,440,674 4,926,633,268 6,748,349,330
22.68% 21.73% 30.71%
2 Return on Assets (ROA)
Net income after tax 817,709,533 1,070,568,293 2,072,340,363
Total Assets 49,379,592,522 58,920,895,401 78,800,401,984
1.66% 1.82% 2.63%
99

3 Net Interest Margin (NIM)
Interest income-interest expense 1,273,775,380 1,330,603,851 1,758,860,227
Total Earning Assets 39,889,424,692 53,863,099,757 67,139,471,931
3.19% 2.47% 2.62%
4 Net Non interest Margin
Noninterest income - Noninterest expense 536,024,719 710,560,470 1,769,849,017
Total Earning Assets 45,317,873,790 53,863,099,757 69,162,867,985
1.18% 1.32% 2.56%
5 Net Operating Margin
Operating revenues-Operating expenses 1,809,800,099 2,041,164,321 3,528,709,244
Total Assets 49,379,592,522 58,920,895,401 78,800,401,984
3.67% 3.46% 4.48%
6 Earnings per Share (EPS)
Net income after tax 817,709,533 1,070,568,293 2,072,340,363
Total equity shares outstanding 274009560 342511950 445265535
2.98 3.13 4.65

Market Position Ratio


1 Price earnings ratio (P/E ratios)
Price Per Share 31.13 38.25 79.32
EPS 2.98 3.13 4.65
10.43 12.24 17.04
2 Market Book ratios
Market price per share 31.13 38.25 79.32
Book value per share 100 100 10
0.3113 0.3825 7.932

Credit Risk Indicators

1 Loan loss reserve to Total Loans
Allowance on Loan Losses 383,488,403.00 598,488,403.00 988,488,403.00
Total Loans and leases 32,918,773,668 43,958,260,711 61,440,075,905
1.16% 1.36% 1.61%
2 Provision for Loans to Total Loans
Provision for Loan losses 145,000,000 205,000,000 390,000,000
Total Loans and leases 32,918,773,668 43,958,260,711 61,440,075,905
0.44% 0.47% 0.63%
3 Credit-Deposit Ratio
Loans, Leases and Advances 32,918,773,668 43,958,260,711 61,440,075,905
Total Deposits 34,279,739,993 47,459,231,493 62,964,948,065
96.03% 92.62% 97.58%
100

4 NPL to Total Loans
Nonperforming Loans 143,000,000 413,000,000 1,173,000,000
Total Loans and leases 32,918,773,668 43,958,260,711 61,440,075,905
0.43% 0.94% 1.91%
5 Cost of Fund
Interest Expense 2,962,395,290 4,200,278,401 4,657,924,658
Total Deposits 34,279,739,993 47,459,231,493 62,964,948,065
8.64% 8.85% 7.40%


101

Glossary
Al-wadia: Resale of goods with a discount on the original stated cost.
Ijara: Leasing is also a lawful method of earning income, according to Islamic law.
In this method, a real assets such a machine, a car, a ship, a house, can be leased by
one person (lessor) to the other (lessee) for a specific period against a specific price.
The benefit and cost of the each party are to be clearly spelled out in the contract so as
any ambiguity (Gharar) may be avoided.
Mudaraba: This is an agreement made between two parties: one which provides 100
percent of the capital for the project and another party known as a Mudarib who
using his entrepreneurial skills, manages the project. Profits arising from the project
are distributed according to a predetermined ratio. Any losses accruing are borne by
the provider of capital. The provider of capital has no control over the management of
the project.
Murabaha: (Cost-plus financing) This is a contract sale between the bank and its
client for the sale of goods at a price, which includes a profit margin agreed by both
parties. As a financing technique, it involves the purchase of goods by the bank as
requested by its client. The goods are sold to the client with a mark-up. Repayment,
usually in installments is specified in the contract.
Riba: This term literally means an increase or addition. Technically it denotes any
increase or advantage obtained by the lender as a condition of the loan. Any risk-free
or "guaranteed" rate of return on a loan or investment is Riba. Riba, in all forms, is
prohibited in Islam. In conventional terms, Riba and "interest" are used
interchangeably.
Shariah: Islamic law derived from 3 sources: the Quran; the Hadith (sayings of the
Prophet Muhammad); and the Sunnah (practice and traditions of the Prophet
Muhammad)