Table of Contents

Topic Page No.

Introduction
Objective Methodology Rationale of the Report Scope and Limitation

2-3 2 2 3 3 4-5 4 5 6 7-13

Section 1

Section 2

Company Information
Islami Bank Bangladesh Ltd AB Bank Ltd

Section 3 Section 4

Industry Information Analysis of comparison

Section 5

Conclusion and Recommendation 14

Section 6

Reference and Appendix

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1.0 Introduction:
Banking is very important part of any economy to build up its financial sector. Its main activity is to channel the fund of surplus units to the deficit units that speed up the financial sector by increasing investment, production, employment etc. Like that it is playing the same role in our economy. Both the conventional and Islamic banking have active participation in our financial sector. Islamic Banking means conducting banking business following Islamic shariah. Conventional bank is doing its business on the basis interest. In fact both are doing same thing but in a different manner. Day by day Islamic banking has become an extreme critical issue because of its superiority over conventional banks. For this reason the conventional banks are launching Islamic banking wing to increase market share and increase profit. This statement reveals the difference between the overall performance of an Islamic bank and a conventional bank. Performance of Islamic banking in our country was a bit poor at the beginning of Islamic Banking era of our country but the scenario has changed and Islamic banking has gained popularity. Both types of bank are diversifying their products to satisfy the need of the customers. Here our concern is to evaluate the overall performance of Arab Bangladesh Bank Limited (AB Ltd) and Islamic Bank Bangladesh Limited (IBBL).

1.1 Objective
We have prepared this term paper related to the overall performance of AB Bank Limited and IBBL in the perspective of Bangladesh. Our objectives of preparing the term paper are as follows:

Evaluate the performance of these two selected bank. Make a comparative analysis between the banks. Focus on the problems of the banks. Focus on the potentials of the banks.

1.2 Methodology
Collection of information: We have collected required information from both Primary sources and Secondary sources as well as Information about banks performance from annual report of last five years. We analyze 5 years financial statement. Secondary source of information also

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collected from internet. We tried to show the overall performance of the two types of banks, their challenges & prospect in near future in Bangladesh. Using method: We have used the collected information with visual chart and table to evaluate the performance related to banks.

3 Rationale of the Study:

The rationale of this study is that, we dont know the actual financial performance of a company. So we can not value the company. As a result we can not distinguish between conventional banking and Islamic banking. So that we have made a comparison of some financial performances of AB Bank as a conventional bank and Islami Bank Bangladesh Ltd as a Islamic bank.

1.4 Scope and Limitation:

The scope of the report is that we can know about the financial performances of a conventional bank and an Islamic bank. So we can analyze those for our needed task. We can assess the overall performance of the company compared to the benchmark as a result we will be able to choose our desired company to invest. The limitation is that we do not know much about the actual financial performance of those banks. We are still learning so that some mistakes can be occurred in our comparison.

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2.0 Company information

2.1 Islami Bank Bangladesh Limited
Islami Bank Bangladesh Ltd., which was incorporated on 14th March, 1983, went into operation on 30th March, 1983 and introduced a full package of banking services in August 1983, Islami Bank Bangladesh Limited is considered to be first Islami-bank in South East Asia. With the active co-operation and participation of Islamic Development Bank (IDB) and some other Islamic banks, financial institutions, government bodies and eminent personalities of the Middle East and the Gulf countries, Islami Bank Bangladesh Limited has by now earned the unique position of a leading private commercial bank in Bangladesh. The primary objective of Islami Bank Bangladesh limited is to conduct interest-free banking. For doing so, it is engaged to establish participatory banking instead of banking on debtor-creditor relationship, invest on profit and risk sharing basis, establish a welfare-oriented banking system, extend co-operation to the poor, the helpless and the low-income group for their economic development. IBBL is a public limited company with limited liability under the companies Act, 1913; it is a joint venture multinational bank with sixty four percent of equity being contributed by the foreign sources. Regarding shareholding structure of the bank, the local shareholders hold shares in the ratio of thirty six to sixty four. In December, 1997 the number of its shareholders stood at 6863, its shares are quoted in the two stock markets of the country namely Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE), Being in high demand the shares are presently sold at three time higher than the face value. Authorized capital of this bank is Tk. 500 million. At present IBBL has a paid-up capital of Taka 317.98 million and Reserve Fund to Taka 930.17 million. The Bank is managed by 23-member Board of Directors elected by the shareholders, An Extensive committee consisting of 8 Directors and a Management Committee consisting of the top Executives of the Bank also oversee the day-to-day function of the Bank. A representative from the Shariah Council also takes part in the above committee. Powers and functions are suitably distributed amongst these bodies. The bank has also a 10 -member Shariah council consisting of Fuquah, Islamic Economists and a Lawyer. The council gives decision on Islamic issues, which are generally followed in the Bank. The Council conducts audits the operation of Bank branches each year on selective basis and put forward report identify the deviations and suggestions for purification of the banking transactions. Besides these committees and Council, IBBL performs all relevant types of activities for improvement of the Banks overall position.

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2.2 AB Bank Ltd

AB Bank Limited, the first private sector bank was incorporated in Bangladesh on 31st December 1981 as Arab Bangladesh Bank Limited and started its operation with effect from April 12, 1982. AB Bank is known as one of leading bank of the country since its commencement 28 years ago. It continues to remain updated with the latest products and services, considering consumer and client perspectives. AB Bank has thus been able to keep their consumers and clients trust while upholding their reliability, across time. During the last 28 years, AB Bank Limited has opened 77 Branches in different Business Centers of the country, one foreign Branch in Mumbai, India and also established a wholly owned Subsidiary Finance Company in Hong Kong in the name of AB International Finance Limited. To facilitate cross border trade and payment related services, the Bank has correspondent relationship with over 220 international banks of repute across 58 countries of the World. In spite of adverse market conditions, AB Bank Limited which turned 28 this year, concluded the 2008 financial year with good results. The Banks consolidated profit after taxes amounted to Taka 230 cr which is 21% higher than that of 2007. The asset base of AB grew by 32% from 2007 to stand at over Tk 8,400 cr as at the end of 2008. The Bank showed strong growth in loans and deposits. Deposit of the Bank rose by Tk. 1518 cr ie., 28.45% while the diversified Loan Portfolio grew by over 30% during the year and recorded a Tk 1579 cr increase. Foreign Trade Business handled was Tk 9,898 cr indicating a growth of over 40% in 2008. The Bank maintained its sound credit rating in 2008 to that of the previous year. The Credit Rating Agency of Bangladesh Limited (CRAB) awarded the Bank an A1 rating in the long term and ST-2 rating in the short Term. AB Bank believes in modernization. The bank took a conscious decision to rejuvenate its past identity an identity that the bank carried as Arab Bangladesh Bank Limited for twenty five long years. As a result of this decision, the bank chose to rename itself as AB Bank Limited and the Bangladesh Bank put its affirmative stamp on November 14, 2007.

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3.0 Industry information:

Banks date back to ancient times. During the 3rd century AD, banks in Persia and other territories in the Persian Sassanid Empire issued letters of credit known as akks. Muslim traders are known to have used the cheque or akk system since the time of Harun al-Rashid (9th century) of the Abbasid Caliphate. In the 9th century, a Muslim businessman could cash an early form of the cheque in China drawn on sources in Baghdad, a tradition that was significantly strengthened in the 13th and 14th centuries, during the Mongol Empire. Indeed, fragments found in the Cairo Geniza indicate that in the 12th century cheques remarkably similar to our own were in use, only smaller to save costs on the paper. They contain a sum to be paid and then the order "May so and so pay the bearer such and such an amount". The date and name of the issuer are also apparent. The earliest known state deposit bank, Branch di San Giorgio ( Bank of St. George), was founded in 1407 at Genoa, Italy Banking in the modern sense of the word can be traced to medieval and early Renaissance Italy, to the rich cities in the north like Florence, Venice and Genoa. The Bardi and Peruzzi families were dominated banking in 14th century Florence, establishing branches in many other parts of Europe. Perhaps the most famous Italian bank was the Medici bank, set up by Giovanni Medici in 1397. Bangladesh had started it banking system with two branch offices of the former State Bank of Pakistan and seventeen large commercial banks, two of which were controlled by Bangladeshi interests and three by foreigners other than West Pakistanis. There were fourteen smaller commercial banks. The newly independent government immediately designated the Dhaka branch of the State Bank of Pakistan as the central bank and renamed it the Bangladesh Bank. The bank was responsible for regulating currency, controlling credit and monetary policy, and administering exchange control and the official foreign exchange reserves. In 1981 AB Bank had started its banking activities as the 1st private commercial bank in Bangladesh. At present the banking system of our country consist of 52 banks, of which four (4) are public bank, nine (9) are foreign bank and rest thirty nine (39) are private commercial bank.

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4.0 Analysis:
4.1 Total Asset Position:
Total asset position indicates that in which extent a company has different sorts of asset. It shows the companys strength to pay off the debt obligation. The total asset of a bank comprises of cash, balance with other banks and financial institutions, money at call and short notice (Not existed in Islamic Bank), Investments, Loans and Advances, Fixed assets including premises, furniture and fixtures, other assets and Non-banking assets. In our analysis we have compared the total asset position of Islamic Bank Bangladesh Ltd and AB Bank ltd.

Total Asset Position(Figure in Million TK) 2004 2005 2006 2007

102,149.28 122,880.35 33,065.40 150,252.82 47,989.34 191,362.35 63,549.86

2008
230,879.14 84,053.61

IBBL AB Ltd Bank 32,513.48

Total Asset Position (Figure in Million TK)

250000 200000 150000 100000 50000 0 102149.28 32513.48 2004 122880.35 33065.4 2005 150252.82 47,989.34 2006 63549.86 84053.61 191362.35 IBBL ABBank 230879.14

2007

2008

The financial statements of IBBL indicate that total asset is increasing day by day and that shows the growth of the business. On the other hand the financial statements of AB Bank indicate that the total asset is increasing day by day and that shows the growth of the bank. In the first two years of our five years analysis the assets of AB Bank had not been growing significantly compared to the next years.

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4.2 Equity Position:

Equity position indicates the companys capital. Whenever a company starts its operation then it forms its capital through its own fund, funds collected from the shareholders and many other sources. The equity of a bank comprises of paid-up capital, statutory reserve, other reserve and retained earnings. In our analysis we have compared the equity position of Islamic Bank Bangladesh Ltd and AB Bank ltd.

2004
6,691.12

Equity Position(Figure in Million TK) 2005 2006 2007

8,331.14 1526.88 10,435.96 2582.76 14,957.74 4511.59

2008
18,572.00 6722.51

IBBL AB Ltd Bank 1243.58

From the above scenario it can easily be commented that the overall equity position of both banks have increased in year to year. So it indicates that common equity, preferred stock as well as retained earnings geared up periodically. Here Islami Bank Bangladesh Ltd is in the better position than the AB Bank Ltd.

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4.3 Deposit position:

Deposit Position is most meaningful indicator for any bank that how much the bank is accepted by the people. This is the main sources of money for a bank. Because bank collects money through different deposit schemes from the surplus units and lend it to deficit units. For a conventional bank deposit schemes consists of current deposit, demand deposits, bills payable, savings bank deposits, short-term deposits, fixed deposits, bearer certificates of deposits etc. On the other hand for a Islamic bank deposit schemes are Al-Wadiah current account, Musharakah, Murabaha, Mudarabah account etc. In our analysis we have compared the deposit position of Islamic Bank Bangladesh Ltd and AB Bank ltd.

2004 IBBL AB Ltd Bank 28299.23

Deposit Position(Figure in Million TK) 2005 2006 2007

108,261 27361.44

2008

88,452.18

132,814.00 166,812.78 200,725.00 42077.40 53375.35 68650.47

From the above graph it is evidenced that the deposit position of both banks have enhanced in year to year which meaning that the confidence of customer is very high towards it as bank mobilizes its deposit to its best and also show the better position in market. In case of AB Bank in 2005 the deposit position was decreased. Overall IBBL is in the better position here.

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4.4 Return on Asset (ROA):

ROA indicate the amount that could be generate by using assets of the organization. The higher the rate of return on assets the higher the asset utilized of the firm that indicates the firms efficiency to invest its maximum asset. In our analysis we have compared the ROA of Islamic Bank Bangladesh Ltd and AB Bank ltd.

2004
1.1

Return on Asset (Figure in %) 2005 2006

1.0 0.50 1.03 1.31

2007
0.87 3.41

2008
1.27 3.12

IBBL AB Ltd Bank 0.28

Return on Asset(Figure in %)
4 3.5 3 2.5 2 1.5 1 0.5 0 1.1 0.28 2004 1 0.5 2005 2006 1.31 1.03 1.27 0.87 IBBL ABBank 3.41 3.12

2007

2008

Return on Asset shows the Banks efficiency to use its assets to gain profit. Islami Bank Bangladesh Limited has good return on assets in the year of 2008 which is important for this Bank. Because we see from the graph that ROA has a decreasing trend with fluctuation in the

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recent years from 2004 to 2007. On the other hand AB Bank has a very good return in 2007 and 2008. But in the prior years this growth was not significant.

4.5 Return on Equity:

Return on Equity shows to what ratio shareholders equity are earning profit for the company. The higher the rate of ROE the higher the company performance. In our analysis we have compared the ROE of Islamic Bank Bangladesh Ltd and AB Bank ltd.

2004
15.15

Return on Equity (Figure in %) 2005 2006

13.51 11.73 13.42 25.90

2007
13 53.66

2008
19.02 40.96

IBBL AB Ltd Bank 7.57

Islami Bank Bangladesh limited has shown a good improvement in using equity to earn profit as in the year of 2008 over 18 was the return despite decreasing movement in the past few years.

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On the other hand AB Bank has shown a consistent good return on equity from year 2004 to 2007 despite a decreasing movement in the year 2008.

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4.6 Earning per share:

EPS is the portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability. Earning per Share or EPS is calculated by dividing the net profit after tax by the no. of shares outstanding. The more the EPS the more the earning of the company is indicated. In our analysis we have compared the EPS of Islamic Bank Bangladesh Ltd and AB Bank ltd.

2004
518.59

Earning Per Share (Figure in TK) 2005 2006 2007

487.57 31.26 368.42 93.08 30.04 85.37

2008
56.29 103.18

IBBL AB Ltd Bank 18.19

From the above graph it can be seen that there is a dramatic fall in the earning per share
of IBBL in the year of 2007 because of split of share in that year. After that in the year of 2008 EPS tend to increase. On the other hand the EPS of AB Bank has been increased through year to year despite a light decrease in the year of 2007.

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4.7 Price Earning Ratio:

Price Earning ratio is calculated by dividing the market price per share by Earning per share. It shows the strength of companys earning in terms of market price per share. Generally investors look the standard Price/earning ratio in case of investment decision. In our analysis we have compared the EPS of Islamic Bank Bangladesh Ltd and AB Bank ltd.

2004
9.32

Price Earning Ratio (Figure in Times) 2005 2006 2007

9.24 11.68 10.97 9.59 17.88 10.00

2008
10.78 7.97

IBBL AB Ltd Bank 20.95

P/E ratio is in ups and down mode in the recent years which ended with in declining ratio in the year of 2008. On the other hand the P/E ratios of AB Bank have been declined through the years from 2004 to 2008.

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5. Conclusion and Recommendation:

Banking sector is the key financial arena of our economy. It comprises of Conventional banking system and Islamic Banking system. In our analysis we have considered Islami Bank Bangladesh Ltd and AB Bank Ltd. We have made the comparison based on some financial performances. We have found that both the bank is growing at an increasing rate. But nowadays Islami Banks are getting more profitable as they are operating on participatory basis. Our comparison comprises of several perspectives. These are total asset position, equity position, deposit position, return on asset, return on equity, earning per share, price earning ratio. From the view point of total asset position, equity position, deposit position IBBL is in the better position than the AB Bank. In case of EPS, ROA and ROE the AB Bank is in the better position than the Islami Bank Bangladesh ltd. Again for the P/E ratio IBBL is in the better position than the AB Bank. Overall both the banks are performing well. Their growth rate is increasing day by day although their operating systems have little difference. To continue this dynamic expansion, the first action that deserves immediate attention is the promotion of the image of Islamic banks as PLS banks. Strategies have to be carefully devised so that the image of Islamic character and solvency as a bank is simultaneously promoted. On the other hand the conventional banks should bring more secured banking products. More diversified products should be evolved. These banks have to be more customers oriented so that they can get the more public acceptance. Thus the conventional bank can achieve its maximum success.

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6. Reference and Appendix:

Annual reports of IBBL from year 2004 to 2008. Annual reports of AB Bank ltd from year 2004 to 2008. www.abbank.com.bd www.dse.gov.bd www.ibbl.com.bd www.investopedia.com

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