Financial Analysis of Islami Bank Bangladesh Limited from 2010-2014

Financial Analysis of Islami Bank Bangladesh Limited

Course Name: Financial Institutions and Markets

Course title: FNB 209

Submitted to:

Dr. Sheikh Abu Taher

Course Instructor,

Financial Institutions and Markets (FNB 209)

Department of Finance & Banking

Jahangirnagar University, Savar, Dhaka

Submitted By:

S. B. Nadim

Student ID 1602

B.B.A Program 5th Batch

Department 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 & Banking

Jahangirnagar University Savar, Dhaka.

06 April 2016

Dr. Sheikh Abu Taher

Chairman

Department of Finance & Banking

Jahangirnagar University

Savar, 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.Nadim

Student 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.Nadim

Student ID 1602

Table of Contents:

Topic / Page no
Executive Summary
1.Introduction / 01
1.1.Origin of the report / 01
1.2.Research questions, objectives & scopes of the report / 01
1.3.Literature review / 01
1.4.Research methodology / 02
1.5.Limitations / 02
2.Overview of IBBL / 02
2.1.Mission / 02
2.2.Vision / 03
2.3.Core objectives / 03
3.Financial Analysis of IBBL / 03
3.1.Balance sheet / 03
3.2.Income statement / 10
3.3.Ratio Analysis
4.Conclusion / 13
5.Recommendation / 13
6.Appended Parts / 15
6.1.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 offinancial markets. Broadly speaking, there are three major types of financial institutions.

Depositary institutions –deposit-taking institutions that accept and manage deposits and makeloans, includingbanks,building societies,credit unions,trust companies, andmortgage loancompanies;

1. Contractual institutions –insurance companiesandpension 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 Review
Economy 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 Bangladesh
Establishment 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 3rdsummit 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. Vision

The 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 Objectives

IBBL 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)

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.

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%.

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

We can see that the investment has continuously increased.

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

Liability has also increased.

Income Statement:

4. Conclusions

Electronic 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.