Financial Analysis of Islami Bank Bangladesh Limited

from 2010-2014

Financial Analysis of Islami Bank Bangladesh Limited Course Name: Financial Institutions and MarketsCourse title: FNB 209

Submitted to:Dr. Sheikh Abu TaherCourse Instructor,Financial Institutions and Markets (FNB 209)

Department of Finance & BankingJahangirnagar University, Savar, Dhaka

Submitted By:S. B. NadimStudent ID 1602B.B.A Program 5th BatchDepartment of finance & Banking,Jahangirnagar University, Savar, Dhaka

Department of Finance and Banking,Jahangirnagar University, Savar, Dhaka

Date of Submission: 06 April, 2016

Acknowledgement

This is my pleasure to prepare and submit the report on “Financial Analysis of BD Finance Limited from 2010-2014”. The preparation of this report would not have been possible without the valuable contribution of Department of Finance & Banking and BD Finance Limited.

I would like to thank our course instructor Dr. Sheikh Abu Taher for designing the course with this report and providing us such an immense opportunity. Though I know that right now I’ve got a lot to learn about the regarding topic, I’ve really enjoyed the task and tried to give my full effort to make it rich and resourceful. I want to give my especially thanks to all the associates who provided all the company related information and also inspired us in preparing this paper.

At last special thanks to Almighty Allah to whom we are grateful forever for giving us all the opportunities in doing each and everything.

Department of Finance & BankingJahangirnagar University Savar, Dhaka. 06 April 2016

Dr. Sheikh Abu TaherChairman Department of Finance & Banking Jahangirnagar UniversitySavar, Dhaka.

Subject: Application for submitting the term paper.

Dear Sir: It is my immense pleasure to present you the report on “Financial Analysis of Islami Bank Bangladesh Limited (IBBL) from 2010-2014.” This report has been prepared to know about the ins and outs of how the institution perform in the stock market. This report will help the future investors to make decisions on that area and so on.

It has been a great contentment to submit you the report.

Sincerely yours,

……………….S.B.NadimStudent ID 1602

Declaration

I hereby declare that this report is based on the results found by myself during my research work on “Financial Analysis of Islami Bank Bangladesh Limited from 2010-2014.” This paper neither in whole nor in part, was previously submitted for any academic purpose.

Signature of Author

…………………..S.B.NadimStudent ID 1602

Table of Contents:Topic Page no

Executive Summary1.Introduction 011.1.Origin of the report 011.2.Research questions, objectives & scopes of the report

01

1.3.Literature review 011.4.Research methodology 021.5.Limitations 022.Overview of IBBL 022.1.Mission 022.2.Vision 032.3.Core objectives 033.Financial Analysis of IBBL 033.1.Balance sheet 033.2.Income statement 103.3.Ratio Analysis4.Conclusion 135.Recommendation 136.Appended Parts 156.1.References 20

Executive Summary

Financial intermediaries those play a crucial role in ensuring efficiency in resource utilization of an economy are financial institutions. From operational viewpoint these commercial banksFinancial institutions provide services as intermediaries of financial markets. Broadly speaking, there are three major types of financial institutions.

Depositary institutions – deposit-taking institutions that accept and manage deposits and make loans, including banks,building societies, credit unions, trust companies, and mortgage loan companies;

1. Contractual institutions – insurance companies and pension funds; and

2. Investment institutions – investment banks, underwriters, brokerage firms.

Some experts see a trend toward homogenisation of financial institutions, meaning a tendency to invest in similar areas and have similar business strategies. A consequence of this might be fewer banks serving specific target groups, for example small-scale producers could be under served.

can be classified mainly in two sections i.e. one is Islamic Perspective Banking which focuses on Islamic Shariah based operations and allows all transactions or investments on profit and loss sharing basis where fixed return on capital is totally prohibited. And another is Conventional Perspective Banking which conducts its operation based on interest that is a fixed amount charged over principal amount of loan or debt. It focuses on debtor-creditor relationship between the depositors and the bank or between the borrowers and the bank where interest is considered as the price of credit. According to the information of Bangladesh Bank there are 47 scheduled banks operating in Bangladesh where 4 are State Owned Commercial Banks (SOCBs), 4 are Specialized Banks (SDBs), 23 are Conventional Private Commercial Banks, 7 are Islami Shariah based PCB and rest 4 are Foreign Commercial Banks (FCBs). The objective of this descriptive type research is to analyze Financial Analysis of Islami Bank Bangladesh Limited from 2010-2014listed in DSE through several comparing the several year’s financial performance. For this purpose, the financial performance from 2010 to 2014 of One Bank is considered. The performances of Conventional banks are scrutinized by using accounting

data from audited financial statement of 2010-2014 which have been collected from Dhaka Stock Exchange and Dhaka Stock Exchange Website.

1.0. Introduction 1.1. Origin of the report This report is prepared as a requirement of academic activities of the course “Financial Markets and Institution” under the supervision of Dr. Sheikh Abu Taher, Lecturer and Course teacher, Department of Finance & Banking, Jahangirnagar University. 1.2. Research Questions, Objectives & Scopes of the report The major research question of this research paper is How much effectively and successfully DSE Blue Chip Listed Islami Bank Bangladesh Limited is performing its financial activities?So in terms of research questions the objective of this research paper is to make a comparative analysis of performance Islami Bank Bangladesh Limited. And to fulfill the objective the factors that are included and excluded in this study are given below: Included are - 1. Analyzing the financial statement i.e. balance sheet, income statement.2. Different financial conditions of bank. Excluded are - 1. Political intervention on the bank performance.2. Environmental effect on the bank performance. 1.3. Literature ReviewEconomy of Bangladesh is in the world’s most underdeveloped economics. One of the reasons maybe it’s underdeveloped banking system. Modern banking system plays a vital role for a nation’s economic development. Over the first few years the banking world has been undergoing a lot of changes due to deregulation, technological innovation and globalization etc. These changes also made revolutionary changes of a country’s economy. Present world is changing rapidly to face the challenges of competitive free market economy. It is well recognized that there is an urgent need for better qualified management and better trained staff in the dynamic global financial market. Bangladesh is no exception of this trend. Banking sector in Bangladesh is facing challenges from different angles through its prospect is bright in the future. Money and banking is the center around which all economic science clusters. The Islami Bank is a very renewed bank in Bangladeshi prospective. As a BBA student under one course of Financial Market and Institution I am preparing and analyzing the financial condition of Islmai Bank Bangladesh Limited. When I go to analyze the financial statement I saw this bank has a lots of quality and a lots of facility in banking sector such as mobile banking, ATM card etc. this bank has a good relation with its customers.

1.4. Research Methodology This research is descriptive one which focuses on analyzing the financial data of Dutch Bangla Bank. For

this purpose secondary data have been used. Annual reports of these banks from the year 2010 to 2014 which have been collected from Dhaka Stock Exchange Library are the major source of secondary data. By collecting do an analysis of five years balance sheet and income statement to measure the banks present position. Financial analysis used in this research to measure the performances of assets, liabilities, shareholders equity and profit and loss of bank.1.5. Limitations There are limitations in making this report. Those limitations are given below: 1. Limited information sources regarding bank performance analysis 2. Time management 3. Access to experts for editing, proof reading, and guidance 4. Lack of funds

2.Overview on Islami Bank BangladeshEstablishment of Islamic Development Bank (IDB) by the OIC member states in the year 1975 has been proved to be a breakthrough in the expansion of Islamic Shariah based finance and specially banking throughout the world. As a founder member of IDB, the Government of Bangladesh also had the commitment to establish Islamic banks which was reflected in different steps taken by the governments of the country. The OIC members consented to the proposals to introduce Islamic economy and banking in their respective countries held in the foreign ministers’ conferences in 1978 and 1980 in Dakar and Islamabad respectively. In the year 1981, OIC in its 3rd summit held in Makkah approved the proposition submitted by Bangladesh to introduce separate banking system following Islamic ideology. As per decision, the GOB sent representatives to the Middle Eastern countries to learn the existing banking systems in those countries.2.1. Mission

To Establish Islamic Banking through the introduction of welfare oriented banking system and also ensure equity and justice in the field of all economic activities, achieve balanced growth and equitable development through diversified investment operations particularly in the priority sectors and less developed areas of the country.

To encourage socio-economic uplift and financial services to the low-income community particularly in the rural areas.

2.2. VisionThe Vision of IBBL is to always strive to achieve superior financial performance, be considered a leading Islamic Bank by reputation and performance.

IBBL goal is to establish and maintain the modern banking techniques, to ensure the soundness and development of the financial system based on Islamic principles and to become the strong and efficient organization with highly motivated professionals, working for the benefit of people, based upon accountability, transparency and integrity in order to ensure stability of financial systems.

IBBL will try to encourage savings in the form of direct investment. Also try to encourage investment particularly in projects which are more likely to lead to

higher employment.2.3. Core ObjectivesIBBL believes in its uncompromising commitment to fulfill its customer needs and satisfaction and to become their first choice in banking. Taking cue from its pool esteemed clientele, Dutch-Bangla Bank intends to pave the way for a new era in banking that uphold and epitomize its vaunted marques “Your Trusted Partner”.

To establish relationship banking and improve service quality through development of Strategic Marketing Plans.

To remain one of the best banks in Bangladesh in terms of profitability and assets quality. To introduce fully automated systems through integration of information technology.

To ensure an adequate rate of return on investment To keep risk position at an acceptable range (including any off balance sheet risk)

Proparty and Asset 31-12-14 31-12-13 31-12-12 31-12-11 31-12-10

Cash In Hand 46,219,359,426 44,291,514,939 41,774,012,643 40,631,914,271 39,053,404,674 Cash In Hand (Including Foreign Currency) 7,696,844,549 8,180,338,285 6,308,274,680 4,655,996,987 3,787,386,230 Balance with Bangladesh Bank & Its Agent Bank(s) (Including foreign currency) 38,522,514,877 36,111,176,654 35,465,737,963 35,975,917,284 35,266,018,444

Balance With Oher Banks & Financial Institutions 20,199,350,245 12,327,320,344 24,524,933,077 16,853,296,480 6,679,891,477 In Bangladesh 17,790,027,698 7,577,940,830 17,432,561,802 13,140,359,824 3,298,464,779 Outside Bangladesh 2,409,322,547 4,749,379,514 7,092,371,275 3,712,936,656 3,381,426,698

Placement with Banks & other Financial institutions 2,000,000,000 - - - -

Investment in shares & securities 100,856,528,896 67,211,398,877,770 25,560,064,458 15,853,181,923 12,268,810,620 Government 97,435,777,770 63,698,877,770 23,504,977,770 13,927,177,770 11,668,666,620 Others 3,420,751,126 3,512,521,198 2,055,086,688 1,926,004,153 600,144,000

Investments 463,475,467,466 403,194,804,977 372,920,722,887 305,790,180,873 263,225,131,026 General Investment etc 436,094,101,205 375,200,298,497 340,479,756,413 287,861,385,224 244,785,083,653 Bills Purchased & Discounted 27,381,366,261 27,994,506,480 32,440,966,474 17,928,795,649 18,440,047,373 Fixed Assets including premises 15,926,361,916 15,732,808,589 14,816,765,447 7,110,249,574 6,748,441,001 Other Assets 3,744,370,802 4,471,783,137 3,052,992,955 3,136,781,099 2,610,439,478 Non-Banking Assets - - - - - Total Proparty and Assets 652,422,038,751 547,229,630,954 482,649,491,467 389,375,604,220 330,586,118,276

Liabilities and Capital

Liabilities Placement from Banks & other Financial institution 7,657,500,743 - - - -

Deposits& Other Accounts 560,696,300,836 473,140,955,031 417,845,688,579 341,855,262,815 291,934,602,270 Mudaraba Saving Deposits 183,128,708,639 156,072,977,380 151,012,262,458 132,051,082,776 111,143,631,482 Mudaraba Term Deposits 170,175,086,856 131,412,377,473 97,278,542,378 65,167,293,216 51,156,122,735 Other Mudabara Deposits 149,346,325,824 129,401,794,243 117,807,137,348 103,114,794,140 91,159,942,987 Al-Wadeeah Current and Other Deposits Accounts 54,396,285,416 52,124,147,978 47,531,708,061 38,658,697,588 35,494,295,530 Bills Payable 3,649,894,101 4,129,657,957 4,216,038,334 2,863,395,095 2,980,609,536 Mudaraba Perpetual Bond 3,000,000,000 3,000,000,000 3,000,000,000 3,000,000,000 3,000,000,000 Other Liabities 34,052,027,094 27,133,860,568 21,903,809,274 16,713,922,449 11,994,329,252 Deffered Tax Liabilities 403,397,747 194,134,041 238,628,851 192,664,063 162,930,992 Total Liabilities 605,809,226,420 503,468,949,640 442,988,126,704 361,761,849,327 307,091,862,514

Capital/Share-Holders Equity 46,612,812,331 43,760,681,314 39,661,364,763 27,613,754,893 23,494,255,762 Paid-up Capital 16,099,906,680 14,636,278,800 12,509,640,000 10,007,712,000 7,413,120,000 Statutory Reserve 16,099,906,680 14,638,613,627 12,423,662,342 10,004,426,808 7,934,963,742 Other Reserves 11,998,012,969 11,851,258,703 11,694,797,161 4,585,606,725 5,551,580,020 Retained Earnings (Proposed Dividend) 2,414,986,002 2,634,530,184 3,033,205,973 3,015,952,005 2,594,592,000 Non-Controlling interest 59,287 57,335 Total Liabilities & Shareholders' Equity 652,422,038,751 547,229,630,954 482,649,491,467 389,375,604,220 330,586,118,276

Off-Balance Sheet Items

Contongent LiabilitiesAcdceptance & Endorsement - - - - - Letter of Guarantee 8,839,985,590 7,354,594,651 7,297,485,550 7,302,242,465 6,427,914,687 Irrevocable Letters of Credit (Including Back to Back Bills) 99,102,373,685 83,946,725,635 87,161,261,558 86,901,920,097 87,256,102,042 Bills for Collection 4,853,286,313 22,390,676,317 15,571,833,223 17,727,239,489 18,846,365,012 Other Contingent Liabilities 23,581,701 23,581,701 13,600,712 1,489,529,264 568,291,636 Total 112,819,227,289 113,715,578,304 110,044,181,043 113,420,931,315 113,098,673,377

Other CommitmentsDocumentary Credits and short Term Trade Related Transactions - - - - - Forward Assets Purchased And Forward Deposits Placed - - - - - Undrawn Note Issurance and Revolving Underwriting Facilities - - - - - Undrawn Format Standby Facilities,Credit Lines and Other Commitments - - - - - Total - - - - -

Total Off-Balance Sheet Items Including Contingent Liabilities 112,819,227,289 113,715,578,304 110,044,181,043 113,420,931,315 113,098,673,377

3.1. Balance sheet:

Property and Assets:

We can see that cash is increasing from 2010 to 2014 rapidly. Increasing cash is good for a company. Growth rate from 2012 to 2013 is 15% and 2013 to 2014 is 8.9%. But growth rate is decreasing.

20102011201220132014 34,000,000,000

36,000,000,000

38,000,000,000

40,000,000,000

42,000,000,000

44,000,000,000

46,000,000,000

48,000,000,000

Cash In Hand

Cash In Hand

We can see that cash is increasing from 2010 to 2014 rapidly. Increasing cash is good for a company. Growth rate from 2012 to 2013 is 15% and 2013 to 2014 is 8.9%. But growth rate is decreasing.

20102011201220132014 -

5,000,000,000

10,000,000,000

15,000,000,000

20,000,000,000

25,000,000,000

30,000,000,000

Balance With Oher Banks & Financial Institutions

Balance With Oher Banks & Financial In-stitutions

Here we can see that from 2010 to 2011 it increases little. But after that it is increasing rapidly. So it upward so it is a good sign for a bank. From 2013 to 2014 balance with other banks and financial institution assets increased by 48.9% and increase rate from 2012 to 2013 is 54.4% and from 2011 to 2012 is 59.6%.

20102011201220132014 -

20,000,000,000

40,000,000,000

60,000,000,000

80,000,000,000

100,000,000,000

120,000,000,000

Investment in shares & securities

Investment in shares & securities

We can see here the investment has increased a lot on 2014.

20102011201220132014 -

50,000,000,000 100,000,000,000 150,000,000,000 200,000,000,000 250,000,000,000 300,000,000,000 350,000,000,000 400,000,000,000 450,000,000,000 500,000,000,000

Investments

Investments

We can see that the investment has continuously increased.

2010

2011

2012

2013

2014

-

100,000,000,000

200,000,000,000

300,000,000,000

400,000,000,000

500,000,000,000

600,000,000,000

700,000,000,000

Total Proparty and Assets

Total Proparty and Assets

We can see that the total property and assets have increased.

2010

2011

2012

2013

2014

-

100,000,000,000

200,000,000,000

300,000,000,000

400,000,000,000

500,000,000,000

600,000,000,000

Deposits& Other Accounts

Deposits& Other Accounts

2010

2011

2012

2013

2014

- 100,000,000,000 200,000,000,000 300,000,000,000 400,000,000,000 500,000,000,000 600,000,000,000 700,000,000,000

Total Liabilities & Shareholders' Equity

Total Liabilities & Shareholders' Equity

Liability has also increased.

Income Statement:

Year 2014 2013 2012 2011 2010Operating incomeInvestment income 49,109,956,379 48,145,464,380 43,672,225,981 32,019,532,444 24,766,264,960

Proit paid on mudaraba deposits (30,650,270,621) (30,975,185,536) (25,870,425,237) (18,401,218,085) (14,471,890,918)

Net investment income 18,459,685,758 17,170,278,844 17,801,800,744 13,618,314,359 10,294,374,042

Income from investments in shares & securities

1,900,248,402 2,047,514,660 431,970,748 289,370,090 458,157,163

Commission, exchange & brokerage income 5,870,373,508 4,993,729,383 5,249,699,981 5,284,102,499 3,982,778,565

Other operating income 1,166,448,971 931,638,616 991,873,131 808,291,910 921,704,256

Total operating income 27,396,756,639 251,743,161,503 24,475,344,604 20,000,078,858 15,657,014,026

Operating expensesSalary & allowances 8,183,199,841 7,538,859,361 5,951,305,071 4,646,993,224 4,285,461,029

Rent, taxes, insurances, electricity etc. 996,139,867 822,139,328 652,494,766 503,637,923 416,787,433

Legal expenses 16,206,043 35,067,030 13,479,293 15,257,288 12,793,807

Postage, stamps and telecommunication etc.

47,130,710 44,343,667 111,417,653 94,161,200 85,909,537

Stationery, printing and advertisement etc. 317,409,591 329,947,366 267,547,822 198,119,152 148,458,980

Chief executive’s salary & fees 8,400,000 7,323,548 5,280,000 5,280,000 5,280,000

Directors’ fees & expenses 12,787,017 11,587,834 10,066,840 9,254,986 9,648,845

Shari’ah supervisory committee’s fees & expenses

2,562,124 1,401,423 2,584,829 2,749,283 1,813,569

Auditors’ fees 2,229,118 2,070,000 2,070,000 1,567,500 1,150,000

Charges on investment losses - - - - -

Depreciation and repair to bank’s assets 862,001,406 725,713,644 500,228,968 407,057,924 350,132,416

Zakat expenses 425,985,241 385,750,934 324,772,772 262,929,404 220,643,761

Other expenses 1,200,083,831 1,134,942,662 1,025,852,252 1,121,440,847 549,239,579

Total operating expenses 12,074,134,789 11,039,146,797 8,867,100,266 7,268,448,731 6,087,318,956

Profit/ (loss) before provision 15,322,621,850 14,104,014,706 15,608,244,338 12,731,630,127 9,569,695,070

Provision for investments & off- balance sheet exposures

4,670,784,729 3,015,633,502 3,502,625,602 2,384,314,796 1,082,989,130

Provision for diminution in value of investments in shares

3,074,883 423,778 - - -

Other provisions 117,049,502 13,201,000 9,441,066 - 32,000,000

Total provision 4,790,909,114 3,029,258,280 3,512,066,668 2,384,314,796 1,114,989,130

Total proit/(loss) before taxes 10,531,712,736 11,074,756,426 12,096,177,670 10,347,315,331 8,454,705,940

Provision for taxation for the period

Current tax 6,323,390,422 6,145,665,449 6,525,837,929 5,476,469,040 3,994,262,716

Deferred tax 209,263,706 (44,096,951) 45,900,000 29,400,000 (3,028,685)

Net proit/ (loss) after tax 3,999,058,608 4,973,187,928 5,524,439,741 4,841,446,291 4,463,471,909

Retained earnings from previous year

2,634,530,180 3,152,246,877 - -

Add: Net proit after tax (attributable to equity holders of IBBL)

3,999,588,792 4,973,187,928 5,524,439,741 4,841,446,291 4,463,471,909

Proit available for appropriation 6,633,588,792 8,125,434,805 5,524,439,741 4,841,446,291 4,463,471,909

Appropriation : 6,633,588,792 8,125,434,805 5,524,439,741 4,841,446,291 4,463,471,909

Statitory Reserve 1,461,293,053 2,214,951,285 2,419,235,534 2,069,463,066 1,690,941,188

General Reserve 122,779,553 148,543,336 (22,205,793) (430,484,615) 177,938,721

Retained Eatnings (Proposed Dividend) 2,414,986,002 2,634,530,184 3,127,410,000 3,202,467,840 2,594,592,000

Earning Per share(EPS) 2.48 3.40 3.65 3.87 4.46

4. ConclusionsElectronic banking is relatively a new concept for Bangladesh. It is not long ago when people wait in queue for long time with token in hand and collects money. But today the scenario is a little different at least in the urban areas. With the blessing of modern banking facility, people can enjoy 24 hours banking facility without going to the bank physically even from client’s residence through Internet Banking or through ATM, POS terminals. At the same we need to be very careful about the fraud. Although online banking fraud in large scale is yet to be reported in Bangladesh we need to take all the necessary measures to prevent it. This can be done through proper education on information technology & sufficient software & hardware support. Proper implementation of online banking will create a positive impact on economy. Islami Bank Bangladesh Limited is the leader in the Electronic banking among the private banks of Bangladesh. It has employed almost all types of modern day banking facilities to provide convenience to its customers. All automated delivery channels are providing round the clock service through the mentioned hardware and software. Due to its contribution to the society as well as national economy, it has made a clear distinction and has occupied a separate and respected position in the banking sector of Bangladesh. Expanding its business arena and volume, it has also accelerated its contribution to the underprivileged of the society. IBBL contributes 5% of its profit for helping the destitute to develop their standard of living and earn a respectable way to keep up with their everyday activity. Considering the issues discussed earlier we may conclude that the Dutch-Bangla Bank Ltd. is not only a profit making organization, it is also a perfect “Corporate Citizen” who always carry out its duties of corporate social responsibilities.   As banking sector is service oriented, therefore, banks of Bangladesh must move towards fully online banking. This will enable them to provide round the clock services through all the service channels without deployment of much manpower thus saving time & money and most important of all ensuring transaction security.I think IBBL plays an important role for the economic growth of the country by providing its banking services through over the counter and the on-line services. It seems to me that in IBBL, there is a sufficient opportunity to gain the practical knowledge about the Electronic Banking Activities.

5. RecommendationsTo improve the banking services of IBBL, I have the following suggestions for the bank-IBBL should provide adequate training and technological support to develop the manpower or personnel working in the e-banking section.IBBL should have a strong strategic plan for automated market development.The bank should develop integrated e-banking software within a short period of time. Because I think excess load will be the cause of a big damage for the existing software. A specialized, self-owned organization can be established by the bank so that they can develop the infrastructure of e-banking in Bangladesh that will also be the social responsibility for them. A standard carrier design needs to be formed for the computer experts within the bank so that they do not feel interest to go abroad for lucrative financial offer.

Clearing house operations are demanded to be fully automated. If it could be implemented, then banks will be motivated to implement in front services counter of electronic bank.To meet the demand of current and prospective clients, banking software to be produced in such that the coordinated effort can supply all information from the front desk.The bank requires systemic and planned budget for expanding e-banking.To provide the nationwide & countrywide services, the bank should expand the number of branches of ATM booth at zonal level so that the most of the people of the country can get the benefit, which live in zonal level, rural level.To take initiative for implementing automated financial sector by coordinate effort of the central bank along with the commercial bank.Credit card services should be implemented rapidly. And the restriction for getting the credit card should reduce.Sometimes I found that the top level officers were so much lazy to do their work, this is a great problem for the officers because without his authorization any transaction will not be completed. If they take much time then the total procedure will be delayed, because the online system is a one channel and step by step procedure. So the lop level managers should have very much conscious about their task.

Reference

Dhaka Stock Exchange Islami Bank Bangladesh Limited